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Annual
Report
****

* •»*
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

jfetter of Transtnittal

BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Washington, June 16, 1976

THE SPEAKER OF
THE HOUSE OF REPRESENTATIVES.

Pursuant to the requirements of Section 10 of the Federal Reserve
Act, as amended, I have the honor to submit the Sixty-Second Annual
Report of the Board of Governors of the Federal Reserve System.
This report covers operations of the Board during the calendar year
1975.
Yours respectfully,
Arthur F. Burns, Chairman

Contents
Part 1—Monetary Policy and the
U.S. Economy in 1975
3

INTRODUCTION

10 COURSE OF ECONOMIC ACTIVITY
11
Nature of the recession
13
The upturn
15
Tax Reduction Act of 1975
16
Continuing recovery
17
Economic developments by sector
30 LABOR MARKET DEVELOPMENTS
30
Employment: Contraction and revival
32
Unemployment and labor force
33
Wages and collective bargaining
34
Costs
35 PRICE MOVEMENTS
36
Sources of price deceleration
37
Consumer price patterns in 1975
39
Price patterns at wholesale
41
Areas of continuing concern
43 MONETARY POLICY AND FINANCIAL MARKETS
51
Money and credit aggregates
57
Aggregate flows of funds
67 INTERNATIONAL DEVELOPMENTS
68
Current-account transactions
71
International capital markets and exchange rates
75
Looking ahead
75
International monetary negotiations
77
Letter on restrictive foreign trade practices
81 OFFICIAL STATEMENTS ON GROWTH TARGETS
FOR MONETARY AGGREGATES
81
Statements before Committees on Banking, Housing, and
Urban Affairs
113
H. Con. Res. 133, 94th Congress, 1st Session

Part 2—Records, Operations,
and Organization
117

RECORD OF POLICY ACTIONS—BOARD OF GOVERNORS

155

RECORD OF POLICY ACTIONS—FEDERAL OPEN MARKET
COMMITTEE

251

FEDERAL RESERVE OPERATIONS IN FOREIGN
CURRENCIES

253
253
254
254
254
255
256

260

LEGISLATION ENACTED
Securities Acts amendments of 1975
Purchase of Government obligations by Federal Reserve Banks
Revenue Adjustment Act of 1975
Tax Reduction Act of 1975
Real Estate Settlement Procedures Act amendments
Flexible regulation of interest rates and disclosure of home
mortgage data
New York City Seasonal Financing Act of 1975
Emergency Housing Act of 1975
Second Liberty Bond Act amendments
Council on Wage and Price Stability Act amendments of 1975
Emergency Petroleum Allocation Act amendments
Federal savings and loan associations as custodians of individual retirement accounts
Defense Production Act amendments
Sherman Antitrust Act and Federal Trade Commission Act
amendments
Congressional resolutions

262
264
266

BANKING REFORM
Banking problems surfaced
Communications to banks regarding supervisory matters

270
270
275
277

LEGISLATIVE RECOMMENDATIONS
Banking supervision and regulation
Monetary policy
Consumer affairs

283
283
284
293

LITIGATION
Bank holding companies—Antitrust action
—Review of Board actions
Other litigation involving challenges to Board procedures and
regulations

257
258
259
259
259
259
260
260

297
297
298
301
301
303
303
305
305
306

BANK SUPERVISION AND REGULATION BY THE
FEDERAL RESERVE SYSTEM
Bank holding companies
Examination of member banks
Federal Reserve membership
Bank mergers
Foreign branches of member banks
Foreign banking and financing corporations
Other foreign applications processed
Actions under delegation of authority
Bank Examination Schools

307
307
324
329
335

CONSUMER AFFAIRS
Introduction and summary
Equal Credit Opportunity
Federal Trade Commission Improvement Act
Truth in Lending

350

SECURITIES ACTS AMENDMENTS OF 1975

351 FEDERAL RESERVE BANKS
351
Payments mechanism developments
352
Examination
352
Earnings and expenses
354
Holdings of loans and securities
354
Volume and cost of operations
355
Loan guarantees for defense production
356
Foreign accounts
356
Federal Reserve bank premises
357
357
364
366
370
372
372
374

BOARD OF GOVERNORS
Income and expenses
STATISTICAL TABLES
1. Detailed statement of condition of all Federal Reserve
Banks combined, Dec. 31, 1975
2. Statement of condition of each Federal Reserve Bank,
Dec. 31, 1975 and 1974
3. Federal Reserve Bank holdings of U.S. Government
and Federal agency securities, Dec. 31, 1973-75
4. Federal Reserve Bank holdings of special short-term
Treasury certificates purchased directly from the United
States, 1970-75
5.. Open market transactions of the Federal Reserve System
during 1975
6. Earnings and expenses of Federal Reserve Banks during
1975

376
378
379
380

381
381
382
384
385
386
387
388
392
394
396

STATISTICAL TABLES—Continued
7. Earnings and expenses of Federal Reserve Banks, 1914-75
8. Bank premises of Federal Reserve Banks and branches,
Dec. 31, 1975
9. Volume of operations in principal departments of Federal Reserve Banks, 1972-75
10. Principal operations of Federal Reserve Banks, including
total expenses, average number of employees, and ratio
of total expense for each operation to total expenses,
1972-75
11. Number and salaries of officers and employees of Federal Reserve Banks, Dec. 31, 1975
12. Federal Reserve Bank interest rates, Dec. 31, 1975
13. Member bank reserve requirements
14. Maximum interest rates payable on time and savings
deposits
15. Margin requirements
16. Fees and rates under Regulation V on loans guaranteed
pursuant to Defense Production Act of 1950, Dec. 31,
1975
17. Principal assets and liabilities, and number of commercial
and mutual savings banks, by class of bank, Dec. 31,
1975 and 1974
18. Member bank reserves, Federal Reserve Bank credit, and
related items—end of year 1918-75 and end of month
1975
19. Changes in number of banking offices in the United
States during 1975
20. Number of par and nonpar banking offices, Dec. 31,1975
21. Description of each merger, consolidation, acquisition of
assets or assumption of liabilities approved by the Board
of Governors during 1975

411

MAP OF FEDERAL RESERVE SYSTEM—DISTRICTS

414
416
417
418

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

443

INDEX

"Part 1
cMonetaryJ^olicy
and the
Economy

in 1975

Introduction
In 1975 the economy began to recover from the longest and deepest
recession of the post-World-War-II period. The precise timing of the
turnaround in general business activity has yet to be designated, but
an upturn clearly was under way by late spring. The level of employment reached its cyclical trough in March and then began to rise;
for new housing starts the low point occurred a month earlier and for
industrial production a month later. During the second quarter the
gross national product (GNP) in constant dollars registered its first
increase since the final quarter of 1973.
Once under way, the upswing in activity proved to be of about
average dimensions for cyclical recoveries over the period since the
Korean war. In the last three quarters of 1975 real GNP rose at an
average annual rate of nearly 7 per cent—about comparable to
the average rise in the first three quarters of the four previous cyclical
recoveries. And in the 8 months from April to December industrial
output advanced at an annual rate of almost 11.5 per cent, as compared with an average of 12.5 per cent in the same period of the
earlier recoveries.
As production advanced, the demand for labor strengthened
materially. By year-end, total employment had risen by 1.3 million
from its March trough; the length of the workweek in manufacturing
had moved up 1 Vi hours from its cyclical low; and the rate of layoffs in manufacturing industries was down to about the level of late
1973, while the rate of new hires had recovered appreciably.
The unemployment rate initially showed somewhat more downward
resistance than is typical for the early stages of a cyclical recovery—declining only about one-half a percentage point by year-end from its peak
in the second quarter. Growth in the civilian labor force continued
to be fairly rapid in the latter half of 1975, as it had been throughout
the recession. With real incomes and savings significantly eroded by
the effects of inflation, family efforts to maintain and improve their
living standards contributed to the sustained growth in the number
of persons seeking jobs.
A substantial factor in the turnaround of business activity from
steep recession to vigorous recovery was the pattern of interaction

Indicators of economic performance
Percentage change
Real GNP
10

+
0

10
Percentage change
Fixed-weignted price index
Gross business product

0
Ratio
.28

Inventories/final sales

.26

.24

Percentage change
- 20
J

Unit labor costs

Per cent
Unemployment rate

1972

1973

1974

1975

Change (from previous quarter) in real GNP (1972 dollars), Dept. of Commerce data at
seasonally adjusted annual rates.
Change (from previous quarter) in gross domestic business product fixed-weighted price
index, Dept. of Commerce data at seasonally adjusted annual rates.
Ratio of real nonfarm business inventories to final sales, Dept. of Commerce data,
seasonally adjusted. End of period stocks/sales at annual rates.
Change (from previous quarter) in private nonfarm unit labor costs. Dept. of Labor data
at seasonally adjusted annual rates.
Unemployment rate, Dept. of Labor data.

between Inventory investment and final sales. Consumer spending
began to strengthen early in 1975—partly in response to- price concessions and manufacturers' rebates—and it was further bolstered in
the late spring by tax rebate checks and special social insurance disbursements. As a consequence, efforts of business firms to clear their
shelves of excess stocks were remarkably successful. In the second
quarter the pace of inventory liquidation was the deepest, relative to
GNP, of any quarter in, the postwar period, and inventory/sales ratios
declined rapidly—setting the stage for a strong rebound in production in the third quarter.
The strengthening of final sales that had begun to- develop early
in 1975 was not confined to consumer markets, however. In real
terms, purchases of goods and services by State and local governments, although growing at a slower rate than in earlier years, continued to advance throughout 1975. Housing starts began to rise
appreciably after April and continued to increase during the
remainder of the year. By December the physical volume of residential
construction activity was up one-fourth from its spring trough. As is
typical of the early stages of a cyclical upswing, the recovery of business fixed investment outlays lagged behind the turnaround of spending in other sectors. By the fourth quarter, however, even this sector
had registered some modest improvement in real terms.
A factor tending to cushion the severity of the recession was the
strong U.S. performance in foreign trade. Even though the 1975
setback in economic activity was worldwide, the yearly volume of
U. S. exports declined only 3 per cent, and exports of capital goods
held up well. On the other hand, the volume of imports dropped
sharply—by 12,5 per cent—as demand in the United States weakened
and inventories were liquidated. As a result, the U.S. trade balance
rebounded from a deficit of $5 billion in 1974 to a surplus of $9
billion in 1975, Net transactions on services, including income on
foreign investments, were down somewhat from the record total in
1974, but they also remained high by historical standards.
Full recovery from a recession as deep as that of 1974-75 is
bound to take some time. Substantial further gains in real output
will be needed in-1976 and beyond to provide employment not only
for the large number of unemployed persons who are still looking for
jobs but also for an expanding labor force, and-to-restore utilization

of the Nation's Industrial plant to a satisfactory rate. Public policy
in.. 1976 will need to- keep this objective clearly-in mind.-Yet thestrength of the recovery in 1976 may well depend more on the dynamics of the business cycle than on any important new stimulus -to
be provided by public policy.
It was-heartening therefore to note that as 1975 drew to a close conditions in the economy appeared very favorable to continued expansion. Inventory/sales ratios in many lines were at or near historic
lows, and final sales remained strong following an unusually big
upsurge'in'consumer buying'over the Christmas season. "Conditions
in financial markets remained supportive of expansion. Thus, by early
1976; interest rates had moved down to their lowest levels in"about
3 years; savings inflows to the specialized mortgage lenders remained
strong;' and' stock prices staged a spirited recovery. Most importantly,
these and other signs indicated a rebuilding of confidence among
consumers' and business firms in the prospects for a sustained economic expansion.
Bolstering that confidence must be another important objective of
public policy during 1976. This will require continued progress in
the Nation's struggle to free itself from the grip of inflation. Substantial headway has been made toward that objective since the end
of 1974. In 1975 the rise of consumer prices moderated to 7 per
cent—from 12 per cent in the prior year. For wholesale prices the
improvement was even more dramatic; these prices increased on the
average by only 4 per cent in 1975, compared with. 21 per .cent in
1974, The statistics on consumer and wholesale prices, however,
reflect in part the relative absence in 1975 of the influence of
several factors that had boosted prices in the prior year—such as the
ending of price controls, the unprecedented upsurge in energy.prices,
and' the sharp rise in prices of food. Hence they tend to exaggerate
the...degree.of improvement that was made in reducing-the underlying rate of inflation.
Further-significant progress during 1976 in winding down the rate
of price increase may be difficult to achieve if economic activity continues to expand substantially, as is widely expected. The substantial
improvement in price performance in late 1975 and the early months
of 1976—which was paced by declines in prices of foods -and fuels—
may prove to be temporary. In fact, during the latter half of 1975, there

was some worsening in the inflation picture. For example, wholesale
prices of industrial commodities rose at an annual rate of 8.7 per cent
in the latter half of the year, compared with 3.4 per cent in the first
half. For consumer prices, however, the evidence was mixed. The index
for -all consumer prices increased a little faster on the average in the
second half of 1975 (7.5 per cent, annual rate) than in the irst half
(6.6 per cent, annual rate). For consumer nonfood commodities, on the
other hand, the rate of rise decelerated—from -a 6.6 per cent annual
rate in the Irst half to' a 5.6 per cent annual rate in the second.
For wage rates the evidence is also difficult to interpret. The index
of average hourly earnings accelerated in the third quarter, dee in part
to some relatively large contract settlements in, that period. Even so,
the rate of rise in average wages was not 'appreciably higher in the
second half of 1975 than in the first half—and was well below the
peak rates of advance recorded in 1974. In -any event, the rise in
average wages in 1975—around 8 per cent—exceeds by a wide margin
the long-term trend rate of improvement in productivity, which is in the
neighborhood of 2.5 per cent per year. The long-term trend in production costs and prices is thus still strongly upward, «and it remains a
serious problem for economic stabilization policy.
The course of monetary policy in 1975 had to take account of
the urgent need to make further progress in dampening inflation, but
it also had to ensure that conditions in money and credit markets
would contribute to a good recovery in economic activity, and to the
rebuilding of liquidity needed to sustain economic expansion. The
middle ground sought by the monetary authorities led over the course
of the year to generally easier credit market conditions, lower interest
rates, and a substantial rebuilding of liquidity positions.
While the narrowly defined money stock, Mx (currency and demand deposits), expanded at a relatively moderate 4.5 per cent rate
from the fourth quarter of 1974 to the fourth quarter of 1975, the
broader measures of money showed more substantial growth. M2
—which includes time and savings deposits other than large-denomination certificates of deposit (CD's) at commercial banks, in addition
to currency and demand deposits—rose by 8 per cent, and M3—which
also includes deposits at thrift institutions—rose by 11 per cent.
On the basis of historical relationships, one might have expected
that the moderate 4.5 per cent rate of growth in Mt during 1975,

Growth in monetary aggregates
Per cent

I
.III
| 1974

1975 |
| 1974
1975 |
Mi
M2
For definitions and notes, see Table 6 on page 53.

1974

1975
M3

occurring in the context of a 9 per cent increase in nominal GNP,
would have been accompanied by sharp increases in interest rates,
particularly short-term interest rates. Yet in the latter half of the
year, when nominal GNP increased at an annual rate of 15 per cent
and the narrow money stock at only 5 per cent, interest rates did not
rise at all. On the contrary, interest rates declined on balance over
the second half of 1975, and by early 1976 both long- and short-term
interest rates were below their levels of late 1974. Thus, even
with large increases in aggregate spending, relatively moderate
monetary growth was associated with an easing of credit conditions.
This changed relationship between money and GNP appears to
reflect an important structural shift under way since mid-1974 that
affects the amount of cash balances needed to support any given
level of economic activity. These changes have probably resulted, in
part, from public responses to the record levels of interest rates that
prevailed in the spring and summer of 1974, and in part from
recent financial innovations—including the spread of overdraft
privileges extended by banks to demand deposit customers, the
growth of NOW accounts (negotiable orders of withdrawal), telephonic transfers of funds from savings accounts to demand deposits,
arrangements for making payments to third parties from savings accounts, and shifts of funds from demand deposits to savings accounts
by governmental units (beginning in late 1974) and by business firms
(authorized for the first time in the fall of 1975).

Interest rates
Per cent per annum
12

New issue
U.S. Govt. bonds

1974
1975
'76
1974
1975
'76
Monthly averages. U.S. Treasury bills, market yields on 3-month issues; U.S. Govt.
bonds, market yields adjusted to a 20-year constant maturity by U.S. Treasury; Aaa utility
bonds, weighted averages of new publicly offered bonds rated Aaa, Aa, and A by Moody's
Investors Service and adjusted to an Aaa basis; prime commercial paper, dealer offering
rates.

How long this shift in the public's demand for cash balances will
continue remains to be seen. Clearly, increases in the income velocity
of money as large as those that occurred in the latter half of 1975
cannot be counted on as a long-run matter. Nevertheless, there is
little reason to expect that the innovational process that has been
set in motion in recent years will end abruptly. As in 1975, monetary policy in 1976 will therefore need to be especially alert to signs
of change in the rate of change in the relationship between the growth
of money balances and the growth of aggregate demand. This would
seem to mean, among other things, that greater emphasis will need
to be placed on encouraging growth rates in the broader monetary
aggregates that appear consistent with sustainable expansion in the
Nation's economy.

Course of Economic Activity
In the spring of 1975 the economy began to recover from the deepest
and most protracted of the six recessions since World War II. Real
GNP rose modestly in the second quarter, led by a recovery in consumer purchases. During the summer it rose with increasing vigor
as inventory liquidation moderated and consumer outlays responded
to the massive fiscal stimulus provided by the Tax Reduction Act
of 1975. In the fourth quarter the pace of the recovery slowed considerably as the initial thrust from the inventory adjustment process
waned.
By the end of the year real GNP had risen 5 per cent above its
first-quarter low. But because of the sharpness of the earlier contraction, real output was still some 2 per cent short of its 1973 high and
much below the economy's potential capacity. Similarly, industrial
production at the year-end was still 6 per cent below its previous
high. By January 1976 the unemployment rate had declined by more
than 1 percentage point from its 1975 spring peak, but 7.3 million
persons, representing 7.8 per cent of the labor force, remained unemployed. Clearly the recovery had a considerable way to go to attain satisfactory levels of employment and capital utilization.
1. Gross national product
GNP measure

1973

1974

1975 i

1975
Ql

1,528
1,201

1,573
1,216

In billions of dollars
1,306
1,233

Current dollars
1972 dollars

1,407
1,211

1,499
1,186

1,434
1,159

1,461
1,168

Percentage change from preceding period
Current dollars
1972 dollars

. .

Implicit deflator
1

11.5
5.3

7.7
-1.8

6.5
-2.0

-2.1
-9.2

7.7
3.3

19.9
12.0

12.1
5.0

5.9

9.7

8.8

7.8

4.3

7.1

6.8

Quarterly data are at seasonally adjusted annual rates.

NOTE.—Dept. of Commerce data.

There was also a need to reduce the still high rate of inflation. In
late 1975 price indexes were advancing at an annual rate of around
7 per cent. This was far below the 12 per cent rate of a year earlier,
but still unsatisfactory from the standpoint of equity, economic performance, and consumer and business confidence.
NATURE OF T H E RECESSION
Many aspects of the economic upturn in 1975 had been shaped by
the recession that preceded it. The economic downturn that began
in late 1973 developed rather slowly at first, as a high rate of inventory accumulation continued despite a steady weakening in final
sales. The contraction steepened in the last quarter of 1974 when
real consumer purchases dropped abruptly and businesses—becoming
fully aware of the weakness of final demands—began to cut orders
sharply. Industrial production fell 12.5 per cent from September
1974 to April 1975. The cutback of economic activity was manifested in a major increase in unemployment from 5.6 per cent
of the labor force in the third quarter of 1974 to 8.9 per cent in
May 1975.
While many developments were involved in this broad-based economic setback, the extraordinary inflation of 1973-74 was a fundamental factor. For the consumer sector, the price inflation led to
increased uncertainty about the ability to meet spending commitments
and to a reluctance to undertake discretionary purchases. Strongly
reinforcing this tendency was a deterioration in the real wealth positions of consumers as the purchasing power of fixed-dollar-value
assets and stock market holdings dropped sharply. While there were
partially offsetting increases in the value of real estate, it is unlikely
that such capital gains, which are usually unrealized, have so prompt
an influence on spending decisions as changes in the real value of
liquid financial asset holdings.
In addition to the reduced value of dollar assets, real consumer
incomes shrank after 1973 as disposable income failed to keep pace
with price increases. One major factor that caused growth of purchasing power to lag was the quadrupled prices for foreign oil, which
had the effect of transferring income to foreign recipients. Another
was rapidly rising effective tax rates, as increases in nominal incomes
pushed consumers into higher tax brackets and diluted the value of
their tax exemptions and deductions.

The position of new borrowers also became much more difficult
in the environment of inflation, as nominal interest rates rose to
unprecedented heights. This accentuated problems of cash flow and
impeded credit extensions to areas such as home mortgages that are
affected by interest rate ceilings.
Although businesses at first did not cut back their spending in
reaction to inflation, the eventual decline in capital spending and in
inventories was particularly sharp. One effect of the intense price
increases in 1973-74 was to mask the underlying weakness in sales
and profits. Reported profits were inflated because inventories were
being sold at prices that exceeded original acquisition costs and because
capital was being depreciated on the basis of lower original cost rather
than the higher, current replacement cost. But these profits were not
available to firms because they were being used to replenish inventories
and equipment; and in addition, funds were needed to pay the taxes
due on these profits.
These illusory accounting profits, combined with inflationary expectations and fears of shortages—whether the result of price controls
or other developments—led to a predisposition for intensive stockpiling of commodities. As a result, by the summer of 1974 the ratio

GNP and final sales
Billions of 1972 dollars
1,240

1,200

1,160

1972
1973
1974
1975
Dept. of Commerce data at seasonally adjusted annual rates.

of inventories to sales had risen to the highest point for any business
cycle expansion since 1957.
In the fall of 1974, however, when real final sales dropped sharply,
businesses abruptly reduced their inventory targets. Despite big cuts
in orders and production during the fourth quarter, final sales dropped
even more swiftly than shipments, and inventories soared. This
caused further cutbacks in orders and led during the first half of
1975 to the largest inventory liquidation, relative to GNP, since
the 1940's.
THE UPTURN
The economic upturn in 1975 was set in motion by a recovery in final
sales and by progress in removing imbalances between production
and sales as the inventory cycle proceeded. Various developments
encouraged the recovery of final sales in the second quarter, and
these in turn affected inventory policies. Of major importance to the
improvement in consumer outlays was the decline in rates of inflation
during the winter of 1975 in conjunction with gains in income.
During this period consumers reacted quickly to price concessions
on a number of products, particularly to the price rebates offered by
auto manufacturers in late January. As a result, consumer purchases
rose strongly.
Monetary policy also helped to set the stage for an upturn, by
creating conditions in which both thefinancialand nonfinancial sectors
could improve their liquidity positions. The easier credit conditions that
resulted began to affect the housing market, for example, even while
recessionary forces were still spreading. New mortgage loan commitments at savings and loan associations turned up in November 1974.
By early 1975, sales of new and existing single-family homes were also
increasing, and the backlog of unsold new homes had started to decline.
During the spring, sales of new homes increased further as the temporary tax credit for unsold new homes went into effect. Residential
building activity also began its recovery at that time, albeit from a
very low level.
Fiscal policy likewise had a positive influence even before passage
of the Tax Reduction Act in late March. Apart from the cyclical
downward response in tax liabilities, there was a quick expansion in

Income-maintenance payments—such as regular and newly expanded
unemployment insurance coverage and food stamp programs—as
well as in grants to- State and local governments for public service
employment and for aid to families with dependent children.
These programs increased incomes by about $12 billion (measured
at annual rates in constant dollars) between the third quarter of
1974 and the second quarter of 1975—a period in which real GNP
was declining by more than $40 billion. These figures indicate that
income-maintenance programs played a stronger role in cushioning
the downward momentum of consumption during the recent recession
than-in the-1957-58 recession. At that time income • offsets from
similar Federal payments were smaller, in part because some of the
programs now operative—such as food stamps—had not been developed.
The move to recovery also gained support because exports declined
only moderately while domestic inventory liquidation was sharply
curtailing U.S. imports, U.S. merchandise exports were... especially
strong in two areas—agricultural products, because of foreign grain
shortages, and capital equipment^ because of the improvement of
our competitive position, in world markets, reflecting in part previous
devaluations in the relative foreign exchange value of the dollar.
Improvement in important areas of final demands hastened the
end of the massive liquidation of nonfarm business inventories that
had characterized the early months of 1975. Such liquidation reached
Its deepest point—a $30 billion annual rate—in the second quarter.
Then in the third and fourth quarters it proceeded at a much reduced
rate of $6 billion to $7 billion.
In general, the demand sectors that led the recovery during 1975
had also been the typical leaders in earlier postwar business cycles.
Although the sectors were the same—consumption, housing-and
inventories—there were differences in timing. Housing starts, for
example, turned up during the second quarter of 1975—somewhat
later than in earlier recoveries. As a result, the contribution of residential construction outlays was smaller in 1975 than is usual for the
initial recovery stage. On the other hand, the upward shift in inventories, that occurred in the third quarter was larger relative to GNP
than in any other quarter since 1950—due in part to the sharpness of
the preceding decline.

TAX REDUCTION ACT OF 1975
The factors described above were sufficient to impart an upward
thrust to the economy during the second quarter of 1975, when real
GNP rose 3.3 per cent and real final sales rose 3.8 per cent, both at
annual rates. This initial rise and the subsequent enormously accelerated third-quarter rate of expansion—12 per cent for real GNP and
4.7 per cent for final sales—were reinforced by the Tax Reduction
Act of 1975, passed in late March. That act provided among other
things for (1) tax cuts in personal withholding rates and some corporate rates; (2) a larger investment tax credit, as well as tax credits
on purchases of unsold new homes; and (3) one-time tax rebates
(up to $200) on 1974 individual income taxes, plus special payments
of $50 each to the recipients of Federal social insurance benefits and
their dependents.
More than half of this package—or about $12 billion—represented
normal tax cuts that affected regular paychecks and profits statements
throughout the rest of the year. But the remainder involved nearly
$10 billion of one-time payments, most of which were mailed in May
and June. In addition, as a result of legislation enacted in 1973, social
security recipients received a permanent increase in benefits, which
took the form of an 8 per cent cost-of-living adjustment at the beginning of July.
The specific effects of large, one-shot injections into the private
spending stream are difficult to estimate. Past studies of the consumption effects of sizable transitory income receipts suggest that nonrecurring receipts are saved to a larger extent than ordinary income.
Nevertheless, they appear to lift consumption somewhat, and they
2. Real consumer expenditures
Growth, in per cent
Period

Durable goods

Nondurable goods

Services

1974—Year...

-6.9

-2.1

2.6

1975—Ql....
Q2....

4.3
10.0
23.6
11.1

2.6
8.4
1.4
3.6

.3
3.9
.5
2.4

$::::

NOTE.—Quarterly data shown at annual rates.

substantially shift the timing of outlays for durable goods toward the
period in which the nonrecurring funds are received.
At the time when the one-time Federal payments were made in
the spring of 1975, saving did increase markedly. However, the
data suggest that a significant portion was soon invested in consumer
durable goods. As Table 2 indicates, there was a bulge in purchases
of such goods during the second and third quarters, and there was
also some acceleration in expenditures for nondurable goods and
services.
CONTINUING RECOVERY
The Tax Reduction Act thus contributed significantly to the spectacular economic growth attained in the third quarter. Taking the
second and third quarters together, real personal consumption expenditures rose at a 5.1 per cent annual rate—the largest increase since
early 1973. These larger-than-expected sales to consumers helped to
clear the shelves of excess inventories in a number of lines, and in
this way encouraged the pick-up in production that developed during
the summer.
Much of the economic stimulus that stemmed from the slowing
of inventory liquidation was concentrated during the third quarter,
when tax rebates and special social security payments also were
exerting the bulk of their direct impact on sales. By fall retail sales
were growing more slowly again, and the rates of expansion in
industrial production and employment moderated considerably. As
a result, growth in real GNP slackened to a 5.0 per cent rate during
the fourth quarter. However, both retail sales and industrial production grew more rapidly again toward year-end—leading to substantial
increases in employment and personal income at the close of 1975
and in early 1976.
In this environment, with retail inventories on the lean side and
the reduction in income tax rates extended through June, the outlook
early in 1976 seemed favorable to sustained growth in private
demands. In addition to consumption and inventories, prospects for
residential construction were improved. Although business fixed
investment had lagged behind other major categories of spending in
the recovery up to that point, capacity utilization rates were on the rise
and corporate profits were moving up strongly. This situation, similar

to that in the early stages of other recoveries, suggested the probability of a strengthening in capital outlays as the year progressed.

ECONOMIC DEVELOPMENTS BY SECTOR
Developments in certain types of activity were of special significance
to the behavior of the economy in 1975, and for that reason they
deserve further discussion.
Inventories and industrial production
Inventories and production of nondurable goods showed substantially
wider swings during 1975 than in earlier cyclical periods. There had
been an unusually large bulid-up in such stocks through mid-1974,
in anticipation of shortages, price increases, and rising sales. By
the third quarter of 1974, it became evident that underlying demands
were weakening; consequently, businessmen began to trim their
stocks of nondurable goods—particularly in the trade sector. But
during the fourth quarter, with consumer demand collapsing, inventories rose sharply relative to sales. Thereafter, stocks were sharply
reduced both at nondurable manufacturers and in the trade sector.

Industrial production
1967-100
Nondurable manufacturing
130

120

110

1972
1973
1974
F.R. data, seasonally adjusted.

1975

The large liquidation of nondurable goods inventories was a
unique feature of the recent recession. Typically, movements in
durable goods dominate the inventory cycle; producers of such goods
—since they-hold-much of their inventory-as work-in-process—-are
slower to adjust output to changes in sales patterns. The unusually
large adjustment in nondurable stocks during the recent recession
resulted from the greater-than-normal build-up in such stocks and
the subsequent sharp decline in final demand. A downward shift in
price expectations also played a role.
By the late spring and early summer of .1975 the correction in
nondurable goods inventories was tapering off and production of
such goods began to improve. Final demands were increasing, and in
fact there were indications that the reduction of stocks during the
first half had been excessive. By December production of nondurable consumer goods had regained its cyclical peak and was about 10
per cent above the cyclical trough; meanwhile, output of nondurable
materials had risen by almost 20 per cent.
As for durable goods, production dropped 16 per cent during the
fall and winter of 1974-75, compared with a drop of 20 per cent
during the 1957-58 recession. A substantial part of the 1974-75 cutback was concentrated in the automobile industry. To bring rising
stocks of unsold automobiles under control, assemblies were reduced
by- 40 -per- cent between October 1974 and February 1975. 'These
actions and the pick-up in auto sales early in 1975 resulted in a huge
decline in auto inventories over the first 6 months of 1975. Inventories of other durable goods also contracted, as output in these
industries remained low and final demands were met to a significant
extent from inventories. During the second half of the year, durable
goods producers continued to reduce their stocks.
The recovery in durable goods production has been somewhat
slower than the average for other postwar cycles—although in the
case of autos, assemblies had risen by 70 per cent from February to
December. Some of this hesitation was due to the still cloudy outlook
for business equipment production at year-end; and some reflected
the caution that still prevailed toward holding excessive inventories for
both durable and nondurable goods.
As the year dosed, holdings of nondurable goods inventories were
quite thin relative to sales, but firms were still wary about adding to

stocks. Inventories of nonautomotive durable goods held by retailers also were moderate relative to sales; but those held by manufacturers were still relatively high. For all inventories combined, the
ratio to monthly sales declined from 1.67 in December 1974 to 1.51 a
year later. Thus, the stage seemed to be set for a substantial further
shift to accumulation of inventories during 1976 if, as expected, real
final demands continue to strengthen.
Disposable income and consumption
The consumer sector endured a far greater and more prolonged adjustment in the recent recession than in previous declines, largely
because of the effects of continued inflation on real income. Rising
prices not only reduced the purchasing power of incomes, but also
had an adverse, indirect effect on disposable incomes via the progressive income tax structure. Rapid increases in nominal personal incomes during 1974 moved many workers into higher tax brackets.

Disposable income and saving
Net change, billions of dollars
Disposable income
40

i.llln.
Per cent
Saving rate
9
7

1972
1973
1974
1975
Dept. of Commerce data, seasonally adjusted.

Between the last quarter of 1973 and the first quarter of 1975 Federal .and State and, local personal taxes, .rose at a.. $21 billion rate.
Social security insurance payments increased another $6 billion during the same period.
This experience contrasted with that in the 1957 recession, when
personal income. taxes and social security payments, taken together,
had declined by more than $1 billion. Only a part of the recent
decline in real take-home pay was offset by the substantial rise in. transfer payments, Putting these various elements together, real disposable
incomes declined by about 4 per cent between the fourth quarter of
1973 and the irst quarter of 1975. Over the remaining three quarters
of 1975, however, a gain of about 4.25 per cent restored the aggregate
level of incomes—although on a per capita basis purchasing power
remained below the prerecession high.
The increase in real" disposable income during the last three'quarters of 1975 was a function, of increases in wages and salaries and
in farm proprietors' income, larger transfer payments, a reduction in
the--rate -of--price advances,- and -the tax cuts made in-the spring.
Effective Federal withholding tax rates declined from about 16 per
cent in early 1975 to 14.5 per cent by summer. In contrast to the
many .elements contributing, to the recent rise in disposable - income,
only one—growth in wages and salaries—had accounted for the increase in disposable personal income during the first three quarters
following the 1958 trough.
Throughout 1975 the personal saving rate remained high, averaging about 8.3 per cent for the year. This rate was about 1 percentage point -above the average for the preceding 5 years, and as
much as 2 percentage points above that for the preceding 15 years.
The upward shift reflected in part efforts to stem the erosion in the
real volume of financial assets—which was being caused by inflation—
and to cope with the greatly increased uncertainty about economic
developments.
The uneven pattern of income growth also had some effect in raising the saving' rate in 1975. Generally, large increases in income
such as those stemming from the Tax Reduction Act initially induce
a rise in the level of saving. Thus the unusually large gain in disposable income in the spring caused the saving rate to jump-from-7.2
per cent in the Irst quarter to 9.9 per cent in the second. In the next
two quarters the rate receded to around 8 per cent.
20

Consumer spending
Percentage change, annual rate

1972

1973

1974

1975

Based on Dept. of Commerce data, seasonally adjusted.

Most analysts expect the saving rate to drift downward as consumers regain confidence in their job security, add to their wealth,
and anticipate more moderate rates of inflation. However, opportunities that have recently become available for tax-deferred saving in
retirement funds could exert some small influence in the opposite
direction over a number of years.
Consumer expenditures, in real terms, started to recover from a
depressed level as early as the first quarter of 1975, increased rapidly
in the second quarter, and recovered further during the remainder
of the year. All major categories of consumption—durable goods,
nondurable goods, and services—increased in constant dollars during each quarter of the year.
A notable turning point was the advance of durable goods in the first
quarter, slightly ahead of the trough in economic activity. Responding
to manufacturers' rebates—particularly on small cars, which had been
over-stocked—sales of U.S.-made autos picked up from a deeply depressed 6.0 million-unit rate at the end of 1974 to a 7.2 million-unit
annual rate in February 1975. This increase, however, represented
largely borrowed demand, and sales slipped back after manufacturers
in general had withdrawn their offers of rebates. Hence auto sales on
the average were lower in the second quarter than in the first despite
the large tax stimulus in the spring.
As inflationary fears gradually moderated, there appeared to be
an improvement in the consumer outlook, judging by various attitudi-

nal surveys. Sales of U.S.-made antes picked up again and reached
an 8 million annual rate in the last quarter of 1975. However, sales
of imported cars slowed dramatically from a 1,7 million-unit annual
rate in the first quarter to a 1.3 million rate in the fourth, relecting
intense competition, from domestically produced cars as well as periods
of inventory shortages at foreign car dealers.
Unlike demand for autos, real expenditures for furniture and appliances and for nondurable goods responded almost immediately
in the spring to the strengthening of the economy and to the tax reductions. Real outlays for furniture and appliances.. rose about.. 4
per cent in the second quarter, and real spending for nondurable
goods also rose in that period. For the year as a whole, Increases in
real buying of food and apparel were the main factors that caused total
purchases of nondurable goods, to expand.
Higher real outlays for services, including utilities, also contributed, somewhat, to the ..recovery—with spending in real terms up
almost 2 per cent from the last quarter of 1974 to the corresponding
period in 1975.
Housing
By the first quarter of 1975, private housing starts had-completed
the steepest and most protracted decline since World War II—to1 an
annual rate-of -1 • million,- from a peak annual rate of--2.4 ••million
units reached toward the end of 1972. During the remainder of 1975
they advanced -by nearly -40 per -cent from this low.
The rate of improvement in the production of new dwellings during the last three quarters-of- 1975 was broadly similar to that in
other major cyclical recoveries during the postwar period. Even so, the seasonally adjusted annual rate of starts in the fourth quarter of
1975 was still running just short of 1.4 million units—below longrun potential 'demand as estimated from projected household formations and net removals of existing dwellings.
Factory shipments of new mobile homes for domestic use also
showed some recovery as .1975 progressed and for the year as a
whole reached a total of 216,000 units. At that level, howeYer, such
shipments were no larger than they had been in the mid-1960's and
were some 60 per cent below their 1972 high.
While multiple-unit structures shared in the increase in housing
22

Residential fixed investment

Percentage change, annual rate

1ill

f "! Current
Si 20
+

Q
20
40

1972
1973
1974
1975
Based on Dept. of Commerce data, seasonally adjusted.

construction activity, this segment of the industry remained quite
depressed throughout 1975. Such starts totaled only 270,000 units—
the lowest number since the 1950's. The fact that there were so few
multifamily starts reflected the financial difficulties of builders of such
projects, the heavy volume of units still under construction when the
year began, continued weakness in consumer demands for condominiums, and a general inability to achieve rent levels sufficient to
cover the rising costs of development and operations.
Single-family housing starts, on the other hand, totaled nearly 900,000 during the year. Such starts benefited not only from the relatively
smaller degree of overbuilding experienced during the earlier boom
but also from Federal Government programs designed to provide
below-market interest rates for some buyers. In addition, the newhome market was stimulated to some extent by the availability of
special income tax rebates on purchases made before 1976 from
the overhang of dwellings held in builder inventories in the early
spring of 1975. Finally, the cost of home mortgage credit declined
somewhat during the year and loan availability improved, reflecting
very strong inflows of funds to thrift institutions during 1975.
As 1976 began, the number of dwelling units under construction
was still at the lowest level since 1971, suggesting the possibility that
support from residential construction investment to the general economic upturn might be stronger and more sustained than usual for

this stage of a recovery. In previous cyclical recoveries, when housing starts had clearly led the general upturn, the stimulus provided
by residential production had tended to fade after three quarters of
general recovery.
This time it seems more likely that the strength of residential construction activity will be well sustained during 1976, since both demand and financing conditions appear favorable. Although prices of
new single-family homes remain exceedingly high, some builders have
broadened the range of their markets by offering smaller homes at
lower prices. In the multifamily area, incentives to build appear to
be improving, as rental vacancies have declined substantially and
probably will remain low for some time, considering the fact that few
additional units have recently been under construction.
Business fixed investment
Capital outlays weakened sharply in the second half of 1974 and
continued to decline as the economic recovery got under way in the
second quarter of 1975. By the end of 1975, however, capital spending appeared to have bottomed out and was beginning to contribute
modestly to the recovery. For 1975 as a whole, capital outlays by business were about unchanged in current dollars from 1974, but were down
almost 12 per cent in real terms. Following the pattern of the

Utilization and business investment
Per cent
Capacity utilization
-.nateriiils

Percentage change, annual rate
Plant and equipment expenditures
40

Manufacturing

u -

1973
1975
1975
1973
Capacity utilization, F.R. data, seasonally adjusted. Plant and equipment expenditures,
Dept. of Commerce data; materials include the primary metals; stone, clay, and glass;
textiles; paper; chemicals; and petroleum industries.

previous 4 years, spending was weaker for structures than for equipment.
The cyclical reduction in real business fixed investment was somewhat larger in 1974-75 than in the 1957-58 downturn and was
much larger than in most previous postwar business cycles. Moreover, the timing of the upturn in such spending came a bit later
than usual. Real capital outlays did not begin to increase until late
1975 after having declined 17 per cent from their peak in the Irst quarter of 1974. The level of capital outlays was affected not only by cyclical
developments—including some previous overbuilding of offices and
shopping centers—but also by dislocations ensuing from, the oil
embargo and by partially related interruptions in the investment
plans of electric utilities.
Because inal demands were sluggish, the manufacturing industry
as a whole operated at relatively low rates of capacity throughout
1975. Even though there were several developments that would
normally have had a favorable impact on investment—such as the
increased investment tax credit, a substantial recovery in corporate
profits, and moderating inlatioe in capital goods prices—firms were
continuing to be very cautious about adding to capacity as 1976
began.
As in the previous 2 years, plant and equipment expenditures in
1975 increased more in the manufacturing sector than in other industry groups. Much of the strength continued to be concentrated
among materials producers, where physical capacity was raised by
about 4 per cent, probably more than in most other industries. The
expanded investment outlays of such producers reflected both the
capacity constraints that had been evident before the recent recession and the need to comply with environmental regulations.
Utilization rates at durable goods producers remained at the depressed level reached in mid-1975. During the year the auto, rubber,
and electrical machinery industries all reduced their investment spending. Outside of manufacturing, weakness was particularly evident in
electric utilities, where capital spending decreased in 1975 after having
maintained an average annual growth of 14 per cent from 1962 to
1974. Communications and commercial firms also cut back on capital
spending in 1975.
Evidence from such sources as the Commerce Department's year-

end survey of plans for new plant and equipment expenditures In
1976 suggests that a vigorous recovery In business ixed investment
may not be forthcoming over the near term. Further evidence of
modest near-term prospects is provided by the year-end weakness
in such leading indicators as construction contracts and new orders
for capital goods. On the positive side, the rapid recovery in corporate profits is serving to ease substantially the liquidity problems that
had curtailed investment earlier, while the strengthening of market
demand will tend to encourage more optimistic evaluations of future
corporate needs. Financing conditions are also more favorable, particularly in the stock markets where prices rose sharply in early 1976,
All of the surveys of investment intentions show that producers
of materials—especially of nondurable materials—should continue
to be a source of relative strength in 1976. Utilities are also planning
sizable increases in capital spending, in view of the recovery in demand,
the start that has been made in sorting out the problems of energy and
environmental impact, and the improvement in their Inancial positions.
Net exports
The value of U.S. net exports of goods and services in 1975—excluding Federal interest payments to foreigners—amounted to $21
billion, the largest on record. Early in the year net exports were a substantial factor helping to cushion the decline in domestic activity;
after midyear they continued at very high levels, although they
receded slightly from their second-quarter peak values. Most of the
increase in net exports occurred in merchandise trade iows5 which
were dominated by cyclical developments both at home and abroad.
Services accounts showed little net change during the year.
Mirroring the intense inventory liquidation of early 1975, the
volume of merchandise imports fell 20 per cent between the fourth
quarter of 1974 and the second quarter of 1975. With the sharp
domestic recovery in the latter half of the year? imports picked up
correspondingly.
Merchandise exports held up rather well in the face of reduced
economic activity abroad, to some extent because the declines abroad
were generally somewhat milder than those in the U.S. economy. In
part, the stability of exports was due to the high level of capital goods

shipments (which tend to lag behind the normal cycle) and to the large
amounts of grain shipped to the Soviet Union late in the year. Also,
U.S. exports to oil exporting countries increased significantly for the
second year in a row. More generally, the relative improvement of U.S.
price competitiveness played a key role, reflecting the facts that the
dollar exchange rate had depreciated significantly since the early
1970's and that U.S. inflation rates, while high, were still lower than
the average for other industrial countries.
State and local governments
During the 5 years preceding 1975, real purchases of goods and
services by State and local governments had risen by about 3.5 per
cent annually and growth in employment had averaged 4 per cent.
In 1974 this rate of expansion slowed as budgets came under pressure due to rising prices and the slower growth in receipts. The
"operational" budget (a budget measure that includes all State and
local government transactions except the net savings in social insurance funds) moved from a moderate surplus in 1973 to a deficit in
1974.
Difficulties of these governments were accentuated in 1975 as
the recession caused a continued slowing of tax receipts, particularly
during the early part of the year. Moreover, as the financial problems
of New York City, of New York State agencies, and of some other

State and local government purchases of goods and services
Percentage change, annual rate

15
10

5
0

1972
1973
1974
1975
Based on Dept. of Commerce data, seasonally adjusted.

governmental units heightened the concern of investors, municipal
borrowing costs increased across the country.
The psychological effects of the "New York City crisis/5 along
with the more general fiscal pressures on State and local governments,
apparently caused many units to tighten their budgets. As a result,
after reco¥ery had begun in the spring of 1975, the growth of total real
purchases remained well below the pace during the comparable period
in the 1958 cyclical expansion.
Budgets for State and local government construction bore the
brunt of the cutback—as might be expected given the postponability
of these outlays and their sensitivity to credit conditions. Real spending for structures was down almost 6 per cent for the year, whereas
outlays for employee compensation registered a 10 per cent nominal
gain? and total employment grew by 5 per cent. The latter increase
was attributable in part to the addition of public employment workers
under Federal grant programs. These additions averaged about
310,000 for the year. Altogether, grants-in-aid from the Federal
Government rose 24 per cent in 1975 and provided major support to
State and local governments.
The operational deficit in the State and local sector, which had
emerged in 1974? worsened during the first quarter of 1975, but
then moved to- a modest surplus as spending cuts became effective and
receipts were stimulated by the economic recovery. This improvement
should carry over into 1976 and help to lessen the financial hardships
of these governments.
Federal Government
Federal Government purchases of goods and services—the part of
U.S. spending that appears directly in GNP—declined slightly in
real terms during 1975? continuing a trend that had begun after
1968, Military employment was down somewhat.
Federal fiscal actions affected the economic recovery chiefly
through the already mentioned Tax Reduction Act and the cyclical
expansion in transfer payments. Transfer payments were boosted
early in the year by extending the duration of unemployment benefits
to 65 weeks, by widening the coverage of unemployment insurance,
and by increasing the public employment program.

Federal budget Surplus or deficit
Billions of dollars
20
Hi^h-employmerit basis

1972
1973
1974
1975
Calendar-year data, from 1976 Economic Report of the President, p. 55.

The Federal budget deficit (NIA basis) reached a peacetime
high annual rate of $102 billion in the second quarter of 1975,
when a substantial portion of the payments under the Tax Reduction
Act were made. For the year as a whole the deficit averaged about
$74 billion. Fiscal policy was considerably more stimulative in 1975
than in preceding years, as illustrated by the marked shift in the highemployment budget, from a $25 billion surplus in 1974 to an $8 billion deficit in 1975.

Labor Market

Developments

The economic contraction that ended early in 1975, in conjunction
with powerful inflationary forces, resulted in the highest rate of unemployment—nearly 9 per cent—and the sharpest cyclical decline
in the economic well-being of workers and their families since before
World War II. The subsequent recovery of economic activity, which
was reflected in strong increases in demands for labor after midyear,
reduced unemployment to about 8 per cent by the year-end. Consumer purchasing power, per capita, also improved during the final
three quarters of 1975, but because of the depth of the recession and
the continued substantial pace of inflation, by the fourth quarter it
still was below prerecession levels.
The labor market response to the 1974-75 downturn in business
activity differed markedly from typical behavior in previous postwar
recessions. Wage rate increases and labor force participation—both
of which have been significantly affected by inflation, and the especially steep increases in costs of food, energy, and health care—continued at high rates, despite the large rise in unemployment. Past
recessions had been instrumental in much more extensive moderation of wage rate growth and had typically resulted in some decline
of labor force participation.
The atypical behavior of participation and wage rates also may
be attributable in part to the structure of countercylical job-creation
and income-transfer programs. The scale of Federally funded jobcreation programs was expanded, and direct payments to jobless
workers under the unemployment insurance system (both regular and
special programs) were nearly tripled to an annual rate of almost $19
billion. Such programs may tend to retard labor force exit and to
discourage the taking of lower paying and less desirable jobs.
EMPLOYMENT: CONTRACTION AND REVIVAL
Nonfarm payroll jobs declined 3.1 per cent from their peak in
October 1974 to the trough in June 1975, a smaller relative drop
than during the comparable period of the 1957-58 downswing. Jobcreation programs sponsored by the Federal Government, which
30

Employment and unemployment
Change, millions of persons
Payroll employment
1.0
Nonfarm

a 0.0...
Manufacturing
1.0

Per cent
I • nemploy menl rait
1972

1973

1974

Dept. of Labor data, seasonally adjusted.

funded more than 300,000 jobs in State and local governments, and
the greater concentration of the work force in occupations that are
less prone to cyclical layoffs helped to offset the deep cuts in employment in the goods-producing industries.
Nondurable manufacturing employment fell 6.5 per cent from
October 1974 to June 1975; and in contract construction, jobs fell
by more than 12 per cent during the same period and continued to
decline during the remainder of 1975. Job losses in these two sectors
were much greater than during 1957-58. As is usual in a recession,
employment in the service-producing sectors was much less affected;
growth in service-industry jobs continued during the contraction—
nearly offsetting short-lived declines in trade, transportation, and
public utilities.
Among goods-producing industries, employment gains in the
recovery phase of the cycle occurred first and were relatively strongest in nondurable manufacturing; between June 1975 and the end
of the year, half of the nearly 600,000 jobs that had been lost had
been regained. Substantial increases were registered in textiles and
apparel, where inventories had previously been depleted owing in
part to improved demand stimulated by the spring tax reductions.
In contrast, factories producing durable goods had restored only

about a sixth of the jobs lost during the recession. Private serviceproducing employment also resumed its expansion after midyear;
medical care payrolls experienced the most rapid growth—200,000
jobs during the year.
By occupational classification and demographic groups, patterns
of employment reduction were typical of a cyclical downswing. Sharp
declines in blue-collar employment were only partially offset by continued growth of white-collar jobs (except clerical), while service
employment remained about stable. Because their jobs are concentrated in the most cyclically sensitive industries and occupations,
layoffs were more numerous among men than among women during
the downturn.
UNEMPLOYMENT AND LABOR FORGE
The sharp contraction of employment in combination with continued
substantial growth of the labor force—especially among married
women—pushed the unemployment rate to 8.9 per cent in May
1975, a 35-year high. Growth of the civilian labor force was 1.5 per
cent in 1975, unusually large for a period of high unemployment.
In contrast, the labor force had increased by only 0.4 per cent in
1958. In part, the relatively rapid recent growth was a function of
the large increase in the working-age population, which rose by 2.7
million (1.8 per cent) in 1975 compared with 1.4 million (1.3 per
cent) in 1958. In addition, however, a large number of married
women entered the labor force, apparently in an attempt to supplement declining family incomes. Real per capita disposable income,
eroded first by inflation and then by a steep rise in unemployment, fell
4.6 per cent over the five quarters ending March 1975. This was
the deepest decline since before World War II. The largest previous
postwar decline—during the 1957-58 recession—had amounted to 2.2
per cent.
From October 1974 the unemployment rate rose 2.8 percentage
points to its peak in May 1975. Although the jobless rate nearly
doubled for men aged 25 and over, most of whom were experienced
workers with family responsibilities, it was still below its 1957-58
peak. In contrast, the unemployment rates of adult women and teenagers—frequently second earners in the household—reached postwar
highs.

As is characteristic of the initial stage of a recovery, the jobless
rate declined rather slowly in 1975, falling only 0.6 of a percentage
point from its May peak to 8.3 per cent in December. Improvement
was widespread by industry and occupational groupings, and unemployment rates for most demographic groups also fell. By the end of
the year the jobless rate for household heads had declined to 5.7
per cent while the rate for those covered by unemployment insurance
(regular programs) had dropped to 4.9 per cent.
WAGES AND COLLECTIVE BARGAINING
Despite high unemployment, wage rates continued to rise rapidly during 1975. The hourly earnings index for production workers in nonfarm private businesses—which approximates wage-rate trends—rose
by 8.2 per cent in 1975, somewhat less than the 9.3 per cent increase
recorded in 1974 but well above the rise in every other year since
this series was begun in 1964. The deceleration that did occur
reflected the abatement of inflation, extensive slack in many sectors,
and a relatively light bargaining schedule during the year.
The high rate of wage gain in the midst of a severe recession
illustrates the importance of consumer price trends in the wagedetermination process. Many workers receive cost-of-living wage
adjustments regardless of the state of the labor market. Strong labor
unions, for example, are likely to be able to maintain real wage
rates—albeit after a significant delay—in periods of simultaneous
high joblessness and rapid inflation.
Major collective bargaining negotiations covering 2.8 million
workers were conducted in 1975. They provided first-year wage
adjustments of 10.2 per cent on the average, compared with 9.8
per cent in 1974. Fringe benefits, however, apparently continued to
increase faster than wages as first-year wages and benefits combined
(in contracts covering 5,000 or more workers) rose by 11.2 per cent
—up slightly from 10.7 per cent in 1974. In addition, cost-of-living
escalator clauses were added to 92 major contracts covering nearly
700,000 workers in 1975; such clauses now cover about 60 per cent
of workers in major collective bargaining units.
Outside of new collective bargaining negotiations, the decelerating
pace of inflation and slack demands did induce some slowing in the
rate of wage gain. In manufacturing, despite being about two-thirds

unionized, the rate of wage growth decelerated from 10.3 per cent
in 1974 to 8.8 per cent in 1975. Wage pressures also moderated
somewhat in the less unionized trade and service industries, with
wages rising 7.7 per cent during 1975, compared with about 9 per
cent the prior year. In the construction industry, where the jobless
rate averaged nearly 19 per cent, wages rose by less than 6 per cent
in 1975.
COSTS
Despite continued rapid growth of wages, the upward trend in unit
labor costs in the private nonfarm economy decelerated during 1975.
From the fourth quarter of 1974 to the fourth quarter of 1975, the
unit-cost index rose less than 4 per cent, compared with 14 per cent
during the preceding four quarters. This improvement was due almost
entirely to the rebound in labor productivity. Output per hour had
fallen in seven of the eight quarters ending with the first quarter of
1975; the cumulative drop of 4.5 per cent was the largest of the
postwar period. During the recovery in the last three quarters of
1975, output per hour rose by 4.1 per cent. While this rate of increase
is about normal for the initial phase of a recovery, the earlier decline
in productivity had been so deep that output per hour at the end of
1975 was still well below its postwar trend.

Productivity and costs
Percentage change from previous year
"'ompensation per manhour

1972

1973

1974

1975

Based on seasonally adjusted data from Dept. of Labor.

Price Movements
Inflation was less pervasive and less severe during 1975 than
during the two preceding years. A widespread deceleration of price
increases occurred in late 1974 and in early 1975. For 1975 as a
whole the rate of inflation at the final demand level was cut about
in half. About midyear, however, a surge in the prices of foods and
gasoline and a sustained upward movement of industrial prices caused
some step-up in the rate of inflation.
Despite the vast improvement from the 1973-74 experience, inflation continues to be a severe problem and a threat to the durability
of the recovery. Over the second half of 1975, consumer prices rose
at a 7.5 per cent annual rate—historically very high, and especially so
in light of the severity of the contraction and the extent of underutilization of workers and plant capacity.
3.

Changes in consumer prices
In per cent

Group

All items.
Food
Fuel and utilities
Private transportation
Medical care
Shelter 2
Household furnishings and upkeep
Reading and recreation
Apparel and upkeep

Relative
importance,
Dec. '75

100.0
24.7
5.2
11.7
6.4
21.4
7.4
5.1
9.2

Annual rate over half year ending—
June '74

Dec. '74

June '75

Dec. '75

12.3
11.1
21.3
19.6
11.3

12.2
13.0
12.0
9.6
13.7

7.5

10.1
19.5
9.0
9.6

12.6
20.2
10.2
7.8

6.6
4.7
11.4
7.4
11.2
8.9
7.4
5.8
.7

8.2
10.9
11.8
8.5
5.7
5.4
5.2
3.9

Includes gasoline and motor oil.
Includes rent, home purchases, mortgage interest, taxes, insurance, maintenance, and repair.
NOTE.—Based on seasonally adjusted monthly data from Dept. of Labor.
2

This high rate was associated with a number of factors, including
a temporary surge in food and gasoline prices, "pass-through" of
earlier increases in costs, a resumption of rising prices for some
industrial materials, the end of excess inventory liquidation in certain
sectors, and—in several industries—pricing designed to restore profit
margins. Whether this pattern represents further structural correc-

tions of cost-price imbalances that had developed during the period
of wage-price controls and the subsequent intense inflation in costs
of materials and labor, or a step-up in the underlying rate of inflation, remains to be seen.
SOURCES OF PRICE DECELERATION
The slowing in the over-all rate of price increase in 1975 was attributable in part to amelioration of some special market conditions that
had contributed to the intense inflation of 1973 and 1974. Four
developments were instrumental in the over-all improvement of prices
in 1975:
Roughly coincident, severe recessions in the major industrial nations reduced demand pressures on prices of internationally traded materials and commodities.
The easing of international and domestic demands late in 1974
finally moderated the most severe peacetime rise of industrial materials prices since World War II. After having risen by about 28
per cent in 1974, in large part because of the steep rise in the prices
of fuel and energy, wholesale prices of crude and intermediate
materials nearly leveled off in the first half of 1975, and then moved
up at a much reduced rate in the second half.
A shrinkage of 12.5 per cent in demand for imported products,
along with the increased strength of the dollar and reduced inflation
in foreign markets, contributed to the improved price performance
in the United States. Exclusive of fuels and lubricants, average prices
for foreign goods rose 10 per cent compared with 27 per cent in
1974. U.S. exports of merchandise declined only 3 per cent in real
terms, and average prices of exports rose by 12.5 per cent compared
with almost 30 per cent during 1974.
Price increases for crude oil and refined products and for
competitive types of energy were smaller.
Although rising costs of fuel and energy continued as a major
factor sustaining inflation in 1975, pressures from this source were
much less intense than in 1973-74. Pressures on production costs,
arising from inputs of energy raw materials, were reduced. Price increases for crude oil in domestic markets; for imported crude, which

accounts for about one-third of domestic consumption; and for refined
oil products ranged from 15 to 20 per cent—all sharply less than in
1974. Other energy prices behaved unevenly, in part because of the
extent of regulation and demand factors.
Record farm crops helped to dampen the rise of consumer
food prices.
Record domestic harvests of corn and wheat helped to prevent
another very substantial increase in domestic and international food
prices. Consumer food prices rose about 6.5 per cent, about half
the rise in 1974. This increase was attributable mainly to higher
marketing and processing costs. Late in 1975 output of livestock began
to increase, reflecting the renewed profitability of livestock feeding,
and prices began to recede from their earlier advanced levels.
A cyclical reduction of labor cost increases, resulting
mainly from a recovery-induced rebound in productivity,
helped to hold inflation to a more moderate rate.
The sharp cyclical rebound of labor productivity and the moderation of wage gains mentioned earlier helped to bring about an abatement of inflationary pressures in 1975. Unit labor costs, which had
risen 14.4 per cent from the fourth quarter 1973 to fourth quarter
1974, rose at a rate of only 3.8 per cent during 1975—alleviating
much of the cost pressure that had pushed up prices during the prior
year. In addition, the recession stimulated price restraint at each stage
of the production chain as temporary discounts and rebate programs
were used to clear inventories of both materials and finished goods.
CONSUMER PRICE PATTERNS IN 1975
All broad measures of prices reflected an abrupt diminution of inflation
early in 1975. Easing was evident across a broad spectrum of goods
and services as rates of increase in the consumer price index were
halved from their 1974 experience. Prices of food and apparel fell
during the early months of 1975 as food supplies rose and as apparel
prices were discounted to clear inventories.
Energy prices provided a reduced but still major impetus to inflation in most of 1975. Consumer costs of fuel and utilities rose about

11 per cent compared with 16.6 per cent during 1974. The rising price
of gasoline, coupled with increases in costs of auto insurance, servicing,
and purchases, drove prices of personal transportation up by 9.6 per

Consumer prices
Ratio scale, January 1972=100

180

140

100

1973

1975

Wholesale prices
Ratio scale, January 1972=100
220

Farm products
and processed
foods and feeds

1973
1975
1973
1975
Dept. of Labor data, seasonally adjusted. Crude and intermediate materials exclude foods

cent. Costs of medical care also rose at a rapid pace—by almost 10
per cent—during the year.
With household budgets forced to adapt to high and rising costs
for basic necessities, consumers were very sensitive to prices for
more discretionary items. Selective buying coupled with vigorous
efforts by businesses to liquidate inventories contributed to greater
moderation in price growth for apparel and household durable goods.
Consumer costs for shelter rose less in 1975 than during 1974
as a result of slight declines in mortgage interest rates and of more
moderate increases for maintenance and repair.
PRICE PATTERNS AT WHOLESALE
The wholesale price index for all items was about unchanged in the
first half of 1975 for the first time since the period of price controls.
Prices for industrial commodities rose 6 per cent over the year; slack
demand and liquidation of inventories kept price increases at a
reduced level early in the year, but after June prices of such commodities rose at an annual rate of 8.7 per cent.
During 1974 prices of industrial materials had accelerated to a
rate of nearly 30 per cent, thereby contributing to sharp advances
for finished goods. In 1975, however, they rose only about 5 per
4. Changes in wholesale prices
In per cent

Group

Relative
importance,
Dec. '75

Dec. 1973Dec. 1974

Annual rate during
half year ending—
June
1975

100.0

20.9

Dec.
1975
8.3

Farm and food products . .

22.8

11.0

-8.0

8.1

Industrial commodities
Materials, crude and intermediate
Finished goods:
Consumer nonfood
Producer goods

77.2
48.3

25.6
28.2

3.4
2.1

8.7
8.6

18.6
11.8

20.5
22.6

3.9
8.4

9.6
7.9

11.1

13.0

3.8

7.2

All commodities

MEMO:

Consumer foods

i F.R. estimates.
NOTE.—Based on seasonally adjusted monthly data from Dept. of Labor.

cent, largely because of reduced demand. Among Items that showed
Increases were fuel—with increased costs passed on in higher prices
for-electric power-—and'lumber aiid'plywood," which" reflected the'
optimistic-outlook-for residential construction.
After- midyear, prices of crude- and intermediate materials together
rose at an. 8.6 per cent annual rate, up from-a 2.1 per cent-rate--in
the first half. Similarly, prices of consumer finished goods., excluding
food, which had decelerated sharply in the first half of 1975, rose at
higher rates In the third and fourth quarters, reflecting largely Increases for gasoline, home heating oil, tires and tubes, and leather
footwear. Improved' demand permitted "pass-through" of prior cost
increases for passenger cars, and this boosted both wholesale "and
retail prices,. Suppliers, of. plant and equipment were caught In a tight cost-price
situation in 19.75 as real investment In plant and equipment. eased
during most of the year. Because of the extremely large Increases in
costs of both materials and labor In 1974, many Investment goods
firms had "been placed in a high-cost, low-profit position before the
contraction.' As demands"declined and price competition" became
more pronounced In 1975 some producers literally abandoned"'their
businesses;--this was especially-true-In-construction, where real spending on structures was at the lowest level since 1961.
5. Changes in prices of plant and equipment
In per cent
1974

Group

IMPLICIT

1975

12.3
24.5
7,9

18.9
23.6
22,2

10.6
4.2
15.8

5.5
3.1
6.4

16.3
17.2
14.2
20,6

28.5
29.0

9.9
10.9
11.7
11.4

7.7
6.1
7.5
6.6

DEFLATORS

Business fixed investment..,
Structures..
Durable equipment.
WHOLESALE PRICE INDEXES
Producers* finished goods,
Machinery .and equipment
Agricultural equipment
Metal-working equipment.

32.7
31.9

NOTE,—Annual-rates-of change calculated from quarterly averages, with comparisons being based
on last quarter of preceding and last quarter of current half year. Basic data from Dept of Commerce
and-Dept. of Labor.-"

The contraction of demand, coupled with more moderate wage
increases for construction workers, resulted in an average price rise
of only 3.3 per cent over the year for nonresidential structures. Continued rapid advances in equipment prices through midyear reflected
in part strong demands and near-capacity operations in highly
specialized areas, including pollution control equipment, oil drilling and coal mining equipment, and agricultural equipment.

AREAS OF CONTINUING CONCERN
At the end of 1975 there were several threats to the reestablishment
of more stable prices. One was the longer-run threat of a resumption
of inflation induced by excess demand. Others included uncertainty
about the depletion of worldwide inventories of agricultural products;
uncertainty about the future course of oil prices; and the jockeying
among factors of production (and individual producers) designed to
restore prior income positions.
Much of the improvement in the food price outlook is attributable
to the record production of U.S. farmers in 1975. Because of a very
poor grain harvest in the Soviet Union, however, international grain
stocks are probably little changed from 1974. If 1976 does not provide
larger world harvests, domestic food prices may again be subject to
upward pressures from international demands.
The Energy Policy and Conservation Act of 1975 set guidelines for
the movement of domestic oil prices over the next 3 years, but such
actions will have little influence on decisions of the Organization of
Petroleum Exporting Countries. Thus one major impetus to price
changes for gasoline, fuel oil, and other petroleum derivatives remains
unknown. Because energy costs are an important factor in the availability and price of many goods and services, their continued rise
virtually ensures some upward pressure on costs and prices generally,
and any reacceleration would likely exacerbate the difficulties of lowering the over-all rate of inflation.
The events of the last several years have had more than just temporary effects on the economy. The experience with price and wage
controls and some public comment as to the possible desirability of
restoring such controls in one form or another have very likely quickened and strengthened the impact of expectations on economic be-

havior. The rapid and strong increases in prices of fuels and commodities ha¥e set in motion a process of reallocation and readjustment in the economy that will proceed for an extended period. The
1973—74 economic decline and the uncertainty caused by the drop
in real income has set the stage for attempts during the ••recovery'by
the recipients of wages and proits to regain their real income and
enlarge their relative shares. All of these factors can be expected to
have impacts not only on price behavior but also on the speed and
strength of economic recovery.

Monetary Policy and
Financial Markets
Monetary policy in 1975 sought to create money and credit conditions that would foster economic recovery and permit an unwinding
of the financial strains carried over from earlier years. Since the
need for further progress in dampening inflation remained urgent,
however, great care had to be taken to avoid overly aggressive Federal Reserve actions to ease credit markets and stimulate expansion
in money and credit supplies that might prove counterproductive.
In these circumstances the System elected to pursue a moderate
course of monetary expansion.
Improvements in liquidity
The liquidity of the economy was substantially rebuilt over the course
of 1975. The rebuilding was especially rapid among nonfinancial
businesses, where drastic cutbacks of inventories during the first half
of the year and subsequent sharp increases in profits generated a
major improvement in cash flow and a consequent lessening of reliance on external financing. With access to capital markets also
greatly improved, companies placed primary emphasis on long-term
financing and repaid nearly $14 billion of short-term debt—mostly
at commercial banks. The chart at the top of the following page indicates the extent to which business financial ratios improved over the
year.
The combination of easier monetary policy and record reductions
in business borrowing also made it possible for commercial banks
to achieve a sizable build-up in liquid assets. In addition, banks were
able to reduce their reliance on volatile, high-cost sources of funds
and to achieve some general improvement in capital ratios. The chart
on page 45 indicates the relative dimensions of these changes. To a
considerable extent the increased liquidity of banks also reflected a
general shift in management strategy to more conservative standards,
following a decade of emphasis on the expansion of assets and the
improvement of earnings performance.

Nonfinancial corporations
Selected financial ratios

Fixed investment
to

Gross internal funds

Short-term debt
to

Total debt
Total debt
to

Income originating
1967

1969

1971

1973

1975

Gross internal funds include undistributed profits, inventory and capital consumption
valuation adjustments, and capital consumption allowances. Short-term debt includes shortterm market instruments and 60 per cent of total bank loans. Income originating is the total
of employee compensation, net interest, and profits adjusted for inventory valuation originating in nonfinancial corporations.
Debt from flow of funds accounts; flows from GNP acounts. Seasonally adjusted data with
the flows at annual rates.

Other types of financial institutions also placed more stress on
prudent management policies. Nonbank thrift institutions, for example, used their sharply accelerated inflows of funds initially to
reduce high-cost borrowing, and over much of the year they continued to stress additions to their liquid asset positions.
This curative process was essential to the restoration of a sound
financial basis for economic recovery, but it was not without some
costs. Loan rates tended to remain somewhat higher, and other lending terms eased less, than in earlier economic recoveries. Moreover,
lender perception of risk in both private and public markets was
heightened, as some borrowers with marginal credit ratings continued

Commercial banking
Selected financial ratios
High
-81.0%

Liquid assets
to

Total assets
Demand and other
time deposits
to

Total assets
Financial net worth
5.2%

Total assets
1967
1969
1971
1973
1975
Commercial banking consists of chartered commercial banks, their domestic affiliates.
Edge Act corporations, agencies of foreign banks, and banks in U.S. possessions. Liquid
assets are U.S. Govt. securities, vault cash, and deposits at F.R. Banks. Demand and other
time deposits are total deposits less large negotiable CD's. Financial net worth is financial
assets less financial liabilities.
Seasonally adjusted data from flow of funds accounts.

to experience difficulty in covering their financial requirements—
evidenced most dramatically by the case of New York City. Over all,
however, the state of liquidity and the availability and cost of credit
improved substantially for borrowers in good financial condition.

Interest rate declines
The development of more accommodative credit conditions was especially evident in the general decline of short-term interest rates. The
short-term rate that reflects changes in the thrust of monetary policy
most directly is, of course, the Federal funds rate—the rate at which
banks borrow immediately available funds from each other on an overnight basis. Any System-easing action affecting the total supply of bank
reserves influences the Federal funds rate promptly and directly. By
early 1976 the funds rate had dropped to around 4% per cent, some
33A percentage points below the level at the end of 1974. And other
short-term rates had declined by roughly commensurate amounts over
this period—as the chart on page 46 shows.

Interest rates
Per cent per annum
Short-term

Long-ter

1973
1974
1975
'76
1973
1974
1975
'76
Monthly averages except for conventional mortgages, which are based on quotations for
one day each month. Yields: U.S. Treasury bills, market yields on 3-month issues; prime
commercial paper, dealer offering rates; conventional mortgages, rates on first mortgages
in primary markets, unweighted and rounded to nearest 5 basis points, from Dept. of
Housing and Urban Development; Aaa utility bonds, weighted averages of new publicly
offered bonds rated Aaa, Aa, and A by Moody's Investors Service and adjusted to a Aaa
basis; U.S. Govt. bonds, market yields adjusted to 20-year constant maturity by U.S.
Treasury; State and local govt. bonds (20 issues, mixed quality), Bond Buyer.

While long-term rates in early 1976 were also significantly below
their levels of late 1974, net declines from those earlier levels occurred mostly in the opening weeks of 1976. During the early months
of 1975—when the business recession was still deepening and shortterm rates were showing their steepest drop—long-term rates did
decline appreciably. But by early spring of 1975 these initial declines
had been reversed. The reversal of trend was attributable to several
factors—including increased concern about inflation, the heavy
volume of borrowing that developed in capital markets from both
corporations and State and local governments, and the rate pressures
expected to result from an unprecedented volume of Treasury borrowing. Although the Treasury's huge financing needs proved to be more
readily managed in practice than in prospect, long-term rates remained relatively high over the rest of the year, partly because investors were anticipating cyclical recovery in interest rates and—in
the tax-exempt market—because of generalized market concern
about the possible consequences of a New York City default.

The easing of long-term rates In early 1976 was to some extent
simply a relection of the further drop in short-term rates to new
cyclical lows. However, several other significant Influences were
Involved. Market analysts were generally forecasting a significant reduction in the volume of new corporate and municipal bond offerings
during 1976. Market concern about the financing problems of New
York tended to- diminish with the Introduction of Federal assistance.
And the consensus forecast of moderate economic growth In 1976
suggested that the outlook for inflation had not worsened as previously feared.
Over the course of 1975, however, the trend of short-term rates
was not consistently downward. From mid-June through September
the bellwether Federal funds rate rose from 5V% per cent to levels
generally above 6 per cent, before turning down again in October.
And other short-term rates followed roughly the same pattern—as
shown In the chart.
This temporary increase in short-term rates was In part a relection of the extraordinarily heavy schedule of Treasury borrowing
during the spring and summer. In addition, Federal Reserve open
market actions for a time exerted upward pressure on the funds rate.
The System took this precautionary move to ensure that the1 extremely rapid second-quarter growth in the monetary aggregates did
not persist. Later, when it became apparent that growth In these
aggregates had slowed again, the System eased Its policy stance. The
funds rate then dropped to new lows for the cycle.
Monetary aggregates
The accommodative thrust of monetary policy during 1975 was also
reflected In the growth of broad measures of the money stock. M.2—
the measure that Includes time and savings deposits at banks other
than large certificates of deposit (CD's), as well as demand deposits and
currency—expanded by 8,2 per cent, one-half percentage point more
than in 1974; and M3—which adds deposits at savings and loan associations, savings banks, and credit unions to M2—grew by 11 per cent?
substantially more than in 1974 (7.1 per cent) or 1973 (9.0 per cent).
In contrast to these broader measures, the narrowly defined money
stock (MJ grew somewhat less in 1975 (4.4 per cent) than in the
two preceding years. During much of the year growth In Mx fell short

of the.pace that.would ha¥e been expected oe the basis..of..past..relationships of cash balances to GNP and interest rates. The shortfall
was greatest during, the latter part of ...the year, as .growth- of Mt in
the spring was augmented temporarily by heavy Federal tax rebates
and special social security payments..
Because of the relatively slow growth in Mt and the rapid acceleration In: nominal-• GNP, there was-an unusually sharp-jump-in-the-income velocity of money during the second half of 1975. This occurred-in-the context of declining interest-rates,-suggesting that the
public may be managing its financial affairs in ways that require less
growth of -money-to finance economic-expansion.-Since this "development clearly has important, general implications for policy-makers
when projecting • the amount of money growth' believed' to be appropriate to the conditions of the economy and the stance of monetary
policy, 'the" factors that appear to lie behind' the jump In velocity"are
discussed more fully on pages 54—57.
Policy tools
As usual, monetary policy in 1975 was implemented largely through
Federal...Reserve open market operations,--At critical points,• other
policy instruments were used to reinforce the thrust of open market
actions,--particularly while the recession was still deepening.-Betweenlate 1974 and mid-May 1975, for example, while other short-term
rates were -posting their most rapid declines, the Federal Reserve -discount rate was cut in four stages—from 7% to 6 per cent. Then on
January -16, 1976, after short-term rates had posted substantial further net declines, the discount rate was cut further to 5Vi per cent.
These actions were undertaken primarily to maintain the alignment
of the discount rate with other short-term rates.
Reductions in member bank reserve requirements were "also initiated at several points during the year. The action that released the
largest volume of reserves (about $1.1 billion) was taken'in January
while the recession was still deepening. This change affected reserves
around'" mid-February and' applied' across the board to all demand
deposits.1 It was designed to permit further gradual improvement in
1
Specifically, requirements on all categories of net demand deposits up to
$400'-million-were reduced 'toy one-half of 1 percentage point,'and'on"deposits'
of OYer $400 million by 1 percentage point.

bank liquidity and to facilitate moderate growth in the monetary
aggregates.
During the latter part of May reserve requirements on member banks'
Euro-dollar borrowings (Regulation D) and on loans by foreign
branches to U.S. residents (Regulation M) were reduced from 8 to 4 per
cent. Then in October the requirement on member bank time deposits
with an original maturity of 4 years or more was reduced from 3 to 1 per
cent. The latter action released about $350 million of reserves.
Finally, in late December the reserve requirement applicable to time
deposits having an initial maturity of 180 days or more but less than
4 years was reduced from 3 to IVi per cent, releasing another $320
million of reserves in the week beginning January 8, 1976.2
Situation In early 1976
At the start of 1976 ample supplies of funds at reduced interest rates
were available to support economic recovery. Outstanding commitments, for mortgage loans a^ savings and loan associations, for
example, were at the highest levels since mid-1973—some 50 per
cent above the low reached at the cyclical trough. The U.S. Treasury
was covering its heavy, continuing burden of cash borrowing at
interest costs signiicantly below those required in 1975, and mediumsized businesses with credit ratings of less than highest quality were
gaining better access to bond market financing.
In addition, consumers were making debt-financed purchases of
durable goods more freely than during much of 1975. Even State
and local governments were borrowing in the securities markets at
costs appreciably below those prevailing In late 1975—although a
limited number of units, largely in New York State, still had no
market access, and investors generally were troubled by the longerrun implications for State and local government financing of the
3-year moratorium on repayment of outstanding New York City
notes.
The generally improved economic and financial environment prevailing in late 1975 and early 1976 was highlighted by a strong
2
It should be noted that notwithstanding the October and December changes
in reserve requirements, individual banks were still required to meet the 3 per
cent statutory reserve minimum on their total time and savings deposits.

rally in stock prices. Stocks had risen, sharply from their deep cyclical
lows of late 1974, as market participants anticipated the pick-up that
subsequently.. developed in economic activity and corporate .profits.
From late 1974 through 1975 the stock price advance amounted to
about 45 per cent; then in the space of a few weeks in early 1976
the uptrend was extended another 14 per cent. The latter move was...
significantly affected by the still relatively low stock price/earnings
ratios implicit in year-end economic forecasts of continued favorable corporate profits. In addition, investor attitudes were being
influenced more generally by the prospects for a strong and sustained
economic recovery, by some calming of inflationary fears, and by the
failure of interest rates to show their usual cyclical rise.
In'the ley'commercial banking'sector," institutions'in early 1976
were for the most part well situated to meet expected increases in
demands for business credit. Banks generally had rebuilt liquidity,
made substantial provision for potential loan losses,' and improved
their capital ratios. Also, by maintaining wider-than-usual spreads
of their prime rate over the costs of money market funds, banks had
helped to-sustain their earnings, despite the over-all cut in-business
lending and the need to increase reserves against potential loan
losses. Data for 1975 for the 50 largest U.S. banking organizations
(bank, holding companies) reveal that even with provisions..for loan
losses of $2.3 billion (an increase of 75 per cent over the 1974 provisions), after-tax earnings increased 7.6 per cent to- $2.8 billion.
Although net loan charge-offs for these firms more than, doubled
to $1.9 billion in 1975, valuation reserves were increased by more
than 15 per cent to $3.1 billion. And by midyear, substantial improvement was also evident in bank capital ratios for the first time
since 1969. Total capital for all insured commercial banks reached
$75 billion as of June 1975, compared with less than $72 billion at
year-end 1974 and less than $50 billion as-recently as 1970.
As money market rates dropped to new cyclical lows in the early
weeks of 1976, the prevailing bank prime rate was reduced to 6M
per cent—the lowest level since the spring of 1973. Even so, bank
credit remained relatively costly for prime business borrowers/since
wider-than-usual spreads of the prime rate over commercial paper
rates were maintained. Moreover, both banks and other financial
institutions continued to follow generally conservative policies on

other credit terms. This conservatism reflected both a reaction to
past loan losses and the significant potential for further losses still
in prospect for many institutions. To some extent, therefore, the
process of purging the financial system of the lingering effects of
earlier credit excesses and subsequent recession-related difficulties
was still incomplete.
MONEY AND CREDIT AGGREGATES
A congressional resolution was passed in late March 1975 requesting
the Board of Governors to report quarterly to the banking committees
of the Congress to explain Federal Reserve policy and establish the
System's prospective growth ranges for the monetary aggregates. The
Board's Chairman made his first appearance for this purpose on
May 1 before the Senate committee, and alternated between the
House and Senate committees at quarterly intervals thereafter.3
In his testimony on May 1 the Chairman specified the following
growth ranges for the period between March 1975 and March 1976:
5 to IVi per cent for Mx\ 8Vi to 10V4 per cent for M2; and 10 to
12 per cent for M3. In announcing these ranges, the Chairman indicated that the very high rates of unemployment and of idle industrial
capacity then prevailing called for monetary growth rates that were
relatively high by historical standards. However, he also cautioned
against overly rapid monetary expansion in view of the continuing
intolerably high rate of inflation.
In his later appearances to discuss growth targets, the Chairman
reported that the Federal Open Market Committee (FOMC) saw
no economic reasons for basic changes in the numerical ranges
initially specified. To maintain the forward-looking perspective of
these ranges as called for by the congressional resolution, however,
the base periods to which the growth rates were linked were moved
ahead one quarter at each reporting. Also, in July the FOMC began
calculating its growth ranges from quarterly-average base periods
rather than from end-months of quarters as in May. This change was
introduced to reduce distortions created by figures for end-of-quarter
months, such as June 1975 when the growth rates for money deviated
3
See pp. 113 and 114 for the text of the resolution and pp. 81-113 for the
statements made by the Chairman in 1975.

sharply from trend. In, October, the ranges for M2 and M3 were
widened slightly by reducing their lower ends.
While none of these modifications in the mechanics of calculating
growth ranges had a significant impact on the Committee's over-all
policy posture, the changes did raise the levels of the growth patterns
somewhat relative to those initially designated in May. However,
over the course of 1975 growth in ail of the major monetary aggregates remained within the ranges specified in May.
At the first FOMC meeting in 1976 the Committee reaffirmed
its long-run growth ranges for M2 and M3, but the range for Mt
was widened somewhat, to a 4Vi to IV2 per cent band. The bottom
end of this band was lowered to allow, among other things, for the
sizable volume of transfers of funds from demand balances to business savings accounts that developed after mid-November 1975 when
commercial banks were first authorized to offer such accounts.
Performance of the aggregates
In the early months of 1975 the deepening recession and a variety
of other factors were operating to- depress the public's demand for
money as narrowly defined. In the first quarter, as Table 6 shows,
Mi grew at less than a 1 per cent annual rate. Broader measures of
money, on. the other hand, continued to expand significantly—
particularly M3, which grew at a faster rate than in the latter half
of 1974. In the main, this divergence in growth patterns between the
narrow and broader measures of money reflected the stimulus to
interest-bearing thrift accounts being created by the sharp drop in
rates on market securities while rates paid on thrift accounts were
generally being held at their regulatory ceilings.
In the 2 months immediately following the Chairman's May 1
report to Congress on the FOMC's prospective growth ranges, the
three key measures of money expanded at annual rates ranging
between 13 and 16 per cent—substantially in excess of the upper
limits of the System's longer-run ranges. This burst in monetary
growth reflected in part the more than $10 billion, of Federal income
tax rebates and supplementary social security benefits disbursed
during the period. It appears that the public held a large part of
these cash windfalls in depositary form before making more permanent disposition of the funds.

6. Growth in monetary aggregates :
In per cent

Measures of money

Adjusted
credit prox>

Period
Mi

1972....................
1973....... ......

1974
....
1975 . . . . . . . . .

.......

.....

1975—QI.

8.4
6.2

i
1

*" I
11.2
8,8

A#3

13.3
9.0

11.3
11.1

5.0
4.4

7.7
8.2

7.1
ii.i

9.8

,6
7,4
7.1
2.5

5 6
10.2
10.1
6.1

7.5
12.6
13,3
9.2

3.6
1.4

4.3
5.8
6.0

l
Mi = Currency held outside the Treasury, F. R. Banks, and the vaults of all commercial banks,
plus demand deposits other than interbank and U.S. Govt.
Mt = Mi plus time deposits at commercial banks other than large negotiable certificates of deposit
at weekly reporting banks.
Ms — M% plus deposits of mutual savings banks, savings capital of savings and loan associations,
and credit union shares.
Adjusted credit proxy = Total member bank deposits subject to reserves, plus Euro-dollar borrowings, loans sold to bank-related institutions, and other nondeposit items.

NOTE,—Incorporates revisions in money stock and related 'measures based on benchmark data for
nonmember banks derived from reports of condition through October 1975, as well as revisions in
seasonal adjustment factors. Rates of growth derived from daily-average data for quarter relative to
those for preceding or year-earlier quarter. Quarterly rates are seasonally adjusted and annualized.

These payments had been expected to push growth In the aggregates temporarily above the System's longer-run growth paths. But
when the overshoot proYed to be substantially greater than forecast,
there was a significant risk that any sustained expansion of the money
stock at double-digit rates would erode the progress being made in
bringing inflation under control. To help guard against this possibility, the FOMC in early summer took steps to moderate the pace
of monetary expansion, and their actions raised the Federal funds
rate by about 1 percentage point.
By midyear, the tax rebates and supplementary social security
payments had been largely completed. As the public then drew down
the excess money balances created by these windfall receipts, money
growth slowed abruptly. For Ml9 month-to-month annual rates
of growth dropped into the range of 2 to 3 per., cent, and for the
broader measures growth rates also receded sharply as the quarter
progressed.
This process of reducing excess balances had been expected to
produce a substantial slowing in money growth during the summer.

But when the slower growth persisted into early fall, it became apparent that factors other than the reduction of excess balances- were
involved. The System responded by substantially lowering the level
of its range of tolerance on the Federal funds rate. Although all of
the key measures-of money then showed faster annual rates-of'growth
during the fourth quarter than before the Treasury's special secondquarter disbursements, growth in M± continued to be far below what
might have been expected on the basis of historical relationships' to
GNP and interest rates. As a. result, the increase in income velocity
was greater over the second half of the year than at any other time
in more than a quarter of a'century.
Implications of velocity changes
The.unusual, behavior of the.income. velocity of Mx during .1975 is
highlighted by the chart. As the top panel shows? the velocity index
for'narrowly deined money did not differ'markedly from a normal
cyclical..pattern up to the.trough.of the current cycle...Thereafter,
however, it accelerated much more rapidly than it had on the average
during the'preceding four recoveries;' in fact, it matched 'the'earlier
record upsurge of the 1949-50 cycle, when the post-World-War-II
economy was still awash with liquidity. Moreover, although the
Treasury bill rate initially turned up sharply from the cyclical "trough
as in.other recent cycles, it then dropped back to a level-roughly
consistent with the1 more gradual advance that had occurred in the
1949-50 upswing. The middle panel of the chart makes' the same
kind of. comparison for the income velocity of M2. It shows-that-although the contrast with the average of other recent cycles is not
so marked, M2 velocity has also- been more rapid in the current cycle
than is normal.
These comparisons strongly suggest that in 1975 the demand for
Mi—given 'levels of income and interest rates—failed to grow
along the- paths indicated by historical relationships. One reason for
this change may be that when interest rates move abruptly to new
historical highs, the public is jogged into new ways of economizing
on non-interest-bearing forms of money. Once learned, • these- -new
habits are not quickly reversed even when interest rates recede
again. Since interest rates jumped to new record levels in the summer of- 1974, they may have exerted a ratchet effect of this type on

succeeding demands for narrowly defined money. At the same time
a number of recent innovations in financial practice are becoming
more widely adopted and are probably contributing to the increased

Income velocity of money, and Treasury bill rate
6 postwar recoveries
GNP
Vi = Mi

Trough quarter=100
120

110
1975-76

100

GNP
M2

120

110
.1975-76

4 others

Treasury bills
3-month

100

220

180

140

1975-76

100

-4
-2
Trough
+2
+4
+6
Data are at seasonally adjusted annual rates of growth. U.S. Treasury bill rate, market
yields on 3-month issues. Note differences in scales.

efficiency-in -money use—although-lew data are available to document, the quantitative significance*of these- changes.
Several such.innovations were, initiated.late in. 1974..and In 1975.
Near the end of 1974 governmental units were permitted for ...the Irst
time to hold savings deposits at commercial banks. And on governmental'holdings of time deposits with denominations of less than
$100,000, banks were authorized to pay'interest rates as high as the
maximumjate permitted on similar accounts'at other types of Federally'
insured-depositary institutions. In April-the-Federal Reserve allowed'
member, banks to begin offering the service of transferring-funds- from
savings accounts to demand deposits, by telephone* In September banks
(like other, thrift institutions before them) were allowed to-., offer nonnegotiable transfers to a third party directly from savings accounts.
Finally, in November banks were authorized to allow businesses to
hold savings" deposits of as much'as' $150,000 perfirm(per bank).
Quantitatively the November 1975 action may have been the'most
important-of these changes; by early-1976 the volume of business
savings- accounts had grown to an estimated $3 billion—although, of
course., not .all .of. this increase was ...at..the .expense of demand deposits. In Massachusetts and. New Hampshire the congressionally
mandated NOW account experiment that was started in 1974 had
accumulated accounts totaling $750.million by the end of 1975. This
experiment 'permits commercial banks, mutual savings banks, and
savings and' loan associations to offer savings accounts subject'to
withdrawal by-negotiable order. In January 1976financial"institutions ..in. the four other New England States were also-authorized to
offer NOW accounts; thus, the use of savings accounts for. transactions purposes can be expected to spread.
From the fragmentary data available it is not possible to say to
what extent innovations in deposit instruments are creating permanent ' reductions in the demand for money as narrowly defined.
While the innovations introduced in 1975 probably account for only
a portion- of the recent shortfall in money growth, the'direction of
their influence is clear, and the public's efforts to improve--interest
returns on money and liquidity balances may well continue.
Given this obvious potential for continuing changes in the*.public's
demand for Mu and the evident recent variability in these demands,
it is clear that the System cannot rely on the narrowly defined money

stock—or any other single variable—as an intermediate objective of
monetary policy. The behavior of given financial aggregates must
always be interpreted in relation not only to the performance of
other money and credit aggregates and credit market conditions, but
also to the performance of the real economy.
Bank reserves
The total supply of reserves available to banks contracted during
most of 1975, but then expanded during the final quarter. Even in
the quarters when total reserves were contracting, total bank deposits
were able to grow because the structure of accounts shifted to forms
that require fewer reserves.
In particular, the average maturity of time deposits lengthened appreciably. Since reserve requirements are lower on longer-maturity
time accounts than on short-, this lengthening of maturities released
more than $1.7 billion of reserves during the year. Another $300
million of reserves were released by reduction in requirements on nondeposit sources of funds. In the final quarter of the year, however, reserves released through the lengthening of time deposit maturities were
no longer sufficient to support the general deposit expansion, so the
System used open market operations to increase the seasonally adjusted
total reserve base.
AGGREGATE FLOWS OF FUNDS
Aggregate flows of funds in 1975 were strongly influenced by the
deepening recession early in the year and the moderate economic
recovery thereafter. The dominant borrower was the Federal Government whose requirements expanded by $73 billion to a record $85
billion—as Table 7 shows. This huge Federal need developed largely
because the recession limited Treasury tax receipts and generated
higher compensatory Federal spending. However, discretionary
policies initiated to stimulate economic recovery through reductions
in tax rates also contributed to the size of the deficit.
Despite the record upsurge in Federal uses, total funds raised in
credit and equity markets during 1975 experienced a year-to-year
drop of $9.6 billion, with funds raised outside the Federal sector

7. Funds raised in credit and equity markets
In billions of dollars

Sector, or type of instrument

1975 i

1974
Q2

Total funds raised

218.1

208.5

P4.8

200.8

Mi.8

241.7

B> sector:
Nonfinancial sectors.
U.S. Government - . . .

1S0.1
12.0

197.3
§5.2

164.3
71.9

200,8
95.9

198,9
94,1

225.0
78.9

168.1
92.1
16.6
44.0
15.4

111.9
43,4
13.2
43.3
12.0

92.3
36.6
12.6
35.5
7.8

104,9
37.2
17.0
39.3
11,4

104.9
38.1
12. S
• 41,7
12.3

146.2
62.0
10.6
56.8
16.8

38.0
22.1
15.9

11.3
10.3
1.0

10,6
10.5
.1

-.1
7.6
-7.7

17.9
7.9
10.0

16.7
15.2
1.5

33.5

95.4

81.4

102,2

101,8

96.1

12.0

85.2

71.9

95.9

94.1

78.9

21.4

10.1

9.4

6.5

7,3

17.1

C o r p o r a t e and foreign b o n d s . . . . . . .
C o r p o r a t e equities
State a n d local government debt 3 . » .

23.3
4.6
17.4

34.5
10.0
15.4

49.4
6.9
14,0

36.1
12.8
20.1

1,9.5
8,2
14.5

32.9
12.0
12.8

Mortgages.

54,5
37.9
16.6

54,6
41.5
13.1

45,4
33.0
12.4

56.0
41.2
14,8

54.7
42.5
12.2

62,4
49.2
13.2

39.5
13.6
9.6
6.7
15.4

-12.9
. 1.3
5.3
-3.9
8.8

-38.1
14.6
-2.5
-10.5
14.2

-13.9
-10.8
-.6
-5.7
4.6

-6.3
1.8
11.6
-.2
11.2

6,7
-.3
12.7
,7
5.7

Other.
N on financial business.
State and local government.....
Households. .
Foreign.
Financial sectoi s
S p o n s o r e d credit agencies. . . . . . . .
P r i v a t e financial s e c t o r s . . . . . . . . . .
By type of Instrument:

U.S. Government securities
Public debt a n d budget agency
securities
Sponsored credit agency securities

Residential .
Other...... . . . .

. . . .

Bank loans n.e ,c.
Open m a r k e t paper plus R p ' s . . . . . . .
C o n s u m e r credit
L o a n s from h o m e loan b a n k s . . . . . . .
Other K
,
1

Quarterly data are seasonally adjusted annual rates,
Public debt securities and budget agency securities.
Includes both short- and long-term borrowing.
4
Includes mutual fund shares.

2
8

NOTE.—Data are from Federal Reserve flow of funds accounts. Rp's = repurchase agreements.

down nearly $83 billion. Most of this contraction occurred among
nonfinanclal businesses, where net demands on credit and equity
markets dropped to less than half the 1974 total. Federally sponsored credit agencies also borrowed less as funds again lowed more
freely to residential mortgage markets through private channels. And
inancial Institutions In general—with their normal sources of funds
regenerated—reduced their reliance on security market financing.

The 1975 shrinkage In credit and equity market demands of businesses reiected a dramatic year-to-year turnaround In corporate cash
flow. Businesses usually experience some regeneration of cash flow
during periods of economic recession and reco¥ery as they reduce
inventories and try to cut costs to improve profitability. In 1975,
however, the dimensions of the cash resurgence were much larger
than usual because efforts to hedge against Inflation had so exaggerated the earlier Inventory build-up. In addition, corporate profitability Improved markedly after midyear—more so than in most of
the earlier postwar recoveries.
On the supply side of financial flows, the largest dollar Increase in
funds provided to credit and equity markets was at nonbank thrift
Institutions, where the volume of funds available was more than
twice that In 1974—as shown In Table 8. Since rates paid on most
thrift accounts remained at their ceilings, the across-the-board de-

8. Funds supplied in credit and equity markets
In billions of dollars

Sector suppl\ing

1974

1975
1975
01

All sectors

218.1

208.5

174,8

200.8

216.8

241.7

All sectors to nonfinanciai s e c t o r s . . . . .

180.1

197.3

164.3

200.8

198.9

225.0

U.S.
Govt. a n d sponsored credit
agencies, . . . . . . . . . . . . . . . . . . . . . .
F . R . System
.
. . . . . . . . .
Foreign sources

31.5
6.2
12.1

22,1
8.5
8.0

29.3
9.0
22,0

14.8
5.0
7.1

17.9
19.8
— 3.3

26.5
.4
6.4

137,5
64.6
27.0
41.0
4.9

130,1
26.6
56.3
48.7
-1.5

90,6
-15,9
52.8
43,9
9,8

160.9
49.5
65.5
54.2

127,7
37.5
57.4
46.6
-13.8

141,2
35.2
49.4
50.3
6.3

Private

financial

intermediaries,.......

Commercial banks. . . . . . . . . . . . . . . .
Thrift institutions. . . . . . . . . . . . . . . . .
Insurance a n d pension funds. . . . . . .
Other............................
M E M O : F u n d s raised b y private
financial i n t e r m e d i a r i e s . . . . . . . . . . . . . .

15.9

1.0

-7.7

Private domestic nonfinanciai investors, .
Households
Nonfinanciai business
State and local governments........

30.8
22.1
8.4
.3

39,8
11.8
22.3
5.7

24.0
15,5
9.0

1J.0
-13.6
31.3
-4.7

MEMO: Net change In deposits and
currency held by private domestic
nonfinanciai sectors.

82.8

100.3

75.3

150.2

9.9

1.5

33.6
11.9
9.2

67,4
27.6
30.4
9.4

78.6

97.0

54.7

Quarterly data are seasonally adjusted annual rates.

NOTE.—Data from Federal Reserve iow of funds accounts.

cline in yields on competing market securities added significantly to
the investment appeal of thrift instruments, MoiifinanciaJ corporations and State and local governments also supplied more funds in
1975 than in 1974 in. the process of rebuilding liquid assets.
Households supplied substantially fewer funds directly to credit
and equity markets—as is usually the case when cyclical declines in
market interest rates shift household InYestment preferences toward
thrift accounts. At commercial banks, however, the large year-toyear reduction in total funds being supplied was sharply at odds with
past cyclical experience. This tendency for bank assets to shrink,
rather than expand as in past cycles, was due largely to the unusual
dimensions of business loan repayments and the associated decision
of bankers to' permit heavy net redemptions of their large CD's. In
addition, the increased emphasis by banks on conservative asset management, in the face of large potential loan losses, appears to have
been an important factor.
Federal sector
The huge dimensions of the Federal deicit financing task for 1975
first came into sharp focus during the latter part of the first quarter
when the Congress was completing action on the Tax Reduction Act.
The magnitude of this prospective Federal need contributed to the
general backing up of longer-term interest rates in late winter. But
the major pressure from Treasury financing did not develop until the
third quarter. During the second quarter, in fact, long-term rates
receded somewhat from their late-winter highs.
It was not apparent much before midyear that economic activity
was turning up? and with monetary policy accommodative, short-term
interest rates in the second quarter continued to trend downward.
Moreover, while the burden of Treasury financing when measured
on a seasonally adjusted basis did bulk largest during the second
quarter—when Federal tax rebates and special social security payments were being disbursed—it was appreciably smaller than in the
other quarters before seasonal adjustment. In additioe? a sizable
share of the second-quarter Federal outlays were* simply channeled
into deposits at intermediaries and then partly reinvested in the expanding Treasury debt.

In the third quarter the large Treasury financing need had to be
accommodated in a rather different financial climate. Incoming data
showed a marked upsurge in the real economy, and interest rates
generally came under upward pressure. In this period many financial
market participants began to wonder whether the feared possibility
that hea¥y Federal financing would "crowd out" other borrowers
might not actually materialize. In particular, with increased rates
on competing market securities threatening to erode the investment
appeal of thrift accounts, managements at financial intermediaries
became hesitant about entering into new mortgage commitments. In
the process, the pressures caused by rising security market rates
spread rather quickly to mortgage loan rates.
Investors remained cautious about the interest rate implications of
Federal deficit financing into the early fall, when the Treasury offered
several debt issues—in both the bill and note sectors. As a result of
this bunching of new issues, financial markets continued under some
tension. The general easing of money market rates in October, however,
quickly relieved this strain, and thereafter Treasury yields trended
generally downward.
Business sector
The most significant changes in business financing during 1975 were
the substantially reduced over-all volume of funds raised in credit
and equity markets and the marked shift of emphasis from short- to
long-term financing. Total funds raised dropped by about $49 billion
relative to 1974, but the volume of stock and bond financing was
nearly $13 billion larger than in 1974. Thus, the over-all level of
stocks and corporate bonds outstanding expanded a record $37 billion
in 1975 while outstanding business loans at banks contracted about
$13 billion. The latter reduction contrasted sharply with 1974 when
loans to business had expanded nearly $30* billion.
The shrinkage of business loans at banks was largest during the
first half of the year when nonfinancial corporations were cutting
their in¥entories sharply. In that period^ while inventories were contracting at about a $23 billion annual rate, loans at banks declined at
roughly the same rate. At the same time rapid expansion, in. outstanding
corporate bonds and stocks—at a $46 billion annual rate—was providing an alternative source of funds.

Later in the year? when inventory liquidation tapered off, the contraction in business.loans at banks, also slowed; nevertheless outstanding
loans still experienced some further attrition in the fourth quarter. A
major factor helping to.minimize..business needs for bank...financing as
the economy recovered was the sharp step-up in corporate profits beginning in the second quarter,. While.business reliance on- capital market
financing also moderated somewhat as the year progressed, the slowing
of the decline in bank lo-ans was-a more-significant factor in-their total
financing arrangements. Consequently, business reliance on, short- and
long-term-instruments-taken together began to pick-up-after-the first
quarter—and was largest in, the final quarter.
Because -of the increased • general emphasis on - credit' • quality,
direct access to public securities markets was limited during much of
the-year for corporations with less than the highest credit ratings." This
greater stress on quality was evident in the sharp widening of spreads
that developed 'between secondary market yields on corporate' bonds
in different rating categories. By early 1976? however, after the
general course of interest rates had turned down again, businesses with
less than the highest ratings had regained access to the public market.
State and local governments
Borrowing by State and local governments remained quite heavy
in 1975 as a sharp deterioration in. financial positions forced some
units to raise money in circumstances they would rather have avoided.
On the one hand, the recession exerted a squeeze on State and local
tax receipts while adding to welfare expenditures. On the other hand,
the inflation raised operating outlays—particularly for fuel, but also
for salaries and wages as municipal employees in key areas bargained aggressively for expensive labor settlements and resisted labor
force reductions.
In the face of these unusual pressures State and local government
borrowing in 1975 was only moderately below the near-record volume of 1974. However, the 1975 total overstates the willingness of
municipal investors to absorb new debt, since most..of the $3.8
billion of gross debt issued by New York City to meet its secondhalf deicit .and refunding requirements had to be distributed- outside
regular market channels.

The heightened quality-consciousness of investors in municipal
securities surfaced early in the year when the New York Urban
Development Corporation was forced to default on a short-term note
issue and bank loan. Attention then focused on other major borrowing units that were reported to be experiencing financial difficulties—
forcing yields on their securities to unusually wide spreads over the rest
of the market.
As the year progressed, normal market channels for distributing
debt instruments of New York City dried up. When the efforts of
New York State to' fill this gap through the establishment of a Municipal Assistance Corporation also proved insufficient, the State itself
borrowed to lend to the City, By late fall the odds that the City would
default and possibly trigger a larger default by the State, and by its
agencies as well, seemed very high.
Market tensions created by this possibility were finally relieved
when the Federal Government elected to assist the City directly on
a temporary basis in conjunction with a 3-year plan to restructure
the City's debt and balance its budget. Passage of a tax package to
ease the State's own budget problems also served to reassure market
participants. Yields on municipal securities then receded substantially
from their late fall highs, even though the over-all volume of new
State and local government debt offerings remained large.
Household sector
Funds raised by households in credit markets totaled about the same
in 1975 as in 1974, but the quarter-to-quarter growth trend in the 2
years was different—up in 1975, and down in 1974—as the chart
shows. Mortgage borrowing by households reached its recession
low in late 1974 aed then .rose gradually throughout 1975. Consumer
instalment credit also followed a pattern of cyclical decline and recovery, but the pattern, differed from mortgage credit in timing and extent
of change—showing some net contraction in late 1974 and early
1975, substantially wider fluctuations, and a later upturn. While interest rates on home mortgages declined more than 100 basis points during 1975—from their record 1974 levels of 10 per cent or more—the
typically more rigid rates for consumer instalment loans eased only
slightly.

Funds raised by households in credit markets
Net change, billions of dollars

1972
1973
1974
1975
Flow of funds data. Total includes some items not shown separately.

The upswing in home mortgage borrowing was attributable to
sharp increases in sales of existing houses and to expanded financing
of new home sales. Borrowing was concentrated more heavily than
usual at savings and loan associations, which accounted for more
than three-fifths of the net expansion in home mortgage debt during
the year.
The first-half contraction of instalment debt, along with a gradual
reduction in delinquency rates, placed consumers in a better position
to expand spending and borrowing for consumer durable goods. At
midyear, following the upturn in real disposable income, creditfinanced spending was accelerating again, and by the fourth quarter
consumer instalment debt was growing at a 7 per cent annual rate.
However, this was still only about half the peak rate reached in the
first half of 1973. The sharpest reductions in consumer instalment
borrowing occurred early in 1975, chiefly at commercial banks, but
consumers continued to borrow from credit unions throughout the
year at close to the prerecession volume. Growth in share accounts
at credit unions averaged 20 per cent for the year.
Depositary institutions
In contrast to the highly unusual efforts of commercial bankers to
shrink their total footings, management strategies followed at nonbank thrift institutions in 1975 were more typical of those normally
64

pursued in recession and recovery periods. The combination of
special cash disbursements by the Federal Government and of reduced yields on market securities generated lieaYy net inflows of
funds to the nonbank institutions—particularly during the late spring
when the Federal payments were concentrated. Although the temporary rise in market rates during the summer and the sharp pick-up
of retail sales at year-end produced some slowing of growth in thrift
accounts relatiYe to the record second-quarter pace, inlows remained
quite strong throughout the }\ar, and again in early 1976, when
they surged to new records.
During the initial months of 1975 nonbank thrift institutions
placed major emphasis on. impro¥ieg their liquidity positions—repaying high-cost borrowing and enlarging liquid asset holdings. Additions
to liquidity were encouraged by actions of the Federal Home Loan
Bank Board that raised the share of assets that savings and loan,
associations were required to hold in liquid form. The liquidity preferences of thrift institutions were also reinforced by the backing up
in market rates on longer-term securities late in the first quarter and
again in the summer. These episodes tended to maintain management
sensiti¥ity to the risks of possible renewal of disintermediation; they
also encouraged management to hold deposit rates at the allowable
maximums, although ad¥ertisiog of the highest rates was not uniformly aggressiYe in all parts of the year.
As their rates of deposit growth increased, nonbank thrift institutions stepped up their mortgage lending. In fact, most of the
year's financing of residential housing by private lenders was provided
by eonbaek thrift institutions. At savings and loan associations, which
account for the bulk of mortgage credit ad¥aeced by thrift institutions, outstanding loan commitments on housing rose to more than
$18 billion in the fourth quarter—the largest volume since the summer of 1973 when they were only moderately below the record
established early that year.
At commercial banks, the increased emphasis on conservative
management policies was reflected in both the general shrinkage of
total assets and a shift to assets of higher quality and greater liquidity.
Thus, while bank holdings of U.S. Treasury securities grew $3G* billion in 1975—after showing only minimal growth in 1974—holdings
of all other key types of assets grew substantially less. Additions to
holdings of non-Treasury securities were $3 billion less than in 1974;

expansion in mortgages was nearly $10 billion, smaller; and loans
other than mortgages actually contracted by $9 billion over the
year—after, growing. $42 billion In 1.974.
The general reduction in risky assets was matched on the liability
side of bank balance sheets by cutbacks in usage of the more costly
sources of funds. In particular, the outstanding volume of largedenomination bank CD's dropped $17 billion.
Conservative policies were also relected ie bank attitudes toward
lending rates. Although the rate on prime business loans declined
nearly 4 percentage points to 6% per cent from the end of 1974
through early 1976, the prevailing baek prime rate remained on the
high side throughout 1975, relati¥e to rates being paid by prime
business borrowers ie the commercial paper market. Bankers "apparently concluded that with business short-term borrowing demands
on the low side, CYCE a sharp reduction in the prime rate would fail
to elicit'significant additional demands for loans, whereas the'potential loss of baek re¥enu.e from such a change might prove counterproducti¥a in a year when, earnings were being significantly affected
by the -need to establish reserves for larger potential loan losses.-

International Developments
The international economy in 1975 suffered the deepest worldwide
recession since the 1930's. The downturn had come earlier in the
United States than in most other major industrial countries and the
subsequent recovery was initially stronger. Real output declined by
less, on average, in other major countries than it did in the United
States. The combined real GNP's for Canada, France, Germany,
Italy, Japan, and the United Kingdom dropped an estimated 3.8 per
cent from the first half of 1974 to the first half of 1975 while real
GNP in this country dropped 4.9 per cent. Economic activity in
some of the smaller European countries—for example the Scandinavian countries—held up better than in the larger countries in
1975.
Differences in the timing of the recession and the recovery in
the United States relative to the rest of the world contributed to
changes in the relative tightness of various national money markets
over the year. From mid-1974 to early 1975 money market conditions in the United States eased, on average, relative to markets in
other countries as U.S. output dropped sharply. Declines in interest
rates were widespread among industrial countries during this period,
but the declines in U.S. rates were among the largest.
From February through September U.S. interest rates rose fairly
steadily relative to those in other countries, first as continuing recessions abroad brought foreign interest rates down somewhat and later
as U.S. rates firmed with the rise in domestic economic activity.
U.S. rates sagged after September, but relative to rates in other
countries they were well above levels at the beginning of the year.
These cyclical developments affected U.S. international trade and
financial transactions in 1975 in a number of ways: (1) An estimated surplus of $13 billion on current-account transactions was
registered, a sharp turnaround from the $0.2 billion deficit in 1974;
(2) the trade-weighted average value of the dollar fell off sharply
in January and February, moved little for several months, and then
appreciated by more than 10 per cent from July to September; and
(3) U.S. banks slowed markedly the extraordinary rate at which they
had expanded their foreign activities in 1974.

Real G N P

U.S. and 6 foreign countries
Q l 1973= 100

1973
1974
1975
Weighted-average index of seasonally adjusted quarterly real GNP from the Organization
for Economic Cooperation and Development. Foreign countries are Canada, France,
Germany, Italy, Japan, and the United Kingdom. Weights are proportional to 1974 GNP
measured in dollars.

The oil-exporting countries greatly increased their imports in 1975
while their receipts probably declined somewhat, resulting in a
decrease in their investible surplus from roughly $60 billion in 1974
to $35 billion-$40 billion. Though the management of these funds
has become routine for financial institutions, the continuing drain
of aggregate demand from oil-importing countries that the accumulation of such funds reflects has been a major factor depressing world
economic activity.
The non-oil-exporting developing countries experienced lower
export prices and volumes in 1975 than in the previous year. Despite
these developments and their continued large payments for oil, these
countries as a group maintained their imports from industrial countries at or above the 1974 level. In order to maintain the level of
their imports, these countries obtained an unprecedented amount of
credit in private capital markets and from official sources. They also
reduced their reserves by almost 10 per cent.

CURRENT-ACCOUNT TRANSACTIONS
The swing to a large surplus in the current account in the first half
of 1975 was accounted for by a decline in merchandise imports,
which were sharply reduced by the recession here. Import volume

fell 10 per cent in the first quarter t'loiii the preYlous quarter and
another 12 per cent in the second. There were reductions in all
major categories. The sharpness of the declines reiected the Impact
of the liquidation, of InYentories in the first half of the year as well
as declining production.
The Import price level rose 2 per cent from the fourth quarter
of 1974 to the second quarter of 1975. Inflation abroad continued
to provide an upward thrust to Import prices, while a depreciating
9.

U.S. International transactions
In billions of dollars
'< st a s illy adjust ed)

llvMU

Merchandise trade balance
Fx ports
Imports
Set M<. c fraau.kiiosis.

.,, ,

--5 .S

9 11
2

10* .h ;

tut

/ '
. 1

O t h e r

Balance

setvices,

n e t

po> m e n t s
o n current

]. i

account

- .

Bank-reported nonofficial capital flows, w» -/ .
C h a n g e s i n foreign assets of U . S . b a n k s
(increase, — ) . . . . . . , . . , , . . . . . , . .
Changes In foreign liabilities of U . S .
b a n k s (increase, o r decrease (—)) 3 .
Other capital
flows,
net,..............
U.S. G o v t . capital, n e t 2 . . . . . . . . . . .
Direct investments, n e t 4 . . . . . . . . . . .
U . S . purchases of new foreign bond
isso.es (increase, — ) . . . . . . . . . . . . . , .
Foreign purchases of U . S . corporate
stocks (Increase, o r decrease (—)) 4
Changes in U . S . liabilities t o O P F x
official agencies (Increase, o r decrea -e
(—)) 5
Changes In U . S . liabilities t o other
foreign official agencies (increase, or
decrease ' - ) )
. . .
. . .
Other noiiolikiai capital flows, net
Changes in U . S . resetve assets iincrease, -- ) .
.
. .
Statistical discrepancy

1
1 4
4

2.1

12 ft

i (} '

7 i

24^5
» ^

1 *i

0 ;
2 '

}

i*7

i K

- , S

- I

- .v !

-1.0
3.3

4 0

f. '

I *> -

_? 5

i
%

}

_ \>8

, K '

- 4, H

-. ?

4.0 j

1 *

* - \

7 |

I ,h

4 '< - 7 ?

_ > ! ,

1 2

- 1 I

•

i \)

4
10 0 .2 i

I I1

4.7

2.2
21, 1
2s 5

!
1

_ / .S 1

_ 1 ,4

2 6 (i •

,4
i !) |

{

_ I

3 J
,»s 8
12 t»

•

Id . 8 !

4 ,

- l() 3

t< '

I
_

. 4 A) j

4 I

6 0

•> j

I ransfti

1 5 !
fj

— 1 )

V
I . It

7
7
2.6

\ ,\ '

5 ^

i .7

1 2

1.3

- 1 4 ,

4 I) J

.4 '

Includes IJ.S Cio\f. grants and pensions, aiul prhate
Excludes special t)flsetting transactions with Indii, K cl, aiitl Vietnam
• Bxcludtis liabilities to foieigu official agencies.
4
Includes some foreign official transactions.
6
Not seasonally adjusted,
« Less than $50 million.
2

NOTE.—Details may not add to totals because of rounding. Data from U.S. Depts. of Commerce
and Treasury,

dollar in. late 1974 and early 1975 tended to raise prices of some
imports-in-dollar terms. A t t h e s a m e time,' worldwide w e a k n e s s ' i n
demand softened the prices of many goods moving in international
trade. Prices of Imports of primary commodities declined in 1975,
reflecting sharp • reductions in the prices of these commodities' on
world markets, from peak 1974 levels.
The fast rate of growth of U.S. output in the third quarter generated a 22 'per cent rebound in the ¥alue of imports in the same'
quarter, reinforcing; the view that the., second-quarter ..decline in
Imports had been associated with the domestic inventory adjustment.
Volume increased'"even more than value as prices of imports fell.
Some of the rise in volume was in imports of fuels, partly-in-anticipation of a price increase by the Organization of Petroleum Exporting Countries '(OPEC) on October 1, but imports of automobiles,
consumer goods, foods, feeds, and beverages •-also increased, Importscontinued to grow in the fourth quarter, rising 4.5 per cent in volume.
Import 'prices 'fell 2.5 per cent from the second to the fourth
quarter, In part because appreciation of-the dollar in-the third--quarter reduced the dollar prices of some imports and in part because
weak worldwide demand brought price reductions on some goods.
In contrast to U.S. import prices, broad-measures of prices-continued
to rise around the world, with the weighted average of GNP delators
in the six" major trading partners of the United States rising about
4 per- cent from the Irst half to the second half.
The volume of U.S. nonagricultural exports fell by 6.5 per cent
from the fourth quarter of 1974 through the second quarter of 1975,
but this-decline -was roughly offset by an Increase in-unit values.
Agricultural exports, which had remained at a high level following
a sharp increase in 1973, were large for the irst half of 1975 as a
whole, but--they-were declining O¥er this period. Recessions in-foreign
industrial countries that were milder and somewhat later than the
U.S. recession, along with increased demand for U.S. goods on. the
part of oil-exporting countries, helped to account for • the strength
of exports as compared with imports in the first half of 1975. ..In
addition, non-oil-producing developing countries continued to be
relatively strong-markets for U.S. goods in spite of their 'higher oil
bills and declining export earnings.
Total U.S. exports grew by 8.5 per cent from the second to the
fourth quarter of • 1975. Agricultural export volume turned "up, 'and a

10. U.S. merchandise trade, balance of payments basis
In billions of dollars
Seasonally adjusted annual rates

1974

Item

1974

1975

1975
Q4

98.3
22.4
75.9

107.2
22.3
84.9

106.4
22.5
84.0

108.2
24.3
83.9

103.4
19 6
83.8

106.4
22 3
84.1

110.8
23 0
87.7

Imports
Fuels
Nonfuels

103.6
21A
76.2

98.1
28.3
69.8

111.9
29.5
82.4

102.2
27.6
74.7

90 3
26 4
63.8

97 9
30.0
68.0

102 1
29 4
72.7

Trade balance

-5.3

9.0

-5.5

6.0

13.1

8.4

8.7

Exports
Agricultural
Nonagricultural

. .

NOTE.—Details may not add to totals because of rounding. Data from U.S. Dept. of Commerce,
Survey of Current Business, December 1975.

decline in prices was slowed as a result of large sales of grain to
the Soviet Union. Nonagricultural exports also showed a strong
upturn; from the second to the fourth quarter, they rose 6.1 per cent,
about two-thirds of which represented an increase in volume.
While the trade balance strengthened markedly in 1975, there
was some reduction in the net balance on services (including income
receipts and payments) and military transactions. The largest change
was a reduction in net income receipts from the record level of 1974,
when oil industry profits were extraordinary. This reduction was
offset in part by rising receipts from military sales abroad and by a
small reduction in foreign military expenditures.
INTERNATIONAL CAPITAL MARKETS AND
EXCHANGE RATES
Although many factors affected the levels and movements of exchange
rates in 1975, changes in the relative tightness or ease of money
markets in the United States and in other countries during the year
were the dominant force behind fluctuations in the value of the dollar.
Both U.S. and foreign interest rates fell from the third quarter of
1974 through the first quarter of 1975, but through January the
decline in U.S. rates was greater than the decline in a weighted average of foreign interest rates. The weighted-average value of the
dollar declined over the same period, reaching depressed levels in

early 1975 at a time when the U.S. current-account surplus was growing rapidly. The dollar continued to decline in exchange markets
through the first week in March.
Intervention to moderate the decline in the dollar was substantial
in January and February as the Federal Reserve sold about $800
million in foreign currencies obtained under swap arrangements with
foreign central banks. Substantial intervention also was undertaken
by foreign central banks for their own accounts during the first
quarter. Although net changes in official liabilities are an imperfect
and incomplete reflection of efforts by authorities to affect exchange
rates through intervention, the $3.2 billion increase in U.S. liabilities
to foreign official agencies (other than OPEC) in the first quarter
of 1975 indicates roughly the extent of official support for the dollar.
The swing toward an outflow of mobile, bank-reported capital in
the first quarter of 1975, in response to the relatively lower U.S.
interest rates, was accommodated in part by the rising current-account
surplus. However, the potential capital outflow—given the change in

International value of the dollar and interest rate differential
Per cent

May 1970 = 100

1974
1975
Last day of month. Foreign interest rates and exchange rates are weighted by shares of
foreign trade (exports and imports) with the rest of the Group of Ten plus the United
States in 1972.

Interest rates—was even greater, and the additional pressure was
responsible for the depreciation of the dollar. Official intervention
reduced the potential depreciation of the dollar, which would at
some point have halted the outflow of private capital, and a record
net outiow of $5.6 billion occurred in bank-reported capital.
The dollar appreciated slightly during the second quarter as U.S.
interest rates rose somewhat relative to rates abroad and the currentaccount surplus reached a peak. A large increase in the foreign
claims of U.S. commercial banks resulted in a net outiow of bankreported capital nearly as large as that in the Irst quarter. During
this period the Federal Reserve System sold dollars for foreign currencies and used the proceeds to reduce its outstanding drawings
under swap arrangements by about $600 million; however, the combined intervention, of all central banks resulted in a small net purchase of dollars, from the market.
With the economic upturn in the United States and the rise in
Interest rates that accompanied it, the dollar began to strengthen
In exchange markets. Beginning in late June, what had been a weak
upward drift became a strong rally against all major cerreecies
except the Canadian dollar. After reaching a peak in September, the
weighted-average value of the dollar receded only slightly and then
fluctuated in a narrow range about 9 per cent abo¥e its first-quarter
level for the rest of the year. Developments such as New York City's
financial crisis and occasional shifts in financial markets toward
tightness or ease affected exchange markets for brief periods, but
none of these factors had a lasting impact.
The dollar's recovery provided an opportunity for purchases of
foreign currencies by the Federal Reser¥e System sufficient to repay
completely, by the end of July, the swap drawings made earlier in
the year. At the same time, foreign central banks made large sales
of dollars to- moderate the depreciations of their currencies relatiYe
to the dollar. The swing in U.S. liabilities to foreign official agencies
(excluding OPEC), from increases in the first two quarters to a
decline of $6.3 billion in the third quarter, is indicative of the major
change in the thrust of central bank activity in, exchange markets.
In the fourth quarter the ¥olume of System intervention and net
foreign central bank intervention in dollars declined while the value
of the dollar remained stable.
The exchange-market intervention that occurred in the third

quarter moderated the upward pressure on the ¥alue of the dollar
by satisfying part of the Increased demand for U.S. dollar assets that
resulted from the shift toward relatively higher interest rates in the
United States. This demand was again reiected largely in bankreported capital lows, which swung from a net outflow of $4,0 billion
in the second quarter to a net inflow of $3.2 billion, in the third.
U.S. interest rates then fell off relative to foreign rates In the fourth
quarter, inducing a shift toward an. ielow of mobile fends. The
upward pressure on the dollar was relie¥ed. There was only small
net intervention, but with a continuing current-account surplus bankreported capital flows swung back to a net outflow of $3.5 billion.
While net bank-reported capital flows showed considerable volatility in 1975, the year-to-year growth in the foreign activities of head
offices of U.S. banks? as measured by the growth of gross foreign
assets and liabilities, slowed markedly from the 1974 pace. Banks5
foreign assets increased by $13 billion in 1975 after an increase of
$20 billion (73 per cent) in I974? while liabilities to- private foreigners rose by only $3 billion after growing by $17 billion in 1974.
The spurt in foreign lending that had occurred in 1974 reiected the
termination of U.S. capital controls in January of that year, and some
slowing of growth in gross capital flows through U.S. banks was to
be expected after an initial adjustment of bank portfolios to the new
environment.
In addition, the slow pace of economic activity around the world,
banks* concern o¥er the adequacy of their capital, and more cautious
attitudes towards foreign leading were important factors that inhibited
the expansion of U.S. banks* foreign activities in 1975. The activities
of U.S. banks conducted at their foreign branches were subject to- the
same inhibiting factors; therefore, branch lending also grew less
vigorously in 1975. Claims of foreign branches on foreign residents
(excluding claims on other branches of the same bank) grew by only
two-thirds as much as in 1974,
While the international acti¥ities of U.S. banks expanded less
rapidly than in 1974> there was a substantial increase in U.S. securities transactions with foreigners. Net U.S. purchases of new issues
of foreign bonds were $7.2 billion, an increase of $4.8 billion over
1974. Canadian issues of $3.2 billion and issues of international and
regional de¥elopment lending institutions of OYer $2.4 billion accounted for the bulk of the new issues in the U.S. market, but the

volume of other new issues more than doubled to $1.6 billion. At the
same time, renewed foreign interest in the U.S. stock market led to
net foreign purchases of $4.5 billion in stocks, after net purchases
of $0.5 billion in 1974, offsetting much of the effect of the increase
in new foreign bond issues on net capital flows.
U.S. liabilities to official agencies of OPEC members are for investment, and they serve functions different from the foreign exchange
reserves of other countries. For this reason, they have been kept
separate in this discussion from U.S. liabilities to the official agencies
of other countries. These liabilities increased by $4.1 billion in 1975
after a $10.0 billion increase in 1974. In addition, direct purchases
of U.S. common stocks by OPEC members were $1.5 billion in 1975
compared with $0.2 billion in 1974. The share of the total investible
surplus of OPEC members coming directly to the United States appears to have declined somewhat in 1975.

LOOKING AHEAD
In the months ahead the pick-up in economic activity in most other
industrial countries is expected to continue, but with less vigor than
in the U.S. economy. Consequently, U.S. imports are likely to increase
relative to exports—resulting in a decline in the U.S. current account
in 1976 from the record surplus in 1975. This adjustment, together with
some reduction in the more extreme surplus and deficit positions of
other industrial countries, should serve to reduce strains in foreign
exchange and capital markets. Problem areas for 1976 include (1) the
continuing large deficits of the non-oil-producing developing countries
(though these countries will benefit from the recovery in industrial
markets), (2) possible stresses on financial institutions as international
debts mount, and (3) the difficulty of carrying out national economic
policies in such a way as to support recoveries that are just beginning
while avoiding a resurgence of price inflation.

INTERNATIONAL MONETARY NEGOTIATIONS
In 1975 and early 1976, international monetary negotiations yielded
substantial agreements with respect to four aspects of the international
monetary system: increases in International Monetary Fund quotas,
the role of gold, exchange-rate arrangements, and access to the resources of the IMF.

In January 1975 the IMF's Interim Committee agreed on a 33.6
per cent Increase in members' total quotas In the Fund and on some
changes in the relative sizes of member countries" quotas. Total IMF
quotas, which determine members* obligations to lend their currencies
to other countries through the Fund and their borrowing rights from
the Fund, are to be increased to SDR 39 billion—on December 31,
1975, one SDR was worth $1.17. The U.S. quota will increase by 25
per cent to SDR 8?405 million, These new IMF quotas will not take
effect until they have been ratified by national legislatures and approval has been, giYen to an amendment of the IMF's Articles of
Agreement.
In August the Interim Committee reached agreement on how the
role of gold in the international monetary system should be gradually
reduced. It was agreed that in the amended IMF Articles the official
price for gold, SDR 35 per ounce, should be abolished. It was also
agreed that one-sixth, or 25 million, ounces, of the IMF's gold would
be sold in the market o¥er a 4-year period with the profits from the
sale of this gold to be used for the benefit of the developing countries.
At the same time the IMF will start to return another one-sixth of its
gold to all members of the Fund in proportion to their quotas. Finally,
it was agreed in August that under the amended IMF Articles countries would no longer ha¥e any obligation to use gold in transactions
with the IMF and that an 85 per cent majority ¥ote would be required
for the IMF to accept gold or to dispose of the remaining two-thirds
of its gold.
In support of these decisions, ministers of the Group of Tee major
industrial countries agreed that, at least for a 2-year period, they
would take no action to peg the price of gold, nor would they permit
any increase in the combined stock of gold now held by them and by
the IMF. Other members of the IMF ha¥e been invited to adhere to
the Group of Ten agreement.
In November, at the time of the summit meeting at Rambouillet,
the United States and France agreed on a resolution of their longstanding differences OE exchange-rate arrangements. First, agreement
was reached on the text of Article IV in the amended IMF Articles,
which would (1) establish members' general obligations with respect
to exchange-rate arrangements, (2) formally legalize the present,
mixed exchange-rate system involving floating exchange rates, and
(3) establish procedures whereby the members of the IMF, by an 85

per cent majority (which under the new quotas could be formed only
with U.S. participation) could decide at a later date to adopt an
exchange-rate system based on stable but adjustable par values.
Second, it was agreed that consultative arrangements among governments and central banks regarding exchange-market developments
and underlying economic conditions would be intensified.
In January 1976 the Interim Committee met in Kingston, Jamaica,
to give final approval to the agreements that had been reached during
1975 insofar as they affected the IMF. At that time the Interim Committee also agreed that members' potential access to the IMF's resources under each of the four IMF credit tranches should be increased by 45 per cent until the quota increases become effective.
With the Interim Committee's meeting in January 1976, 4 years of
intensive international monetary negotiations reached a conclusion.
These discussions had started at the time of the Smithsonian Agreement in December 1971, and they continued under the auspices of the
IMF's Committee of Twenty in 1972-74. They were carried out during
a period of dramatic upheavals in the international economy and
in international monetary arrangements. The result of the 4 years of
negotiations is not a complete blueprint for a new international monetary system, such as had been expected when the Committee
of Twenty started its work. However, when the proposed amendments
to the IMF Articles of Agreement are formally approved by at least
77 countries holding at least 80 per cent of the total votes in the
128-member IMF, the Fund will become a stronger and more flexible
institution, and its members should be in a better position to cope with
future disturbances to the international monetary system.
LETTER ON RESTRICTIVE
FOREIGN TRADE PRACTICES
The Board of Governors on December 16, 1975, urged member
commercial banks to avoid involvement in restrictive foreign trade
practices that discriminate against U.S. citizens or that accommodate
boycotts against friendly foreign nations.
The Board's policy was spelled out in the following letter, which
was sent to the 12 Federal Reserve Banks for transmittal to approximately 5,800 commercial banks that are members of the Federal
Reserve System.

December 12, 1975
On November 20, 1975, the President announced a number of actions
intended to provide a comprehensive response on the part of the Federal
Government to any discrimination against American citizens or firms that
might arise "from" foreign boycott practices. Two elements' of' the President's announcement relate to the possible involvement of commercial
banks in such practices:
First, the President has directed the Secretary of Commerce to amend
regulations under the Export Administration Act to prohibit U.S. exporters and "related service organizations" from answering or complying in
any way • with • boycott requests that would-cause discrimination • against
U.S. citizens or firms on the basis of race, color, religion, sex, o:r national
origin. The term "related service organizations" is defined to include
banks. Accordingly, banks that become Involved in a boycott request
related to an export transaction from the U.S. will be required to report
any such involvement directly to the Department of Commerce.
Second, the President has encouraged the Board of Governors, and the
other Federal financial regulatory agencies to issue statements to financial
Institutions within their respective jurisdictions emphasizing that discriminatory banking practices or policies based upon race or religious belief
of'any customer, stockholder, employee, officer, or director are incompatible with the public service function of banking institutions in this
country.
The' Board of Governors strongly supports the President's statement
in this regard. Banking is clearly a business affected with a public interest.
Banking institutions operate under public franchises, they enjoy a measure
of governmental protection from competition, and they are the recipients
of important Government benefits. The participation of a U.S. bank, even
passively, in efforts by foreign nationals to effect boycotts against other
foreign countries friendly to the United States—particularly where such
boycott efforts may cause discrimination against United States citizens
or businesses—is, in the Board's view, a misuse of the privileges and
benefits conferred upon banking institutions.
One speciic abuse that has been called to the attention of the Board
of Governors is the practice of certain U.S. banks of participating in the
issuance of letters of credit containing provisions intended to further a
boycott against'a foreign country friendly to the United States, The'prac-

tlce appears to have arisen in commercial transactions between U.S.
exporters and foreign importers, In which the importer has arranged for
the issuance of a bank letter of credit as a means of making payment to
the exporter for the goods he has shipped. In some cases the importer
hiu required, as one of the conditions that must be satisfied before payment can be made by the U.S. bank to the exporter, that the exporter
provide a certificate attesting that it is not connected in. any way with a
country or firm being boycotted by the importer's home country, or is
otherwise in compliance with the terms of such a boycott. Such provisions
go well beyond the normal commercial conditions of letters of credit, and
cannot be justified as a means of protecting the exported goods from
seizure by a belligerent country. Moreover, by creating a disc.rim.!D.atory
impact upon U.S. citizens or irms who are not themselves the object of
the boycott such provisions may be highly objectionable as a "secondary"
boycott.
While such discriminatory conditions originate with and are imposed
at the direction of the foreign importer who arranges for the letter of
credit, U.S. banks that agree to honor such, conditions may be Yiewed
as giving effect to, and thereby becoming participants in, the boycott.
The Board believes that even, this limited participation by U.S. banks in
a boycott contraveo.es the policy of the United States, as announced by
the President and as set forth by the Congress in the following declaration
in the Export Administration Act of 1969 (50 U.S.C. App. Section
2402(5)):
it is the policy of the United States (A) to oppose restrictive trade
practices or boycotts fostered -or imposed by foreign countries against
other countries friendly to the United States, and (B) to encourage
and request domestic concerns engaged in the export of articles,
materials, supplies, or information, to refuse to take any action,
including the furnishing of information or the signing of agreements,
which has the effect of fu.rtheri.Dg or supporting the restrictive trade
practices or boycotts fostered or imposed by any foreign country
against another country friendly to the United States.
The Board also notes that the agreement by a U.S. bank to observe such
discriminatory conditions in a letter of credit may constitute a direct
violation of the Federal antitrust laws or if applicable State anti-boycott
laws.

You are requested to inform member banks in. your district of the
Board's Yiews on this matter, and, in particular, to encourage them to
refuse participation in letters of credit that embody conditions the enforcement of which may give effect to a boycott against a friendly foreign
nation or may cause discrimination against U.S. citizens or firms.
Very truly yours,

Theodore E, Allison
Secretary

Official Statements on
Growth Targets for
Monetary Aggregates
Given below are statements by Federal Reserve Chairman Arthur F.
Burns on May 1, July 24, and November 4, 1975, in response to
H. Con. Res. 133, passed March 24, 1975, concerning objectives and
plans of the Federal Reserve with respect to the ranges of growth or
diminution of monetary and credit aggregates in the upcoming 12
months. The text of the resolution is given beginning on page 113.
STATEMENT BEFORE T H E COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS,
U.S. SENATE, MAY 1, 1975
I welcome the opportunity to discuss with this distinguished committee the condition of the national economy and the course of monetary policy.
As you well know, our Nation at present is experiencing a severe
recession. During the past two quarters the real gross national product
has declined by 5 per cent and the level of industrial production is
now 12.5 per cent below last September. This is the steepest decline of
economic activity in a long generation.
The recession has resulted in a large reduction of jobs and in substantial underemployment of our labor and capital resources. The
unemployment rate has risen swiftly, the amount of overtime work
has been cut drastically, and the number of employees placed on a
part-time basis has also risen.
The recession has been accompanied by a notable degree of moderation in the rate of inflation. Nevertheless, despite the severity of the
economic decline, the general price level has continued to advance
quite rapidly. In other respects this recession resembles earlier declines
of the past 30 years. Thus, consumer demand for autos, furniture,
household appliances, and other durable goods has fallen. Orders or
contracts by business firms for new facilities and equipment have like-

wise declined. And in this as in earlier recessions, a shift from inventory accumulation to inventory liquidation has been, a major depressant
of production and. employment.
Last fall business firms were rather slow in reacting to the weakness
that had been developing in consumer markets, in part because of
their lingering concern about shortages of raw materials and other
supplies. As a result, a build-up of inventories—much of it involuntary—occurred in the final quarter of 1974. In the opening months
of this year, however, as sales to final users stabilized in real terms,
liquidation of inventories got under way on a huge scale. Actually, all
of the decline in the Nation's physical volume of production between
the fourth quarter of 1974 and the first quarter of 1975 relects a shift
on the part of the business community from inventory investment to
inventory liquidation.
As production declined much of our industrial capacity was idled,
and this has left its mark on commodity prices. Sensitive prices of
industrial raw materials had already begun to weaken in the spring
of 1974. By late fall the effects of declining business activity began
to show up in wholesale prices of intermediate materials, supplies,
and components, and later on in prices of finished goods. Since November the over-all index of wholesale prices has moved down, with farm
prices falling substantially and the advan.ce of industrial prices moderating. In recent months the index of consumer prices has also risen
less rapidly than during 1974, and the prices of many products have
been marked down in retail, markets.
These price developments have served as a significant stimulus to
consumer spending. Although after-tax incomes of consumers in the
irst 3 months of this year were lower in real terms than in the final
months of 1974, consumer purchases—especially of durable g o o d s have perked up in response to price concessions on autos and other
items. In fact, consumer expenditures rose in real terms as well as in
dollars during the irst quarter. Largely for this reason the efforts of
business firms to work down their excess stocks have been notably
successful, and inventories are now in better balance with sales.
This has been one of the economic adjustments needed to lay the
basis for recovery in production, and employment. Other corrective
adjustments have also been under way. Business managers have been
moving energetically to improve efficiency—by concentrating produc-

tion in more modern installations, eliminating wasteful expenditures
here and there, stimulating employees to work more diligently, and
working harder themselves. Significant progress has also been made in
strengthening the financial position of business. Exceptionally large
amounts of longer-term securities have been issued by corporations
this year, and stock offerings have also increased somewhat. A part
of the proceeds of these financings has been used to repay short-term
debt, thereby improving corporate liquidity.
Financial institutions have also improved their financial condition.
Commercial banks have taken, advantage of the reduced demand for
business loans to repay their borrowings from Federal Reserves Banks,
reduce reliance on volatile sources of funds, and rebuild liquid assets.
At nonbank thrift institutions, the rapidly rising inflow of deposits
has likewise permitted a reduction of indebtedness and an. addition to
liquid asset holdings. Thus, financial institutions are now in a better
position to meet the needs for credit that will accompany the renewal
of economic expansion.
No one can foresee with confidence when, an economic recovery
will begin. Signs are emerging, however, that the turn in business
activity may not be far away.
For example, new mortgage loan commitments by savings and loan,
associations have risen strongly since last October, Industrial production and total employment fell further in March, but the declines
were much smaller than in the previous 4 months. Prices of sensitive
industrial raw materials have stabilized recently as supply and demand
have come into better balance. Sales of goods at retail—apart from
autos—rose further in March. Of late, consumer surveys have indicated that there is some improvement in confidence. And. stock prices,
another indicator of confidence, have continued to rise briskly.
Prospects for an upturn in. economic activity have also been strengthened by passage of the Tax Reduction Act of 1975. The large rebate
of 1974 tax liabilities, the additional payment to social security beneficiaries, and the reduction in withholding of 1975 taxes will soon add
to disposable incomes and bolster consumer spending. Larger consumer buying will help to stem the erosion in business investment
plans, and the liberalization of the investment tax credit will also
stimulate business capital outlays. More business investment is urgently
needed not only to provide additional jobs but also to improve the

capacity and efficiency of our Industrial plants—thereby contributing
to moderation of inflationary pressures.
Let me turn now to the contribution that monetary policy has made
to establishing a basis for reco¥ery in business activity.
Once eYldence began to accumulate during the summer of last year
that economic activity was weakening, the Federal Reserve took steps
to ease credit conditions and bolster growth rates of the monetary
aggregates. Open market operations became more accommodative, and
as the year progressed they were persistently directed toward more
ample provision of reserves to the banking system. Other monetary
instruments reinforced open, market policy. Reductions of reserve
requirements of member banks were ordered last September, November, and again this January. The discount rate was also reduced—once
in each month from December through March.
These Federal Reserve actions to augment the supply of loanable
funds, together with the weakening of private demands for credit, had
a dramatic effect on short-term rates of interest. For example, the
Federal funds rate—the rate banks pay when borrowing reserves
from one another—has declined from a level of about 13J/i per cent,
registered in July of last year, to about 5¥i per cent at present. The
interest rate on commercial paper declined from more than 12 per cent
last July to around 6* per cent. And the prime rate of interest on bank
loans to businesses has fallen from 12 to 7¥2 per cent.
Short-term market rates of interest in the United States fell earlier,
more rapidly, and to lower levels than in other industrial countries.
Consequently, investors were able to obtain higher yields by shifting
funds out of dollar assets into investment in other currencies. These
interest rate differentials help to explain the large decline that occurred
in the foreign-exchange value of the dollar between September 1974
and early March of this year. During recent weeks short-term interest
rates in foreign countries have declined relative to those here, and the
dollar has strengthened in exchange markets.
In the markets for long-term securities, interest rates in the United
States have also declined from their previous peaks, although much
less than short-term rates. Of course, long-term rates typically luctuate
within a narrower range than short-term rates; but in the present
instance, other powerful factors have also been at work. Fears of
inflation are still widespread in the business and financial community.

and long-term interest rales therefore still contain a sizable inflation
premium. Moreover, as I noted earlier, corporations have Issued an
enormous volume of bonds in the past se¥eral months, and State and
local governments ha¥e also borrowed large sums In the capital
markets.
More recently, the huge financing demands of the Treasury have
become a major disturbing element in the money and capital markets.
By the end of this fiscal year, new Federal borrowing—including borrowing by the off-bedget agencies and Government-sponsored enterprises—will probably amount to more than $60 billion. A large part
of that total deficit is due to the recession, and it has been financed
thus far without undue difficulty because private credit demands have
been declining. During the next fiscal year, however, the total deicit
will rise to perhaps as much as $100 billion. Participants in financial
markets recognize that private credit demands, too, may be rising
soon, and they have therefore become concerned about the strains
that may develop in financial markets.
The Federal Reserve has responded to these developing tensions
in the capital market by shifting the emphasis in its open market operations from Treasury bills to longer-term Government securities. Since
the end of February System, purchases of coupon, issues of the Treasury
and Federal agencies have amounted to almost $2.5 billion. In view
of the limited scope of the market for longer-term Federal securities,
this is a very large volume of buying in a short span of time.
These purchases have been helpful in steadying the bond market.
But let there be no mistaking the fact that Federal Reserve operations
in the market can have only an ephemeral influence on long-term
interest rates. The fundamental factor forcing up long-term interest
rates in recent years has been the high rate of inflation. Appreciably
lower long-term interest rates are needed now to stimulate economic
expansion, 'but they are unlikely to be attained unless further progress
is made in bringing inlatioe under control.
Success in this endeavor will require more fiscal discipline than we
have managed to achieve in recent years. It will also require a course
of moderation in monetary policy—a course that will provide an
expansion in supplies of money and credit adequate to facilitate a
good economic recovery but not so large as to rekindle the Ires of
inflation.

What the Federal Reserve has been trying to accomplish in this
regard cannot be -understood adequately by focusing on a -single measure of money balances. Some observers believe that the Federal Reserve should devote almost exclusive attention to the behavior of the
narrowly deined money supply (Mi)—that is, currency plus • demand
deposits—in the conduct of monetary policy. We in the Federal
Reserve do not take so narrow a view of our responsibilities.
The-public's demands for currency, for checking deposits, for ""savings
deposits, and for a host of other liquid assets are constantly changing.
Financial technology in our country has developed rapidly in the past
20-30•years.-As a rule5 consumers and business firms no longer hold"
all, or even most, of their spendable funds in. the.form .of currency
or demand deposits. More and more corporate treasurers have learned
how to- get along with a minimum of deposits in their" checking accounts... Consumers, too, are learning to keep an increasing part of
their transactions and precautionary balances in the form of savings
deposits'at commercial banks, of shares in' savings and loan associations,, of .certificates of deposit, .of Treasury bills, or other incomeearning liquid instruments. Moreover, as yields vary, many individuals
and business firms have become accustomed to shifting their" liquid
resources frequently among these assets. The result is. that. no., single
concept of money now conveys adequately the spendable funds held
by the public.
The.behavior of the narrowly defined money supply, Mlf can prove
to be a misleading guide to the degree of monetary ease or restraint.
For example, In periods of declining economic activity, weakness in
transactions..demands for cash and in business and consumer demands
for credit will tend to slow the growth of Mt. But during such periods
market rates of Interest usually decline and stimulate faster rates of
growth of consumer-type deposits at banks and nonbank- thrift institutions.
'For'example, the growth of Mi since last summer had been quite
modest until recent weeks. The annual rate of increase in this measureof money was 1.6 per cent during the third quarter of 1974, 4.6 per
cent in the "fourth quarter, and 3.5 per cent in the first quarter of this
year.-Over-this time span, however, the annual rate of- growth of
consumer-type time deposits at commercial banks increased from 7.1
per cent during the third quarter of 1974 to 12.7 per cent in the first

quarter of 1975. The improvemeni in deposit inflows to nonbank thrift
Institutions—that is, mutual savings banks, savings and loan associations, and credit unions—was even, more pronounced.
During periods of economic expansion, the behavior of Mt may
again be misleading. At such times large demands for credit and
money are likely to strengthen the growth of M1? but interest rates
will tend to .rise and thereby curtail the flow of Interest-bearing deposits
to banks and savings institutions. A monetary policy formulated on
the basis of Mt alone would ignore the pressures of dislntermedlation
that develop in periods of economic expansion and thus threaten
further damage to the mortgage market and to the homebuilding
industry.
In an effort to avoid errors of this kind, the Federal Reserve takes
into account the behavior of a variety of monetary and credit aggregates in conducting monetary policy. We also pay careful attention, to
the condition, of financial markets—that is, to movements in interest
rates, lending terms, the liquidity needs of businesses and financial
institutions, and other variables, including the international value of
the dollar, all of which must be given weight in the conduct of monetary policy.
Included with my statement today are four tables. Two show the
recent behavior of a number of the principal monetary and credit
aggregates, and the others show the recent behavior of the various
components of the several, measures of money.
Growth in measures of money and credit
Seasonally adjusted percentage change, at aiinual rates
Year or
qUvH'ler

...

o^..
Q4..
1975—Ql...

\t.

A/.

J 972
I<.n3.
1974.
1974 ^ Q ! . . . . .
Q2

.................

if.,

Credit
proxy

8.7
U. !
4.7

11,1
8.8
7.4

1 i.2
8.H
6.8

i?,5
if .6
10.8

14.0
10,6
9.1

11.3
10.4
10.2

s s
7*.O
1.0
•».(>

9.3
7.9
4,5
7.0

8.9
6.8
4.0
7.0

10.9
15,4
6.0
9.2

10.0
11.6
5.1
8.6

8.2
20.4
6.7
4.2

3.5

8.5

10.3

7.2

9.2

3,1

NOTE.—These percentage rates of growth are calculated from average levels in last months of the
annual or quarterly periods. Percentage rates of growth based on quarterly average data would show
a somewhat different pattern.

Let me describe brieiy what Is encompassed in each of these
money • and credit measures, Ml9 as I have already noted, includes
currency in circulation plus demand. deposits at commercial banks.
M2 is derived by adding to Mt the time deposits at commercial banks
other than large-denomination negotiable certificates of deposit (CD's).
M 3 is obtained by adding to M 2 the time and savings deposits held
at nonbank thrift institutions—that is, savings banks, savings and
loan associations, and credit unions. M,t is obtained by adding large
CD's to.M 2 ;. M 5 is derived by adding large CD's to M3.. This last
measure, M 5 , is the most comprehensive of this group, for it includes
the currency 'holdings of the' public plus deposits at all financial
institutions. Finally, the credit proxy indicates the funds that ••member
banks of the Federal Reserve System have available for lending and
is thus an indicator of changes in their total loans and investments.
Each of. these, .magnitudes relects a different dimension of monetarypolicy. For example, the annualized growth rate of Mt in the Irst
quarter of this year was 3.5 per cent, as noted earlier. Growth in the
credit proxy was marginally lower—refecting, in part, an- outright
decline in the outstanding volume of CD's and of nondeposit liabilities
of member banks. The other measures of money, on the other hand,
show-growth rates in the 7 to 10 per cent range, or about- as high- as
in 1973.
Of late, there has been some concern in the Congress and elsewhere
that supplies of money and credit were not growing rapidly -enough.
This judgment, based largely on the behavior of Ml9 could have been
avoided by taking a more comprehensive view of the economy's
needs for-money, credit, and liquid assets, and how these needs-are
met by our complex financial system.
We in the Federal Reserve recognize that the growth rates of
money and credit that are appropriate at any moment of time depend
on underlying economic conditions. At present, our Nation is experiencing very high rates of unemployment and idle industrial
capacity. Thus, even though an upturn in business activity -may be
near at hand, the restoration of full employment of our labor and
capital resources will remain a central objective of public policy for
many months to come.
The Federal Reserve System is presently seeking a moderate rate of
expansion in the monetary and credit aggregates. We believe that the

course we are pursuing will promote an increase in Mt of between
5 and IVi per cent over the 12 months from March 1975 to March
1976, This is a rather high rate of expansion by historical standards,
but it is not too high when idle resources are extensive and financing
needs still relect rising prices.
A growth rate of Mt in the range of 5 to IV2 per cent would, we
believe, be accompanied by higher rates of increase in the other
major monetary and credit aggregates—ranging from %Vi to \Wi
per cent for M 2 , 10 to 12 per cent for M3? and 6Vi to 9Vi per cent
for the credit proxy. Increases of this order of magnitude would imply
a good inflow of deposits to- nonbank intermediaries and a relatively
ample supply of mortgage funds.
Levels of money and credit measures
Seasonally adjusted, billions of dollars
Year or
quarter

A/3

A/;»

Credit
proxy

1972—Dec.
1973—Dec.
1974—Dec

255.8
271.5
284.3

525.7
572.2
614.3

844.9
919.6
982.5

569.7
636.0
704.6

888.8
983.4
1,072.8

406.4
448.7
494.3

1974—Mar.
j une...........,..,,,.
Sept...................
Dec.

27^ 2
280.0
281.1
284.3

585 5
597.1
603.8
614.3

940.0
955,9
965.5
9S2.5

653.4
678.5
688.7
704.6

1,007.9
1,037.2
1,050.3
1,072.8

457.9
481.2
489.2
494.3

1975—Mar.

286,8

627.4

1,007.8

717.2

1,097.5

498.1

..............

These rates of monetary and credit expansion are sufficient, we
believe, to fioan.ee a vigorous economic recovery. If past experience
Is any guide, the strength of the recovery will depend principally on
the willingness of the public to use existing money balances, rather
than on the growth rate of the money stock. The first few quarters
of a cyclical recovery in business activity typically witness Increases
in the turnover of money that are much larger than the rate of rise
in the money stock. This characteristic of business-cycle experience
Is of vital Importance to monetary policy, and it must never be
neglected.
We recognize that our capacity to foresee the future is very limited
and that our control of the monetary and credit aggregates Is Imperfect. The growth ranges for the aggregates we have set out to achieve

may need to be adjusted In one way or another. New information on
economic and financial de¥eiopments becomes available daily, and the
course of monetary policy must therefore be reappraised continuously.
In an economy as dynamic as oers, subject to unforeseen developments—such as a major business failure or a disruption of energy
supplies—the economic and financial outlook can change quickly and
dramatically. The Federal Reserve must stand ready to make
promptly such adaptations in the course of policy as may be needed
to minimize economic and financial difficulties. The Board and the
Federal Open Market Committee therefore meet frequently. Thus,
while I have given you our present views on the appropriate ranges
of growth In the monetary and credit aggregates, these views may
need to be modified a month or two from now.
Growth in components of money stock measures
Seasonally adjusted percentage change, at annual rates

Year or
quarter

1972. . .
1973
1974

.. .

Currency

8.2
8,3

1974_Q1
Q2...
Q3......
Q4

1975—Ql..

10,1
. ,

11.0
8.2
8,0

11.5
9.4

Commercial
bank time
deposits
other than
CD's

Nonbank
depositary
claims l

8.9
*5 5
3 2

13,5
11.4

16.8

9.7

8,9
6.0

3.8
6.6
">

12.8
8.8

8.2
4.9

2.4

7.1
9.0

3,1
7.4

26.3
78.2
17.2
25.9

1.7

12.7

13.1

-2.2

Demand
deposits

CD's

31.§
45.3
41.5

1
Deposits in mutual savings banks, savings and loan associations, and credit, unions.
NOTE.—These percentage rates of growth are calculated from average levels in last months of the
annual or quarterly periods. Percentage rates of growth based on quarterly overage data would show a
somewhat different pattern.

The rates of growth in monetary and credit aggregates presently
desired by the Federal Reserve, while appropriate in the present
environment, could not be maintained indefinitely without running a
serious risk of releasing new inflationary pressures. As the economy
returns to higher rates of resource utilization, it will be necessary to
reduce the rate of monetary and credit expansion so^ that the basis for
a lasting prosperity is laid.
Let me remind this committee that the principal cause of the cur-

Levels of components of money stock measures
Seasonally adjusted, billions of dollars
i

Year or
quarter

rrency

Demand
deposits

s Commercial
bank time
deposits
! other than
1
CD's

Noil bank
depositary
claims l

CD'

1972—Dec. . .
1973—Dec, . .
1974—Dec . . .

56.9
61,6
67.8

198.9
209.9
216.6

269,9
300.7
330.0

319.1
347.4
368.3

43.9
63.8
90.3

1974—Mar... .
June...
Sept.. . .
Dec.. . .

63.3
64.6
65.9
67.8

211.9
215.4
215.3
216,6

310.3
317.1
322.7
330.0

354.5
358.8
361.6
368.3

68.0
81.3
84.8
90.3

1975—Mar.. . .

69.4

217,5

340.5

380.4

89.8

Deposits in mutual savings banks, savings and loan associations, and credit unions.

rent recession is our earlier failure to bring inflation under control.
As the pace of inflation quickened in recent years, the seeds of recession were sown across the economy. Rising prices eroded the purchasing power of workers' incomes and savings. Managerial practices
of business enterprises became lax, productivity languished, and corporate profits diminished—a fact that businessmen were slow to
recognize because of faulty accounting techniques. New homes, recreational dwellings, and condominiums were built on a scale that
greatly exceeded the underlying demand. Inventories of raw materials
and other supplies piled up, often at a reckless pace, as businessmen
reacted to fears of shortages and still higher prices. Credit demands,
both public and private, soared and interest rates rose to unprecedented heights. Commercial banks became overextended; the quality
of loans tended to deteriorate, and the capital position of many banks
was weakened.
These basic maladjustments are now being worked out of the
economic system by recession—a painful process that could have
been avoided if the inflation had not gotten out of control. Fortunately, the rate of inflation has declined substantially in recent
months, but the behavior of prices is still unsatisfactory. The general
price level still appears to be rising at a 7 to'8 per cent annual rate;
wage increases continue to exceed by a wide margin the long-ran
trend of productivity; and interest rates remain at high levels by
historical standards. The menace of inflation is by no means behind

us. Defeat of inflationary forces must therefore remain a major goal
of public policy.
The Federal Reserve is firmly committed to do what it can to
restore general price stability in this country. The Federal Reserve is
also firmly committed to restore full employment in this country.
During the next year this Nation can, and I believe it will, make
progress toward the achievement of both of these objectives. The
immediate need is to get the economy moving again. But as we go
forward, I hope we will be mindful of the damage that has been
wrought in our economy by allowing inflation to get out of control,
and that we will deal resolutely with the serious longer-range economic problems facing our country. A better measure of discipline is
needed in Federal finances. The progressively diminishing fraction of
the national income that goes to people who work and invest requires
searching scrutiny. Regulatory practices that weaken private enterprise need to be relaxed or scrapped. Ways must be found to stimulate
production of energy supplies, to increase incentives for expansion
and modernization of productive capacity in other lines, and to
strengthen the state of business finances.
Attention to these longer-range problems is essential; for the
critical task now facing our country is not only to encourage the
process of economic recovery but also to build a solid foundation for
our Nation's economic future.
STATEMENT BEFORE T H E COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS,
U.S. HOUSE OF REPRESENTATIVES, JULY 24, 1975
I welcome this opportunity to discuss the condition of the national
economy and to convey the Federal Reserve's views on monetary
policy.
The performance of our economy during the past 2 years has been
disappointing. We have suffered the most damaging peacetime inflation in our Nation's history, a critical shortage of energy supplies, and
the deepest decline in business activity since the end of World War II.
Similar problems have plagued practically every industrial country in
the world.
The recession of 1974-75 in our country will, I believe, be viewed
by economic historians as the culminating phase of a long cycle in

economic activity that began in 1961. During the industrial phase of
the long upswing—from 1961 through 1964—productivity grew
rapidly, prices remained quite stable, and real wages and profits kept
advancing. During the next 10 years™—from 1965 through 1974—
the strength of the American economy was gradually undermined. A
succession of interrelated, partly overlapping, waves of speculation
occurred—Irst in merging business enterprises and organizing conglomerates, next in the stock market, then In the real estate market,
and finally in the markets for industrial materials and other commodities. During this long speculative phase, productivity languished
and expansion in the physical volume of output decelerated, while the
pace of inflation kept quickening—mainly, but by no- means entirely
—In response to the lax financial practices of the Federal Government. Bad harvests, extraordinary Increases In the price of oil, another
devaluation of the dollar, and the coincidence of booming business
around the world played their part in the inflationary process during
1973 and 1974.
As a result of these myriad developments, seeds of recession were
sown across the economy. Inflation led to a burgeoning of credit demands, both public and private, and interest rates soared to unprecedented heights. Rising consumer prices eroded the purchasing power
of workers' Incomes and savings. The sharp rise in the price of oil
caused a diversion of purchasing power to foreign suppliers. Corporate profits diminished—a fact that businessmen were slow to recognize because of accounting techniques that failed to take account of
Inflation. Construction of new dwellings and office buildings proceeded
on a scale that greatly exceeded underlying demand. And inventories
of commodities piled up, often at a very rapid pace, as businessmen
reacted to fears of shortages and of accelerating price increases.
By the spring of 1973, signs of faltering in the pace of economic
expansion had already emerged. Homebullding began to turn down
and so too did sales of mobile homes, new aetos, and other big-ticket
consumer items. A declining trend in the physical volume of other
goods purchased by consumers soon followed. These developments,
however, were largely overlooked by a business community caught
up in the euphoria created by inflation. New orders flowing to manufacturers continued to rise, order backlogs generally Increased, and
stockpiles of materials and other commodities mounted. By the sum-

mer of 1974, the physical volume of business inventories was already
higher in relation to sales than at any time since the Korean war.
The stage was thus set for a significant economic adjustment.
The recession that ensued has cut deeply into- the Nation's economic lifes.'Between "September "1974 and May 1975/Industrial out-

put fell by 12% per cent. Total employment dropped by IVi million
from its peak in October 1974 to a low in March of this year. And the
rate of unemployment rose from less than 5 per cent'in late 1973 to
perhaps 9 per cent at the present time.
In view of the serious economic imbalances caused by inflation, the
recession has- been performing • a painful, but unavoidable, • function.
Corrective forces have been released, and they have helped lay the
basis for a renewal of sound economic expansion.
• Thus,- business competition is -now much keener than it was a year
or two ago. Business managers are also devoting more attention to
cost control and improvements in efficiency. Prices of industrial raw
materials, have fallen substantially. Price increases at later .stages..of
processing have also become less extensive. The rise of the general
price level has therefore slowed—from an annual rate of about 12
to 14 per cent late last year—to about half that rate recently. Increases of wage rates, moreover, have moderated, although they still
are much higher than the long-run rate of improvement in productivity. Meanwhile, stock prices—a signiicant indicator of the state of
confidence—have risen substantially,
The slowdown in the pace of inlation and the revived stock
market have bolstered the confidence of the general public. Early this
year,'as'price'concessions on autos and other items'became common,
consumer purchases—especially of durable goods—began to pick up.
In fact, consumer expenditures during the Irst quarter rose in real
terms as well as in dollars. This strengthening continued-in-the-second
quarter, as spendable incomes of consumers were augmented—irst by
tax rebate checks, later by extra social security checks. With consumer buying-expanding and production- declining, the efforts of-business firms to work down their excess stocks have been remarkably
successful. Inventories of most consumer goods now seem to be in
rather.goodbalan.ee with sales.
Significant progress has also been made in improving the financial
position of business firms. Corporations have issued exceptionally

large amounts of longer-term securities this year, and they have used
much of the proceeds to repay short-term debt or to- acquire liquid
assets. The liquidity position, of consumers has likewise been strengthened; instalment debts to banks and other lenders have been paid
down, and many millions of individuals have added substantially to
their savings deposits and other liquid assets.
Financial institutions, too, have improved their Inancial condition.
Commercial banks have taken advantage of the reduced demand for
business and consumer loans to repay their borrowings from Federal
Reserve Banks, to reduce their reliance on volatile sources of funds,
and to rebuild liquid assets. In their turn, savings and loan associations and mutual savings banks reduced their indebtedness and enlarged their holdings of Treasury securities and other liquid assets,
thus laying the basis for a renewed expansion of mortgage lending in
recent months.
These self-corrective forces have been aided powerfully by fiscal
and monetary policies that sought to cushion the effects of economic
adversity, moderate recessionary forces, and provide some stimulus
to economic recovery. I need not dwell on the Iscal measures that
have been adopted to combat recessionary forces; these measures
have already been widely discussed. Let me note merely that I believe
the Congress acted wisely in providing only,a temporary fiscal stimulus through the Tax Reduction Act of 1975. The confidence of our
citizens in the Nation's economic future has been bolstered by evidence that responsible members of both the executive and legislative
branches of our Government are seeking ways to stimulate recovery
without releasing a new wave of inflation.
This principle has also guided monetary policy. Last summer, as
signs of weakening in economic activity multiplied, the Federal Reserve began taking steps to increase the' availability of money and
credit. Open market operations were oriented toward a more liberal
provision of reserves to the banking system; later, these actions
were reinforced by several reductions in, the discount rate and in
reserve requirements.
During the fall and winter months the demand for credit by businesses and consumers weakened on account of -the recession, and
commercial banks used the more abundant supply of reserves to repay
their indebtedness to the Federal Reserve. Growth in Ml9 that is,

currency plus demand deposits, was therefore slow to reflect the
easing of monetary policy. We at the Federal Reserve were concerned
about this development, but we refused to run the risk of releasing
fresh inflationary forces and rekindling iniationary expectations. In
any event, broader monetary aggregates displayed a more vigorous
response to our easing actions. For example, lows of individual savings into commercial banks and thrift institutions began to pick up
in the fourth quarter of 1974, and by the first quarter of this year
these deposits were expanding at a seasonally adjusted annual rate of
more than 13 per cent. In fact, recent rates of growth of the monetary
aggregates have been generally higher than during comparable periods
of earlier postwar recessions.
The efforts of the Federal Reserve to ease credit conditions, together with the weakening of private credit demands, resulted in a
sharp decline of short-term rates of interest. The Federal funds r a t e that is, the interest rate banks pay when borrowing reserves from one
another—fell from a high of 13V4 per cent last summer to about 5lA
per cent in early June. The commercial paper rate declined from more
than 12 per cent last July to a low of about 5Vi per cent. And the
prime rate of interest on bank loans to businesses fell from 12 per
cent to a low of 7 per cent.
In the markets for long-term securities interest rates also declined,
although much less than short-term rates. Of course, long-term rates
typically luctuate within a narrower range than short-term rates; but
in the present instance, other powerful factors have also been at work.
Fears of inflation are still widespread, and long-term interest • rates
therefore still contain a sizable inflation premium. Moreover, corporations have issued an enormous volume of bonds in the first half of
this year; State and local governments have borrowed large sums in
the capital markets; and troublesome uncertainties have been created
by the financial problems of some borrowers in the municipal bond
market. Also, the huge financing demands of the Treasury have been
a disturbing element in the money and capital markets.
Despite these problems conditions in financial markets have greatly
improved over the past 6-9 months, and a financial basis has been
established for an upturn in business activity,
Signs have multiplied- in recent weeks that the economy is moving
through a turning zone from recession to recovery. As already noted,

retail sales have been gaining strength progressively since early this
year. The appreciable pick-up In new auto sales o¥er the past several
months is continuing. Sales of new houses started rising early this
year, and as the backlog of unsold units declined building permits and
new housing starts also began to move up.
With excess ie¥entorles at retail, at wholesale, and at manufacturing firms being worked off and the curve of consumer sales still
rising, businessmen have become more optimistic about the future.
New orders for durable goods—an important leading indicator of
Industrial activity—have of late been rising again. Moreover, industrial production, after having declined for eight consecutive months,
registered Its first advance In June.
In the labor market, too, there are numerous signs of Improvement.
The range of nonfarm industries adding to the number -on their payrolls has been widening steadily, from, a low of 17 per cent in February to about 50 per cent in May and June; total employment has
Increased by 600,000 over the past 3 months; the average factory
workweek has lengthened; and, of late, initial claims for unemployment insurance ha¥e dropped sharply.
We may be reasonably confident, therefore, that a recovery in business activity will develop soon if It Is not already under way. How
strong the recovery will be no one can foresee with any assurance.
There are ample amounts of idle labor and capital resources to permit
rapid growth over the next several quarters. Past cyclical experience
suggests, moreover, that a steep decline In business activity such as we
have experienced is usually followed by a brisk recovery.
A central objective of Federal Reserve policy at the present time is
to contribute to a substantial expansion in output and employment.
The vigor of economic recovery, however, will depend less on the rate
of expansion In money and credit than on the -confidence of the public—in particular, the willingness of businesses and consumers to put
the enormous volume of existing money balances to work.
The turnover of money, or its velocity, varies widely In the course
of a business cycle. During the first year of earlier postwar recoveries,
the velocity of Mi—that Is, the ratio of the dollar value of the gross
national product.to the narrowly defined money supply—has usually
risen about 5 or 6 per cent, compared with a rate of increase in Mt
of around 3 or 4 per cent. As confidence in the economy improves in

the months ahead, the velocity of money—which declined during the
past several quarters—will probably increase significantly. This factor is frequently neglected by economists and others, but we at the
Federal Reserve cannot afford to do so.
In conducting monetary policy, we will also have to remain
mindful of the urgency of dealing with the longer-run problem of
inflation as well as with the current problem of unemployment.
Economic recovery is apparently beginning at a time when the rate
of inflation, while lower than a year ago? is still well above a tolerable
pace. Our objective as a Nation should be to achieve further moderation in the advance of the general price level over the months ahead5
and we shall therefore need to avoid actions that threaten an acceleration of inflation later on—a development that would create even more
intractable economic problems than we have yet encountered. I was
glad to see the Senate Committee on Banking, Housing, and Urban,
Affairs recognize this basic truth in its recent report OE monetary
policy, which states unequivocally that "if Inflation is rekindled, any
recovery will be short-lived and will end in another recession, one
almost certain to be -more virulent than the present one."
In testifying before that committee on May 1 of this year, I indicated that the course of monetary policy cannot be understood adequately by focusing oe any single measure of money balances. Some
observers believe that the Federal Reserve should devote almost exclusive attention to the behavior of Mr—that is, currency plus demand
deposits. We in the Federal Reserve do not take so narrow a view of
our responsibilities.
The public's demand for currencyf for checking deposits, for savings deposits, and for a host of other liquid assets is constantly changing. Financial technology in oer country has developed rapidly in the
past 20—30 years. As a rule, consumers and business firms no longer
hold all, or even most, of their spendable funds in the form of currency or demand deposits. More and more corporate treasurers have
learned how to get along with a minimum of deposits in their checking accounts. Consumers^ too, have learned to keep an increasing part
of their transactions and precautionary balances in the form of savings
deposits at commercial banks, or deposits in savings and loan associations, or certificates of deposit, or Treasury bills, or shares in money
market funds, or other income-earning liquid instruments. These

trends are likely to continue. Use of so-called negotiable order of
withdrawal (NOW) accounts and other Interest-bearing deposits for
transactions purposes is growing, and electronic fund transfer systems may well revolutionize the payments mechanism and the forms
in which money is held. In. this day and age no single concept of
money conveys adequately the spendable funds held by the public.
Viewed in isolation, the behavior of the narrowly deined money
supply, Mi, can actually be a misleading guide to the degree of monetary ease or restraint.. For example, in periods of declining economic
activity, both the transactions demand for cash and the private demand for credit will tend to weaken and thes slow the growth of Mt.
But during such periods market rates of interest usually decline and
thereby stimulate faster rates of growth of consumer-type deposits
at commercial banks and other financial institutions.
During periods of economic expansion, the behavior of Mt may
again be misleading. At such times large demands for credit and
money are likely to strengthen the growth of Ml9 but open market
interest rates will tend to rise and thereby curtail the low of individual savings to banks and thrift institutions. A monetary policy formulated on the basis of Mt alone would ignore the pressures of disintermediation that develop in periods of economic expansion and
thes threaten serious damage to the mortgage market and to the
hotiiebullding industry.
To avoid errors of this kind, the Federal Reserve takes into account the behavior of numerous monetary and credit aggregates in
conducting monetary policy. Among these is M2, which includes—
besides currency and demand deposits—consumer-type time deposits
at commercial banks; M3, a still broader composite, which includes
also the deposits at savings banks, savings and loan associations, and
credit unions; M 4 , which starts with M 2 and adds large certificates of
deposit issued by commercial banks; M5, which is more comprehensive than any of the preceding aggregates because it includes the currency holdings of the public plus all deposits at all financial institutions; and also the credit proxy, which indicates the funds that
member banks have aYailable for lending.
Besides following these and still other aggregates, we pay careful
attention to the condition -of financial markets—that is, to movements
in interest rates, lending terms, the liquidity needs of businesses and

financial institutions, and other variables, including the foreign- exchange value of the dollar. All of these must be given some weight
in the conduct of monetary policy.
On May 1 of this year, I informed the • Senate banking committee
that the Federal Reserve was seeking a moderate rate of expansion
in the monetary and credit aggregates, and that the course we are
pursuing-will promote an increase in Mt of between 5 and IVi per
cent over the 12 months ending in March 1976. It was expected that
the related growth rates of other major aggregates would be somewhat
higher—with.M2 increasing in .a range of %Vi to lOVi per.cent; M3,
in a 10-12 per cent range; and the credit proxy, in a range of 6!4 to
9Vi percent.
Economic .prospects now are not materially different than the Federal Reserve anticipated 2 or 3 months ago, and we therefore as yet
see no reason to alter the general course of monetary policy. Accordingly, the Federal Open Market Committee has reaffirmed Its. intent
to seek the growth ranges announced earlier. In view of the erratic
movements to which monthly figures on money balances are subject,
the projected growth ranges for the several aggregates now cover the
12-month span from the second quarter of 1975 to the second quarter
of 1976. In the futere? we will generally express our projected growth
range of each monetary aggregate from a quarterly base because a
3-month average is less subject to erratic movements than is a singlemonth base.
We ha¥e recently experienced some extreme short-run fluctuations
in the growth rate of money balances. Such movements may give
rise to confusion regarding the course of monetary policy. It may be
helpful, therefore, to comment on the huge bulge in the rate of growth
of the' monetary aggregates during May and June.
This bulge was a direct result of the tax bill passed earlier this year
by the Congress. The tax rebate checks and supplemental social
security payments disbursed by the Treasury were temporarily added
to the public's holdings of currency, demand deposits, and savings accounts. Thus, Mt grew at an average annual rate of more than 14.5
per cent during" the months of May and June? and M2 increased at" a
rate of about 16 per cent. But by late June and early July, as individuals disposed of their additional funds, the explosion of the monetary
aggregates subsided.
100

The May-June bulge in the monetary aggregates did not come as a
surprise, but it was larger than we had expected—and ¥ery much
larger than we desired. It must be clearly understood that the Federal
Reserve has eo intention of permitting rates of increase as high as
those in the second quarter to continue. The special Treasury disbursements have come to an end; and the Federal Reserve has already
set in motion forces that should, in the near future, return the growth
of the monetary aggregates to the moderate path desired. True, these
recent actions ha¥e left their mark on short-term market rates of
interest. But we ha¥e succeeded in avoiding during the past 2 to 3
months the severe and damaging effects on credit markets that would
have occurred if we had pursued a rigid money supply objective such
as some economists keep urging on us.
As recent experience indicates, short-rue variations in the stock of
money may not at all reiect the intent or the underlying course of
Federal Reserve policy. My colleagues and I have frequently noted
that short-run movements of the monetary stock have little significance,
and it is good to have the opportunity to state once again that far more
attention is given, to these short-rue fluctuations than, is warranted.
Actually, our studies indicate that large deviations in the growth of
money from a long-run path may occur for half a year or even longer
and still have a negligible effect on the workings of the real economy.
We must learn to recognize that monthly fluctuations such as those
in the rate of growth of the ntoney stock, however defined, are characteristic of almost any series in which monthly changes are small relative
to the level of the series.
In view of considerations such as these, the Federal Reserve focuses
its attention principally on an appropriate growth of money balances
over periods running from 6 months to a year. Unfortunately, our
ability to control this longer-rue rate of monetary expansion is less
precise than, it should or could be. Deficiencies in existing statistical
data are part of the problem. Steps have been, taken by the Federal
Reserve to speed the collection of data and to improve its quality. We
have also been exploring, with the cooperation of the FDIC, methods
to obtain better estimates of money balances held at nonmember
banks. The information now available regarding demand deposits at
nonmember banks is entirely inadequate and at times has misled the
Federal Reserve and the public as to the actual course of monetary
expansion..

101

Our control o¥er the Nation's money stock would be imprecise,
however, even with the best of statistical information. The Federal
Reserve's, influence., over the -money- stock is indirect The -principal
means we use to regulate the growth of money and credit is to buy
or sell government securities in the open market. These transactions
are taken, at. our initiative .and in such .dollar amounts as we. deem
appropriate. The size of the Federal Reserve's portfolio of securities
is thus under our control. The response of the money stock to an open
market purchase or sale, however, is determined by decisions of
commercial banks and of the public at large—decisions over which
we have no control
For example, a purchase of securities by the Federal Reserve would
lead to little or no increase in the reserves of member banks if there
were an equivalent rise in the public's holdings of currency, or if
member banks used the additional funds to repay indebtedness to their
Federal "Reserve'Banks. Alternatively, member banks might choose
to add to their excess reserves instead of employing the newly acquired
funds for lending or investing. In that event, there would be no multiplier effect of "reserve expansion on 'deposit creation;
The choices made by the public as to the form in which newly
created deposits are held and the type of commercial bank in which
the funds-are-deposited also influence the response of the money stock,
particularly Mt or M2» to a reserve injection. The response of the narrowly defined money supply would be larger if the public increased
its holdings. of. demand deposits at smaller member banks- -because
reserve requirements at these banks are lower than those at the larger
member banks. And, of course, the freedom of the public to choose
between demand aad time deposits can alter materially the amount
of aggregate deposits that can be supported by a given volume of
reserves.
Part of the imprecision in monetary control also arises from the
fact that a sizable fraction of money balances is held at banks that
are not subject to the reser¥e requirements set by the Federal Reserve.
Once the Congress sees I t to adopt the legislation on uniform reserve
requirements that we have been seeking for several years, the Federal
Reserve's control over the monetary aggregates will be improved and
financial institutions offering similar deposit services will at the same
time be treated' more equitably.

102

In closing, let me remind this distinguished committee that the
growth ranges for the monetary aggregates that we have projected for
the next year may need to be adjusted one way or another. Clearly,
the growth rates presently sought by the Federal Reserve, while appropriate in the present environment of high unemployment and unused
industrial capacity, could not be maintained indefinitely without rekindling inflationary forces. As the economy returns to higher rates of
resource utilization, it will be necessary to reduce the rate of monetary
and credit expansion so that the basis for a lasting prosperity is laid.
We must not lose sight of the fact that the principal cause of the
current recession is an inflation that got out of control. Our Nation
has paid a heavy price during the past year for neglect of this serious
problem. All of us in Government must work to promote a good recovery in economic activity; but all of us must also take great care lest
the hard-won gains of the past year are nullified by a new round of
inflation. The rise of the consumer price level in June at an annual
rate of more than 9 per cent is a warning that the menace of inflation
is still very much with us. The task now facing our country, therefore,
is not only to hasten the process of economic recovery but also to
unwind the inflation and thus lay the basis for a lasting prosperity.
STATEMENT BEFORE T H E COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS,
U.S. SENATE, NOVEMBER 4, 1975
I am pleased to meet with this committee to report once again on the
condition of the national economy and the course of monetary policy.
When I submitted to you the Federal Reserve's report on May 1,
the American economy was at the trough of the deepest decline in
production of the entire postwar period. Since then, a recovery of
economic activity has gotten under way. Between April and September
industrial production rose almost 6 per cent; each month's increase
exceeded that of the month before, and the September increase was
the largest in more than a decade. The scope of the recovery has also
been broadening. Production of durable goods has advanced strongly
of late, and the increase of activity in the nondurable goods sector—
which began earlier—has continued. Improvement has spread beyond
the Nation's factories, mines, and power plants, and the over-all

103

Increase In- the physical volume of production during the third quarter
turned out to be. one of the largest in recent years.
As real output moved upward, the demand for labor kept strengthening. Since March, total employment has risen by more than' 1%
million... The..average factory workweek has lengthened., .appreciably.
Unemployment has declined from its peak In May despite a sizable
increase of' the labor force this year. And the increase of'employment
has become. ...more widely diffused across the economy.. Of the 172
eonfarm industries on which the Bureau of Labor Statistics reports,
only 17 per' cent experienced an increase of employment in February.
The .corresponding percentage rose with -considerable- regularity-in
succeeding months and reached 72 per cent in September.
As we look back, it is clear that the consumer led the way out of
recession, and-into -recovery. Early -this-year, when price-concessions
became fairly common, consumer purchases began to pick up. Consumer buying was further buttressed over the spring and summer
months- by tax-rebate checks and-supplementary social security checks.
Retail sales of nondurable goods rose briskly; and as confidence
improved, consumers also became more willing to dip into savings or
incur new- indebtedness in order to-purchase big-ticket items. This is
dearly evident in the automobile sector, where sales of new cars have
been running recently at an annual rate of around 9Vi million—a
considerable adYance from the 7 million rate of last November,
A sharp turnaround in foreign trade also helped to pave the way for
economic recovery. Oer trade balance was unfavorable throughout
1974, and the deficit reached an unprecedented $9 billion annual rate
in the third quarter of last year. But a deep cutback of imports—
especially of fuel and industrial supplies—occurred during the recession, while the demand for our exports held up well. The result was
a swing in our trade position to a surplus at an annual rate.of more
than $13 billion in the second quarter of this year. There has been a
significant rise of-imports recently, as is to be expected during a cyclical
expansion. Nevertheless, our trade surplus, is still large,, the. over-all
balance of payments remains f avorable5 and the dollar is again a highly
respected currency around the world.
Sustained .buying by foreigners and American consumers enabled
business firms to make excellent progress in clearing their shelves of
excess inventories. Liquidation of inventories got under way around

104

the beginning of this year, and in the second quarter the rate of decline
was larger In relation to the gross national product than In any quarter
of the entire postwar period. By early summer stocks were coming
into reasonable balance with sales in most consumer lines, and many
firms engaged in retail and wholesale trade therefore began to rebuild
inventories. Meanwhile, the pace of inventory liquidation slowed considerably In the manufacturing sector. For business firms In the aggregate, inventory liquidation receded from an annual rate of about $30
billion in the second quarter to a rate of $10 billion In the third. This
shift in business inventory investment has been a major factor in the
recent sharp rise of our Nation's production of goods and services.
The willingness of businessmen to move further in replenishing
depleted stockpiles, and thereby provide a continuing thrust to general
business activity, will depend heavily on the strength of consumer
demand. That in turn will be influenced materially by the real income
of consumers, their financial position, and the state of confidence—
all of which are linked to inflationary developments and prospects. In
the Board's judgment, improvement of the economy is likely to continue at a satisfactory pace only if consumers and businessmen can
reasonably look forward to some further abatement of cost and price
inflation.
We as a Nation have made notable progress in reducing the rate
of inflation that prevailed during 1974, Consumer prices rose over the
first three quarters of this year at about half the pace recorded a year
earlier. The rise in wholesale prices slowed even more. These improvements resulted mainly from slack demand in product markets and the
competitive pressures that forced business managers to watch costs
more closely and to enhance efficiency. These efforts have begun to
bear fruit; output per manhour turned up in the second quarter—thus
registering the irst increase in more than 2 years—and rose further in
the third.
Of late, however, there has been some worsening in the rate of
inflation. Broad measures of price performance indicate a rise in the
third quarter at an annual rate of around IVi or 8 per cent—compared
with SVi per cent in "the second quarter. To be sure, special factorssuch as the unexpected Russian need for grain and the further rise of
energy prices—were partly responsible for this development. But
price increases have also occurred in a number of industries—autos,

105

steel, aluminum, and chemicals, among others—where considerable
slack still exists. And the increase in the price of imported oil that
went into effect on October 1 may well lead to price advances over a
wide range of products in the months ahead.
Some step-up in the rate of increase In the general price level was
perhaps unavoidable, in view of the vigor of economic recovery and
the persistent rise of wages. Nevertheless, the quickening in the pace
of inflation during recent months—in the face of high unemployment
and widespread excess industrial capacity—is a clear warning that oer
long-range' problem of inflation is unsolved and remains a threat'to
continuance of economic recovery.
Elimination of the long-rue inflationary bias of our economy will
require progress on numerous fronts, including a marked strengthening
of business expenditures for new plant and equipment. Growth and
modernization of the Nation's industrial capacity are essential to avoid
a recurrence of capacity shortages in- critical sectors of the -economy,
to lay the basis for greater improvements in productivity, and to
expand job opportunities for our people.
As often happens in the early months of a cyclical upswing, business spending for fixed capital has lagged behind the recovery in other
sectors. The rise that appears to have occurred recently in the production of business equipment is. as yet inconclusive. Various indicators
suggest, however, that an upturn of business capital investment may
not be far away. Contracts for commercial and industrial construction
have stabilized during recent months. New orders for nondefen.se
capital goods, though edging off in the past 2 months, arc now about
8 per cent above their level in March. Moreover, the rate of formation
of new business Irms—another advance indicator of business capital
investment—is moving up again.
Further improvement in, the homebuilding industry is also a vital
ingredient of a full-fledged economic recovery. The decline in market
rates of interest that began in the summer of 1974 bolstered the low of
savings to mortgage-lending institutions last fall, and a substantial rise
in mortgage loan commitments soon followed. Early this year the
volume'of sales'of both new and old dwellings rose, and these'sales'are
continuing to run well above their lows of last winter. With better
market conditions, housing starts—especially of single-family dwellings—-have been moving up again. The recovery in homebuilding,

106

however, has been weak, rnces of new and existing houses, to say
nothing of other costs of homeownership, have risen so drastically that
many American families cannot afford to bey a home. Builders, moreover, remain very cautious in ¥iew of the overbuilding and financial
difficulties of recent years.
Mortgage lenders have also remained cautious, in part because of
fears that the enormous financing requirements of the Federal Government would drive up market interest rates and thereby attenuate the
flow of funds to thrift institutions. The Federal budgetary deficit during the third quarter was the largest on record. In. just 3 months the
volume of Treasury Mils outstanding rose by $14 billion. Since commercial banks reduced their purchase of government securities as loan
demands strengthened, a substantial volume of Treasury bills had to be
absorbed by the general public. Borrowings by (he Treasury in the
2- to 3-year maturity range were also very heavy. A series of such note
issues in. August and September drove up Interest rates, attracted a
sizable number of Individual investors, and served to reduce the low of
savings to banks and thrift Institutions.
These developments left their mark on the residential mortgage
market. Lenders became more hesitant to commit funds, and Interest
rates on new mortgage loan commitments drifted upward. Nevertheless, mortgage rates remain below their 1974 peaks, and funds remain
readily available In nearly all areas of the country where unrealistic
Interest rate ceilings do not Impede the low of credit.
Increases of Interest rates have been particularly prominent in the
market for State and local government securities. The financial problems of New York--City have had widespread- repercussions on the
cost and availability of credit to State and local governments. Although
yields on high-grade municipal obligations have risen about in line
with yields In other long-term markets, increased. investor caution
has resulted in. a marked widening of yield differentials between
municipal Issues of high quality and those of lower quality. Authorities
with relatively low credit ratings have experienced marked increases
in borrowing costs, and, in some cases5 they have been effectively excluded from the public market. Despite these adversities the municipal
bond market continued to work well enough to' permit a record volume of long-term Issues during the third quarter. But in the past few
weeks the volume of new municipal issues has dropped appreciably.

107

Of late, the need of business firms to borrow in the long-term capital
market has diminished as their liquidity generally improved, and as
the downward adjustment of business inventories and better profits
generated an enlarged low of cash. During much of this year, however, the market for long-term funds has been under pressure—first,
from corporate security issues, later from, heavy Treasury borrowing
and an extraordinary volume of new municipal securities. The Federal
Reserve has sought to provide some assistance to the long-term market
by shifting the emphasis in its open, market operations from Treasury
bills to longer-term securities. Since the beginning of the year, the
System has acquired more than $6 billion of Treasury and agency
issues bearing maturities of more than 1 year. Of this total, $2 billion
was acquired since midyear.
These purchases have been helpful in. steadying the bond market
during periods of unusual tension, but they can have only an. ephemeral
influence on long-term interest rates. The fundamental factor forcing
up long-term interest rates in recent years has been the high rate of
inflation that persistent deicits in the Federal budget kept fueling.
Appreciably lower long-term interest rates would, I believe, contribute
powerfully to economic expansion, but they are unlikely to be attained
unless significant progress is made in dosing the budgetary deficit
and in bringing inflation under control.
Exercise of fiscal discipline at all governmental levels is badly
needed to ease the tensions and uncertainties that have disturbed
financial markets this year. The pressure of Federal financing on
interest rates during the third quarter resulted not only from the sheer
massiveness of the Federal deficit but also from successive upward
revisions in borrowing needs. The sharply higher yields in the market
for municipal securities have reflected the hea¥y borrowings by State
and local governments, as well as reduced confidence in the finances
of some of these governmental units. The climate for economic expansion would be greatly improved by clear evidence that governmental authorities at all levels are finally willing to live within their
means and to get along without financial gimmickry.
We in the Federal Reserve fully recognize that monetary policy
has an important role to play in maintaining a financial environment
that is favorable to sustained economic expansion. The strength of
the economic recovery to date has been heartening, but we are still a

108

long way from, reasonably full employment of our labor and capital
resources. The reduction in the rate of inflation accomplished, this
year has also been encouraging, but we are still a long way from
re-establishing reasonable stability in the price level. In light of these
facts, the only responsible option open to the Federal Reserve is to
pursue a course of moderation in monetary policy—a course that will
provide expansion in supplies of money and credit adequate to facilitate further good recovery of production and employment, but not
so large as to rekindle the fires of inflation.
To implement this course of policy, the Federal Open Market Committee has projected growth ranges of the monetary aggregates that
differ little from those announced previously. For M1? which includes
currency and demand deposits, the projected growth range for the
coming year is again 5 to IV2 per cent. For M2? which includes consumer-type time and savings deposits at commercial banks besides the
components of Ml9 the growth range has been widened by reducing the
lower end of the range 1 percentage point. The growth range for M3,
which includes deposits at thrift institutions besides the components of
M2, has been similarly widened. These adjustments were made in view
of recent experience, which suggests that pressures on market interest
rates stemming from heavy Treasury borrowing tend to moderate
inflows of savings funds to depositary institutions. The growth range
projected is thus IVi to lOVi per cent for M 2 and 9 to 12 per cent
for Af3.
These growth ranges now apply to the period extending from the
third quarter of 1975 to the third quarter of 1976—rather than from
the second quarter of 1975 to the second quarter of 1976. This updating of the base, I should note, implies a slightly higher level of
money balances a year from, now than would be the case if the
second-quarter base were retained.
Since I last reported to this committee on May 1, growth of the
monetary aggregates has been broadly in line with the ranges we
adopted earlier. Howe¥er? month-to-month and quarter-to-quarter
changes in the aggregates have been ¥ery large, refecting unusual
factors influencing the public's demand for money.
The largest short-term variation occurred in Ml9 the narrowly defined money stock. Thus, Mx grew at an exceptionally high annual
rate—11.2 per cent—during the second quarter, as the public's hold-

109

ings of cash, bulged during May and June because of the tax rebates
and special social security payments authorized by the Congress.
As these excess balances were subsequently drawn dowef growth of
Mi slowed to a 2.2 per cent annual rate from July through September.
There were similar, though smaller, variations in the growth rates of
M2 and M3,
Measured on the basis of quarterly averages, the pattern of monetary expansion was much more stable. Afi Increased at'in" anneal rate
of 8.6 per cent between the first and second quarters, and 6,9 per
cent between the second and third quarters. The comparable figures
were 11.2-and 10.4 per cent for Mo--and 13.8 and 13. i per-cent for
M3.
Short-run fluctuations in the rate of monetary growth are practically unavoidable, but they also have little significance for the-functioning of the real economy. That is why we use quarterly average
levels of money balances as the base for specifying longer-run objectives for monetary expansion. However, we cannot.Ignore, the shortterm movements of money balances in the conduct of monetary policy
because it is necessary to be alert to any large and protracted departure of monetary growth rates from longer-run objectives.
Around the middle of this year the major monetary aggregates were
increasing at rates far above the longer-run ranges that the Federal
Reserve was seeking. We therefore set forces in motion that helped to
return the pace of monetary expansion to the moderate .rate desired.
More recently, increases in the monetary aggregates have fallen below
our projected ranges. Once again, steps have been taken—including a
modest reduction, in reserve requirements—to encourage "a return to
the desired path of long-run monetary expansion.
These corrective actions have had some influence on the level of
interest • rates—particularly short-term rates—which • rose • conspicuously in, late June and early July, but have recently retreated on a
broad front. Temporary fluctuations such as these in short-term
market interest rates are an inevitable byproduct of efforts-to keep the
rate of monetary expansion from straying too far from the desired
longer-run path. It is important to recognize that the Federal Reserve's- conduct of monetary policy conforms in this respect..not..only
to our best judgment but also to the spirit of House Concurrent Resolution 133.

110

The longer-range growth rates of the monetary aggregates we are
now seeking are, we believe, adequate to finance a vigorous further
expansion in real economic activity. Let me stress once again, however, that the relation over time between money balances and the
physical volume of economic activity is rather loose because so mech
depends on the willingness of businessmen, and consumers to use their
existing money holdings. We know from earlier history that the turnover of the narrowly defined money stock tends to rise faster in the
recovery stage of the business cycle than does the monetary stock
itself. Recent experience has confirmed this tendency. Thus, between
the second and third quarters of this year, M1 rose—as I noted earlier
—at a 6.9 per cent annual rate. But the income velocity of Mr—
that is, the ratio of gross national product to Mi—rose during that
period at an annual rate of 8.7 per cent.
In deciding on the appropriate target ranges for growth of the
monetary aggregates, we at the Federal Reserve must carefully consider the probable, movements of income velocity over the course of
the business cycle. We must also bear in mind that innovations in
financial markets can have large effects on the economy's needs for
money and other assets to finance economic expansion and to satisfy
the public's liquidity preferences.
We are living in a time of rapid changes in the public's demand for
currency, for checking accounts, for savings deposits, and for a host
of other liquid assets. Over the past 20 or 30 years, dramatic developments in financial technology have reduced substantially the proportion of spendable funds that is held in the form of currency and demand deposits. More and more corporate treasurers have learned
how to get along with a minimum of deposits in their checking accounts. Consumers, too, have learned to keep a larger part of their
transactions and precautionary balances-in the form of savings deposits at commercial banks, or deposits in savings and loan associations, or certificates of deposit, or Treasury bills, or shares of money
market funds, or other income-earning liquid instruments. Of late,
telephonic transfer of funds from savings accounts to checking accounts is accelerating the trend toward holding transactions balances
in income-earning, form.
. .
Furthermore, as a result of recent financial inno¥ations, liquid assets
other than currency or checking deposits are being used to an increas-

111

ing extent directly for transactions purposes. Since 1970 customers
of .mutual savings banks and savings and loan associations- have been
able to authorize payment of regularly scheduled household expenditures, such as-mortgage payments,-directly from their savings accounts.
This year authority for such third-party transfers was broadened to
include any payment, regardless of--purpose, and permission was
granted to commercial banks to offer similar services to their customers. And-since 1974 commercial banks and thrift institutions'in
Massachusetts and New Hampshire have been allowed to offer negotiable 'order"of withdrawal (so-called "NOW") accounts to' their customers. These accounts pay a rate of interest that practically equals
the rate on regular savings ' accounts^ and yet they permit direct
transfer of funds through a negotiable instrument comparable to a
check,
These changes are ha¥iog a significant impact on the type of financial assets that the public holds to meet its transactions needs and on
the range of financial institutions that are in¥ol¥ed in supplying payments services, Sa¥ings and loan associations and mutual savings
banks, as well as noemember commercial banks, are now -an important part of the Nation's payments mechanism. And yet they are
not subject to the reserve requirements imposed by the Federal
Reserve on member banks. As a consequence, the scope of monetary
control exerted by the Federal Reserve is being eroded.
The financial innovations that I have described so summarily are
also increasing the difficulties of determining the growth rates .of..the
monetary aggregates that are appropriate at any given time. Clearly,
the Federal Reserve cannot focus attention exclusively on, any. single
measure of money balances. We must be alert to the possibility that
our longer-run projected ranges for the monetary aggregates may
need to be altered in view of changes in financial technology, as well
as more basic economic and financial developments.
Let me remind this committee, finally, that the growth rates of
money and credit presently desired by the Federal Reserve- cannot
be maintained indefinitely without running a serious risk of releasing
new inflationary pressures. As the economy returns to higher rates of
resource utilization, it will eventually be necessary to reduce the rate
of monetary and credit expansion. The Federal Reserve does-not believe the time for such a step has yet arrived. But in view of the

112

economic recovery that has been under way since last spring, we are
closer to that day now than we were 6 months ago.
Our Nation is confronted today with a serious difficulty in its search
for ways to restore full employment. Highly expansionist monetary
and fiscal policies might, for a short time, provide some additional
thrust to economic activity. But later on the rate of inflation would
accelerate sharply—a development that would create even more difficult economic problems than we have yet encountered. This committee's report on monetary policy, issued in June, recognized this basic
truth in stating that "if inflation is rekindled, any recovery will be
short-lived and will end in another recession, one almost certain to
be more virulent than the present one."
Conventional thinking about stabilization policies, as I tried to explain in a recent address at the University of Georgia, is inadequate
and out of date. Stimulative financial policies have considerable merit
when unemployment is extensive and the price level is stable or declining. But such policies do not work well when the price level keeps
on rising while there is considerable slack in the economy. Experience both in our own and other industrial countries suggests that once
inflation has come to dominate the thinking of a Nation's businessmen and consumers, highly expansionist monetary and fiscal policies
do not have their intended effect. That is, instead of fostering larger
consumer spending and business investment, they may well lead to
larger precautionary savings and sluggish consumer buying.
The only sound fiscal and monetary policy today is a policy of
prudence and moderation. New ways must be found to bring unemployment down without becoming engulfed in a new wave of inflation. That is why structural policies require far more attention than
they are being accorded by academic economists or members of the
Congress.

H. CON. RES. 133, 94TH CONGRESS, 1ST SESSION
(PASSED MARCH 24, 1975)
Whereas article I, section 8, of the Constitution provides that Congress shall have the money power, namely "to coin money and
regulate the value thereof";
Whereas Congress established the Federal Reserve Board as its
agent, and delegated to its agent the day-to-day responsibility
for managing the money supply;

113

Whereas the United States economy is now suffering from excessively
high unemployment and a decline in production and the gross
nation,al product, together with inflation; and
Whereas the economy's performance in part is affected by changes in
the rate of growth of the monetary and credit aggregates: Now,
therefore, be it
Resolved by the House of Representatives (the Senate concurring),
That it is the sense of Congress that the Board of Governors of the
Federal Reserve System and the Federal Open Market Committee—
(1) pursue policies in the irst half of 1975 so as to encourage
lower long term interest rates and expansion in the monetary
and credit aggregates appropriate to facilitating prompt economic recovery; and
(2) maintain long run growth of the monetary and credit
aggregates commensurate with the economy's long, ran potential
to increase production, so as to promote effectively the goals of
maximum employment stable prices, and moderate long term
interest rates.
Pursuant to this resolution, and taking into account the international
lows of funds and conditions in the international money and credit
markets, the Board of Governors shall consult with Congress at semiannual hearings before the Committee on Banking, Housing and
Urban Affairs of the Senate and the Committee on Banking, Currency
and Housing of the House of Representatives about the Board of
Governors' and the Federal Open Market Committee's objectives and
plans with respect to the ranges of growth or diminution of monetary
and credit aggregates in the upcoming twelve months. Nothing in this
resolution shall be interpreted to require that such ranges of growth or
diminution be achieved if the Board of Governors and the Federal
Open Market Committee determine that they cannot or should not be
achieved because of. changing conditions. The Board of Governors
shall report to the Congress the reasons for any such determination
during the next hearings held pursuant to this resolution.

114

Tart 2
Operations, and
Organization

Record of Policy Actions
of the Board of Governors
JANUARY 20, 1975
Amendment to Regulation D (Reserves of Member Banks)
Effective January 30, 1975, the Board amended Regulation D to reduce
the reserve requirements on demand deposits at member commercial
banks, the effect of which would be to release approximately $1.1 billion
in reserves to the banking system.
Votes for this action: Messrs. Burns, Mitchell,
Bucher, Holland, Wallich, and Coldwell. Votes
against this action: None. Absent and not voting:
Mr. Sheehan.
The Board took this action to permit a further gradual improvement in bank liquidity and to facilitate moderate growth in the monetary aggregates.
The amendment provided for a reduction in reserve requirements
of Vi of a percentage point on each portion of demand deposit
holdings of $400 million or less and a reduction of 1 percentage point
on such holdings in excess of $400 million. The new reserve ratios
were applicable to net demand deposits beginning the week of January
30-February 5, and affected the required reserves beginning the
statement week of February 13-19.
The old and new reserve requirements are shown below:

Net demand deposits
(in millions of dollars)

2 or less
2-10
10-100
100-400
Over 400

Reserve requirement
(per cent)
New

Old

Vh
10
12
13
i6y2

8
ioy2
i2y2
13%
17 Vi

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FEBRUARY 18, 1975
Amendments to Rules Regarding Availability of Information
Effective February 19, 1975, the Board amended its Rules Regarding
Availability of Information in accordance with the 1974 Amendments
to the Freedom of Information Act, which took effect on the same day.
Votes for this action: Messrs. Burns, Mitchell,
Sheehan, Bucher, Holland, Wallich, and Coldwell.
Votes against this action: None.
The amendments adopted will:
1. Inform the public of the availability of copies of the index
of Board actions compiled pursuant to the Freedom of Information
Act.
2. Provide specific time limits for making determinations as to
the availability of requested information.
3. Provide for identification of the ofBcial(s) responsible for any
initial or final denial of a request for information.
4. Revise slightly the Board's rules regarding exemptions from
the Freedom of Information Act.
5. Establish a fee schedule reflecting the direct costs of the
searching and copying of records in response to a request. Under
this schedule, there will be a charge of $10 per hour for search time
and a charge of 10 cents per standard page for photocopying. When
data processing services are required, the assessment will be limited
to the direct and reasonable costs of retrieval and production of the
information requested; detailed schedules of such fees are available
from the Secretary of the Board. The assessment may be waived
when the total charge is less than $2, and it may be reduced or
waived when the general public will derive the primary benefit from
the information.
MARCH 31, 1975
Interpretation of Regulation Q (Interest on Deposits)
Effective April 7, 1975, the Board issued an interpretation of Regulation
Q to authorize member banks to permit customers to transfer or withdraw funds from their savings accounts by telephonic request.

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Votes for this action: Messrs. Mitchell, Bucher,
Holland, and Wallich. Votes against this action:
None. Absent and not voting: Messrs. Burns, Sheehan, and Coldwell.
In 1936 the Board had adopted the policy that a member bank
could not permit a depositor to withdraw or transfer funds from his
savings account by telephone. That position was based upon the
Board's concern that telephonic access to accounts could lead to
unauthorized use and that unrestricted telephonic access to savings
accounts might lead depositors to treat such accounts as extensions
of their checking accounts, thereby destroying the distinction between
the two types of accounts.
However, upon review of the telephonic transfer and withdrawal
systems now being developed by several member banks, the Board
found that the security and record-keeping devices made possible
by new technology and incorporated into these systems would keep
errors and unauthorized use to a minimum. In addition, the Board
recognized that the telephone has become an accepted medium for
transmitting financial data, and that the telephone merely provides
the customer with an additional method of communicating instructions regarding his account to his bank.
For additional information on this interpretation, see the section
on Consumer Affairs, which begins on page 307 of this REPORT.

MARCH 31, 1975
Amendment to Regulation Q (Interest on Deposits)
Effective May 16, 1975, the Board amended Regulation Q to prohibit
member banks from issuing negotiable order of withdrawal (NOW)
accounts to governmental units.
Votes for this action: Messrs. Mitchell, Bucher,
Holland, and Wallich. Votes against this action:
None. Absent and not voting: Messrs. Burns, Sheehan, and Coldwell.
On November 26, 1974, the Board had amended Regulation Q to
permit member banks to offer savings accounts to governmental
units. Since NOW accounts are included in the regulation's definition

119

of savings deposits, the amendment also authorized NOW accounts
for governmental units in Massachusetts and New Hampshire (the
only two States authorized to offer NOW accounts).
After a review of the situation, the Board decided to withdraw
its authorization of governmental NOW accounts in light of the
disruptive economic effects that such accounts could have on the
deposit relationships between financial institutions and governmental units in the two States. However, certain types of governmental
units—ones that had, because of the nature of their activities, traditionally been allowed to hold savings deposits (school districts,
for example)—were allowed to continue to hold NOW accounts.
The amendment permitted all NOW accounts established prior
to May 16, 1975, to be maintained through December 31, 1975.
APRIL 9, 1975
Amendments to Regulation D (Reserves of Member Banks)
and Regulation M (Foreign Activities of National Banks)
Effective May 22, 1975, the Board amended Regulations D and M to
reduce from 8 per cent to 4 per cent the reserve requirement on member
banks' Euro-dollar borrowings and on loans made by member banks'
foreign branches to U.S. residents.
Votes for this action: Messrs. Burns, Sheehan,
Bucher, Holland, Wallich, and Coldwell. Votes
against this action: None. Absent and not voting:
Mr. Mitchell.

This action was taken to align the Euro-dollar reserve requirement
more closely with reserve requirements on the time and savings
deposits of domestic residents. The action also would reduce impediments to inflows of funds from abroad and thereby encourage a
strengthening of the position of the U.S. dollar in foreign exchange
markets.
The reduced reserve ratio was applicable to the daily-average
balance of borrowings beginning with the 4-week period April 10
through May 7. The ratio affected reserves required to be maintained beginning the 4-week period May 22 through June 18. The
action was expected to release about $65 million in reserves.

120

Also affected by the action were foreign banking institutions
operating in the United States that had voluntarily maintained
reserves on Euro-dollar borrowings since mid-1973. The Board had
originally requested the voluntary action during a period of monetary restraint. Although current monetary policy was not directed
toward credit restraint, the Board believed it was important that
foreign banking institutions operating in the United States follow
procedures similar to those followed by member banks with respect
to reserves on increases in their Euro-dollar borrowings. Therefore
it requested, Governor Bucher dissenting, that foreign institutions
maintain a voluntary reserve of 4 per cent on increases in net foreign borrowings exceeding the average of such borrowings during
May 1973. The reduction in the voluntary reserve was expected to
release about $15 million in reserves.
Governor Bucher would have preferred to withdraw the request
at this time. He noted that the original request had been made in
an environment of credit restraint, while the new request was based
solely on the principle of parallel treatment. He did not believe
the Board should invoke the principle at a time when the Board's
proposed Foreign Banking Act of 1975—a bill predicated on that
same principle—was pending before the Congress.
The Board had instituted its reserve requirement on member
banks' Euro-dollar borrowings and on loans made by member banks'
foreign branches to U. S. residents in 1969, with the rate set at
10 per cent of borrowings in excess of base-period amounts. In
November 1970 the Board increased the rate to 20 per cent. In
May 1973 the Board reduced it to 8 per cent and voted for a
gradual elimination of the reserve-free base; phasing out of the
reserve-free base was completed in March 1974.
APRIL 30, 1975
Margin regulations
The Board extended until September 30, 1975, the suspension of the
rule that limits the use of the same-day substitution privilege to margin
accounts with an equity ratio of at least 40 per cent of the market value
of the securities. The suspension had previously been scheduled to expire
on May 5, 1975.

121

Votes for this action: Messrs. Burns, Mitchell,
Sheehan, Holland, and Wallich. Votes against this
action: None. Absent and not voting: Messrs.
Bucher and Coldwell.
This extension was adopted to allow the Board further time for
consideration and consultation with interested parties on the impact
of the rule on margin customers, on brokerage firms, and on the
stock market itself.
Under the same-day substitution privilege of the Board's margin
regulations, margin customers are permitted to substitute one security for another in their accounts without supplying additional margin for the purchase or without using any of the proceeds of the sales
to strengthen an account that is below the initial margin requirement
(currently 50 per cent), provided that the sales and purchases occur
on the same day and are of equal dollar value. In a regulatory
amendment effective September 18, 1972, the Board had limited
that privilege to accounts in which a customer's equity ratio was
at least 40 per cent. On November 4, 1974, the Board suspended
the restriction for 6 months (from November 5, 1974, to May 5,
1975).
The Board's margin regulations apply to extensions of credit
by brokers and dealers (Regulation T) and by banks and other
lenders (Regulations U and G, respectively) for the purpose of purchasing or carrying stocks registered on a national exchange or
included on the Board's list of over-the-counter margin stocks.
M A Y 12 A N D D E C E M B E R 30, 1975
Amendments to Regulation H (Membership of State Banking
Institutions in the Federal Reserve System)
On May 12 the Board amended Regulation H, effective immediately, to
bring it into conformity with the provisions of the Flood Disaster Protection Act of 1973.
Votes for this action: Messrs. Burns, Mitchell,
Sheehan, and Coldwell. Votes against this action:
None. Absent and not voting: Messrs. Bucher,
Holland, and Wallich.
The Flood Disaster Protection Act of 1973 provided that as of

122

July 1, 1975, no State member bank nor any other Federally chartered, supervised, or insured lending institution may make, increase,
extend, or renew a loan secured by improved real estate or a mobile
home located in a flood-hazard area that has been so identified
by the Secretary of Housing and Urban Development unless the
community is participating in the national flood insurance program.
However, the Act provided that a community would be exempt from
this prohibition for 1 year following the date on which it was notified
by the Secretary that it had flood-prone areas.
The Board's amendment inserted the 1-year grace period in the
Board's regulation.
On December 30 the Board amended Regulation H, effective immediately, to implement the section of the Emergency Housing Act of 1975
that amended the Flood Disaster Protection Act of 1973.
Votes for this action: Messrs. Mitchell, Bucher,
Holland, and Jackson. Votes against this action:
None. Absent and not voting: Messrs. Burns, Wallich, and Coldwell.
The law and the Board's amendment created a partial exception
to the requirements of the Flood Disaster Protection Act for one
category of loans: those to finance the acquisition of a previously
occupied residential dwelling. State member banks may make such
loans until January 1, 1976 (rather than July 1, 1975), or for 1 year
from the date of a community's notification that it has flood-prone
areas (whichever is later) if the community is not participating in the
national flood insurance program.

MAY 29, 1975
Amendment to Regulation Q (Interest on Deposits)
Effective June 5, 1975, the Board amended Regulation Q to permit
member banks to redeem time deposits before maturity without imposing
an interest penalty in cases in which the depositor or a co-depositor has
died.
Votes for this action: Messrs. Burns, Mitchell,
Wallich, and Coldwell. Vote against this action:
Mr. Holland. Absent and not voting: Messrs. Sheehan and Bucher.

123

Previously, Regulation Q permitted payment of a time deposit
before maturity only with a substantial interest penalty: interest on
the withdrawn funds would be paid at the rate paid on passbook
savings accounts, and the depositor would forfeit 3 months' interest.
The purpose of the penalty was to prevent time deposits from being
used as transaction accounts. Since the amendment adopted would
apply only in the case of the death of a depositor, the Board foresaw
no resulting erosion of the distinction between time deposits and
transaction accounts.
On April 4, 1975, the Board had published for comment a proposal to allow member banks to redeem a time deposit prior to
maturity without a penalty only when the deceased depositor was the
sole legal and beneficial owner of the account. However, after consideration of all comments received, the Board voted to expand the
amendment to allow such penalty-free redemption upon the death
of any person whose name appears on a time-deposit passbook or
certificate.
Governor Holland dissented from this action because he did not
believe that an exception should be made to the present penalty rule,
particularly one that appeared to be a reversion to the Board's earlier
hardship provision governing early withdrawals.
For additional information on this amendment, see the section on
Consumer Affairs, which begins on page 307 of this REPORT.

MAY 29, 1975
Amendment to Regulation Q (Interest on Deposits)
Effective September 1, 1975, the Board amended Regulation Q to require
member banks, upon issuing a time deposit, to make certain disclosures
on the certificate, passbook, or other document representing the deposit.
Votes for this action: Messrs. Burns, Mitchell,
Holland, Wallich, and Coldwell. Votes against this
action: None. Absent and not voting: Messrs.
Sheehan and Bucher.
The amended regulation requires member banks to print or stamp
on each certificate, passbook, or other document representing a time
deposit a conspicuous statement indicating that no interest will be

124

paid on the deposit after the maturity date. In the case of a time
deposit that is automatically renewable, the amendment requires a
conspicuous statement indicating that the contract will be renewed
automatically unless the owner gives the bank other instructions,
and indicating the terms of the renewal.
The Board took this action to provide greater convenience to
customers who have time deposits.
At the same time, the Board urged member banks to notify their
customers by mail of the impending maturity of any time deposit,
particularly if the deposit has an initial maturity of more than 1 year.
For additional information on this amendment, see the section on
Consumer Affairs, which begins on page 307 of this REPORT.

JULY 1, 1975
Amendment to Regulation Q (Interest on Deposits)
Effective September 2, 1975, the Board amended Regulation Q to authorize member banks to offer a bill-paying service to their customers
through the preauthorized transfer of funds from a depositor's savings
account.
Votes for this action: Messrs. Mitchell, Bucher,
Holland, Wallich, and Coldwell. Votes against this
action: None. Absent and not voting: Mr. Burns.1
Previously, member banks were authorized to offer a bill-paying
service only for the payment of the principal, interest, or other
charges related to a real estate loan or mortgage. This amendment
permits member banks to provide a comprehensive bill-paying service without regard to the purpose of the payment.
The amendment gives member banks wide latitude in designing
bill-payment plans. Subject to the rules of the individual bank plan,
a savings depositor may authorize his bank to transfer funds to third
parties on a recurring or a one-time basis (regardless of whether the
payment is in satisfaction of a debt) or to the bank itself to repay
an indebtedness to it (except an indebtedness incurred through an
overdraft or the use of a checking-account line of credit). The bank
1

There was one vacancy on the Board at the time this action was taken.

125

may allow the depositor to give instructions in person, by mail, or
by telephone. (Any printed forms used must state in boldface type
that the instructions are not negotiable or transferable). The bank
may effect the transfer of funds by an internal bookkeeping transfer
or by sending payment to the transferee or the transferee's bank.
Member banks may honor only those withdrawal orders or authorizations for payment to third parties that are received from the
depositor himself.
For additional information on this amendment, see the section on
Consumer Affairs, which begins on page 307 of this REPORT.
JULY 8, 1975
Amendments to Regulation Z (Truth in Lending)
Effective August 8, 1975, the Board amended Regulation Z to implement
changes in the Truth in Lending Act adopted by the Congress.
Votes for this action: Messrs. Mitchell, Bucher,
Holland, and Coldwell. Votes against this action:
None. Absent and not voting: Messrs. Burns and
Wallich.1

The amendments provide that:
1. Advertisements concerning extensions of credit repayable in
more than four instalments, and for which no finance charge is
identified, shall state that the cost of credit is included in the price
of the goods or services.
2. Credit transactions primarily for agricultural purposes shall be
exempt from the disclosure provisions of Regulation Z and the Truth
in Lending Act when the amount financed exceeds $25,000.
3. Any unexpired right of rescission in residential real property
transactions shall be limited to 3 years from the date of the consummation of the transaction, or until the customer transfers all his
interest in the property, whichever occurs earlier.
4. Issuers of credit cards, on the one hand, and businesses or
organizations, on the other hand, may contract without regard to
1

There was one vacancy on the Board at the time this action was taken.

126

the other relevant provisions of Regulation Z concerning the liability
for unauthorized use of credit cards when (a) the card issuer issues
10 or more cards to a single business or organization for use by
its employees, and (b) the liability imposed on such employees for
unauthorized use does not exceed $50 (the amount permitted by
Regulation Z ) .
5. Any credit transaction involving an agency of a State as creditor shall not be subject to the right of rescission.
6. The creditor of an open-end account may allow a longer
period than that disclosed to the customer in which to make payment in full without incurring finance charges.
7. The Interstate Commerce Commission be removed from the
list of enforcing agencies and the Farm Credit Administration be
added.
8. Certain civil and criminal penalties be revised. Specifically,
the amendments provide for (a) criminal liability for certain fraudulent acts related to credit cards; (b) civil liability in individual or
class-action cases; (c) a defense for creditors complying in good faith
with Regulation Z; (d) single recovery for multiple failures to disclose in a single account; and (e) civil liability of assignees for
violations of disclosure requirements when the violation is apparent
on the face of the instrument assigned.
For additional information on these amendments, see the section
on Consumer Affairs, which begins on page 307 of this REPORT.

A U G U S T 25, 1975
Amendments to Regulation M (Foreign Activities of
National Banks)
Effective immediately, the Board approved amendments to the section of
Regulation M that allows member banks' foreign branches to perform
certain functions to the extent that such functions are customary for the
banking business in the places in which the branches transact business.
The amendments adopted (1) raise the limit on the amount of credit
that a member bank's foreign branch may extend to one of its executive
officers to finance the acquisition or construction of housing to be used
as his living quarters abroad, and (2) allow foreign branches of member
banks to engage in insurance agency or brokerage activities.

127

Votes for this action: Messrs. Burns, Mitchell,
Bucher, and Jackson. Votes against this action:
None. Absent and not voting: Messrs. Holland,
Wallich, and Coldwell.
As published for comment earlier in the year, the proposed
amendment regarding loans to executive officers for housing would
have increased the limit from $50,000 to $100,000 (with no provision for exceptions) in light of the worldwide escalation in housing
costs. Comments received pointed out that $100,000 would not be
adequate in some countries. Accordingly, although the amendment
adopted imposes a limit of $100,000, it allows this amount to be
exceeded when required by local housing costs, provided that the
bank's board of directors grants prior specific approval.
In voting to allow member banks' foreign branches to engage in
insurance agency or brokerage activities where such activities are
customary for banks, the Board noted that this amendment would
allow such branches to be more competitive with local banks. Since
the proposal would not involve any insurance underwriting by the
foreign branches, there would be no significant additional risk.
S E P T E M B E R 10, 1975

Amendment to Regulation Z (Truth in Lending)
Effective October 28, 1975, the Board amended Regulation Z to implement Title III (Fair Credit Billing) and one section of Title IV of
Public Law 93-495.
Votes for this action: Messrs. Burns, Mitchell,
Bucher, Holland, Wallich, Coldwell, and Jackson.
Votes against this action: None.
The Fair Credit Billing Act was designed to help consumers
resolve credit-billing disputes promptly and fairly and to prohibit
certain credit practices deemed to be unfair to consumers or to be
anticompetitive. The Act directed that the implementing regulations
be written by the Board of Governors and enforced by the same
Federal agencies that enforce the other chapters of the Truth in
Lending Act.
The main provisions of the Board's amendment are as follows:

128

1. Establishment of a procedure to be followed by creditors and
customers for the resolution of suspected billing errors, and a
requirement that creditors notify customers of the procedure.
2. A .requirement, for open-end credit accounts, that when there is
a period during which payment may be made without iecerrieg a
finance charge, the periodic statement must be mailed at least 14
days before the end of such "free-ride" period.
3. Establishment of speciic time limits that creditors must meet
in (a) crediting payments received on accounts and (b) crediting or
refunding excess payments.
4. If a merchant accepts the return of property or otherwise forgives a debt, and the amount is to be credited to the customer's
credit-card account, a requirement that the merchant notify the card
issuer within seven business days, and that the card issuer credit the
cardholder's account within three business days.
5. A prohibition against a card issuer offsetting a customer's
credit-card bill by transferring funds from, another account maintained by the cardholder with the card issuer unless the cardholder
has previously authorized in writing the automatic deduction for
payment of such bills, or unless a court order is obtained.
6. Establishment of a customer's right—in the event that he has
problems with property or services purchased with a credit card and
has given the merchant a chance to correct the problem—to assert
against the card Issuer any claims (other than tort claims) or legal
defenses to payment that he may have against the merchant, provided
that the purchase was made within the customer's home State or
within 100 miles of his home address and that the purchase price
was more than $50. (The distance and price limitations do not apply
if the merchant is owned or'operated by the creditor or if the creditor
mailed the customer the advertising for the property or services.)
7. A stipulation that card issuers may not prohibit merchants from
offering their customers a discount for using cash rather than a credit
card. (If the discount is 5 per cent or less and if certain other conditions are met, the discount does not constitute a finance charge;
but a surcharge of any amount must be treated as a finance charge
to be disclosed to the cardholder. The Board has, however, requested
clarification of congressional intent on this distinction.)
8. Preemption, with certain exceptions, of any State billing law

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if the error-resolution procedure and credit-reporting prohibitions
of that law differ from those of the amendment. As an exception,
State law is not preempted to the extent that a customer is permitted
a longer time period in which to report billing errors than he would
have under the Federal law. However, on subjects other than billingerror resolution and credit reporting, State law is not inconsistent,
and therefore not preempted, if the creditor can comply with it
without violating Federal law. The amendment also establishes a
procedure by which a State may ask the Board to determine whether
its law gives greater protection to consumers than does the Federal
law5 or is otherwise not inconsistent.
9. A requirement that certain descriptive information be included
for each transaction listed on a periodic statement in an open-end
account to enable the customer to identify the transaction. (This
is pursuant to Section 411 of Title IV of Public Law 93-495.)
Although voting for adoption of the amendment, individual Board
members-dissented on particular issues, as follows:
Governors Bucher, Wallich, and Jackson dissented from the decision to treat surcharges, but not discounts, as finance charges;
they believed the two devices should receive similar treatment under
the regulation since their effects were the same in economic terms.
(The majority of the Board observed that the relevant provision of
the Fair Credit Billing Act referred only to discounts.)
Governors Mitchell and Coldwell dissented from the approach to
be taken toward inconsistent State laws—specifically, the decision to
allow State law to prevail under some circumstances and Federal
law to be preemptive in others in order to provide maximum protection for the consumer. They dissented because of the confusion
that might result; in addition, Governor Mitchell believed that consumers would be given greater protection under Federal law, which
provided for stronger penalties for violations thereof than did State
laws.
To- avoid errors and confusion, the Board gave creditors additional
time (beyond the October 28, 1975? effective date) to achieve compliance with certain provisions requiring significant changes in forms
or computer programs.
For additional information on this amendment, see the section on
Consumer Affairs, which begins on page 307 of this REPORT.

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S E P T E M B E R 10, 1975
Amendment to Regulation Z (Truth in Lending)
Effective January 1, 1976, the Board amended Regulation Z to require
creditors to disclose in a clear and conspicuous manner the credit terms
that apply to the use of cash-advance checks, at the time such checks
are initially sent to a customer.
Votes for this action: Messrs. Mitchell, Bucher,
Holland, Wallich, Coldwell, and Jackson. Votes
against this action: None. Absent and not voting:
Mr. Burns.
The Board took this action to insure that recipients of cashadvance checks are informed about the credit terms applicable to
their use. Cash-advance checks are blank checks sometimes issued
to holders of credit-card accounts for use in obtaining cash advances,
and their terms often vary from those pertaining to credit-card
purchases. The Board noted that issuance and use of such checks in
connection with credit-card accounts have been growing.
For additional information on this amendment, see the section on
Consumer Affairs, which begins on page 307 of this REPORT.
S E P T E M B E R 15, 1975
Amendments to margin regulations
The Board extended through November 2, 1975, the suspension of the
rule that limits the use of the same-day substitution privilege to margin
accounts with an equity ratio of at least 40 per cent of the market value
of the securities. At the same time, it voted to reinstate the restriction
as of November 3, 1975, but set the equity ratio requirement at 30 per
cent, rather than 40 per cent, of the market value of the securities.
Votes for this action: Messrs. Burns, Mitchell,
Bucher, Holland, Wallich, and Coldwell. Votes
against this action: None. Absent and not voting:
Mr. Jackson.
Under the same-day substitution privilege of the Board's margin
regulations, margin customers are permitted to substitute one security
for another in their accounts without supplying additional margin
for the purchase or without using any of the proceeds of the sales to

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strengthen an account that is below the initial margin requirement
(currently 50 per cent), provided that the sales and purchases occur
on the same day and are of equal dollar value. In a regulatory
amendment effective September 18, 1972, the Board had limited this
substitution privilege to accounts in which a customer's equity ratio
was at least 40 per cent. On November 4, 1974, the Board suspended
the restriction for 6 months (from November 5, 1974, to May 5,
1975), and on April 30, 1975, it extended the suspension until
September 30, 1975. The purpose of the suspension was to permit
the Board to study the impact of the limitation on margin customers,
brokerage firms, and the stock market.
The Board now voted to reinstate the restriction (but with a cutoff
equity ratio of 30 per cent, rather than 40 per cent, of the market
value of the securities) in light of its conclusion that the benefits of
the limitation—principally the upgrading of margin accounts—outweighed any potential adverse effects. It also noted that its study had
found no significant increase in net selling as a result of the limitation.
The Board set the effective date of the reinstatement at November 3,
1975, and extended the suspension until that date in order to allow
brokerage firms time to make the necessary operating changes.
The Board's margin regulations apply to extensions of credit by
brokers and dealers (Regulation T) and by banks and other lenders
(Regulations U and G, respectively) for the purpose of purchasing or
carrying stocks registered on a national exchange or included on the
Board's list of over-the-counter margin stocks.
SEPTEMBER 26, 1975
Rules Regarding Access to and Review of Personal
Information in Systems of Records
Effective September 28, 1975, the Board adopted a new regulation
entitled "Rules Regarding Access to and Review of Personal Information
in Systems of Records," which sets forth the procedures by which an
individual may obtain access to, and request amendment of, Federal
Reserve Board records pertaining to himself.
Votes for this action: Messrs. Burns, Mitchell,
Holland, Coldwell, and Jackson. Votes against this
action: None. Absent and not voting: Messrs.
Bucher and Wallich.

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This action was taken to implement a portion of the Privacy Act
of 1974.
The new regulation specifies the procedures by which an individual
may (1) request notification of the existence of a record on him or
her in the Board's designated files; (2) obtain access to the record;
(3) request amendment of any record that is believed to be in error;
and (4) appeal an initial adverse determination made on a request to
amend a record.
The regulation also indicates restrictions on the disclosure of information to persons other than the individual to whom it pertains,
and allows certain portions of records to be exempted from disclosure
requirements.

OCTOBER 1, 1975
Amendments to Regulation D (Reserves of Member Banks)
and Regulation Q (Interest on Deposits)
Effective November 10, 1975, the Board amended Regulations D and Q
to permit member banks to offer savings accounts to corporations,
partnerships, and other organizations operated for profit.
Votes for this action: Messrs. Burns, Mitchell,
Bucher, Holland, Coldwell, and Jackson. Votes
against this action: None. Absent and not voting:
Mr. Wallich.
The Board took this action to enable member banks to offer small
businesses an opportunity to earn interest on idle funds and to enable
the banks to compete more effectively with savings and loan associations and other thrift institutions, most of which had previously been
authorized by their supervisory agencies to offer such accounts.
The amendments set a ceiling of $150,000 per depositor on the
amount that a profitmaking organization may maintain in a savings
account at a member bank. The Board adopted this ceiling (1) in
order to make such accounts attractive primarily to small businesses,
which do not ordinarily have access to short-term money market
instruments, and (2) to limit the concentration of any potentially
volatile savings deposits. Governors Bucher and Coldwell dissented
from the decision to place a limit on such accounts; Governor Bucher
did not believe there was a need for such a restriction, and both

133

Governors believed the limitation would present undue administrative
problems.
The proposal that had been published for comment earlier in the
year would have imposed a limit of $100,000 per depositor at a
member bank. After review and consideration of all comments received, the Board voted to adopt a ceiling of $150,000 in order to
accommodate the needs of small businesses more adequately.
For additional information on these amendments, see the section
on Consumer Affairs, which begins on page 307 of this REPORT.
O C T O B E R 15, 1975
Amendment to Regulation D (Reserves of Member Banks)
Effective October 16, 1975, the Board amended Regulation D to reduce
from 3 per cent to 1 per cent the reserve requirement on member bank
time deposits with an original maturity of 4 years or more.
Votes for this action: Messrs. Burns, Mitchell,
Bucher, Holland, and Jackson. Votes against this
action: None. Absent and not voting: Messrs. Wallich and Coldwell.
This action was designed primarily to encourage banks to lengthen
the structure of their liabilities. The Board noted that during recent
years some banks had experienced difficulties because some of their
fixed-rate loans had longer maturities than their relatively short-term
interest-bearing liabilities. The need to roll over their maturing shortterm obligations during periods of rising interest rates had subjected
banks to liquidity strains and pressures on their profits.
The action was also intended to help meet the seasonal need for
bank reserves during the remainder of the year and to facilitate a
moderate growth in the monetary aggregates.
The amendment provided that in no case may the reserves on the
aggregate amount of time and savings deposits at any bank be less
than 3 per cent, the minimum level allowed by law. The new reserve
ratio was applicable to the level of deposits beginning the week of
October 16-22, and affected required reserves beginning the statement week of October 30-November 5. The reduction was expected
to release approximately $350 million in reserves to the banking
system.

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O C T O B E R 15, 1975
Adoption of Regulation B (Equal Credit Opportunity)
Effective October 28, 1975, the Board adopted a new regulation, designated Regulation B, that prohibits discrimination by creditors on the
basis of sex or marital status.
Votes for this action: Messrs. Burns, Bucher,
Holland, and Jackson. Votes against this action:
None. Absent and not voting: Messrs. Mitchell,
Wallich, and Coldwell.
The Board took this action to implement the Equal Credit
Opportunity Act. That Act assigned to the Board of Governors of
the Federal Reserve System the responsibility for writing an implementing regulation, and it delegated enforcement responsibility to
12 Federal agencies, one of which is the Board. Each of the agencies
has authority over appropriate creditors.
The regulation applies to all who regularly extend or arrange
for the extension of credit; included are banks, savings and loan
associations, credit unions, finance companies, department stores, and
credit-card issuers.
The regulation prohibits creditors from discriminating against an
applicant on the basis of sex or marital status in any aspect of a
credit transaction. Creditors may not, on the basis of sex or marital
status, discourage potential applicants from applying for credit,
discount the income of an applicant or an applicant's spouse, or
refuse to grant a separate account to a creditworthy applicant.
Furthermore, the regulation requires that upon request a creditor
must give a rejected applicant the reasons for any denial of credit. In
addition, the regulation gives every married person the right to have
credit information concerning accounts held or used jointly with a
spouse reported to consumer reporting bureaus and to creditors in
the names of both spouses rather than in one name only.
Although the basic provisions of the regulation became effective
on October 28, 1975, the Board allowed creditors additional time to
achieve compliance with certain provisions that required significant
changes in forms or computer programs.
Governor Jackson, while voting for adoption of the regulation,
opposed the decision to require that upon request a creditor must

135

give a rejected applicant the reasons for the denial. Governor
Jackson questioned the usefulness of the statement of reasons as an
enforcement device, and he believed the requirement would be too
burdensome to creditors because it would give all applicants, not
just those who might have been discriminated against in violation
of this regulation, the right to receive a statement.
For additional information on this regulation, see the section on
Consumer Affairs, which begins on page 307 of this REPORT.
OCTOBER 17 AND NOVEMBER 24, 1975
Amendments to Regulation H (Membership of State Banking
Institutions in the Federal Reserve System) and
Regulation Y (Bank Holding Companies)
On October 17, 1975, the Board amended Regulation H, effective immediately, to provide for the registration of State member banks and subsidiaries thereof that act as transfer agents.
Votes for this action: Messrs. Burns, Mitchell,
Holland, and Jackson. Votes against this action:
None. Absent and not voting: Messrs. Bucher,
Wallich, and Coldwell.
On November 24, 1975, the Board amended Regulation Y, effective
immediately, to provide for the registration of bank holding companies
and certain of their subsidiaries that act as transfer agents.
Votes for this action: Messrs. Burns, Holland,
Wallich, Coldwell, and Jackson. Votes against this
action: None. Absent and not voting: Messrs.
Mitchell and Bucher.
These actions were taken pursuant to the Securities Acts Amendments of 1975, which were enacted to assist in the development of a
national system for prompt and accurate clearance and settlement of
securities transactions.
The amendments provide that no State member bank or a subsidiary thereof, nor any bank holding company or a subsidiary
thereof that is a bank as defined in Section 3 (a) (6) of the Securities
Exchange Act of 1934, as amended, may act as a transfer agent in

136

the clearing and settlement of certain securities transactions on or
after December 1, 1975, unless it is registered with the Board. The
Board also adopted a form to be used for the registration process.
The Federal Deposit Insurance Corporation, the Comptroller of
the Currency, and the Securities and Exchange Commission have
adopted similar rules and forms for institutions under their jurisdiction.

OCTOBER 20, 1975
Amendment to Regulation F (Securities of Member State
Banks)
Effective December 1, 1975, the Board amended Regulation F to bring
it into substantial conformity with comparable rules of the Securities and
Exchange Commission.
Votes for this action: Messrs. Mitchell, Holland,
Wallich, Coldwell, and Jackson. Votes against this
action: None. Absent and not voting: Messrs.
Burns and Bucher.
This action was taken pursuant to the Depository Institutions Act
of 1974, which required that Federal bank supervisory agencies
amend their regulations regarding securities of banks under their
respective jurisdictions to make those regulations substantially similar
to the corresponding rules of the Securities and Exchange Commission.
Regulation F applies to State member banks that have at least
500 stockholders or that have securities listed on a national exchange.
Such banks are required to register and file periodic reports with the
Board, and to comply with the regulation's requirements in connection with the solicitation of proxies from shareholders. Officers,
directors, and principal stockholders of such banks are required to
file reports as to their stock ownership in the bank. In addition, no
tender offer may be made for the stock of such banks unless certain
information is concurrently filed with the Board. All reports filed
under Regulation F are publicly available.
The Board's amended regulation includes the following new
provisions:

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1. Market data on bank stocks must be included in annual reports.
2. Upon request, a stockholder or investor must be furnished a
copy of the bank's annual report filed with the Board.
3. Certain financial data, in addition to that previously required,
must be disclosed in the annual report to the stockholders.
4. Banks must revise their procedures regarding stockholders'
proposals, as specified in the amended regulation.
5. Certain additional requirements must be followed with respect
to tender offers for registered bank stock.
6. Banks must use revised, expanded forms in making reports of
"insider" ownership.
OCTOBER 24, 1975
Amendment to Regulation Z (Truth in Lending)
Effective January 31, 1976, the Board amended Regulation Z to require
disclosure of closing costs in certain real property transactions not
covered by the Real Estate Settlement Procedures Act (RESPA).
Votes for this action: Messrs. Mitchell, Bucher,
Holland, Wallich, Coldwell, and Jackson. Votes
against this action: None. Absent and not voting:
Mr. Burns.

This action was taken to implement a section of Public Law 9 3 495 (enacted on October 28, 1974), which amended the Truth in
Lending Act.
While the law required the Board to adopt an implementing regulation no later than October 28, 1975, the Board established an
effective date of January 31, 1976, since the Senate had voted to
repeal the relevant section of Public Law 93-495 and the question
was under consideration in the House of Representatives.
The amendment requires that in real property consumer credit
transactions in which the lender retains or acquires a collateral
interest in the real property involved, the closing costs to be
incurred by the customer must be disclosed. If the seller extends the
credit, the disclosure must be made prior to any downpayment. If
the credit is extended by a third party, the disclosure must be made
at the time the lender makes a commitment in connection with the
transaction. Transactions that are subject to RESPA or that are

138

exempt from the requirements of RESPA by regulations adopted by
the Department of Housing and Urban Development are exempt
from this amendment.
For additional information on this amendment, see the section on
Consumer Affairs, which begins on page 307 of this REPORT.
NOVEMBER 12, 1975
Amendment to Regulation T (Credit by Brokers and Dealers)
Effective November 13, 1975, the Board amended Regulation T to relax
the existing rule that generally prohibited a broker or dealer from
arranging for the extension of credit unless the terms and conditions
were such that the broker or dealer himself would be able to extend
the credit.
Votes for this action: Messrs. Mitchell, Bucher,
Holland, Coldwell, and Jackson. Votes against this
action: None. Absent and not voting: Messrs.
Burns and Wallich.
The Board took this action to permit brokers and dealers greater
flexibility in their investment banking operations. The amendment
sets forth the conditions under which brokers and dealers may now
arrange credit in the private placement of securities.
D E C E M B E R 3, 1975
Amendments to Regulation Q (Interest on Deposits)
Effective December 4, 1975, the Board adopted two amendments to
Regulation Q to facilitate the establishment of Individual Retirement
Accounts (IRA's) at member banks.
Votes for this action: Messrs. Burns, Mitchell,
Bucher, Holland, Wallich, Coldwell, and Jackson.
Votes against this action: None.
IRA's are retirement accounts established pursuant to the Employee Retirement Income Security Act of 1974 by persons not
participating in any other pension plan. The statute allows an individual to deduct from gross income on his Federal income tax form
funds deposited in an IRA to the extent that such funds do not

139

exceed $1,500 or 15 per cent of his gross income (whichever is less).
Furthermore, earnings on such accounts are not taxable until distributed to the individual.
The first of the two amendments permits member banks to pay
all or a portion of an IRA time deposit prior to maturity, without
penalty for early withdrawal, when the individual for whose benefit
the account is maintained either attains age 5 9 ^ or becomes disabled. (Regulation Q normally requires a penalty when time deposits
are withdrawn prior to maturity. The regulation does, however,
already allow early withdrawals from time deposits without penalty
in the case of the death of any person whose name appears on the
deposit passbook or certificate.)
The second amendment adopted by the Board waives the $1,000
minimum-denomination requirement for time deposits with 4- and
6-year maturities (carrying interest rates of up to 7V4 and IV2 per
cent, respectively) when such deposits are made pursuant to IRA
agreements. The amendment will eliminate the need for individuals
to maintain IRA deposits at lower interest rates until each $1,000
is reached.
In addition, the Board voted to allow member banks to amend
existing IRA's to incorporate the provisions of the two amendments
adopted without imposing the penalty usually required when time
deposit agreements are modified.
The amendments apply only to funds deposited pursuant to IRA
plans, not to HR-10 (Keogh) plans. Because of the statutory provisions relating to the administration and operation of Keogh plans,
the Board believed that further study would be required to determine
whether the amendments should also be made applicable to these
accounts.
For additional information on these amendments, see the section
on Consumer Affairs, which begins on page 307 of this REPORT.
DECEMBER 24, 1975
Amendment to Regulation D (Reserves of Member Banks)
Effective December 25, 1975, the Board amended Regulation D to
reduce from 3 per cent to 2Vi per cent the reserve requirement on

140

member bank time deposits with an original maturity of at least 180 days
but less than 4 years.
Votes for this action: Messrs. Burns, Mitchell,
Holland, Wallich, Coldwell, and Jackson. Votes
against this action: None. Absent and not voting:
Mr. Bucher.
This was the latest in a series of actions that the Board has taken
to encourage member banks to lengthen their liabilities. (See previous
actions on October 15, 1975, and November 13 and 18, 1974.)
The amendment provided that in no case may the reserves on the
aggregate amount of time and savings deposits at any bank be less
than 3 per cent, the minimum level allowed by law. The new reserve
ratio was applicable to the level of deposits beginning the week of
December 25-31, and affected required reserves beginning the statement week of January 8-14, 1976. It was expected that this action
would release approximately $340 million in reserves to the banking
system.

1975—DISCOUNT R A T E S
The Board approved four reductions in the discount rate during 1975.
As a result of these actions, all of which were taken during the first
part of the year, the rate was lowered from a level of 73A per cent
in early January to 6 per cent in mid-May. This period was characterized by marked weakness in economic activity and sizable declines
in other interest rates. The discount rate remained unchanged over the
balance of 1975, but in early 1976 it was reduced to 5Vi per cent
as short-term interest rates fell to new cyclical lows.
During the course of 1975 the Board voted on 22 occasions to turn
down requests by various Federal Reserve Banks to lower the discount rate; there were no requests to raise the rate during the year.
The denials were concentrated in the first 6 months and in the closing
weeks of the year. The particular reasons for the Board's discount
rate decisions are reviewed below, while the general economic and
financial conditions that the Board considered in arriving at these
decisions are covered in more detail elsewhere in this REPORT, espe-

141

dally in the discussion of the U.S. economy contained in Part I and
in the Record of Policy Actions of the Federal Open Market Committee in Part IL 2
January—mid-May: Reductions approved
On December 6, 1974, the Board had approved a reduction in the
discount rate from 8 per cent to 7% per cent. That action was felt
to be desirable in light of the slackening that had developed in demands for credit and in recognition of the sizable declines that had
occurred in market interest rates. On January 3, 1975, a further decrease to IVA per cent was approved by the Board. In announcing this
action the Board cited the continued weakening in economic activity.
It also took into account the easing that was being implemented
through other instruments of monetary policy. Consideration had
been given to a smaller decrease of Vk percentage point, but the
Board concluded that a reduction of V2 percentage point would provide a stronger signal of a less restrictive monetary policy and it would
be more likely to have a constructive impact on short-term interest
rates. The larger reduction was also intended to facilitate achievement
of the growth objectives for the monetary aggregates established by
the Federal Open Market Committee at its meeting in mid-December.
On January 8 the Board turned down a request to reduce the discount rate-by an additional ¥2 percentage point to SM -per-cent. In
the Board's judgment such a reduction was not warranted so soon
after the action on January 3. Later in the month—on January 20
and January 24—requests by a number of Federal Reserve Banks to
lower the discount rate to 7 per cent or to 6% per cent were also
denied. In reaching these decisions the Board took into account the
further easing of monetary policy that was being accomplished
through open market operations and through the decrease in reserve
requirements announced on January 20, In these circumstances the
Board concluded that any further reduction in the discount rate
should be delayed because a decrease at this time might give a misleading Impression of the posture of monetary policy and thereby
- The individual decisions on discount rates during 1975 and the associated
record of votes of tie members of the Board are shown starting on page 147
of this REPOET.

142

have an undue impact on market interest rates. It was also felt that
such an action would tend to aggravate the prevailing weakness of
the dollar in foreign, exchange markets.
Subsequently, on February 4, the Board approved a decrease in
the discount rate from 11A to 63A per cent. The action was taken in
recognition of the declines that had occurred in short-term interest
rates during previous weeks. The reduction was also deemed to be
timely in providing a further indication of the basic stance being
pursued through other instruments of monetary policy. It was observed that any adverse impact on the value of the dollar in foreign
exchange markets was likely to be moderated by reductions in some
key discount rates abroad that were anticipated in. the near future.
On February 14 and again on February 21 the Board turned
down actions by a number of Federal Reserve Banks to reduce the
discount rate by an additional Vi percentage point to 6M per cent.
In reaching its decisions, the Board took note of the continuing declines in short-term interest rates, but it concluded that the easing
actions already under way should not be supplemented at that time by
another cut in the discount rate. Some Board members felt that consideration should be given to the use of other instruments in any
further easing of monetary policy. Attention was also focused on the
weakness of the dollar in foreign exchange markets.
On March 7 the Board approved a decrease in the discount rate
from 63A to 6! 4 per cent. The major reasons for this action were the
weakness in economic activity, recent evidence of moderation in the
rate of inflation, and the desirability of bringing the discount rate into
better alignment with other short-term interest rates. The Board also
took into account the advantage of making a quick response to recent
reductions in key discount rates abroad so as to minimize any negative impact that the System's action might have on the dollar in
foreign exchange markets. During the Board's deliberations some
sentiment in favor of reducing reserve requirements was expressed,
either as a substitute for the discount rate action or as a later
supplement to it.
On March 31 and April 4 the Board turned down actions by several
Federal Reserve Banks to reduce the discount rate by Vk or V2 percentage point. In reaching these decisions the Board took note of the
relatively low levels of most short-term interest rates, but it concluded

143

that a signal of further easing in. monetary policy would not be desirable in light of indications of accelerating expansion in the monetary
aggregates, and developments with respect to iscal policy.
Additional actions by several Federal Reserve Banks to lower the
discount rate to 6 or to 5 % per cent were denied by the Board from
mid-April through early May. In. arriving at these decisions the Board
continued to give major weight to current and anticipated strength in
the monetary aggregates. It was agreed that some arguments could be
made in favor of a somewhat lower discount rate—including the fact
that the rate was still above short-term market rates even though the
latter had increased from earlier lows. The Board concluded, however,
that a signal of further easing was likely to give a misleading impression of the general stance of monetary policy. The financing being
conducted by the Treasury during the first part of May was also a
factor in the decision not to change the discount rate at that time.
Some'Board members suggested, however, that in the absence'of the
Treasury financing a good case could have been made in favor of a
¥4 percentage point reduction, partly to underscore the System's
policy "of fostering economic recovery.
Such a reduction was approved on May 15 following completion
of the Treasury financing. The new rate of 6 per cent was the lowest
in about 2 years. In announcing the action, the Board cited- the-declines that had occurred in other short-term interest rates and indicated that the reduction was intended to bring the discount rate into
better alignment with short-term rates generally.
Mid-May-June: Pending reductions disapproved
The Board voted on May 15 and again on May 16 to disapprove
pending reductions of ¥2 percentage point—to 5% per cent—at two
Federal Reserve Banks. It was thought that such reductions might
have an'unduly large impact on markets by fostering" a" misleading
view of the outlook for monetary policy and interest rates.
On May 23 the Board denied a request to lower the discount rate
from 6 to 5¥i per cent. The Board decided that an'action signaling
further easing in monetary policy would not be desirable, especially
in light of the May 15 reduction in the discount rate and the mounting
evidence of rapid expansion'in the monetary aggregates.•"On'June '6

144

and again on June 16 the Board turned down actions by some Reserve
Banks to reduce the discount rate to 53A per cent. The Board based
Its decisions mainly on the current and immediately prospective
strength of the monetary aggregates. Some Board members also felt
that an easing action could have a significant Impact on the foreign
exchange value of the dollar, particularly since it was believed that
other major countries were not likely to reduce their discount rates,
July-October: No discount rate actions
No further actions to change the discount rate were taken by the
Federal Reserve Banks until late in the fall. In this interval, which was
characterized by an upturn in. general business activity, monetary
policy sought to foster a financial climate conducive to a satisfactory
recovery but at the same time to minimize the chances of rekindling
inflationary pressures. The monetary aggregates expanded at an
excessively rapid pace during the early part of this period, but the
rate of growth subsequently abated. Short-term interest rates rose
somewhat during the summer months and then declined to new
cyclical lows by the early weeks of 1976.
November-December: Pending reductions disapproved
During November and December the Board turned down several
actions by Federal Reserve Banks to lower the discount rate by Vk or
Vi percentage point. The Board decided that a decrease under prevailing circumstances would be likely to convey a wrong impression
of the outlook for monetary policy, especially since the action would
be viewed in the context of reductions in reserve requirements being
voted by the Board-and of declines In the Federal funds rate. Early in
this period the Board also felt that a reduction could have an undesirable impact on inlationary expectations because It would follow
large Increases in consumer and wholesale prices. Moreover, the
Board felt that the discount rate was not seriously out of line with
other short-term interest rates until the latter part of December,
At its meeting on December 24 the Board voted to reduce reserve
requirements on certain time deposits in order to encourage member
banks to lengthen the structure of their deposit liabilities. It also voted

145

to disapprove actions by two Banks to reduce the discount rate by
VA and ¥2 percentage point. Most interest rates had declined in previous days--and-key short-term rates were below the-discount rate.However, the Board felt that a cut in the discount rate that coincided
with the announcement of a reduction in reserve requirements would
_not be desirable because it would be misinterpreted as a signal of
signilcant easing in monetary policy.
After the turn of the year, on January 16, 1976, the Board approved a decrease of ¥2 percentage point in the discount rate to 5¥z
per cent. Short-term interest rates had declined considerably in previous weeks and were generally at levels well below the discount rate.
In this situation the Board felt a reduction was desirable to bring the
discount rate into better alignment with other short-term interest rates.
The action was also deemed to be consistent with the general thrust
of monetary policy, which had fostered some easing of money market
conditions in order to stimulate the lagging growth'of the monetary
aggregates.
Votes on Reserve Bank actions to change the discount rate
In accordance with the provisions of the Federal Reserve Act, the
boards of directors of the Federal Reserve Banks are required to
establish rates on discounts for and advances to member banks at
least every 14 days and to submit such rates to the Board for review
and determination. The Board votes listed below are those that involved approval or disapproval of actions to change the rate. Specific
reference is made to the rate on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve-Act.
A corresponding change in the rate on advances to member banks
under Section 10(b) of the Federal Reserve Act was approved each
time the rate under Sections 13 and 13a was reduced during 1975.
However, the Board approved changes in rates under other sections
of the Federal Reserve Act that had the effect of widening from ¥2
to 2 percentage, points the spread between the highest rate.that a
member bank may be charged on its borrowings from the Federal Reserve and the rate that may be charged to nonmember borrowers.
As of December 31, 1975, the structure of rates was as follows:
6 per cent for borrowings under Sections 13 and 13a; 6¥i per cent for

146

borrowings at the regular rate and 7 per cent for borrowings at the
special rate under Section 10(b); and 9 per cent for borrowings by
individuals, partnerships, or corporations other than member banks
under the last paragraph of Section 13.
January 3, 1975
Effective January 6, 1975, the Board approved actions taken by the
directors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland,
Richmond, Dallas, and San Francisco to reduce the discount rate from
12A per cent to 1XA per cent.
Votes for this action: Messrs. Burns, Mitchell,
Sheehan, Holland, and Wallich. Votes against this
action: None. Absent and not voting: Messrs.
Bucher and Coldwell.
The Board subsequently approved similar actions taken by the directors
of the Federal Reserve Banks of New York, Chicago, St. Louis, and
Minneapolis, effective January 10; the Federal Reserve Bank of Atlanta,
effective January 13; and the Federal Reserve Bank of Kansas City,
effective January 24.
January 8, 1975
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Boston on January 7 to reduce the discount rate to 63A
per cent.
Votes for this action: Messrs. Burns, Mitchell,
Sheehan, Bucher, Holland, Wallich, and Coldwell.
Votes against this action: None.
January 20, 1975
The Board disapproved actions taken by the directors of the Federal
Reserve Banks of Philadelphia and San Francisco on January 16 to reduce
the discount rate to 7 per cent.
Votes for this action: Messrs. Burns, Mitchell,
Bucher, Holland, Wallich, and Coldwell. Votes
against this action: None. Absent and not voting:
Mr. Sheehan.

147

January 24, 1975
The Board disapproved actions taken by the directors of the Federal
Reserve Bank of Boston on January 23 to reduce the discount rate to 63A
per cent and by the directors of the Federal Reserve Bank of Atlanta on
January 24 to reduce the discount rate to 7 per cent.
Votes for this action: Messrs. Burns, Mitchell,
Sheehan, Bucher, Holland, and Coldwell. Votes
against this action: None. Absent and not voting:
Mr. Wallich.
February 4, 1975
Effective February 5, 1975, the Board approved actions taken by the
directors of the Federal Reserve Banks of Boston, New York, Philadelphia,
Cleveland, Richmond, Atlanta, Minneapolis, Dallas, and San Francisco
to reduce the discount rate to 634 per cent.
Votes for this action: Messrs. Burns, Mitchell,
Sheehan, Bucher, Holland, and Wallich. Vote
against this action: Mr. Coldwell.
The Board subsequently approved similar actions taken by the directors
of the Federal Reserve Bank of Chicago, effective February 6, and the
Federal Reserve Banks of St. Louis and Kansas City, effective February 7.
Mr. Coldwell dissented from the action on the grounds that a further signal of monetary ease was not desirable at that time, especially
in light of the reductions already made in the discount rate and in
reserve requirements since early December. He referred, in addition, to
the sizable increase in reserves supplied to the banking system in recent
months and indicated his preference for slowing the pace of the System's easing actions. He also noted his concern that too rapid a decline
in U.S. interest rates might weaken the dollar further in foreign
exchange markets.
February 14, 1975
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Minneapolis on February 13 to reduce the discount rate
to 6VA per cent.

148

Votes for this action: Messrs. Burns, Sheehan,
Bucher, Holland, and Wallich. Votes against this
action: None. Absent and not voting: Messrs.
Mitchell and Coldwell.
February 21, 1975
The Board disapproved actions taken by the directors of the Federal
Reserve Banks of Boston, Philadelphia, and San Francisco on February 20
to reduce the discount rate to 6V4 per cent.
Votes for this action: Messrs. Burns, Mitchell,
Sheehan, Bucher, Holland, and Wallich. Votes
against this action: None. Absent and not voting:
Mr. Coldwell.
March 7, 1975
Effective March 10, 1975, the Board approved actions taken by the
directors of the Federal Reserve Banks of Boston, New York, Philadelphia,
Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, and
San Francisco to reduce the discount rate to 6VA per cent.
Votes for this action: Messrs. Burns, Mitchell,
Sheehan, Holland, and Coldwell. Votes against this
action: None. Absent and not voting: Messrs.
Bucher and Wallich.
The Board subsequently approved similar actions taken by the directors
of the Federal Reserve Banks of St. Louis and Dallas, effective March 14.
March 31, 1975
The Board disapproved actions taken by the directors of the Federal
Reserve Banks of Philadelphia, Chicago, and Atlanta on March 20, March
27, and March 28, respectively, to reduce the discount rate to 6 per cent;
and by the directors of the Federal Reserve Banks of Boston and Kansas
City on March 20 and the Federal Reserve Bank of Cleveland on March
27 to reduce the discount rate to 53A per cent.
Votes for this action: Messrs. Burns, Mitchell,
Bucher, Holland, and Wallich. Votes against this
action: None. Absent and not voting: Messrs.
Sheehan and Coldwell.

149

April 4, 1975
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of San Francisco on April 3 to reduce the discount rate to
S3A per cent.
Votes for this action: Messrs. Mitchell, Bucher,
Holland, and Wallich. Votes against this action:
None. Absent and not voting: Messrs. Burns,
Sheehan, and Coldwell.
April 16, 1975
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Atlanta on April 11 to reduce the discount rate to 6 per
cent, and by the directors of the Federal Reserve Bank of Cleveland on
April 10 to reduce the discount rate to 53A per cent.
Votes for this action: Messrs. Burns, Mitchell,
Holland, and Coldwell. Votes against this action:
None. Absent and not voting: Messrs. Sheehan,
Bucher, and Wallich.
April 18, 1975
The Board disapproved actions taken by the directors of the Federal
Reserve Banks of Kansas City and San Francisco on April 17 to reduce
the discount rate to 53A per cent.
Votes for this action: Messrs. Burns, Mitchell,
Holland, and Wallich. Votes against this action:
None. Absent and not voting: Messrs. Sheehan,
Bucher, and Coldwell.

April 28, 1975
The Board disapproved actions taken by the directors of the Federal
Reserve Banks of Chicago and Atlanta on April 24 and April 25, respectively, to reduce the discount rate to 6 per cent, and by the directors of the
Federal Reserve Bank of Cleveland on April 24 to reduce the discount
rate to 53A per cent.

150

Votes for this action: Messrs. Burns, Mitchell,
Bucher, Holland, Wallich, and Coldwell. Votes
against this action: None. Absent and not voting:
Mr. Sheehan.
April 30, 1975
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Boston on April 29 to reduce the discount rate to 53A per
cent.
Votes for this action: Messrs. Burns, Mitchell,
Holland, and Wallich. Votes against this action:
None. Absent and not voting: Messrs. Sheehan,
Bucher, and Coldwell.
May 5, 1975
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of San Francisco on May 1 to reduce the discount rate to
534 percent.
Votes for this action: Messrs. Burns, Mitchell,
Bucher, Holland, and Wallich. Votes against this
action: None. Absent and not voting: Messrs.
Sheehan and Coldwell.
May 15, 1975
Effective May 16, 1975, the Board approved actions taken by the
directors of the Federal Reserve Banks of Boston, New York, Philadelphia,
Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, and
Dallas to reduce the discount rate to 6 per cent.
Votes for this action: Messrs. Burns, Holland,
Wallich, and Coldwell. Votes against this action:
None. Absent and not voting: Messrs. Mitchell,
Sheehan, and Bucher.
The Board later approved similar actions taken by the directors of the
Federal Reserve Banks of San Francisco and Minneapolis, effective May
19 and May 23, respectively.

151

May 15, 1975
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Kansas City on May 15 to reduce the discount rate to
53A per cent.
Votes for this action: Messrs. Burns, Holland,
Wallich, and Coldwell. Votes against this action:
None. Absent and not voting: Messrs. Mitchell,
Sheehan, and Bucher.
May 16, 1975
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of San Francisco on May 15 to reduce the discount rate to
53A per cent.
Votes for this action: Messrs. Mitchell, Holland,
and Coldwell. Vote against this action: Mr. Bucher.
Absent and not voting: Messrs. Burns, Sheehan,
and Wallich.
Mr. Bucher indicated that the proposed reduction would have been
in keeping with his views regarding a desirable monetary policy and
would also have served, in his judgment, to bring the discount rate into
better alignment with other short-term interest rates.
May 23, 1975
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Kansas City on May 22 to reduce the discount rate to
5Vi per cent.
Votes for this action: Messrs. Burns, Holland,
Wallich, and Coldwell. Votes against this action:
None. Absent and not voting: Messrs. Mitchell,
Sheehan, and Bucher.

June 6, 1975
The Board disapproved actions taken by the directors of the Federal
Reserve Banks of Kansas City and Atlanta on June 5 and June 6, respectively, to reduce the discount rate to 53A per cent.

152

Votes for this action: Messrs. Burns, Mitchell,
Holland, and Wallich. Votes against this action:
None. Absent and not voting: Messrs. Bucher and
Coldwell.1
J u n e 16, 1975
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Atlanta on June 13 to reduce the discount rate to 53A
per cent.
Votes for this action: Messrs. Burns, Mitchell,
Bucher, Holland, Wallich, and .Coldwell. Votes
against this action: None.1
November 7, 1975
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of San Francisco on November 6 to reduce the discount rate
to S3A per cent.
Votes for this action: Messrs. Burns, Mitchell,
Holland, Wallich, Coldwell, and Jackson. Votes
against this action: None. Absent and not voting:
Mr. Bucher.
November 21, 1975
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Philadelphia on November 20 to reduce the discount rate
to 5% per cent.
Votes for this action: Messrs. Burns, Mitchell,
Holland, Coldwell, and Jackson. Votes against this
action: None. Absent and not voting: Messrs.
Bucher and Wallich.
December 10, 1975
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of San Francisco on December 4 to reduce the discount rate
to 53A per cent.
1

There was one vacancy on the Board at the time this action was taken.

153

Votes for this action: Messrs. Burns, Holland,
Coldwell, and Jackson. Votes against this action:
None: Absent and not voting: Messrs. Mitchell,
Bucher, and Wallich.
December 17, 1975
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Dallas on December 11 to reduce the discount rate to
5VA per cent.
Votes for this action: Messrs. Burns, Mitchell,
Holland, Wallich, Coldwell, and Jackson. Votes
against this action: None. Absent and not voting:
Mr. Bucher.
December 24, 1975
The Board disapproved actions taken by the directors of the Federal
Reserve Banks of Kansas City and San Francisco on December 18 to
reduce the discount rate to 53A per cent and 5V2 per cent, respectively.
Votes for this action: Messrs. Burns, Mitchell,
Holland, Wallich, Coldwell, and Jackson. Votes
against this action: None. Absent and not voting:
Mr. Bucher.

154

Record of Policy Actions
of the Federal Open Market
Committee
The record of policy actions of the Federal Open Market Committee
is presented in the ANNUAL REPORT of the Board of Governors
pursuant to the requirements of Section 10 of the Federal Reserve
Act. That section provides that the Board shall keep a complete
record of the actions taken by the Board and by the Federal Open
Market Committee on all questions of policy relating to open market
operations, that it shall record therein the votes taken in connection
with the determination of open market policies and the reasons
underlying each such action, and that it shall include in its ANNUAL
REPORT to the Congress a full account of such actions.
In the pages that follow, there are entries with respect to the policy
actions taken at the meetings of the Federal Open Market Committee
held during the calendar year 1975, including the votes on the policy
decisions made at those meetings as well as a resume of the basis for
the decisions. The summary descriptions of economic and financial
conditions are based on the information that was available to the
Committee at the time of the meetings, rather than on data as they
may have been revised later.
It will be noted from the record of policy actions that in some
cases the decisions were by unanimous vote and that in other cases
dissents were recorded. The fact that a decision in favor of a general
policy was by a large majority, or even that it was by unanimous
vote, does not necessarily mean that all members of the Committee
were equally agreed as to the reasons for the particular decision or as
to the precise operations in the open market that were called for to
implement the general policy.
Under the Committee's rules relating to the availability of information as amended at the Federal Open Market Committee meeting of
March 18, 1975, the policy record for each meeting was released
approximately 45 days following the date of the meeting beginning

155

with the record for the meeting held on February 19, 1975, and was
subsequently published in the Federal Reserve Bulletin as well as in
this ANNUAL REPORT. Prior to that time the policy record for each
meeting was released approximately 90 days after the date of the
meeting.
Policy directives of the Federal Open Market Committee are issued
to the Federal Reserve Bank of New York as the Bank selected by
the Committee to execute transactions for the System Open Market
Account. In the area of domestic open market activities the Federal
Reserve Bank of New York operates under two separate directives
from the Open Market Committee—an Authorization for Domestic
Open Market Operations and a domestic policy directive. In the
foreign currency area it operates under an Authorization for Foreign
Currency Operations and a foreign currency directive. These four
instruments are shown below in the form in which they were in effect
at the beginning of 1975. Changes in the instruments during the year
are reported in the records for the individual meetings.
AUTHORIZATION FOR DOMESTIC
OPEN MARKET OPERATIONS
In effect January 1, 1975

1. The Federal Open Market Committee authorizes and directs the
Federal Reserve Bank of New York, to the extent necessary to carry out
the most recent domestic policy directive adopted at a meeting of the
Committee:
(a) To buy or sell U.S. Government securities, including securities
of the Federal Financing Bank, and securities that are direct obligations
of, or fully guaranteed as to principal and interest by, any agency of the
United States in the open market, from or to securities dealers and
foreign and international accounts maintained at the Federal Reserve
Bank of New York, on a cash, regular, or deferred delivery basis, for
the System Open Market Account at market prices and, for such Account, to exchange maturing U.S. Government and Federal agency
securities with the Treasury or the individual agencies or to allow them
to mature without replacement; provided that the aggregate amount of
U.S. Government and Federal agency securities held in such Account
(including forward commitments) at the close of business on the day
of a meeting of the Committee at which action is taken with respect to

156

a domestic policy directive shall not be increased or decreased by more
than $3.0 billion during the period commencing with the opening of
business on the day following such meeting and ending with the close
of business on the day of the next such meeting;
(b) To buy or sell in the open market, from or to acceptance dealers
and foreign accounts maintained at the Federal Reserve Bank of New
York, on a cash, regular, or deferred delivery basis, for the account of
the Federal Reserve Bank of New York at market discount rates, prime
bankers* acceptances with maturities of up to 9 months at the time of
acceptance that (!) arise out of the current shipment of goods between
countries or within the United States, or (2) arise out of the storage
within the United States of goods under contract of sale or expected to
moYe into the channels of trade within a reasonable time and that are
secured throughout their life by a warehouse receipt or similar document conveying title to the underlying goods; provided that the aggregate amount of bankers' acceptances held at any one time shall not
exceed $1 billion.
(c) To buy U.S. GoYemment securities, obligations that are direct
obligations of, or fully guaranteed as to principal and interest by, any
agency of the United States, and prime bankers* acceptances of the
types authorized for purchase under l(b) above, from nonbank dealers
for the account of the Federal Reserve Bank of New York under agreements for repurchase'of such securities, obligations, or acceptances in
15 calendar days or less, at rates that, unless otherwise expressly authorized by the Committee, shall be determined by competitive bidding,
after applying reasonable limitations on the volume of agreements with
individual dealers; provided that in the event Government securities or
agency issues, covered by any such agreement are not repurchased by
the dealer pursuant to the agreement or a renewal thereof, they shall
be sold in the market or transferred to the System Open Market Account; and provided further that in the event bankers' acceptances covered by any such agreement are not repurchased by the seller, they
shall continue to be held by the Federal Reserve Bank or shall be sold
in the open market.
2. The Federal Open Market Committee authorizes and directs the
Federal Reserve Bank of New York, or, if the New York Reserve Bank
is closed, any other Federal Reserve Bank, to purchase directly from
the Treasury for its own account (with discretion, in cases where it
seems desirable, to issue participations to one or more Federal Reserve
Banks) such amounts of special short-term certificates of indebtedness
as may be necessary from time to time for the temporary accommodation of the Treasury; provided that the rate charged on such certificates

157

shall be a rate V* of 1 per cent below the discount rate of the Federal
Reserve Bank of New York at the time of such purchases, and provided
further that the total amount of such certificates held at any one time
by the Federal Reserve Banks shall not exceed $1 billion.
3. In order to insure the effective conduct of open market operations,
the Federal Open Market Committee authorizes and directs the Federal
Reserve Banks to lend U.S. Government securities held in the System
Open Market Account to Government securities dealers and to banks
participating in Government securities clearing arrangements conducted
through a Federal Reserve Bank, under such instructions as the Committee may specify from time to time.

DOMESTIC POLICY DIRECTIVE
In effect January 1,1975

The information reviewed at this meeting suggests that real output of
goods and services is falling substantially further in the current quarter.
Price and wage increases are continuing large, although not so large as
earlier this year. In November declines in industrial production and employment were sharp and widespread, and the unemployment rate increased further, from 6.0 to 6.5 per cent. In recent weeks additional
production cutbacks and layoffs have been announced. The November
rise in wholesale prices of industrial commodities, although substantial,
remained well below the extraordinarily rapid rate in the first 8 months
of the year.
Since mid-November the dollar has declined somewhat further against
leading foreign currencies. In October the U.S. foreign trade deficit was
reduced sharply for the second consecutive month, while there were continued net inflows of bank-reported private capital and of investments by
oil-exporting countries.
Growth of the narrowly defined money stock increased in November
to an annual rate of about 7 per cent. Net inflows of consumer-type time
and savings deposits ^remained strong at banks and continued to improve
at nonbank thrift institutions, and the more broadly defined money supply
measures again expanded appreciably. Bank loans increased only moderately. Most market interest rates, after rising in the second half of
November, subsequently turned down again. Yields on State and local
government securities, however, continued under upward pressure. Effective December 9, Federal Reserve discount rates were reduced from 8 to
13A per cent.
In light of the foregoing developments, it is the policy of the Federal

158

Open Market Committee to foster financial conditions conducive to resisting inflationary pressures, cushioning recessionary tendencies and
encouraging resumption of real economic growth, and achieving equilibrium in the country's balance of payments.
To implement this policy, while taking account of developments in
domestic and international financial markets, the Committee seeks to
achieve bank reserve and money market conditions consistent with somewhat more rapid growth in monetary aggregates over the months ahead
than has occurred in recent months.
AUTHORIZATION FOR FOREIGN
CURRENCY OPERATIONS
In effect January 1, 1975
1. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, for System Open Market Account, to the
extent necessary to carry out the Committee's foreign currency directive
and express authorizations by the Committee pursuant thereto:
A. To purchase and sell the following foreign currencies in the form
of cable transfers through spot or forward transactions on the open market
at home and abroad, including transactions with the U.S. Stabilization
Fund established by Section 10 of the Gold Reserve Act of 1934, with
foreign monetary authorities, and with the Bank for International Settlements:
Austrian schillings
Belgian francs
Canadian dollars
Danish kroner
Pounds sterling
French francs
German marks
Italian lire
Japanese yen
Mexican pesos
Netherlands guilders
Norwegian kroner
Swedish kronor
Swiss francs
B. To hold foreign currencies listed in paragraph A above, up to
the following limits:

159

(1) Currencies purchased spot? Including currencies purchased
from the Stabilization Fund, and sold forward to the Stabilization Fund,
up to $1 billion equivalent;
(2) Currencies purchased spot -or forward, up to the amounts
necessary to fulfill other forward commitments;
(3) Additional currencies purchased spot or forward, up to the
amount necessary for System operations to exert a market influence but
not exceeding $250 million equivalent; and
(4) Sterling purchased on a co¥ered or guaranteed basis in terms
of the dollar, under agreement with the Bank of England, up to $200
million equivalent.
C. To ha¥e outstanding forward commitments undertaken under
paragraph A above to deliver foreign currencies, up to the following limits:
(1) Commitments to deliver foreign currencies to the Stabilization
Fund, up to the limit speciied in paragraph 1B(1) above; and
(2) Other forward commitments to deliver foreign currencies, up
to $550 million equivalent.
D. To draw foreign currencies and to permit foreign banks to draw
dollars under the reciprocal currency arrangements listed in paragraph 2
below, provided that drawings by either party to any such arrangement
shall be fully liquidated within 12 months after any amount outstanding
at that time was irst drawn, unless the Committee, because of exceptional
circumstances, specifically authorizes a delay.
2. The Federal Open Market Committee directs the Federal Reserve
Bank of New York to maintain reciprocal currency arrangements ("swap"
arrangements) for System Open Market Account for periods up to a
maximum of 12 months with the following foreign banks, which are
among those designated by the Board of Governors of the Federal Reserve
System under Section 214.5 of Regulation N, Relations with Foreign
Banks and Bankers, and with the approval of the Committee to renew
such arrangements on maturity:
Foreign bank

Austrian
National
Bank of
National
Bank of

National Bank
Bank of Belgium
Canada
Bank of Denmark
England

160

Amount of
arrangement
(millions of
dollars equivalent)
250
1,000
2,000
250
3s000

Foreign bank
Bank of France
German Federal Bank
Bank of Italy
Bank of Japan
Bank of Mexico
Netherlands Bank
Bank of Norway
Bank of Sweden
Swiss National Bank
Bank for International Settlements:
Dollars against Swiss francs
Dollars against authorized European
currencies other than Swiss francs

Amount of
arrangement
(millions of
dollars equivalent)
2,000
2,000
3,000
2,000
180
500
250
300
1,400
600
1,250

3. Currencies to be used for liquidation of System swap commitments
may be purchased from the foreign central bank drawn on, at the same
exchange rate as that employed In the drawing to be liquidated. Apart
from any such purchases at the rate of the drawing, all transactions In
foreign currencies undertaken under paragraph 1(A) above shall, unless
otherwise expressly authorized by the Committee, be at prevailing market
rates and no attempt shall be made to establish rates that appear to be
out of line with underlying market forces.
4. It shall be the practice to arrange with foreign central banks for the
coordination of foreign currency transactions. In making operating
arrangements with foreign central banks on System holdings of foreign
currencies, the Federal Reserve Bank of New York shall not commit
itself to maintain any specific balance, unless authorized by the Federal
Open Market Committee. Any agreements or understandings concerning
the administration of the accounts maintained by the Federal Reserve
Bank of New York with the foreign banks designated by the Board of
Governors under Section 214.5 of Regulation N shall be referred for
review and approval to the Committee.
5. Foreign currency holdings shall be invested insofar as practicable,
considering needs for •minimum working balances. Such investments shall
be in accordance with Section 14(e) of the Federal Reserve Act.
6. The Subcommittee named in Section 272.4(c) of the Committee's
Rules of Procedure is authorized to act on behalf of the Committee when

161

it is necessary to enable the Federal Reserve Bank of New York to engage
in foreign currency operations before the Committee can be consulted.
All actions taken by the Subcommittee under this paragraph shall be
reported promptly to the Committee.
7. The Chairman (and in his absence the Vice Chairman of the Committee, and in the absence of both, the Vice Chairman of the Board of
Governors) is authorized:
A. With the approval of the Committtee, to enter into any needed
agreement or understanding with the Secretary of the Treasury about the
division of responsibility for foreign currency operations between the
System and the Secretary;
B. To keep the Secretary of the Treasury fully advised concerning
System foreign currency operations, and to consult with the Secretary on
such policy matters as may relate to the Secretary's responsibilities; and
C. From time to time, to transmit appropriate reports and information to the National Advisory Council on International Monetary and
Financial Policies.
8. Staff officers of the Committee are authorized to transmit pertinent
information on System foreign currency operations to appropriate officials
of the Treasury Department.
9. All Federal Reserve Banks shall participate in the foreign currency
operations for System Account in accordance with paragraph 3G(1) of
the Board of Governors' Statement of Procedure with Respect to Foreign
Relationships of Federal Reserve Banks dated January 1, 1944.
FOREIGN CURRENCY
In effect January 1, 1975

DIRECTIVE

1. The basic purposes of System operations in foreign currencies are:
A. To help safeguard the value of the dollar in international
exchange markets;
B. To aid in making the system of international payments more
efficient;
C. To further monetary cooperation with central banks of other
countries having convertible currencies, with the International Monetary
Fund, and with other international payments institutions;
D. To help insure that market movements in exchange rates, within
the limits stated in the International Monetary Fund Agreement or established by central bank practices, reflect the interaction of underlying
economic forces and thus serve as efficient guides to current financial
decisions, private and public; and

162

E. To facilitate growth In international liquidity in accordance with
the needs of an expanding world economy.
2. Unless otherwise expressly authorized by the Federal Open Market
Committee, System operations in foreign currencies shall be undertaken
only when necessary:
A. To cushion or moderate fluctuations in the flows of international
payments, if such fluctuations (1) are deemed to reflect transitional
market unsettlement or other temporary forces and therefore are expected
to be reversed in the foreseeable future; and (2) are deemed to be disequilibrating or otherwise to have potentially destabilizing effects on U.S.
or foreign official reserves or on exchange markets, for example, by
occasioning market anxieties, undesirable speculative activity, or excessive
leads and lags in international payments;
B. To temper and smooth out abrupt changes in spot exchange rates,
and to moderate forward premiums and discounts judged to be diseqeilibrating. Whenever supply or demand persists in influencing exchange rates
in one direction, System transactions should be modiied or curtailed
unless upon review and reassessment of the situation the Committee
directs otherwise;
C. To aid in avoiding disorderly conditions in exchange markets.
Special factors that might make for exchange market instabilities include
(1) responses to short-run increases in international political tension, (2)
differences in phasing of international economic activity that give rise to
unusually large interest rate differentials between major markets, and (3)
market rumors of a character likely to stimulate speculative transactions.
Whenever exchange market instability threatens to produce disorderly conditions, System transactions may be undertaken if the Special Manager
reaches a judgment that they may help to reestablish supply and demand
balance at a level more consistent with the prevailing flow of underlying
payments. In such cases, the Special Manager shall consult as soon as
practicable with the Committee or, in an emergency, with the members of
the Subcommittee designated for that purpose in paragraph 6 of the
Authorization for Foreign Currency Operations; and
D. To adjust System balances within the limits established in the
Authorization for Foreign Currency Operations in light of probable future
needs for currencies.
3. System drawings under the swap arrangements are appropriate when
necessary to obtain foreign currencies for the purposes stated in paragraph
2 above.
4. Unless otherwise expressly authorized by the Committee, transactions in forward exchange, either outright or in conjunction with spot

163

transactions, may be undertaken only (i) to prevent forward premiums
or discounts from giving rise to disequilibrating movements of short-term
funds; (ii) to minimize speculative disturbances; (iii) to supplement existing market supplies of forward cover? directly or indirectly, as a means
of encouraging the retention or accumulation of dollar holdings by private
foreign holders; (iv) to allow greater flexibility in covering System or
Treasury commitments, including" commitments tinder swap arrangements,
and to facilitate operations of the Stabilization Fund; (v) to facilitate the
use of one currency for the settlement of System or Treasury commitments, denominated in .other, currencies; and (vi) to provide cover for
System holdings of foreign currencies.

164

MEETING HELD ON JANUARY 20-21, 1975x
1. Domestic Policy Directive
Preliminary estimates of the Commerce Department indicated that
real output of goods and services (real gross national product) had
fallen at an annual rate of about 9 per cent in the fourth quarter
of 1974, after having declined at an average rate of about 3.5
per cent over the first three quarters of the year. Staff projections
suggested that real economic activity would continue to recede in
the first half of 1975; that the rate of increase in prices, while
still rapid, would moderate; and that nominal GNP would continue
to grow at a slow pace.
In December retail sales had risen somewhat, according to the
advance estimate, after having declined considerably in the preceding 3 months. The index of industrial production fell sharply further
in December; curtailments in output were large and widespread
in part because of efforts to liquidate inventories. Employment
cutbacks also were widespread, especially among manufacturing
establishments. The unemployment rate rose from 6.5 to 7.1 per
cent, and the number of persons with only part-time jobs continued
to increase.
Average wholesale prices of industrial commodities were unchanged in December—after having risen much less rapidly from
August to November than earlier in the year—as declines in a
number of basic commodities offset increases in machinery and
other more highly fabricated products. Wholesale prices of farm
and food products declined, following 2 months of substantial
increases. During the final 3 months of 1974 the advance in the
index of average hourly earnings for private nonfarm production
workers was considerably less rapid than in the two previous
quarters.
In his State of the Union message on January 15, the President
lr
rhis meeting began on the afternoon of January 20 and continued on the
following day.

165

set forth a program of fiscal stimulus, which included cash refunds
of 1974 personal income taxes in two equal instalments—in May
and September of this year—and an increase for ! year in the
investment tax credit for businesses and farmers. The proposed
tax reductions were estimated' to amount to $12 billion "for individuals and $4 billion for businesses and farmers. In addition, the
President proposed excise taxes and import fees on petroleum and
excise • taxes- on natural gas to reduce the use of • these energy
sources; removal of price controls from domestic crude oil to
encourage production; and a tax to recover the windfall profits
resulting from the decontrol, of prices. The taxes and fees-would
yield $30 billion in Federal revenues, on an annual basis, which
would be returned to the economy through a permanent reduction
in taxes on corporate and individual incomes; through, payments
of up to $80 to low-income individuals, including some who would
pay no Federal income taxes; and through certain other measures.
Staff projections for the first half of 1975 in essence were similar
to those of 5 weeks earlier, although the declines now expected
in real GNP were larger for the current quarter and smaller for
the second quarter. The President's fiscal program, if enacted, was
expected'to" improve the prospects for an upturn' in economic
activity in the second half of the year but to have little impact
before then, apart from adding to disposable personal income
toward the--end of the second quarter. Accordingly, it--was still
anticipated that the rise in personal consumption expenditures
would be little, if any, greater than the increase in prices; that
the expansion in business fixed investment outlays would.fall short
of the increase in prices; that residential construction activity would
decline further in the current quarter and then turn up; and that
the rate of business inventory investment would fall substantially
in the first quarter and then shift to liquidation in the next.
The exchange rate for the dollar against leading foreign currencies—which had been declining since early September—fell somewhat further between mid-December and mid-January, in association with decreases in interest rates in this country relative to those
in other major countries. The U.S. foreign trade deficit-—after
narrowing in September and October—remained moderate in November, as both exports and imports rose substantially. Oil-exporting countries continued to add to their investments in the United

166

States, and large inflows and outflows of bank-reported private
capital were roughly offsetting.
At U.S. commercial banks total loans and investments declined
sharply from the end of November to the end of December,
reflecting in large part decreases in outstanding loans to businesses
and to eonbaek financial institutions; banks reduced their over-all
holdings of securities slightly. In contrast with immediately preceding months, businesses reduced their borrowings in the commercial paper market as well as at banks, in part as a result of
efforts to fund short-term debts. In early January most banks
reduced the prime rate applicable to large corporations in two steps
from 10% per cent to 10 per cent, but reductions in the rate
continued to lag behind declines in commercial paper rates.
Growth in the narrowly defined money stock (Mj)2 slowed to
an annual rate of about 2 per cent in December. Growth in the
more broadly defined money stock (M2)3 also slowed as net inflows
to banks of time and savings deposits other than money market
certificates of deposit (CD's) declined sharply; however, net inflows
of deposits to nonbank thrift institutions continued to improve. Over
the fourth quarter as a whole, Mt and M2 grew at rates of 4 and
nearly 7 per cent, respectively.4 Weekly data indicated that M1
had declined somewhat in early January but that inflows to banks
of consumer-type time and savings deposits had picked up.
On January 20 the Board of Governors announced a reduction
in reserve requirements on the net demand deposits of member
commercial banks. The action—which would release about $1.1
billion in reserves to the banking system in the week beginning
February 13—-was designed to permit further gradual improvement
in bank liquidity and to facilitate moderate growth in the monetary
aggregates.
System open market operations since the December 16-17 meeting had been guided by the Committee's decision to seek bank
reserve and money market conditions consistent with somewhat
more rapid growth in monetary aggregates over the months ahead
2

Private demand deposits plus currency in circulation.
Mj plus commercial bank time and savings deposits other than money market
CD's.
4
The growth rates cited for the quarter are calculated on the basis of the dailyaverage level In the last month of the quarter relative to that in the last month
of the preceding quarter.
3

167

than had occurred in recent months, while taking account of
developments in-domestic and international"financial markets. "Data
that had become available in the weeks immediately after the
December meeting suggested that in the December—January period
the aggregates would grow- at- rates near or below the lower limits
of the ranges of tolerance that had been specified by the Committee.
Consequently, System operations persistently had been directed
toward further easing in bank.reserve and money.market conditions..
In the statement week ending January 8, the Federal funds rate
had averaged slightly below 7% per cent—down from about 8%
per cent at the time of the December meeting.
The data that became available on January 9 indicated still greater
weakness in the aggregates; it appeared that Mt and M2 would
grow in the December—January period at rates well below the lower
limits of" the'specified ranges of tolerance. The System currently
was conducting reserve-supplying operations thought to be consistent with a weekly average funds rate at about the 7% per cent
lower-limit of its-specified range of-tolerance. Against'the back-•
ground of those developments and to give the Manager greater
flexibility, Chairman Burns recommended on January 9 that the
lower limit of-the funds rate constraint be-reduced to IVB per cent
for the period remaining until the next Committee meeting. The
members of the Committee concurred, and over most of that period
the funds.rate was slightly above 7 per cent.
Short-term market interest rates declined substantially further
over the inter-meeting period, in response to the weakening in
business demands for short-term credit, to System open market
operations to ease bank reserve and money market conditions, and
to a reduction in Federal Reserve discount rates. Discount rate
reductions of ¥2 of a percentage point, to 7!4 per cent, at six Reserve
Banks were announced on January 3, to be effective on January
6; shortly thereafter, rates were reduced at the remaining six Banks.
Over the inter-meeting period the market rate on 3-month Treasury
bills-•declined--nearly three-fourths of a percentage point, to about
6.40 per cent, and rates on private short-term instruments declined
considerably more.
Yields -on longer-term bonds in general changed little- in the
inter-meeting period—despite the declines in short-term rates—because corporate inancing in the capital market had been and was

168

expected to remain substantial and prospective Treasury financings
were large. The volume of public offerings of corporate bonds in
December was exceptionally heavy for that season, and a near-record volume was in prospect for January. In the home mortgage
market contract interest rates on new commitments for conventional
mortgages ie the primary market and yields on commitments in
the secondary market for Federally underwritten mortgages declined
further from early December to mid-January.
The Treasury was expected to announce shortly the terms of
its mid-February refunding. Of the maturing issues, $3.55 billion
were held by the public.
The Committee decided that the economic situation and outlook
called for more rapid growth ie monetary aggregates over the
months ahead than had occurred ie recent months. A staff analysis
suggested that—-although Mt was not expanding in January—the
demand for money would pick up ie February, in part as a result
of the lagged effects of earlier declines in. interest rates. Nevertheless, it appeared likely that if Mt were to grow at a rate consistent
with the Committee's longer-rue objectives for the monetary aggregates, money market conditions would have to ease further ie
the period immediately ahead. It was expected that net inflows
of consumer-type time and savings deposits to banks and to eonbank thrift institutions would be relatively strong. Demands for
bank credit appeared likely to be moderate.
The Committee concluded that growth in Mi and M2 over the
January-February period at annual rates within ranges of tolerance
of 3¥i to 6% per cent.and 7 to 10 per cent, respectively, would
be consistent with its longer-run objectives for the monetary aggregates. The members agreed that such growth rates would be likely
to involve growth in reserves available to support private nonbank
deposits (RPD's) within a range of tolerance of 6!4 to 9lA per
cent. They also agreed that in the period until the next meeting
the weekly average Federal funds rate might.be expected to vary
in an orderly fashion within a range of 6% to 11A per cent, if
necessary in the course of operations.
The members, also agreed that, in the..conduct of operations,
account should be taken of the forthcoming Treasury financing and
of developments in domestic and international financial markets.
It was understood that the Chairman might call upon the Committee

169

to consider the need for supplementary instructions before the next
scheduled meeting if significant inconsistencies appeared "to be
developing among the Committee's various objectives and constraints."
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that real • output
of goods and services fell sharply in the fourth quarter of 1974 and
that further declines are in prospect for the months immediately
ahead. In December declines in industrial production and employment .again were sharp and widespread, and the unemployment rate
increased from 6.5 to 7.1 per cent. Average wholesale prices of
industrial commodities were unchanged, after having risen much less
rapidly from August to November than earlier in the year, and prices
of farm and food products declined. In. recent months increases in
average wage rates have been large, but not so large as in the spring
and summer.
In his State of the Union message, the President set forth a program
of fiscal stimulus, including tax rebates for individuals and a temporary increase in the investment'tax credit for business. The President
also proposed a new program to reduce the consumption of energy;
the-program includes new taxes in the energy area along -with
measures of tax, relief that, on balance, are designed to have a neutral
effect on-the-size of the Federal deficit.
The dollar in December and early January continued the gradual
decline.against leading foreign, currencies that began in September.
In November, as in October, the U.S. foreign trade deficit was
moderate; sizable inflows of official funds from oil-exporting countries continued, while other capital inflows and outflows reported
by banks were roughly offsetting.
The narrowly defined money stock grew at an annual rate' of 4
per cent over the fourth quarter of 1974, while the more broadly
defined' measure of the stock grew at a rate of nearly '7 'per cent.
In December and early January, however, the narrowly defined
'money stock'changed little. Net inflows of consumer-type- time- and
savings deposits at banks slowed sharply in December, although they
continued-to--improve at noebank thrift institutions; in-early January
deposit inflows at banks picked up. Business demands for short-term
credit, both- at -banks and in the commercial paper market, moderated
further in December, while demands in the long-term market remained strong. Over recent weeks short-term market interest rates

170

have declined substantially, but yields on long-term securities have
changed little, on balance. Federal Reserve discount rates were
reduced from 13A to 11A per cent in early January, and on January
20 the Board announced a reduction in- reserve requirements on
demand deposits estimated to release $1.1 billion in required reserves .
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee, while resisting inflationary pressures and working toward equilibrium in the country's balance of
payments, to foster financial conditions conducive to cushioning
recessionary tendencies and stimulating economic recovery.
To implement this policy, while taking account of the forthcoming
Treasury financing, developments in domestic and international financial markets, and the Board's action on reserve requirements,
the Committee seeks to achieve bank reserve arid money market
conditions consistent with more rapid growth in monetary aggregates
over the months ahead than has occurred ie recent months.
Votes for this action: Messrs. Burns, Black, Bucher,
Clay, Coldwell, Holland, Kimbrel, Mitchell, Sheehan,
Wallich, Wien, and Debs. Votes against this action:
None.
Absent and not voting: Mr. Hayes. (Mr, Debs voted
as alternate for Mr. Hayes.)
Subsequent to the meeting, on February 5, the available data
suggested that in January M.t had declined sharply and that growth
in M 2 had been only modest. Growth rates for the January-February
period appeared to be • well below the lower limits of the ranges
of tolerance specified by the Committee. The weakness in the
monetary aggregates wholly reflected the behavior of demand
deposits; growth in. consumer-type time deposits remained relatively strong. The System Account Manager currently was endeavoring to supply reserves at a rate thought to be consistent with
a Federal funds rate of 6¥i per cent, the lower limit of the range
of tolerance that had been specified by the Committee. On February
5 a majority of the members concurred in the Chairman's recommendation that, in light of those developments and'of the reduction
in discount rates effective that day, the lower limit of the funds
rate constraint be reduced to 6% per cent. Mr. Sheehan did not
concur because he preferred to reduce the lower limit of the funds
rate constraint to 6 per cent, rather than 6% per cent.

171

2. Amendment to Authorization for Domestic Open Market
Operations
On January 30 the Committee members voted to amend' a provision of paragraph 2 of the authorization, for domestic open market
operations, which specified that a Reserve Bank other than the
New York Bank could purchase-special certificates of indebtedness
directly from the Treasury only if the latter Bank was closed, by
striking the word "if" in the clause 4*or, if the New York Bank
is dosed,'-* and inserting in its place the words "under-special
circumstances, such as when. . . . " With this amendment, paragraph 2 read as follows;
The Federal Open Market Committee authorizes and -directs the
Federal Reserve Bank of New York, or, under special circumstances, such as when the New York Reserve Bank is closed, any
other Federal Reserve Bank, to purchase directly from the Treasury
for its own account (with discretion, in cases where it seems desirable, to issue participations to one or more Federal Reserve Banks)
such amounts of special short-term certificates of indebtedness as
may be necessary from, time -to time for the temporary accommodation of the Treasury; provided that the rate charged on such certificates shall be a rate lA of 1 per cent below the discount rate
of the Federal Reserve Bank of New York at the time of such purchases, and provided further that the total amount of such certificates held at any one time by the Federal Reserve Banks shall not
exceed $1 billion.
Votes for this action: Messrs. Burns, Black, Bucher,
Clay, Coldwell, Holland, Mitchell, Sheehan, Winn,
Baughman, and Debs. Votes against this action: None.
Absent and not voting: Messrs. Hayes, Kimbrel, andWallich. (Mr. Debs voted as alternate for Mr. Hayes
and Mr, Baughman voted as alternate for Mr. Kimbrel.)

This action was taken on the recommendation- of the Account
Manager, who had advised Committee members that, under certain circumstances involving holidays not uniformly celebrated
throughout the country, it would be convenient for the--Treasury
if the authority for Reserve Banks other than New York to purchase special Treasury certificates of indebtedness was not confined, exclusively to times when.the New York Reserve.Bank was
closed.

172

MEETING HELD ON FEBRUARY 19, 1975
1. Domestic Policy Directive
The information reviewed at this meeting suggested that real output
of goods and services, which had declined throughout 1974, was
falling sharply further in the first quarter of 1975; that the rise
in prices was moderating significantly; and that nominal GNP was
declining. Staff projections suggested that real economic activity
would recede further in the second quarter and that price increases
would continue to moderate.
In January retail sales had risen somewhat, according to the
advance estimate, but they had remained well below the levels
of last summer and early autumn. For the third consecutive month
cutbacks in production and employment were substantial and widespread, in part because of continuing efforts to liquidate inventories.
The unemployment rate rose a full percentage point, to 8.2 per
cent, and the number of persons working only part time increased
further.
The advance in the index of average hourly earnings for private
nonfarm production workers was substantial in January, but as in
the final months of 1974, it was considerably less rapid than in
the spring and summer of last year. Average wholesale prices of
industrial commodities—which were unchanged in December—
rose moderately in January, in part because of increases in machinery and in fuels and power; wholesale prices of farm and food
products declined further. In December the consumer price index
had continued to rise, although the increase had not been so large
as in most earlier months in 1974.
The latest staff projections for the first half of 1975 suggested
that nominal GNP would change little and that real GNP would
contract substantially more than had been expected at the time of
the last meeting, to a considerable extent because the curtailment
in business fixed investment and the liquidation of business inventories were now expected to be sharper than had been anticipated

173

earlier. It was now expected that the rise in disposable personal
income would fall short of the increase in consumer prices until
late in the second quarter—when tax rebates were scheduled under
the administration's budget proposals—and that real personal consumption expenditures would decline. However, the more rapid
liquidation -of- inventories expected in the first half- of the year—
along with the tax rebates and other stimulative fiscal measures
in prospect—tended to strengthen the prospects for an upturn in
economic, activity in the second, half.
The exchange rate for the dollar against leading foreign currencies remained under downward pressure throughout January. In
early February the Federal Reserve System and some European
central banks began concerted intervention purchases of dollars in
the exchange markets, which—in conjunction with sharp decreases
in European interest rates—arrested the decline in the value of the
dollar. In the days just before this meeting, however, downward
pressure was renewed and the value of the dollar declined somewhat. In December the U.S. foreign trade deficit had widened,
reflecting" a'substantial increase in imports of fuels and decreases
in exports of many nonagricultural products.
At U.S. commercial banks total loans and investments rose
moderately-from the end of December to the end of- January, .after
having declined sharply in the preceding month. Over the 2-month
period, outstanding bank loans to business declined; business
demands.for .short-term credit weakened both at banks and in the
commercial paper market, reflecting the recession in economic
activity and business funding of short-term debts through heavy
capital market financing. Consumer loans at banks also declined,
while real estate loans increased moderately. In late January and
early February most banks gradually reduced the prime rate applicable to large corporations from 10 per cent to 8% per cent, but
reductions in the rate continued to lag behind declines in short-term
market interest rates.
The narrowly defined money stock (Mi)—which had grown at
an annual"rate of about 4.5 per cent in the fourth quarter of
1974—declined at a rate of about 9.5 per cent in January, reflecting
a sharp decrease in demand deposits; the amount of currency in
circulation-continued to expand. Net inflows of consumer-type-time
and savings deposits at banks and at nonbank thrift institutions

174

were strong, and broader measures of the money stock (M2 and
M3) continued to grow, although at rates well below those in the
fourth quarter of last year.
On January 22 the Treasury announced that it would auction
up to $5.5 billion of notes and bonds, of which $3.55 billion
represented refunding of publicly held notes that were to mature
in mid^February. In auctions on January 28, 29, and 30, respectively, the Treasury sold $3 billion of 3%-year notes at an average
price to yield 7.21 per cent, $1.75 billion of 6-year notes at an
average price to yield 7.49 per cent, and $750 million of 25-year
bonds at an average price to yield 7.95 per cent.
System open market operations since the January 20-21 meeting
had been guided by the Committee's decision to seek bank reserve
and money market conditions consistent with more rapid growth
in monetary aggregates over the months ahead than had occurred
in recent months, while taking account of the forthcoming Treasury
financing, developments in domestic and international financial
markets, and the Board's action of January 20 reducing reserve
requirements on demand deposits. Data that had become available
in the weeks immediately after the January meeting suggested that
in the January—February period the aggregates would grow at rates
below the lower limits of the ranges of tolerance that had been
specified by the Committee. Consequently, System operations persistently had been directed toward further easing in bank reserve
and money market conditions. The Federal funds rate, which had
averaged 7% per cent in the statement week ending January 22,
had declined by the statement week ending February 5 to an average
6V2 per cent, the lower, limit of its specified range of tolerance.
The data that became available in early February indicated still
greater weakness in the aggregates; it appeared that growth rates
for Mt and M2 ie the January-February period would fall well
below the lower limits of the ranges of tolerance specified by the
Committee. On February 5 a majority of the members concurred
in the Chairman's recommendation that the lower limit of the funds
rate constraint be reduced to 6%. per cent, and over the period
remaining until this meeting the funds rate was close to that level.
Short-term market interest rates declined substantially further
over the inter-meeting period, in response "to the weakness in
business demands for short-term credit and to System, open market

175

operations to ease bank reserve and money market conditions. On
the day before this meeting the market rate on 3-month Treasury
bills was 5.32 per cent, down about 1 percentage point from the
rate at the time of the last meeting. Federal Reserve discount rates
were reduced at nine Reser¥e Banks from 7% to 6% per cent,
effective February 5; shortly thereafter, rates were reduced at the
remaining three Banks,
The continued easing in. short-term interest rates contributed to
significant declines in longer-term rates, notwithstanding a large
volume of offerings of new issues. Public offerings of corporate
bonds rose sharply in January to a near-record volume, and only
a moderate decline was in prospect for February. In the home
mortgage market, contract interest rates on new commitments for
conventional mortgages in the primary market and yields on commitments in. the secondary market for Federally underwritten mortgages declined substantially further during January,
The Committee decided that the economic situation and outlook
called for more rapid growth in monetary aggregates over the
months ahead than had occurred in recent months. A staff analysis
suggested that the demand for money would rebound and that
growth in Mx would be substantial in the weeks immediately ahead,
in accordance with an expected shift toward a more normal relationship between the transactions demands for money and nominal
GNP. However, in part because of the weaker behavior of nominal
GNP now projected, it appeared likely that if M1 were to grow
at a rate consistent with the Committee's longer-run objectives for
the monetary aggregates, money market conditions would have to
ease further in the period immediately ahead. Sustained strength
in net inflows of consumer-type time and savings deposits to banks
and to nonbank thrift institutions was anticipated, in response to
the continuing decline in short-term interest rates. Private demands
for short-term credit were expected to remain weak, but the Treasury was likely to borrow additional new cash over the months
ahead.
The Committee concluded that growth in Mi and M2 over the
February-March period at annual rates within ranges of tolerance
of 5Vi to llh per cent and 6% to %lh per cent, respectively, would
be consistent with its longer-run objectives for the monetary aggregates. The growth rate of reserves available to support private

176

non-bank deposits (RPD's) in the same period was expected to be
low—in a range of lA to 2% per cent—mainly because of the
2-week lag in reserve accounting. The members agreed that in the
period until the next meeting the weekly average Federal funds
rate might be expected to vary in an orderly fashion in a range
of 5lA to 61/4 per cent, if necessary in the course of seeking monetary
growth rates within the ranges specified. The members also agreed
that in the conduct of operations, account should be taken of
developments in domestic and international financial markets.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that real output
of goods and services is continuing to fall sharply in the current
quarter. In January declines in industrial production and employment
were large and widespread for the third consecutive month. The
unemployment rate rose a full percentage point to 8.2 per cent.
Average wholesale prices of industrial commodities, which were
unchanged in December, rose moderately in January, and prices
of farm and food products declined further. In recent months
increases in average wage rates have moderated, although they have
still been large.
The decline in the foreign exchange value of the dollar was
arrested in early February by concerted central bank intervention
and a sharp decline in European interest rates, but in recent days
the dollar has declined somewhat. In December the U.S. foreign
trade deficit increased, but it was smaller in the fourth quarter as
a whole than in the third.
The narrowly defined money stock, after having grown at an
annual rate of about 4¥i per cent over the fourth quarter of 1974,
declined sharply in January. However, net inflows of consumer-type
time and savings deposits at banks and nonbank thrift institutions
were large, and broader measures of the money stock continued
to expand. Business demands for short-term credit have weakened
in recent months, both at banks and In the commercial paper market
while demands in the long-term market have been exceptionally
strong. Since mid-January short-term market Interest rates have
fallen substantially further, and yields on long-term securities also
have declined. Federal Reserve discount rates were reduced from
7!4 to 6% per cent in early February.
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions con-

177

ducive to cushioning recessionary tendencies and stimulating economic recovery, while resisting inflationary pressures and working
toward equilibrium in the country's balance of payments.
To implement this policy, while taking account of developments
in domestic and international financial markets, the Committee seeks
to achieve bank reserve and money market conditions consistent
with more rapid growth in monetary aggregates over the months
ahead than has occurred in recent months.
Votes for this action: Messrs. Burns, Hayes,
Black, Bucher, Clay, Coldwell, Holland, Kimbrel,
Mitchell, Wallich, and Winn. Votes against this
action: None,
Absent and not voting: Mr. Sheehan.

2. Amendment to Foreign Currency Directi¥e
At this meeting the Committee amended paragraph 2(c) of the
foreign currency directive to delete the word "Special" from the
phrase "Special Manager" wherever the phrase appears in that
paragraph. In other actions at the meeting the Committee had
approved a realignment of personnel who supervise System open
market operations at the Federal Reserve Bank of New York under
the Committee's direction.1 The realignment—which followed acceptance-of the resignation of the incumbent Special-Manager in
connection with his planned retirement from the New York
Bank—involved, among other things, the elimination of the position of Special Manager for Foreign Currency Operations and the
assignment of responsibility for the conduct of open market operations in foreign currencies, as well as in domestic securities, to
the Manager, of. the System Open Market Account. The amendment
to the foreign currency directive was made to conform to these
changes.
Votes for this action: Messrs. Burns, Hayes,
Black, Bucher, Clay, Coldwell, Holland, Kimbrel,
Mitchell, Sheehan, Wallich, and Winn. Votes
against this action; None.
1

Revisions in the Committee's Rules of Organization and Rules of Procedure
made for this purpose were published in the Federal Register for Mar. 7, 1975.

178

3. Amendment to Authorization for Domestic Open Market
Operations
On March 10 the Committee members voted to amend a provision
of paragraph 2 of the authorization for domestic open market
operations to raise from $1 billion to $2 billion the limit on System
holdings of special short-term certificates of indebtedness purchased
directly from the Treasury, With this amendment, paragraph 2 reads
as follows:
The Federal Open Market Committee authorizes and directs the
Federal Reserve Bank of New York, or, under special circumstances, such as when the New York Reserve Bank is closed, any
other Federal Reserve Bank, to purchase directly from the Treasury
for its own account (with discretion, in cases where it seems
desirable, to issue participations to one or more Federal Reserve
Banks) such amounts of special short-term certificates of indebtedness as may be necessary from, time to time for the temporary
accommodation of the Treasury; provided that the rate charged on
such certiicates shall be a rate of lk of 1 per cent below the discount
rate of the Federal Reserve Bank of New York at the time of such
purchases, and provided further that the total amount of such
certificates held at any one time by the Federal Reserve Banks shall
not exceed $2 billion,
Votes for this action: Messrs. Burns, Hayes,
Baughman, Coldwell, Eastburn, Holland, Mayo,
Mitchell, and Sheehan. Votes against this action:
None.
Absent and not voting: Messrs. Bucher, MacLaury, and Wallich.

This action was taken on the recommendation of the Account
Manager, who had advised that current projections of Treasury
balances had indicated that temporary cash low points in mid-March
and again in mid-April might require special -borrowing as high
as $500 million to $700 million. In Yiew of the day-to-day volatility
in the Treasury's account, and in estimates of changes in that
account, the Manager had recommended the increase of the limit,
with the understanding that he would recommend restoration of
the $1 billion limit as soon as it appeared reasonable to do so.

179

MEETING HELD ON MARCH 18, 1975
1. Domestic Policy Directive
The information reviewed at this meeting suggested that real output
of goods and services was continuing to fall sharply in the first
quarter of 1975, that the rise in prices was moderating, and that
nominal GNP was declining. Staff projections, like those of a month
earlier, suggested that real economic activity would recede further
in the second quarter and that price increases would continue to
moderate; they also suggested that activity would turn up later in
the year.
In February retail sales had risen slightly, according to the
advance estimate. Largely because of continuing efforts by business
to liquidate inventories, however, cutbacks in production were
again substantial and widespread. Curtailments in employment also
were substantial, particularly in manufacturing establishments, and
the factory workweek was reduced sharply. Although unemployment rates increased for adult males and heads of households, the
over-all rate was unchanged, at 8.2 per cent, as the civilian labor
force declined sharply.
The advance in the index of average hourly earnings for private
nonfarm production workers accelerated somewhat in February, but
it remained considerably less rapid than in the spring and summer
of last year. Wholesale prices of industrial commodities again
increased moderately—although the rise in prices of both consumer
and producer finished goods slowed—and wholesale prices of farm
and food products declined sharply further. In January, as in
December, the increase in the consumer price index had not been
so large as in most months in 1974.
Staff projections suggested that the decline in real GNP would
not be nearly so sharp in the second quarter as in the first, in
large part because of the behavior of business inventories; it was
anticipated that inventories, after shifting from heavy accumulation
in the fourth quarter of 1974 to substantial liquidation in the current
quarter, would decline at only a moderately faster pace in the

180

second quarter. The extent of the inventory liquidation expected
in the first half—along with the improved conditions in credit
markets and the stimulative fiscal measures in prospectstrengthened the probabilities of an upturn in economic activity
in the second half.
Exchange rates for the dollar against leading foreign currencies—which had rallied in early February, owing in part to official
intervention purchases of dollars—declined during the remainder
of the month. However, the dollar strengthened again ie early
March, as short-term interest rates abroad continued to decline
relative to rates in the United States and as market attitudes toward
the dollar were improved somewhat by, among other things,
moderation of the rise ie U.S. prices. In January the U.S. foreign
trade deficit had been only moderately above the rate in the fourth
quarter of 1974, despite a large bulge in recorded imports of oil
in advance of the February 1 increase of $1 per barrel in import
fees. Net outflows of capital reported by banks continued large
as foreigners drew down deposits ie U.S. offices.
Total loans and investments at U.S. commercial banks grew very
little from the end of January to the end of February. Outstanding
bank loans to business declined, as business demands for short-term
credit remained weak both at banks and ie the commercial paper
market. Consumer loans at banks also declined, while real estate
loans edged up. Bank holdings of U.S. Government securities
expanded sharply.
The narrowly defined money stock (Mj)—which had expanded
at an annual rate of about 4,5 per cent in the fourth quarter of
1974 and then had declined at a rate of about 9 per cent in
January—-grew at a rate of about 7 per cent in February. Net inflows
of consumer-type time and savings deposits to banks and nonbank
thrift institutions were particularly large, and broader measures of
the money stock (M2 and M3) increased at substantial rates. Banks
reduced the outstanding volume of large-denomination CD's and
Euro-dollar borrowings, reflecting the growth in demand deposits
and in time deposits other than CD's as well as the weakness in
loan, demand.
System open market operations since the February 19 meeting
had been guided by the Committee's decision to seek bank reserve
and money market conditions consistent with more rapid growth

181

in monetary aggregates over the months ahead than had occurred
In recent months, while taking account of developments in domestic
and international financial markets. Accordingly, operations had
been directed toward a gradual further easing In bank reserve and*
money market conditions. The Federal funds rate, which had
averaged 6lA per cent In the statement week ending February 19,
had declined to about 5% per cent in the days preceding this
meeting.
Private short-term market Interest rates declined a little further
over the Inter-meeting period, In response to the easing In money
market conditions and the weakening In private demands for shortterm credit, but the declines were small, as market participants
apparently came to expect that money market conditions would
not ease much further in the near future. Treasury bill rates rose
somewhat over the period despite strong demands for bills because
the Treasury had enlarged the supply in the weekly and monthly
auctions. On the day before this meeting the market rate on 3-month
Treasury bills was 5.39 per cent, compared with 5.32 per cent
on the day before the last meeting. Effective March 10, Federal
Reserve discount rates were reduced from 6% to 6% per cent at
10 Reserve Banks; shortly thereafter, rates were reduced at the
remaining 2 Banks.
Yields on longer-term bonds increased during the Inter-meeting
period. In response to continuation of a large volume of offerings.
On February 24 the Treasury announced that over the period to
mid-April It would raise about $7 billion In new cash by auctioning
coupon issues. Public offerings of corporate bonds remained heavy
In February, and a substantial Increase was In prospect for March.
Actual and prospective offerings of State and local government
Issues during March and April also were large; In addition, the
market for such securities was being adversely affected by the
financial problems of a major State corporation. In the home
mortgage market, yields declined somewhat further.
The Committee decided that the economic situation and outlook
called for more rapid growth In monetary aggregates over the
months ahead than had occurred In recent months. A staff analysis
suggested that the demand for money would be weak In the near
term—In association with the expected weakness In economic
activity—and that money market conditions would have to ease

182

slightly further in the period immediately ahead if MA were to grow
at a rate consistent with the Committee's longer-ran objectives for
the monetary aggregates. Some further increase in net inflows of
consumer-type time and savings deposits to banks and to nonbank
thrift institutions was anticipated, in response to lower short-term
interest rates. While private demands for short-term credit were
likely to remain weak, the Treasury would be borrowing sizable
amounts of new cash over the months ahead.
The Committee decided that growth in Mt and M2 over the
March-April period at annual rates within ranges of tolerance of
5 to IV2 per cent and 8 to 10 per cent, respectively, would be
consistent with its longer-run objectives for the monetary aggregates. The members concluded that such growth rates would be
likely to involve growth in reserves available to support private
nonbank deposits (RPD's) within a range of 3¥2 to 5% per cent.
They agreed that, in the period until the next meeting the weekly
average Federal funds rate might be expected to vary in an orderly
fashion in a range of 4% to 5% per cent, if necessary, in the
course of seeking monetary growth rates within the ranges specified. The members also agreed that in the conduct of operations,
account should be taken of developments in domestic and international financial markets.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that real output
of goods and services is continuing to fall sharply in the current
quarter. In February industrial production and employment declined
substantially further, • The unemployment rate was unchanged, at
8.2 per cent, as the civilian labor force declined sharply. Average
wholesale prices of industrial commodities rose moderately again
in February, and prices of farm and food products declined sharply
further. The advance in average wage rates, although large, remained well below the increases of last spring and summer.
The foreign exchange value of the dollar declined in February,
but it strengthened somewhat in early March, as short-term interest
rates abroad fell further and as market attitudes toward the dollar
improved somewhat. In January the U.S. foreign trade deficit was
only moderately above the rate in the fourth quarter of 1974 despite
a large bulge in recorded imports of oil. Net outflows of capital
reported by banks continued large as foreigners withdrew deposits.

183

The narrowly defined money stock, which had declined sharply
in. January, expanded considerably in February, and broader measures of the money stock grew at substantial rates. Net inflows of
consumer-type time and savings deposits were particularly large.
Large-denomination CD's outstanding contracted in February and
total bank ••credit-showed little-net •-change. Business demands-for
short-term credit remained weak, both at banks and in the commercial paper market, while demands in the long-term market continued
exceptionally strong. Since mid-February short-term market interest
rates have declined a little while longer-term yields have risen.
Federal Reserve discount rates were reduced from 6% to 6% per
cent in early March,
•• -In- -light -of- the foregoing developments, it is the policy of the'
Federal Open Market Committee to foster financial conditions conducive to stimulating economic recovery, while resisting inflationary
pressures and working toward equilibrium in the country's balance
of payments.
To implement this policy, while taking account of developments
in domestic and international financial markets, the Committee seeks
to- achieve bank-reserve and money -market conditions •-consistent
with more rapid growth in monetary aggregates over the months
ahead' than has occurred in recent months.
Votes for this action: Messrs. Burns, Hayes,
Baughman, Coldwell, Holland, MacLaury, Mayo,
Mitchell, and Wallich. Votes against this action:
• Messrs. Bucher, Eastburn, and Sheehan.

Messrs.-• Bucher, Eastburn, and Sheehae dissented- from--this
action because they believed that the economic situation and outlook together with recent slow growth in the monetary aggregates
called, for more aggressive efforts in the near term. to. achieve., the
Committee's longer-run objectives for the aggregates. In particular,
they favored higher upper limits on the 2-month ranges of tolerance
for the monetary aggregates and a lower inter-meeting range for
the Federal funds rate than adopted by the Committee.
Subsequent to the meeting, on March 27, the available data
suggested that in the March-April period the annual rates of growth
In both Mi and M2 would be above the upper limits of the ranges
of tolerance that had been specified by the Committee. During the

184

latest statement week the Federal funds rate had averaged about
5¥2 per cent. In light of the behavior of the aggregates, the System
Account Manager would, under normal circumstances, have permitted the weekly average Federal funds rate to rise to the upper
limit of its range of tolerance—namely, 5% per cent. However,
members of the Committee—with the exception of Mr. Sheehan—
concurred in the Chairman's recommendation of March 27 that,
in. view of the weakness in the economy and of the sensitive
conditions in inancial markets, particularly bond markets, the
Manager be instructed to treat 5% per cent as the approximate
upper limit for the weekly average funds rate for the time being.
Mr. Sheehan did not concur because he believed that, in. light of
past shortfalls in monetary growth and of sensitive conditions in
the bond market, the Committee should continue its easing posture
by gradually reducing the funds rate.

2. Authorization for Domestic Open Market Operations
On March 10 Committee members had voted to amend a provision
of paragraph 2 of the authorization for domestic open market
operations to raise from %\ billion to $2 billion the limit on System
holdings of special short-term certificates of indebtedness purchased
directly from the Treasury. This action had been taken on the
recommendation of the Account M'anager, who had advised that
he would recommend restoration of the $1 billion limit as soon
as it appeared reasonable to do so. In view of the likelihood that
the higher limit would be required from time to time over coming
months, the Committee voted at today's meeting to maintain the
limit at $2 billion for a period of 1 year, unless in the interim
the Committee decided otherwise.
Votes for this action: Messrs. Burns, Hayes,
Baughman, Bucher, Coldwell, Eastburn, MacLaury, Mayo, Mitchell, Sheehan, and Wallich.
Vote against this action: Mr. Holland.
Mr. Holland dissented from this action because he preferred to
tailor the ceiling'more closely to changing needs on a month-tomonth basis.

185

3. Review.of Continuing Authorizations
This being the first meeting of the Federal Open Market Committee
following the election of new members from the Federal Reserve
Banks to' serve for the year beginning March 1, 1975,- and- their
assumption of duties, the Committee followed its customary practice of reviewing all of its continuing authorizations and directives.
The'Committee reaffirmed-the--.Authorization for Domestic Open
Market Operations, the Authorization for Foreign Currency Operations, and the Foreign Currency Directive in the forms in which
they were presently outstanding.
Votes for these actions; Messrs. Burns, Hayes,
Baughman, Bucher, Coldwell, Eastburn, Holland,
MacLaury, Mayo, Mitchell, Sheehan, and Wallich.
Votes against these actions: None,

186

MEETING HELD ON APRIL 14-15, 19751
Domestic Policy Directive
The information reviewed at this meeting suggested that real output
of goods and services had continued to fall sharply in the first
quarter of 1975, that the rise in prices had moderated, and that
nominal GNP had declined. Staff projections suggested that real
economic activity would recede only a little further in the second
quarter and would turn up later in the year, and that the rise in
prices would continue to moderate.
In March economic activity continued to decline but at a less
rapid pace than in the immediately preceding months. Decreases
in both industrial production and nonfarm employment, although
still substantial, were not so large as in the 4 months from
November through February. The rate of unemployment increased
from 8.2 to 8.7 per cent, as the civilian labor force expanded after
having declined sharply in February. Total retail sales were estimated to have changed little in March; although sales of automobiles declined following termination of price rebates, the reduction
was offset by a further increase in sales of other consumer items.
In the first quarter as a whole, total sales were appreciably higher
than in the fourth quarter of 1974, and it appeared that inventory
liquidation at all levels of business had been substantial.
The advance in the index of average hourly earnings for private
nonfarm production workers accelerated in March, but over the
first quarter it was less rapid than during the spring and summer
of 1974. The wholesale price index declined in March for the fourth
consecutive month, as prices of farm and food products fell sharply

1
This meeting was held over a 2-day period, beginning on the afternoon of
April 14.

187

further and prices of industrial commodities increased only slightly.
In- February, as in December -and January, the rise in the-consumer
price index had not been so large as in most months in 1974.
In-late-March the President-signed the Tax-Reduction Act of
1975, which provided for rebates of 1974 personal income taxes
and-lor reductions in-both personal and corporate -income -taxes
in 1975. New withholding schedules for personal income tax
payments• would take effect May L -The Act also-provided for
one-time cash payments to recipients of social security benefits
and a -further lengthening- -of the benefit period lor- payment of
unemployment compensation.
• Staff projections suggested that in the second-quarter-the decline
in real GNP would be considerably smaller than had been expected
4 weeks 'earlier and that nominal GNP would- turn up. -In-large
part, the impro¥ement in the outlook for the second quarter reflected
the expectation that inventory-liquidation, while • remaining rapid,
would moderate from the exceptional pace now estimated for the
first quarter. It was anticipated that business fixed investment would

decline further, but that personal consumption expenditures would
expand" slightly' in. real terms and that residential construction would
increase.
Exchange rates for the dollar against leading foreign currencies
had risen since early March, as short-term interest rates abroad
continued to decline relative to rates in the United "States, "and as
market attitudes toward the dollar improved in response to indications of moderation in the rise in U.S. prices and of improvement
in the U.S. foreign trade balance. For the first 2 months of the
year the balance was in surplus; compared with fourth-quarter rates,
exports of agricultural commodities were ep and imports of commodities other'than fuels were down. Moreover,'net "outflows of
capital reported by banks—which had continued large in February—apparently diminished in March. On April'"9"'the' Board of
Governors announced a reduction, from. 8 to 4 per cent, in reserve
requirements on foreign borrowings by member banks,
Total, loans and investments at U.S. commercial banks expanded
relatively little from the end of February to the end' of March,
and virtually all of the expansion reflected increases in bank
holdings of Treasury securities and in loans to securities dealers.
Outstanding loans to businesses declined further; business demands

188

for short-term credit remained weak both at banks and in the
commercial paper market.
The narrowly defined money stock (Mi)2 expanded substantially
in March, in part because demand deposits were increased by
accelerated distribution of Federal tax refunds. Net inflows of
consumer-type time and savings deposits to banks remained strong
and those to nonbaek thrift institutions were extremely large, in
part because of the tax refunds but mainly because of relatively
attractive interest rates aYailabie on such deposits Consequently,
growth in broader measures of the money stock (M23 and M34)
was rapid. Over the first quarter Mi, M2, and M3 were estimated
to ha¥e expanded at annual rates of 3.9, 8.5, and 10.2 per cent,
respectively. In March, as in February, banks reduced the outstanding volume of their large-denomination CD's in response to
the growth in other deposits and the weakness in, loan demand.
The bank credit proxy over the first quarter grew at an annual
rate of 3.2 per cent.5
System open market operations after the March 18 meeting had
been guided initially by the Committee's decision to seek bank
reserve and money market conditions consistent with more rapid
growth in monetary aggregates over the months ahead than had
occurred in recent months, while taking account of de¥elopments
in domestic and internationalfinancialmarkets. In the irst statement
week after the meeting, the System purchased a substantial volume
of Treasury coupon and Federal agency issues in the course of
reser¥e-supplying operations undertaken to offset the effects of a
sharp rise in Treasury balances at Reserve Banks.
On March 27 aYailable data suggested that in the March-April
period the annual rates of growth in both Mt and M2 would be
above the upper limits of the ranges of tolerance that had been
specified by the Committee. During the previous statement week
the Federal funds rate had averaged about 5¥i per cent. In light
2

Private demand deposits plus currency in circulation.
Mi plus commercial bank time and savings deposits other than large-denomi™
nation CD's.
4
M 2 plus time and sa¥ings deposits at mutual savings banks and at savings
and loan associations.
5
DaIly-a¥erage member bank deposits, adjusted to include funds from
nondeposit sources.
3

189

of the behavior of the aggregates, the System Account Manager
would, under normal circumstances, ha¥e permitted the weekly
average Federal funds rate to rise to the upper limit of its range
of tolerance—namely, to-5%•• per cent. • However, a-majority-of
Committee members concurred in the Chairman's recommendation
of March 27 that, in view of the weakness in the economy and
of the. sensitive.conditions in.financialmarkets, particularly the bond
markets, the Manager be instructed to treat 5% per cent as the
approximate upper limit for the weekly average funds .rate for the
time being. The funds rate fluctuated around that level until the
statement week ending April, 9, when a sharp decline in the
Treasury balance supplied a large volume of reserves and the funds
rate slipped to about 5VA per cent.
Short-term market interest rates rose somewhat over the Intermeeting period, apparently because of growing expectations that
the decline in interest rates was at or near an end for the time
being; accelerated growth in'the monetary aggregates and'Stability
in the Federal funds rate strengthened the view that the System
would not ease money market conditions further, and enactment
of-the tax reductions-made it-clear that near-term Treasury financing
needs would be enlarged and also strengthened expectations of
economic recovery later in the year. At the time of this meeting
the market, rate on 3-month Treasury bills was 5.53. per. cent,
compared with 5.39 per cent on the day before the last meeting.
Bond yields, which had turned up before the March meeting,
increased further during the inter-meeting period. The bond markets
were affected not only by the large volume of current and expected
securities offerings but also by concern o¥er the financial positions
of some State and local governmental entities. Public offerings of
corporate' bonds were heavy in March, and a continued' large
volume was in prospect for April despite many cancellations and
postponements of planned issues. Yields on home mortgages declined only -slightly further in the primary market and turned up
in the secondary market.
The Treasury was expected to announce the terms of its mid-May
financing-on May 1. Of the maturing issues, $3.8 billion-were
held by the public.
At this meeting the Committee reviewed its procedures for
specifying desired longer-rue growth rates in monetary and credit

190

aggregates and concluded that at present it should formulate such
growth rates for four aggregates—Ml5 M2, M3, and the bank credit
proxy—in terms of ranges for annual periods. It was the consensus
of the Committee that growth in these aggregates over the period
from March 1975 to March 1976 at rates within the following
ranges presently appeared to be consistent with its broad economic
objectives: Ml9 5 to 7¥2 per cent; M2? 8¥2 to 10% per cent; M3»
10 to 12 per cent; and the bank credit proxy, 6V2 to 92/2 per cent.6
It was understood that these ranges, as well as the particular list
of aggregates for which such ranges were specified, were subject
to review and modification at subsequent meetings.
In considering current policy, the Committee took note of a staff
analysis suggesting that the monetary aggregates would grow at
relatively rapid rates in the April-May period if prevailing money
market conditions persisted. Relatively rapid growth was expected
in large part because of the temporary effects of large tax rebates
scheduled to begin in May, at a time when the demand for money
was also being influenced by the continuing impact of earlier
declines in short-term, interest rates and by the rise in nominal GNP
anticipated for the second quarter. Any further upward pressures
on market interest rates most likely would be confined to the market
for Treasury securities. It was expected that business, mortgage,
and consumer demands for bank credit would remain relatively
weak.
Against the background of this analysis and of its longer-run
objectives for monetary and credit aggregates, the Committee
decided to seek growth in Mt and M2 over the April-May period
at annual rates with ranges of tolerance of 6% to 9 per cent and
9¥i to 11% per cent, respectively. The members concluded that
such growth rates would be likely to involve growth in reserves
available to support private nonbank deposits (RPD's) within a

6
Mr. Eastburn preferred to focus on the aggregates that he believed were most
closely linked with economic activity—Ml5 M2, and perhaps the bank credit
proxy—and he fa¥ored employing ranges not more than one percentage point
in width. In Mr. MacLaury's view, the outlook for the economy over the coming
year-—specifi.cal.ly the expected patterns of performance of employment and
prices—called for somewhat faster growth of the aggregates over the year, indexed
by a 7 per cent growth rate for Mt.

191

range of \lh to Alk per cent. They agreed that in the period until
the next meeting the weekly average Federal funds rate might be
expected to vary in an orderly fashion in a range of 4% to 53A
per cent, if necessary in the course of seeking monetary growth
rates within the ranges speciled. The members also agreed that
in the conduct of operations, account should be taken of the
forthcoming Treasury financing and of developments in domestic
and international financial markets.
The following domestic policy directiYe was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that real output
of goods and services fell sharply in the first quarter. However,
retail sales strengthened during the quarter, and the rate of decline
in over-all activity has slowed in. recent weeks. In March industrial
production and employment declined less than they had on average
in the preceding 4 months, but the unemployment rate increased
from 8.2 to 8.7 per cent, as the civilian labor force grew. Average
wholesale prices of industrial commodities rose little in March and
prices of farm and food products declined sharply. The advance
in average wage rates during the first quarter was large, but it was
still below the increases of last spring and summer.
The prospect of an upturn, in economic activity has been strengthened by enactment of the Tax Reduction Act of 1975, which will
be adding soon to growth in disposable personal income.
The foreign exchange value of the dollar has risen since early
March, as short-term interest rates abroad have declined further and
market attitudes toward the dollar have continued to improve. In
January—February the U.S. foreign, trade balance was in surplus,
as agricultural exports reached a new high and the volume of imports
other than fuels declined. Net outflows of funds through banks
continued large in February but appear to have diminished in March.
In early April reserve requirements on foreign borrowings by member banks were reduced from 8 to 4 per cent.
The narrowly defined money stock rose moderately on balan.ce
over the first quarter, while broader measures of the money stock
expanded more rapidly. Growth was substantial in March, ap- *
parently in part because of the effects of accelerated tax refunds
on deposits at banks and nonbank thrift institutions. Business demands for short-term credit remained weak, both at banks and in
the commercial paper market, while demands in the long-term
market continued exceptionally strong. Since mid-March short-term

192

market interest rates have increased somewhat and longer-term
yields have risen considerably further.
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions conducive to stimulating economic recovery, while resisting inflationary
pressures and working toward equilibrium in the country's balance
of payments.
To implement this policy, while taking account of the forthcoming
Treasury financing and of developments in domestic and international financial markets, the Committee seeks to achieve bank
reserve and money market conditions consistent with somewhat
more rapid growth in monetary aggregates over the months ahead
than has occurred on average in recent months.
Votes for this action: Messrs. Burns, Hayes,
Baughman, Coldwell, Holland, MacLaury, Mayo,
Mitchell, and Wallich. Vote against this action: Mr.
Eastbum. Absent and not voting: Messrs. Bucher
and Sheehan.
Mr. Eastbum dissented from this action because he preferred
to retain the previous 5¥i per cent upper limit on the inter-meeting
range for the Federal fends rate. While he believed that firmer
money market conditions might prove to be necessary later on in
the year, he thought any such firming would be inappropriate at
this time, given the sensitive state of financial markets, the continued weakness in the economy, and his preference for seeking more
rapid growth in the monetary aggregates in the near term than would
be desirable over the longer run.

193

MEETING HELD ON MAY 20, 1975
1. Domestic Policy Directive
The information reviewed at this meeting suggested that real output
of goods and services—which had fallen sharply in the fourth
quarter of 1974 and the first quarter of 1975—was declining much
less rapidly in the current quarter and that the rise in prices was
moderating further. Staff projections, like those of 5 weeks earlier,
suggested that real economic activity would turn up later in the
year and that the rise in prices would continue to slow.
The pace of decline in industrial production, which had been
less rapid in March than in the preceding 4 months, moderated
further in April. Nonfarm payroll employment changed little and
total employment rose, but the unemployment rate increased further, from 8.7 to 8.9 per cent, as the labor force continued to
grow at a considerable pace. According to the advance report, retail
sales had risen in April, despite a further decline in the number
of new cars sold.
The index of average hourly earnings for private nonfarm production workers was unchanged in April, after having risen sharply
in March; over the first 4 months of the year the rate of advance
in the index was considerably less rapid than that in the second
half of 1974. Average wholesale prices of industrial commodities
changed little in April, as in March, while wholesale prices of
farm and food products increased sharply, following 5 months of
large decreases. In March the rise in the consumer price index
had slowed further from the pace in the first 2 months of the year.
Staff projections still suggested that in the current quarter the
decline in real GNP would be small and that nominal GNP would
turn up, although expectations now were for only a slight rather
than a substantial increase in residential construction. It was still
anticipated that inventory liquidation would moderate from the
exceptional pace in the first quarter and that personal consumption
expenditures would expand but that business fixed investment

194

would decline further. 'The projected upturn in real GNP in the
second half reflected expectations that growth in consumption
expenditures would accelerate in response to expansive fiscal policy
measures, that the upturn in residential construction would gain
momentum, and that the pace of inventory liquidation would
moderate further.
Since mid-April the average exchange value of the dollar against
leading foreign currencies had. receded somewhat, but it was still
slightly above the low in early March. The U.S. foreign trade
balance—which had been in large deficit in. the last three quarters
of 1974—shifted into substantial surplus in the first quarter of this
year, in considerable part because the volume of imports was
reduced by the decline in. business activity in this country. Net
outflows of funds through banks expanded substantially in the first
quarter, as outstanding loans to foreigners continued to increase
while liabilities to foreigners declined.
Total loans and investments at U.S. commercial banks continued
to expand at a slow pace from the eed of March to the end of
April. Outstanding loans to businesses declined further, as business
demands for credit remained weak both at banks and. in the
commercial paper market; outstanding loans to eonbank financial
institutions, securities dealers, and consumers also declined, while
real estate loans increased by only a modest amount. As in February
and March, banks increased their holdings of U.S. Government
securities considerably.
Growth in both the narrowly defined and the more broadly
defined money stock (Mi and M2)—which had been substantial
in March—was moderate in April, as disbursements of income tax
refunds slowed to about the pace of a year earlier. The measure
of the money stock that includes deposits at nonbank thrift institutions (M3) grew m.ore rapidly; although net iniows to thrift institutions subsided from the extremely high rates in March, they
remained substantial. In April, as in the preceding 2 months, banks
reduced, the outstanding volume of large-denomination CD's in
response to the growth in other deposits and to the continued
weakness in loan demand, and the bank credit proxy grew at a
relatively slow pace.
On May 1 the Treasury announced that it would auction up to
$5 billion of notes and bonds, of which $3.8 billion represented

195

refunding of publicly held notes that were to mature on May 15.
In auctions on May 6, 7, and 8, respectively, the Treasury sold
$2,75 billion of 3*4-year notes at an average price to yield 7.7
per cent, $1.5 billion of 7-year notes at an average price to yield
8.0 per cent, and $750 million of 30-year bonds at an average
price to yield 8.3 per cent. The Treasury also announced on May
1 that its over-all borrowing needs for the current fiscal year would
be $5 billion less than had been previously stated, owing to
larger-than-expected receipts of taxes.

System open market operations since the April 14-15 meeting
had been, guided by the Committee's decision to seek bank reserve
and money market conditions consistent with somewhat more rapid
growth in monetary aggregates over the months ahead than had
occurred on average in recent months, while taking account of
the forthcoming Treasury financing and of developments in domestic and international financial markets. The monetary aggregates
had been, expected to grow at relatively rapid rates in the April-May
period—because of the large volume of tax rebates scheduled to
begin in May, of the rise in nominal GNP anticipated for the second
quarter, and of the lagged effects on the demand for money of
earlier declines in short-term interest rates^-and operations initially
had been directed toward maintaining about the prevailing bank
reserve and money market conditions. However, data that became
available subsequently suggested that in the April-May period the
growth rate of Mt would be near the lower limit of the range of
tolerance that had been specified by the Committee and growth
in M2 would be below its tolerance range. Accordingly, operations
were directed toward achieving some easing in bank reserve and
money market conditions, although the System proceeded cautiously in order to avoid exaggerated market effects during a period
of heavy Treasury financing. In the days preceding this meeting
the Federal funds rate was about 5¥s per cent, compared with a
rate of about 5¥i per cent shortly before the April meeting.
Short-term market interest rates—which had risen a little between
mid-March and mid-April—declined somewhat in early May, reflecting the Treasury's announcement of reduced borrowing needs,
the easing in money market conditions, and the continued weakness
in business demands for short-term credit. On the day before this
meeting the market rate on 3-month Treasury bills was 5.1 1 per

196

cent, compared with 5.53 per cent at the time of the April meeting.
Effective Ma\ 16, Federal Reserve discount rates were reduced
from 6lA to 6 per cent at 10 Reserve Banks; shortly thereafter,
rates were reduced at the remaining 2 Banks.
Yields on longer-term securities rose in late April but turned
down after the beginning of May; over the inter-meeting period
they changed little. The volume of public offerings of corporate
bonds in April, although smaller than ie March, was still large,
and an increase was in prospect for May. Offerings of State and
local government issues in April and the calendar for M.ay also
were heavy. Yields on home mortgages rose somewhat during
April, after having declined persistently since September of last
year.
At its previous meeting, the Committee had agreed that growth
in the monetary and credit aggregates on average over the period
from March 1975 to March 1976 at rates within the following
ranges presently appeared to be consistent with its broad economic
objectives: Mu 5 to 7% per cent; M2, 8V2 to 10% per cent; M3,
10 to 12 per cent; and the bank credit proxy, 6Y2 to 9Vi per cent.
It was understood that these ranges, as well as the particular list
of aggregates for which such ranges were specified, were subject
to review and modification at subsequent meetings. It also was
understood that from month to month the rates of growth of the
various aggregates might well fall outside ranges contemplated for
annual periods as a result of short-run factors.
At this meeting the Committee took note of a staff analysis
indicating that the rate of growth of the monetary aggregates would
probably be increased temporarily during May and June by the
tax rebates, totaling about $8 billion, which the Treasury would
pay out in those months. It seemed likely that a sizable portion
of the rebates would be held for a time in demand balances before
being used to acquire assets, repay debt, or increase spending,
and that some part would be placed directly in savings accounts.
To allow for the expected temporary bulge ie money holdings,
the Committee agreed that relatively rapid growth in Mx and M2
over the May-June period—at annual rates within ranges of tolerance of 7 to 9¥i per cent and 9 to 11% per cent, respectively—would be acceptable. Such growth rates were thought likely
to involve growth in reserves available to support private nonbank

197

deposits (RPD's) at a rate within a range of \xk to 4 per cent,
and they were expected to be consistent with a weekly average
Federal funds rate in a range of 4% to 5% per cent.
In the course of the Committee's discussion a number of members, expressed the view that'upward pressures on interest rates
would be particularly undesirable at present, in light of the sensitive
state of financial markets and of uncertainties with respect to the
timing and strength of the economic recovery that now appeared
to be in process of developing. There was no sentiment for
aggressive easing operations for the purpose of reducing market
interest rates-further. Some members • urged, however, that-the
System should be prepared, to respond promptly should the monetary aggregates be unexpectedly weak.
The Committee decided that open market operating decisions
in the period until the next meeting should be based to a greater
extent than usual on the state of financial markets, with the objective
of maintaining money market conditions about like those now
prevailing so long as the monetary aggregates appeared to be
growing at rates within acceptable ranges of tolerance. The following domestic policy directive was issued to the Federal Reserve
Bank of New York:
The information reviewed at this meeting suggests that real output
of goods and services—after having fallen sharply for two quarters—Is declining much less rapidly in the current quarter. In April
the pace of the decline in industrial production moderated considerably further, and total employment rose. However, the unemployment rate increased again, from 8.7 to 8.9 per cent, as the civilian
labor force increased considerably. Average wholesale prices of
industrial commodities changed little in April, as in March; prices
of farm and food products rose sharply, following several months
of large decreases. The advance in average wage rates so far this
year has been considerably less rapid than the increase during the
second half of 1974.
The foreign exchange value of the dollar has declined somewhat
since mid-April, but it is still above the low of early March. U.S.
imports fell sharply in the first quarter, and the foreign trade balance
was in substantial surplus, in contrast to the deficits of preceding
quarters. Net outflows of funds through banks were large in the
first quarter, as loans to foreigners continued to increase while
liabilities to foreigners declined.

198

Both Mi and M2 grew moderately in April, but M:i grew more
rapidly as Inflows of deposits to nonbank thrift institutions remained
substantial. Business demands for short-term credit remained weak,
both at banks and in the commercial paper market, while demands
in the long-term market continued strong. Since mid-April shortterm, market interest rates have declined somewhat. Most longerterm yields have changed little on balance, and mortgage rates have
risen. Federal Reserve discount rates were reduced from 614 to 6
per cent in mid-May.
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions conducive to stimulating economic recovery, while resisting inflationary
pressures and working toward equilibrium ie the country's balance
of payments.
To implement this policy, while taking account of developments
in domestic and international financial markets, the Committee seeks
to maintain about the prevailing money market conditions over the
period immediately ahead, provided that monetary aggregates generally appear to be growing within currently acceptable short-run
ranges of toleran.ce.
Votes for this action.: Messrs. Burns, Hayes,
Baughman, Bucher, Coldwell, Eastburn, Holland,
MacLaury, M^ayo, Mitchell, and. Wallich. Votes
against this action: None.
Absent and not voting: Mr. Sheehan,

2. Amendment to Authorization for Domestic Open Market
Operations
On April 30, 1975, Committee members voted to increase from
$3 billion to $4 billion, the limit on changes between Committee
meetings ie System Account holdings of U.S. Government and
Federal agency securities specified in paragraph I (a) of the authorization for domestic open market operations, effective immediately,
for the period ending with the close of business on May 20, 1975.
Votes for this action: Messrs. Burns, Hayes,
Coldwell, Eastburn, Holland, MacLaury, Mayo,
Mitchell, Wallich, and Francis. Votes against this
action: None. Abstention: Mr. Sheehan.

199

Absent and not voting: Messrs, Bucher and
Baughman, (Mr. Francis voted as alternate for Mr.
Baughman.)

This action was taken on recommendation of the System. Account
Manager. The Manager advised that large-scale securities purchases
had been necessary to carry out the Committee's objectives in the
period since the previous meeting because an extremely large
volume of reserves had been absorbed by a rise in the Treasury's
balances at Reserve Banks to record levels, and that a temporary
increase in the leeway for System purchases appeared desirable
in light of the prospective near-term needs to supply reserves.
At this meeting, the Committee decided to maintain the $4 billion,
limit for the period through the close of business on June 17, 1975.
This action was taken on the recommendation of the Deputy
Manager for Domestic Operations, who advised that an expected
sharp decrease in Treasury balances at the Reserve Banks in the
period ahead might necessitate an unusually large volume of securities sales by the System to absorb reserves.
Votes for this action: Messrs. Burns, Hayes,
Baughman, Bucher, Coldwell, Eastburn, Holland,
MacLaury, Mayo, Mitchell, and Wallich. Votes
against this action: None.
Absent and not voting: Mr. Sheehan.

200

MEETING HELD ON JUNE 16-17, 19751
1. Domestic Policy Directive
The information reviewed at this meeting suggested that real output
of goods and services—which had fallen sharply during the two
preceding quarters—had leveled off in the second quarter of 1975
and that the rise in prices had moderated further. Staff projections
continued to suggest that real economic activity would expand in
the second half of the year and that the rise in prices would continue
to slow somewhat further.
In May retail sales increased strongly, most likely in response
to the disbursement of a large volume of rebates on Federal income
tax liabilities for 1974 and to a reduction in current income tax
withholdings. Industrial production declined slightly further, as
producers and distributors in many industries continued their efforts
to liquidate inventories; total business inventories had declined
appreciably in both March and April. Nonfarm payroll employment
increased in May, after having changed little in April, and total
employment advanced for the second consecutive month. Nevertheless, the unemployment rate rose further, from 8.9 to 9.2 per
cent, as the civilian labor force continued to grow at a rapid pace.
The index of average hourly earnings for private nonfarm production workers rebounded in May, after having declined slightly
in April, but over the first 5 months of the year the rate of advance
in the index was considerably less rapid than the rate during the
second half of 1974. Average wholesale prices of industrial commodities rose slightly in May—by about as much as over the
preceding 2 months—while prices of farm and food products
increased moderately further. In April the rise in the consumer
price index had picked up, but the average rise over the first 4
months of the year had remained well below the pace during 1974.
Staff projections for the second half of 1975 suggested moderate
1
This meeting was held over a 2-day period, beginning on the afternoon of
June 16.

201

recovery in real output and substantial gains in nominal GNP, It
was anticipated that the recovery would be spurred by rapid growth
in consumption expenditures in response to the expansive income
tax measures; by increases in residential construction; and by a
considerable'slowing in the rate of business inventory liquidation.
On the other hand, it was anticipated that business ixed investment
would decline somewhat further in real terms and that, as a result
of the recovery in business activity in this country, imports would
rise at a faster pace than exports.
Since mid-May the average exchange value of the dollar against
leading • foreign• currencies had changed little in ••relatively light
trading. In April the U.S. foreign trade balance remained in surplus;
however, the surplus was well below the first-quarter rate, reflecting
a substantially lower rate of exports. Banks' liabilities to foreigners
rose more than claims in April, resulting in a small net inflow
of funds compared with a large net outflow in the first quarter
of the year.
Total loans and investments at U.S. commercial banks continued
to expand at a slow pace during May, Outstanding loans to business
declined markedly further—as did the outstanding volume of commercial paper issued by nonfinancial businesses—in association
with inventory liquidation aed a continued large volume of corporate financing in the capital market. As in the preceding 3 months,
banks • added• substantially to their holdings of U.S. Government
securities.
Growth in deposits was exceptionally strong at banks and at
eonbank thrift institutions in May, reflecting in part the large
volume of income tax rebates disbursed during the month, and
Ml9 M2? and M3 all increased substantially. Banks continued to
reduce., the outstanding volume of large-denomination CD's in
response to the growth in other deposits and to the continued
weakness in loan demand, and the bank credit proxy increased
by only a small amount.
Interest rates in private short-term markets had changed little
over the period since mid-May. Market rates on Treasury bills also
changed little in the latter part of May, but they declined in early
June, partly in response to the seasonal reduction in' the supply
of bills in prospect for the second half of the month. At the time
of this meeting the market rate on 3-month Treasury bills was 4.88

202

per cent, compared with 5.11 per cent on the day before the May
meeting.
Yields on longer-term securities changed little in late May—
despite a continued heavy volume of corporate financing—and then
declined considerably In early June, ie part because the prospective
size of Treasury financing through July was not so large as had
been expected. Public offerings of corporate bonds expanded to
a near-record volume ie May, in part because of the marketing
of some Issues that had beee postponed, and a continued large
volume was Ie prospect for June. Offerings of State and local
government issues In May and the calendar for June also were
heavy. Yields on home mortgages eased in May, after having risen
somewhat In April.
System open market operations since the May 20 meeting had
beee guided by the Committee's decision to seek to maintain about
the prevailing money market conditions over the period immediately ahead, provided that monetary aggregates generally appeared
to be growing at rates within acceptable ranges of tolerance. The
Federal funds rate, which had beee about 5¥s per.cent in the days
before the May meeting, remained within a range of 5 to 5% per
cent. IE the second week of June, just a few days before this
meeting, available data suggested that over the May-June period
both Mt and M2 would grow at rates well above the specified
ranges of tolerance. Consequently, the System sought some tightening of bank reserve and money market conditions, and the Federal
funds rate rose Into a range of 5% to 5% per cent.
At this meeting the Committee reviewed the 12-month ranges
for rates of growth ie the monetary and credit aggregates on the
average over the period from March 1975 to March 1976 that it
had specified 2 months earlier at the April meeting. The members
agreed that It would be consistent with the Committee's broad
economic objectives If growth within the same percentage ranges
were to be realized on the average over the 12-month period to
June 1976 from the currently estimated levels for June 1975.2 The
ranges were as follows: Mi, 5 to 7¥2 per cent; M2, S¥i to
2

At its meeting on July 15 the Committee decided that the percentage ranges
should apply to the period from the second quarter of 1975 to the second quarter
of 1976, rather than from June to June.

203

per cent; M3, 10 to 12 per cent; and the bank credit proxy, 6Y2
to 9% per cent. As before, it was understood that these ranges,
as well as the particular list of aggregates for which such ranges
were specified, were subject to review and modification at subsequent meetings. It also was understood that from month to month
the rates of growth of the various aggregates might well fall outside
ranges contemplated, for annual periods as a result of short-rue
factors.
In considering current policy, the Committee took note of a staff
analysis suggesting that in the months ahead strong expansion in
transactions demands for money was likely if the substantial gains
projected in nominal GNP materialized. If monetary growth was
to be appropriately constrained, it appeared probable that some
tightening of bank reserve and money market conditions would
need to develop o¥er the weeks immediately ahead.
The staff analysis also suggested that, e¥en with some tightening
in bank reser¥e and money market conditions, the monetary aggregates would grow at relatively rapid rates in the June—July period,
in large part because of the temporary effects of income tax rebates
and, in the second half of June, of one-time payments to social
security recipients. It was anticipated, however, that pri¥ate shortterm credit demands would remain weak, as business firms continued to liquidate inventories and to issue longer-term securities in
large ¥oiume.
In the course of the Committee's discussion a number of members expressed uncertainty about the extent to which rapid growth
in the monetary aggregates was attributable to transitory rather than
to fundamental forces affecting the demand for money. No members
advocated aggressive operations at this time to tighten bank reser¥e
and money market conditions, and there was some sentiment for
continuing about the prevailing money market conditions in the
period until the next meeting on the grounds that additional data
might indicate that growth in the monetary aggregates was in the
process of subsiding. However, some members favored a modest
tightening in the period immediately ahead in order to restrain
growth in the monetary aggregates, and others were prepared to
accept some tightening if it proved to be necessary for that purpose.
At the conclusion of the discussion, the Committee decided that
growth in Mi and M2 over the June-July period at annual rates

204

within ranges oi tolerance of t)h'i to c>;/2 per cent and 9 to 12 per
cent, respectively, would be acceptable. The members concluded
that such growth rates would be likely to ieYolve growth in reserves
available to support private nonbaek deposits (RPD's) within a
range of 5 to 8 per cent. They agreed that in the period until the
next meeting the weekly average Federal feeds rate might be
expected to vary in ae orderly fashion within a range of 5 to b
per cent, if necessary, in the course of seeking monetary growth
rates within the ranges speciied. The members also agreed that,
in the conduct of operations, account should be taken of developments in domestic and international financial markets.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that real output
of goods and services—after having fallen sharply for two quarters—has leveled off in the current quarter. In May retail sales
strengthened considerably. Industrial production declined slightly
further, but total employment advanced for the second consecutive
month. The unemployment rate increased again, from 8.9 to 9.2
per cent, as the civilian labor force rose substantially further. The
rise in average wholesale prices of industrial commodities continued
to be slow; prices of farm and food products increased moderately
further. The advance in average wage rates so far this year has
been considerably less rapid than the increase during the second
half of 1974.
The foreign exchange value of the dollar has changed little since
mid-May. The U.S.- foreign trade balance continued in substantial
surplus in April, but at a rate much reduced from the irst quarter.
After large net outflows in the first quarter, there was a small net
inflow of funds through banks in April, as liabilities to foreigners
rose more than claims.
Growth in Ml9 M2, and M3 was substantial • in May, reflecting
in part large Federal income tax rebates deposited at both banks
and eonbank thrift institutions. Business demands for short-term
credit both at banks and in the commercial paper market remained
unusually weak, while demands in the long-term market continued
very strong. Market interest rates in general 'changedlittle during
the latter part of May, but since then rates in longer-term markets
and oe Treasury bills have declined. Mortgage rates have eased
over the past month.
In light of the foregoing developments, it is the policy of the

205

Federal Open Market Committee to fosterfinancialconditions conducive to stimulating economic recovery, while resisting inflationary
pressures and working toward equilibrium in the country's balance
of payments.
To. implement this policy,, while taking account of developments .
in domestic and international financial markets, the Committee seeks
to achieve bank reserve and money market conditions consistent
with moderate growth in monetary aggregates over the months
ahead.
Votes for this action: Messrs. Burns, Baughmae,
Eastburn, Holland, MacLaury, Mayo, Mitchell,
\yallich, and Debs. Votes against this action:
Messrs. Bucher and Coldwell.
Absent and not voting: Mr, Hayes. (Mr, Debs
voted as alternate for Mr. Hayes.)
Messrs. Bucher and Coldwell dissented from this action, because
they believed that a tightening ie money market conditions and
the associated increase In short-term interest rates would'be premature at this time, and they preferred to specify a lower range for
the Federal funds rate than that adopted by the Committee. Both
stressed the influence of the tax rebates and payments to recipients
of social security benefits In bringing about high rates of monetary
growth. Mr. Bucher, in addition, thought that primary emphasis
should- -be given to promoting recovery In economic .activity.,
because he believed that as yet there were no clear Indications
of the forces that would lead the recovery and because he saw
no threat of Inteeslied Inflationary pressures so long as rates of
resource use remained comparatively low.
Subsequent to the meeting, oe June 26, the available data
suggested that the annual rates of growth In Mi and M2 in June
would be much more rapid than had appeared likely at the time
of the meeting and that growth in both aggregates over the
June-July period, therefore, would be substantially above the upper
limits of the ranges of tolerance established by the Committee.
In the statement week ending June 25 the Federal funds rate
averaged 5.72 per cent; In the latest 3 days It had been close to
6' per 'cent. The System Account Manager was planning to' aim
for a rate of 6 per cent, the upper limit of the specified range
of tolerance.

206

Against that background and to give the Manager some flexibility, Chairman Burns recommended on June 26 that the upper
limit of the funds rate constraint be raised to 6% per cent, on
the understanding that the additional leeway would be used only
in the event that another week's data eoeirmed excessive strength
in the monetary aggregates. Members of the Committee—with the
exception of Messrs. Bucher, Holland, and Mitchell—concurred
in the Chairman's recommendation.
2. Amendment to Authorization for Domestic Open Market
Operations
The Committee amended paragraph He) of the authorization for
domestic open market operations to authorize the Federal Reserve
Bank of New York to arrange repurchase agreements (RP's) directly
with bank dealers. Prior to this action, the Bank had been authorized
to arrange RP's with nonbank dealers only. With this amendment,
paragraph l(c) read as follows:
(c) To buy U.S. Government securities, obligations that are direct
obligations of, or fully guaranteed as to principal and interest by,
any agency of the United States, and prime bankers* acceptances
of the types authorized for purchase under l(b) above, from dealers
for the account of the Federal Reserve Bank of New York under
agreements for repurchase of such securities, obligations, or acceptances In 15 calendar days or less, at rates that, unless otherwise
expressly authorized by the Committee, shall be determined by
competitive bidding, after applying reasonable limitations on the
volume of agreements with individual dealers; .provided that in the
event Government securities or agency issues covered by any such
agreement are not repurchased by the dealer pursuant to the agreement or a renewal thereof, they shall be sold in the market or
transferred to the System Open Market Account; and provided
further that in the event bankers' acceptances covered by any such
agreement are not repurchased by the seller, they shall continue
to be held by the Federal Reserve Bank or shall be sold in the
open market.
Votes for this action: Messrs. Burns, Baughman,
Beefier, Cold well, Eastburn, Holland, MacLaury,
Mayo, Mitchell, Wallich, and Debs. Votes against
this action: None.

207

Absent and not Yoting: Mr. Hayes. (Mr. Debs
voted as alternate for Mr. Hayes.)

This action was taken on recommendation of a staff committee,
which acMsed that it would usefully broaden the scope of participation in System. RP's. The staff committee also reported that
experience with determination of interest rates on RP's by competitive bidding—provided for by action of the Committee in April
1972—had been satisfactory.
3. Revision of Guidelines for Operations in Federal Agency
Issues
On recommendation of the Manager, the Committee amended
number 5 of the guidelines for the conduct of System operations
in Federal agency issues to increase the limit on System holdings
of any one issue at any one time from 20 to 30 per cent of the
amount of the issue outstanding, and to increase the limit on System
holdings of the issues of any one agency from 10 to 15 per cent
of the amount of outstanding issues of that agency. The Manager
had advised that Desk operations in agency issues might soon be
inhibited by the existing limits; that flexibility for operations in
agency issues might prove especially useful; and that experience
gained O¥er the past 3% years of operations in agency issues had
shown that the market was capable of absorbing a larger volume
of System purchases without undue impact on yields or other market
relationships.
Votes for this action: Messrs. Burns, Baughman,
Bucher, Cold well, Eastburn, MacLaury, Mayo,
Mitchell, Wallich, and Debs. Vote against this
action: Mr. Holland.
Absent and not voting: Mr. Hayes. (Mr. Debs
Yoted as alternate for Mr, Hayes.)

Mr. Holland dissented from this action because he was concerned
that to date the System had bought but rarely had sold agency
issues and because the limits on System holdings of agency issues
might more appropriately be raised at a stage of the business cycle
when the volume of new agency issues being marketed was large.

208

MEETING HELD ON JULY 15, 1975
Domestic Policy Directive
The information reviewed at this meeting suggested that real output
of goods and services had leveled off in the second quarter of
1975, as consumer spending had continued to strengthen, and that
the rise in prices had moderated further. Staff projections for the
second half of the year, like those of 4 weeks earlier, suggested
that real economic activity would expand and that the rise in prices,
on the average, would slow from the pace in the first half.
In June retail sales had expanded somewhat further, according
to the advance report, and sales for the second quarter as a whole
were up considerably from the first quarter. Industrial production
rose slightly in June, following 8 months of decline. Nevertheless,
it appeared that producers and distributors in many industries were
continuing their efforts to liquidate inventories; total business
inventories had declined appreciably in the preceding 4 months.
After increasing for 2 months, total employment was stable in June.
The calculated unemployment rate declined substantially, but the
drop was attributed mainly to seasonal adjustment problems associated with the influx of younger persons into the labor market
at the end of the school year.
The advance in the index of average hourly earnings for private
nonfarm production workers moderated further from the first to
the second quarter of the year. Average wholesale prices of industrial commodities rose somewhat more in June than in the preceding
3 months, mainly because of increases in prices of crude oil and
refined petroleum products; over the first half of the year the rise
in industrial commodity prices was sharply below the rapid pace
in 1974. Wholesale prices of farm and food products declined
appreciably in June. In May the rise in the consumer price index
had slowed, after a pick-up in April.
Staff projections for the second half of 1975 continued to suggest
moderate recovery in real output and substantial gains in nominal

209

GNP. It was still anticipated that the recovery would be spurred
by rapid growth in consumption expenditures in response to the
expansive income tax measures, by increases in residential construction, and by a marked slowing in business inventory liquidation
from, the exceptionally rapid rate in the first half of thfe year, As
before, it was anticipated that business fixed investment would
decline somewhat further in real terms and that imports would rise
at a faster pace than exports as economic activity expanded in this
country.
The average exchange value of the dollar against leading foreign
currencies—which had changed little for about 3 months—rose
appreciably in late June and early July, in large part as a result
of a'rise" in short-term' interest rates on dollar assets relative "to
comparable rates on assets denominated in major foreign currencies. In May U.S. merchandise imports fell more sharply than
exports, and- the foreign • trade surplus was substantial. Banks'
claims on foreigners increased considerably in May while their
liabilities to foreigners declined slightly; the result was a sizable
net--outflow-of funds compared with a small net inflow, in April.
Total loans and investments at U.S. commercial banks changed
little during June. As in the preceding 4 months, total loans
declined; .outstanding loans to businesses fell sharply further—as
did the outstanding volume of commercial paper issued by nonfinancial businesses—in association with continued inventory liquidation and heavy corporate financing in the capital market. Banks
again added substantially to their holdings of U.S. Government
securities.
Expansion in demand deposits and in consumer-type time and
savings deposits at banks and at nonbank thrift institutions—already
strong in May—was extremely rapid in June, in part because of
Federal income tax rebates and of supplementary social security
payments rover the-second quarter of the year, Mu M2, and-M3
grew at annual rates of about 11, 13, and 15 per cent, respectively.
Weekly data suggested that the aggregates had begun to weaken
late in -the • month, after completion of the special-disbursement
by the Treasury.
System open market operations since the June 16-17 meeting
had .been guided by the Committee's decision to seek bank reserve
and money market conditions consistent with moderate growth in

210

monetary aggregates over the months ahead. Data that had become
available soon after the June meeting suggested that in the
June-July period the aggregates would grow at rates above the
upper limits of the ranges of tolerance that had been specified by
the Committee. Therefore, System operations persistently had been
directed toward some tightening in bank reserve and money market
conditions. In the last 3 days of the statement week ending June
25 the Federal funds rate was close to 6 per cent—the upper limit
of the range of tolerance specified at the June meeting—compared
with a level between 5lA and 5Vi per cent at the time of that
meeting.
On June 26 a majority of the members concurred in the Chairman's recommendation that the upper limit of the funds rate
constraint be raised to 6% per cent, on the understanding that the
additional leeway would be used only if another week's data
confirmed excessive strength in the aggregates. However, data that
had become available for the statement week ending July 2, and
then for the week ending July 9, suggested that the aggregates
had begun to weaken. Accordingly, the System sought no further
tightening in bank reserve and money market conditions. For a
short time around midyear Federal funds traded above 6 per cent,
as a result of special pressures in the market associated with the
June 30 statement date for banks and with the Independence Day
holiday.
Short-term interest rates had risen appreciably since the June
meeting of the Committee, partly in response to the firming in
money market conditions. The rise in rates on Treasury bills was
exceptionally large, in part because rates had declined earlier in
anticipation of a seasonal-decline in the supply of bills in late June.
At the time of this meeting the market rate on 3-month Treasury
bills was 6.03 per cent, up from a low of 4,88 per cent on June
16.
Yields on longer-term Treasury and corporate securities also
increased appreciably during the inter-meeting period, in response
to the tightening in money market conditions and to exceptionally
heavy demands in the capital market. Public offerings of both
corporate bonds and State and local government issues expanded
to new records in June, and a large volume of offerings was in
prospect for July. Moreover, the Treasury auctioned SI.75 billion

211

of 4-year notes oe June 25 and indicated that it would auction
$1.5 billion of 2-year notes in late July.
The Treasury- was expected-to-announce the terms of-its midAugust refunding of July 23, Of the maturing issues, $4,8 billion
were held by the public.
At its-previous meeting, the-Committee had agreed that.growth
in the monetary and credit aggregates over the 12 months to June
1976 from, the estimated levels for June 1975 within the following
ranges ..would be consistent .with its broad economic objectives:
M^ 5 to 7% per cent; M2, 8Vi to 10!/2 per cent; M3, 10 to 12
per cent; and the bank credit proxy, 6Vi to 9% per cent. In. view
of the erratic movements of monthlyfigureson money balances—as
illustrated by the unexpectedly large rise in monetary aggregates
in June—the Committee decided that the percentage ranges should
apply to the period from the second quarter of 1975 to the second
quarter of 1976, rather than'from June to June. As before,'it was
understood that the ranges, as well as the particular list of aggregates for which such ranges were specified, would be subject to
review and modification at subsequent meetings. It also was'understood that from month to month short-run factors might cause the
rates of growth of the various aggregates to fall outside the ranges
contemplated lor-annual periods.
In considering current policy, the Committee took note of a staff
analysis suggesting that growth in monetary aggregates would
slow considerably in July from the extremely rapid pace in.. .May
and June associated with the Federal income tax rebates and social
security payments. In the course of the Committee's discussion,
it was noted that growth in the monetary aggregates in May and
June had been appreciably above expected rates, and that bank
reserve and money market conditions had been permitted to firm
somewhat as a consequence. It was also noted that the economy
apparently was in the process of'recovering from the recession"
and that a strengthening in the underlying demands for money and
bank credit was in prospect.
In' the circumstances, no member advocated operations to ease
bank reserve and money market conditions in. the period immediately ahead unless the monetary aggregates were considerably
weaker-than- expected, and some suggested that a modest firmingmight be appropriate at this time. A number of members indicated'

212

that they would prefer to maintain about the prevailing conditions
tor the time being, in light of the uncertainties about the strength
of the economic recovery and of the relatively high levels of market
interest rates for the present stage of the cycle. However, these
members were prepared to accept some firming in coming weeks
if necessary to slow monetary growth substantially from the rapid
pace in recent months.
At the conclusion of the discussion, the Committee decided to
seek bank reserve and money market conditions over the period
immediately ahead about the same as those now prevailing, provided that growth in monetary aggregates appeared to be slowing
substantially from the beige during the second quarter. Specifically,
the members agreed that growth in Mt and M 2 over the July-August
period at annual rates within ranges of tolerance of 3 to 5Vi per
cent and 8 to 10% per cent, respectively, would be acceptable.
Such growth rates were thought likely to involve growth in reserves
available to support private nonbank deposits (RPD's) within a
range of —2 to +!4 per cent. The members agreed that in the
period until the next meeting the weekly average Federal funds
rate might be expected to vary in an orderly fashion within a range
of 5Vi to 6% per cent, depending on the behavior of the monetary
aggregates. The members also concluded that, in. the conduct of
operations, account should be taken of the forthcoming Treasury
financing and of developments in domestic and international financial markets.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that real output
of goods and services leveled off in the second quarter of the year,
as consumer spending continued to strengthen. Activity In residential
real estate markets has picked up in recent months. In June industrial
production rose slightly, following 8 months of decline. The calculated unemployment rate declined substantially, but this was attributed mainly to problems of seasonal adjustment. Average wholesale
prices of industrial commodities rose somewhat more in June than
in the preceding 3 months, chiefly because of increases in prices
of petroleum products, but prices of farm and food products declined
appreciably. From the first to the second quarter of the year, the
advance in average wage rates continued to moderate.

213

In recent weeks the average exchange value of the dollar against
leading foreign currencies has risen, considerably, as interest rates
on U.S. dollar assets increased relative to rates on foreign currency
assets after mid-June. In May the U.S. foreign trade balance
registered a substantial surplus, as imports dropped more sharply^
than exports. U.S. banks reported a sizable increase in claims on
foreigners, while liabilities to foreigners were reduced slightly.
Growth in Mj, M2, and M3—which was substantial in May—was
extremely rapid in June, in part" because of Federal income tax
rebates and of supplementary social security payments; beginning
late in the month, after'completion'of such payments, the aggregates
weakened. Business demands for short-term credit remained unusually • -weak -both at banks • and- in the commercial paper market,
while demands in the long-term market continued exceptionally
strong,-Market interest rates in--general have risen appreciably in
recent weeks,
.In light, of the foregoing, developments, it is the policy of-the
Federal Open Market Committee to foster financial conditions conducive to stimulating economic recovery, while resisting inflationary
pressures and working toward equilibrium in the country's balance
of payments.
To implement this policy, while taking account of the forthcoming
Treasury financing and of developments in domestic and international financial markets, the Committee seeks to maintain about the
prevailing bank reserve and money market conditions over the period
immediately ahead, provided that growth in monetary aggregates
appears to be slowing substantially from the bulge during the second
quarter.
Votes for this action: Messrs. Burns, Baughmart,
Bucher, Cold well, Eastburn, Jackson, MacLaury,
Mayo, Wallich, and Debs, Vote against this action:
Mr, Holland,
Absent and not voting: Messrs. Hayes and Mitchell. (Mr. Debs voted as alternate for Mr. Hayes.)

Mr. Holland dissented from this action because he believed that
present circumstances did not warrant providing for a possible rise
in the Federal funds rate to a level as high as 6% per cent in
the period until the next meeting. He preferred to maintain bank
reserve and money market conditions in the inter-meeting period
closer to those now prevailing, in the expectation that by the next

214

meeting the unwinding of the recent bulge in monetary aggregates
caused by unusual Treasury payments would have proceeded far
enough to permit monetary policy decisions to be related more
closely to underlying trends in the aggregates.

215

MEETING HELD ON AUGUST 19, 1975
1. Domestic Policy Directive
The information reviewed at this meeting suggested that output
of goods and services—after having fallen sharply for two quarters—had bottomed out in the second quarter of 1975 and was
likely to increase appreciably in the current quarter. Staff projections suggested that expansion in output would remain strong in
the fourth quarter. It was expected that the rate of increase in
prices—which had moderated earlier this year—would be somewhat more rapid in the third and fourth quarters.
In July retail sales continued to expand at a vigorous pace, in
real as well as in dollar-value terms. Industrial production—which
had turned up in June after 8 months of decline—rose moderately
further, reflecting in large part gains in output of consumer goods.
The average workweek of production workers in manufacturing
industries increased considerably, and employment in nonfarm
establishments also rose. Although the civilian labor force increased, after having contracted in June, the unemployment rate
declined further, from 8.6 to 8.4 per cent.
The advance in the index of average hourly earnings for private
nonfarm production workers, which had continued to moderate in
the second quarter of the year, was relatively slow in July. The
wholesale price index rose sharply, in large part because of substantial increases in prices of grains, hogs, meats, and some other
foods and foodstuffs; among industrial commodities, prices of fuels
and related products and power rose significantly. In June the rise
in the consumer price index had accelerated again, reflecting mainly
increases in retail prices of foods and fuels.
Staff projections for the second half of 1975, compared with
those of 5 weeks earlier, suggested a larger rise in prices and a
more vigorous recovery in output. The faster rate of expansion
in real GNP reflected for the most part a more marked slowing

216

in business inventory liquidation from the sharp rate of liquidation
in the second quarter. Business fixed investment outlays now were
projected to strengthen late in the year. As before, it was anticipated
that real consumption expenditures would increase at a rapid pace
and that residential construction also would expand but that exports
would rise less than imports.
The average exchange value of the dollar against leading foreign
currencies—which had begun to appreciate in late June—rose
considerably further between mid-July and mid-August, reflecting
a continued rise in short-term interest rates on dollar assets relative
to comparable rates on assets denominated in other currencies.
Moreover, a large increase in the U.S. foreign trade surplus was
reported for June—when exports increased sharply while imports
declined slightly further—and the surplus for the second quarter
as a whole was substantially greater than for the first quarter.
Total loans and investments at U.S. commercial banks expanded
moderately in July. On a seasonally adjusted basis, outstanding
loans to businesses changed little, and the outstanding volume of
commercial paper issued by nonfinancial businesses rose somewhat,
following several months of decline. Banks continued to add to
their holdings of U.S. Government securities but not at so rapid
a pace as in earlier months of this year. Most major banks raised
the prime rate from 7 to 7% per cent, owing in part to recent
increases in short-term market interest rates.
Mt increased relatively little in July, after having grown extremely rapidly in May and June in association with disbursement
of Federal income tax rebates and of supplementary social security
payments. Inflows of consumer-type time and savings deposits to
banks and to nonbank thrift institutions—which also had been
augmented by the special Treasury payments—slowed in July, but
they were still fairly large; growth in M2 and M3, although substantially below the pace in the preceding 2 months, was moderate.
System open market operations since the July 15 meeting had
been guided by the Committee's decision to maintain about the
prevailing bank reserve and money market conditions, provided
that growth in monetary aggregates appeared to be slowing substantially from, the bulge during the second quarter. Data that had
become available immediately after the July meeting suggested that
in the July-August period the aggregates would grow at rates above

217

the upper limits of the ranges of tolerance that had been specified
by the Committee. Accordingly, System operations had been
directed toward a slight firming in bank reserve and money market
conditions, and the Federal funds rate had risen to the vicinity
of 6¥B to 6lA per cent in the latter part of July from about 6 per
cent at the time of the July meeting. Later data suggested that
growth in the aggregates would be within the specified ranges,
and System operations were directed toward maintaining steady
conditions.
On July 23 the Treasury announced that it would auction up
to $5.8 billion of notes and bonds, of which $4.8 billion represented
refunding of publicly held notes that were to mature on August
15, In auctions on July 29, 30, and 31, respectively, the Treasury
sold $3 billion of 2%-year notes at an average price to yield 7.94
per cent, $2 billion of 7-year notes at an average price to yield
8.14 per cent, and $800 million of 25-year bonds at an average
price to yield 8.44 per cent. On August 6 the Treasury announced
that over the following 2 weeks it would sell 2-year and 4-year
notes and additional amounts of bills to raise $6 billion in new
cash.
Market interest rates in general had risen appreciably further
since the July meeting of the Committee, in response to indications
of the strengthening in economic activity, to the pick-up in the
rate of increase in prices, to the large current and prospective
financing requirements of the Treasury, and to the firming in money
market conditions. In the short-term market, rates on Treasury
securities had risen somewhat more than those on private instruments. On the day before this meeting, the rate on 3~month
Treasury bills was 6.42 per cent, up about 40 basis points from
the rate at the time of the July meeting.
In markets for longer-term securities, upward pressures were also
greater for Government than for private securities, reflecting the
heavy offerings of Treasury coupon issues. Conditions in the market
for State and local government securities were adversely affected
by the uncertainties stemming from the financing problems of New
York City. Offerings of such securities were large in July, but
a decline was in prospect for August. On the other hand, upward
pressures on corporate bond yields were dampened by cancellation
or postponement of some new issues that had been scheduled for

218

marketing in August. 'The volume of public offerings of corporate
bonds fell in July from the record high of June, and a further
decline was in prospect for August,
A staff analysis suggested that growth in monetary aggregates
would pick up moderately in the August-September period from
the reduced rate in July, in part because of the gathering strength
in economic activity. It was further suggested that if nominal GNP
were to expand over the second half of the year at about the rates
now projected, the demand for money would strengthen considerably.
At its previous meeting, the Committee had agreed that growth
in the monetary and credit aggregates on the average over the period
from the second quarter of 1975 to the second quarter of 1976
at rates within the following ranges appeared to be consistent with
its broad, economic aims: M l9 5 to IVi per cent; M2, 8V2 to 10%
per cent; M3, 10 to 12 per cent; and the bank credit proxy, 6V2
to 9% per cent. It was understood that the ranges, as well as the
particular list of aggregates for which such ranges were specified,
would be subject to review and modification at subsequent meetings. It also was understood that from month to month short-run
factors might cause the rates of growth of the various aggregates
to fall outside the ranges contemplated for annual periods.
In the course of the Committee's discussion of current policy
at this meeting, it was noted that the economic recovery appeared
to have gained strength over the past month—suggesting that
expansion in activity would be relatively vigorous over the second
half of the year-—and that inflationary expectations had increased.
It was also suggested, however, that financial markets had overreacted to the minor tightening in bank reserve and money market
conditions that had occurred over the past 2 months; that financial
markets in general were unsettled, in part because of the financial
problems of New York City and the possible repercussions of those
problems; and that interest rates were high for this stage of the
business cycle. In the circumstances, most members advocated
maintenance of about the prevailing bank reserve and money market
conditions in the period immediately ahead, provided that the
monetary aggregates appeared to be growing in the August-Sep™
tember period at about the moderate rates expected. However, some
members advocated a slight further firming in bank reserve and

219

money market conditions in order to restrain monetary expansion
later on.
The Committee decided to seek bank reserve and money market
conditions consistent with moderate growth in monetary aggregates
over the months ahead, while taking account of developments in
domestic--and international financial markets."'Specifically; "the
members agreed that growth in Mt and M2 over the August-September period at annual rates within ranges of tolerance of 4¥i
to--7 per-cent- and 8!/4 to \Q3A per cent, respectively, would-be
acceptable. Such growth rates were thought likely to involve an
annual rate of change in reserves available to support private
nonbank .deposits (RPD's) within .a range of — IVi.to ^ 4 per. cent.

The members agreed that in the period until the next meeting
the weekly average for the Federal funds rate might be expected
to vary in an orderly fashion within a range of 5% to 7 per..cent,
although it was understood that operations would not be directed
toward establishing reserve conditions consistent with a movement
in the rate above or below the current 6Vfe to 6V4 per cent area
unless it appeared that in the August-September period growth in
the monetary aggregates would be substantially stronger or weaker
than now expected. It was also understood that the Chairman might
call upon the 'Committee to" consider the need for" supplementary
instructions before the next scheduled meeting if significant inconsistencies appeared to be developing among the Committee's
various objectives and constraints.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that output
of goods and services bottomed out in the second quarter and is
likely to increase appreciably in the current quarter. In July retail
sales expanded further and industrial production rose moderately
for the second consecutive month, following 8 months of decline.
Conditions in labor markets improved further: employment increased, the unemployment rate declined from 8,6 to 8.4 -per cent,
and the average workweek in manufacturing lengthened considerably. Average wholesale prices rose sharply in July, chiefly
because of increases in prices of agricultural and energy products.
The advance in average wage rates has continued to moderate over
recent months.

220

In recent weeks the average exchange value of the dollar against
leading foreign currencies has risen considerably further, reflecting
additional increases in Interest rates on U.S. dollar assets relative
to rates on foreign currency assets. In June the U.S. foreign trade
surplus rose substantially, as exports increased sharply while imports
declined slightly further.
In July Mi increased relatively little and growth in M2 and M3
slowed substantially, following a sharp increase in depositors'
balances in May and June in connection with Federal income tax
rebates and supplementary social security payments. Market interest
rates in general have risen appreciably further in recent weeks, in
association with indications of strengthening economic activity,
more rapid inflation, and larger current and prospective Treasury
financing requirements. Corporate bond offerings moderated somewhat in July but State and local government offerings continued
large. Financial markets reflected considerable uncertainty stemming
from New York City's financing problems. Business demands for
short-term credit remained weak, although less so than in earlier
months.
In light of the foregoing developments it is the policy of the
Federal Open Market Committee to foster financial conditions conducive to stimulating economic recovery, while resisting inflationary
pressures and contributing to a sustainable pattern of international
transactions.
To implement this policy, while taking account of developments
in domestic and international financial markets, the Committee seeks
to achieve bank reserve and money market conditions consistent
with moderate growth in monetary aggregates over the months
ahead.
Votes for this action: Messrs. Burns, Volcker,
Banghman, Bucher, Coldwell, Eastburn, Holland,
Jackson, MacLaury, Mayo, Mitchell, and Waliich.
Votes against this action: None.

Subsequent to the meeting, on September 5, the available data
suggested that in the August-September period Mt would grow
at a rate in the lower part of the range of tolerance that had been
specified by the Committee and that M2 would grow at a rate just
below the lower limit of its range. In view of the likelihood of
substantial strengthening in demands for money and credit over
coming months, it appeared that a decline in the Federal funds

221

rate at this time might have to be reversed shortly—a sequence
that'could seriously compound uncertainties in financial" markets.
Therefore, Chairman Burns recommended that until the next meeting of the Committee the Manager be instructed to continue to
maintain reserve conditions consistent with a Federal -funds rate
in the 6Vs to 6% per cent area, while leaning toward the lower
figure. Available members of the Committee concurred in the
Chairman's recommendation.
2. Authorization, for Domestic Open Market Operations
On August'6, 1975, Committee members had voted'to increase
from $2 billion to $3 billion the limit on System holdings of special
short-term certificates of indebtedness purchased directly from the
Treasury, specified in paragraph 2 of the authorization for domestic
open market operations, effective immediately, for the period until
the close of business on August 19, 1975.
Votes for this action: Messrs. Burns, Bucher,
Coldwell, Eastburn, Mitchell, Voicker, WalJich,
Balles, and Francis. Votes against this action:
None.
Absent and not voting: Messrs. Baughman, Holland, Jackson, MacLaury, and Mayo. (Messrs.
Balles and Francis voted as alternates for Messrs.
MacLaury and Baughman, respectively.)

This action, which was ratified at today's meeting, was taken
on the recommendation of the System Account Manager. At the
time of the recommendation, Treasury balances at Federal 'Reserve
Banks were in overdraft in the amount of $651 million. Overdrafts
were expected to continue until August 18 or 19, and it appeared
possible that Treasury cash borrowing from the System- substantially
in excess of the $2 billion limit would be required.
3. Authorization for Foreign Currency Operations.
The Committee approved an increase from $180 million to $360
million in the System's swap arrangement with the Bapk of Mexico
and the "corresponding amendment to paragraph 2 of the'authorization for foreign currency operations, effective after review and
approval by Chairman Burns following resolution of certain tech-

222

nical matters. The Chairman approved the increase on August 2 9 ,
1975. With this change, paragraph 2 of the authorization read as
follows:
The Federal Open Market Committee directs the Federal Reserve
Bank of New York to maintain reciprocal currency arrangements
("swap" arrangements) for the System Open Market Account for
periods up to a maximum of 12 months with the following foreign
banks, which are among those designated by the Board of Governors
of the Federal Reserve System under Section 214.5 of Regulation
N, Relations with Foreign Banks and Bankers, and with the approval
of the Committee to renew such arrangements on maturity:

Foreign bank

Amount of
arrangement
(millions of
dollars equivalent)

Austrian National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . .
National Bank of Belgium . . . . . . . . . . . . . . . . . . . . . . . .
Bank of C a n a d a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
National Bank of D e n m a r k , . . . . . . , . , . . . . . . . . . . , , ,
Bank of England . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

250
1,000
2,000
250
3,000

Bank of France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
G e r m a n Federal Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank of Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank of Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank of M e x i c o . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,000
2,000
3,000
2,000
360

Netherlands Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank of N o r w a y . . , . , . , . . . . , . . , . . . . . . . , . . . . . . , , . . . .
Bank of S w e d e n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swiss National B a n k . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank for International Settlements:
Dollars against Swiss francs . . . . . . . . . . . . . . . . . . . .
Dollars against authorized European
currencies other than Swiss francs . . . . . . . . . . .

500
250
300
1,400
600
1,250

Votes for this action: Messrs, Burns, Volcker,
Baughman, Bucher, Coldwell, Eastburn, Holland,
Jackson, M.acLaury, Mayo, Mitchell, and Wallich.
Votes against this action: None.
This action was taken in order to expand the facilities available
for coping with the possible temporary pressures on the peso.

223

MEETING HELD ON SEPTEMBER 16, 1975
1. Domestic Policy Directive
The information reviewed at this meeting suggested that output
of goods and services—which had turned up in the second quarter—was increasing appreciably in the current quarter and that
prices, on the average, were rising at a somewhat faster pace than
in the first half of the year. Staff projections suggested that expansion in output would remain strong in the fourth quarter and that
the rate of growth would then moderate somewhat in the first half
of 1976.
In August the pace of economic recovery appeared to have gained
momentum; both industrial production and employment in nonfarm
establishments advanced more than in July. The average workweek
of production workers in manufacturing industries continued to
lengthen, and for the first time since October 1974 it approached
40 hours. The unemployment rate—which had declined from 9.2
per cent in May to 8.4 per cent in July—was unchanged, as the
civilian labor force increased about as much as total employment.
Retail sales apparently declined slightly in August, following 4
months of large gains in real as well as in dollar-value terms.
The increase in the index of average hourly earnings for private
nonfarm production workers was large in August, after having been
relatively small in July; over recent months, on the average, the
advance has been somewhat less rapid than in 1974 and in the
first quarter of 1975. The wholesale price index for industrial
commodities rose somewhat more in August than in July, in part
because the rise in August reflected earlier increases in gasoline
prices; the index for farm and food products declined slightly. In
July the rise in the consumer price index had accelerated further,
owing chiefly to sizable increases in retail prices of foods, gasoline,
fuel oil, and used cars.
Staff projections continued to suggest that nominal GNP would
expand rapidly in the second half of 1975 as a result of a vigorous
recovery in output and a somewhat faster rise in average prices

224

than in the first half, mainly reflecting increases in prices of foods
and energy products. As a month earlier, it was expected that
business inventory liquidation would slow sharply from the extraordinary rate in the second quarter; that real consumption expenditures would grow at a substantial pace; that residential construction would pick up; and that business fixed investment outlays
would begin to strengthen late in the year. However, it also was
anticipated that—in view of the projected strength of the domestic
recovery—imports would expand more than exports.
The exchange value of the dollar against leading foreign, currencies—which had appreciated considerably from late June to midAugust—rose somewhat further to mid-September, in part because
interest rate developments here and abroad continued to favor the
dollar. In July U.S. merchandise imports rose sharply, to a considerable extent because of a large increase in imports of fuels from
the depressed level in June, and the U.S. foreign trade surplus
declined from the very high rates in June and in the second quarter
as a whole. Private capital transactions reported by banks shifted
to a net inflow in July from net outflows in earlier months. U.S.
liabilities to foreign official agencies declined, after having increased earlier, as some countries sold dollars to support their
currencies in the foreign exchange markets.
Total loans and investments at U.S. commercial banks continued
to expand at a moderate pace in August. Outstanding loans to
businesses declined slightly, but banks again added a substantial
amount to their holdings of U.S. Government securities. The
outstanding volume of commercial paper issued by nonfieancial
businesses—-which had turned up in July—rose again in August,
relecting a modest strengthening in business demands for shortterm credit and a lower cost of funds in the commercial paper
market than at banks. In mid-September a number of banks raised
the prime rate further, from 7% to 8 per cent.
Expansion in Mi picked up somewhat in August from the low
rate in July, when it had been limited to a signiicant degree by
adjustment of money balances after the May-June bulge associated
with special disbursements by the Treasury. Growth in M2 and
M3 slowed further in August, however, as inflows of consumer-type
time and savings deposits to banks and to nonbank thrift institutions
continued to moderate, in part because of the increased attractive-

225

ness of alternative investments. Banks reduced the outstanding
volume of'"large-denomination CD's for the seventh consecutive
month, in response to continued growth in other deposits and to
weakness' in'loan demand.
On September 10 the Treasury announced an estimate of its
borrowing needs for the rest of 1975, which involved raising $22
billion to $25 billion of new money. For the period through the
third week in October, the Treasury's financing plans included
auctions of $2 billion of 29-month notes, $6 billion of 2-year notes,
and $1.9 billion of l~year bills. Of the total of $9.9 billion, $7
billion represented new money.
Short-term market interest rates—which had increased appreciably from mid-June to mid-August—subsequently changed relatively
little, despite increased Treasury and private demands for funds
in the short-term market. On the day before this meeting, the market
rate on 3-month Treasury bills was 6.50 per cent, compared with
6.42 per cent on the day before the August meeting.
Yields on longer-term Treasury and corporate securities edged
lower over most of the inter-meeting period, in response, mainly
to the stability in short-term markets and to a substantial decline
in offerings of new securities. However, yields adjusted upward
after September 10 when the Treasury announced its sizable borrowing requirements over the rest of this year. Yields on .State
and local government securities rose to new highs in early September because of widespread concern about possible, repercussions
of New York City's financial crisis; on September 9 a State program
to assist, the city was enacted, In home mortgage markets,., .yields
advanced throughout the inter-meeting period, as demands for funds
expanded.while the outlook for their cost and availability became
more uncertain.
..System.open market operations since the August 19 meeting had
been guided by the Committee's decision to seek bank reserve and
money-market conditions consistent with moderate growth in-monetary aggregates over the months ahead. It had been expected that
the weekly- average for the Federal funds rate might vary in an
orderly fashion within a range of 5% to 7 per cent, with the
understanding that operations would not be directed toward moving
the rate above or below the 6V6 to 614 per cent area prevailing
at that time-unless-it appeared-that in the August-September period'

226

growth in the monetary aggregates would be substantially stronger
or weaker than expected. Data that became available in early
September suggested that in the 2-month period Mt would grow
at a rate in the lower part of the range of tolerance that had been
specified by the Committee and that M2 would grow at a rate slightly
below the lower limit of its range. All available members of the
Committee concurred in Chairman Burns' recommendation of September 5 that—ie view of the likelihood of substantial strengthening
in demands for money and credit over coming months and the
prospect that a decline ie the Federal fends rate might have to
be reversed shortly—the Manager be instructed to continue until
the next meeting to maintain reserve conditions consistent with
a Federal funds rate in the 6!4 to 6% per cent area, while leaning
toward the lower igure. On the average, the Federal funds rate
remained in that area over the rest of the period until this meeting.
At its July meeting the Committee had agreed that growth in
the monetary and credit aggregates on the average over the period
from the second quarter of 1975 to the second quarter of 1976
at rates within the following ranges appeared to be consistent with
its broad economic aims: M1? 5 to 7% per cent; M2, 8% to 10%
per cent; M3, 10 to 12 per cent; and the bank credit proxy, 6%
to 9Vi per cent. In its discussion of current policy at this meeting
the Committee took note of the indications that economic activity
was now on the increase and of the likelihood that expansion in
nominal GNP over coming quarters would be associated with
considerable strengthening in the demand for money and credit.
The continuing unsettlement in financial markets and the successive
large-scale Treasury financing operations scheduled for coming
weeks were also taken into account.
In view of the economic outlook, none of the members favored
operations to ease bank reserve and money market conditions in
the period immediately ahead. Some advocated operations to
achieve some modest firming, whenever feasible without disrupting
markets, in order to help restrain monetary growth later. And others
noted that they would be willing to act promptly to seek firmer
conditions if and when the rate of growth in the monetary, aggregates accelerated substantially, but that they preferred not to base
such action on projections that monetary growth would exceed the
desired rates over the longer run.

227

At the conclusion of the discussion the Committee decided to
seek bank--reserve and-money-•market conditions consistent •-with
moderate growth in. the monetary aggregates over the months ahead,
while taking account of developments in. domestic and international
financial .markets... Specifically.,., .the members agreed, that .growth
in Mt and M 2 over the September-October period at annual rates
within ranges of tolerance of 5 to 8 per cent and 7 to 9¥i per
cent, respectively, would be acceptable. It was thought that, such
growth rates would be likely to invoke annual rates of change
in reserves available to support private nonbaek deposits (RPD's)
within a range of 1 to 4 per cent.
The members agreed that in the period until the next meeting
the weekly average for the Federal funds rate might be expected
to vary in an orderly fashion within a range of 6 to 7 per cent.
It was understood, however, that if' developments with respect to
the aggregates suggested the need to move the Federal funds rate
above 6% per cent, open market operations toward that end would
not be- undertaken until after the Chairman had consulted- with the
Committee.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that output of
goods and services—which had turned up in the second quarter—is
increasing appreciably further in the current quarter. -In ••August
industrial production and eoefarm payroll employment expanded
at a faster pace than in July, and the average workweek in manufacturing continued to lengthen. The unemployment rate remained at
8.4 per cent, as the civilian labor force increased, about as much
as total employment. Retail sales apparently declined slightly,
following 4 months of large gains. The index of wholesale prices
of industrial commodities rose somewhat more in August-than in
July, chiely because of increases in prices of energy products; prices
of farm and food products declined slightly. The advance in average
wage rates over recent months has been somewhat less rapid than
in 1974 and early 1975.
In recent weeks the exchange value of the dollar against leading
foreign, currencies has risen somewhat further. In July the U.S.
foreign-trade-surplus declined from the very high second-quarter
level, as imports rose sharply. Bank-reported capital movements
showed a net inflow, in contrast to the net outflows of earlier months,

228

while U.S. liabilities to foreign official agencies, which earlier had
been rising, declined.
Expansion in Mt picked up somewhat in August from the low
July rate. Growth in M2 and M3 slowed further, however, as Inflows
of consumer-type time and savings deposits to banks and to nonbank
thrift institutions continued to moderate, reflecting in part the increased attractiveness of alternative investments. Interest rates on
short-term securities and on longer-term Treasury and corporate
securities have shown little net change in recent weeks, except that
longei-term yields adjusted upward following the Treasury's September 10 announcement of its sizable borrowing requirements over
the rest of this year. Yields on State and local government securities
rose to new highs in early September, as a result of widespread
concern about possible repercussions of New York City's financial
crisis; on September 9 a State program to assist the City was enacted.
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions conducive to stimulating economic recovery, while resisting inflationary
pressures and contributing to a sustainable pattern of international
transactions.
To implement this policy, while taking account of developments
ie domestic and international inancial markets, the Committee seeks
to achieve bank reserve and money market conditions consistent
with moderate growth in monetary aggregates over the months
ahead,
Votes for this action: Messrs. Burns, Volcker,
liaughman, Bucher, Coldwell, Eastburn, Hollaed,
Jackson, MacLaury, Mayo, Mitchell, and Wallich.
Votes against this action: None.
Subsequent to the meeting, on October 2, the available data
suggested that in. the September-October period both Mt and M2
would grow at rates well below the lower limits of the ranges
of tolerance that had been specified by the Committee. The Federal
funds rate had averaged 6 3 6 per cent during the statement week
ending October 1 and most recently had been about 6% per cent.
In view of the weakness of the aggregates and of the unsettled
market for municipal securities, Chairman Bums recommended that
the Manager be instructed to aim at a Federal funds rate of 6Vfe
per cent immediately and to aim to reduce the rate to 6 per cent
over the next few days. The Chairman, also recommended that the

229

lower limit of the funds rate constraint be reduced to 5%. per cent,
in order to provide leeway for further operations in the event that
current weakness of the aggregates was confirmed by incoming
data in the following week. All available members of the Committee—with the exception of Mr. Bucher—concurred in the Chairman's recommendations. Mr. Bucher, while concurring in the irst
recommendation, preferred not to reduce the lower limit of the
constraint before data on the aggregates became available in the
following week.
2. Authorization for Domestic Open Market Operations
On October 3, 1975, Committee members voted to increase from
$3 billion to $4 billion the limit on changes between Committee
meetings in System Account holdings of U.S. Government and
Federal agency securities speciied in paragraph l(a) of the authorization for domestic open market operations, effective immediately,
for the period ending with the close of business on October 21,
1975.
Votes for this action: Messrs. Burns, Volcker,
Baughman, Bucher, Coldwell, Eastburn, Jackson,
MacLaury, Mayo, Mitchell, and Wallich. Votes
against this action: None.
Absent and not voting: Mr. Holland,

This action was taken on. recommendation of the System Account
Manager, who had advised that large-scale purchases of Treasury
and Federal agency securities since the September meeting of the
Committee—required mainly to counter the effect of a rise in
Treasury balances at the Reserve Banks—had reduced, the leeway
available for further purchases to about $300 million. While projections for coming weeks suggested that the System would be
in a position to absorb rather than to provide reserves, the Manager
believed that in view of the fragile state, of conidence in financial
markets, especially the municipal market, it would be desirable
for the Desk to have additional flexibility to deal with unfolding
developments.

230

MEETING HELD ON OCTOBER 21, 1975
Domestic Policy Directive
The information reviewed at this meeting suggested that output
of goods and services—which had turned up in the second quarter—increased at an annual rate of about 11 per cent in the third
quarter and that prices, on the average, rose at a faster pace than
in the first half of the year. Staff projections suggested that expansion in output, although continuing strong, would be less rapid
in the fourth than in the third quarter and that growth would then
moderate further in the first half of 1976. The projections also
suggested that the rate of increase in prices over the period to
mid-1976, while still relatively rapid, would be well below the
high rate in the third quarter of 1975.
In September retail sales apparently remained at about the level
that had been reached in July after 4 months of large gains.
Industrial production, which had turned up in May, expanded at
progressively higher rates in the three following months. Employment in nonfarm establishments continued to expand in September,
reflecting widespread gains among manufacturing industries, and
the unemployment rate edged down further to 8.3 per cent from
8.4 per cent in August.
The increase in the index of average hourly earnings for private
nonfarm production workers was moderate in September; although
increases had been substantial in the immediately preceding
months, the advance over the third quarter remained somewhat
less rapid than during 1974 and the first quarter of 1975. Wholesale
prices of farm and food products rose sharply in September, and
as in August, average wholesale prices of industrial commodities
rose somewhat faster than earlier in the year, in part because of
increases in prices of energy products. In August retail prices of
foods had been unchanged, and the consumer price index had
increased relatively little.
Staff projections for the fourth quarter and for the first half of
1976 suggested that growth in personal consumption expenditures

231

would be substantial—although less so than In the third quarter
of this year when growth had been stimulated by the tax rebates—
and that business inventories would shift from substantial liquidation in the third quarter to little change in the fourth quarter and
then to moderate accumulation. It was also anticipated that residential construction would continue to pick up and that business
ixed investment would increase somewhat. However, growth in
State and local government purchases of goods and services—which
had slowed in the third quarter—was expected to remain at a
reduced rate over the current and next two quarters. In addition,
exports were projected to expand less than imports.
The exchange value of the dollar against leading foreign currencies rose further in late September, extending the substantial gain
that had begun in late June. Subsequently, it fell back to the
mid-September level, in part because of declines in interest rates
in this country relative to those abroad. In August the U.S. foreign
trade surplus increased, reflecting appreciable gains in exports of
soybeans, corn, and other agricultural products. Private capital
transactions reported by banks, after having shifted to a net inlow
in July, showed a larger iniow in August, and U.S. liabilities to
foreign official agencies declined further.
Total loans and investments at U.S. commercial banks increased
slightly in September. Outstanding loans to business declined and
total loans changed little, but banks again added a sizable amount
to their holdings of U.S. Government securities. The outstanding
volume of commercial paper issued by nonfinancial business—
which had turned up in July and had increased further in August—
declined sharply in September.
Mi rose slightly on the average in September, but according
to weekly data, it declined in the latter part of the month and
in early October. From the second to the third quarter, Mi grew
at an annual rate of 6.9 per cent.1 Inflows of consumer-type time
and savings deposits to banks and to nonbank thrift institutions
continued to moderate in September, reiecting ie part the attractiveness of alternative investments, and growth in M2 and M 3
slowed further. From the second to the third quarter, M2 and M3
1
Growth rates cited are based on changes in the average amounts outstanding
for the whole quarter.

232

grew at annual rates of 10.4 per cent and 13.1 per cent, respectively.

On October 15 the Board of Governors announced a reduction
in reserve requirements on member bank time deposits with original
maturities of 4 years or more. The action—which was expected
to release about $350 million in reserves to the banking system
in the week beginning October 30—was designed primarily to
encourage banks to lengthen the structure of their liabilities. It
would also help to meet the seasonal need for bank reserves over
the coming weeks and to facilitate moderate growth in monetary
aggregates.
System open market operations since the September 16 meeting
of the Committee had been guided by the Committee's decision
to seek bank reserve and money market conditions consistent with
moderate growth in monetary aggregates over the months ahead.
Immediately after the meeting, operations were directed toward
a slight firming of bank reserve and money market conditions with
the objective of moving the Federal funds rate up toward the
midpoint of the 6 to 7 per cent range of tolerance that had been
specified by the Committee, However, data that became available
a week later suggested that in the September-October period Mi
and M2 would grow at rates near the lower limits of their ranges
of tolerance, and operations were directed toward a slight easing
in bank reserve and money market conditions.
Data that became a¥ailable in early October suggested that in
the September-October period both Mt and M2 would grow at rates
well below the lower limits of the specified ranges of tolerance,
and all available-members of the Committee -concurred in Chairman
Burns' recommendation of October 2 that the Manager be instructed
to aim to reduce- the Federal funds rate to 6 per cent over the
next few days. The available members—with one exception—also
concurred in the Chairman's recommendation that the lower limit
of the Federal funds rate constraint be reduced to 5% per cent,
in order to provide" leeway for further operations ie the event that
weakness of the aggregates was confirmed by incoming data ie
the following weeks. Later data did confirm the weakness, and
operations were directed toward a further easing ie bank reserve
and money market conditions. In the remaining trading days before
this meeting, the Federal funds rate -was close to 5% per cent.

233

Short-term market Interest rates continued to change little in late
September but then declined- • significantly in-October- under-the
influence of weakness in business demands for credit, indications
of slow growth in monetary aggregates, and the •decline-in-the
Federal funds rate. On the day before this meeting, the market
rate'on 3-month Treasury bills' was 5.90 per cent, down fronr6.50
per cent on the day before the September meeting.
Yields on longer-term "Treasury and corporate securities' also
declined in early October, in response to the easing in short-term
markets. However, yields on State and local government securities
rose to new highs in the irst week of October, relecting widespread
concern' about the ' possible" repercussions of the New York City
inancial crisis, but subsequently the market for issues other than
those" of New'York improved somewhat.
At this meeting the Committee reviewed the ranges for growth
in the monetary aggregates over'the period from the second "quarter
of 1975 to the second quarter of 1976 that it had speciied at its
July meeting. The Committee projected growth range's that differed,
little from those specified earlier, and it decided to apply the ranges
to the 12-month period from the third quarter of 1975 to the "third
quarter of 1976. Given the rates of growth realized in the second
quarter of this year, the updating of the base allowed for slightly
higher longer-run rates of monetary expansion than if the time frame
from this year's second quarter to next year's had been retained.
The growth range speciied for M1? as before, was 5 to 7% per
cent. The ranges for M2 and M3 were widened by reducing the
lower end of each by 1 percentage point; thus, the ranges were
IVi to 10% per cent for M2 and 9 to 12 per cent for M3.'Those
adjustments were made because recent experience had suggested
that pressures on market interest rates stemming in part from heavy
Treasury borrowings might serve to moderate inflows of savings
funds to depositary institutions. The associated range for growth
in the bank credit proxy was 6 to 9 per cent. As at earlier meetings,
it was understood that the longer-term ranges, as well as the
particular list of aggregates for which such ranges were speciied,
would be subject to review and modification at subsequent meetings.. It also was understood that, as a result of short-run factors,
growth rates from month to month might well fall outside the ranges
contemplated for annual periods.

234

In discussing current policy, the Committee took note of a staff
analysis In which it was suggested that, In view of the projected
expansion In GNP, growth In Mt was likely to resume in coming
weeks. Because of Its reduced level in early October, however,
Mi was expected to show relatively slow growth over the October-November period. Time deposit experience at banks and nonbank thrift institutions was expected to Improve somewhat in the
short run,, in response to the declines in market Interest rates that
had occurred In recent weeks.
During the discussion of current policy at this meeting, some
Committee members expressed doubt concerning the strength of
recovery in economic activity over the quarters Immediately ahead,
In part because of the possible repercussions of New York's
financial problems and because of the relatively high levels of
market Interest rates prevailing at this early stage of the recovery.
It was noted, moreover, that inflation remained a serious problem.
Against that background, and In view of the recent weak performance of the monetary aggregates, some members advocated operations to ease bank reserve and money market conditions—with the
objec.tive of promoting prompt resumption of moderate growth In
the monetary aggregates. There was some sentiment for maintaining
prevailing money market conditions, In part because of the likelihood of substantial strengthening in demands for money and credit
over coming months, which might lead to a reversal of the easing
In money market conditions. None of the members advocated
operations to tighten bank reserve and money market conditions
In the period Immediately ahead.
At the conclusion of the discussion the Committee decided to
seek bank reserve and money market conditions consistent with
moderate growth in the monetary aggregates over the months ahead,
while taking account of developments in domestic and international
financial markets. Specifically, the members- agreed that growth
In Mi and M2 over the October-November period at annual rates
within ranges of tolerance of 3 to 7 per cent-and 5¥2 to 8¥2 per
cent, respectively, would be acceptable. It was thought that such
growth rates would be likely to Involve an ••annual rate of growth
In reserves available to support private nonbank deposits (RPD's)
within a range of 0 to 4 per cent.
The members agreed that until the next meeting the weekly

235

average for the Federal funds rate might be expected to vary in
an orderly fashion within a range of 5VA to 6lk per cent. It was
understood, however, that unless new data suggested that growth
in the monetary aggregates in the October-November period would
exceed the-rates now expected, -operations would- bexlirected toward •
moving the Federal funds rate down to 5¥2 per cent by the end
of the statement week following this meeting.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that 'output
of goods and services—which had turned up in the second quarter—increased sharply further in the third quarter. In recent months
retail sales have been maintained at the higher levels reached in
early summer, and industrial production has strengthened progressively. Nonfarm payroll employment continued to expand in September, and the unemployment rate edged down from 8.4 to 8.3
per'cent ."In "September, as in August, average wholesale'prices of
industrial commodities rose somewhat faster than earlier in the year,
in part because of increases in prices of energy products; prices
of farm and food products rose sharply in September. The advance
in average wage rates in recent months has remained somewhat
less rapid than in 1974 and early 1975.
After rising further in late September, the exchange value of the
'dollar 'against' leading foreign currencies has declined "to" about its
mid-September level. In August the U.S. foreign trade surplus
increased as agricultural exports rose. Bank-reported private capital
movements showed a further net inflow, while U.S. liabilities to
foreign official agencies declined again.
Mi rose slightly on the average in September but declined in
the latter part of the month and in early October. From the second
to the third quarter, however, Mi grew at a 6.9 per cent' annual'
rate. Inflows of consumer-type time and savings deposits to banks
and to nonbank thrift institutions continued to moderate in September, reflecting in part the attractiveness of alternative investments, and growth in M2 and M3 slowed further. Although conditions in markets for State and local government securities continued
to be adversely affected by New York's financial problems, most
short- 'and'long-term interest rates have declined in recent weeks.
On October 15 the Board of Governors announced a reduction of
member bank reserve requirements on long-term time deposits.

236

In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions that
will encourage continued economic recovery, while resisting inflationary pressures and contributing to a sustainable pattern of international transactions.
To implement this policy, while taking account of developments
in domestic and international financial markets, the Committee seeks
to achieve bank reserve and money market conditions consistent
with moderate growth in monetary aggregates over the months
ahead.
Votes for this action: Messrs. Burns, ¥olcker,
Baughmae, Coldwell, Eastbern, Holland, Jackson,
MacLaury, Mayo, Mitchell, and Wallich. Votes
against this action: None.
Absent and not voting: Mr. Bucher.

237

MEETING HELD ON NOVEMBER 18, 1975
Domestic Policy Directive
The information reviewed at this meeting suggested that output
of goods and services—which had increased at an annual rate of
11 per cent in the third quarter—was expanding more moderately
in the current quarter and that prices were continuing to rise at
a relatively fast pace. Staff projections continued to suggest that
growth would moderate further in the first half of 1976 and that
the rate of increase in prices would slow somewhat over the period
to mid-1976.
In October retail sales had risen somewhat, according to the
advance report, after 2 months of little net change from the higher
levels reached in July. Industrial production continued to recover,
although at a considerably less rapid pace than in the preceding
4 months. Recovery in nonfarm payroll employment also was less
rapid than in earlier months, and the average workweek in manufacturing was unchanged. The unemployment rate rose from 8.3
to 8.6 per cent, reflecting a sizable increase in the civilian labor
force.
The index of average hourly earnings for private nonfarm production workers rose substantially in October. The rise in average
wholesale prices of industrial commodities—which had accelerated
in August and September—was even more rapid in October,
reflecting in part previously announced increases in prices of
1976-model automobiles and of steel. The index for farm and food
products rose sharply further, but after mid-October—the date used
for the index—prices of many agricultural products declined. In
September the consumer price index had risen moderately; increases in prices of new automobiles and of transit fares in New
York City accounted for much of the rise.
Staff projections for the fourth quarter and for the first half of
1976 were similar to those of 4 weeks earlier. They suggested
that growth in personal consumption expenditures would be considerable—although less than in the third quarter—and that business

238

inventories would shift from substantial liquidation in the third
quarter to small accumulation in the fourth quarter and then to
moderate accumulation. It was also anticipated that residential
construction would continue to expand and that business fixed
investment would begin to recover. However, growth in State and
local government purchases of goods and services—which had
slowed in the third quarter—was expected to remain at a reduced
rate over the.current and next two quarters. In addition, exports
were projected to rise less than imports.
The exchange value of the dollar had moved in a narrow range
in recent weeks. In September both U.S. merchandise exports and
imports increased, and the foreign trade surplus remained substantial; the surplus for the third quarter as a whole was nearly as
great as the average surplus for the first two quarters. Private capital
transactions reported by banks, which had shown net inflows in
July and August, apparently shifted back to a net outflow in
September. The volume of offerings of new foreign bonds in the
U.S. market has been at record levels this year.
Total loans and investments at U.S. commercial banks expanded
moderately in October, on a seasonally adjusted basis. Outstanding
loans to business—which had declined in most months earlier this
year—rose appreciably; however, the increase in. total short-term
business borrowing was small as the outstanding volume of commercial paper issued by noefinaneial corporations declined further.
Banks reduced their holdings of Treasury securities, but they
increased their holdings of Federal agency and other securities by
an almost equivalent amount. In late October and early November
most banks reduced the prime rate ' applicable to large business
borrowers from 8 to 1% per cent, and one major bank reduced
it to 7% per cent,
Mi grew at an annual rate of 6.9 per cent from the average
level during the second quarter to the average level during the
third quarter, but it rose relatively little in the months of the third
quarter and declined in October. Inflows of consumer-type time
and savings deposits to banks and to nonbank thrift institutions
remained moderate in October, and growth in M2 and M3 slowed
further. From the second-quarter average to the third-quarter
average, M2 and M3 grew at anneal rates of 10.4 per cent and
13.1 per cent, respectively.

239

System open market operations since the October 21 meeting
had been guided by the Committee's decision to seek bank reser¥e
and money market conditions consistent-with-moderate growth inmonetary aggregates over the months ahead. It had been, understood
that operations would be directed toward moving the Federal funds
rate down from the prevailing level of around 53A per.cent, to 514
per cent by the end of the statement week following the meeting,
unless new data suggested that growth in the monetary aggregates
in the October-November period would exceed the rates expected
at the time of the meeting.
The new data that became available shortly after the meeting
did suggest that monetary growth would be somewhat stronger than
had been expected, and operations to ease bank reserve and money
market conditions were delayed. Subsequently, however, new data
suggested less strength in monetary growth, so System operations
were'directed"'toward some'easing in the Federal funds'rate." In'
the days immediately preceding this meeting, the rate was around
5JA per cent.
•Short-term- market interest rates declined further • over the intermeeting period, in response to the decline in the Federal funds
rate and to increased demands for high-grade liquid assets. On
the day..before this meeting, the market rate on 3-month-Treasury
bills was 5,45 per cent, down from 5.90 per cent on the day before
the October meeting and from 6.50 per cent just before the
September meeting.
Yields on longer-term Treasury and corporate securities also
declined during most of the inter-meeting period, in response to
the easing in short-term markets. However, yields on State and
local government securities were subject to the influence of shifting
expectations concerning resolution of New York's Inancial problems; they rose in late October and early November and then eased
somewhat. Despite the adverse impact of the New York situation,'
the volume of offerings of municipal bonds was relatively large
in October.
At its previous meeting, the Committee had agreed that growth
in the monetary aggregates on the average over the period from
the third quarter of 1975 to the third quarter of 1976 at rates within
the following • ranges appeared to be consistent with its- -broad
economic aims: Ml9 5 to 7% per cent; M 2 , IVi to 10% per

240

cent; and M3, 9 to 12 per cent. The associated range for growth
in the bank credit proxy was 6 to 9 per cent. It was understood
that the longer-term, ranges, as well as the particular list of aggregates for which such ranges were specified, would be subject to
review and modification at subsequent meetings. It also was understood that, as a result of short-run factors, growth rates from month
to month might well fall outside the ranges contemplated for annual
periods.
In the discussion of current policy at this meeting, the Committee
took note of a staff analysis suggesting that, in Yiew of the projected
expansion in GNP, Mt was likely to grow substantially faster over
the months ahead than it had over the immediately preceding
months. In addition, inflows of time and savings deposits to banks
and nonbaek thrift institutions were expected to pick op somewhat
over the weeks ahead from the pace in late summer and early fall,
in response to the decline in market interest rates that had occurred
since that time.
During the discussion reference was made to the uncertain
strength of the economic recovery over the quarters ahead aed to
the persistence of inflationary pressures. In addition, the unresolved
financial problems of New York were recognized as a potential
source of disturbance in financial markets that might have significant effects on the course of the recovery.
Some Committee members took the position that the objective
of open market operations in the period immediately ahead should
be to maintain prevailing money market conditions. Among the
reasons advanced for this course were the sensitive state of financial
markets and the judgment that changing relationships tended to
make monetary growth rates unreliable guides to monetary policy
at present. Other members, who preferred to continue to base
operating decisions in the period immediately ahead primarily on
the behavior of the monetary aggregates, expressed concern about
their sluggish growth over recent months. In general, these members were willing to see some further easing in money market
conditions, should that prove to be necessary in the pursuit of
moderate monetary growth over the months immediately ahead.
They also were willing to accept some tightening in money market
conditions, in the event that the monetary aggregates began to grow
at excessive rates.

241

At the conclusion of the discussion the Committee decided to
seek bank reserve and money market conditions consistent with
moderate..growth in the. monetary .aggregates over the months, ahead,
while taking more than usual account of developments in domestic
and international inancial markets. Specifically, the members
agreed that, in light of the low rates of increase in recent months,
growth in Mt and M 2 over the November-December period at
annual rates within ranges of tolerance of 6 to 10 per cent and
1% to 10% per cent, respectively, would be acceptable. It was
thought" that such growth rates would be likely to involve an annual
rate of growth in reserves available to support private nonbank
deposits (RPD's) within a range of 4% to S¥i per cent.
The'•members agreed that'until the next meeting the'weekly
average for the Federal funds rate might be expected to vary in
an orderly fashion within a range of 4¥i to 5¥i per cent. It was
contemplated -that- System • operations would be- directed • toward
moving the Federal funds rate down to the middle of that range
if the data becoming available in the weeks ahead suggested that
the several. monetary aggregates were growing at. rates close to
the midpoints of their ranges of tolerance.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that output
of goods and services—which had increased sharply in the third
quarter—is. expanding more moderately in the current quarter...Retail.
sales are reported to have risen in October, after 2 months of little
net change. Industrial production and nonfarm payroll employment
continued to recover, although at a less rapid rate than in the summer
months.' The'unemployment'rate rose to 8.6 per cent from "8.3 'per
cent in September, reflecting a sizable increase in the civilian labor
force. Average wholesale prices of industrial commodities increased
.more in October, than ..in the. immediately preceding, months,, and.
prices of farm and food products rose sharply further. However,
since mid-October prices of many agricultural products have declined. The advance in average wage rates in October was substantial."
Since mid-October the exchange value of the dollar against
leading foreign currencies has moved in a narrow range. The U.S.
foreign ..trade surplus in. September remained substantial,-as bothexports and imports rose moderately. Bank-reported private capital

242

lows appear to have shifted to net outflows since September, and
the volume of offerings of new foreign bonds in the U.S. market
has been at record levels.
Mi rose at a 6,9 per cent annual rate from the average level
during the second quarter to the average level during the third
quarter. However, M,t grew relatively little in the months of the
third quarter and it declined in October. Inflows of consumer-type
time and savings deposits to banks and to nonbank thrift institutions
remained moderate in October, and growth in M2 and M3 slowed
further. Most short- and long-term interest rates have declined
further in recent weeks. Conditions in markets for State and local
government securities have continued to be adversely affected by
New York's financial problems.
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions that
will encourage continued economic recovery, while resisting inflationary pressures and contributing to a sustainable pattern of international transactions.
To implement this policy, while taking more than usual account
of developments in domestic and international financial markets,
the Committee seeks to achieve bank reserve and money market
conditions consistent with moderate growth in monetary aggregates
over the months ahead.
Votes for this action: Messrs. Burns, Baughman,
Bucher, Cold well, Holland, MacLaury, Mayo,
Mitchell, and Wallich. Votes against this action:
Messrs. Volcker, Eastburn, and Jackson.
Messrs. Volcker and Jackson dissented from this action because
they thought prevailing money market conditions should be maintained for the time being, in part because of current uncertainties
about the short-run relationship between monetary growth and
interest rates. In addition, Mr, Volcker indicated that he would
prefer to avoid any significant tightening in money market conditions because of uncertainties about the economic outlook and the
sensitivity of inancial markets to New York and other problems,
and to avoid any signiicant easing simply in response to the recent
declines in the money supply, which were expected to be reversed
before long. In the opinion of Mr. Jackson, performance of the
broader monetary aggregates—such as M3—and general conditions

243

in credit markets were about right in the context of the current
economic situation.
Mr. Eastburn dissented because he believed that the System
should be more aggressive in supplying reserves in order to compensate for recent shortfalls in the rate of monetary expansion from
the Committee's longer-run growth ranges. He indicated that he
would place less weight on the Federal funds rate constraint
because, in his judgment, too much emphasis on money market
conditions had misled the Committee in the past. Accordingly, he
preferred a range of tolerance for the Federal funds rate that was
lower than the range adopted by the Committee and a directive
with less emphasis on money market conditions.

244

MEETING HELD ON DECEMBER 16, 1975
Domestic Policy Directive
The information reviewed at this meeting suggested that output
of goods and services—which had increased at an annual rate of
13 per cent in the third quarter—was expanding more moderately
in the current quarter and that prices were continuing to rise at
a relatively fast pace. Staff projections suggested that growth would
remain moderate in the first half of 1976 and that the rate of increase
in prices would slow somewhat.
In November the rise in industrial production slowed further,
in part because of declines in output of automobiles and of energy;
increases were widespread among other products, but in general
they were smaller than in the preceding 5 months. Recovery in
nonfarm payroll employment also slowed further. However, the
dollar volume of retail sales expanded significantly for the second
consecutive month. Residential construction activity rose further,
reflecting the uptrend in private housing starts in recent months.
The unemployment rate—which had risen 0.3 percentage point to
8.6 per cent in October—fell back to 8.3 per cent in November.
Both the October rise and the November decline in the unemployment rate were caused primarily by changes in the civilian labor
force.
The advance in the index of average hourly earnings for private
nonfarm production workers remained rapid in November. Increases in wholesale prices of industrial commodities were pervasive, and the rise in the average for industrial commodities, although below that in October, was still relatively large. Wholesale
prices of farm products declined appreciably, following 2 months
of large increases, and wholesale prices of processed foods declined
slightly. In October, the rise in the consumer price index had
accelerated somewhat because of a considerable increase in retail
prices of foods following 2 months of little change.
Staff projections of real output in the first half of 1976 were
similar to those of 4 weeks earlier. They suggested that consumption expenditures would expand at a moderate pace, that residential

245

construction and business fixed investment would continue to recover, and that State and local government purchases of goods
and services- • would pick up - somewhat from the reduced- pace in
the second half of 1975. It was also anticipated that business
inventory accumulation would be at a moderate rate. However,
exports were projected, to rise.less, than imports.
The exchange value of the dollar against leading foreign currencies, which had declined somewhat from early October to early
November, had risen somewhat since then. The net outflow of
bank-reported private capital appeared to have declined in November from the high rate in October, In October both merchandise
exports and imports increased somewhat, and the foreign trade
surplus remained substantial.
Total loans and investments at U.S. commercial banks expanded
considerably in November. Banks added to their holdings of both
Treasury and other" securities "and'increased their outstanding loans
to businesses. As in October, however, the outstanding volume
of commercial paper issued by nonfinancial corporations declined,
and total-short-term business • borrowing rose little.-During••the
period from mid-November to mid-December most banks reduced
the prime rate applicable to large business borrowers from 7% to
7% per .cent, .and one major bank reduced it to 7 per cent.. .
Ml9 which had declined in October after having grown at a slow
pace during the preceding 3 months, rose sharply in November.
Growth in M2 and M 3 was substantial, as iniows of consumer-type
time and savings deposits to banks strengthened and inflows to
nonbank thrift institutions remained relatively favorable. Some
portion of the iniows of such deposits to banks was attributable
to expansion'in business accounts following amendments to Federal
Reserve regulations, effective November 10, 1975, that permitted
corporations, partnerships, and other profitmaking organizations to
maintain savings' accounts of up to $150,000 at member 'banks.
To a considerable extent the funds placed in these business savings
accounts appeared to have been shifted out of demand deposits.
•System- open market operations since the November 18-meeting
had been guided by the Committee's decision to seek bank reserve
and money market conditions consistent with moderate growth in
monetary.aggregates.over the months ahead. It had been contemplated that operations would be directed toward moving the Federal

246

funds rate down from the prevailing level of 5% per cent to about
the middle of the 4¥i to SVi per cent range of tolerance adopted
by the Committee, if the data becoming available suggested that
the several monetary aggregates were growing at rates close to
the midpoints of their ranges of tolerance. However, the available
data suggested greater strength in the growth of M1? after allowance
for the shift in business deposits from demand to savings accounts
following the regulatory changes effective November 10. In the
3 weeks after that change business savings accounts at weekly
reporting member banks had risen by about $530 million, and it
was reasonable to assume that growth had also been substantial
at other banks. Had it not been for this shift, the annual rate of
growth in Mt over the November—December period, according to
staff estimates, would have been about Wi percentage points higher
than it appeared to be. Moreover, the available data suggested that
growth in M2 over the 2-month period would be in the upper part
of its speciied range of tolerance. Accordingly, System operations
during the inter-meeting period had been directed toward maintaining the prevailing bank reserve and money market conditions, and
the Federal funds rate fluctuated around 5VA per cent.
Short-term market interest rates rose somewhat over the inter ~
meeting period, despite the stability in the Federal funds rate. The
rise in rates appeared to reflect some concern on the part of market
participants that the System would act to firm bank reserve and
money market conditions in response to the strong growth in the
monetary aggregates-in November.
Yields on longer-term debt instruments fluctuated in a narrow
range during the inter-meeting period despite a large volume of
offerings of new securities, including publicly offered issues of
foreign private and official institutions as well as issues of domestic
borrowers. On December 9 the Treasury announced that before
the end of the year it would auction $2.5 billion of 2-year notes
and $2.0 billion of 4~year notes, of which $3.0 billion would be
for new money.
At its October meeting, the Committee had agreed that growth
in the monetary aggregates on the average over the period from
the third quarter of 1975 to the third quarter of 1976 at rates within
the following ranges appeared to be consistent with its broad
economic aims: M l9 5 to IVi per cent; M2? IVi to 10% per cent;

247

and M3, 9 to 12 per cent. The associated range for growth in the
.bank credit proxy was 6 to-9 per cent.- -It -was-• understood- that
the longer-term ranges, as well as the particular list of aggregates
for which such ranges were specified, would be subject to review
and• modification • at subsequent • meetings. It -also was- -understood
that, as a result of short-ran factors, growth rates from month to
month might well fall outside the ranges contemplated for anneal
periods.
In the discussion of current policy at this meeting, the Committee
took note of a staff analysis suggesting that in the period immedi•ately-ahead growth in the demand-for- money would be -constrained
by continuation of the shift in business deposits from demand
accounts to savings accounts in response to the recent changes in
regulations. Because -the -magnitude and duration of -the- shift- were
highly uncertain, however, estimates of the effects on Mx were
subject to a large margin of error. It was also noted that projections
of-monetary growth for the month- of December were -more -uncertain than those for other months because many business and
financial institutions customarily made adjustments to cash and debt
positions- for-purposes of year-end- statements.
During the discussion some Committee members expressed confidence in the economic outlook for the quarters immediately ahead,
while other .members expressed doubt concerning -the--strength of
the recovery. In ¥iew of the uncertainties regarding the behavior
of the monetary aggregates in the December-January period, many
members advocated giving greater weight than usual-to--money
market conditions in conducting open market operations in the
period'until'the next meeting. However, a number of members
preferred to continue to base operating decisions primarily- -on the
behavior of the monetary aggregates. There was some sentiment
for'a" slightly more stimulative policy, bet most members favored
no .essential.change.in policy.
At the conclusion of the discussion the Committee decided that
operations "in" the period immediately ahead should be directed
toward maintaining the bank reserve and money market--conditions
now prevailing, provided that monetary aggregates appeared to be
growing'at "about the rates currently expected. The members concluded that growth in Mi - and M2 over the December—January-period
at annual rates within ranges of tolerance of 4 to 7 per cent and

248

7 to 10 per cent, respectively, would be acceptable.1 It was thought
that such growth rates would be likely to ieYolve an annual rate
of growth in reserves available to support priYate nonbank deposits
(RPD's) within a range of 4 to 7 per cent.
It was contemplated that System operations until the next meeting
would be directed toward maintaining the weekly average Federal
funds rate at about its current level of S1/^ per cent, unless rates
of growth in the monetary aggregates appeared to be deviating
significantly from the midpoints of their specified ranges. The
members agreed that, in the event the aggregates appeared to be
deviating from expectations, the weekly average funds rate might
be expected to vary in an orderly fashion within a range of AVi
to 5% per cent.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that output
of goods and services—which had increased very sharply in the
third quarter-—is expanding more moderately in the current quarter.
In November the rise in industrial production and in nonf arm payroll
employment slowed further. The dollar volume of retail sales rose
again, however, and residential construction acti¥ity expanded,
reflecting recent substantial increases in priYate housing starts. The
unemployment rate—which had risen 0.3 percentage points to 8.6
per cent in October—fell back to 8.3 per cent in November,
reflecting a sizable decline in. the civilian labor force. The increase
in average wholesale prices of industrial commodities, although
below that in October, was still relatively large; prices of farm
products declined appreciably, following 2 months of large increases. The advance in average wage rates in NoYember was again
substantial.
The exchange ¥alee of. the dollar against leading foreign currencies has risen somewhat since mid-No¥ember. The net outflow of
bank-reported pri¥ate capital appears to ha¥e declined from the high
rate reported for October. In October the U.S. foreign trade surplus
remained substantial.
1
The ranges of tolerance o¥er the December—January period were based on
preliminary new seasonal factors. The growth rates specified for JVfi and M2 for
the 2-month period were, respectively, about 2VA percentage points and 1 percentage point higher than those that would have 'been speciietf had the old factors
been used. It was expected that revised money supply series incorporating new
seasonal factors as well as benchmark and certain other statistical adjustments
would be published in late January.

249

Mr—which had declined in October—rose sharply in NoYembet.
Growth in M2 and M 3 was substantial, as inflows of consumer-type
time and savings deposits to banks strengthened while inflows to
nonbank thrift institutions remained relatively favorable. Long-term
interest rates have fluctuated in a narrow range in recent weeks,
while short-term market rates have risen somewhat.
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions that
will encourage continued economic recovery, while resisting inflationary pressures and .contributing to a sustainable pattern of international transactions.
To implement this policy, while taking account of developments
in domestic and international financial markets, the Committee seeks
to maintain prevailing bank reserve and money market conditions
over the period immediately ahead, provided that monetary aggregates appear to be growing at about the rates currently expected.
Votes for this action: Messrs. Burns, Volcker,
Baughman, Cold well, Eastburn, Holland, Jackson,
MacLaury, Mayo, Mitchell, and Wallich. Votes
against this action: None,
Absent and not voting: Mr. Bucher.
Subsequent to the meeting, on January 12, the available data
suggested that in the December—January period both Mi and M 2
would grow at rates below the lower limits of the ranges of tolerance
that had been specified by the^ Committee. In recent days the
Manager had been aiming at a Federal funds rate of 4% per cent,
and the rate had been in an area of 4% to 4% per cent.
The significance of the apparent weakness in the aggregates was
highly uncertain, because of the effects of the recent introduction
of business savings accounts at commercial banks and because the
revised seasonal adjustment factors employed were still under
review. The problems of seasonal adjustment were particularly
acute for the months of December and January. For these technical
reasons, and in view of more favorable recent economic statistics—including the latest data on employment and retail s a l e s Chairman Burns recommended that the Manager be instructed to
hold the weekly average Federal funds rate at the approximate level
of 4% per cent until the Committee's next meeting. All members
of the Committee, with the exceptions of Messrs. Eastburn and
MacLaury 5 concurred in the Chairman's recommendation.

250

Federal Reserve Operations
in Foreign Currencies
The Federal Reserve System intervened in the exchange markets
in 1975 to preserve orderly markets and to smooth out fluctuations in rates deemed to be temporary and reversible. System purchases of foreign currency grossed $1,494.4 million for the year, exceeding sales by approximately $200 million. Most of the System sales
of foreign currencies occurred during the first quarter, when the dollar
was depreciating on the exchanges. The System financed these sales
of foreign currency by drawing on its swap lines with foreign central
banks. Between April and July, as the dollar firmed from its March
low, the System acquired sufficient foreign currency to repay fully the
series of swap drawings since the fall of 1974.
The dollar had begun to depreciate against foreign currencies in
September 1974, as the U.S. economy moved into deep recession and
as U.S. interest rates declined relative to those abroad. The decline in
the value of the dollar continued through the first quarter of 1975, as
economic activity in the United States continued to decline more
rapidly than activity abroad. During the first 3 months of 1975, the
System sold $880 million, net, of foreign exchange.
As the dollar recovered in the second quarter, the System bought
$607 million of foreign exchange for swap repayment. In July the
dollar advanced sharply amidst growing signs of a U.S. economic
recovery and of rising U.S. interest rates, and as the U.S. trade account
continued in strong surplus. By the end of July, the System had fully
repaid all the swap drawings initiated since the fall of 1974. For the
remainder of the year, the System's purchases and sales of foreign
exchange in the market were small, resulting in net purchases of $110
million equivalent.
On December 2 the pre-August 1971 Belgian franc swap contract
was rewritten to reflect the U.S. dollar devaluations in December 1971
and in February 1973 and the Belgian franc revaluation in 1971. The
rewriting raised the dollar equivalent of the swap drawing from $268
million to $316 million and resulted in a book loss of $54 million for

251

the System. As of the end of December, the Federal Reserve had
repaid $18 million, on this swap commitment.
On December 30 the pre-August 1971 Swiss franc..swap.contract
was also rewritten to reflect the two devaluations of the dollar. The
rewriting raised the dollar equivalent of this swap drawing from $971
million to $1,167 million and resulted in a book loss of $196 million for
the System. The System purchased, net, $13.2 million equivalent of
Swiss francs during December, which were to be held in balances for
swap repayment.
In August the Federal Reserve swap line with the Bank of Mexico
was increased from $180 million to $360 million. In September and
October the Bank of Mexico drew the entire $360 million, which it
fully repaid in December.
At tjie year-end outstanding System swap indebtedness totaled
$1,465 million equivalent, reflecting the rewritten value and the partial
liquidation-of the pre-August 1971 swap drawings. On'December 31,
1975, the System held $80,3 million equivalent in foreign currencies
compared with $1.8 million at the end of 1974.

252

Legislation Enacted
SECURITIES ACTS AMENDMENTS OF 1975
An Act of Congress approved June 4, 1975 (Public Law 94-29),
among other things:
1. Increases and more clearly defines the authority of the Securities
and Exchange Commission (SEC) over national securities exchanges,
registered securities associations, and other "self regulatory organizations."
2. Authorizes the SEC to regulate the form and format of securities.
3. Requires institutional investment managers that exercise investment discretion with respect to certain accounts to file reports
with the SEC.
4. Provides for the regulation of municipal securities dealers (including banks or divisions or departments of banks that deal in municipal securities for their own accounts).
5. Provides that reports concerning missing, lost, counterfeit, or
stolen securities be made in accordance with such rules as the SEC
may prescribe, such reports and inquiries to be made by all member
banks of the Federal Reserve System and banks insured by the
Federal Deposit Insurance Corporation (FDIC), provided, with respect to banks, the SEC may delegate its authority regarding these
provisions to the appropriate bank regulatory agency.
6. Provides for the regulation of clearing agencies, securities depositories, and transfer agents, and provides that with respect to
any clearing agency, securities depository, or transfer agent that is
a bank, the SEC and the appropriate regulatory agency shall consult with each other prior to conducting an examination, and the
appropriate regulatory agency shall assume primary examination responsibility for such clearing agency, securities depository, or transfer agent. It also directs the SEC to take steps to end the physical
movement of securities certificates in connection with settlement
among brokers and dealers and restricts State authority to impose
taxes on the transfer of securities through, and on deposits of securities with, a clearing agency, securities depository, or transfer agent.

253

PURCHASE OF GOVERNMENT OBLIGATIONS BY
FEDERAL RESERVE BANKS
An Act of Congress approved November 12, 1975 (Public Law 94125), extends through November 1, 1976, the authority of the Federal Reserve Banks under Section 14(b) of the Federal Reserve Act
to purchase and sell direct or fully guaranteed obligations of the
United States in the open market or directly from or to the United
States.
REVENUE ADJUSTMENT ACT OF 1975
An Act approved December 23, 1975 (Public Law 94-164), continues the 1975 tax cut reductions, at an $8.4 billion level, through
June 30, 1976, by, among other things,
1. Providing 6 months of tax cuts for individuals, sufficient to
allow present withholding rates to remain unchanged.
2. Incorporating a statement of principle that, subject to economic
conditions or unforeseen circumstances, any additional tax cuts—
that is, beyond June 30, 1976—will be accompanied by dollar-fordollar reductions in Federal spending.
3. Increasing the minimum and maximum standard deductions for
individuals for 6 months.
4. Increasing the tax credit for individuals to the larger of $35 per
capita or 2 per cent of the first $9,000 of taxable income.
5. Increasing the low income allowance.
o. jcxienaing ror o months the temporary increase in the corporate surtax exemption (to $50,000) and temporary decrease (to
20 per cent) for the tax rate on the first $25,000 of corporate profits.
TAX REDUCTION A C T OF 1975
An Act of Congress approved March 29, 1975 (Public Law 94-12),
provides a $22.8 billion tax cut by amending the Internal Revenue
Code of 1954 to, among other things:
>
1. Provide a 10 per cent rebate of 1974 taxes up to a maximum
of $200.
2. Temporarily (for 1975), (a) increase the low income allowance,
(b) increase the percentage standard deduction to 16 per cent of adjusted gross income up to a maximum of $2,600, (c) provide a $30

254

tax credit for each $750 personal exemption, and (d) provide a 10
per cent earned income credit for certain low income taxpayers.
3. Provide an increase in the income limitation for the deduction
of child care expenses from $18,000 to $35,000.
4. Authorize a tax credit of 5 per cent of the purchase price of a
new principal residence, up to $2,000.
5. Extend the time in which a taxpayer must purchase a new
principal residence in order to defer recognition of gain on the sale
of a former residence from the present 1 year to 18 months, and if
the taxpayer constructs a home, from the present 18 months to 2
years.
6. Provide a $50 one-time payment to U.S. residents who receive
a social security, supplemental security income, or railroad retirement
benefit for the month of March 1975.
7. Authorize an increase in the investment tax credit.
8. Provide an increase in the corporate surtax exemption from
$25,000 to $50,000 with a corresponding reduction of the tax rate
on the first $25,000 of corporate income from 22 per cent to 20
per cent.
RESPA AMENDMENTS
An Act of Congress approved January 2, 1976 (Public Law 94-205),
amends the Real Estate Settlement Procedures Act of 1974 (Public
Law 93-533), by, among other things, repealing the requirement that
mortgage lenders must give home buyers a detailed list of settlement
charges at least 12 days before actual settlement, and requiring instead: (1) that the lender must make a "good faith" estimate of the
range of charges for specific settlement services likely to be incurred
by the borrower at the time that the borrower applies in writing for
a loan, and must provide each loan applicant with a Housing and
Urban Development (HUD) informational booklet disclosing common
settlement costs, and (2) that the person conducting the settlement must
permit the buyer to inspect known cost information one business day
prior to settlement and must provide the borrower with HUD's uniform
settlement statement no later than at settlement, unless exempted by
HUD regulations or waived by the borrower.
The new law also modifies the requirements with respect to the
tax and insurance escrow accounts.

255

FLEXIBLE REGULATION OF INTEREST RATES
AND DISCLOSURE OF HOME MORTGAGE DATA
An Act approved December 31, 1975 (Public Law 94-200), among
other things:
1. Amends the Federal Reserve Act, as amended (12 U.S.C.
Sees. 221 et seq.) to extend the authority by which the various Federal financial regulatory agencies set interest rate ceilings on deposits
in financial institutions under their respective jurisdictions (Regulation Q) until March 1, 1977; to provide that any lessening or elimination of the interest rate differentia] existing between deposits in
commercial banks and deposits in thrift institutions may become
effective only by the Board of Governors of the Federal Reserve
serving written notification upon the Congress of any such proposed
reduction or elimination, and by both Houses of the Congress thereafter approving it by concurrent resolution; and to provide that in
any case where the interest rate differential is so reduced or eliminated
with regard to any category of deposits or accounts, then the maximum interest rate for Federally insured bank deposits must thereafter
be equal to the highest interest rate established for Federally insured
savings and loan associations for such category of deposits immediately prior to the elimination or reduction of the interest rate differential.
2. Amends the Depository Institutions Amendments of 1974
(Public Law 93-495), to extend the deadline for submission of
interim and final reports by the National Commission on Electronic
Fund Transfers to the President and the Congress to 1 and 2 years,
respectively, to October 7, 1976, and October 7, 1977.
3. Enacts the "Home Mortgage Disclosure Act of 1975," which
(a) requires the disclosure of mortgage loans by geographical area
for depositary institutions having more than $10 million in assets
that have home or branch offices located within standard metropolitan statistical areas; and (b) requires each such depositary institution to compile, maintain for 5 years, and make available to the
public for inspection and copying at the main office of the institution
and at least one branch, the number and total dollar amount of
mortgage loans that were originated or purchased by that institution
during each fiscal year, itemizing separately the number and total
dollar amount of (i) Federally related mortgage loans, (ii) mortgage

256

loans made to mortgagors who did not intend to reside in the
property securing the mortgage, and (iii) home improvement loans;
all required information is to be reported by census tracts where
that information is readily available at a reasonable cost, otherwise
by ZIP code; mortgage loans secured by property located within
the institution's standard metropolitan statistical area are to be shown
separately from mortgage loans secured by property located outside
that area.
The Board of Governors is required by the Act to prescribe necessary implementing regulations and may exempt from the Act any
State-chartered depositary institution in States having mortgage disclosure laws that provide disclosure and enforcement requirements
substantially similar to the new Federal Act. Enforcement of the Act
is vested in the Comptroller of the Currency, the Board of Governors
of the Federal Reserve System, the FDIC, the Federal Home Loan
Bank Board (FHLBB), and the National Credit Union Administration.
The responsible Federal financial regulatory agencies, the Secretary of HUD, and the Director of the Bureau of the Census, with the
FHLBB having primary responsibility, are to develop methods of
matching addresses with census tracts to facilitate compliance with
the Act. The FHLBB is also required to recommend to the banking
committees of the Congress any additional legislation deemed appropriate.
The Board of Governors is directed to carry out a study to determine the feasibility and usefulness of requiring depositary institutions
located outside metropolitan areas to make disclosures comparable
to those required by the Act, and to make a report to the Congress
on the study within 3 years after enactment of the new law.
The Home Mortgage Disclosure Act will expire 4 years after its
effective date.
NEW YORK CITY SEASONAL FINANCING ACT
OF 1975
An Act approved December 9, 1975 (Public Law 94-143), authorizes the Secretary of the Treasury to make loans to the City of
New York or its financing agent, as provided, upon written request
of the city or financing agent, up to an aggregate amount of $2.3

257

billion and at a 1 per cent higher interest rate than the current
average market yield on outstanding obligations of the United States
having comparable remaining maturity periods. Each loan is required
to mature not later than the last day of the city's fiscal year in which
it was made; and no new loans can be made unless all prior matured
loans have been repaid.
The Act also authorizes a Government Accounting Office (GAO)
audit, as appropriate, in connection with such loans, establishes the
"New York Seasonal Financing Fund" in the U.S. Treasury for the
purpose of making the loans authorized, and provides that the Secretary's authority to make these loans terminates on June 30, 1978.

EMERGENCY HOUSING ACT OF 1975
An Act of Congress approved July 2, 1975 (Public Law 94-50),
among other things:
1. Establishes a mortgage foreclosure relief program pursuant to
which the Secretary of HUD is authorized, through June 30, 1976,
to make or insure emergency mortgage relief loans of up to $250
monthly, for 24 months, on behalf of unemployed or underemployed
homeowners who are temporarily unable to meet mortgage payments
on their principal residence, are at least 3 months delinquent, are
likely to be able to resume full mortgage payments in the future, and
are facing probable foreclosure;
2. Requires, for 1 year following enactment, Federal bank supervisory authorities with respect to financial institutions in their jurisdiction, and the Secretary of HUD with respect to other mortgages,
to (a) take appropriate action to encourage forebearance in residential mortgage loan foreclosures and (b) request such institution or
mortgagee to notify the Federal bank supervisory authority, the
Secretary, and the mortgagor, at least 30 days prior to instituting
foreclosure proceedings.
3. Authorizes the FDIC to make advances to any insured bank
to facilitate its participation in the program authorized.
4. Expands, and extends until July 1, 1976, the program by which
the Government National Mortgage Association (GNMA) may purchase or commit to purchase qualified mortgages established under
the Emergency Home Purchase Assistance Act of 1974.

258

SECOND LIBERTY BOND ACT AMENDMENTS
An Act of Congress approved November 14, 1975 (Public Law 94132), amends the Second Liberty Bond Act (31 U.S.C. Sec. 757b)
to increase temporarily the present public debt limit by $18 billion to
$595 billion for the period ending March 15, 1976. Earlier enactments had temporarily increased the public debt limit to $577 billion
for the period ending November 15, 1975 (Act of June 30, 1975,
Public Law 94-47), and to $531 billion for the period ending
June 30, 1975 (Act of February 19, 1975, Public Law 94-3).
COUNCIL ON WAGE AND PRICE STABILITY ACT
AMENDMENTS OF 1975
An Act of Congress approved August 9, 1975 (Public Law 94-78),
among other things:
1. Extends the Council on Wage and Price Stability Act from
August 15, 1975, to September 30, 1977.
2. Authorizes the Council, (a) to require periodic reports for the
submission of information maintained in the ordinary course of business; and (b) with respect to businesses having annual gross revenues
exceeding $5 million, to issue subpoenas for witnesses or documents
relating to wages, costs, productivity, prices, sales, profits, imports,
and exports, provided that information obtained from a single firm
may not be disclosed to the public.
EMERGENCY PETROLEUM ALLOCATION ACT
AMENDMENTS
An Act approved November 14, 1975 (Public Law 94-133), extends the Emergency Petroleum Allocation Act of 1973 to December 15, 1975. An earlier Act had provided an extension to November 15, 1975 (Act of September 29, 1975, Public Law 94-99).
FEDERAL SAVINGS AND LOAN ASSOCIATIONS AS
CUSTODIANS OF INDIVIDUAL R E T I R E M E N T
ACCOUNTS
An Act of Congress approved July 25, 1975 (Public Law 94-60),
clarifies the authority of Federal savings and loan associations to act
as trustees and custodians of individual retirement accounts.

259

DEFENSE PRODUCTION A C T AMENDMENTS
Acts of Congress approved December 16, 1975 (Public Laws 94152 and 94-153), among other things, extend the Defense Production Act of 1950 from November 30, 1975, through September 30,
1977, and provide that loan guarantees or other commitments made
under Title III of the Defense Production Act of 1950, in addition to
present limitations, must be authorized by the Congress in advance
in appropriations acts. Earlier action had provided an extension of
the Act through November 30, 1975 (Act of October 1, 1975,
Public Law 94-100).
SHERMAN ANTITRUST ACT AND FEDERAL TRADE
COMMISSION ACT AMENDMENTS
An Act approved December 12, 1975 (Public Law 94-145), entitled "Consumer Goods Pricing Act of 1975," amends Section 1 of
the Sherman Antitrust Act (15 U.S.C. Sec. 1) and Section 5(a) of
the Federal Trade Commission Act (15 U.S.C. Sec 45(a)) by repealing the Federal exemptions that protected State "fair trade" laws
from challenge under the antitrust laws.
CONGRESSIONAL RESOLUTIONS
Board of Governors and FOMC to encourage lower long-term
interest rates and appropriate monetary expansion
A resolution (H. Con. Res. 133) approved by the Congress (Senate:
March 20, 1975; House: March 24, 1975) expresses the sense of
the Congress that the Board of Governors and the Federal Open
Market Committee: (1) pursue policies in the first half of 1975 so as
to encourage lower long-term interest rates and expansion in monetary and credit aggregates appropriate to facilitating prompt economic
recovery, and (2) maintain long-run growth in such aggregates to
foster increased production, maximum employment, stable prices, and
moderate long-term interest rates.
The resolution allows the Board to take into account international
flows of funds and conditions in the international money and credit
markets and calls upon the Board to consult semiannually with the
House and Senate banking committees regarding the objectives
260

and plans of the Board and FOMC with respect to the ranges of
growth or diminution, of monetary and credit aggregates for the
upcoming 12 months. These objectives are not required to be met
If the Board and FOMC determine that they cannot or should not
be achieved because of changing conditions. In such event, the Board
shall report to the Congress the reasons for such determinations. (See
page 113 for text of resolution.)
First concurrent budget resolution revising the congressional
budget
The initial budget resolution (H. Con. Res, 218) approved by the
Congress (House and Senate: May 14, 1975) for the 1976 fiscal year
beginning July 1, 1975, set the appropriate Federal budget deficit at
$68.8 billion and set the appropriate increase in the temporary public
debt limit at $86.6 billion, to $617.6 billion, based upon Federal
outlays of $367 billion and revenues of $298.18 billion.
Second concurrent budget resolution revising the congressional
budget
The second concurrent budget resolution (H. Con. Res. 466) approved by the Congress (Senate: December 11, 1975; House:
December 12, 1975)—revising the congressional budget for the U.S.
Government for thefiscalyear 1976—-(1) sets the appropriate Federal
budget deficit, for the fiscal year beginning July 1, 1975, at $74.1
billion and the appropriate level of the public debt at $622.6 billion,
based on a ceiling of $374.9 billion for Federal outlays and a floor
of $300.8 billion for revenues, and (2) for the transition quarter
beginning July 1, 1976 (arising from the change in the start of the
fiscal year of the Federal Government from July 1 to October 1,
pursuant to the Congressional Budget and Impoundment Control
Act of 1974), sets the appropriate Federal -budget deficit at $15.7
billion and the appropriate level of the public debt at $641.0 billion,
based on Federal outlays of $101.7 billion and revenues of $86.0
billion.

261

Banking Reform
Developments in the banking industry over recent years have focused
the attention of bankers, the public, and the bank regulatory agencies
on matters of bank soundness and vitality.
Since the first half of 1974, the Board of Governors has been
studying with particular care the relationship of Federal bank supervision and regulation to the maintenance of sound banking conditions.
During 1975, this study produced a series of legislative recommendations for improving bank supervision and led to a strengthening of
Federal Reserve procedures for identifying, monitoring, and correcting troublesome areas.
The Board came to two fundamental conclusions:
First and foremost, it is the Board's considered judgment that the
Nation's central bank should be closely involved in the process of
bank regulation and supervision precisely because bank supervisory
standards need to be formulated with their relationship to monetary
policy and to the national economy in mind.
The second broad conclusion is that some strengthening of supervisory authority is desirable. In all supervisory and regulatory matters, the standards of professional examination must be respected.
That objective is not inconsistent, however, with the use of standards
that take account of broader domestic and international consequences.
The Board's policy actions and its congressional testimony on this
subject during 1975 were based on the view that the relationship
between monetary and regulatory policy has grown in importance in
recent years because of a number of factors, including increased
sophistication of economic policy-making; faster gathering, dissemination, and analysis of increased amounts of economic data; and
improved technology affecting money markets and the payments
mechanism. This means that the role of the Federal Reserve as
monetary policy-maker and as lender of last resort interacts more
sensitively than ever before with the effects of prevailing bank supervisory and regulatory policies. Each of these areas of public policy

262

increasingly Influences the effectiveness of the other. The Board's
policy is based on the conviction, that to divorce them Is to weaken
both,
Fundamentally, monetary policy works by affecting the liquidity
position of banks and the inanclal system. Good bank supervision
should examine the liquidity of individual banks and urge the correction of inappropriately thin or exposed positions. But If bank supervisory policy is set without a full understanding of broad economic
developments or of the trend of monetary policy, the supervisor can
impel ill-timed banking actions. Among the most unfortunate examples of such a narrow supervisory vision were the enforced writedowns of bank assets to the unrealistically depressed market values
reached during the Great Depression.
On the other hand, if the bank supervisor sets liquidity standards
that are too low, or sets none at all, or changes them at an Inopportune moment, he can dilute or frustrate the thrust of monetary policy.
Bank capital standards set by supervisors also interact with both national economic and monetary policy, Supervisory rules that require
banks to raise their capital ratios or that make it more difficult for
banks to raise capital can reduce the availability of bank funds to
prospective borrowers and thus slow the rate of growth of bank credit
and money and possibly Interfere with the financing of economic recovery.
There are two other important aspects of interaction between
supervisory and monetary considerations that the Board regards as
of primary Importance at all times.
First, bank supervisory activities provide a l o w of information
concerning detailed developments inside the banking system that can
be of inestimable value to monetary policy-makers. Examiner asset
evaluations supply first-hand knowledge of the changing quality of
credit, and of the quality of bank management that is administering
that credit.
This information provides to the monetary agency Important
insights into bank policies regarding liability management practices
and bank participation in various types of credit markets. This kind
of Information also provides valuable supplements to the meaning of
the quantitative statistics on monetary and credit aggregates.

263

Other implications for monetary policy may arise in the field of
international banking activities. Changes in bank rules or examiner
standards could generate flows of funds into or out of the United
States that could markedly alter the international balance of payments and the foreign exchange value of the dollar.

BANKING PROBLEMS SURFACED
Early in the Board's review of Federal bank supervision, attention
was focused on a number of specific problem areas: (1) need for
improvement in the handling and resolution of cases involving banks
and bank holding companies requiring special attention; (2) decline
of bank capital ratios; (3) reliance on liability management; (4) loan
commitments; (5) quality of bank assets; (6) foreign exchange; and
(7) bond trading departments.
In view of the then-recent experiences with two large failing banks
—the United States National Bank of San Diego and the Franklin
National Bank—priority attention was directed toward identifying
and preventing such situations in the future. Each Federal Reserve
Bank was asked to make special efforts to identify member banks in
its district that might face difficulties with regard to the quality of
their assets or the balancing of financing needs with the availability
of funds. Throughout the year Federal Reserve examiners devoted
a greater-than-usual amount of time and attention to banks with identified difficulties. In each such case a specific program for remedying
the difficulties was established, including, whenever necessary, direct
discussions with the bank's directors to reinforce the commitment of
top management. Any member bank experiencing unusual liquidity
difficulties was informed of the basis on which accommodation at the
discount window would be made available.
Subsequently, as a result of this program, the Board adopted
procedures designed to insure that proper attention was being given
to troublesome areas. This formalized the corrective actions that the
Board and the Reserve Banks had already started to use.
All of these steps were part of a program designed to place greater
emphasis on identifying, monitoring, and following up on individual
banking situations that appeared to call for special attention. It was
recognized, however, that it was not possible for supervisors to correct
all bank difficulties and that sometimes remedial actions, no matter

264

how actively pursued, cannot succeed In preventing a bank failure.
In that eventuality, in order to prevent depositor loss and disruption
of financial services to the community, the most desirable solution
is usually for the failing bank to be taken over by another bank. Bank
mergers, where permitted by State branching laws, can often serve
this purpose. Alternatively, the failing bank can be taken over by a
bank holding company, so it can continue to serve its community as
a healthy unit of a banking system.
However, the alternative of bank holding company acquisition of
a failing bank is impeded by two Federal statutory limitations, which
the Board has asked the Congress to remedy. The law permits the
waiver of certain time delays in the case of the emergency merger of
a failing bank. The Board has recommended that comparable waiver
authority be authorized for bank holding company acquisitions of
failing banks. Another pfQYisioe of the Bank Holding Company Act
prevents holding company acquisition of banks across State lines.
In the case of a large failing bank or bank holding company this
prohibition may raise serious antitrust implications in connection with
eligible purchasers within the State and may also- severely limit the
number of potential domestic acquirers. This statutory limitation thus
may operate in a manner contrary to the public interest. The Board
has recommended that in certain limited situations involving a bank
or a bank holding company with assets in excess of $500 million,
there should be authority to permit an out-of-State holding company
acquisition. (See Legislative Recommendations on pages 270—71 of
this REPORT for details.) The Board continues to beJieYe that prompt
action on both proposed amendments is desirable.
In its consideration of other potentially unsafe or unsound practices, the Board, along with the Comptroller of the Currency and
the Federal Deposit Insurance Corporation, concluded that additional statutory assistance was necessary. On behalf of all three
agencies, Chairman Burns submitted recommendations to the Congress on September 5, 1975. These proposals include: (1) providing
civil penalties for several violations of the banking laws where there
are no effective penalties at present; (2) broadening the coverage of
insider lending limitations; (3) simplifying and making more effective
the officer removal authority contained in the Financial Institutions
Act of 1966; and (4) under certain limited circumstances, and subject

265

to procedural safeguards, authorizing divestiture of a subsidiary or
termination of a nonbanking activity of a bank holding company.
(See pages 271-72 of this REPORT for details.)
The Federal bank regulatory agencies have revised the report of
condition and the report of income filed by all insured commercial
banks. The revised reports should provide the public with improved
information about the financial situation of banks.
Action has been taken to promote the early detection of banks
with difficulties through an early warning system put into effect by
the Board in cooperation with both the Federal and State banking
supervisory agencies. This system enables the bank regulators concerned to be made aware promptly of any adverse findings uncovered
in examinations of bank holding companies or their bank subsidiaries.
The Board has increased its efforts to improve the supervision of
bank holding company activities by more strict surveillance of bank
holding company financial affairs and intracompany transactions. The
inspection program for bank holding companies and nonbank subsidiaries has been increased so that financial difficulties may be identified as early as possible. These inspections also afford an opportunity
to check on compliance with the Bank Holding Company Act and
regulations.
Reporting requirements have been introduced to furnish the Board
with timely information about the full scope of holding company
activities, including intracompany transactions. Prompt notice of
transactions involving large amounts or a large proportion of the
holding company's income or assets is required.
C O M M U N I C A T I O N S T O BANKS R E G A R D I N G
SUPERVISORY MATTERS
The Board took two actions during the past year to sharpen bank
and bank holding company awareness of their responsibilities under
the Bank Holding Company Act and of results that could flow from
violations.
In a letter dated November 3, 1975, the Board asked the Presidents
of the Federal Reserve Banks to advise all bank holding companies
that they would be held strictly accountable for compliance with
both procedural and substantive requirements of both the Bank

266

Holding Company Act and of the Board's Regulation Y. The Board
also said that it will continue to refer to the Department of Justice,
for possible criminal violation, any apparently willful violations,
and that an illegal acquisition—whether or not it appeared to ha¥e
been willful—could be grounds for denial of an application for
permission to retain the illegally acquired activity.
A later communication from the Board to the chief executive
officers of all bank holding companies cautioned that situations in
which a bank in a bank holding company bought assets of poor
quality from a nonbanking subsidiary of the holding company at
prices higher than would result from arm's-length dealing could have
serious consequences. The Board said such purchases could be found
to be in violation of Section 23A of the Bank Holding Company
Act, could possibly subject the holding company to cease-and-desist
proceedings, and could constitute a misapplication of bank funds
possibly giving rise to criminal liability.
Additional measures to improve and speed bank examination
are under active consideration. Part of the improved monitoring of
possible unsafe and unsound bank practices is the increased use of
sophisticated reporting and management information systems to
supplement the bank examination process.
With respect to loan commitments, amendments to Regulation H
have been adopted requiring State member banks to treat standby
letters of credit and ineligible acceptances in the same manner as
loans for the purposes of statutory lending limits, Work is continuing
on means of detecting and limiting excessive loan commitments and
poor quality bank loans.
Extensive attention has also been giYen to bank capital and
liquidity. The Board restructured reserve requirements on time
deposits to encourage prudent liquidity management at banks. Steps
were also being studied to permit greater flexibility by banks in the
issuance of notes and debentures to improve their capital structure.
Proposed guidelines for eYaluating requests for approval of new subordinated debt issues by State member banks ha¥e been released for
comment by the Board.
The Board is mindful that while continued attention Is needed
to improve capital ratios and provide adequate liquidity and to

267

improve the quality of bank JoanSj supervisory pressure can be overdone. Excessive supervisory 'restrictions in the environment "of 1975
could have deterred bank willingness to lend, CYCE to the extent of
Interfering with the financing of sound economic recovery.
The Board's considerations have included International banking,
both the operations of U.S. banks abroad and of foreign banks In'this
country. On March 4, 1975, the Board submitted a "proposal for
legislation establishing a system of Federal regulation and supervision
for operations of foreign banks in the United States. (See pages 272—
74 of this REPORT for details.)
Special.attention has been given to the foreign exchange operations
of U..S. .banks, where the risks of Joss have increased as a result of
both floating .exchange rates.and the growth in the worldwide volume
of foreign exchange transactions. A review was. conducted, by theBoard, in-consultation with the Comptroller of the.. Currency,.of a
sample-of--banks engaged in. such activities. This review..concluded
that--additional legislative authority-is-not needed to...pro¥ide adequately-for-the--supervision of foreign exchange operations,. Where
necessary, banks have been encouraged to improve internal.audit and
control-procedures. The Federal • Reserve and the Comptroller arc
increasing-the ••surveillance of• foreign exchange operations through
examinations and reporting systems.
In December • 1975 the Board issued a proposed statement -of-policy
concerning'the participation, in foreign joint ventures hj U.S.- banking
organizations. The Board stated that, along with other- factors, in
considering whether to approve an application to invest in a-foreign
joint venture, it proposed to take into account the possibility • that
the venture'might need additional financial support and the possibility
that such additional support might be significantly larger than the
bank's original equity investment.
The Board has suggested to the Congress two other possible actions
in the supervisory field:
In early 1976 the Board proposed a program of systematic congressional oversight of the Federal bank examination, function. The
essence of this proposal was for the Board to provide the banking
committees of the House and Senate periodically with statistical
information, and analyses that would relate to the conduct of the
bank examination, process and the condition of banks.

268

\-< Ute 1975 and again in early 1976, the Board was asked by the
*. <
' ^egress to consider the desirability of significant change in the
'•s'-ucture of the Federal bank regulatory agencies. le response, the
Board stated in congressional testimony that it believed remedial
•:upervisory action could be accomplished without a change in the
structure of the bank regulatory agencies. If, however, the Congress
f< ft the need for some type of restructuring, there were two possible
courses that had gained strong support within the Board—namely,
the creation of a Federal baek examination council to focus on
uniform examination procedures, or consolidation of the functions
\Ki the Office of the Comptroller of the Currency within, the Federal
Rxtserve. Either change would assist in the proper and efficient coordination of supervisory activities.

269

Legislative Recommendations
BANKING SUPERVISION A N D REGULATION
As part of its continuing study of the broad area of banking supervision and regulation, the Board of Governors has transmitted to the
Congress the following legislative recommendations designed to improve the performance of banking and bank regulation.
Acquisition by holding company of a "failing bank"
On February 9, 1975, the Board of Governors sent to the Congress
draft legislation that would allow the Board to:
1. Approve promptly an acquisition, consolidation, or merger
under Section 3 of the Bank Holding Company Act when the bank
or bank holding company to be acquired is in severe financial difficulty.
The proposal parallels existing authority in the Bank Merger Act
(12 U.S.C. Section 1828(c)). It provides that comments by a bank
supervisory agency concerning a proposed acquisition of a bank or a
bank holding company in an emergency situation may be requested
to be submitted in 10 days rather than 30 days, and that the time
delay for consummation would be 5 days instead of 30 days. The
Board would also be authorized to waive the waiting periods and
notice and hearing provisions entirely and to act immediately when
it determines that action is necessary to prevent the probable failure
of a bank or bank holding company.
2. Approve the acquisition by an out-of-State bank holding company of a troubled bank in certain emergency and failing bank situations.
Under existing law, out-of-State acquisitions by a bank holding
company are prohibited unless the acquisition is specifically sanctioned by State law. Since with one limited exception no State has
enacted a law specifically permitting such an acquisition, remedial
Federal legislation is in order to deal with emergency situations. The
requested authority would be used only in cases in which the size or

270

other special characteristics of a bank or bank holding company and
the probable widespread effects of Its failure warrant Invoking an
exception to the general policy set out in the present law.
Both recommendations would give Federal banking authorities
necessary flexibility in resolving these situations in the public interest.
Civil penalties for violations of banking laws
On September 5, 1975, the Board of Governors transmitted to the
C 'ongress draft legislation intended to pre¥ent or correct certain
troublesome situations in which supervised banks may violate ¥arious
pi GYisions of law. Such violations could be of a type that might ha¥e
an ad¥erse effect on the safety or soundness of the banks and for
which no effective remedy exists under present law. The Comptroller
o( the Currency and the FD1C joined in recommending similar legis!alive proposals for application to banks under their jurisdiction.
The proposed legislation, seeks to correct such situations partly
b\ authorizing specific civil penalties against member banks, their
officers, directors, employees, and agents for ¥arious violations of
Federal banking laws and regulations.
In addition to recommending penalties, the Board's draft bill would
aggregate the loans or extensions of credit to an Insured bank's officers
and directors, to individuals holding more than 5 per cent of the
bunk's voting securities, and to all companies controlled by such
officers, directors, or 5 per cent shareholders, and would pro¥lde that
the aggregate may not exceed the limit on loans to one borrower
established by applicable Federal or State law.
The Board's draft bill would also authorize the Board to require
divestiture by a bank holding company of a subsidiary, or termination
of a nonbanklng activity by a bank holding company, whenever the
continuation of such ownership or activity threatened the safety,
soundness, or stability of the bank holding company's subsidiary
banks.
The recommended legislation would make dear the Board's ceaseand-desist authority over member bank directors, officers, employees,
agents, or other persons participating In the conduct of the bank's
affairs, who are charged with unsafe or unsound practices or violations of law, without regard to whether the bank Itself Is named In the

271

proceeding. Similarly, the proposal would make clear the Board's
cease-and-desist power with respect to officers, directors, employees,
and agents of a bank holding company, and to Edge Act and agreement corporations whether or not they are subsidiaries of a holding
company.
The recommended legislation would also authorize removal, suspension, and related proceedings against directors and officers of
insured banks for personal dishonesty or gross negligence in the
operation or management of the bank or for willful disregard for
the safety or soundness of the bank.
Regulation of foreign banks
Oa March 4^ 1975? as an outgrowth of the work of the Federal
Reserve System Steering Committee on International Banking Regulation, the Board of Go¥emors seat to the Congress draft legislation to
establish a national policy on foreign banks operating in the United
States and to provide a system of Federal regulation and supervision
of those operations. The Board is convinced, in light of the growing
importance of foreign banks in the functioning of U.S. money and
credit markets and their increasing impact on the structure of the
banking system, that the time has come for the establishment of a
national policy on the entry and operations in the United States of
foreign banking institutions.
The underlying principle embodied in the draft legislation is national treatment or mutual nondiscrimination, a principle long advocated by the United States in its international economic and financial
relations. Following this principle the legislation would subject the
entry and activities of foreign banks to the same rales and regulations
as comparable domestic banking institutions. The legislation would
also provide for a Federal presence in the licensing and supervision
of foreign bank operations in order to assure uniformity of treatment
and a national approach to multinational banking issues.
The principal provisions of the draft legislation are the following:
Coverage. The scope of coYerage of the Bank Holding Company
Act would be redefined to include branches and agencies—as well as
subsidiaries that are presently covered—of foreign banks, bringing

272

nearly all foreign b;hj\- *\ith depositary and lending functions in the
I 'lilted States under the Bank Holding Company Act,
National treatment. In addition to bringing virtually all foreign
bank operations In the United States under the Bank Holding Company Act, the Act would provide equality of treatment with respect
to domestic banking by facilitating foreign, ownership of national
banks, by enabling the licensing of a Federally licensed branch, aud
by requiring insurance by the FD1C of deposits in branches ai'd
agencies.
Entry alternatives. 'The National Banking Act would be amended
to permit up to one-third of the directors of a national bank—all of
whose directors must now be U.S. citizens—to be foreigners. The
Comptroller of the Currency would also be empowered to license
branches of foreign banks to conduct a banking business in any Stele
on essentially the same basis as a national bank.
Edife Act corporations. The section of the Federal Reserve A>:t
dealing with the establishment of Edge Act corporations—subsidiaries
*'»f member banks in the United States that conduct internatioiutl
banking operations—would be amended to allow foreign banks io
establish Edge Act corporations, thereby enabling them to conduct
;tn international banking and financing business throughout the United
Stales on the same basis as domestic banks, without majority control
by U.S. citizens.
Federal Meserpe membership* Membership would be required
for branches, agencies, and subsidiaries of a foreign bank when the
parent foreign bank had worldwide bank assets exceeding $500 million. This provision would subject such foreign-owned banking operations to all U.S. monetary regulations and requirements, and also
would make all Federal Reserve services and credit facilities aYailable
to them.
Grandfatherlng. Multistate banking win*rations of foreign banks
established on or before December 3, 1974 (the date the legislation
was originally introduced in the l)3nl {Vuftoss), would be permanently graedfathered and could be e\p;nided, where existing, in accordance with State law. Nonbanking interests of foreign banks

273

covered by the legislation would also be permanently grandfathered
if acquired on or before December 3, 1974. This includes securities
affiliates.of foreign banks in the United States.
Federal Government presence. To assure a consistent national
policy toward foreign banks and to enable consideration of International financial relations-in the entry of foreign banks,-the draft
legislation provides that a Federal banking license be obtained for all
banking facilities of foreign banks, whether organized or operating
tinder State- or Federal law. The Comptroller of the Currency is
designated as the Federal licensing agent for this purpose. HoweYer,
the Secretary of the Treasury wouldfaaYeto approve the issuance of
any. .such license, and before granting approval, he would.be.required
to consult with the Secretary of State of the United States and the
Board of Governors of the Federal Reserve System,
Exchange 'information. To facilitate discussions and agreements
with foreign authorities on multinational banking issues, a provision
of the draft legislation authorizes the Federal supervisory authorities—the Board- of Go¥ernors of the Federal Reserve System, -the
Comptroller of the Currency, and the FDIC—to enter into mutual
arrangements with foreign bank supervisory authorities for the interchange of Information on banking institutions.
Retention by holding company of bank stock acquired
as a result of debt previously contracted
Section 4 of the Bank Holding Company Act authorized the Board
to extend from 2 to 5 years the time within which to dispose of stock
in nonbankieg organizations acquired by a holding company'pursuant
to a debt previously contracted. The reasons underlying that authorization seem equally applicable in the case of bank stock. Accordingly, 'the Board recommends that Section 3 be amended to parallel
the provisions of Section 4 in this respect.
interlocking relationships
Section 8 of the Clayton Act generally prohibits interlocking relationships between a member bank and any other bank located in. the
same or an adjacent community. During 1970 the Federal Reserve

274

System made an extensive review of interlocking bank relationships
and concluded that Section 8 should be amended in several respects
to protect the public against situations arising in which the risk of
abuse of an interlocking relationship outweighs the likelihood of benefit. The major extension favored by the Board would apply the prohibition to interlocks between any depositary institutions in the same
or an adjacent community, with an appropriate delay to permit a
gradual phasing out of prohibited relationships.
In one respect the Board considers the existing law to be unnecessarily restrictive. The law presently prohibits interlocking service as
a "director, officer, or employee." The Board believes that the purpose of the law would be better served by limiting the applicability
of the prohibition to service as a "director or officer, or an employee
with management functions."
Loans to bank examiners
Title 18 of the U.S. Code, "Crimes and Criminal Procedures," prohibits loans to a bank examiner by any bank that the examiner is
authorized to examine. For several years the Board has favored modification of this prohibition to permit a Federally insured bank to
make a home mortgage loan to a bank examiner under appropriate
statutory safeguards. The Board also believes that a bank examiner
may experience difficulties in that he or she is prevented from obtaining other forms of bank credit, such as loans to finance the education
of children, automobile loans, home improvement loans, credit-card
loans, and other types of consumer credit. For that reason, the Board
favors legislation to permit loans to a bank examiner to be made in
accordance with regulations prescribed by the agency employing the
examiner.
MONETARY POLICY
Reserve requirements
On June 26, 1975, the Board of Governors submitted draft legislation
that would extend reserve requirements set by the Federal Reserve to
nonmember financial institutions. The Board's proposed bill would
also revise downward the permissible range of reserve requirement
ratios for various classes of deposits and would expand the Federal

275

Reserve Banks* authority to lend directly to nonmember institutions
that are subject'to'reserve requirements set by the Federal Reserve.
The bask-principle-underlying this recommendation is- that-equivalent-cash-reserve requirements-should apply to-all deposits that effectively serve as a part of the. public's .money balances, whether., t i e
deposits are. at., member banks,, nonmember banks, or other financial
institutions. At present, deposits at nonmember banks and thrift institutions continue to expand more rapidly than deposits at member
banks, which means that an increasing part of the Nation's money
supply is'lodged at financial institutions that are not subject to reserve
requirements set by the Federal Reserve. State reserve- requirements
that secure nonrnember bank-deposits vary as to amount-and are-not
confined-to a form -of reserve-assets that suffices for monetary ..purposes. .Similarly, the liquidity ..requirements applicable to- nonbank
ibrift institutions do not meet the requisites of reserve requirements
set by the Federal Reserve,
The Board's proposed legislation would establish a uniform system
of reserve -requirements, applicable" to- all commercial banks, "mutual
savings' banks, savings and loan associations, and other depositary
institutions.-The effectiveness- of-monetary policy would-be enhanced
by the -resultant tightened relationship between bank reserves and. the
Nation's..deposits, and equity in competition among similar financial
institutions would also be fostered.
Lending authority of Federal Reserve Banks
As a complement to the Board's recommendation regarding the extension -of reserve requirements to certain deposits In eonmember
financial institutions, the Board again urges enactment of legislation
that would permit institutions to borrow from their Reserve Banks on
the security of any sound assets without paying a "penalty'" rate of
interest whenever technically ineligible paper Is presented -as collateral.
Under Section 13 of the Federal ReseiYe Act, Federal. Reserve
Banks may extend short-term credit to member banks on their promissory notes that are secured by obligations eligible either for purchase
or for discount by the Reserve Banks,
Under Section 10(b) the Reserve Banks are authorized to extend
to member banks credit secured simply by collateral viewed as' satisfactory by the Reserve' Banks. However, Section 10(b) also--provides

276

that such credit extensions "shall bear interest at a rate not less than
one-half of 1 per centum per annum higher than the highest discount
rate in effect" at the Reserve Bank making the loan (except for such
advances secured by mortgages on 1- to 4-family homes). The result
is that many sound member bank loans cannot qualify as security
for Federal Reserve advances except at the penalty rate of interest
prescribed in Section 10(b). This is true even though the quality of
the "ineligible" collateral may be equal to that of presently "eligible"
paper.
CONSUMER AFFAIRS
Truth in Lending
As part of its continuing responsibility for administration of consumer
credit legislation, the Board of Governors annually submits to the
Congress recommendations for improvement of the Truth in Lending
Act and the other consumer credit legislation under its regulatory
authority. This year the Board has focused its attention primarily on
recommendations to simplify the numerous and often complex disclosure requirements of the Truth in Lending Act. The recommendations are as follows.
Credit life and disability insurance. Under the Truth in Lending Act, premiums for credit life and disability insurance need not be
included in the finance charge if the insurance coverage is offered to
the customer on an optional, voluntary basis. Evidence from the Federal Trade Commission and the results of a survey study by Ohio
University1 indicate that penetration rates approaching 100 per cent
are being achieved by certain creditors in the sale of such insurance.
These high penetration rates raise the question whether some creditors
may be leading borrowers to believe that insurance coverage is necessary to obtain the loan, despite disclosures to the contrary. The Ohio
University survey found that nearly 20 per cent of those consumers
who purchased credit life insurance and nearly 15 per cent of those
who purchased credit disability insurance believed, either because of

1
Consumer Credit Life and Disability Insurance, edited by Charles Hubbard,
The College of Business Administration, Ohio University, 1973.

277

misrepresentation or misunderstanding, that the insurance was required to obtain credit.
In light, of this evidence, the Board feels that some remedial legislation is warranted. The Board recommends that the Act be amended to
require that, in order for credit Insurance to be classified as YoJuntary
and excluded from, the finance charge, the creditor must grant an
absolute right of insurance cancellation, for a reasonable time after
Its purchase. If, within that time period^ a customer decides that he or
she does not want the credit insurance, the customer could cancel the
insurance and receive a full refund of all premiums paid.
Consolidation of annual reports submitted by the Board. The
Truth in Lending Act, the Equal Credit Opportunity Act, and the
Federal Trade Commission, Improvement Act each contain a provision requiring the Board to submit annual reports to the Congress
detailing -administration of the- regulatory authority conferred- on the
Board under those Acts. The logical manner for submitting these annual reports, and one that avoids duplication of effort, is as components of the Board's ANNUAL REPORT on. Federal, Reserve operations, which is an overview of all Federal Reserve activities. However,
this is not possible because the Acts require submission of the Truth
In Lending, report by January 3, the Equal Credit Opportunity report
by February 1, and the Federal Trade Commission Improvement
report by March 15.
The Board is not aware of any benefits produced by these fragmented reports. Therefore, the Board recommends that the dates
specified for submission of annual reports under the Truth in Lending
Act5 the Equal Credit Opportunity Act, and the Federal Trade Commission Impro¥ement Act be deleted aed that the Congress allow the
Board to submit the annual reports required by those Acts at the
same time and as components of the Board's ANNUAL REPORT on
operations.
Credit-card issuance and liability. Section 133 of the Truth in
Lending-Act limits cardholder liability in the eYent of unauthorized
use of an accepted card to $50. This liability limitation applies to'
some cards used in automated teller machines, which, because the
cards have credit aspects (such as overdraft privileges) attached to
them, are considered credit cards under the Act. Howe¥er? no similar

278

liability limitations are provided for non-credit cards used in automated teller machines to transfer funds, but to which no credit aspects
are attached.
The Board feels that there is no reason, for the divergent treatment
accorded credit cards and non-credit cards under the Act. Unauthorized use of a non-credit card could potentially result in substantial
withdrawal of a cardholder's savings and checking balances. Consistency in the treatment of non-credit cards and credit cards with
respect to liability for unauthorized use would eliminate confusion
and would probably assuage consumer fears and facilitate public acceptance of non-credit cards to the benefit of both consumers and
card issuers. Public acceptance of non-credit cards would further
advance electronic fund transfer systems (EFTS). Such cards are
widely recognized as being an essential precursor component of EFTS.
The Board, therefore, recommends that the scope of Section 133
be expanded to cover non-credit cards within its limitation on, liability
for unauthorized use. For the same reason., the Board also recommends that the scope of Section 134 of the Act, which provides for
fines of up to $10,000 and imprisonment for up to 10 years for fraudulent use of a credit card, be expanded to apply to the fraudulent use
of non-credit cards as well.
The Board also- suggests that the Congress reconsider the continuing
need for Section 132 of the Act, which prohibits the unsolicited issuance of credit cards. The solicitation requirements of this section have
posed marketing hurdles that have hindered the entry of new competition into the credit-card ield. In the Board's ¥iew the profligate
card-issuance abuses that the Congress sought to correct by this section could perhaps be effectiYely policed by the rule of Section 133,
which provides that there is no consumer liability for the unauthorized
use of an unaccepted credit card. Further iii¥estigation by the Congress may indicate that the prohibition on unsolicited Issuan.ce could
be relaxed or eliminated with no adverse effect on consumers while
encouraging competition in the credit-card ield.

Periodic statements—-Credit other than open end. Section 126
of the Truth in Lending Act requires creditors who choose to transmit
periodic billing statements in connection with credit other than open
end to include the annual percentage rate? the date by which payment
must be made in order to avoid additional finance charges or other

279

charges,' and any other items required by the Board. There is no requirement that-creditors send such periodic statements^ but if they do,
the disclosures enumerated must be Indicated.
The Board questions the need for this provision. Since such periodic
statements-are not uniformly required-for all extensions, of credit, other
than open end, the rale seems to impose an unnecessary burden on
those creditors who- do seed such payment reminders. The Board suggests-that this provision could be deleted without any serious--negative,
impact on consumers.
Charges payable in the epent of late payment, delinquency, or
default. Sections 128(a)(9) and 129(a)(7) of the'Act require
creditors, ie -making disclosures-with respect to loans and credit sales
not under open-end credit plans, to disclose "the default, delinquency,
or other similar charges payable in the event of late payments,55 Basically, thislanguage has been reiterated in Regulation Z.
Because.of the reference to "default," the language could be construed to require disclosure of any charges that a debtor may be
obligated' to-" pay in the event' of default on a loan. For example, the
language, could, be interpreted to. include all charges assessed against
a debtor in the event that a judgment must be taken against him or
her. It might also'be interpreted to include those charges" that a'debtor
may have to pay should it be necessary to repossess the collateral. A
number of courts ha¥e recently held that the act of acceleration of a
defaulted "credit'contract is a charge that requires disclosure. The purpose of. the .Truth in Lending Act is to provide meaningful disclosures
of credit terms, so consumers can shop for credit in an informed
manner. It is highly questionable whether disclosure of the charges
payable In e¥ent of default is meaningful Information for consumers.
On the other hand, it seems appropriate that the consumer know the
additional charges that may be assessed in the case of a delinquency
or a late-payment..
The Board suggests that Sections 128(a)(9) and 129(a)(7) be
amended to require disclosure only of charges payable In the "event
of delinquency or late payment.

Comparative Index of credit costs. Under Section 127(a) (5) of
the Act, the credit of an open-end credit account is permitted to

280

disclose "the average effective annual percentage rate of return received from accounts under the plan for a representative period of
time.'9 This statutory provision has been translated into an entire
section in Regulation Z, Section 226,11, which sets out the requirements with respect to making such optional disclosures. It is the
Board's understanding that such optional disclosures are rarely, if
QWQT, used. The Board suggests, therefore, that Section 127(a > (5) be
deleted from the Act.
Right of rescissiom—Vacant lots. Section 125 of the Act provides
consumers with a fight of rescission for credit contracts involving a
security interest in, real property that is used or is expected to be used
as the residence of the consumer. An exception to' this right of rescission relates to first liens against a dwelling as security for a loan to
finance the acquisition of that dwelling. The primary purpose of this
right of rescission is to give a consumer some time in which to reconsider the important act of pledging the home as security for a loan.
However, because of the distinction between the terms "residence"
and "dwelling," the right applies to transactions involving credit
purchases of vacant lots that are intended ultimately to' become the
consumer's residence.
The Board does not belie¥e that the right of rescission should continue to be applicable to such vacant-lot purchase transactions.
Furthermore, the Interstate Land Sales Full Disclosure Act gives the
consumer a right of revocation for many such Yacant lot transactions.
Consequently, the Board recommends that the Congress consider
amending the Act to limit the coverage of Section 125 to only those
credit transactions in which a dwelling, as opposed to a residence, is
involved.
Simplification of Truik in Lending. During the nearly 7 years
that the Truth in Lending Act has been in effect, the Board has become aware of considerable criticism of the Act and of Regulation Z
because of their complexity. Critics have argued not only that the
numerous technical disclosures are burdensome for creditors but also
that the disclosure statement is so lengthy and complicated that most
consumers do not bother to read it. The criticism concludes that, in attempting to gi¥e consumers all the meaningful information they need

281

to make an Informed credit decision, Truth in Lending legislation has
gone too far and, in many cases, has only confused consumers with
extraneous information not directly related to the costs of credit.
The Board lias been concerned with the complexity of the Act and
of Regulation Z for some time and has, in tie past, made recommendations aimed at simplification of the Act's disclosure requirements.
The Board feels that continued attention to simplification efforts is
desirable. Simplification benefits both consumers and creditors by
lessening the burden of disclosure while making those disclosures that
are required more meaningful to the average consumer. The Board
feels that efforts at simplification should be an ongoing project and
expects that the views of members of the Consumer Advisory Council, which" was' established by 'the amendments to'the "Equal Credit
Opportunity Act, will be ¥ery helpful in this endeavor.
Bank investments for community development
As leading institutions in their communities, banks are expected to
participate in programs for the improvement of the community. In
some cases this responsibility can be fulfilled by contributing funds
or services. In others, the appropriate form of participating is an investment in stock of a corporation established for a particular purpose, such as to promote the economic rehabilitation'and' dcYelopment of low-income areas. la the Board's judgment, limited investments in such corporations are in the public interest and should be
encouraged" by' appropriate legislation.
The Board believes that authorization should be granted to cover
investments in community corporations that could engage broadly in
community- welfare, regardless -of- whether established by private or
by governmental authorities. To assure that such in¥estments do not
have an adYerse effect on the soundness of the Nation's banks, investments- would-be-regelated by the Comptroller of the-Currency,, the
Board of Go¥ernors, and the Federal Deposit Insurance Corporation
for banks under their respecti¥e jurisdictions,

282

Litigation
During 1975 the Board of Governors was named in 20 lawsuits as
compared with 21 filed in 1974 and 22 in 1973. Only 8 of the actions
filed in 1975 raise questions under the Bank Holding Company Act,
as opposed to 19 in 1974. While the number of cases challenging
bank holding company orders has declined, the number of cases
challenging Board procedures or actions in other areas has increased
from 2 cases filed in 1974 to 12 in 1975. As of March 15, 1976, 22
cases were pending, 15 of which raise issues under the Bank Holding
Company Act. A brief description of each case that remains pending
or that was disposed of during 1975 follows:
BANK HOLDING COMPANIES—ANTITRUST
ACTION
In 1975 the U.S. Department of Justice filed no challenges under the
antitrust laws of the United States to acquisitions by registered bank
holding companies or bank mergers that had been previously approved by the Board. Only one case remains pending from past
years—United States v. Michigan National Corporation et al., filed
June 13, 1974, U.S.D.C. for the Eastern District of Michigan. The
Department of Justice filed this suit to prevent consummation by
Michigan National Corporation, Bloomfield Hills, Michigan, of the
acquisition of two banks in Saginaw and Grand Rapids, Michigan.
The acquisitions were approved by the Board in October 1973 (Federal Reserve Bulletin, October 1973, page 819). The Department of
Justice alleges that the acquisitions will substantially lessen competition or will tend to create a monopoly in violation of Section 7 of the
Clayton Act (15 U.S.C. Section 18).
The Justice Department originally filed suit against this acquisition
and against the acquisition of two other banks in Lansing and Wyandotte, Michigan, by Michigan National in November 1973. The court
dismissed these earlier suits as premature since the Comptroller of
the Currency had not approved the proposed mergers. The Comptroller then acted on two of the four proposed mergers, and the

283

Department of Justice has brought suit again on the same grounds.
Since that time, the Supreme Court has reversed the district court
decision, thereby permitting the Justice Department to bring antitrust
actions before the Comptroller grants final approval to the bank
mergers (419 U.S. 1 (1974)).
BANK HOLDING COMPANIES—REVIEW O F
BOARD ACTIONS
In NCNB Corporation v. Board of Governors, filed April 6, 1973,
U.S.C.A. for the District of Columbia Circuit, petitioner requested
the court to review and set aside a Board order (Federal Reserve
Bulletin, April 1973, page 305) permitting petitioner to engage in a
general trust business in South Carolina to the extent permitted by
State law. The court granted petitioner's motion to hold the appeal
in abeyance pending the outcome of a suit filed by petitioner in the
U.S.D.C. for the District of South Carolina challenging the constitutionality of the State statute restricting trust company activities of
out-of-State banking organizations. Following a determination by the
district court that the South Carolina statute was unconstitutional,
the Court of Appeals remanded the case to the Board, which issued a
revised order approving the application on April 29, 1975 (Federal
Reserve Bulletin, May 1975, page 330).
In Bankers Trust New York Corporation v. Board of Governors,
filed May 25, 1973, U.S.C.A. for the Second Circuit, petitioner
requested the court to review and set aside a Board order (Federal
Reserve Bulletin, May 1973, page 364) denying petitioner's application to engage in investment advisory activities through a newly
formed subsidiary corporation at Palm Beach, Florida. In October
1973 the court granted petitioner's motion to hold the proceedings
in abeyance until 40 days after the judgment or appeal from the
judgment of the U.S.D.C. for the Northern District of Florida in a
suit filed by petitioner challenging the constitutionality of the Florida
statute prohibiting out-of-State banking organizations from performing investment advisory activities in Florida, the statute on which the
Board based its denial of petitioner's application. The district court
dismissed the suit as inappropriate for a three-judge district court.
In a decision on appeal rendered April 14, 1975, the Supreme Court
vacated the judgment of the district court and remanded the case so

284

that a new order may be entei. .' fi»"!< i which a timely appeal can be
taken to the Court of Appeals for the Fifth Circuit (421 U.S. 901).

In Patagonia Corporation v. Board of Governors, filed August 2,
1973, U.S.C.A. for the Ninth Circuit, petitioner requested the court
to re¥iew and set aside a Board order (Federal Reserve Bulletin, July
1973? page 539) concluding that petitioner is not entitled to indefinite
'Vrandfather" privileges under Section 4(a)(2) of the Bank Holding
Company Act with respect to certain nonbanking activities, Including
Piaia Savings and Loan Association, Tucson, Arizona. In an. opinion
hied May 19, 1975, the court ¥acated the Board order and remanded
the matter to the Board for the purpose of holding a formal hearing
under Section 2(d)(3) of the Bank Holding Company Act to dettTnune whether petitioner, on. June 30, 1968, had the power to exerci\o
;. controlling Influence over the management and policies of Pima
Savings and Loan (517 F, 2d 803), If petitioner did exercise a coit"rolling interest, Pima would be, in effect, a subsidiary of Patagoiva
engaged in an indefinitely grandfathered activity. The Board ordered
?! hearing, which commenced September 30, A final decision of the
K>ard has yet to be made in this matter.
In Iowa Independent Bankers v. Board of Governors, filed August
31, 1973, U.S.C.A. for the District of Columbia Circuit, petitioner
requested the Court to review and set aside a Board order (Federal
Register, vol. 38, page 21530) permitting Northwest Baecorporatlon,
Minneapolis, Minnesota, to acquire Bettendorf Bank and Trust, Bet/•endorf, Iowa, and Security State Bank, Keokuk, Iowa, on the ground
111 at the Iowa statute permitting out-of-State holding companies to
acquire Iowa banks was unconstitutional. Northwest Bancorporatioe
?. its given leave to intervene in the proceedings. The court denied the
Petition to set aside the Board order, holding, filler alia, that there
was eo conlict between Iowa law and the Bank Holding Company
Ait and that the Iowa law was unconstitutional (511 F. 2d 1288
(B.C. Cir. 1975); cert, denied, 96 S. Ct. 144 (1975)).
In Independent Bankers Association of Georgia v. Board of Governors, filed September 28? 1973, U.S.C.A. for the District of ColumHu Circuit, petitioner requested the court to review and set aside a
Board order, dated August 31, 1973, permitting Citizens and Southern Holding Company ("C&S"), Atlanta, Georgia, to engage de novo
in mortgage banking activities. In an opinion, handed down on. July
31, 1975, the court declined to pass on the merits of the C&S appli-

285

cation. Rather, the court found that substantial questions -of fact had
been raised concerning the "public benefits" -of the application • and
held that in.a. contested Section 4(c)(8) application, where "adjudicative" facts, are in. dispute, an interested party who presents a material
factual contest is-entitled to-an evidentiary hearing under the. Administrative Procedure Act,'Accordingly, the court remanded-the ease to
the Board for" a formal evidentiary hearing (516 F. 2d 1206).
In American B(incorporation et ah v. Board of Governors and in
Springstedi Inc., et ah v. Board of .Governors, both. lied September
13,' 197-3, U.S.C.A. for- the- Eighth Circuit, petitioners- asked... the
court to'review and set'aside the Board order (Federal Reserve Bulletin, September 1973, page 701) approving the acquisition by Northwest-Bancorporation,. Minneapolis, Minnesota, of T. G. Evensen &
Associates,-Ine., Minneapolis,-Minnesota. In December 1974 .the
court held In part that petitioners had raised adjudicative issues
before the Board and were entitled to a formal hearing (509 F. 2d
29). The court therefore.vacated the Board's order and remanded the
case to the-Board,-which.has.ordered a hearing, l e a further..clarifying order,-the court-allowed-Northwest to maintain its control of
T. G. Evensen "& Associates, ' Inc., pending the outcome of • the
hearing.
in East Lansing State Bank v. Board of Governors, No. 73—2188,
filed December 7, 1973, U.S.C.A. for the Sixth Circuit,. petitioner
asked t h e court to review and set aside a Board order-(Federal .Reserve Bulletin, November 1973, page 819) permitting Michigan-National Corporation to acquire four banks, Including First 'National
Bank .of.. East. Lansing, East Lansing, Michigan. The court has
granted a • stay of proceeding pending the outcome of a suit Hied by
the Justice-Department challenging these acquisitions as-violations of
the antitrust laws.
Two consolidated actions in the U.S.C.A. for the District of Columbia-Circuit, Independent Bankers Association of America, Inc. v.
Board of •-Governors, filed December 17, 1973, and National Courier
Association et al. v. Board, of Governors, filed December-14, 1973,
were decided in an. opinion handed down on August 4, 1975; The
petitioners had sought judicial review of a Board order (Federal Reserve Bulletin, -December 1973, page 892) determining that certain
courier service activities are so closely related to banking or manag-

286

ing or controlling banks as to be a proper incident thereto under
Section 4(c)(8) of the Bank Holding Company Act. The Court of
Appeals decisions sustained the Board's regulation allowing bank
holding companies to offer financially related courier services. However, it set aside the Board's interpretation allowing incidental eonfinancially related courier services as beyond the scope of acuities
permissible under Section 4(c)(8) <51(i P 2d 1229). The court's
opinion also upheld the Board's practice of deleting the nonfactual
portions of staff memoranda included in administrative records. Internal Board staff memoranda must be included in the "record" presented to a reviewing court only to the extent they (i) contain, purely
factual material and (i.B ;,u adopted by the agency as the basis of its
decision.
In OH Rait Financial <\>rporation v. Board of Governors, lied
February 2, 1974, U.S.C.A. for the District of Columbia Circuit,
petitioner requested the court to review and set aside a Board order
(Federal Reserve Bulletin, February 1974, page 133) denying petitioner's application to acquire National Lumberman's Bank and
Trust Company, Meskegon, Michigan. In April 1975 the court
remanded the matter to the Board for the limited purpose of allowing petitioner to lie a motion for reconsideration before the Board.
Upon reconsideration, the Board again denied the application (Federal Reserve Bulletin, April 1975, page 247). and petitioner did not
seek judicial review of the second denial order.
In Financial General Bankshares, Inc. v. Board of Governors, No.
74-1344, filed March 14, 1974, U.S.C.A. tor the District of Columbia Circuit, petitioner sought judicial review of a Board denial of
petitioner's request for reconsideration of a condition imposed by the
Board order (Federal Reser¥e! Bulletin, September 1973, page 678)
approving petitioner's application to acquire- Second National Bank
of Richmond, Richmond, Virginia, The challenged condition was the
termination of control of petitions by International Bank, Washington, D.C On January 23, 1975, a two-judge panel in. the Court of
Appeals dismissed the petition an untimely filed.
[n National Automobile Dealers Association, Inc. v. Board of
Governors, No. 74-1431, lied April 17, 1974, U.S.C.A, for the
District of Columbia Circuit, petitioner sought judicial reYiew of a
Board order (Federal Reserve Bulletin, April 1974, page 284)

287

amending.the..portion of the Board's Regulation Y concerning the
scope of personal property leasing, an activity previously determined
to be "so closely related to banking or managing or controlling banks
as to be a proper incident thereto-," In an order filed October 22,
1975, the court granted a motion by the Board to remand the case
to the Board for initiation of a" rule-making proceeding-on-the question of whether automobile leasing • should continue to-be a permissible-leasing activity • for bank holding companies. A. public oral
presentation, on. this issue.is scheduled for March 23, 1976.
In George Brice, Jr., et ah v. Board of Governors, No. 74—1750,
filed April 25, 1974, U.S.C.A. for the Ninth Circuit, 'petitioners
requested the court to review and set aside a Board order' (Federal
Reserve Bulletin, May 1974, page'371) granting the application of
Orbanco, Inc., Portland, Oregon, to acquire Security Bank of Oregon,
Portland, • Oregon, Orbanco was-granted leave to intervene.-On January- 14,4976, the court issued an opinion affirming the Board's.order,
In The--First National Bank of St.. Charles ei ah v. Board,of Governors, Med April 30, 1974, U.S.C.A. for the Eighth Circuit, petititioners requested the court to review and set aside a Board order
(Federal Register, vol. 39, page 14644) approving the request'of
Mark Twain Bancshares, Inc., Clayton, Missouri, to acquire Mark
Twain' O'Falldii Banks O'Fallon, Missouri, a proposed- new bank.
In a decision •filedJanuary 22? 1975? the court held that-the petitioners' failure to present to the Board the objections that .they...sought
to raise before the court required dismissal of the action. In addition, the court held that petitioners were not entitled to a review as
"aggrieved parties" under Section 9 of the Bank Holding Company
Act (12 U.S.C. Section 1848) since "presentation of an "objection to
the .Board is a condition precedent to standing as a 'party 'aggrieved5
before'[the]'court" (509 F. 2d 1004). In a supplementary order-filed
February-11, 1975, the court denied petitioners' motion-for-rehearing and-reaffirmed its earlier opinion.
On July.30, 1975, the U.S.D.C. for the District of Columbia dismissed a complaint filed on May 8, 1974, Investment Company Institute v. Board of Governors, on the Board's motion. The suit challenged the Yalidity under the Glass-Steagall Act of the Board's January 1972 amendment to- Regulation Y permitting bank'holding'companies to'engage "in, the business of acting as investment adviser to
an investment • company registered under the Investment Company

288

Act of 1940. The court declined to reach the merits of the complaint,
holding instead that Section 9 of the Bank Holding Company Act
(12 U.S.C. Section 1848) prescribed the exclusive means for obtaining judicial review of regulations promulgated by the Board under
that Act. Since the Investment Company Institute did not seek
judicial review in the Court of Appeals within 30 days after entry
of the order setting forth the regulation, the court held that plaintiff
had failed to comply with Section 9 of the Act, and the case was
dismissed for lack of jurisdiction (398 F. Supp. 725). The plaintiff
has sought an appeal of the decision in the U.S.C.A. for the District
of Columbia Circuit.
In Bank of Commerce et al. v. Board of Governors, filed Ju.ee 3,
1974, U.S.C.A. for the Teeth Circuit, petitioners requested the court
to review and set aside the Board order (Federal Register, vol. 39,
page 16935) approving the application of Wyoming Bancorporation,
Cheyenne, Wyoming, to acquire Bank of Wyoming, N.A., Sheridan,
Wyoming, a proposed new bank. In a decision filed March 21, 1975,
the court upheld the Board order, stating that petitioners should haYe
raised their objections initially in the application proceeding before
the Board and that petitioners had received adequate notice of the
pending application proceeding from several sources, including publication in the Federal Register (513 F. 2d 167).
Three separate groups of suits challenge the permissibility of bank
holding company entry into insurance agency activities under Section
4(c){8) of the Bank Holding Company Act. In Alabama Association of Insurance Agents et al. v. Board of Governors, No. 74—2981,
iled July 30, 1974, U.S.C,A. for the Fifth Circuit, petitioners
requested the court to review and set aside the Board order (Federal
Reserve Bulletin, August 1974? page 596) approving the application
of The Alabama Financial Group, Inc. (now Southern Bancorporation), to engage in certain insurance agency activities. In Georgia
Association of Insurance Agents et ah v. Board of Governors, No.
74-3544, filed October 4, 1974, U.S.C.A. for the Fifth Circuit,
petitioning national and State associations of independent insurance
agents sought judicial review of the Board order (Federal Register,
vol. 39, page 33414) apprcwing the application of First National
Holding Company, Atlanta, Georgia, to. engage in certain insurance
agency activities. The Committee to Preserve Consumer Options,
Southern Bancorporation, and First Holding Company have inter-

289

vencd. Finally, In two related cases, Florida Association of Insurance
Agents, Inc. v. Board of Governors, Nos. 75—31,51 through 75—
3153, lied..August 13, 1975, IXS.C1A. for the Fifth Circuit, and
Natiofial-Association of Insurance Agents, Inc. v. Board .of .Governors, Nos. 75-3342, 75-3343, and 75^3358, filed August 14, 1975,
U.S.CA. for the District (if Columbia Circuit, petitioners sought
judicial review of three Board orders of July 14, 1975 (Federal
Register, vol. 40, pages- 30869, 30872, 30876), approving applications-of three -bank holding companies to engage In certain Insurance
agency' activities in Florida to "the extent permitted by State-law.
A motion to transfer the Florida cases In the District of' Columbia
Circuit for purposes of consolidation with the Florida cases In the
Fifth Circuit-has -been granted.
In West Virginia 'Bankers 'Association ei ah v. Board of Governors, No. 74-2003, filed'August 28? 1974, U.S.CA. for the Fourth
Circuit,..petitioners sought judicial review of a Board order permitting Intermountain Bankshares Company, Charleston, West Virginia,
to become--a-bank holding company through acquisition of Kanawha
Banking'& "Trust Company, N.A., Charleston, West "Virginia, • and •
Community Bank & Trust Company, N.A., Fairmont, West'Virginia
(Federal Register, August. 1974, page 28566). The Board in its order
interpreted-a West Virginia statute as failing to prohibit, formation, of
bank holding-companies in the State. Subsequently,• -a new statute
prohibiting 'tie operation of bank holding companies in the State
was enacted, and the court remanded this case to the Board' on April
16, 1975, to obtain the Board's interpretation of the new statute. On
June 4, 1975,- the Board issued a new order denying, the application
in light'of"the-statute (Federal Register, vol. 40? page-24959). •
In Tri-State Bancorporation, Inc. v. Board of Governors,' filed
November 2, 1974, U.S.CA. for the Seventh Circuit," petitioner
sought- judicial review of the Board's order (Federal .Reserve Bulletin, November- 1974, page 777) denying petitionerV-application- to
become a bank holding company through acquisition-of voting-shares
of Tri-State Bank of East Dubuque, East Dubuque, Illinois. On
October.24, .1975, the court Yacated and set aside the Board order,
holding- that the Board had failed to act upon the application .within
91 days" of submission to It of the "complete record/' -as -required
by Section 3(b) of the Bank Holding Company Act, and; therefore,

290

the application must be deemed approved as a matter of law (524
F. 2i! 562). The court recognized that the Board can still act In
good faith to request additional information from an applicant or
interested party and that the 91-day period would begin to run only
upon receipt of such additional submissions. The decision applies
only to applications lied pursuant to Sections 3 and 4 of the Act
and not to general rale-making proceedings under Section 4. The
Board's petition for reconsideration of the decision en bane was
denied on December 15, 1975.
in Purolator Courier Corporation v. Board of Governors, No. 742096, filed December 13, 1974? U.S.C.A. for the District of
Columbia Circuit, petitioner sought judicial review of a Board
letter, dated November ll"\ 197-4, denying ;i request by petitioner
that the Board i e d the expansion of courier activities by Courier
Express Corporation, a subsidiary of First Union Corporation of
North Carolina (formerly Cameron Fi.nan.cial Corporation), to be
a violation of the Bank Holding Company Act in that First Union
did not seek Board approval of such expansion. Subsequently, First
Union was denied a license to expand its courier services intrastate
in South Carolina by the appropriate State licensing agency, and
First Union abandoned any plans for expansion of its courier subsidiary. The question of dismissal of this matter remains pending.
In American Security and Trust Company et al. v. Board of Governors, No. 74-2070, filed December 3, 1974, U.S.C.A. for the
District of Columbia .Circuit, petitioner sought judicial review of
the Board order (Federal Reserve Bulletin, December 1974? page
875) directing petitioner to terminate its ownership and control of
Fairfax County National Bank, Falls Church, Virginia, within 2
years, in a related case, The Riggs National Bank v. Board of Governors, No. 74-2089, filed December 12, 1974, U.S.C.A. for the
District of Columbia Circuit, The Riggs National Bank also sought
judicial reYiew of the same Board order. The cases were dismis~ *f
by stipulation on, June 11,1975.
In Louis J, Roussel v. Board of Governors et al., No. 75-4,
filed April 5, 1975, U.S.D.C. for the Eastern, District of Loui..,ana,
plaintiff sought money damages and an injunction against a removal
action instituted against plaintiff by the Board under the Financial
Institutions Super¥isory Act of 1966 (12 U.S.C. Section 1818 (e)

291

{2) and (4)). The court dismissed the request for injunctive relief
for mootness following plaintiff's resignation from the board of directors of the .National American Bank of New Orleans,. Louisiana,
and the entry of a Consent Order of Prohibition concerning Ms
participation in the affairs of that institution.
In Bank of Boulder y. Board of Governors et at., No. 75-1406,
filed June 65 1975, U.S.C.A. for the Tenth Circuit, petitioner
requested the court to re¥iew and set aside a Board order of May 7,
1975 (Federal Register, vol. 40, page 21541), granting the application of Westland Banks, Inc., of Lakewood, Colorado, to acquite
Gunbarrel National Bank of Boulder, Colorado, a proposed new
bank.
In Martin-Trigona v. Board of Governors et aL, No, 75-C-323I,
filed September 295 1975? U.S.D.C. for the Northern District of
Illinois, plaintiff challenged an application pending before the Board
by the'Mellon National Corporation to acquire a personal finance
company. On. February 11, 1976, the court issued a memorandum
decision dismissing the action, finding that plaintiff had failed to
exhaust "his'administrative remedies,' and finding that the-service of
process and venue in the action were improper. The court also
questioned the plaintiff's standing as either a potential competitor
or a consumer.• In a second suit captioeed Martin-Trigona-V-. Board
of Governors et af., No. 75-^0-3230, lied September 26, 1975,
U.S.D.C. for the Northern District of Illinois, the same plaintiff
challenged a pending application by Citicorp to acquire, a. personal
finance company. The action was dismissed with prejudice for lack of
prosecution on January 28, 1976.
In Harlan National Company v. Board of Governors, No. 75—
1898, filed November 28, 1975, U.S.C.A. for the Eighth Circuit,
petitioners asked the court to review and set aside the Board order of
October 31, 1975 (federal Reserve Bulletin, November 1975, page
817), denying the application of Harlan National Company, Harlan,
Iowa, to become a bank holding company through acquisition of the
Harlan National Bank, Harlan, Iowa.
in National Computer Analysts, Inc. v. Decimus Corporation et aL,
No. 74-1684, iled NoYember 24? 1975, U.S.D.C. for the District of
New Jersey, the Board has been joined in an amended complaint
challenging the '1974 de'mmo entry by Decimus Corporation, a sub-

292

sidiary of BankAmerica Corporation, San Francisco, California, into
data processing activities in the State of New Jersey.
In Community B(incorporation v. Board of Governors, No. 752509, filed December 23, 1975, U.S.C.A. for the Sixth Circuit, petitioner asked the court to review and set aside the Board order of
November 28, 1975 (Federal Reserve Bulletin, December 1975, page
886), denying the application of Community Bancorporation, Columbus, Ohio, to acquire Community National Bank, Flushing, Ohio.
OTHER LITIGATION INVOLVING CHALLENGES
TO BOARD PROCEDURES AND REGULATIONS
In Community Bank et al. v. Board of Governors, filed September
1972, U.S.C.A. for the Ninth Circuit, and in Independent Bankers
Association of America et al. v. Board of Governors,filedSeptember
1972, U.S.C.A. for the District of Columbia Circuit, petitioners
sought appeal of district court decisions granting the Board's motions
for summary judgment and dismissing these separate actions brought
to challenge certain amendments to the Board's Regulation J that
require payment of cash items on the day of presentment. In both
cases, the Courts of Appeals affirmed the district courts' decisions in
the Board's favor (500 F. 2d 282 (9th Cir. 1974) and 516 F. 2d 1229
(DC. Cir. 1974)). Petitioners in the Ninth Circuit sought review of
that decision by the Supreme Court on a writ of certiorari, which was
denied in January 1975 (419 U.S. 1089).
In Donald K. Gearhart et al. v. Federal Reserve Bank of Cleveland
et al, filed September 14, 1973, U.S.D.C. for the Southern District
of Ohio, plaintiffs brought a class action on behalf of purchasers of
bank certificates of deposit (CD's) in face amounts of less than
$100,000 and of savings account depositors at certain Cincinnati
banks, alleging that the Board, through its Regulation Q, accords preferential treatment to purchasers of CD's in face amounts of $100,000
or more by permitting banks to pay higher rates of interest on this
category of deposit. The district court dismissed the action for failure
to state a claim upon which relief could be granted. Plaintiffs appealed the decision to the U.S. Court of Appeals for the Sixth Circuit,
which summarily affirmed the district court decision in May 1975
(516 F. 2d353).

293

In Consumers Union of the United States, Inc., et ah v. Board of
Governors, No. 1766-73, filed September 14, 1973, U.S.D.C. for the
District of Columbia, plaintiffs brought suit under the Freedom of
Information Act to compel the Board of Go¥ernors to release certain
data' regarding" interest rates on consumer loans furnished by individual banks" to the'Board'for its-composite G.10 statistical-release.
In June 1974 the district court-handed down a decision for the plaintiff-and ordered the Board to disclose all the information collected in
the G.10 survey. The Board.appealed to the U.S.C.A. for the.District
of Columbia Circuit, which remanded the case to the district court
with instructions to 0¥ersee a settlement, A settlement was reached
and a stipulation filed as to the release of future consumer loan data.
In June 1975 a motion was filed by plaintiff seeking an' award of
attorneys*'fees and other' litigation- costs under Section 552a{4)(E) of
the Freedom • of Information- Act, and that matter is still pending. •
In -Cook et al. v. Board of Governors, No. 75-0286, filedLMarch..3,
1975, UJ.D..C. for the. District of Columbia, plaintiffs, requested an
injunction, preventing the Board from giving effect to or in any way
enforcing the rules amending the Board's Regulation D (12 CFR
Section 204), which were published on November 19, 1974 (Federal
Register, vol. 39, page 40580); November 22, 1974 (Federal Register, vol. 39,' page 40938); and January 27, 1975 (Federal"Register,
vol.-40, page-3973), In addition, plaintiffs requested-the-court-to-en-*
join the -Board from prescribing any further rules altering..or in. any
way .affecting the reserve requirements of member banks unless such
rules are first published for comment 30 days before promulgation.
On October 10, 1975, the court filed an order dismissing the action
for lack of standing on the part of plaintiffs.
In Curvin J. Trone v. United States, No. 135-75, filed April 24,
1975, U.S. Court of Claims, plaintiff—the trustee in- bankruptcy for
Westgate California Corporation—brought suit against the United
States under the Fifth Amendment for the unlawful taking .of., property
without due process of law. The complaint alleges that the Comptroller of. the Currency, the Federal Deposit Insurance Corporation,
the Board of Governors of the Federal Reserve System, and the Federal Reserve Bank of San Francisco failed, as the responsible Federal
banking agencies, to pro¥ide adequate supervision of the United
States 'National Bank of SEE Diego, thus allowing the controlling
interest of the bank and Westgate California Corporation to act in a

294

manner detrimental to the corporation, Tw^ Hher cases currently
P Hiding against the United States, Robe/ /"-^WJA, Inc. v. Comptroller
<>* the Currency et aL, Civ. No. 75(>!>."!C>H - \\ tiled No¥ember 20,
! #) 75 5 U.S.D.C. for the Southern District of C an ferula, and a third
party complaint in /'''Jew /V/^'s// InsuftitHc i\>rporation v. M. / .
f W « el a/., Civ \\», ?S-(»J V> N, filed August 26, 1975, U.S.D.C.
for the Southern IV4tta ««f ("aluomia, also arise out of the same
K'«nk failure.
In Richard S, Kaye v. •'ft/Mir F. flwras el «!., K^ 75- 1873, lied
April 18, 1975, U.S.D <\ for the Southern. District of New York,
plaintiff brought suit umk*r the Freedom of Information Act to obtain
access to certain Board records. Based on subsequent events, the requested information was transmitted to the plaintiff, A motion for
attorneys' fees is pending.
In David R. Merrill et al. v. Federal Open Market Committee of
the Federal Reserve System, No. 75-0736, lied May 8, 1975,
ilS.D.C. for the District of Columbia, plaintiffs brought suit under
the Freedom of Information Act to compel the Federal Open Market
Committee to'provide them with immediate access to the records of
policy actions taken by the Committee at its meetings and to the
Memoranda of Discussion of the Committee's meetings held OE Jaeyjry 20-21 and February 19, 1975. On,. January 29, 1976, the judge
ruled orally that the records of the Committee's policy actions must
be promptly produced on the day of their adoption. The judge also
ruled that those portions of the Memoranda of Discussion containing
reasonably segregable facts are not exempt under the Freedom of
Information Act. The Committee subsequently lied a motion to
nmend the judge's findings, and a response and motion for award
of attorneys" fees and costs were iled by the plaintiff and. answered
by the Committee. On March 9, 1976, the court Iled a written order
in the action. The court affirmed its oral .ruling regarding the Committee's policy actions. In addition, the court ordered the Committee
to disclose to the plaintiff those portions of the Memoranda of Discussion containing reasonably segregable facts and, to the extent such
facts are not disclosed, to submit the Memoranda of Discussion for
in camera inspection. The Committee has filed i\ notice of appeal and
has submitted portions of the Memoranda of Discussion to plaintiff
and the remainder to the court in camera.
In two separate actions—Henry M, Swi'h v, National State Bank

295

of Boulder et aL, No, 375-0695-C, filed June 4, 1975, U.S.D.C. for
the Northern District of Texas, and .Ellsworth v. B'urns..et.. aL, .No.
CIV-625-PHX-WPC, filed. September 1975, U.S.D.C. for ...the District of Arizona—plaintiffs present challenges under the Fifth Amendment to the constitutionality of Federal Rescue notes and commercial bank credit. The Ellsworth case was dismissed by court' order on
December' 19, 1975:
In Reserve Enterprises, Inc.,~et aL v. Arthur F. Burns et a/.,-No.
4-75-476," filed September 1975, U.S.D.C. for the-District of Minnesota, • plaintiffs-requested the-court to rescind the Board's..order ..of
July 31,. 1975, .that plaintiffs....cease.and desist from certain, violations
and unsound, practices and that they take action to correct the condition arising from such practices. After negotiations, the plaintiffs
consented to the issuance of the order with certain minor modifications.
In Logan ei aL v. Secretary of State et aL, No. 75-1519, iled
September 18,- 1975, U.S.D.C. for the District of Columbia* the
Board- and- the -Federal -Reserve -Bank of New York are parties to a
class' action brought.on behalf of 2,625 citizens with .certified..claims
against..Czechoslovakia under .Title IV of the International Claims
Settlement Act of 1949. Plaintiffs claim an interest in gold and other
assets belonging to the Communist Government of Czechoslovakia,
allegedly in the possession of the Federal Reserve System. The court
granted' the defendants' motion to dismiss on February ~2, 1976, on
the grounds that the action constituted an unconsented- suit -against
the United -States and5 further, presented only nonjusticiable political
questions.
In., two cases filed in the U.S.D.C. for the Northern District of
Georgia—Peter E. Blum v. Morgan Guaranty Trust Co., et aL, No,
C75-1916A, lied October 3, 1975, and Peter E. Blum v. First National Holding Corporation, No. C75-2251A, iled 'November' 19,
1975, 'plaintiff' brought suit challenging certain loan practices- of-the
defendant- banks and requesting that the court order Board Chairman
Arthur Burns to take action to pre¥ent these practices.
In International Bank v. Board of Governors, No. 75-2193, ..iled
December..31, 1975, U.S.D.C, for the District of Columbia, plaintiff
brought suit under the Freedom of Information Act to obtain access
to certain Board records. As of mid-March, this suit was still pending.

296

Bank Supervision and
Regulation by the
Federal Reserve System
BANK HOLDING COMPANIES
During 1975, pursuant to the provisions of the Bank Holding Company Act of 1956, as amended, the numbers of proposals acted on by
the Board, and under delegated authority by the Secretary's Office
and the Federal Reserve Banks, were as follows:

Direct action
Section

3(a)(l)
3 (a) (3)
2(Q)(5)

4(c)(8)
4(cH12)
A (A)

Secretary's
Office

Board
Approved

Denied

50
71
8
1
78(91)

15
17

Delegated authority

5(12)
1

Reserve
Banks

Approved Approved Permitted
24
14

67
52

285
25

Multiple applications in parentheses.

Board statements and/or orders with respect to applications,
whether approved or denied, are released immediately to the press
and the public, and the orders—some accompanied by statements—
are published in the Federal Reserve Bulletin. Actions by the Federal
Reserve Banks also are reported to the press and the public and appear in the Federal Reserve Bulletin and in the Board's weekly H.2
release. Board actions on applications under Sections 4(c)(9) and
4(c)(13) are not published, but reports of such actions are available
for inspection upon request.

297

Annual reports for 1974 were obtained from all registered bank
holding companies pursuant to the provisions of Section 5(c) of the
Act. At the end of 1975, there were 1,821 bank holding companies
in operation.
In processing applications filed under the Act, the Board has continued to stress the financial soundness of bank holding companies
and their subsidiaries and to emphasize the public benefits, increased
convenience and needs, and improved financial services accruing to
the public in the communities to be served. Some cases decided by
the Board during the year have led to the introduction of new financial
services into a market, while other holding company acquisitions
have made possible an increased supply of credit in a particular area.
Competition has been increased in some markets either through
de novo entry by a holding company, which adds a competitor to a
market, or by limiting holding company acquisitions to relatively
small organizations. In other cases, holding companies have been permitted to acquire financially weak institutions, thus giving the
acquired organizations the ability to become more viable competitors.
In 1975 many banking organizations experienced limited asset
growth, and some showed deterioration in asset quality and earnings.
During this period the Board carefully examined any proposal by
such organizations that would apply available funds toward external
expansion rather than toward augmenting the capital and liquidity
positions of these organizations. In such circumstances, the employment of funds to enlarge an organization's capital and liquidity positions was preferred, and the utilization of funds for external expansion
was not ordinarily favored.
EXAMINATION OF MEMBER BANKS
Each State member bank is subject to examinations made by direction of the Board of Governors or the Federal Reserve Bank of the
district in which it is located by examiners selected or approved by
the Board. The established policy is for the Federal Reserve Bank to
conduct at least one regular examination of each State member bank,
including its trust department, during each calendar year, with additional examinations if considered desirable. In most States concurrent
examinations are made in cooperation with the State banking author-

298

ities, while In others alternate Independent examinations are made.
AM but 27 of the 1,046 State member banks were examined during
1975.
National banks? all of which are members of the Federal Reserve
System, are subject to examination by direction of the Board of
Governors or the Federal Reserve Banks. Howe¥er, as a matter of
practice they are not examined by either because the law charges the
Comptroller of the Currency directly with that responsibility. The
Comptroller presides reports of examination of national banks to the
Board upon request, and each Federal Reserve Bank purchases from
the Comptroller copies of reports of examination of national banks
in its district.
The Board of Governors makes Its reports of examination of State
member banks available to the Federal. Deposit Insurance Corporation, and the FDIC in turn makes its reports of insured nonmember
State banks available to the Board upon request. Also, upon request,
reports of examination of State member banks are made available to
the Comptroller of the Currency.
le Its supervision of State member banks, the Board receives, reviews, and analyzes reports of examination of State member banks
and coordinates and evaluates the examination and supervisory functions of the System. It passes on applications for admission of State
banks to membership in the System; administers the public disclosure requirements of the Securities Exchange Act of 1934, as
amended, with respect to equity securities of State member banks
within its jurisdiction under the 1934 Act, and the provisions of the
Act giving responsibility to the Board for regulating security credit
transactions; prescribes regulations pursuant to the Truth in Lending
Act for InaEcial institutions and other firms engaged in extending
consumer credit and administers these regulations in their application
to State member banks; administers the provisions of the Fair Credit
Reporting Act, the Currency Transaction Reporting Act, and the
Civil Rights Act of 1968 in their application to State member banks;
and under provisions of the Federal Reserve Act and other statutes,
passes on applications for permission, among other things, to (1)
merge banks, (2) form or expand bank holding companies, (3)
establish domestic and foreign branches, (4) exercise expanded
powers to create bank acceptances, (5) establish foreign banking

299

and financing corporations, and (6) invest in bank premises an
amount-in-excess of 100 per cent -of a bank's capital stock... .
By Act of Congress approved September 12, 1964 (Public Law
88—593), insured banks are required to inform the appropriate Federal.banking, agency .of any changes in, control of management of. such
banks and of any loans by them secured by 25 per cent or more of
the voting stock of any insured bank. In, 1975, 23 such changes in
ownership of the outstanding voting stock of State member banks
were reported to the ReserYe Banks as changes in control of these
member banks. Arrangements continue among the three Federal
supervisory agencies for appropriate exchanges of reports received
by them,, pursuant to the Act. The Reserve Banks send copies of all
reports they recei¥e to the appropriate district office of the Federal
Deposit Insurance Corporation, the Regional Administrator of
National Banks (Comptroller'of the Currency), and'the State bank
supervisor.
Upon receipt of reports involving changes in control of Stale
member'banks, the Reserve Banks are under instructions to forward
such reports promptly to the Board, together with a statement (1)
that the new owner and management are known and acceptable to
the Reserve-Bank or (2) that they are not known and that-an-investigation is being made. The ladings of any investigation and the

Loans to executive officers

Period covered
(condition report
dates)

Total loans to
executive officers

Range of
interest rate
charged (per cent)

Number

Amount ^dollars;

7,882

26,063,539

1-24

Jan. 1, 1975—
Apr. 16, 1975. , .
Apr. 17, 1975—
' Jttne3O 5 1 9 7 5 . . ,

July 1, 1975—
Sept. 30, 1975. ..
Oct. 1, 1975—
Dec. 31, 1975, . .
1

6,893

27,225,233

1-24

5,983

20,882,196

1-24

()

Compilation of data for condition report of Dec, 31, 1975, has not been completed.

300

Reserve Bank's conclusions based on such findings are forwarded to
the Board.
By Act of Congress approved July 3, 1967 (Public Law 90-44),
each member bank of the Federal Reserve System is required to
include with (but not as part of) each report of condition and copy
thereof a report of all loans to its executive officers since the date
of submission of its previous report of condition. Data submitted by
member banks during 1975, as required by law, appear on page 300.
FEDERAL RESERVE MEMBERSHIP
As of December 31, 1975, member banks accounted for 39 per cent
of the number of all commercial banks in the United States and for
59 per cent of all commercial banking offices, and they held approximately 75 per cent of the total deposits in such banks; these figures
compare with 40 per cent, 60 per cent, and 77 per cent, respectively,
at the end of 1974. State member banks accounted for 11 per cent
of the number of all State commercial banks and 23 per cent of the
banking offices, and they held 42 per cent of total deposits in State
commercial banks.
Of the 5,790 banks that were members of the Federal Reserve
System at the end of 1975, there were 4,744 national banks and
1,046 State banks. During the year there were net increases of 34
national and net declines of 26 State member banks. The decline
in State member banks was offset in part by the organization of 75
new national banks and by the conversion of 8 nonmember banks
to national banks. The decrease in State member banks reflected
mainly 32 withdrawals from membership and 10 conversions to
branches incident to mergers and absorptions.
At the end of 1975 member banks were operating 20,682 branches,
facilities, and additional offices, 736 more than at the close of 1974.
During the year member banks established 937 de novo branches.
Detailed figures on changes in the banking structure during 1975
are shown in Table 19, pages 392 and 393.
BANK MERGERS
Under Section 18(c) of the Federal Deposit Insurance Act (12 U.S.C.
1828(c)), the prior written consent of the Board of Governors of the

301

Federal Reserve System must be obtained before a bunk may merge,
consolidate, or acquire the assets and assume the liabilities of another
bank-if the acquiring, assuming, -or resulting-bank-is to-be- a State
member bank.
In. deciding whether to approve an application, the Board is required by--Section -18(c) to--consider the impact of-the--proposed
transaction on competition, the ieancial and managerial resources
and prospects of the existing and proposed institution, and the convenience and-needs of the community to be served. The Board is
precluded from approving "any proposed merger transaction, which
would result in a monopoly, or which would be in furtherance of any
combination or conspiracy "to monopolize or to attempt to monopolize the business of banking in any part of the United States." A
proposed transaction "whose effect in any section of the country may
be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint .of trade,"
may be approved only if the Board of Governors is able to find that
the •'anticompetitive effects' of ' the transaction, would be' clearly "outweighed in the public interest by the probable effect of. the transaction
in meeting the convenience and needs of the community to be served.
Before'acting on each" application the Board must request reports
from the Attorney General, Comptroller of the Currency,, and Federal Deposit Insurance Corporation on the competitive factors involved" in each transaction, The'Board in turn responds to requests by
the.. Comptroller or the. FDIC for reports on competitive • factors
involved when the acquiring, assuming, or resulting bank is to be a
national 'bank or an. insured nonmember State bank.
.. During.. 1975 the Board..disapproved 1. and approved- 9- of these
applications, and it submitted 62 reports on. competitive factors to
the'Comptroller of the "Currency and 54 to the FDIC. In addition,
the ..Federal Reserve Banks approved 6 merger applications -on-behalf
of the Board of Governors pursuant to delegated authority. As required by Section 18(c) of the Federal. Deposit Insurance Act, a
description, of each of the 15 applications approved-by the-Board
or the Reserve Banks, together with other pertinent information, is
shown in Table 21, pages 396-410.
Statements-• and/or orders of the Board with respect to -all bank
merger applications, whether approved or disapproved, are released
immediately to the press and the public. These statements and/or
302

orders set forth the factors considered, the conclusions reached, and
the vote of each Board member present.
FOREIGN BRANCHES OF MEMBER BANKS
At the end of 1975 member banks had in active operation a total
of 762 branches in 83 foreign countries and overseas areas of the
United States; 97 national banks were operating 674 of these
branches, and 29 State member banks were operating 88 such
branches. The number and location of these foreign branches were
as shown in the tabulation on the following page.
Under the provisions of the Federal Reserve Act (Section 25 as
to national banks and Sections 9 and 25 as to State member banks),
the Board of Governors during the year 1975 approved 38 applications made by member banks for permission to establish branches in
foreign countries and overseas areas of the United States. During
the year, 54 overseas branches were opened by member banks and
24 were closed.
FOREIGN BANKING AND
FINANCING CORPORATIONS
At the end of 1975 there were four corporations operating under
agreements with the Board pursuant to Section 25 of the Federal
Reserve Act relating to investment by member banks in the stock
of corporations engaged principally in international or foreign banking. All of these "agreement" corporations were examined during
the year by examiners for the Board of Governors. The four corporations reflect a reduction of one from last year due to a merger into
its parent in Philadelphia.
During 1975, under the provisions of Section 25(a) of the Federal
Reserve Act, the Board issued a final permit to two corporations to
engage in international or foreign banking or other international or
foreign financial operations. Two corporations began operations. One
corporation was dissolved and another was merged into some other
corporation. At the end of the year there were 112 corporations in
active operation under Section 25(a). Seven of these corporations
operate a total of 13 overseas branches. Examiners for the Board
of Governors examined 111 of these corporations during 1975.

303

American Samoa . . . . . . . .
1
Argentina . . . . . . . . . . . . . .
37
Austria . . . . . . . . . . . . . . . .
1
Bahamas . . . . . . . . . . . . . .
80
Bahrain . . . . . . . . . . . . . . .
2
Barbados . . . . . . . . . . . . . .
6
Brunei . . . . . . . . . . . . . . . .
3
Belgium- . - . . • . . . . . ; . . . . . . 1 0
Boli¥ia . . . . . . . . . . . . . . . .
4
B r a z i l ..."..".".'.. . . . . . . . . 1 9
Canal Z o n e . . . . . . . . . . . . .
'2
C a y m a n Islands . . . . . . . . 4 9
Chile . . . ' . ' . ' . . . . . . . . ' . . . .
1
Colombia . . . . . . . . . . . . . . 37
Denmark
2
Dominican Republic . . . . . 2 0
Ecuador' . . . . / . . . . . . . . . . ' ' 1 3
Egypt . . . . . . . . . . . . . . . . . . .
2
E l Salvador . . . . . . . . . . . .
1
Fiji I s l a n d s . . . . . . . . . . . . . '
5
F r a n c e . . . . . . . . . . . . . . . . . . . . 19
Germany . . . . . . . . . . . . . .
30
Greece ' . . . . . . . . . . . . . . . .
18
Guam ...................
7
Guatemala . . . . . . . . . . . . .
3
Guyana' . . . . . . . . . . . . . . . .
1
Haiti. . . . . . . . . . . . . . . . . . . . .
5
Honduras . . . . . . . . . . . . . .
3
Hong Kong . . . . . . . . . . . . 25
India . . . . . . . . . . . . . . . . . .
11
Indonesia . . . . . . . . . . . . . .
6
Ireland'................
4
Italy . . . . . . . . . . . . . . . . . . .
10
Ivory Coast . . . . . . . . . . . .
1
Jamaica . . . . . . . . . . . . . . .
8
J a p a n . . . . . . . . . . . . . . . . . . . 29Jordan . . . . . . . . . . . . . . . .
1
Kenya . " . . . . . . . . . . . . . . .
2
Korea- . . . . . . . . . . . . . . . . . . .
-3

304

Lebanon . . . . . . . . . . . . . .
3
Liberia . . . . . . . . . . . . . . . . . .
2
Luxembourg . . . . . . . . . . .
7
Malaysia . . . . . . . . . . . . . .
5
M a r i a n a Islands . . . . . . . . . . .
1
Marshall Islands . . . . . . . .
1
Mauritius . . . . . . . . . . . . . .
1
Mexico . . . . . . . . . . . . . . . .
'5
Monaco . . . . . . . . . . . . . . . . .
1
Netherlands . . . . . . . . . . . .
6
•.Netherlands A n t i l l e s . . . ' . .
4
Nicaragua . . . . . . . . . . . . .
5
Okinawa . . . . . . . . . . . . . .
2
Oman . . . . . . . . . . . . . . . .
1
Pakistan . . . . . . . . . . . . . .
4
Panama . . . . . . . . . . . . . . .
33
Paraguay . . . . . . . . . . . . . .
6
Peru . . . . . . . . . . . . . . . . . . . . .
3
Philippines . . . . . . . . . . . . .
4
Puerto Rico . . . . . . . ' . . . . . 2 3
Qatar . . . . . . . . . . . . . . . . . . . .
1
Romania . . . . . . . . . . . . . .
1
Saudi Arabia . . . . . . ' . . ' . . .
2
Singapore ................... 2 2
Switzerland . . . . . . . . . . . .
9
Taiwan . . . . . . . . . . . . . . .
7
Thailand . . . . . , , . - . . . . . .
~2
Trinidad and Tobago . . . .
6
Truk Islands . . . . . . . . . . .
1
U n i t e d A r a b E m i r a t e s - ..-.-. 1 0
United Kingdom . . . . . . . . 5 4
Uruguay . . . . . . . . . . . . . .
5
Venezuela . . . . . .. . . . . . . .
4
V i r g i n I s l a n d s (U.S.) . . . . . 2 7
V i r g i n I s l a n d s (British) . . .
3
Yemen Arab Republic .. . • • 1
O t h e r ( W e s t I n d i e s ) .........
9
Total . . . . . . . . . . . . . . . . .

162

OTHER FOREIGN APPLICATIONS PROCESSED
During 1975, 201 other foreign applications were processed for action
by the Board in accordance with Sections 25 and 25(a) of the
Federal Reserve Act and of Sections 4(c)(9) and 4(c)(13) of the
Bank Holding Company Act of 1956, as amended. Most of these
involved proposed equity investments by Edge Act and agreement
corporations, member banks, and bank holding companies.

ACTIONS UNDER DELEGATION OF AUTHORITY
Pursuant to the provisions of Section 11 (k) of the Federal Reserve
Act, the Board of Governors has delegated to the Reserve Banks
(1) authority to approve, on behalf of the Board, certain applications
of State member banks to establish domestic branches, to invest in
bank premises, and to grant or deny a waiver of 6 months' notice
by a bank of its intention to withdraw from membership in the
Federal Reserve System, and (2) certain other authorities. Under
authority granted in (1) above, the Reserve Banks approved 150
branch applications, 81 investments in bank premises, and denied 22
waivers of notice of intention to withdraw from membership in the
Federal Reserve System. Under authority granted in (2) above, the
Reserve Banks approved 1,427 applications (domestic and foreign).
The Board has delegated certain authorities to the Director or
Acting Director of the Division of Banking Supervision and Regulation. Under this authority 194 actions were taken (domestic and
foreign). In addition, the Director or Acting Director of the Division
of Banking Supervision and Regulation is authorized under Section 18(c)(4) of the Federal Deposit Insurance Act (12 U.S.C.
1828(c)(4)) to furnish to the Comptroller of the Currency and the
Federal Deposit Insurance Corporation reports on competitive factors involved in a bank merger required to be approved by one of
those agencies if each of the appropriate departments or divisions
of the appropriate Federal Reserve Bank and the Board of Governors
are of the view that the proposed merger either would have no adverse
competitive effects or would have only slightly adverse competitive
effects, and if no member of the Board has indicated an objection
prior to the forwarding of the report to the appropriate agency.
Under this authority 105 competitive factor reports were approved.

305

BANK EXAMINATION SCHOOLS
In 1975 the Board's Bank Examination School conducted two sessions
of the School for Examiners, three sessions of the School for Assistant Examiners, one session of the School for Trust Examiners, and
one senior trust seminar. The Bank Examination School was established in 1952 by the three Federal bank supervisory agencies, and
from 1962 through 1970 was conducted jointly by the Federal Reserve System and Federal Deposit Insurance Corporation.
Since the establishment of this program, 5,386 persons have attended the various sessions. This number includes representatives of
the Federal bank supervisory agencies; the State Banking Departments of Arizona, Arkansas, California, Connecticut, Florida,
Georgia, Idaho, Indiana, Kentucky, Louisiana, Maine, Michigan,
Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire,
New Jersey, New Mexico, New York, North Carolina, North Dakota,
Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota,
Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, and
Wyoming; the Treasury Department of the Commonwealth of Puerto
Rico; the Division of Banking and Insurance, the Virgin Islands; and
25 foreign countries.

306

Consumer Affairs
INTRODUCTION AND SUMMARY
. . . in reality this Federal Reserve board will be a supreme court of
American finance, safeguarding the commercial interests of this
Nation, protecting our gold reserve, protecting our banking system,
protecting our commercial system, protecting the individual credit of
the private citizen, and giving him a fair deal in the struggles of
commercial and business life, and seeing to it that every citizen shall
receive the just amount of credit to which he is entitled by character
and by resources.
Robert Latham Owen, Chairman of the Senate
Committee on Banking and Currency; Senate
debate on the Federal Reserve Act, November
24, 1913
The Regulation attempts to reconcile the statutory goal of equal
access to credit—without regard to sex or marital status—with the
need to preserve the creditor's ability to distinguish, in the creditor's
own judgment, between applicants that are, or are not, creditworthy.
We have issued this Regulation pursuant to the direction of the
Congress. . . . Our aim is to facilitate broader and fairer access to
credit on a basis of creditworthiness alone.
Board press release October 16, 1975, with respect to adoption of Regulation B, implementing
the Equal Credit Opportunity Act

It is unlikely that Senator Owen in 1913 could have foreseen the
cascade of consumer credit protection legislation that the Congress
has enacted beginning with the Truth in Lending Act of 1968. Nor is
it likely he could have foreseen that half a century after the Federal
Reserve System started to function the Congress would come to
depend upon the Board as a source of reliable regulations to implement such legislation and, consequently, would make the Federal
Reserve responsible for writing the rules under which most of the
laws for consumer credit protection would operate.
The Board of Governors of the Federal Reserve System has become
deeply involved in consumer credit protection through its regulations

307

that implement legislation in this field. Beginning with the Consumer
Credit Protection Act of 1968 (of which the Truth in. Lending Act is
a part), these laws for the most part JiaYe set broad goals. But they
ha¥e left to regulatory interpretation the provision of "do-and-don't"
guides for attainment of these goals. The goals may be simply stated
as follows: the consumer should be told clearly the terms of any credit
transactions, throEgh disclosure by lenders (Truth in Lending, 1968);
mortgage lending should be free -of discriminatory bias (Civil Rights
Act, 1968S and Home Mortgage Disclosure Act, 1975); the consumer
should not be held liable for large bills that result from unauthorized
use of a credit card (credit card amendments to Truth in Lending,
1970); the individual seeking credit should be protected against outof-date or unfair lies that might damage his or her credit standing
(Fair Credit Reporting Act, 1970); the consumer should have a fair
method available to get billing errors corrected (Fair Credit Billing
Act, 1974); the consumer seeking credit should not be discriminated
against on grounds of sex or marital status (Equal Credit Opportunity
Act, 1974); the consumer should get bills that identify the credit
transactions that have been made (identification of transaction amendment to Truth in Lending, 1974); and the consumer should not be
subjected to unfair or deceptive practices in trade or iaancial transactions (Federal Trade Commission Improvement Act, 1975).
These laws have led to highly detailed regulations, largely because
of the multitude of consumer credit terms and conditions that are in
existence. Both consumer representatives and creditors ha¥e sought
a high degree of speciicity in consumer credit protection regulations:
consumers to be assured of definitions and rules to protect their gains
and creditors because the potential money penalties for failure to
comply are seve:re? especially under Truth in Lending and Equal
Credit Opportunity, The tendency of creditors to seek the protection
of detailed regulatory interpretation of these laws has been heightened
by some legal actions seeking large awards on grounds of narrow
technical violations.
At the beginning of 1975, the Board was faced with a massive
regulatory workload in the consumer affairs field. This derived chiefly
from the passage, on October 28, 1974, of a bill amending the Consumer Credit Protection Act of 1968. The main products of these
amendments were the Fair Credit Billing Act and the Equal Credit

308

Opportunity Act. There were also miscellaneous amendments to the
Truth In Lending Act, including requirements for identifying transactions in billing open-end credit accounts and for the disclosure of
closing costs in mortgage settlements. All these amendments were to
*vcome effective a year after their passage, on October 28, 1975, and
me Congress designated the Federal Reserve Board to write implementing regulations.
Also early in the yvnr the Feder.it Trade Commission (FTC)
Improvement Act of 1975 was passed, flits legislation empowered
the FTC to specif} and forbid practices m trade or commerce that it
considers unfair and deceptive, and it caK\! f«>r "substantially similar"
Federal Reserve regulations regarding banking prjunJv.es, to be
adopted within 60 days of the effective date of the F TV regulation—
unless the Board found that the practices cited by tbv PI C were not
unfair and decepti¥e in banking, or that they would materially interfere with monetary policy or the payments mechanism.
The Home Mortgage Disclosure Act of 1975, approved December
}l, 1975. required depositary institutions with offices in standard
metropolitan statistical areas to identify the geographic distribution
of their home mortgage loans (including home improvement loans).
The Board was directed to issue implementing regulations within 180
days.
The Board was also responsible, under the Real Estate Settlement
Procedures Act of 1974? for amending its Regulation Z (Truth in
Lending) to pro¥ide standardized forms for the adYance disclosure—
to persons buying homes through transactions involving Federally
related mortgage loans—of information on credit terms required
under Truth in Lending, in addition, the Congress had under consideration proposed legislation on, consumer leasing^ on which the
Board gave testimony but which was not enacted into- law in 1975.
This legislation became law on. March 23 ? 1976.
As 1975 began, the Board was considering amendments to other
regulations, particularly Regulation Q. These amendments were acted
upon during the year and served to improve banking services for
millions of consumers.
The drafting and adoption of regulations to implement new consumer credit protection legislation in 1975 were accomplished within
Ihe time limits set by the Congress. The Board also completed a sub-

309

stantial amount of revision of its regulations In the consumer credit
field. This was accomplished in part because the Board In 1974 had
foreseen the likelihood of. an Increased workload in this area and had
reorganized Its staff to deal with It and in part because the Board
already had had substantial experience In consumer credit protection
regulation.
On July 12, 1974, the Board, citing "anticipation of the Board's
possible responsibilities for Implementation of certain pending consumer affairs legislation/5 established a new staff department specifically to work In the field of consumer protection—the Office of
Sa¥er and Consumer Affairs (OSCA). In addition to advance preparation for Implementation of the pending consumer credit protection
legislation that would designate the Federal Reserve as the rulewriting agency, OSCA took over two longstanding consumer protection responsibilities of the Board's Division of Supervision and Regulation:-Securities Credit (margin requirements) and Truth in Lending.
By the time the new legislation was adopted in 1974, OSCA was In
position to start Immediately to develop Implementing regulations.
Among the • Board's most -pervasive responsibilities for- -consumer
protection are Its responsibilities for the supervision and regulation of
member banks and bank holding companies. Since the Federal
Reser¥e started operations. In 1914, It has been ln¥ol¥ed through.
examination and supervision of State member banks in a fundamental
consumer protection activity: maintenance of the soundness of the
banking system to- which the public entrusts Its money.
The Board has supervised the expansion of the bank holding company movement since 1956, a role that was intensified under new
legislation enacted in late 1970. A substantial part of the Board's time
during the past 5 years has been spent In developing rules defining
the fields of activity that bank holding companies may enter under
the 1970 amendments and In ruling upon applications to expand bank
holding companies. This activity Is an extension of the 'bank supervisory role of the Board and has basically the same objective: to
maintain a sound banking system. However, the Board's decisions as
to what activities- are permissible for bank holding companies and its
rulings on applications to engage In new activities touch the consumer
directly because a cardinal test In these decisions has been an affirmative showing of-public benefit, •

310

In 1975 the Board's responsibilities in the field of consumer credit
protection resulted in two new regulations and numerous other policy
actions. These regulations and actions were designed to assist the consumer, pursuant to law, in obtaining or using credit, to maintain the
soundness of the banking system, and to increase the a¥ailability of
ifiancial information to the public.
The regulations were (1) a new part of Regulation Z (Truth in
Lending), effecti¥e October 28, 1975, to implement the Fair Credit
Billing Act, and (2) Regulation B, also effecti¥e October 28, to
implement the Equal Credit Opportunity Act,
Fair Credit Billing
The chief purpose of the Fair Credit Billing Act (FCBA) and of its
implementing regulation is to help consumers resolve credit billing
disputes promptly and fairly. Certain practices deemed unfair to consumers using credit cards or other open-end credit accounts and those
deemed anticompetitive between credit-card issuers and retail merchants are prohibited, and procedures are established for resolving
disputes. The agencies that enforce Truth in Lending were also designated to enforce Fair Credit Billing.1 The Act directed the Federal
Reserve Board to write the implementing regulation to be used by all
enforcement agencies. The Board published its rules following extensive consultation with consumer groups, creditors, and the public at
large. These consultations included a meeting with the Truth in Lending Advisory Committee on April 22, 1975, the publication on April
30 of proposed regulations, publication of revised draft rules on
July 30, and a hearing on August 5,
The principal provisions of the Fair Credit Billing amendments to
Regulation Z include the following:
1. Definition of billing error
Amounts charged due to unauthorized use of the customer's
credit card; amounts questioned by the customer; amounts charged
1

Federal Eeser¥e Board; Federal Deposit Insurance Corporation; Comptroller of the Currency; Federal Home Loan Bank Board; National Credit
Union Administration; Civil Aeronautics Board; Federal Trade Commission;
Farm Credit Administration; and Packers and Stockyards Administration.

311

for property or seraces not accepted by the customer,' or wrongly
delivered; failure to credit-payments already made;, accounting errors,
Including errors In computing finance charges; imposition of finance
or other charges for late payment when a customer is not billed at "Ms
current address, if notification of change of address--was.given at least10 days before the end of the billing period.
2. Definition of proper written notification of error
Written notice to the creditor, at an address the creditor specifies,
within-60-days of the billing, that enables the creditor to- identify-thecustomer, indicates the customer's belief that the billing contains an
error and the amount involved, and gi¥es reasons for believing it is an
error.
3. Billing- error resolution
Upon receipt of proper written notification, the creditor must
acknowledge the inquiry within 30 days and resolve the dispute within
two' billing cycles,-or no more-than 90 days. During the resolution
process, the customer need not pay any amount in dispute. The
creditor may not force collection of any disputed amount or any
finance charges-on-it, or take other adverse actions arising-fromthe
amount disputed. Failure to- comply subjects the creditor to a forfeiture of the disputed amount, up to $50, regardless of whether an
error has- been -made.
4. Rights of the' cardholder to assert claims
The..credit cardholder may withhold payment and assert legal
claims against the card issuer with respect to shoddy or defecti¥e
merchandise or services purchased with a credit card-(with--certain
exceptions and limitations), following an unsuccessful attempt to
resol¥e the problem with the merchant.
5. Discounts for payments in cash
Merchants may offer their customers a discount of up'to ; 5''per
cent for-using.cash in lieu of using a credit card. This does..not constitute a finance charge. At the time it published its Fair Credit
Billing rules the Board asked the Congress for clarification as' to
whether the- provisions of the Act regarding discounts for the. use of
cash apply also to so-called surcharges when, credit cards are used,
(in early 1976 the Congress ruled that the Act's provisions' applied
only to discounts.)

312

6. Notification of rights
Creditors are required to notify customers of their rights under
the FCBA by use of a notice set forth In the regulation,
7. Crediting of payments
The creditor must specify at least one location where payments
will be credited as of the date of receipt.
8. Transition periods
Transition periods were provided in the regulation aimed at
a¥oiding errors and confusion in billing due to difficulties in changing
ewer from pre¥,iously used forms and in making technical changes,
such as computer programming and new computations required for
compliance.
Equal Credit Opportunity
The Equal Credit Opportunity Act (ECOA) also directed the Federal
Resef¥e to write an implementing regulation. Enforcement of the Act
and the regulation is the responsibility of the Federal Trade Commission except as specifically assigned to other Federal agencies: the
Federal Reserve Board, the Federal Deposit Insurance Corporation,
the Comptroller of the Currency, and se¥eral others.2
The Act covers all who regularly extend credit—including banks,
finance companies, department stores, and credit-card issuers—and
those who arrange for the extension of credit.
The Board issued for public comment proposed provisions for a
new regulation—Regulation B—to implement ECOA on April 23
and on September 8, 1975, and held a public hearing on May 28-29.
Regulation B was issued on October 16 to become effective on
October 28? 1975.
The principal ways in which the regulation affects the practices of
creditors include:
1. Credit scoring on the basis of sex or marital status
The regulation forbids the use of sex or marital status in credit
scoring systems.
2
Federal Home Loan Bank Board acting directly or through the Federal
Savings and Loan Insurance Corporation; Administrator of the National Credit
Union Administration; interstate Commerce Commission; Civil Aeronautics
Board; Secretary of Agriculture; Farm Credit Administration; Securities and
Exchange Commission; and Small Business Administration.

313

2. Reasons for denying credit
Upon the request of an applicant, creditors will be required to
pro¥ide the reasons for terminating or denying credit
3. Childbearing
Creditors may not inquire into birth control practices or into
childbearing'capabilities or intentions, or assume from-her age-that
an applicant or ae applicant's spouse may drop out of the labor force
due to childbearing and thus have an interruption of income.
4. Income
A creditor may not discoent part-time income but may examine
the probable continuity of the applicant's job.
A'creditor may ask'and'consider whether and to what extent an
applicant's income is affected by obligations to make alimony, child
support, or maintenance payments.
A creditor may ask to what extent an applicant is -relying on
alimony or child support or maintenance payments to repay the debt
being incurred. Bet the applicant must first be informed that no such
disclosure- is- -necessary if the applicant does not rely on such income
to obtain the credit. When an applicant chooses to rely on alimony, a
creditor shall consider such payments as income to the extent that
they are likely., to be consistently made.
5. Recordkeeping
Effective November 30, 1975, creditors were required to keep
applications-and related-materials,-including any written-charges -submitted by the applicant alleging discrimination, for 15 months following the date the creditor gives the applicant notice of action.
• For all-accounts-established on or after November 1, 1976,. the
creditor must identify, for consumer reporting agencies or others to
whom the creditor furnishes information, those accounts that both
spouses may use or for which they are both liable, so.that the credit
history can be utilized in, the name of each spouse.
No later than February 1, 1977, the creditor is required to
inform holders of existing accounts of a similar right to have the
credit history reported in both names.
The Act provides that an aggrieved applicant may lie suit against
creditors for actual damages and for punitive damages up to- $10,000.

314

In class actions, penalties up to $100?000 or 1 per cent of the
creditor's net worth, whichever is less, may be assessed.
In several instances, when changes had to be made on a large scale
in recordkeeping or computer programs, in training of employees, or
in forms and information supplied to customers in order to- conform
to the regulation, the Board gave creditors various periods of time
in which to comply. However, the Act's provisions against discrimination on the basis of sex or marital status are in force during the
transition period.
The regulation exempts from numerous specific procedural provisions credit issued as an incident to doing business, such as credit
given by dentists, doctors, or small shopkeepers whose credit is not
obtained by use of a credit card, where no finance or late charge is
made and where there is no agreement making the credit payable in
more than four instalments.
There are also partial exceptions from procedural provisions for
business credit, securities credit, and public utilities credit. These
partial exceptions do not exempt such creditors from the basic
prohibitions of the Act.
Effective June 30, 1976, the regulation requires that—except when
applications for credit are made by telephone or are made orally for
an amount not exceeding an existing limit oe an open-end a c c o u n t creditors mest giYe applicants the following written notice:
The Federal Equal Credit Opportunity Act prohibits creditors from
discriminating against credit applicants on the basis of sex or marital
status. The Federal agency which administers compliance with this
law concerning this (insert appropriate description—bank, store, etc.)
is (name and address of the appropriate agency).
By February 1, 1977, creditors are required to mail to all customers, or to all married customers, a notice set forth in the regulation (Section 202.6) notifying them of their rights under the Act to
have credit reports of accounts of married persons made in both
names. Both spouses are entitled to the credit history of the account
when both are contractually liable for the account or are allowed to
use it. The information must be retrie¥able in the name of either
spouse.

315

Applicants' who request a statement of reasons for denial- or
termination of credit may be given, a statement orally or in writing.
The regulation provides an example of a possible form of response
listing'reasons, under six main, 'headings, which may be- checked-to
Indicate why credit was denied:
1. Credit application:
_ not completed
_ lack of credit references
_ credit reference too new to
check

2. information furnished by:
XYZ credit bureau
10 Main Street "
- Anytown, Anystate 00000 . .
Phone
Number:
000^000^0000
Ph
N b
0000000000
3. Employment:

__ temporary or Irregular
_ unable to Yertfy
_ length of employment
4 income*
_ Insufficient
_ unable to confirm
_ information refused
5^ Res idence:
_ t o o shmt a
iod
_ temporary
6^ Other (specify):

• __ unemployed

T r u t h in Lending amendments
On May 12, 19755 the Board announced adoption of a new Truth in
Lending disclosure form pursuant to provisions of the Real Estate
Settlement-..Procedures Act of 1974 (RESPA). The new. form, was
drawn up as part of a combined settlement-and-credit-cost form developed by the Department of Housing and Urban Development
under .RESPA...The Act required that consumers be ,gi¥en a Uniform.
Disclosure/Settlement Statement at the time of lender commitment
and again at the time of settlement in home purchase' credit transactions. - • •
...
On October 24, 1975, the Board amended Regulation Z, effective
January 31, 1976, to conform to an amendment of the'Truth in
Lending- Act (Section 409, Public Law 93—495) requiring, disclosure.
of dosing costs in certain real property transactions not covered by
RESPA, This applied to credit transactions in which the lender retains
or acquires an interest in the property involved, as collateral, -except
for mortgages coYered by RESPA.
Both RESPA and Section 409 of Public Law 93-495 were under
reconsideration in the Congress at the end of 1975. In testimony to.
the Congress on October 28, 1975, the Board recommended revision

316

of R i ' S V X l u i i l K-jH.'ii \>i S e c t i o n . ' 0 ° W j j * s

n ' t i ^m Lciuiinii '\i:i

u quiring disclosure of dosing costs in. non-RESPA transactions. The
Congress signed into* law on. January 2, 1.976, the repeal of Section
409 of Public Law 93-495. In respoo.se to this legislati¥e change, the
Board rescinded its Implementing regulations on January 21, 1976.
On September 10, 1975, in. connection, with adoption of regulations
under the Fair Credit Billing Act, the Board amended Regulation Z
to implement a legislative addition to the Truth in Lending Act
(Section 411, Public Law 93—495). The regulatory amendment sets
out requirements with respect to descriptions of credit transactions at
1 he time the customer is billed. The objective is to supply sufficient
information on the customer's bill to enable the customer to recognize
the transaction.
A transition period was provided to avoid confusion and error
during large-scale reprogramming of computers required to comply
with the new law, but full compliance was required no later than
October 28, 1977.
The main elements of full compliance with provisions of the Act
for identification of transactions are:
Creditors who bill "descriptively"—that is, who send only a statement of account, without copies of the sales voucher made at the
Iinie of the transaction—must provide a transaction date. In addition,
for two-party creditors—for instance, a transaction with a department
store where the department store's credit card is used—there must be
j description of the goods or services purchased. For three-party
transactions—where a bank card or ttaYei and entertainment credit
card is used—the name of the merchant and the address where the
transaction took place must be given.
On September 10, 1975, the Board amended Regulation Z to
require that creditors disclose in a dear and conspicuous manner
the credit terms that apply to the use of cash-advance checks at the
time such checks are first sent to a customer. These cash-advance
checks are blank checks issued to holders of credit-card accounts for
use in obtaining cash ad¥aiices. Their terms may ¥ary from those
pertaining to credit-card purchases. The Board noted that issuance
and use of such checks in connection with credit-card accounts have
been growing.
A number of other amendments or interpretations of Regulation Z
during 1975 are described in the Annual Report on Truth in Lending

317

that begins, .on page 335. These invoke disclosure of single-component
finance charges and a series of amendments adopted to conform to
changes in the law enacted-by the-Congress to improve -administration
of the Act.
Consumer Advisory Council
The Board has been assisted in its administration of the Truth in
Lending. Act. by a Truth.in Lending Advisory Committee,,representing
a cross section of persons concerned with consumer credit affairs^ both
debtors "and creditors.
The Board recommendedto-the Congress that this Advisory Committee be reorganized into a Consumer Advisory" Council, which
could advise..the Board on the.entire range of its.consumer credit
responsibilities. It suggested that the Council be made up of 20 to 25
persons, some- from the present membership of the Truth in • Lending
Advisory Committee, to meet once or more annually. Such a Consumer Advisory Council was enacted into law early in "1976.
Interest on-Deposits amendments
During. 1975 the Board, adopted.seven amendments to Regulation .Q,
through which it administers provisions of the banking laws establishing limitations on the rates of-interest that banks may pay on deposits.
Regulation Q applies to all national and State member banks. The
amendments benelted consumers by increasing the' convenience" of
banking, by increasing yields from savings accounts, or by improving
services to savers.
• Effective- April 7 the Board authorized member banks to permit
the use of the telephone by their customers to withdraw funds from
their savings accounts or to"transfer funds from a savings account.
The action.rescinded a policy, in effect since 1936, against the use of
telephonic instructions of this type.
• • Effective June 5 the Board amended Regulation Q to- permit member banks to redeem time deposits before maturity without imposing
a penalty for early withdrawal when the depositor or co-depositor has
died.. Normally, Regulation ,.Q. permits, early withdrawal from a time
deposit only with a substantial penalty in the form of lost interest:
interest on the withdrawn -funds would be paid at the rate -of passbook
318

savings (usually the lowest rate paid on sa¥ings or time deposits),
and 3 months' interest would be forfeited.
Effective September 1 the Board amended Regulation Q to require
member banks, upon issuing a time deposit, to make certain disclosures on the certificate, passbook, or other document representing
the deposit. The amendment requires member banks to print or
stamp on each certificate, passbook, or other document representing
a time deposit a conspicuous statement indicating that no interest will
be paid on the deposit after the maturity date. In the case of a time
deposit that is automatically .renewable, the amendment requires a
conspicuous statement indicating the contract will be automatically
renewed unless the owner gives the bank other Instructions, and
indicating the terms of the renewal.
Effective September 2 the Board amended Regulation Q to authorize member banks to offer a bill-paying service to their customers
through the preauthorized transfer of funds from the customer's
savings account. Pre¥ioesly? a bill-paying service of this type could
be established only for the payment of the principal, interest, or other
charges related to a real estate loan or mortgage. Under this amendment a savings depositor may authorize the transfer of funds to third
parties for payments of any type, except bank overdrafts.
The amendment gave member banks broad, general authority to
design and offer bill-paying ser¥ices by using funds in sa¥ings accounts. The amendment did not, howe¥er? specify the form of such
services. The Board therefore offered the following hypothetical outline of a possible bill-paying ser¥ice:
In most cases, a Mil-paying service will be based upon a written
contract between, the bank and the depositor. . . . The transfer . . ,
may be accomplished by means of an internal bank transaction or by
sending a bank check to the transferee or the transferee's bank.
The depositor will give the bank the names of those organizations or
individuals to whom funds are to be transferred, indicating either the
specific amount to be paid to each, or a maximum amount and the
frequency of payment.
Subsequent additions to the list of transferees or changes in instructions may be communicated to the bank in person, in writing, or by
telephone.
If the depositor uses a written withdrawal form to convey transfer
instructions to the bank, such form must contain language in boldface type that it is not negotiable or transferable.

319

The System is monitoring the development of bill-paying services to
determine If additional regulations or guidelines should be issued.
Effective November 10 the Board took a further action that was
expected to be of particular benefit to small businessmen. This action
amended the definition of savings depositors under Regulations Q
and D. It permitted member banks? for the first time, to offer savings
accounts to partnerships, corporations, and other organizations
operated for profit,
Small businesses normally do- not have facilities for investing
temporarily idle cash balances in money market instruments, as
large businesses customarily do. Thus, the bank, balances of small
businesses may lie idle because no interest is paid on demand
balances, Permitting member banks to offer savings accounts to
businesses, therefore, opened the way for small businesses, as well as
large ones, to earn interest on cash that is being held for tax payments, inventory purchases, or the like.
The amendments place a ceiling of $150,000 on business savings
deposits. The dollar ceiling was intended to make such accounts
attractive chiefly to small businesses. As savings accounts for businesses had previously been available at thrift institutions, the Board's
action enabled member banks to compete more effectively with
savings institutions.
Hie Board asked member banks to classify their business savings
accounts as a separate item for reporting purposes.
In Massachusetts and New Hampshire, where the law permits
financial institutions to offer deposits subject to negotiable orders of
withdrawal (NOW?s—check-like use of interest-bearing deposits),
such accounts continued to be available only to individuals and other
qualifying organizations. Businesses are not eligible to establish NOW
accounts. (In early 1976, the Congress authorized financial institutions throughout New England to offer NOW accounts.)
Effective December 4 the Board adopted two amendments to Regulation Q to facilitate the establishment of Individual Retirement
Accounts (IRA's). IRA's are established pursuant to the Employee
Retirement Income Security Act of 1974 by persons not covered by
a retirement plan. The statute allows individuals to deposit up to
$1,500 or 15 per cent of their gross income (whichever is less) in
special tax-deferred accounts.
The first of these amendments permits member banks to pay all

320

or a portion of an JRA time deposit prior to maturity, without
penalty for early withdrawal, when the individual for whose benefit
the account is maintained either reaches 59!^ years of age or becomes
disabled. (Regulation Q normally requires a penalty when time
deposits are withdrawn prior to maturity.) As a result of this amendment, member banks may distribute the proceeds of an IRA account
in a single payment, without penalty, when the distribution is made in
conformance with an IRA agreement between the bank and the depositor. Or member banks may establish IRA's from which periodic,
annuity-like payments may be made, with oo reduction in the rate of
interest paid.
The second amendment permits member banks to waive, for the
purposes of IRA's, the $1,000 minimum required for time deposits
with maturities of 4 to 6 years. It permits member banks to pay 11A
per cent interest for 4-year time deposits or the IVi per cent rate for
6-year deposits, without requiring the usual minimum $1,000 deposit,
in recognition of the fact that some depositors initially may not have
such a sum.
In announcing these amendments, the Board said it was continuing
to study the question—-on which it had earlier ieYited public comment
—whether elimination of the ¥4 per cent differential in interest rate
ceilings preYailing for time deposits between commercial banks and
thrift institutions is appropriate for long-term IRA's.
Unfair practices
On April 24? 1975, the Board published for comment a regulation
proposed by the Federal Trade Commission that would prohibit the
use of certain practices the Commission deemed to be unfair.
The Board's proposal would apply to banks. It parallels a proposed
unfair credit practices rule applying to nonbank creditors published
for comment by the FTC under the Federal Trade Commission Improvement Act of 1975. The Act requires the Board, within 60' days
of the adoption by the FTC of final rales with respect to unfair credit
practices, to adopt substantially similar rales applying to banks, unless
the Board finds either that the practices in question are not unfair or
deceptive for banks or that implementation of the rules would seriously conflict with essential monetary or payments system policies.
To enable it to comply with the 60-day requirement, the Board

321

published tentative proposals that, like the Commission's, would prohibit .the. use ..of. specified collection, practices or the .Incorporation .in
credit contracts of provisions considered by the Commission to be
unfair. It would also require disclosures to co-signers to inform them
of the-legal, ramifications .of agreements they .sign, Neither the.FTC
nor the Board had made a final ruling in this matter by the end of
1975.
Consumer complaint procedure
During. 1975. the Board formalized its procedure for processing consumer complaints within the Office of Saver and Consumer Affairs
and through consumer affairs personnel at the Federal'Reserve Banks.
The-re¥ised procedure-deals-not only with alleged .violations...of
speciic regulations but also with any other complaint by or for an
individual consumer (including any borrower, saver, or investor) or
consumer--group,-a--business firm, or other person .against a financial
institution or other creditor. Any such complaint received by the
Federal Reserve Board or any Federal Reserve Bank against' State
member banks- of the - Federal .Reserve System is.. investigated and
processed through the Federal Reserve Bank of the district, Complaints against other creditors are referred to the agencies having'
supervisory or-enforcement responsibility for such creditors.
A detailed statistical collection procedure was simultaneously
established to assist the Board In, meeting its responsibilities under
Title II-of-the Federal Trade Commission Improvement.Act.and, in
addition, to permit periodic accounting of consumer complaint activity. A primary focus of this data collection effort is to assure that'the
Board is made aware promptly.of any administrati¥e5 management, .or
enforcement deficiencies and of consumer concerns that would be
helpful in developing more effective compliance procedures or remedies-for consumer-problems.-The revised reporting-procedures went
into effect January 1, 1976.
New legislation
The Congress adopted two new consumer protection measures in acts
signed into-law on-March 23, -1976. One adds a consumer leasing

322

section to the Truth in Lending Act. In Its ANNUAL REPORTS to Congress for 1973 and 1974, the Board had pointed out se¥eral disclosure
problems in the consumer leasing area and had suggested that the
Congress might wish to examine them. The Board noted that there
was no requirement for standardized cost disclosure when a consumer
leased goods under a long-term contract. The other major legislation
adopted amended the Equal Credit Opportunity Act to prohibit
discrimination in the granting of credit on. the basis of race, color,
religion, national origin, age? .receipt of income from public assistance
programs, or exercise of rights under the Consumer Credit Protection
Act.
The Board of Governors is responsible for writing implementing
regulations for both new laws.
Additional information on bank financial condition
The Federal Reserve Board, together with the other Federal bank
regulatory agencies, announced on December 17, 1975, a series of
changes in two basicfinancialreports—report of income and report of
condition—required of banks subject to its supervision. The revisions
call for changes in the data supplied and more frequent reporting.
One objective of these revisions, effective March 31, 1976, and
of additional revisions and supplements under preparation and to be
announced later, is to provide the public with improved information
as to the financial situation of banks. All parts of the reports will be
available to the public upon request.
Consumer education
Recognizing the need for educational materials to help inform consumers of their rights and responsibilities under various new consumer
protection laws, the Board in 1975 intensified production of consumer information pamphlets. Three such pamphlets were prepared
in draft form and were undergoing staff review at year-end. They
included informational pamphlets explaining in layman's terms the
Board's regulations implementing the Equal Credit Opportunity and
Fair Credit Billing Acts and an educational pamphlet describing the
various ways in which interest on savings accounts is calculated and

323

paid. The last pamphlet is intended primarily to assist the consumer
in intelligently evaluating alternative savings programs. Additional
pamphlets are planned for publication in 1976.

EQUAL CREDIT OPPORTUNITY
Issuance of new Regulation B
During 1975 the Board of Governors of the Federal Reserve System
published a new Regulation B implementing the Equal Credit Opportunity Act (ECOA), which forbids discrimination by creditors on the
basis of sex or marital status. This regulation was written in response
to legislation enacted by the Congress and signed by the President on
October 28, 1974, with an effective date of October 28, 1975. Section 502 of the Equal Credit Opportunity Act sets forth the findings
and purpose which led the Congress to adopt the ECOA as an addition to the Consumer Credit Protection Act:
The Congress finds that there is a need to insure that the various
financial institutions and other firms engaged in extensions of credit
exercise their responsibility to make credit available with fairness,
impartiality and without discrimination on the basis of sex or marital
status.
The Board issued its first proposed version of Regulation B for
public comment on April 23, 1975. Public hearings were held at the
Board of Governors in Washington, D.C., on May 28 and 29, 1975,
at which 28 individuals and consumer groups, banking, retail, and
financial organizations testified as to improvements that could be
made in the regulation, as well as the effects the regulation would
have on the consumer, on credit standards, and on the availability of
credit generally.
Written comments on the proposed regulation as initially published
were received by mail until June 30, 1975, from over 700 banks,
consumers, consumer groups, financial institutions, retailers, trade
associations, loan companies, and credit bureaus, as well as Federal
and State regulatory agencies. Commentator suggestions included
adding prohibitions on the basis of race, color, religion, and national
origin, reorganization of the regulation along functional lines, and
instituting educational requirements as to its provisions. Criticism

324

included allegations that there would be detrimental effects cm con•M! aiers due to the possibility of increased costs of credit, the raising
ot credit standards, and the ensuing restrictions oe the availability of
audit.
After careful consideration of the oral testimony at the public
hearings and the 700 written letters of comment on the proposed
Regulation B, the Board of Governors Issued a second Yemen for
comment on September 5, 1975, About 600 additional comments
were received from creditors, women's groups, individuals, represent.Hives of State and local governmental bodies, and the members of
Congress. The Board again carefully evaluated the numerous suggestions for further tech-ni».\i! <.h,viij< - «.{;•] issued a final version of
Regulation B on October i <\ I ^ « x
In issuing the new repibhnn ibr Fi vv\\ said:
The Equal Credit Opportunity Act constitutes a determination by
the Congress that sex or marital status of an applicant shall not be
used, as such, In evaluating the applicant's creditworthiness.
The Regulation attempts to reconcile the statutory goal of equal
access to credit—without regard to sex or marital status—with the
need to preserve the creditor's ability to distinguish, in the creditor's
own judgment, between applicants that are, or are not, creditworthy.
We have issued this Regulation pursuant to the direction of the
Congress that the Federal Reserve Board should write implementing
rules, to be enforced by a number of Federal agencies acting in their
own jurisdiction, after very extensive consultation with the public
including women's groups, other consumers, creditors large and small,
Individuals and the Congress. Our aim is to facilitate broader and
fairer access to credit on a basis of creditworthiness alone.
In several instances, where the regulation required changes to be
made on a large scale in recordkeeping or computer programs, in
i raining of employees, or in forms and information supplied to customers in order to conform to the regulation., the Board gave creditors
\arious periods of time In which to comply. However, the provisions
of the Act itself against discrimination on the basis of sex or marital
<* at us are in. force during the transition period.
A failure to comply with certain requirements of the regulation Is
nut a violation If it Is caused by mechanical, electronic, or clerical
ei ror, In circumstances making It clear that the creditor had established
and was maintaining suitable compliance procedures.

325

The regulation exempts from certain speciic procedural provisions
credit issued merely as an incident to- doing business, such as credit
given by. dentists, doctors,, or. small shopkeepers not obtained ..by use
of a credit card? where no finance or late charge is made and where
there is no agreement making the credit payable in more than four
instalments.
There are also partial exceptions from certain procedural provisions for business credit, securities credit5 and public utilities credit.
These partial exceptions, however, do not exempt such creditors
from the basic prohibition of the Act against discrimination on the
basis of sex or marital status.
Effective June 30, 1976, the regulation requires that—except
where applications for credit are made by telephone, or made orally
for an amount exceeding an existing limit on an open-end a c c o u n t creditors must give applicants the following written notice:
The Federal Equal Credit Opportunity Act prohibits creditors from
discriminating against credit applicants on the basis of sex or marital
status. The Federal agency which administers compliance with this law
concerning this (insert • appropriate description—bank, -store, etc.) is
(name and address of the appropriate agency).
Between November 1, 1976, and February 1, 1977, creditors are
required, with some exceptions^ to mail to all customers' or' to all
married customers, a notice set forth in the regulation notifying them
of their rights under the Act to have credit reports of accounts of
married persons made in- both names. Both spouses are entitled to the
credit history of the account where both are contractually liable for
the account or are allowed to use it. The information must be retrievable.in. the name of either spouse.
The regulation forbids:
—With certain exceptions, terminating credit on an existing account because of a change in an applicant's marital status without
evidence that the applicant is unable or uewilling to pay.
—With certain exceptions, requiring or using any unfavorable information about a spouse or former spouse where an applicant
applies for credit independently of his or her spouse, and can demonstrate that the unfavorable history should not be applied.
The regulation provides certain permissible inquiries or actions
regarding a spouse, which may have the following scope;

326

(1) Where an applicant seeks unsecured individual credit, qoeslions as to marital states may be asked only in a community property
State, or if necessary to comply with certain State laws as to permissible ieaiice charges or loan ceilings.
(2) Where the applicant seeking credit relies on the creditworthiness of the nonapplicant spouse, the creditor may request and consider any information that might be considered about the spouse.
(3) Creditors may not prohibit an applicant from opening or
maintaining an account in birth-given first name and surname.
(4) Creditors may require the signatures of both spouses where
State law requires, or probably requires, both signatures in, order to pass
dear title, to create valid liens, or to waive Inchoate (potential) rights
to property or to assign earnings.
(5) State law notwithstanding, a creditor may extend separate
credit to- each spouse if each applies separately and voluntarily.
—Where this preempts State law, each spouse is solely responsible
for the credit separately obtained.
—Where separate credit is extended, cuch account is treated
separately in determining permissible Inan.ce charges or loan ceilings,
under conditions described in the regulation.
(6) State laws are preempted only if they conflict with the Act
v>t regulation, and only to the extent that they do so.
Enforcement of the Equal Credit Opportunity Act and the regulation Is the responsibility of the Federal Trade Commission except
as specifically assigned to other Federal agencies, including the Federal Reserve System, the Federal Deposit Insurance Corporation, the
Comptroller of the Currency, and several others.1
To help secure broad public understanding of the regulation, public seminars have been held by the Reserve Banks In each of the
Federal R e s a l e districts. System personnel have also appeared at numerous other meetings and seminars for the same purpose. In addition, a pamphlet describing the regulation for the benefit of consumers is currently in preparation.
• Federal Home Loan Bank Board acting directly or through the Federal
Savings and Loan Insurance. Corporation; Administrator of the National Credit
Union Administration; interstate Commerce Commission; Civil Aeronautics
Board; Secretary of Agriculture; Farm Credit Administration; Securities and
Exchange Commission; and the Small Business Administration.

327

Approximately 1.25 million copies of the regulation and 6,000
copies of the Board's press release explaining its provisions have been
printed or duplicated and are in the process of distribution through
the 12 Federal Reserve Banks and the 11 other agencies charged by
the Congress with the duty of securing compliance by various categories of creditors. Procedures similar to those used for securing a
wide distribution of Board and staff interpretative opinion letters on
Truth in Lending have been set up to distribute similar letters on
Equal Credit Opportunity, and these letters are also available in the
Board's public information file. General availability of these letters
should, it is hoped, result in broader public understanding and acceptance of the Act and its requirements.
Interpretation
The Board of Governors of the Federal Reserve System has issued
one clarifying interpretation of the Equal Credit Opportunity Act
regulation which made it clear that banks in Pennsylvania may continue to make Federally guaranteed loans to married students under
programs administered by the Federal Department of Health, Education, and Welfare by requiring the signature of both spouses until
January 31, 1976. This interpretation resolved the doubt of Pennsylvania banks as to whether the banks are protected from lawsuits
arising out of the Regulation B provision prohibiting creditors from
requiring the signatures of both spouses in connection with the extension of credit. It permits this practice to continue until January 31,
1976, by which time it is expected that Pennsylvania State regulations can be amended to bring them into compliance with Regulation B.
Changes In law and amendments
The Board is deferring any recommendations regarding changes in
the law until more experience has been gained through the implementation of the present regulation. When and if experience should indicate that substanti¥e changes in the law are necessary to implement
the intent and purpose of the statute or relieve the credit industry of
burdens unforeseen by the Congress, the Board will recommend suit-

328

able changes, as it has done from time to time with respect to the
Truth in Lending Act.
The Board also has presented its views in testimony before both the
House and the Senate Banking Subcommittees on Consumer Affairs
on proposed legislation amending the Equal Credit Opportunity Act.
Although the Board strongly favors the elimination in credit transactions of all discrimination based on factors other than an individual's creditworthiness, the Board has recommended that the Congress
delay enactment of this legislation until there has been sufficient
opportunity to benefit from experience in implementing the regulation
under the sex and marital status provisions of the Equal Credit
Opportunity Act.
FEDERAL TRADE COMMISSION
IMPROVEMENT ACT
Pursuant to Section 18(f)(5) of the Federal Trade Commission Act,
15 U.S.C. Section 41 et seq., as amended by the Federal Trade Commission Improvement Act (Public Law 93-637), the Board of Governors of the Federal Reserve System submitted to the Congress this
first annual report (dated March 15, 1976) on its activity during the
year 1975 with respect to its responsibilities in regard to unfair or
deceptive acts or practices of banks.
On January 4, 1975, the Federal Trade Commission Improvement
Act (hereinafter the Act), an amendment to the Federal Trade Commission Act, was signed into law as Title II of the Magnuson-Moss
Warranty-Federal Trade Commission Improvement Act (Public Law
93-637). The Act imposes three distinct obligations on the Board:
(1) The Board is directed to establish a procedure for handling consumer complaints regarding unfair or deceptive acts or practices of
State member banks; (2) the Board is granted broad independent rulemaking authority and is directed to prescribe regulations to prohibit any
unfair or deceptive acts or practices of banks, including all insured
banks, whether or not members of the Federal Reserve System; and (3)
whenever the Federal Trade Commission (FTC) promulgates a rule
defining unfair or deceptive acts or practices, the Board is required
to issue—within 60 days after the effective date of such rule—a substantially similar regulation applicable to banks, unless the Board

329

finds either that such acts or practices of banks are not unfair or
deceptiYe or that implementation of similar regulations with respect
to banks would seriously conflict with essential monetary and payments systems policies of the Board. This annual report details the
Board's actions during the past year with respect to each of these
three areas of responsibility.
Consumer complaint procedure
Section 18(f)(l) of the amended Federal Trade Commission Act
requires each Federal bank regulatory agency to establish a separate
division of consumer affairs to- receive and take appropriate action on
consumer complaints pertaining to unfair or deceptive practices of
banks under its jurisdiction. Anticipating passage of the legislation,
the Board, in August 1974? established a separate Office of Saver and
Consumer Affairs (OSCA). This office administers the consumer protection legislation assigned to the Board, including the Truth in Lending Act, Fair Credit Reporting Act, Fair Credit Billing Act, Title
VIII of the Civil Rights Act of 1968, Equal Credit Opportunity Act,
and the Home Mortgage Disclosure Act, in addition to the Federal
Trade Commission Improvement Act. OSCA has been designated by
the Board to receive consumer complaints pertaining to unfair or
deceptive acts or practices by banks, as well as complaints on the
other consumer protection Acts assigned to the Board, and to take
appropriate action on them. OSCA and the Office of the Secretary
have been designated to assist the Board in assuring that consumer
aspects of ail Board actions receive suitable attention. In addition,
OSCA administers the securities credit regulations under the Securities
Exchange Act of 1934.
The Board views the complaint procedure envisioned by the FTC
Act as an essential aspect of the regulatory authority granted by it.
In making a determination as to whether an act or practice is unfair
or deceptive within the meaning of the Act, great weight must be
given to the experiences of consumers in their dealings with the banking industry. A record of consumer problems provides a basis for
identifying areas that may require regulatory action. During 1975,
OSCA developed a formal complaint procedure and augmented its
consumer affairs staff to implement and manage it. This complaint
procedure has been put into operation both at the Board and at the

330

Federal Reserve Banks and branches. It serves the dual purposes of
(1) assuring consumers prompt and responsive action on their complaints concerning individual banks, and (2) providing an effective
mechanism for identifying bank practices that consumers believe to
be unfair or deceptive and for determining whether such practices
call for corrective measures.
Under the Board's complaint procedure, the System staff records
and categorizes each complaint received and its disposition on a standard complaint report form. Records of all complaints received
throughout the System are maintained at a central location. The complaints are analyzed and classified to enable the Board to identify
any emerging patterns of abuse. A significant number of complaints
involving, for example, a particular practice, bank, or geographic
area will signal the need for further investigation and may lead to
regulatory action.
There were an estimated 106 complaints of unfair or deceptive acts
or practices received in 1975, 14 received by the Board and 92 by
the Federal Reserve Banks. Seventy-eight of these complaints involved
non-State member banks and the remaining 28 concerned State member banks. Sixty-four complaints were resolved, 41 were referred to
other appropriate agencies for action, and 1 is still pending. A number of complaints concerning nonmember banks were resolved by
System staff without referral.
The most significant recurring complaints were in the areas of
advertising, accounting procedures, service charges, and Interest on
savings accounts. Other complaints were received concerning discrimination in pro vision of services, collection and repossession procedures, difficulties In error resolution, and false and misleading
information.
There was no concentration of complaints within a geographical
area, nor were there recurring complaints involving the same
institutions.
The Comptroller of the Currency and the Federal Deposit Insurance Corporation have each developed complaint procedures similar
to the Board's for handling consumer complaints, and the Board
has arranged to receive periodic summaries of the complaint data
collected by these agencies for analysis along with the Board's complaint records. The Board feels that the information that Is being
gathered through these procedures by the Federal Reserve System

331

and the other Federal bank regulatory agencies will provide a means
of. monitoring the. banking industry to' help assure the.detection.and
pfeYeatioii of unfair or deceptive practices and practices which potentially- might be considered unfair or deceptive.
. . .
Exercise of regulatory authority
The -Federal Trade Commission Improvement Act became effecti¥e
In 1975 and, prior to any exercise of regulatory authority, the Board
set-out to familiarize itself with-the Act's mandates and their implications. The Board staff explored such issues as the methods provided
under the-Act'to-enforce-bank compliance with Board regulations,
the rule-making procedures applicable to the Board, whether the Act
required the Board to issue" regulations substantially similar to FTC
rales that are not promulgated in accordance with the new procedure specified in, the"Act (Section 202(c)f 1) rules), the FTC's criteria
for determining unfairness, and the degree of latitude given to the
Board to modify FTC rules or to issue no corresponding rales.
After studying and analyzing the Act, the Board held a conference
to explain" the Act's ' requirements and implications "to" the 'Federal
Reset¥e Bank and branch office personnel responsible for its administration. The Board also established liaison with the'" Office of Consumer Protection at the FTC to insure that the Board would be
informed in advance of FTC plans regarding proposal of regulations.
This will help enable the Board to meet the requirement that substantially similar regulations be promulgated within 60 days of the effective date of FTC regulations.
Initiation of regulations by the Board. Tie Federal Trade
Commission Improvement Act-grants to the Board broad independent
rale-making authority to prohibit unfair or decepti¥e bank practices.
While the Board did not propose any rules pursuant to-this-authority
during 1975, with the implementation of the complaint procedure
throughout the Federal Resent System and the formalizatlon of
liaison with the consumer complaint di¥isioes of the other Federal
bank regulatory agencies, the preliminary measures' necessary to' the
knowledgeable exercise of this authority have been completed.
The 'Board staff has been reviewing possible regulatory action as to
the advertising of "free" checking and other bank services as a result of

332

both consumer and Industry complaints indicating possible decepti¥e
practices in the field. These practices are also receiving the attention
of the banking industry as evidenced by the establishment by the Bank
Marketing Association of a Financial Advertising Committee on
Ethics, which has proposed a financial services advertising code of
ethics.

Issuance of substantially similar regulations. During 1975,
the FTC proposed two trade regulation rales which, if adopted, would
trigger the requirement that the Board adopt substantially similar
regulations.
Unfair credit practices. On April 9, 1975, the FTC proposed an
Unfair Credit Practices Rule and published it for comment. While
the time frame speciied in the Act requires ^nU that the Board issue
similar regulations within 60: days after VI C rules become effective,
the Board felt that, in order to provide all ini'.'RVed parties sufficient
time to express their ¥iews and still be in a position to meet the 60day mandate, the best approach was to publish for comment a proposal substantially similar to that of the FTC as soon as possible after
the FTC published its proposal. This approach allows the Board
sufficient time to carefully analyze the comments and incorporate
them into the Board's own comments to- the FTC.
Thus, on April 24, 1975, the Board proposed an Unfair Credit
Practices Rule substantially similar to the rule proposed by the FTC
and requested comments from interested parties. The proposal would
define as an unfair practice the use of any of the following contract
provisions in consumer credit transactions:
}, Cognovits, confessions of judgment, warrants of attorney,
povveis of attorney, or other waivers of the right to notice and the
opportunity to be heard in the event of suit or process thereon.
2. Waivers or limitations of property exemptions, such as homestead exemptions, from attachment or execution.
3. Blanket security interests in "household goods" and cross collateral clauses which have a similar effect.
4. Provisions for charges for late or extended payments which
exceed the amount derived by applying the annual percentage rate to
the late or extended payments.
5. Security interest provisions which fail to speciicaliy enumerate
and identify each item of affected property.

333

6. Assignments of wages {an alternate pro¥islon would limit the
use of wage assignments to transactions involving $300 or less where
no other security interest is reserved).
7. Attorney's fee pro¥isions (an alternate pro¥ision would limit the
amount-of such fees and restrict their • assessment to instances where
an account is actually referred to an attorney who is not the creditor's
employee).
Failure to make the following stipulations in the consumer credit
contract would also be considered an unfair practice:
1. -Debtors will be credited with the fair market retail Yalue of any
repossessed property.
2. Creditors will not contact any person other than, the debtor, Ms
spouse, or Ms attorney in collecting the debt.
The proposed rule also provides for written disclosures of cosigner
liabilities at least 3 days prior to the signing of a co-signer agreement,
and requires that co-signer agreements disclose the maximum cosigner liability and stipulate that the co-signer will not be held liable
for any amount unless the creditor promptly notifies the co-signer of
any default by the debtor and pursues the debtor with "due diligence."
The Board receiYed over 700 comments from banks, bankers5 associations, and consumers on the proposed Unfair Credit Practices Rule,
and these comments are being categorized and analyzed to aid in the
formulation of the Board's comments to the FTC. Also in preparation
for developing the Board's comments to the FTC, the Board staff has
been studying the practices addressed by the proposal with reference
to the unfairness analysis applied by the FTC and alternative approaches to* the practices taken by the Uniform Consumer. Credit
Code, the Model Consumer Credit Act, the recommendations of the
National/Commission on Consumer Finance, and selected. State laws.
The Board plans to submit its comments and suggestions to the FTC
in the near future.
Preservation of consumers' claims and defenses. On November 14,
1975, the FTC proposed an amendment to its trade- regulation- rule
entitled "Preservation of Consumers" Claims and Defenses." The Board
published this proposed amendment for comment on ••February 3,
1976.
The -FTC's proposal, if adopted, would make it an unfair practice

334

for a seller or a creditor to take or receive a consumer credit contract
which does not include a provision indicating that any holder of the
contract remains subject to all claims and defenses which the debtor
could assert against the seller of the goods or services that were the
subject of the contract or were purchased with its proceeds. The rule
would have the effect of preventing all creditors and assignees of consumer credit contracts from relying on the holder in due course doctrine to separate the consumer's duty to pay from the seller's duty to
perform. It would allow a consumer to raise any claims or defenses
which he can assert against the seller of goods or services against a
creditor who purchases his consumer credit contract or who makes a
purchase money loan (as defined in the rule) to enable the consumer
to buy the goods or services.
At the close of the year, the proposed "holder in due course rule"
was being analyzed as the initial step in preparation of the Board's
comments to the FTC.
T R U T H IN LENDING
This seventh Annual Report on Truth in Lending (dated January 3,
1976) is submitted to the Congress by the Board of Governors of the
Federal Reserve System. This report includes information on the
Board's administration of its functions under the Truth in Lending Act
and an assessment of the extent to which compliance with the requirements of the Truth in Lending Act is being achieved. The Board plans
to submit recommendations for amendments to the Act early in 1976
in its regular ANNUAL REPORT.1
Administrative functions
Office of Saver and Consumer Affairs. The responsibilities of
the Office of Saver and Consumer Affairs (OSCA), established in
August 1974 to administer the Board's Truth in Lending and Securities Credit regulatory functions, have expanded during 1975 to include implementation and administration of the Fair Credit Billing
and Equal Credit Opportunity Acts (Titles III and V of Public Law
1

See p. 277 of this REPORT.

335

93—495), as well as rule-writing authority to; prohibit unfair or deceptive acts or practices of banks (Federal Trade Commission Improvement Act, Title If of Public Law 93-637).

Amendments and interpretations—Regulation Z
Pair Credit Billing Act regulations. In September 1975 the Board
Issued final regulations amending Regulation Z to implement the
Fair Credit Billing Act, an amendment to the Truth in Lending Act
contained in Title 111 of Public Law 93-495. The Fair Credit Billing
Act was passed by the Congress because of its concerns that creditors
were- not- responding adequately to allegations of billing errors and
thai consumers had no effective means of resolving billing disputes.
Hie issuance of the regulations culminated nearly a year of drafting
and redrafting during which time the Board and its staff consulted
extensively with consumer and creditor representatives, consultants,
and members of the Truth in Lending Advisory Committee to insure
that the regulations would provide consumers with all the protections
mandated by the Act within a framework that is workable and does
not impose unnecessary burdens cm consumers or creditors. The proposed regulations were first published by the Board on April 30,
following a meeting of the Advisory Committee. The proposal elicited
more than 300 comments from interested parties and the general
public. After analyzing the issues raised in the comments, the Board
published 'a revised proposal of regulations on M y 30 and announced its intention to hold informal hearings to solicit views on
some of the more troublesome issues which had arisen,.
Hearings were held in early August. The witnesses who testiled
represented banker, bank card, and retail merchant trade associations,
as well as consumer groups. The oral testimony together with the
written- comments received in response to the revised proposal -served
as a further basis for drafting the final regulations, which were issued
in mid-September and which, except for provisions with specified
transition periods, went into effect on October 28, 1975.
The Fair Credit Billing Act and its implementing regulations establish an error resolution procedure for consumers to utilize in resolving
credit billing disputes promptly and fairly. The error resolution procedure is designed to assure that consumers asserting billing errors get
prompt attention by requiring an acknowledgment of their inquiry

336

within 30 days ami a resolution within two- billing cycles (but in no
case more than. 90 days). While the error resolution procedure is
going on., the consumer may withhold payment of amounts in dispute
and the creditor may not report to any third party that the consumer
is delinquent with respect to such amounts withheld, Failure of a
creditor to comply with the billing error or credit reporting precisions
of the regulations results in a forfeiture of the disputed amount, up to
$50, regardless of whether or not ae error has been made.
The regulations also impose affirmati.¥e responsibilities on creditors to eliminate certain practices deemed unfair to consumers who
use credit cards or other open-end credit accounts. Creditors of openend accounts that provide a time period within which the customer
may pay without incurring -a finance charge must send their periodic
statements at least 14 days before the date specified for payment to
avoid imposition of finance charges. Creditors must also promptly
(a) credit payments to avoid the imposition of any finance charges
after a payment is received, (b) credit ae account to relect credit
refunds for returned merchandise, and (c) credit or refund any excess
payments made on an account.
Another major provision of the regulations allows a consumer,
under speciied conditions, to withhold payment and assert against a
card issuer any claims (other than, tort) or defenses to payment that
he has against the merchant arising out of the transaction that ga¥e
rise to the debt.
The regulations also prohibit certain practices between, card issuers
and merchants that the Congress considered anticompetitive. Card
issuers are prohibited from requiring merchants to obtain from, them,
as a condition for participating in the card plan, any services that are
not essential to the operation of the card plan, Also, card issuers are
prohibited from preventing merchants from offering a discount to
customers who pay in cash rather than by credit card.
In this connection, the Act and the regulations encourage merchants to offer discounts for payment in,, cash rather than by credit
card by providing that, if specified conditions are met, discounts of
up to 5 per cent for cash do not constitute finance charges under the
Truth in Lending Act and, consequently, do not have to be disclosed
as finance charges on purchases made with credit cards. This precision has created a great deal of controversy with .respect to its appli-

337

cabiiity to surcharges. A surcharge pricing system is one In which an
extra charge Is le¥ied when a credit card is used and, in effect, results
in a cash customer receiving a lower price for paying in cash. The
question is whether the Congress intended surcharge systems to be
included "under-the'broad designation "discounts • for cash.5'-Arguments oe both sides of the issue were advanced during the course of
the Board's deliberations oe this question. Since the legislative history
gave no dear indication as to congressional intent, and since the "discount" provision is an exception to the general principle of disclosure
embodied in the Truth in Lending Act, the Board in. its final regulations interpreted the term, "discount" narrowly as excluding.surcharge,
pricing systems and wrote to the Congress requesting additional legislative guidance on this question. (A copy of the Board's letter appears on pages 347 and 348.)
Identification of transactions on periodic billing statements. In September 1975 the Board adopted an amendment to Regulation Z to
implement Section, 411 of Public Law 93-495. The amendment sets
out requirements pertaining to descriptions of credit transactions that
creditors are required to furnish to their customers on or with periodic
statements under an, open-end credit plan.
Section 411 reflects the Congress* concern that consumers be given
sufficient information, on, or with their periodic statements for openend credit-card accounts to enable them to identify the indi¥idual
transactions that appear on'their statements. This is especially crucial
at a time when increasing numbers of creditors are switching from
the more expensive and cumbersome "country club billing," in which
copies of sales vouchers are included with the periodic statement, to
"descriptive billing," in which descriptions of the transactions are
substituted for actual copies of the documents e¥idencing the transactions. The disclosures required by the regulation are- designed to
aid a consumer in recalling the transactions for which, he is billed or
in relating the information OE the billing statement to a voucher supplied at the time of the transaction. Transition periods were provided
to allow time for creditors to make changes in forms, procedures, and
computer programming to comply with the final rules.
RESPA disclosure statement. In May 1975 the Board adopted a
Truth in Lending disclosure form to assist consumers in understanding the credit terms in purchases of residential real estate. The dis-

338

closure form was developed pursuant to the Real Estate Settlement
Procedures Act (RESPA)? 12 U.S.C. Section 2601 el seq., which
requires that consumers in home purchase credit transactions be
given a Uniform Disclosure/Settlement Statement at least 12 days prior
to settlement and again at the time of settlement to insure that they
are informed of the closing and credit costs involved in the transaction. As the agency with rule-writing authority for the Truth in Lending Act, the Board developed the credit disclosure portion of the
Uniform Disclosure/Settlement Statement.
In conjunction with the adoption of the Truth in Lending disclosure
form, the Board developed a set of instructions to accompany it. At
the same time, the Board adopted ae interpretation of Regulation Z
regarding the use of the form.
The Board is aware that amendments to RESPA have now been
passed which remove the requirement relating to the use of the
credit cost portion of the Uniform Disclosure/Settlement Statement.
In light of this action, the Board intends to rescind its implementing
interpretation.
Disclosure of closing costs. In October 1975 the Board adopted an
amendment to Regulation Z to implement Section 409 of Public Law
93—495 requiring disclosure of closing costs in certain real property
transactions—transactions in which a security interest in real property
is or will be retained or acquired by the creditor. The amendment
requires that the disclosures be given prior to the making of any
downpayment in the case of credit sales and at the time the creditor
makes a loan commitment in other extensions of credit.
The amendment does not apply to transactions subject to RESPA
or to transactions exempted from RESPA by the Department of
Housing and Urban Development. The disclosure provisions are
limited to real property transactions because the..Board felt that in
other types of transactions closing costs generally arc either not present or minimal in amount and not likely to vary from creditor to
creditor.
The precisions of the amendment were to go into effect on January 31, 1976. This transition period took account of the fact that the
Congress was considering, on the Board's recommendation, the repeal
of Section 409 of the Act. Now that this section has been repealed, the
Board intends to rescind the implementing Regulation Z provision.

339

Variable interest rates. In December 1974 the Board issued for
comment a proposal to amend Regulation, Z to require other than
open-end. creditors to disclose certain information. pertaining to any

variable Interest rate clauses contained in their promissory notes or
other contractual instruments. In general, these clauses permit a
creditor to raise or lower the contract rate of interest in response to
fluctuations in market rates. They are most often, found in long-term
obligations such as home mortgages, but they were seldom invoked
until recently when, market .rates increased dramatically.
Numerous comments on. this proposal have been recei¥ed. The
Board is currently analyzing these comments, and action on the
proposal should be forthcoming.
Disclosure'of single-componentfinancecharge. In November 1975
the Board adopted an interpretation of Regulation Z, Sections 226.8
(c) (8) (i) and 226.8(d) (3), which require the disclosure of the total
amount of the finance charge-with a "description -of each amount
included." The interpretation relates to the application of these provisions to other than open-end credit transactions when the finance
charge is- composed of only a single • element. The interpretation • provides that, in instances in which there is only a single-component
finance charge, the creditor may simply disclose that single element
under. the term "finance charge" without further identification or
description, Howe¥er, where there is more than one element comprising the finance charge, creditors are required under Regulation Z
to describe each amount included in the finance charge.
Cash-advance checks and other supplemental credit devices. In
September 1975 the Board adopted an amendment to Regulation Z
requiring open-end creditors who send their customers blank checks
or other supplementary credit devices intended for use in connection
with their open-end credit accounts to clearly disclose the charges and
other pertinent credit information specifically related to' the use of
the credit device deliYered.
The Board became aware of the need for the amendment when
many bank card issuers began, providing their cardholders with what
appeared to be personalized checks but which, in fact, were instruments activating cash-ad¥ance loans charged to a customer's credit
account. Prior to adoption of this amendment, if a creditor had disclosed the terms of a cash-advance loan before the customer used theopen-end account, the creditor was not required to disclose cash-

340

iulvance terms when the checks were issued. The Board felt that, since
fhe account may have been opened several years earlier, new disclosures of the terms of check-activated cash-advance loans should be
icpeated at the time of issuance of such checks. These disclosure
requirements also apply to other new credit devices Incorporated Into
an open-end account. The requirements become effective In January
1976.
Title IV oi Public Law 93-495° Jmrmdments to the Truth in
Lending Act. Title IV of Public Law ^ - 4 9 5 contained a number of
amendments to the Truth in Lending Art which were designed to
improve administration of that ACL These amendments effectuate
many of the recommendations that the Board has made to the Congress In previous annual reports. In July 1975 the Board adopted
a series of amendments to Regulation Z to Implement most of these
changes. These amendments provide that:
1. Advertisements concerning extensions of credit repayable In
more than four instalments and for which there is no finance charge
Identified shall state that the cost of credit Is included in the price of
the goods and services (Section 401).
2. Credit transactions primarily for agricultural purposes where the
amount financed exceeds $25,000 are exempt from the disclosure provisions of the Truth in Lending Act and Regulation Z (Section 402).
3. Enforcement responsibilities under the Truth in Lending Act be
removed from the Interstate Commerce Commission and that the
Farm Credit Administration be added as an enforcement agency for
agricultural credit institutions under its supervision {Section 403).
4. The right of rescission in residential real property transactions expires 3 years from the date of the consummation of the transaction or
upon the sale of the property, whichever occurs earlier (Section 405).
5. Issuers of credit cards and businesses or organizations may contract without regard to the other relevant provisions of Regulation Z
regarding the liability for unauthorized use of the cards when (a) the
card Issuer Issues 10 or more cards to a single business or organization
for use by its employees, and (b) the liability imposed on. such employees for unauthorized use does noi exceed S^0, the amount permitted by Regulation. 2 (Section 410).
6. Any credit transaction involving an aponcy of a Slate as creditor
is not subject to the right of rescission (Section 41.2).
7. The creditor of an open-end account may allow a longer period
than that disclosed to the customer in which to make payment in full
and avoid additional finance charges (Section 415).
8. Section 226.l(c), which refers to statutory civil and criminal
penalties, is revised to include provisions for (a) criminal liability for

341

certain fraudulent acts related to credit cards (Section 414), (b) ci¥ii
liability in individual or class actions for creditors who fail to comply
with Chapter 2 or Chapter 4 (Fair Credit Billing) and corresponding
provisions of Regulation. Z (Section 408), (c) a creditor's defense for
good faith compliance with Regulation Z {Section 406), (d) single recovery for multiple failures to disclose in a single account {Section
407), and (e) civil liability of assignees for violations of disclosure
requirements where the ¥iolation is apparent on the face of the instrument assigned {Section 413).
Advisory committee. As pre¥iously mentioned, the Board convened a meeting of the Truth in Lending- Advisory Committee in the
past year. The meeting took place on April 22, 1975, and was held
for the purpose of obtaining members* Yiews on the Board's proposal
of regulations to Implement the Fair Credit Billing Act. The Committee discussed policy objectives of the proposed regulations and
undertook a section-by-section analysis of the proposal to pinpoint
areas likely to caese problems for consumers and creditors and to
make suggestions as to how these problems might be alleviated. The
Committee members suggested solutions which, in many instances,
were incorporated into the regulations, (A list of Advisory Committee
members appears on page 349).
State exemptions. No new requests from States for exempt!on
from the disclosure, rescission, or credit-card requirements of the
Truth in Lending Act were filed with the Board during 1975. The
application from Idaho, submitted in 1974, was denied by the Board
on the grounds that Idaho law was not substantially similar to the
Federal law.
With respect to the exemptions already granted, in light of the
numerous amendments to the Act and regulation, during 1975, the
Board's staff has apprised the exempt States (Connecticut, Maine5
Massachusetts, Oklahoma, and Wyoming) of the legislative and
regulatory actions required to be taken to assure that their laws
remain substantially similar to the Federal Act.
In addition, the Fair Credit Billing Act (Chapter 4 of the Truth in
Lending Act) contains a provision similar to the exemption prcwision
in Chapter 2 of the Act authorizing the Board to grant State exemptions from the requirements of the Fair Credit Billing Act when the
State law is substantially similar or provides greater protection to
consumers. The Board plans to adopt a supplement to Regulation Z
that would set out the procedure for procuring State exemptions under
342

the Fair Credit Billing Act. The supplement would also detail the
procedure to be followed by a State In seeking a Board determination as to whether a State law is inconsistent with the Fair Credit
Billing Act.
Litigation. While numerous court decisions concerning Truth in
Lending were handed down, in 1975, the most noteworthy opinion.,
and the only case directly involving the Board (as amicus curiae), was
the decision in Ives v. W. T. Grant Company,2 decided by the U.S.
Court of Appeals for the Second Circeit.
The Ives decision was significant in two respects. First, it upheld
the Board's authority to- issue Section 226.12(c) of Regulation Z,
which provides that the Federal courts have jurisdiction in all Truth
in Lending actions for civil liabilities, including actions arising under
statutes of States that have been granted an. exemption from the
requirements of Chapter 2 of the Truth in Lending Act.
Second, the Ives case held that even if a finance charge is composed of only one element, that single element must be individually
itemized within the finance charge category. This decision prompted
the interpretation adopted by the Board in November 1975 which
states that Regulation Z does not require itemization of the only
element of a single-component finance charge.
Education. Federal enforcement agencies and the exempt States
are continuing their efforts to educate consumers and creditors as to
their rights and responsibilities under the Truth in Lending Act.
Wyoming has added a consumer education specialist to its staff and
has de¥eloped a 7-hour consumer credit educational presentation to
be used in high schools, colleges, and adult education programs.
Oklahoma has developed three curriculum guides and revised its
Teachers' Guide to Consumer Credit, which is used by more than
1,600 teachers statewide. Oklahoma has also published a Dictionary
of Credit Terms, as well as public information booklets highlighting
the substantive provisions of that State's credit laws, Connecticut, in
conjunction with the Connecticut Coordinating Council for Consumer Affairs, has established a credit counseling .service to help
consumers who experience credit problems.
The Di¥ision of Consumer Education of the Federal Trade Com2
Decided M y 31, 1975, U.S.C.A. for the Second Circuit (4 CCH Consumer
Credit Guide, paragraph 985561).

343

mission (FTC) has developed public service announcements that
ha¥e been distributed by the FTC regional offices to radio and television stations, newspapers, and professional educators. These announcements are designed to inform consumers how to- use Truth in
Lending terms when shopping for credit and are distributed in both
English and Spanish. The FTC's Division of Consumer Education
also prepared an article entitled "Shopping for Credit Can Save You
Cash," which appeared in the Yearbook of Agriculture.
The National Credit Union Administration lias developed a new
publication to assist credit union officials in complying with Truth in
Lending and other statutes that affect credit union operations.
The Board has been deeply involved in. educational efforts over the
last year, with the bulk of its efforts directed at informing consumers
and the credit industry about the new Fair Credit Billing Act regulations. The Board has published a revised pamphlet on Regulation Z,
as amended through October 28, 1975, incorporating changes made
by the Fair Credit Billing amendments and other amendments to the
regulation; the revised pamphlet also includes additions to the appendixes which set forth the Fair Credit Billing Act, questions and
answers on that Act, and copies of the statements of Fair Credit
Billing Act rights and responsibilities which must be sent to- customers
under the Act.
In addition, the Board has held numerous educational sessions
throughout the country to train, enforcement personnel and to inform
creditors of their responsibilities under the Fair Credit Billing Act.
The Board sponsored a conference for representatives of the Federal
Reserve Banks and other enforcement authorities to acquaint them
with the regeiatioiis, and meetings have been held at each of the
Federal Reserve Banks at which staff of the Banks (assisted by Board
staff) explained the new regulations to creditors and answered their
questions on the regulations. System, staff has also participated in
various radio and television presentations to make consumers aware
of their rights.
During the past year, the Board's staff has also participated in the
Bank Examiner's Schools and has developed an examiners' manual
to be used by the examining staff of the Federal Reserve Banks in
checking for Truth in Lending compliance; the Board plans to update

344

this manual to include a section on. compliance with the Fair Credit
Billing Act.
The Federal Reserve Bank of San Francisco has developed a
pamphlet designed to acquaint consumers with their rights under
the Fair Credit Billing Act and began its distribution in the San
Francisco district. The Federal Reserve Bank of Atlanta is also
distributing this pamphlet.
Compliance

Based upon reports from eight other Federal enforcement agencies
and five exempt States, the Board belie¥es that substantial compliance with the written disclosure requirements of the Truth in
Lending Act is being achieved. As has been the case in past years, the
general consensus among the Federal agencies and the exempt States
is that the larger creditors, who have access to- legal counsel and who
are thus better able to handle the complexities of the Act and regulation, have the best record of compliance. The compliance record of
the smaller creditors is not so good but continues to improve as their
knowledge of the Act increases. The enforcement agencies and the
States generally feel that most violations of the Act are technical in
nature, resulting from, inadvertent error or a lack of understanding,
particularly with regard to irregular, complex transactions. However,
the Federal Deposit Insurance Corporation. (FDIC) has reported
that it has encountered a limited number of banks which do represent supervisory problems and has in. fact referred five cases of
apparent willful and knowing violations to the Justice Department for
possible criminal prosecution.
It is interesting to note-that the Comptroller of the Currency, the
FDIC, and the State authorities in Connecticut this year report an
increased number of violations over past years, but they attribute this
to better examination procedures, increased sophistication of their
examiners, and greater awareness on the part of consumers reporting
violations rather than to a trend toward increased noncompliance.
The FTC reports that in the area of credit advertising full compliance with the Act is less prevalent than in other areas, although
the level of compliance appears to be steadily increasing. In the

345

past year, the FTC has begun a pilot program designed to use the
Commission's- enforcement powers^ which have recently been strengthened by the FTC Improvement Act, to bring about a greater degree
of compliance with the advertising precisions of the Truth In Lending
Act.
As was noted in last year's [Truth in Lending] annual report, the
level of compliance with the regulation's oral disclosure requirements
has not been as high as it has been with the written, disclosure requirements. Last year's report noted, however, that compliance with the
oral disclosure requirements appeared to- be improving, and the
Board has not received any information during the past year which
would indicate any change in this trend.

346

September 16. 1975
The Honorable William Proxmire
Chairman
Committee on Banking, Housing and
Urban Affairs
United States Senate
Washington, D.C. 20510
Dear Mr. Chairman:
I am writing to request the assistance of the Congress in resolving a
difficult question of Congressional intent which has arisen in the Board's
efforts to prescribe regulations required under Section 167 of the Fair
Credit Billing Act (Title III of P.L. 93-495),
That Section, which becomes effective October 28, 1975, pro¥ides as
follows:
"§ 167, Use of cash discounts
"(a) With respect to credit card which may be used for extensions
of credit in sales transactions in. which the seller is a person other
than the card issuer, the card issuer may not, by contract or otherwise, prohibit any such seller from offering a discount to a cardholder
to induce the cardholder to pay by cash, check, or similar means
rather than use a credit card.
"(b) With respect to any sales transaction, any discount not in
excess of 5 per centum offered by the seller for the purpose of inducing payment by cash, check, or other means not involving the use of
a credit card shall not constitute a finan.ce charge as determined
under section 106, if such discount is offered to all prospective buyers
and its availability is disclosed to all prospective buyers clearly and
conspicuously in accordance with regulations of the Board."
Subsection (b) has been the focus of the problem. You will note that
the Section does not require any merchant or card issuer to take any
action. It merely provides that if a merchant chooses to offer a discount
of up to 5 per cent for payment by cash, that discount is excluded from
the credit finance charge for the purpose of Truth in Lending disclosures.
The discount can thus be offered without making Truth in Lending disclosures at the point of sale.
While the provision appears straightforward, it has given rise to perplexing problems. For example, when merchandise with a posted price of
$ 100 is available at that price by use of credit card? and at $96 for cash,
the differential is dearly a "discount" covered by the Section, But if an
article has a posted price of $96, and is available at that price for cash,
and at $100 by credit card, there is doubt as to the status of the $4.00
differential. Is the $4.00 differential a "discount" within, the meaning of
the Section, or is it a "premium" or "surcharge" and not a "discount"?
It has been, represented to the Board that the economic effect may be
largely the same in both cases and that sometimes it may be difficult or
impossible in practice to distinguish one type of situation from the other.
From this it has been, argued that the differential in both cases is a "discount". On the other hand, it has been contended that the two may differ

347

widely in their marketing and operating aspects, that the wording of the
statute refers only to "discount", and that the price differential in the
second case falls outside the statute.
On April 30, 1975, the Board published proposed regulations on the
subject that would have excluded the second type of differential from the
special treatment provided by the statute. On July 30? 1975, "the" 'Board
published revised proposals taking the opposite position. You have urged
that the "premium" or "surcharge" differential be treated as a "discount",
Chairman Annunzio of the Consumer Affairs Subcommittee of the House
Banking Committee has urged that it not be treated as a "discount"
within the meaning of the statute.
After extended consideration the Board decided by a 4-3 vote to
approve a regulation, that excludes the second type of price differential
from the - special-treatment provided by the statute. The-Board unanimously agreed to seek your assistance in obtaining express legislative
action that would make clear the intended application of Section 167 of
the statute. The lack of such clarifying action, with attending differences
of opinion as to Congressional intent, may well lead to costly litigation
and impose substantial burdens on creditors, consumers and the courts.
I am sending similar letters to the Chairman and ranking minority
members of the Senate ao,d House Banking Committees and the Consumer
Affairs Subcommittees of those Committees.
Sincerely yours,
Arthur F. Burns

348

Advisory Committee on Truth in Lending
Chairman: Dr. Richard H. Holton
Professor of Business Administration
School of Business Administration
University of California, Berkeley
Berkeley, Calif.
Mr, Harry D, Alien
Collections Manager
Ditv ison Department Store
Atlanta. Ga.

Mr. Robert R. Masterton
President
Maine Savings Bank
Portland, Maine

Mr. James M. Barry
Managing Director
Texas Credit Union League
Dallas, Tex.

Mr. William F, Melville, Jr.
Senior Vice President
Maryland National Bank
Baltimore, Md.

Mr. Edwin B. Brooks, Jr.
President
Security Federal Savings and Loan
Association
Richmond, Va.

Mrs. Faith Prior
Extension Family Economist
University of Vermont
Burlington, Vt.

Mr. O. C. Carmichael, Jr.
Chairman
FBT Bancorp, Inc.
South Bend, led.

Mr. Robert W. Pullen
Administrative Vice 'President
Department of Economics
Colby College
Waterville, Maine

Miss Barbara A. Curran
Senior Research Attorney
American Bar Foundation
Chicago, 111.

Mrs. Doris E, Saunders
Staff Associate
Office of the Chancellor
University of Illinois
Chicago, 111.

Pr, Louis F. Del Duca
Professor of Law
The Dickinson School of Law
Carlisle, Pa.

Mrs. Lyneette Taylor
Executive Director
Delta Sigma Tfaeta Sorority
Washington, D.C.

Mr. John E. Hidam
Attorney
Omaha, Nebr.

Mr. Peter R. Thompson
President
Mid-Continent Properties, Inc.
Piqua, Ohio

Mr. William F. James
President
Bill James Enterprises
St. Louis? Mo.

Mr. Harry R. Valas
Vice President
Valas Corporation
Denver, Colo.

Mr. Robert J. Klein
Senior Editor
Money
New York, N.Y.

Miss Barbara A. Zlmmelman
Consultant, Urban and
Economic Development
Houston., Tex.

349

Securities Acts
Amendments of 1975
An Act of Congress, approved June 4, 1975 (Public Law 94-29 )
among other things:
1. Provides for regulation of municipal securities dealers, including banks. Under the statute, a municipal securities dealer is prohibited from effecting transactions in municipal securities unless
registered with the Securities and Exchange Commission. A new
Municipal Securities Rulemaking Board is established to adopt rules
respecting transactions in municipal securities. Primary enforcement
authority with respect to banking organizations is lodged with the
bank regulatory authorities for institutions subject to their respective
jurisdictions.
2. Provides for regulation of transfer agents and clearing agencies.
Those transfer agents and clearing agencies that are banking organizations are regulated primarily by the bank regulatory agencies, although the statute provides for prior consultation between the
Securities and Exchange Commission and the bank regulatory agencies
with respect to agency rules, inspections conducted, and disciplinary
actions instituted.
3. Requires reporting and authentication of missing, lost, stolen,
and counterfeit securities by banks, broker-dealers, and others, under
such regulations as may be promulgated by the Securities and Exchange Commission.
4. Requires reporting by institutional investors, including banks,
that have investment discretion with respect to accounts holding
$100 million or more of equity securities under such regulations as
may be promulgated by the Securities and Exchange Commission after
consultation with the bank regulatory agencies.
Pursuant to this authority, the Board adopted an amendment to
Regulation H on October 17, 1975, and to Regulation Y on November 24, 1975, providing for registration of State member banks,
bank holding companies, and certain subsidiaries of bank holding
companies that act as transfer agents. By the year-end, 166 State
member banks and 32 bank holding companies and subsidiaries of
bank holding companies had registered with the Board as transfer
agents.
350

Federal Reserve Banks
PAYMENTS MECHANISM DEVELOPMENTS
During 1975 the Federal Reserve Banks continued programs that
placed high priority on improving the Nation's payments mechanism.
The number of clearing and settlement facilities provided by the
Federal Reserve for automated clearing house operations increased in
1975 from 5 to 16, with the initiation of operations in several major
cities throughout the country. This number is expected to increase
again in 1976. Such facilities allow financial institutions and their
customers the option of transferring funds on magnetic tape rather
than paper checks.
On June 10 the Board of Governors published for comment proposed arrangements for the deposit, delivery, and settlement of
payments processed through automated clearing and settlement facilities operated by the Federal Reserve System. Ninety-two comments
were received and are currently being analyzed.
On December 18 the Board announced interim guidelines for the
delivery of Government payments processed on magnetic tape
through Federal Reserve facilities. These guidelines provide financial
institutions with a number of options for receiving such payments.
The Air Force's direct deposit program, which allows Air Force
personnel to have their pay directly deposited in afinancialinstitution,
was converted to electronic transfers nationwide in 1975. Each payday the Air Force delivers magnetic tapes containing over 270,000
payroll deposits to Federal Reserve Banks. Over 45 per cent of active
duty Air Force personnel are paid in this manner.
The Department of the Treasury and the Social Security Administration proceeded with the direct deposit program announced in 1974.
This program, which permits social security recipients to elect to have
their benefit checks deposited directly in a financial institution, was
expanded nationwide in 1975. More than 3 million recipients are now
enrolled. Beginning February 1976, the Treasury will record such
direct deposits on magnetic tape and send them through Federal
Reserve automated clearing and settlement facilities. The Treasury
estimates that monthly payment volume will approach 6.5 million
deposits by the end of 1976. Other U.S. Government agencies plan

351

to convert their recurring payments to similar voluntary programs.
A regional check-processing center was established in Milwaukee
in 1975 to provide increased overnight clearings of checks. There are
currently 42 such regional centers in operation, with 2 more planned
for 1976.
EXAMINATION
The Board's Division of Federal Reserve Bank Examinations and
Budgets examined the 12 Federal Reserve Banks and 25 branches
during 1975, as required by Section 21 of the Federal Reserve Act.
In conjunction with the examination of the Federal Reserve Bank of
New York, the Board's examiners audited the accounts and holdings
related to the System Open Market account and the foreign currency
operations conducted by that Bank in accordance with policies
formulated by the Federal Open Market Committee, and rendered
reports thereon to the Committee. The procedures followed by the
Board's examiners were surveyed and appraised by a private firm
of certified public accountants, pursuant to the policy of having such
reviews made on an annual basis.
EARNINGS AND EXPENSES
The accompanying table summarizes the earnings, expenses, and
distribution of net earnings of the Federal Reserve Banks for 1975
and 1974.
Current earnings of $6,258 million in 1975 were less than 1 per cent
lower than in 1974. The principal changes in earnings were as
follows: On U.S. Government securities, an increase of $37 million;
on discounts and advances, a decrease of $154 million; and on acceptances, an increase of $26 million. All other earnings increased $70
million, reflecting the effect of a full year's interest paid by the
Federal Deposit Insurance Corporation on the loan resulting from
the closing of the Franklin National Bank on October 8, 1974.
There was a $202 million net deduction in the profit and loss
account, primarily because of a $242 million net loss on foreign
exchange transactions and profits of $37 million on sales of U.S.
Government securities. In foreign exchange transactions, losses of
$250 million resulted from a revaluation of outstanding pre-August
1971 swap drawings to reflect devaluation of the dollar in December
352

1971 and February 1973 and revaluation of the Belgian franc In
December 1971. This was partially offset by an $8 million profit on
foreiga exchange operations during the year.
Current expenses were $585 million, or $38 million more than in
1974. The expenses in 1975 include $0.9 million from depreciation
on operating equipment due to a new policy of capitalizing individual
pieces of equipment that cost more than $10,000. In the past the
cost of such equipment has been charged to expenses in the year of
purchase.
Statutory di¥idends to member banks amounted to $55 million,
an increase of $2 million from 1974. The rise in dividends reflected
an increase in the capital and surplus of member banks and a consequent increase in the paid-in capital stock of the Federal Reser¥e
Banks.
Payments to the U.S. Treasury as interest on Federal Reserve
notes totaled $5,382 million for the year, compared with $5,550
million in 1974. This amount consists of all net earnings after dividends and the amount necessary to bring surplus to the ieYel of
paid-in capital.
A detailed statement of earnings and expenses of each Reserve
Bank during 1975 is shown, in Table 6, pages 374 and 375, and a
condensed historical statement in Table 7, pages 376 and 377.
Earnings, expenses, and distribution of net earnings
of Federal Reserve Banks, 1978 and 1974
In thousands of dollars

W74

Item
ft, 257,937
5S.S,O66

6,280,091

C u r r e n t net e a r n i n g s . . . . . . . . . . . . . . . . . . .

5,07.!, 871

5,732,550

Net deduction from current net e a r n i n g s . . . . . .

-• 2 ( t \ 3 7 O

-78,487

Net earnings before payments to U.S. Treasur}

3,470,501

5,654,0t)3

Dividends p a i d . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments t o U . S . Treasury (interest on F.R. notes)

54,609
5V 382,01)4

52,580
5,549,999

Transferred t o s u r p l u s . . . . . . . . . . . . . . . . . . . . . . . . .

33,828

M,484

C u r r e n t earnings.
C u r r e n t expenses.

S'47,541

353

HOLDINGS OF LOANS A N D SECURITIES
The accompanying table shows holdings, earnings, and average
interest rates on loans and securities of the Federal Reserve Banks
during the past 3 years.
Average daily holdings of loans and securities during 1975
amounted to $89,442 million—an increase of $3,937 million over
1974. Holdings of U.S. Government securities increased $5,297
million, loans decreased $1,860 million, and acceptances increased
$500 million.
The average rates of interest on holdings were down from 7.27
to 6.87 per cent on U.S. Government securities, from 8.08 to 6.41
per cent on loans, and from 10.42 to 7.11 per cent on acceptances.

Reserve Bank earnings on loans and securities, 1973-75
Acceptances

Item and year

In millions of dollars
Average daily holdings:
1973
1974........
1975

Earnings:
1973...
1974....
1975....

76,058
83,164
88,461

77,837
85,505
89,442
5,013.6
6,239.5
6,149.5

1,678
2,055
195

4,896 .5
6,043 .6
6,081 .1

109.4
166. 1
12. 5

101
286
786
7.7
29.8
55.9

In per cent
Average rate of interest:
1973
1974
1975
1

Includes Federal agency obligations.

6.44
7.30
6.88

6.44
7.27
6.87
2

6.52
8.08
6.41

7.62
10.42
7.11

Based on holdings at opening of business.

V O L U M E A N D COST OF O P E R A T I O N S
Tables 9 and 10, pages 379 and 380, show the volume and cost of
the principal operations of the Federal Reserve Banks for 1972-75.

354

Upward trends continued in both the number and dollar amounts
of currency, coin, checks, and transfers of funds handled. The
number of pieces of paper money received and counted totaled 7.7
billion, an increase of about 5 per cent over 1974, and amounted
to $66.1 billion. The volume of coin processed increased about 2
per cent to 15.4 billion pieces. The number and dollar amount of
checks received for collection on commercial banks rose 5 per cent
to 11.4 billion and $4.3 trillion, respectively, and the number of
U.S. Government checks handled increased 17 per cent to 844
million. Transfers of funds through the Reserve Banks increased
by 20 per cent, to 17.5 million transfers, or $31.4 trillion in value.
The increased volume was in general handled by a smaller staff,
reflecting gains in productivity. The number of conventional checkitem passes per manhour rose to 1,950 from 1,734, and the number
of pieces of paper money counted per manhour rose to 4,300 from
4,035. The total cost of the currency operation—both paper money
and coin—increased by 12 per cent to $99 million, mainly because
of higher costs associated with the printing of Federal Reserve notes
and with the shipping of supplies of currency and coin to member
commercial banks.
LOAN GUARANTEES FOR DEFENSE PRODUCTION
Under the Defense Production Act of 1950, the Departments of the
Army, Navy, and Air Force, the Defense Supply Agency of the
Department of Defense, the Departments of Commerce, Interior, and
Agriculture, the General Services Administration, the National Aeronautics and Space Administration, the Energy Research and Development Administration, and the Nuclear Regulatory Commission are
authorized to guarantee loans for defense production made by commercial banks and other private financing institutions. The Federal
Reserve Banks act as fiscal agents of the guaranteeing agencies under
the Board's Regulation V.
During 1975 the guaranteeing agencies authorized the issuance
of one new guarantee agreement. Loan authorizations outstanding
on December 31, 1975, totaled $52.2 million, of which $50.9 million
represented outstanding loans and $1.3 million represented additional credit available to borrowers. Of total loans outstanding,
10 per cent on the average was guaranteed. During the year approxi-

355

mately $1 million was disbursed on guaranteed loans, all of which
are revolving credits.
Authority for the V-loan program will terminate on September 30,
1977.
Table 15 on page 385 shows guarantee fees and maximum interest
rates applicable to Regulation V loans.
FOREIGN ACCOUNTS
Assets held for account of foreign countries at the Federal Reserve
Banks increased $5,738 million in 1975. At the end of the year such
assets amounted to $79,505 million: $353 million of dollar deposits;
$12,209 million of earmarked gold; $60,019 million of U.S. Treasury
securities (including securities payable in foreign currencies); $293
million of bankers acceptances purchased through Federal Reserve
Banks; and $6,631 million of miscellaneous assets. The last item
consists mainly of dollar bonds issued by foreign countries and international organizations and debt securities of U.S. Federally sponsored
agencies and U.S. corporations.
The Federal Reserve Banks did not make any loans against gold
collateral in 1975.
The Federal Reserve Bank of New York continued to act as
depositary and fiscal agent for international and regional organizations. As fiscal agent of the United States, the Bank continued to
operate the Exchange Stabilization Fund pursuant to authorization
and instructions of the Secretary of the Treasury. Also on behalf of
the Treasury Department, it administered foreign assets control regulations pertaining to blocked assets in the United States of the following countries and their nationals: North Vietnam, Cuba, the People's
Republic of China (pertaining to assets blocked before May 7, 1971),
North Korea, Cambodia (since April 17, 1975), and South Vietnam
(since April 30, 1975), and to transactions with those countries and
their nationals.
F E D E R A L R E S E R V E BANK PREMISES
During 1975 the Board authorized construction of a new building
for the Federal Reserve Bank of Richmond.
Table 8 on page 378 shows the cost and book value of bank
premises owned and occupied by the Federal Reserve Banks and of
real estate acquired for banking-house purposes.

356

Board of Governors
INCOME AND EXPENSES
The accounts of the Board for the year 1975 were audited by the
public accounting firm of Touche Ross & Co.
ACCOUNTANTS' OPINION

Board of Governors of the
Federal Reserve System
Washington, D.C.
We have examined the balance sheet of the Board of Governors of
the Federal Reserve System as of December 31, 1975 and 1974, and the
related statements of assessments and expenses, and changes in financial
position for the years then ended. Our examination was made in accordance with generally accepted auditing standards and, accordingly, included
such tests of the accounting records and such other auditing procedures
as we considered necessary in the circumstances.
In our opinion, the aforementioned financial statements present fairly
the financial position of the Board of Governors of the Federal Reserve
System at December 31, 1975 and 1974, and the results of its operations
and the changes in its financial position for the years then ended, in
conformity with generally accepted accounting principles applied on a
consistent basis.
Touche Ross & Co.
Certified Public Accountants
Washington, D.C.
January 30, 1976

357

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
BALANCE SHEET

December 31
ASSETS

J975

J1974

S 1.521,250
69,250

$ 5,111,271
211,915

154,764

166,299

1,745,264

5,489,485

927,090
49,706,807
4,234,934
140,388
3,971,412

781,913
4,452,156
2,129,054
45,964,619
3,971,412

58?9803631

57,299,154

$60,725,895

$62,788,639

S I .093,549
' 116,749
901,344
76,194

$ 2,733,445
89,339
698,040
850,181

2, 187,836

4,371,005

OPERATING F U N D ;

Cash...........
Miscellaneous receivables and advances. . . . . . . . .
Stockroom and cafeteria inventories—at cost (firstin, first-out m e t h o d ) . . . . . . . . . . . . . . . . . . . . ' . . . .
Total operating fund.
PROPERTY F U N D :

Land and improvements.
Buildings,...................................
Furniture and e q u i p m e n t . . . . . . . . . . . . . . . . . . . . . .
Construction-in-progress.......................
Computer.

Total property fund.

LIABILITIES A N D F U N D BALANCES
OPERATING

FUND:

Accounts payable a n d accrued expenses. . . . . . . . .
I n c o m e taxes w i t h h e l d . . . . . . . . . . . . . . . . . . . . . . . .
Accrued p a y r o l l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retention on c o n s t r u c t i o n - i n - p r o g r e s s . . . . . . . . . . .

Fund balance:
B a l a n c e , b e g i n n i n g of y e a r . . . . . . . . . . . . . . . .
Excess" of expenses o v e r a s s e s s m e n t s . . . . . . . .

4,148,023
1, 118,480
561,052) (3,029,543)

Balance, e n d of y e a r . . . . . . . . . . . . . . . . . . . . .
Total operating f u n d . . . . . . . . . . . . . . .

{: 442,572)

1,118,480

1,745,264

57489,485

Fund balance;
B a l a n c e , b e g i n n i n g of y e a r . . . . . . . . . . . . . . . .

57..299,154

42,918,039

Additions—at c o s t . . . . . . . . . . . . . . . . . . . . . . .

L ,702,490

PROPERTY

FUND:

(21,013)

Disposals—at c o s t . . . . . . . . . . . . . . . . . . . . . . .
Net i n c r e a s e . . . . . . . . . . . . . . . . . . . . . . . . . .
T o t a l p r o p e r t y fund, e n d of y e a r . . . . . . . . . .

14,549,577
(168, 462)

1.,681,477

1473813,115

58.,980,631

57,299,,154

$60.,725,895 $62,7885,639
See notes to financial statements.

358

B O A R D OF G O V E R N O R S O F THE F E D E R A L RESERVE SYSTEM
STATEMENT O F ASSESSMENTS A M > F X P I N S E S

Year ended December 31
iL>75
1974
ASSESSMENTS LEVIED O N FEPF.RA? KI.SERVE B A N K S .

F o r B o a r d expenses a n d additions t o proper!\
. $33 , 57/ 200 $41,116,600
F o r expenditures m a d e on behalf of the Fedeni * R < •serve B a n k s . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,874,959
27,052,554
Total a s s e s s m e n t s . . . . . . . . . . . . . . . .

,452,159

68,169,154

24,017,514
2,507,085
879,186
656,012
341,369
826,737
1,531,950
608,003
269,751
355,780
627,144
226,868
294,756
96,909

21,552,324
1,825,870
694,699
482,420
285,870
742,874
1,988,364
460,866
315,941
310,251
414,736
184,241
146,401
85,675

79,511
123,727

44,807
74,883

33,442,302

29,610,222

1,695,950

14,535,921

EXPENSES :

For the Board:
Salaries...................................
Retirement a n d insurance c o n t r i b u t i o n s . . . . . . .
Travel e x p e n s e s . . . . . . . . . . .
L e g a l , c o n s u l t a n t a n d a u d i t Ices
Contractual s e r v i c e s . . . . . . .
Printing a n d binding—net. ,
.
.
E q u i p m e n t , office s p a c e a n d o t h e r r e n t a l s .
Telephone a n d t e l e g r a p h . . . . .
Postage a n d e x p r e s s a g e . . . . . . . . . . . . . . . . . . . . . .
S t a t i o n e r y , office a n d o t h e r s u p p l i e s . . . . . . . . . . .
H e a t , light a n d p o w e r . . . . . . . . . . . . . . . . . . . . . . .
Operation of c a f e t e r i a — n e t . . . . . . . . . . . . . . . . . .
Repairs, maintenance a n d a l t e r a t i o n s . . . . . . . . .
Books and s u b s c r i p t i o n s . . . . . . . . . . . . . . . . . . . . .
System membership, Center for Latin American
Monetary S t u d i e s . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous—net.........................
For additions t o property—net of recovery on disposals of $6,540 in 1975 a n d $13,656 in 1 9 7 4 . . . . .

35,138,252

44,146,143

Expenditures for printing, issue and redemption of
Federal Reserve Notes, paid on behalf of the
Federal Reserve Banks

34,874,959

27,052,554

Total e x p e n s e s . . . . . . . . . . . . . . . . . . . . . . .

70.013,21!

71,198,697

EXCESS OF EXPENSES O V E R ASSESSMENTS . . . . . . . . . .

$ 11,56 i , 052 j S O , 0 2 9 , 5 4 3 )

See notes t o i n a n t i a l statements.

359

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENT OF CHANGES IN FINANCIAL POSITION

Year ended December 31

1975

1974

SOURCE OF F U N D S :

Excess of expenses over a s s e s s m e n t s . . . . . . . . . . . . .
N e t increase in property f u n d . . . . . . . . . . . . . . . . . .
Increase in accounts payable a n d accrued expenses.
Increase in accrued p a y r o l l . . . , . , , . . . . . . , . , , . . .
Increase in income taxes w i t h h e l d , , . . . . » , . , . , . .
Decrease in miscellaneous receivables a n d advances
Decrease in s t o c k r o o m a n d cafeteria inventories, ..

$(1,561,052) $(3,029,543)
1,681,477 14,381,115
605,897
192,239
203,304
27,410
142,665
11,535
505,339

12,149,708

APPLICATION OF F U N D S :

Additions to property—net:
Cottstraction-in-progress, .
Computer...............
Building,,......,....,,..
Furniture and equipment..
Land and improvements..,

Decrease in retention on construction-in-progress.,
Decrease in income taxes w i t h h e l d . . . . . . . . . . . . . .
Increase in miscellaneous receivables a n d advances
Increase in s t o c k r o o m a n d cafeteria i n v e n t o r i e s . . . .
Decrease in accounts payable a n d accrued expenses

(45,824,231) 10,362,554
3,971,412
55,206
45,254,651
2,882
2,105,880
(10,939)
145,177
1,681,477

14,381,115

773,987

812,138
142,528
138,210
77,694

1,639,896
4,095,360

DECREASE IN CASH.

15,551,685

S (3,590.021) $ (3,401,977)

N O T E S TO FINANCIAL STATEMLNTS
Y E A R S E N D E D D E C E M B E R 3 1 , 1975 \ N D 1974

SIGNIFICANT ACCOUNTING POLICIES

Assessments made 'by the Board on the Federal Reserve Banks for Board
expenses and additions to' property are calculated based upon expected cash
needs and are accrued when assessed. Board expenses and property additions
are recorded on. the accrual basis of accounting.
Assessments and expenditures made on behalf of the Federal Reserve Banks
for the printing, issue and redemption of Federal Reserve Notes are recorded
on the cash basis and produce results which are not materially different from
those which would have been produced on the accrual basis of accounting.
The Board does not charge depreciation as an operating expense. Property
additions are charged to expense in the Operating Fund in the year of acquisition; recoveries on the disposal of property are recorded as a reduction in expense in the Operating Fund in the year of disposal. When property is acquired
or sold, the property accounts in the Property Fund are increased or reduced
at full cost, "with a corresponding increase or decrease in the property fund
balance. Because of the short duration and temporary nature of the Board's
leases, leasehold improvements have not been capitalized in the Property Fund.
The Board is self-insured against loss of its building and furniture and equipment from fire or other casualty. Coverage for other customarily insured risks,
such as workmen's compensation insurance and comprehensive general liability
insurance, is carried by the Board.

360

BOARD OF GOVERNORS OF THE FEDERAL EESEEVE SYSTEM
NOTES TO FINANCIAL STATEMENTS—Continued
CONSTRUCTION-IN-PROGRESS

The construction-in-progress represents the cost as of December 31, 1974,
for the construction, furnishing and landscaping of the Martin Building, which
first became occupied during 1974. The cost includes both building costs and
costs relating to furniture, equipment and landscaping. The construction and
furnishing were completed in 1975, and the final costs were allocated to the
appropriate property fund accounts. The amount at December 31, 1975 repj'^ents amounts expended to that date for renovation of the Board Building,
The retention on construction-in-progress represents amounts withheld on
vontracts for the construction, furnishing and landscaping and is to be paid
n* the satisfactory completion of the contracts.
included in the cost of buildings 'is approximately $6,500,000 relating to the
a>st of the North Garage of the Martin Building. Over the next 39 years, the
Board will recei¥e approximately $4,185,000 from the Department of the
Inferior for the use of parking spaces In the garage (subject to adjustment for
both reduction of the number of spaces used by Interior and the final actual
coct of the garage). Actual use of these spaces started In August 1974 and
miscellaneous expense has been offset for the $9,000 monthly payment received
ifi'in Interior since that time.
T.»»NG-TERM LEASES

The Board leases outside office and parking space under leases expiring from
loly 23, 1976 to March 31, 1978. Because the leases may »be terminated with
*4*\ months notice commencing in 1976, at December 31, 1975, the only fixed
hit ore rental commitment Is $311,000 for 1976. Rent expense for outside
office,
storage and parkin? space for the years ended December 31, 1975 and
J^*I4 was approximately $'777,-l0O and $990,000, respectively.
RLHREMENT PLANS

There are two contnbuiory retirement programs for employees of the Board,
About 85% of the employees are covered 'by the Federal Reserve Board Plan.
All new members of the staff who^ do not come directly from a position In the
Government
are covered by this plan. The second, the Civil Service Retirement
l-1tan,covers all new employees who come directly from Government service.
Employee contributions are the same under both plans, and benefits are similar,
S:#ng 'based upon the Civil Service Han.
Under the Civil Service Plan, Board contributions match employee payroll
deductions while under the Federal -Reserve Plan, Board contributions are
actuar ially determined annually.
Additionally, employees of the Board participate ". ft >• Federal Reserve
System's Thrift Plan. Under this plan, the Board BLOO- S Uuid percentage to
allowable employee savings.
Board contributions to these plans totaled $2,057,55 • «>; (v >5 and $1,509,054
*n 1974.
C '• WTTNGENT 'LIABILITIES

Litigation involving the Board generally arises from challenges to, or appeals
q-'im, actions or proposed actions of the Board pursuant to statutory or regoI'?lory requirement or authorization. In. essence, such law suits seek injunctive
or declaratory relief against the Board rather than monetary awards.
In 1975, however, four cases were filed and two other claims were asserted
against the Board which are requesting substantial monetary awards. Based
upon realistic appraisal of the real potential for recovery and upon the Board's
previous experience in suits Involving gross claims, Board counsel is of the
opinion that these actions are sufficiently lacking in merit as not to present any
real probability of substantial liability to the Board.

\r,

(Statistical Tables

1. Detailed statement of condition of all Federal Reserve
Banks combined, December 31, 1^75
In thousands of dollars

ASShTS
Gold certificates on hand
Gold certifVytos due from L».S.'! ^iismy. . ,

i f 2"^
11 ^ J4}':*

Ton«lgoldcertifivjt«^:at)unt
. « , . , ,
. .
,
. . . .
S p e c i a l D r a w i n g E i g h t s c e r t i i n v i e ,t**«*ount
....
.
. . . . . .
.
K R . n o t e s o foilier F . R . B a n k s . . . .
, .,
,
, ... ,. . . ......
Other cash:
Coin.....................
...
. .
, .,
34-\, W >
i}<
Other c u r r e n c y . . . . . . . , , , , , , .
.
. , . , , , ,
Tofcii other cash
,
. ,
Loans t o m e m b e r b a n k s secured h\
U.S. Govt. a n d agency obli.-'aiions.
Ofher eligible p a p e r , , , ,
...
O t h e r paper (Sec, 10(b)« . . . . . .

. . . . . .

. , . . , .
.
,
.

Mi2,2-ti<
4"*,.-WO
21 .MS

Loans t o o t h e r s , . . , , . . » . . . , . . » , , . , , . . . . , . . . . . . , , , . . . » . . » . . , . , . . . , .

, .

Held utidet itpmchjsc aenv(\K$n,

U.S. Govt. secr.iiti.es'
Bouuihi ouiuvftx.
'Bills,.
. .
Notes
. . . . . . . .
Bonds, , .
....

.. .
. . . . . .
. ,
. . .

Total boii,;l«i ^nfni-nT

. . .

385,096
.

6,072,090

118,200

|W»,*'17,^2

...

T o t a U»S, il.ivi, se<*-«HJt h

.
.

741,485

}lftm,M^
4V»JW,"\i<)
5, c !,l M%

Held u n d e r R p »irc! \ list a f \i'* Pir«,i

.\>'J^2«>

229,220

...,

Held undei" rcputvhu-H i t w t nvii* ,
Federal agency obliswfi'WS
Bought ooitiRht.
.

34S»§41

..........

Tou.l loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acceptances:

Bought outright. ,.

. .

,,
.

*,?*» 7U0

87,934,232

T o t a loans a m i sivu.'HKs
...
, , ,
.. , ,
»..,.,..,..
C a s h Items in process of eoll.xtifHi
Transit Items
. . .
.
. . . . . . . .
.
9,604,550
Exchanges for cle.mtin »*«msc . . . . . . .
.
288,282
O t h e r cash J e m s .
...
. . . . . .
.
.
.
1,301,170
T o t a cash iierns* m P U K ^ S ji vo)ln Hou ,
, , ,,.
,......,,...
Bank premises:
Land..............
, , ..
.. .
,
. , ...
.
75.2S8
Buildings (Iiitlutiitig Viinttb; , .
.
.,
.,
15*5 '• * I
v
Fixed machinerv ,%n<\ Ci|oip»?'»:'OT . » , . ,
,
if ,'M/l
1
Construction accuunf.
.
. , . , , , , ,
,
iC> !<M I
T o m buildmj?-*
.
i e s i cis p r e c i i f i m ii f «'A<<n» * ji
Total b a n k pr,*ny,cs
O p e n fing e q u i p netii •
Operating ^Quipmof't, . .
Less depreciation
. . .

.
.

?84.iHP
! .V-, ^{>\

.
. . .

.
.

. . . . . . . .

.
,

,,
. . .
. . . .

.... .
. . .
....
. . . . . . . .
.,

. . . . . . . . . . . .

11,194,002

.119,632

14,282
^?0

.
.
.

f5f4804321

?A4,14t

. . . . . . .

I t»ia' op<;r.'h' H'. e-q<up>ne'V ,
, , , , . .
Other assets:
OutM'roni U l i C ,-ccoufiU SOM<1 «^nk ,
. .
Oenoni»n«'ilt*d >i\ foreign c»'u>:n'.I.% , .
Interest actm e d
.
. . .
P r e i p i u i i ! f « Srxui'hks
. . . . . .
.
R e i l e s n u e - i t i i t u r o , } IM» h i n U i , ( i » . h - . v j ' o p w o . ' s t - s .
..
Suspense nccomu.
. ,. . . . . . . . . . .
. ...
O v e n k d r t n . , .,
,....,...
.
. .
. ,,.
All o t h e r ' . , . . . . . . . .
. . ,.
.
. . . . . . .
T o t a ' o t h * - r >sscls.

H., 598,883
500,000
1,612,745

. ,.

. . . .

P»,3ft2

1 J 1 5 fMW
l--*sc>.'2
1,2tHt,*>24
li0,1^!
M* 4 8 5
122 * J *
:U.'W7
2.>7 0 3 1
. . . .

2f97«,37R

^ mtinued

LIABILITIES
F.R. notes:
Outstanding (issued to F.R. Banks)
Less: Held by issuing F.R. Banks.
Forwarded for redemption. .

81 «7^ 17S
v (u.4,854
ul,015

3 ,1,05 ,869

F.R. notes, net (Includes notes held *
and by F.R. Banks other than isa
Deposits:
Member b a / " • *• u .
U.S. Treasun
\ >? ,-T>' w v n *
Foreign. . , ,
Other deport •
Nonme^u <'•>>(»!- '"In 'i> ,.
O f f i c e r ? ' , >i>« i i , . v I ..;i>» ; ^
R e s e r v e . o t *.»n » ,-,» ii«uii'< - ^ « u » s
finanu.iij.
I n t e r n a l ' w t u >/•,: M / . I ^ X ' •
S e c r e t a « • > u , - r u M < f}» (.i 1 -<«
All oth <
Totai • ?>;^ i .1 T*,4M*
Total ir^« -r^
Deferred availabi'i ; ; i\\ , ' j s i '
O t h e r liabilities:
U n e a r n e d di.v-<4>'U
,
D i s c o u n t oil >UM liir
S u n d r y Items p^ >;' ^tc
Suspense ac» " U K , Ali o t h e r , .

34,128,783
7,479,582

,
, ,

11,210
,314,098
23,126
v»,».<50
V33

Total o'.hci it JIMIJH.. ,

l»li#»027

Totai l i a b i l i t i e s . . , . , . . . . . . . ,

122,113,ifS

CAPITAL ACCOUNTS
Capital paid I n . . . . . .
Surplus.,..,.....,,
Other capital accounts. '
Total liabiu;k» a,i l „•<?'

1
Includes U . S . agency coupons In process of collection
2
During the year this item includes the net earnings, O^K-^M'S ,.>?> ru Hi-1 !-"*>. U< UP, ^i'd :«i n»r '
dividends, which are closed out on Dec. 3 1 ; see Table 6, p p . J M aiiu J73.

NOTE,—AmoutUi- iu Inrtdface type indicate items in the Board's weekly statement of condition of
the F . R , Banks.

o\ 2. Statement of condition of each Federal Reserve Bank, December 31, 1975 and 1974
fa millions of dollars
Total

New York

Boston

Philadelphia

Cleveland

Richmond

Item
1975

1974

311
23
75
14

3,330
124
275
23

3,413
93
233
14

668
31
85
7

614
23
82
10

66
12

9
82

7
2

741
385

579
420

212

1,457
118

1,044
511

357

266

480

4,031

3,608

20.810
1,217

17,784
443

5,092

4,527

87,011

4,313

3,825

24,806

20,872

5,458

9,752
263

386
89

388
65

1,785
20
2

1,456
12

345
51
3

2
2,930

3
63

21
1,828

1
2,028

4
72

1975

1974

11,599
500
1,611
347

11,652
400
1,343
240

Loans:
Secured b y U . S . Govt. a n d agency obligations.
Other

161
68

125
173

Acceptances:
Bought o u t r i g h t . . , , , , , . . , , .
,,,..,,,,.,,.
Held u n d e r repurchase agreement

741
385

579
420

6,072
118

4,702
511

282

86,717
1,217

80,058
443

95,479
11,194
319
13
80
2,900

1974

1975

1974

1975

1974

1975

1974

ASSETS
G o l d certifies tc s c c o u n t
Special Drawing Mights certif. acct.. . , , , . ,
F . R . n o t e s of other F . R . B a n k s . , , . . , . . ,
O t h e r cash. ,

Federal agency obligations;
Bought o u t r i g h t , . » , » , , , , . .
Held under rcpurctiiisc agreement

. .

U . S . Govt, securities:
Bought outright * , , , ,
Held u n d e r repurchase a g r e e m e n t . . , . . . , , , . ,
Total loans a n d securities

.,.,,..,,

Ossfa. items in process of collection
Bank premises .
.,,,,,,
,
, . , . . . . ,
G o e r s tins eQuipment
Other assets:
DendBiIniitecl in foreign currencies
All other
...
,
. . .
Intefdistrici

Settlement

Total assets

Account....

0
124,042

530
24
81
20

+184
113,593

5,693

4,748

29,604

28,122

6,264

662
33
91
31

981
45
163
42

907
36
96
17

48
2

399

491

374

6,851

6,787

7,008

6,378

4,816

7,331

7,186

7,506

6 t 802

343
31

558
25
1

528
26

2,004
22

1,082
14

7
97

4
108

104

-460

-2,610

888
43
121
45

+654
5,986

9,770

-236
8,636

10,639

9,058

LIABILITIES
F.R. n o t e s . , . . , . . , . , » . . . . . . . . , . . .
Deposits:
Member bank r e s e r ¥ e s . . . . . . . .
U.S. Treasurer—General account
Foreign.................... .
All o t h e r 2 . . . . . . . . . . . . . . . . . .
Total deposits. . . . . . . . . . . . . . . . . . . . . . .

7*,770 ! 72,259

3,921

3 ? 441

19,703

17,980

4,635

4,468

6,770

6 234

7,i40

6,493

26,097 • 25,825
7.2K5 i
3,113
353 !
1 090 I 1,275

901
388
10
12

674
116
12
23

4,718
2,292
159
769

6,139
1,080
202
814

710
544
12
18

865
152
14
29

1,690

1.26°

1,425
407
15
29

1,167
162
16
52

30,631

1,311

825

7,938

8,235

l t 284

1,060

7,768
! 141

340
51

362
50

1,203

1,157
280

193
68

310
64

5,623

4,678

29,126

27,652

6,180

5,902

239
239

235
235

42
42

29,604

28,122

6,264

5,986

34 3S2S

Deferred availability cash I t e m s . . . . . . .
Other liabilities a n d accrued dividends.
Total l i a b i l i t i e s . . . . . . . . . . . . .

.
23 !
18
2,328 )
411
97
9,60b 1

57?

2C
41
1,713
44J
92
S.48U

i,397
1,438
i

985
83
8,958

•0 515

CAPITAL ACCOUNTS
Capital paid i n . . . . . . .
Surplus..............
Other capital accounts.
Total liabilities and capital accounts. .
Contingent liability on acceptances purchased for
foreign c o r r e s p o n d e n t s , , . . . . , , . , . . , . . , . . , . ,

929
929

897
897

124,042

113 -93

...I

5,693

4,748

08.

249

78
78
9 770 !

8 636 ,

52
52

50
50

in,63 u

9,05?

F.R. MOTE S T A T E M E N T
F.R. notes:
Issued to F . R , Bank by F.R, Agent and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less held by Issuing Bank, and forwarded for j
redemption...........................
F.R. notes, net 3 . . . . . . . . . . . . . . . . . . . .
Collateral held b> F.R. Agent for notes issued to
Biink:
G o l d certificate a c c o u n t . . . , , . , , , . , , . . . . . . . .
S p e c i a l D r a w i n g R i g h t s certif. a c c t . . . . . . . . . .
Acceptances..... . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Govt. s e c u r i t i e s . . . . . . . . . . . . . . . . . . . . . .
Total collateral....
F o r n o t e s see e n d o f t a b l e .
j

81,877 !

75,116

4,071

3,552

20,252

18,545

4,735

4,555

6,982

6,415

3,107 '

2 857

150

111

549

565

100

212

101

78,770 '

72,259

3,921

3,441

19,703

4,635

4,468

6,770

11,596 '
302 :

530
24

150

3,329
124

888

71,510

3,055
93
550
72,555

3,575

3,425

83,408

76,253

4,129

3,575

17,980 I

6,729
359
7J4O

330

23o
6 4ci3

668

450

17,050

400
93
550
17,600

4,150

4,200

6,210

5,200 i

6,505

6,300

20,503

18,643

4,818

4,650

7,098 i

6,530 >

7,486

6,820

520

2, Statement of condition of each Federal Reserve Bank, Decembei 31S 1975 -aad 1974—Cor.fJra;c-d
In millions of dollars
Cnl

Atlanta

St. Louis

Mpolis

anw.sco

Konsas O i y

Iicm

1 19/4

5974

1975

1974

19/5

1973

:9?4

ASSf t S
•

C o l d ceitificate a e e o u r i . . .
S p e c i a l D r a w i n g R i g h t s ecriif. a t e t . . . . . .
F . R . n o t e ? o f o t h e r F.R.. B a n k s . . . . . . .
O t h e r cash .

%
235
43

I oans:
S e e i u v t ' 1»> US
G o v i . u u o jije«n > o b l i g a tions. . . . . . . . - . . . . . . . . , . . .
Other
. . . . . .
. . . . . . . .
Acceptances •
Bought ouuifjit
. . . . . . . .
. . .....
Hie id u p e ' e r '"cpure^ia^c at*$»*e*netii
Federal agenc\ obligations:
Held under

l o t a l l o a n s UAK* s e c u r i t i e s

20
59
26

518
15
48
21

206
10
43
15

309
I O

...

279
J6

*35
2ft
17

10
32 . . . .

>
,"

1 *>

I i

• ;

*
269

915

76.9

231

184

133

4,528

4,574

13,063

15,074

3,304

3,130

1,894

4,882

4M2

14,024

13,870

3,536

3,316

2,06^

1,291
16

174
13

,
.
.

420
14
.....

i»38<>
J4

921
14

310

21 i

S51

684

1 461
16

3 »30

1, •'85

4,433

3,629

12,159

i,,65.

15,01!

12.188

1^743

I. S K>
425
3-t

^ \1

H35
12

616
12
.... .

1,014
8
2

1
6

. .

.....

-85
.....

30H
J,

lot«district Settlement Aecount.
..

i 50i

...

Q s b i t e m s i n p r o c e s s of c o l l e c t i o n . . . . .
Bank oremises. . . .
. .
. , . .
....
Of»€i'ating e q u i p m e n t .
.
. . . . . . .
Oilier assets:
D e n o m i n a t e d in f o i c i g n c u r r e n c i e s . . .
Ali o t h e r

! ,946
7C
78
24

. .

U.S. Govt. seeuiitics
Btam'af o u t r i i i h t 3 . . .
.. ,
,
Held under l e p m e h j s e agreement, . . . .

...

79
72
29

. . . .

cpurcnysc agreement

l o t a l assets. .

34^
22

6,749

6.930

12
192

+ 124

+404

17,977

5,032

152

257

233

5.247

17,984

15.481

+303
4,3S9

5 : 209

2,72-'

5,259

4.81S

S.S62

LIABILITY
F.R. n o t e s , . . , , . . . . , , , . . . .
Deposits:
M e m b e r b a n k reserves.
U.S. Treasurer—Genera- J v-u>.-<
Foreign...............
All other 2 . , . . . . » , , . , .

3S322

2, : "

, „

33
:02
)3
li

3 ,010
i t666
f
389
15

2
1

Total d e p o s i t s . . . . . . . . . . . . . . .
Deferred availability cash i t e m s . . . . . . . . .
Other liabilities a n d accrued dividends, «
Total l i a b i l i t i e s . , . . . . . , . ,
CAPITAL

5^--

ACCOUNTS

Capital paid i n . . . . . . .
Surplus..............
Other capital accounts.
Total liabilities and capital accoi*- .Contingent liability on acceptances purc!~ , \ *
for foreign c o r r e s p o n d e n t s . , . , . » , , , .
F.R. N O T E
F.R. notes:
Issued to F.R. Bank by ^ ..
outstanding.........
Less held by issuing Ban! .
for r e d e m p t i o n , » , . , ,
F.R. notes s net 3 . , .
Collateral held by F.R. Agent >
to Bank;
Gold certificate account
Special Drawing Rights _. i
Acceptances.,.,.,,..,. .
U.S. Govt. securities, , ,
Total c o l l a t e r a l . . . .
1

Includes securities loaned - -»u U t, \, -^
• U.S. Govt. securities pledged with
F.R. Banks—and excludes (if .,. sVa: • u ^o -'
'.l scheduled to be bought back under
matched
sale-purchase
trans'
*>,•>-2
Beginning July 1973, this Item Includes certain deposits of domestic noiimeniber
banks and foreign-owned banking institutions held with member banks and redeposited
in full with F.R, Banks in connection with voluntary participation by nonmember institutions in the Federal ReserYe System's program of credit restraint.

As of Dec, 12, 1974, the amount of ¥oluntary nonmember bank and foreign-agency
and branch deposits at F.R, Banks that are associated with marginal reserves axe no
longer reported. However, two amounts are reported: (1) deposits voluntarily held as
reserves by agencies and branches of foreign banks operating in the United States, and
(2)s Euro-dollar liabilities,
Includes F.R. notes held by 0.S, Treasury and by F.R, Banks other than the Issuing
Bank.

3. Federal Reserve Bank holdings of U.S. Government
and Federal agency securities, December 31,1973-75
In millions of dollars

Type of issue
and date

R a t e of
Interest
(percent)
1975

Treasury b o n d s :
1974—Fob
May
Nov.
.
1975-85
.
. . . .
1978-83...........
1980—Feb.............
Nov.
1981— Aug.
.. . . . .
1982—Feb.. . . . . . . . . . . .
19g4—Aug.
. ..
1985—-May.
1986—-Nov.
1987-92...............
1988-93

4 «4

•-,

7
6-*s
6 :t x
3?.i
6K
4i4

• 71:;
A'\7H
1989-94
3J<.
1990—Feb.......
May
1993—Feb.. .
634
1993-98.. . . . . . . . . . . . .
7
1994-99,
199 s—p e fo
1995-2000............. •
i%
« , ' • • ;

1998—Nov..
.......
20004)5... . . . . . . . . . . .

3 ! 'i
8»4

Aug.
Sept.
Nov.
Dec.
Feb

15,
30,
15.
31,
1*5

Mar. 31,
Mav 15,
May 31,
June 30,
Aug. 15,

1975 --C'.'.l .'.'.'.
1975—G. .
1975--D.
1975— H.
.
1976--A
— F.. .
1976—H . . . . .
1976— B . . . . . . .
—E..., ..
1976—M. . . . . .
1976—1. . . . . . .
1976--C... . . .
— •

Aug.
Sept.
Oct
Nov.
Nov.
Dec.
Feb.
Feb.
Mar.
Apr.
May
May
June
July
Aug.
Aug.
Sept.
Oct.
Nov.
Dec.

370

156
87
261
74
123
358
334
47
310
509
24
264
77
84
155
70
148
830
2
286
707
31
585
5,522

Total
Treasury notes;
F e b . 15, 1974—C. . . . . .
M a v 15, 1974---D
A u g . 15, 1 9 7 4 - B . . . . . .
Sept. 30, 1 9 7 4 — E . . . . . . .
N o v I* 1974----A
Dec. 31, 1 9 7 4 — F . . . . . . .
F e b . 15, 1975- --A . . . . . .
--E..... ..
M a y 15, 1975 - B . . . . . . .

G . . . . . . .

31, 1976—L..
30, 1976—J . . . . . . .
31 1976—O
15, 1 9 7 6 — D . . . . . . .
30, 1 9 7 6 - N . . . . . . .
31, 1976—K.
15, 1 9 7 7 - - A . . . . . . .
28, 1 9 7 7 - - F . . .
31, 1977 ~ - G .
30, 1 9 7 7 — H . . . . . . .
15, 1977 C . . . . . .
—D.. ....
31, 1977—1. . . . . . .
10 1977—J
31, 1 9 7 7 — K . . . . . . .
15, 1 9 7 7 - - B . . .
31, 1 9 7 7 — 1 . . . . . . . .
30, 1977—M . . . . . .
3 ! 1977-—N
15, 1977—E.
31, 1 9 7 7 — P . . . . . . .

1974

4>H

156
87
151
74
121
355
331
47
310
505
24
202
77
84
49
97
580

""""Si"
3,283

7
7
634
5%
8
5" 4
6
8«4
7i.i
6»2

5J-«
6
U
bH
1H
7U
8
6
6

••'?

7;iH
9

6» 4
6«->
7 ! '2
7'4
7li
7.U

210
337
68
140
78
150
74
121
348
329
47
301
504
24
125
77
84
23
75

1974

1975

-210
-337
-68
16
9
i
3
3

7
2

9
1

1*5
21
51
250

26
22
580

*"" ' " i t "

286
707
585

3,149

2,239

325

r6
5v g
5%

1973

" " "*2"

7f*4

5J''8
5:54

Increase or decrease (—)
during—

December 3'

1,129
114
3,810
127
2 M8
23
474
202
* * * 2'507 * * 2,507
1,232
1,170
97
5
353
360
472
4<»6
80
""'mo''
692
74S i
720
1 ,649 :
1,630
43
^20 r " " 2 5 9 ' *
50
too 1
87
126
" " • " 7 7 "
231
2,453
2,462
112
422
48
*"" *"417""
440
!
2,973
2,950
i
92
251
33
831
807
88
38
56
! ,122
1,218
203

5,305
94
I ,891
34
1,095
106
3,780
119
2,388
464*'
193
2,^07
934
345
462

"720**
1 ,605

"Y,45i"

805

* "-i',i29" "
-114
-3,810
-127
-2,518
-23
-474
-202
62
92
7
24
80
12
28
19
43
61
50
13
126
154
9
112
422
4g
23
23
92
33
24
88
38
%
96
203

134
-325
-999
-5,305
-94
-1,891
-34
34
8
30
8
130
23
10
9
236
-340
-109
472
680
25
259
38
77
2

417
2,950

1,122

3.—Con tinned

iucriMsv of dc-creast (—)

dwing--

Rale of
interest
(pel ecu!) }

Type of issue
and date

... M
;

Treasury notes—Cont.,
Feb. 15, 1978—A,.
Feb. 28, 1978—G. . . . .
May 15, 1978—D.. . . . .
Aug. 15, 1978—C*.'.' "..'!
No¥,
Dec.
May
June
Aug.
Sept.

15, 1978—B.'. ..'
31, 1978—H. . . .
15, 1979—D. . . . .
30, 1 9 7 9 — E . . . . .
15, 1979—A... .
30, 1 9 7 9 — F . . . . .

N o v . 15, 1 9 7 9 — B . .
— C . . . . . .
M a y 15, 1 9 8 0 — A . , . . . .
A u g . 15, 1 9 8 0 — B . . . , . .
F e b . 15, 1 9 8 1 — A . . . . . . .

—C.....
No¥.
May
Aug.
Nov.

15, 1 9 8 1 — B . . . . . . .
15, 1 9 8 2 — A , , , , , .
15, 1 9 8 2 — B . . . . . . .
15, 1 9 8 2 — C . . . . . .

7?$

125
872
341
5 ,244
,M5
Mil
646
i ,464
,370
| ,013
524
,989

...

R e p u r c h a s e agreements, , .

U.S. GOT t. securities—Total
Maturing—
Within 90 d a y s . ,
...
91 days to 1 year, . . . .
1-5 years. . . , . . . , , , .
5-10 years, . . . . . .
Over 10 years, . . . . .
Federal agency obligations:
Held outright:
Banks for coops. , , ,
Export-Import Bank, ,
Fed. home loan banks.
Fed. intermediate
credit b a n k s . . . . . . .
Federal land b a n k s . . . ,
Farmers Home Admin,
Fed. Natl. Mort. Assn.
Govt. Natl. Mort.
Assn.—PC's........
U.S. Postal Service...,
Wash. Metro. Area
Transit Authority,..
General Services
Admin.........

I'..

...

- .

4 jii

611

2U (
830 I

6 ! "*•

465

Total..,.. ,.
Treasury bills:
Tax anticipation... ,
F e d . Financing Bank ,
Other, due—Within 3 m o s , . . . . . . . .
3-6 m o s , . . . . . . . . . , ,
After 6 m o s , . . . . . . . ,
Total......

8 SO
l ,499
619
2 ,516
,447

19/4

590 *

512

d'il

844

2,516
* -~lfV
i? !
31
435
30
42
.......^,.
1
44
11/
61

b«4
1,370
I,OH
524
f 4!2

40.

V>8<)
-2

-Q96
356
^92

H ,tf>7

442

-132

8 0 , 501

78 ,516

7,434

1,985

20 401

?,4 ,847
21 ,369
*>^ ,035

7,153

216
1,303

357
-96M
85
2,109

7>2

37 ,207

?*. 765

! ,21/

443

87 ,934
,704

4 ll)82

1 ,603

I \6\

317
736
285
,702

-2,704
''-124

12 '342
4 ,V71

30 ,273

1,597
^344
259

344

25 ,450

27
82
45
2,268
243

-I

?4i

87
37

Total..... . . , .

6 ,072

4, 702

Held under R p ' s . . . . . . ,

118

511

24
S
3

385

,503
762

" 10K" *

-3,186
1,918

-27
-20 '
440

mi
87
47
900

?34

107
204
60
559

139
286
9!
1,132

16
12

1.370

2,764

-393

469

,011
Si

t ,9 IK j
42

MOTE,—Details may not add to totals because of rounding.

371

4, Fetfct nl Rw\sci vc Hank holdings of special short-term Treasury cci liii^iitcs purchased directly from the United Stuies,
19/0-/S
in millions of «totfdH
Line

I.MU
1975
Id

JllDC
10
11
12
13 i
14
15

8,10
820
832
474

M.',;'

543
O
IS

itV)

4SI

d u.
iliiuagiitJUi tlic pciuxt ;> IUWK .he iuivts,* i.'ik'
F.R. B a n k of N e w York. I -;«r tiaia b>« j:<nor SCHIS,
N o holdings o n dates n u t *!><wn.

C Ipcn

iiiai kef

ut' wul« W4">( sci; p t c \ i o u s ANNUAL

of flic I<cdct;d llesci ve System

Iruii^ii

during 19/5

!i*>!i% it) U,S. i i o v i . s«.Liintu*s* by maturity

Month

Jamwiy . ,
February.,,
March. . , .
April,
May.
June,,.
July.
September.
October.,.

(J'kM HHhlti f »«,!• :

I
j
llHKS
0>J( -

H • ''•:- '£S;Hi -"

EUcii.
y
shifts

*4!
4>,7

/t)ti

-2,836
194

1,5. l .'
4H5

421
'312
,H8

161 (
,505 !
282 J

40'.'
sou
405 >
If Hi
400
100

lot.ti

312

'6,635
-529

,(/»!

50
'II

4hS
.!

- 2,144 i
150 . . ' '. . 1,299
-278
27K ; 5 6 :
-48
48 ! ,
26S ( 267
-135
US . . . .
.' - 2 8
..!

4,275

< inued

j ,

J a r - v > .'
Fel-'*••»

Juv" .
Ju' '

'• i '

..$7

':• • i • l>\ »' i ' ' . 2 6
*, .v 5

14,-".','!

t~ 7 1 0

S e r i f •'. >><V
Oc ••••'!

No* - > ^ r

\""\

, -ii » J If, >; r.11

373

6. Earnings and expenses of Federal Reserve Banks during 1975
In dollars

Item

New
York

Total

Philadelphia

Cleveland

Richmond

Atlanta

Chicago

St. Louis

Minneapolis

Kansas
City

I
Dallas

San
Francisco

CURRENT EARNINGS
12,532,225
527,088
1,588,087
4,121,770]
152,261
1,240,861
1,276370
326,009
216,700
365,909
518,909
1,233,489
964,772
55,905,145
55,905,145
'5,145 . . . . . .
.i16,081,066,2241275,843,94111,496;582;<)29
345,741,916 483,292,05 i j 482,490,979[321,71!',930 927,614,026 231,240,188132,325,834 242,934,028 295,895,909 845,393,393
6,224:
5,912,720
213,246
1,876,987
256,985.
475,663
415,475
841.848
300,712
185,887
131,238
230,538
300,699
683,442
2,720
12,533!
71»2i5
38,531
79,441
255,429
43.985J
215,340]
69.893J
38,096]
80,737
0»4?0
30,935 101,584,284

Loans,.,.,..,
Acceptances
U.S. Govt. securities.
Foreign currencies,.......
Ail o t h e r 1 , , , . . , . . . , , . , . .
Total,, .

, . 6,257,936,784|276,615,2io! 1,660,070,2161346,976.206 483,991 »240J 484,071.083' 323,483,216

CURRENT
Salaries:
Officers.,
Employees..,,,
Retirement a n d other benefits
Fees—Directors a n d o t h e r s , . .
Travel.....................
Postage a n d e x p r e s s a g e . . . . . .
Telephone a n d telegraph
Printing a n d s u p p l i e s » , . . . , . ,
Insurance,,.,.,.,,.,..,,...
Taxes o n real e s t a t e . . . . . . . . .
Depreciation—Bank premises,
Light, heat, power, a n d w a t e r .
Maintenance and r e p a i r s Bank p r e m i s e s . . . . . . . . . . . .
Rent,.,».,.,,..,,.,..,....
Furniture and equipment:
Purchases 2 . . . . . . . . . . . . .
Rentals,,,..,.,.........
All o t h e r . . . . . . . . . . . . . . . . . . .
Inter-office e x p e n s e s . . . . . . . . .
Subtotal........
F.R. c u r r e n c y . . . . . . . . . . . . . .
Assessments for Board of
Governors:8
Operating e x p e n s e s . . . . .
Construction expenses. .

Total..,
Less reimbursement for
certain fiscal agency and
other e x p e n s e s . . . . . . . . . .

21,276,072 1,411,359.
271,371,174 17,383.232!
52,960,760 3,620,710
4»566f528
247,376
5,719,899
415,129
70,360,946 3,828,639
8,075,149
399,857
24,513,641 1,400,148
1,147,530
90,075
12,539,006 2,580,945
7,765,156
126,968
76i€Q20
511,622
79,468
1.157,786

665,748
3,595,638

74,973
517,48:

10,117,082
41,908,904
10,980,243

778,300
3,233,796
985,579
98,988

2,565,496
5.866.S57
2,770,359
-2,016,699

2,856,165
639,378
164,520

3,014,437

562,079,508 38,349,980 121,044,068 28,933,924
37,130,081 2,019,391!
76203»399 2,871,307
!s3i0»700,

632,786,792 41,680,072
47,720,877

2,772,611

585,065,915 38,907,461
Net expenses.

EXPENSES

4,733,34^1 l,329,02«i
1,094J20
1,957,604! 1,847,1231 1,933,515 l,4JIJI0! 1,015,429 j 1,412,166
1,220,747. 1,909,822
66,395,975 13,877,4341 15,641,4021 21.49I.19C 24,948,49lJ 35,947,639 15,725,2t>2" 10,233,186- 15,622,4X3, 12,527,576 21,577,304
12,568,88'" 2,770,707
3,080,11
4,198,620
6687672 3,110,753 1,922,070 3»247S917
2,415,747 4,567,573
1,389,523
234.3S1
321,677
401,273
149,761
219,823
168,768
272,729
159,848
151,092
850,277
420,374
641,594
603,351
990,369
186,041
324,683
334,359
439,610
364,725
346,496
653,168
6,334,523 7,412,973
10,081,331 3,079,339
8,847,353 5,152,153 2,702,291 4,137,71!
8,411,429
3,520,371
6,852,833
1,782,492
337,000
5I4.96S
986,944
419,210
866,073
355,176
612,353
650,608
495»i71
654,797
2,650,050
4,701,400 1,227,660
1S252»522 231206S
3,572,671 1,628,430
911,891 1.72S.754
1,066,264 2,061,783
115,981
212,398
37,149
79,858
121,947
69,925
59S217
43,368
101,934
5Of133
165,538
565,755
2,186,322
469,690
1.524,819
473,115 1,795,632
717,326
447,121
-581,860
806,758
389,663
429,520
1,093,003
76,596
421,552
570,990 1,565,980
1,497,264
277,563
883,730
277,903
544,087
622,417
1,450,213
885,619
479,445
913,780
532,879
384,843
456,591
375,038
413,866
590,607

3,639,296
7,509,765

32,896,500
680,700

296,753,6131 847,391,061

8,73 i, 100

410,044

260,689
164,889

250,243
352,088

339,804
634,13!

307,203
720,002

578,846
160,293

303,525
26,992

157,543
21,390

511,742
6S6.935
300,233

559,372
3,528,333
460,996
-417,686

788,329
3,836,671
462,925

1,153,997
5,449,702

432S163
2»662f§30
315,143
135,412

397,449
1,552,289
552,024
86,751

860f262
3,518,541
460,104
160,873

36,719,562
2,576,401

45,056,784
4,230,047

52,389,074
4,025,471

1,565,300

2,927,.600

136,978,567 33,370,531

42,223,563

1
51,156,831

277,212

2,583,200
58 t »7 s 745

2,043,657

3,559,950

3,219,593

4,308,434

125,660,806 31,326,874

38,663,613

47,937,238

54,689,311

11,317,761

519.67S
149,297

101,576
9,775
520,087
2,897,248
1,032,373
206,531

1,139,841
3,492,835
856,012
442,336

71,843,882 33,852,858 24,396.895 34,461,474 27,671,214
4,112,162 2,127,799
714,642 1,016,334
l629039

47,352,793
4,604,089

l t 758»4t5

561,561

5,168,1'00

1,410,000

1,846,600

4,217,700

81,124,144 37,109,257 25,929,837 36,894,808

31,146,855

56,174,582

6,919,202

1,128,128,600

3,025,823

818,300

1,317,152 2,977,071

1,569,640

4,689,983

74,204,942 34,083,434 24,612,685 33,917,737

29,577,215

51,484,599

PKOMT AND LOSS
<L.uirjnt ntt earnings. .

5,672,870 .v>

Additions to current net
earnings:
Profits on sales of U.S.
Govt. securities.
All o t h e r . . . . . . . . . . . . . .

36,967,506
4,126,543

Total additions..,
Deductions from current net
earnings;
Losses on foreign
exchange transactions.
All o t h e r . . . . . . . . . . . . . .

"M7,74*'|

/712,635

l,M.4,109
15'),787

8,824,743
1,024,712

2,066,573
125,401

3,012,563
138,099

2,928,888
1629497

2,022,7V3
218/Si!

^ ^2Sf54S
-J6.728

1,430,953
109,811

I > ^.3,896

9,849,456

2,191,974

3,150,662

3.091.3S5

2,240,';-t

V 45,276

<?3 350,936 11,364,481
278,223
716,231
64/47,166 11,642,704

21,035,480
61300

13,298,861
I76S6

18f376,t«38
32,45".

21«6,810

21,096,780

13,316,547

18,409,^9

,
30,(542
243,463,*)64) 9.460,743

Total deductions.

4,40'»,409 315,t4').3iij 445.327 626J *-;t»,H_%$45 26o,"^H M

^2,804

817,367
145,611

1,470,396
124,261

1,734,021
182,844

5,166,552
1,418,602

1,540 ^.4

1,594,657

1,916,165

6,585,154

8,22! it*!
33^7 J'»l

\H«3,
10,155,494
"7S422
21,655

i3»298»86q
79,006

30,224,683
285,964

5 S^0,561 10,177,149

13.377J66J

30, S 10,647

Net deduction from (—)
current net e a r n i n g s . . . . . . -202»369»y:5

-54 217,710 —9,450,730 -17,946,118 -10,225,162 -16,168,089 —31,124,338 —6,71 A.1 ^l» - 4,-i7,576 -8,582,492 -11,461,001 -23,925,493

Met earnings before payments
to U.S. T r e a s u r y . . . . . . . . . . 5,470,501,254

•'V^dJ -isr. »91,699 306,i, 198,603 427,381,509 425,908,65.3 252.025,817 824,970,110190,998,576103,358,8502011,100,139 255,715,396 771,980,970

Dividends p a i d . . . . . . . . . . . .
Payments to U.S. Treasury
(interest on F.R. notes),..

54,609,555

i3,yl8,891

2,516,504

4,790,394

3,061,2y7|

4fM\

8»452S775

1,845,1 OS 1,386,681

2,317,017

3,028,166

6,934,092

419,877,314 420,755,2S6 245 V.'C596 812,186,635 187,947,817 97,609,920 196,974,672 249,948,730 759,268,028
5,382,064,0981227 57<\544 i»461»619»158 303.,194,398
:

Transferred to s u r p l u s . . . . . .

33,827,51M:
J^MOO
««5,5O6 55(» 35.050,250

4,653,650
487,700
2r«*i,t><c1.00G 41.72"? S^0

2,713,S00
- " 72i ,100

' Includes eami,it:s o:t r )tc due ttoin *• DIl" a^ouiit t i 1* K.'I»"; ^utsoa^i Ban»v. il?n,in
from
this source amounted to $29,026,093 In 1974 and $99,665,236 In 1975. _
2
Includes depreciation and maintenance and repairs on furniture and equipment.

2,092»10«
4°.6<?2,S0Ci

3,279,850
4,330,70(1 1,205,650 4,362,250 1,808,450
6?.-i90 s 50 ^T*"7 523,100 30.^31.600 21 7^,^*7"n "7^10105^

MOTE,—Details may not add to totals because of rounding.

2,738,500
5,778,850
~?/ ^°.25O 1' 1 °23.K5O

,irrent

•^ B»rk

reuses

before payments to
1J S. Treas"t

. Mends
paid

Transferred
to surplus

R B2,173,2:2
5,217,9i16,128,3?*
67,584,4*102,380,58- '

32il 5«-ft
- 273»9e
:• 159,717
' . 959,5'-.339,6:*:-

I-'1 296,7^
: " 365,8(- ; 498,6<
"•> 708,5(,; 340,4^
i 800,70
- . 599,51: 324,41- 052,81 .
" \?55 f 4S'.

* 258»0. •.
1 463,8-*

•;- 424»G^ •
w 701,27-5
V .018,8)"
'.'< 187,3! *
is
)02 8 ^
:
-\75ll95«
*
->
^>
>

900,6? !
233, i : : !
261»4Z -'
500,6C>

i; 537,80-!,380,05^

*»: 562,7(4
•»'' 3 0 5 7 1 ~

. Hi
' U5.

104,391]gr

142,209,54;"
15§s385»O33
158,655,56c.
304 160 81/»
316,'536|9S0

. « 559,0M"

. ' 764,1"
•• .431,1_ •
y 528,1« *
350, UC
"> 518,4^
• .904,8' J
" 691,1:- 342,7^
040»6^
• 291,3^
: 222,81
•
* 241,3<:->
:
-!, 577,4"-> 874 0' *

217,4 .742,7":
• 804,1; •.

*- ,294,' ~
^497]"^
'|718|^

1 122 t "
^,402,"
:,972,«>

""[957J4-

•- 800^14;

911

6JV

f> 64618^*
y 165,4""
C 963,1>*
'I- 624,0^,1
»'.545.5M
v; 175,92i.s 717,2*^1
-'" 235,107
^5 392,9^5
-2 710,185
T 477,67s

>-~,860,c:*

•: 540,6^-t

Oil,83:

48,334,341
70,651,778

^ 654,0:-"
119,6"3
: 307,0'-.3
• 552,7 "*
• 682,4^.
. 915,9:
" 329,1*"
754,5.458 »4»• 583,91-

82,916,014
15»993t0S6
-659,904
2,545,513
-3,077,962
2,473,808
8,464,426
5 s 044 f 119
21,078,899
22,535,597

? 268,5 l -.029,7* ••
282,2'^
874»2(«:
781,6*
. 504,9*- •
• 829,5!-"
,940,9c
019,1?"
• iio,4t:
• 214,9^!
. 429,9:«'-

-2,297,724
-7,057,694
11,020,582
-916,855
6,510,071
607,422
352,524
2,616,352
1,862,433
4,533,977

Z~> b i 5

"" 4
115, ,,2 I

~ c'

92,523,035

-.911,34500,l?c
' 182,851
9621T
.919,80f..329,373

i -,5

13 v)2

, 669,0":J

326,717
247,659
67,054
35,605

201,150
262,133
27,708

17 t 6!7 s 35g
57§S513
3,554,101
40,237,362
48,409,795
81,969,625
81,467,013
S s 366,350
18,522,518

21,461,770

1950, ,
1951.
1952.
1953,
1954.
1955.
1956,
1957,
1958.
1959. .
I960.
1961
1962.
1963,
1964
1965
1966,.
1967
1968
1969

j
.

1970 .
1971
1972 .
1973
1974
1975 ,
Tota, * ••-'

Aggre
F.R
Boston
New > c .Philari
Cleve!
Richn, ., v
Atlan?
ChicaSt Lo
Minn*
Kansf
Dallas
SanF

275,838,994
394,656,072
456,060,260
513,037,237
438,486,040
412,487,931
595,649,092
763,347,530
742,068,150
S86,226,116

80f57i»77'i .
95,469,08^ '
104,694,OS.

,103,385,257
941,648,170
,048,508,335
,151,120,060
,343,747,303
,559,484,027
,908,499,896
:, 190,403,752
:»764,445,943
4373,360,559

153,882,27~ •
161,274,57:
176,136,1?-187,273,35."
197,395,8*.204f290,11* .
207,401,1U
220,120,8^ •
242,350,3'
274,973,3;.-

,877,218,444
,723,369,921
,792,334,523
•,§16,769,328
:, 280,090,965
',257,936,784

321,373,386
377,184,800
414,606,351
495,117,376
547,541,474
585,065,915

3 , 567,286,h
3, 440,451/
3 , 328,112,1
4, 440,998 s^
5, 654,062,:
5, 470,501,:

,509,216,848

7,047,930,494

47, 227,710,:

237,8

,738,633,846
'\ 081,394,184
:,984,054,771
^,323,571,534
",847,643,838
2,909,177,314

470,970,360
1,521,643,974
391,333,606
553,473,886
529,406,392
519,709,240

2, 259,867,:
12, 502,204,t
2, 584,309,
3, 748/791,:
3, 308,017, •
2 S 367,392,1

588,9^-''
024,0"
521,4.668,7""
593,9 ':
155,9:'

,151,229,6('"
,851,676,5(
,453,469,9?',551,338,3'-'
>3
fi93»457,6! '
,224,164,3^^

45,521,175
176,562,121
56,745,772
93,868,893
57;664,708
77,037,240

.,743,018,079
•,070,090,249
,164,594,731
,203,525,680
-,346,164,989
T
,097 f 347,633

961,203,77
395,846,4^ •
264,370,1: t
404,242,6b:>
351,852,0*--.
683,877,87

898,87077,6*^"
- 673,4< 944,5" *'
190,17'
900,2.7-

,413,173,11 :
,590,686 t 6("835,665,1^ ,698,290,68,870,950,73v
;, 130,039,5<<--

57,182,554
36,356,878
29,970,213
43,351,450
56,175,228
27,570,117

4 7 » ^ -»710, _4> ,», 0. •'*, 237, 8S*:

•,964,142,48^

--,509,216,848
1

3 ,561,34',>
",059,C

113,515,O2'< I

'-''', 463 * 2 i 3

109,732,9? J
110,060,02
121,182,49-J
131,814,OC
137,721,6!" •
144,702,7c . ;

" - v . 6 1 9 , 4 •>•

7,047,930,4lj-t

v ; 162,4:-:
."S443J-,
J-A,392,6

-^,470,C7-,
^ s,770,6'».
.'.-.,377,6,•',855,27
'.,316,*;.
^,461»53:
•J-,095,0:'.;
" ,376,7-.
" ,615,5-

'-),730,5'-,-,857,^"',632,: 581

382,99'
364,75581,78558,3? •
442,25
711,9:-*
904,8S''
080,5:"
197,4?^
721,6* *

.351|60:
696,31v027,3-:
959,3:- J•
236,5^

42,613,100
70,892,300
45,538,200
55.164,300
• 65,822,800
27;053,800
18,943,500
29,851,200
30,027,250
39,432,450

,136,55'
• 488,07^
f 183,7' •
139,6!-"
• 579, 6-L609,5" -

',493,570,6?:
%356,559S87•,23i,267,6f i
.,340,680,4^ •
S549,999,41i
%382f§64,0S:'

32,579,700
40,403,250
50,661,000
51,178,300
51,483,200
33,827,600

S 964,142,41, '•-

158,006,349

412* 2^i
912,0*-

fae $1,058,001 7 i - : 1 v ferred to surplus was reduced by direct charges of $500,000
^'- .jarge-off on 3«^k picuases (1927), $139,299,557 for contributions to capital of the
vju.'.'al Deposit Insurance Corporation (1934), and $3,657 net upon elimination of

21,849,490
28,320,759
46,333,735
40,336,862
35,887,775
32,709,794
53,982,682
61,603,682
59,214,569
- 93,600,791

896 f 8i6 s 3
687,393,38?
799,365,98«
879,685,21t 582 ? 118»61^
. t 296»8i0,05.
,649,455,164
,907,498,27-.:
r
,463,628,98;
,019,160,63-

94g,27 •

Current earnk :r :...^ zs, rent expenses, plus or minus adjustment for profit and loss
r

196,628,85-:
254,873,585
291,934,634
342,567,98276,289,45a
25i»740,72 '
401,555,58! ,
542,708,40'- !
524,058,65--'
91064976

§58,006,349

Sec. 13b surplus (1958), and was increased by $11,131,013 transferred from reserves for
contingencies (1945), leaving a balance of $929,334150 on Dec. 31, 1975.
NOTE,—Details may not add to totals because of rounding.

8. Bank premises of Federal Reserve Banks and branches,
December 31,1975
In dollars
Cost
F.R. Bank
or branch
Land

Buildings
^including
vaults;1

Hxed machinery otitl
equipment

24.154,865
27,840

70,312,961

97,604,725
i 61»580

13,431,048
592,679
67J, 076

18,272,589
1 ,491,116
2,579,814

3,136,899
44,538
9,280,235
716,472
1,592,130

40,983,872
2,800,267
4,845,020

88,834,516
- 158,461
17,252,748
477.S63
23?651§

Philadelphia.

3,254,353 ! 52,649,816

2,154,452

58,058,621

51,000,859

Cleveland
Cincinnati,. .
Pittsburgh.. .

3,572,665
7,521,727
2,937,289

11,494,895'
22,539,324
9,551,718

1,044,656
19,471,546
4,818,973

Richmond. , .
Annex f,,.
Annex 2...
Baltimore. . .
Charlotte,...

1,295,490 ! 6,626,740
1,479,874 13,537,723
1,848,152
4,766,277
t
2,342;774 15,221,081
1,46375
256,000
522,733
3,455,645
801,779
2 0119,38!
347,071
1,069,026

2,506,47!
2»3B
3,504,227
1,200,445
625,121

20,070;326
405,188
7,482,605
4,011,605
2,041,218

14,013»109
146,875
5,653,322
1,652,496
991,215

Atlanta..........
Birmingham
Jacksonville
Annex,.......
Nashville,. . . . . . .
N e w Orleans

!,304,755
410,775
164,004
107,^25
592,342
I ,557,663

5,804,778
2,0110,619
t , 7116,794
76,236
I ,474,678
2,754,271

3,558,581
1,019,618
778,871
15.S43
1,098 f924
1,448,181

10,668,114
3,431,012
2,649,669
200,004
3,165,944
5,760,115

5,655,864
1,616,124
1,101,719
166,499
1,603,77?
3,844,313

Chicago.........
Annex
.
Detroit.,,.......

6,275,490
50,000
1,147,734

17,855,810
173,197
3,110,776

10,823,167
76,134
1,725,637

34,954,467
299,331
5,984,147

12,920,793
267,064
2,463 ,.32!

St Louis........
Little Mock
Louisville.......
Memphis. . . . . . . .

1 ,675,781) i 3,243,079
800,104 | 2,037»86S
700,075
2,859,SI 9
1,135,623
4,216,382

2,941,024
992,471
1,127,084
2,105,963

7,859,883
3,830,443
4,686.,978.
7,457,968

2,920,996
.2,605,557
6,408,263

Minneapolis.
Helena..........

! 1394f384 1 23,555,629
15,709 j
126,40!

10,928,091
62,977

35,878,104
205,087

32,359,242
39,672

Kansas C i t y . . . . . .
Denver
O k l a h o m a City. .
Omaha
......

1,340,561 j 9,102,125
2,997,746
3,203,270
647.6H6 | 1,653,138
1,030,226 j 1,576,662

3,SS§f365
2,307,214
853,051
781,171

6,335,486
6,511,188
i f 768,714
i ,985,606

Dallas
E! P a s o . . . . . . . . .
Houston
San A n t o n i o .

.! 3,723,160 l 4,929,227
J
262,477 i
787,728
.i 1,959,770 i 1 ,410,646
.{
448,596 • 1 ,4<»S391

3,570,803
393,301
714,187
570,846

14,023,051
8,508,230
3,153,875
3,388,059
12,223,190
1,443,506
4,084,603
2,419,833

4,051,398
124,000
4,103,844
2,180,166
I .972,068
1 ,890,966

1,925,551
30,000
i,608,576
649,432
707,575

Boston.......
Annex
New York, , . ,
Annex
Buffalo... . ..

San Francisco.. ,
Annex. . . . . . . .
Los Angeles. . . . .
Portland....
Salt Lake C i t y . , .
Seattle....

Total.

684,340
247,201
I,022,696
207,380
480,222
274,772

83,577,805 '301,719,337

1,058,744

Total

6,661,289
401,201
6,735,116
3,036,978
3,159,865
3,224,4S2

Net
book Yalue

6,376305
.915,213
3sO51tS55
1,417,960
•••

797,517

329,041
2,444,772
1,578,666
1,811,661
1,225,364

96,248,366 481,545,508 319,632,410

OTHER RFAL ESTATE ACQUIRED FOR RANKING-HOUSE PURPOSES
New York
Cleveland
Richmond...
Charlotte.
Atlanta
Helena, . . . .
Kansas City
San Francisco
Total.
1

485,894
395.K75
326,403
1,625,312
832,727
131,739
800
15,686,467

485,894
395,875
326,403
i ,625,312
832,727
131,739

485,894
395,875
326,403
1 ,625,312
832,727
131,739
800
800
15 ,686,467 "15 ,686,467

19,485,217

19 ,485,217

Includes expenditures for construction at some offices pending allocation to appropriate accounts.

378

9. Volume of operations in principal departments of Federal
Reserve Banks, 1972-75
Operation

1972
o> pieces bundled

Loans........
Currency received a n d counted
Ciurency verified a n d d e s t r o \ e d
Coin received ant! counted
Checks h a n d l e d :
U.S. G o v t . c h e c k s . . . . . . .
Postal money o r d e r s , . . . .
All other 2 . . . . . . . . . . . . .
Collection items h a n d l e d :
!
U . S . G o v t . c o u p o n s paid,
All o t h e r . . . . . . . . . . . . . . . .
i
Issues, redemptions, andexclumnes J
of U . S . G o v t , securities..
'
Transfers of f u n d s . . . . . . . . .
j
F o o d stamps r e d e e m e d . . . .
,,

2,624,571
1\ 112,192

3^
' 7,303,349
2,712,718
15,089,449

843,752
175,893
11,410,267

34
b .869,058
2,613,765
15,877,724

6
'6 ,516,251
2 ,246,740
14 ,716,546

723,117
169,109
10,820,006

649,424
168,116
9,976,962

617,408
177,257
,451,176

9,336
16,183

9,867
28,002

10,443
25,764

11,911
25,720

276,758
17,487
2,492,535

283,313
14,513
2,512,927

278,053
11,633
2,038,092

258,947
9,494
1,849,647

A m o u n t s handled (thousands of dollars)
361,231,396
245,074,209
61,620,130
Loans...................
, ,
61,942,629
56,837,822
51,535,480
Currency received a n d counted,
66,065,061
14,460,303
14,800,429
12,068,78i
Currency verified a n d destroy %-d
14,278.90S
2,005,143
2,462,923
1,755,727
Coin received a n d c o u n t e d .
2,1.19,810
Checks h a n d l e d :
318,983,924
263,439,104
235,163,523
349,956,753
U.S. G o v t . c h e c k s . . . . . . .
5,686,672
8,523,510
4,814,561
4,718,577
Postal money o r d e r s , . . . .
All other «. . . . . . . . . . . . .
i 4 ,256,923,795 4,104,274,900 3,845,234,479 3,317,873,664
Collection Items h a n d l e d :
6,174,804
6,322,475
6,336,902
5,825,599
U.S. Govt. coupons paid,. . .
28,795,114
26,972,687
23,013,309
24,770,140
All o t h e r . , , . . . . . . . . . . . .
Issues, redemptions, a n d exchanges
575,364,875 3,085,911,133 2,617,455,702 2,052,735,038
of U . S . G o v t . securities. .
392 864 917 30 361,777 919 23,479,745,788 17,916,041,090
Transfers of f u n d s . . . . . . .
7/139 81?i
5,679,074'
3,525,383
4,030,228
Food stomps r e d e e m e d . . . . . . . . . .
T

Revised.
Packaged items handled as a single item are counted as one piece,
'- Exclusive of checks drawn on the F.R. Batiks.
1

379

JO-

P r i n c i p a l operations of Federal Resier\o B u n k s , including
total c\\pou*«,;s* {^cv«jf*c ?«iu»i!>cv of ooioloywf* a w ! rtnio of
tof'jI rxpt.Tisc f<)\" aw\t oponition to foi.vil *,>xponscs 1^72-75

Ojh-f^'i'Mt

K . ' t t t ' : i t * 1*V<1 -I'XPC

Fiscal agency oper<<i<»
Total expense..
Ratio to total ex(K,
A¥erage number of
Bank supervision:
Total expense..
Ratio to total ext'c
Average number v >
Other operations: °
Total expense. .
Ratio to total CM\
A¥erage niinibe:' '>f
General aciirilnlstr.-li
Total expense..
Ratio to total CAO
Average number t J
Audi tint;
Bank acloM
Board a-'.^
Data pi'f. »
Occupan.'
Personrtt i
Protection
Other. ,
Total expenses.

^45,30V

$33,144

2*-i

2*?
$15,83A

'-i27,62 *

4. t

•ol0,59i
49.1
1.1, i
521,70*'
33,57.'
34,65 1
58,391
26,44'J
22,25*73,05^

, J '7

4 I , <»'•,.'

' is,4

432,78/
271 si!

47,72'
S54 % 5 l!
1

I n c l i v k ' S a t u t n n i»t ,i < J \ ' <

380

^:n.693
6.5
2.0

• ollections.
« foreign operation? r:;P^ :« nrljti
"tributed to other < -M^

SU4jm

of officers a;.u
»ks, Decemb* <

Federal Rr
Bank (inc i <
brand >•

> |.s>

3t»0
981

1,303

13,719,011

1,392

15,052,492

ibb

j»

X 3 3 I toi*

s S15

^ IWtl

Cleveland
Richmond.
Atlanta.......

63,000
52f5§0
65,000

38
67
66

1,054 ,500
1,888 ,80§
1,850 ,500

1,571
2,186
2,658

33
108
43

15,414,711.
22,016,280
24,264,240

15643
2f362
2,768

16,532,211
23,957,580
26,179,740

Chicago.
St. Louis.
Minneapolis..,

82,000
66,000
62,000

62
48

1,812 ,400
!,340 ,000
941 ,750

3,436
1,559
922

131
57
18

34,330,826
15,398,671
9,780,385

3,630
1,665
972

36,225,226
16,804,671
10,784,1.35

Kansas City. . .
Dallas........
San Francisco.

70,000
55,000
82,000

1,337 3 0 0
309
300

1,613
1,320

60
37
66

Total. .

817,000

415

24,918

1,81.9

15,328.202 1.724
16s735,702
1,2,853 MJO I I MJl , 14,070,909
19,367 *>''S I I ^ -i- I "1,320,298
5,392,766

903 264,146

Includes salaries of part-ti< • H

\ we Bank Interest ratesf December 31,1975

Federal Resc.. Bank

. , , l > s a ? .(«'! ( " O H

Chicago....
St. Louis.,.,
Minneapolis,,
Kansas City .
Dallas......
San Francist *
1
D i s c o u n t >>\ ^ h'^Su pih.'r \a>' <•*<!< DK.> •> » »<<'*! n ' <>• ' \ »,,v> > <\ !»•' fJ.S. G o v t . obligations or
any other ob!u\t!un*\ .;»i^ih' • «nr Fc I T it k t ' ^ i v - - i i i r k n T i 1 ! ? . '
2
Advance^ ». <u-^' m <tu' su««st K I , ' n i%f tho F !v, l i y l , V*i. •,K,» • N\<. JM- I by mortgages o n 1- to 4family residential property are m a d e at the Section 13 rate.
3
Applicable to special advances described in Section 201. <.u- '< ui K ' c ^ ' . i d o n A,
4
Advances to individuals, partnerships, o r corporations otJiu* "'urn nwm\»:t b a n k s secured by direct
ch'j^'dtions of, or obligations fully guaranteed as to principal a n d Interest by, the U . S . G o v t , >,\ w,
aftiicv thereof.

13. Member bank reserve requirements
Per cent of deposits
Through July 13, 1966
Net d e m a n d deposits
Effective date

| Central reserve
city banks
1917—June
1936—Aug.
1937—Mar,
May
1938—Apr.
1941—Nov.
1942—Aug.
Sept.
Oct.
1948—Feb.
June
Sept.
1949—May
June
Aug.
Aug.
Aug.
Aug.

21.
16..... . ..
I
1.......
16.
1.......
20
14. . . . . . .
3.......
27. . . . . . .
11
24,
16....
5, 1 . . . . . .
30, July I .
1
11, 16. . . .
18.
25. . . . . . .

Sept,

1 . . . . . . .

Reserve city
banks

Country
banks

Time deposits
(all classes
of banks)

1951—Jan. 11, 16. . . .
Jan. 25, Feb. 1.
1953—July 9, 1
1954—June 24, 1 6 . . . .
July 29, Aug. 1
1958—Feb. 27,'Mar. f
Mar. 20, Apr. 1
Apr, 17. . . . . . .
Apr. 24. . . . . . .
I960—Sept. 1.
No¥. 24. . . . . . .
Dec. 1 . . . . . . .
1962—July 28, . . . . . .
Oct. -25, Nov. 1
July 14, 1966, through Nov. 8, 1972
(Deposit Intervals are in millions of dollars)
Time deposits 4
(all classes of banks)

1966—July 14, 21
Sept. 8, 15. . . . .

1968—Jan. 11, 13.
1969—Apr. 17. . . .
1970—Oct. 1
1
Reserves required during the period from inception of the Federal Reserve System until June 20,
1917, were not strictly comparable with later requirements; they were based on aggregate amounts of
deposits, and reserve balances with the Reserve Banks were increased in stages. When two dates are
shown, the first applies to the change at central reserve or reserve city banks and the second to the
change
at country banks.
8
(a) Demand deposits subject to reserve requirements, which beginning with Aug. 23, 1935, have
been total demand deposits minus cash items in process of collection and demand balances due from
domestic banks (also minus war loan and Series E bond accounts during the period Apr. 13, 1943—•
June 30, 1947).
(b) All required reserves were held on deposit with RR. Banks June 21» 1917, until late 1959, Since
then, member banks have also been allowed to count vault cash, as reserves, as follows: country banks—
in excess of 4 and 2lA per cent of net demand deposits effective Dec, 1» 1959, and Aug. 25, 1960, re-

382

13.—-Goo tinned

'.fVl.

No
hue i vi ts a t e us cm

Net demand dt

> u s J t < ••

J U / i . S Of

Tin it ticposils }

Oilier time
Effective d<\U2- iU

ill100

UM»4<)«I

400

inns

Cher

in- -

s 7
}

njciltiring in—

180 4 year
than 4 >cat's 50-17';
4 n'arjj or more da> s 4 years or mor
W72—Nov. •>
Nov. 16. . . .
.
1V73—Jul\ 19 . .
1974— Dec, 12
1975--Feb. 13 . .
Oct. 3 0 . . . . . . . . .
Incftcct Dec. 31, \*>h

ft?

' 16
13

in.
7

;

Legal limits—Dec. 3t, 1975;
Net demand deposits:
Reserve cit\ Kinks . .
Oihci banks . ,
Time deposits

•*» 5

!7 i ,

16'

"ft

....

i*
* 1

•-; i ' '
a 1

Minimum Maximum
I<J
7

22
14
10

spccihdy, centnif rcv.inc cit> and icscrve cif\ txink^ in t,MiS<» ol ,* ,u\d \ pa cent effective Dec >, 1959. and,
Sept
i, f'W>, u^ptvUwh , all OK'IIIIKI banks were ,>P<owed h> I uuni ill \,;u!t wsh a? icsei ves tilictive Nov 24, I960.
2
(c) When requirement schedules are graduated, each deposit interval applies to that part of the deposits of each
bank.
(d) Since Oct. 16, 1969, member banks ha ye been required under Regulation M to maintain reserves against
(1) foreign branch deposits computed on the basis of net balances due from domestic offices to their foreign branches
and (2) foreign branch loans to U.S. residents. Regulation D Imposes a similar reserve requirement against (3)
borrowings from foreign banks by domestic offices of a member bank. Originally these requirements were levied on
amounts above speciied bases, but the reserve-free bases were eliminated for (2) effective June 21, 1973, and for
(1) and (3) they were gradually removed until eliminated effective Mar. 14, 1974, Beginning June 21, 1973, loans
aggregating $100,000 or less to any U.S. resident have been, excluded from computations, as have total loans of a
bank to U.S. residents if not exceeding $1 million. The applicable reserve percentage was 10 per cent originally,
was Increased to 20 per cent on Jan. 7, 1971, was reduced to 8 per cent on June 21, 1973, and was further reduced
to 4 per cent effective May 22, 1975, For details, see Regulations D and M as described In the Record of Policy
Actions
of the Board of Governors, on p. ! 20 of this REPORT and In previous ANNUAL REPORTS.
3
Authority of the Board of Governors to classify or reclassify cities as central reserve cities was terminated
effective July 28, 1962.
* Effective Jan. 5, 1967, time deposits such as Christmas and vacation club accounts became subject to the same
requirements as savings deposits. Beginning Nov. 10, 1975, profitmaking businesses may maintain saYings deposits
of $150,000 or less at member banks. For details of 1975 action, see Board's Regulations D and Q as described
In Record of Policy Actions of the Board of Governors, p. 1.33,
Motes
2(b), 2(c), and 2(d) above are also relevant to time deposits.
5
See columns above for earliest effective date of this rate.
6
Effective Nov. 9, 1972, a new criterion was adopted to designate reserve cities, and on the same date requirements
for reserves against net demand deposits of member banks were restructured to provide that each member bank
will maintain reserves related to the size of Its net demand deposits. The new reserve city designations are as follows:
A bank having net demand deposits of more than $400 million Is considered to have the character of business of a
reserYe city bank, and the presence of the head office of such a bank constitutes designation, of that place as a
reserve city. Cities In which there are F.R, Banks or branches are also resale cities. Any banks, wherever located,
having net demand deposits of $400 million or less are considered to have the character of business of banks outside
of 7reserve cities and are permitted to maintain reserves at ratios set for banks not In reserve cities,
From June 21, 1973, through Dec. 11, 1974, member banks, except as noted below, were subject to a marginal
reserve requirement against Increases In the aggregate of the following types of obligations: (a) outstanding time
deposits of $100,000 or more, (b) outstanding funds obtained by the bank through issuance by a bank's affiliate of
obligations subject to the existing reserve requirements on time deposits, and (c) beginning July 12, 1973, funds
from sales of finance Mils. For the period June 21 through Aug. 29, 1973, (a) Included only single-maturity time
deposits. The requirement applied to balances above a speciied base, but was not applicable to banks having
obligatioris of these types aggregating less than $10 million. Including the basic requirement (5 per cent during the
entire period), requirements were: 8 per cent for (a) and (b) from June 21 through Oct. 3, 1973, and for (c) from
July 12 through Oct. 3, 1973; 11 per cent from Oct. 4 through Dec. 26, 1973; and 8 per cent from Dec. 27, 1973,
through Sept. 18, 1974. Beginning Sept. 19, the 8 per cent requirement applied to only those obligations in. (a)
(b), and (c) with initial maturities of less than 120 days, and effective Dec. 12, 1974, the remaining marginal reserve
on this type of obligation issued to mature In less than 4 months, was removed. For details, see Record of Policy
Actions of the Board of Governors in 1973 and 1974 ANNUAL REPORTS.
8
The 16 }4 per cent requirement applied for 1 week, only to former reserve city banks. For other banks, the
139per cent requirement was continued in this deposit Interval.
The average of reserves on savings and other time deposits must be at least 3 per cent, the minimum specified
by law.

383

14. Maximum interest rates payable on time and savings
deposits
l\*i* cen.it p e r a n n u m
Hi>\

t, H» '3

1 ype oi v(«»
« s i, ! l e t ' { 1 J,m. iv ! Jai*. I, I },,u

ly * 7
!

<S'o\ H , | D e c ,
f

havlicgi deposits'
12 months c>f muix
Less clian 12 PIOU lis
Postal savings IXVOMW
12 ftuinclis CM i.ioi^ , .
Lest, tfijii ! Z HUMS !H
Othei ti<IK* iit.11usiis,
12 'Months t)j !»i<nv
6-?2 inomhiy
90 tli>-5 t'» 6 m o n t h s
Lt«« tfi in lX) da>f». .
(30-89 ckov

JIM,.

i ypc ol ucpo-sU

Savings tleposiis
Othei time deposits, 4
Multiple l u j t m i t ) . 3
30-89 days
90 days to 1 y e a r , . . .
1-2 y e a r s , . . . . . . . . . .
2 years or m o r e . . . . .
Single-maturity;
Less than $100,000:
MJ days to 1 year,,»»
1-2 years. . . . . . . . . .
2 years or m o r e , . . . .
$!0f)»§0§ or mom:
30-59 d a y s . . . . . . . . .
60-89 d a y s . . . . . , . . .
90-179 d a y s , . . . . . . .
180 days to 1 y e a r , . ,
i year or m o r e , . . . . .

•(), I ' M ^ j -

U<j«c - 0 , I 1 ' / t

juiv 20,
1966

19/0

1
J
1

f 5.
I 5M

{
)
.4)
,4)
;*)
(*)

Type of deposit
July '

Nov. f

Nov -"7
1974

Dec. 23
1974

Savings d e p o s i t s . . . .
...
. . ..
Other time deposits (multiple- and sitiglematiuity>. 2> :i
Less than $l00,tii)0:
30-89 days
...
,
9(1 days to 1 year.
1-24 years.
. .
2 l 2 yeui's or iiu>re.
Minimum denomination of ^?,U()0: ;'
4-6 years,
,. , .
6 years or $»nnv . . .
. . .
Govciiiinentut nmU, , . .
$100,000 or more
. ...
1

Closing date for the Postal Sa¥lngs System was Mar. 28, 1966,
2
For exceptions with respect to foreign time deposits, see ANNUAL REPORTS for 1962, p, 129; 1965,
p. 233; and 1968, p. 69.
8
Multiple-maturity time deposits include deposits that are automatically renewable at maturity
without action by the depositor and deposits that are payable after written notice of withdrawal.
For additional notes see opposite page,

384

I N

l\Ln i,in requirements
« t u i k of market value
1

-s T (brokers and dealers),
'leers, dealers, or banks)

Beginni
date

1937
1945—Fet
Juh
1946—Jan.
1947—Feb.
1
1949—Mar. 30
1951—Jan. 17
1953—Feb. 20
4
1955—Jan.
Apr. 23

1953—Feb. 19
1.955—Jan. 3
Apr. 22
1958—Jan. 15

lull
7b
50
75
50
60
70

1958—Jan.. 16
Aug. 5
Oct. 16

Aug. 4
Oct. 15
I960—July 27

50
70
90

i960—July 28
1962—July 10
1963—Nov.

1962—July 9
1963—Nov. 5
1°68—Mar 10

V*4o

-f,\,t

>ij

1968—Mai
June
1970—Ma \
1971—Dec.
1972—No-

1949—Mar, 29
1951—Jan, 16

June
J'»?l—Dec.
ji./2—Nov.
lv|'"4—Jai..

Effective Jan

{

-,)

80
65
55
65

50
50
50

NOTE,—Regulations G, T, and U, prescribed In accordance with the Securities Exchange Act of 1934,
limit the amount of credit to purchase and carry margin stocks that may be extended on securities
as collateral by prescribing a maximum loan value, which is a speciied percentage of the market value
of the collateral at the time the credit is extended; margin requirements are the difference between, the
market value (100 per cent) and the maximum loan value, The term margin stocks is defined in the
corresponding regulations.
Regulation G and special margin requirements for bonds convertible into stocks were adopted by
the Board of Governors effective Mar. 11, 1968.
For earlier data, see Banking and Monetary Statistics, 1943, Table 145, p. 504.
Notes
to Table 14 on opposite page:
4
Maximum rates on all single-maturity tinie deposits In denominations of $100,000 or more have been
suspended. Rates that were effective Jan. 21, 1970, and the dates when they were suspended are;
30-59 days
€M per cent\
Jf u n e 2244 Wn7Q
60-89 days
6}i per cent/
» /lJ
90-179 days
6% per cent]
180 days to 1 year
7 per cent}May 16, 1973
1 year or more
7}4 per cent]
Rates on multiple-maturity time deposits in denominations of $100,000 or more were suspended
July
16, 1973, when the distinction between single- and multiple-maturity deposits was eliminated.
5
Effective Dec. 4, 1975, the $1,000 minimum denomination requirement does not apply to time deposits representing funds contributed to an Individual Retirement Account established pursuant to
26 6U.S.C. (I.R.C. 1954) Section 408.
Between July 1 and Oct. 31, 1973, there was no celling for certificates maturing in 4 years or more
with minimum denominations of $1,000, The amount of such certificates that a bank could issue was
limited to 5 per cent of Its total time and savings deposits. Sales in excess of that amount were subject
to the 6J/2 per cent celling that applies to time deposits maturing in 2}4 years or more.
Effective Nov. 1, 1973, a ceiling rate of 7}4 per cent was imposed on certificates maturing in 4 years
or more with minimum denominations of $1,000. There is no limitation on the amount of these certificates
that banks may issue,
7
Prior to Nov. 27, 1974, no distinction was made between the time deposits of governmental units
and of other holders, insofar as Regulation Q ceilings on rates payable were concerned. Effective
NOY. 27, 1.974, governmental units were permitted to hold savings deposits and could receive Interest
rates on time deposits with denominations under $100,000, irrespective of maturity, as high as the
maximum rate permitted on such deposits at any Federally insured depositary Institution.

385

16. Fees and rates under Regulation V on loans guaranteed
pursuant to Defense Production Act of 1950,
December 31,1975
Fees Payable to Guaranteeing Agency by Financing Institution on Guaranteed Portion of Loan

Percentage of loan guaranteed

70 or less
75.,
80.........
85,,,
90....,
95...
Over 95

. ... . . . . . . .

Guarantee fee
(percentage of
interest payable
by borrower)

Percentage of
any commitment
fee charged
borrower

10
15
20
25
30
35
40-50

Maximum Rates Financing Institution May Charge Borrower
Interest rate
Commitment rate. ,

7 i1 „-< per cent per annum
2 per cent per annum

1
Except that the agency guaranteeing a particular loan may from time to time prescribe a higher rate
if it determines the loan to be necessary in financing any contract or other operation deemed by such
agency to be essential to the national defense.

NOTE.—In any case in which the rate of interest on the loan is in excess of 6 per cent, the guarantee
fee shall be computed as though the interest rate were 6 per cent.

386

17. Principal assets and liabilities, and number of commercial and mutual savings banks, by class of bank,
December 31,1975 and 1974
Asset a n d liability Items s h o w n In millions of dollars

Mutual savings banks

Commercial banks
Ail
banks

Item

Member banks

Nonmembcr banks

Total

National J J

State

Total

Insured

Total

Nor insured

! Noniusuvcd

December 31, 1975
L o a n s a n d Investments, total
Loans...
Investments
....
U . S . G o v t . securities, . .
O t h e r securities. .
C a s h assets ,

891,549
627,705
263,843
94,917
168,926
135,955

776,074
546,452
229,622
84,118
145,504
133,614

578,755
416,561
162,194
61,519
100,675
108,477

441,135
315,738
125,397
46,799
78,598
78,026

137,620
100,823
36,797
14,720
22,077
30,45!

197 M9

129,8¥J
o7 428
72-.59O
44.S29

tH<,645
P8.609
65,036
22,109
42,927
l'),778

13,674
11,282
2,392
490
1,902
5,359

115,475
81,254
34,222
10^799
23,422
2,24!

Deposits, t o t a l . .
.
Interbank .
. . .
Other demand
O t h e r time ,
T o t a l capital a c c o u n t s , . ,

897,101
51,993
284,161
560,947
77,545

786,532
51.993
283,131
45!,408
69,125

590,999
47,031
214,142
329,826
52,074

447,590
28,820
162,!12
256,657
38.969

143,409
18,211
52,02V
73,169
13,105

195,533
4.962
68,9S°
121.582

184,210
2,303
66,510
115,397
16,400

11,323
2,659
2,479
6,185
651

110,56')

15,108

14,633

5,787

1,C»46

S, 846

N u m b e r of b a n k s . . .

i7,051

109,53l»
8,421

13,354
^),553
3,801
:,33O

102..21
71,701
it., 4-2 i
•), 469
2O.9S2l
2' 1 ^>

1,470

152

12,457

"37*
J2,420
1,082

7!339

147

December 31, 1974
Loans a n d imestments, t o t a l .
Loans
Investments... . . . . . . . . . . . . .
U.S. G o v t , securities. . . . . .
Other s e c u r i t i e s , . . . . . . . .
Cash assets .. . . . . . .
Deposits, t o t a l , , . . . . , , . . .
Interbank....... ... .
Other demand . . . . . . . .
Other time, . . . . . . . . .
Total capital a c c o u n t s , . ,
N u m b e r of b a n k s , .

4Zh 4**
?2l.4bt>
106,^67
29,075
77,892
76,522

849,165
628,275
220,891
61,295
159,596
130,231

744,4%
549,573
194,924
54,451
140,473
128,042

568 806
429,812

847,663
53,138
274,606
519,918
71,607

748,292
53,138
273,676
421,478
63,650

575,838
49,541
208,507
317,789
48,240

431,039
29,537
157,331

14,944

14,465

5,780

138,994

38,^21
100,073
106,995

32,027
9,846
22,181
3G4?

119.
5*,930
15.530
•41,400
21 047

to, 7(>u
1»,300
54,410
15,21!
39,199
18,380

«. 'A I

h, ;oi
1,520

319
1,201
2,667

78,702
25,967
6,844
1912'
19,122.

35,815

144,799
20,004
51,176
73,618
12,425

65,169
103,689
15,410

165,827
2,079
62,933
100,815
14,799

€ t 627
518
,236
,874
611

930
98,440
7,957

4,706

1,074

8,685

8,436

249

479

244,171

172.454
1,597

99,371

13,576
•0,294
^,282
876

68.4!)S
2 2 68*?

lo. 7i7
2,050 •
N6. 806 1
85 896 !
6,822 '
319 ;

406
139

«2,565
21
12, 544
1,135

160

1
1

Oo
- Excludes one national bank in the Virgin Islands and one in Puerto Rico, which are in^4 eluded in Table 19.

NOTE.—All banks in the United States, Details may not add to totals because of
rounding.

18, Member brink reserves, Federal Reserve Bank credit, and
related tt'triiis---emf of >ear 1918-75 a?id end of month 1975
In atillnj.'t? o" dofhu'f.

! is I T
Hrl.f

| Draw-! i,ui«
.ncy
•u(I ccriif. I

, 1 oa.M

\.w\v I

tfiet

: us.se ;>

[

ULCl.

i Coryi

300

28?

2,639
1
,57 3

1,109

i ! V>2

3,957 . .
4,212

2 nm

i ,459
t ,381
i ,655
j ,809

4 , 1 1 ? , . . . . f ,977
4,205- ,,
1,991
'4,09i
:* wo6
3',85 4
2,012

i , 373
i K53
145
d88
^163

4* tot.

43 h

1924 . J

bib.

ilOj

'§••!

367!
312'
560:
197
488

643!
637's
582
f 056
632

63
45
63
24
34

686'
775
1,8512,4351
2,430'

251
638:
235
98
7

21
20
14
15
5

2»4"H)i
2,430

5
3
10
4

12
39
19
17
91

hi7|

7 K>
HI .'
1,85

2,«H1

1936.
1937.
1938.
1939.

2»43t)
2,564
2,564
2,484

1940,
1941.
1942.
1943.
1944.

2,184
2,254
'6,189
11,543
18,846

1945.
1946,
1947,
1948.
1949.

24,262
23,350
22,559
23,333
18,885

1950,
1951.
1952.
1953.
1954.

20,778
23,801
24,697
25 S 916
24,932

20,123
23,605
24,034
25,318
24,888

1955.
1956,
1957.
195S.
1959.

24,785
24,915
24,238
26,347
26,648

24,391
24,610
23,719
26,252
26,607

I960.
1961.
1962.
J963
t%4.

27,384 26,984
28,881 28., 722
30,820 30,478
33,5') 3 33382
37,044 36!506

21^1,
2.4K4,

1 i?

? ,486
,500
i ,612

It,
I i(

8, IM

10,!2S ,
11,258. . . . .
12 760 . ,
14,512!

2F4 21 \r-)5\.
22,7.V?j. .

249s
163:
85:
223!:
78

578
580i
535'
541,
534'

,091
093
,131
,097
Iv ,493

196
663
59S
44

67!
19
156:
28'
143

1,368
i, 184
967 f
935

394
305
519
95
41

108
50
55
64
458

1,585
1,665
1,424
1,296
1,590

400
159
342
I1
538

33 !,847
130 2,300
38' 2,903
2,600
2,606

23, O ' - .

t o r notes see lw»t iwo pages ol" table,

f»79

» <

20,065 . , .
20,529 . . ,
22,754
24,244 . .
24,427

: i 6 22,706; .
' ('09 2 2 > 5 . . . .
25 ,'S25 23,187
26 ,880 22,0'W; . . .
,H85 21,71?! . . . .
.'*•

,507 21,090
2 b ,1)99

,784 2 2 . 7 « !
,755 2 0 , *.*Ai^<4
,771 19',-» 6(

110

" .

?'f *38 1 7 3 7
<} ! 362 16,xfc^ . . . . .
871 15,9^8
.
>6 418 15.513

\H() 15, *SS

!, 958

2,025

2,027
2,1)35
2,204
2,303
2,511

4iO3(. .

1 i .'59 21 i ns>
I') , V45 20 *,&!*)

I.K42

4,17^
4 22f»

80;
23, olt

80
94
471
681
815

2,2^4'

388

^b *

3
ii ,, 40
2 '-8

416
KO'

2,476
2,532
2,^37
2,798
*<,O87

3,247
3,648
4,094
4 131

4,339
4,562
4,562
4 r 589
4,598
4,636
4,709

4,812

4 H94
4 [985
b, 008
5,066
5, 146
5,234
5,311

5,?98
5,^85
5,567
f, 578
5,405

i V'M h n u e d

Factors absorbing reserve funds

4,
4,
4,
4,

'vi
5

4,
5,
5,
5,
5»

«l
U.()

, I

'\ I
'> ')

5
6, 543
6, 550
6, 856
7, 598

2, 376
3 , 619
2, 706
2, 409

8, 732
11, 160
15, 410
20, 449
25, ")?

2, 213
2 215
2', 193
?. mi
;;5

28,
28,

', 7
. "I
f . - 6
i
1
< 2
»

28,
28,
27,

(

'-i

!>> 1

"».'S

•

''A l

27,

29, ,

'»!

30,
30,
30, si }
31,
3 1 , "* ,'*
31,
32,
32,

I
' ~> 5

7«J
'

n<l
<*• 5
4

, ,7

33] »i 1 '
35,
37,
39,

')
'

•)

,Lii5

.«r

. . i *, J ? i

f, » >>

For notes see last two par; :

389

18. Member bank reserves, Federal Reserve Bank credit, and

related items—end of year 1918-75 and end of month 1975
—Continued
In millions of dollars
Factors supplying reserve funds

F.R. B.ink credit outstanding

Period

U.S. Govt. securities

Total

Bought
outright
10

1965...
1966...
1967...
1968.. .
1969,. ,

40,768
44,316
49,150
52,937
57,154 "

40,478
43,655
48,980
52,937
57,154

1970,. .
1971,. .
1972., ,
1973, . .
1974...
1975.. .

62,142
70,804
71,230
80,495
85,714
94,124

62,142
69,481
71,119
80,395
84,760
92,789

1975—
Jan...
Feb...
Mar..
Apr.,
May.
June,
July..
Aug..
Sept..
Oct...
Nov..
Dec.

86.O4
86,416
86,608
93,917
91,029
89,895
86,966
88,032
93,080
93,426
91,209
94,124

85,076
84,1,52
86,608
88,812
88,953
89,665
86,966
86,677
89,715
90,324
91,209
92,789

Held
under
repurchase
agreement
290
661
170

1,323

100
954
1,335
1,058
2,264
5 105
2,076
230
1 355
3^365
3,102
1,335

Loans

Float

All
other

Other
F.R.
assets

Total

Gold
stock

Special
Drawing
Rights
cert if.
acct.

137
173
141
186
183

2,248
2,495
2,576
3,443
3,440

335
39
1,981
1,258
299
229

4,261
4,343
3,974
3,099
2,001
3,715

1,466
1,370
2,132
1,942
1,810
1,791
1,734
1,473
891
1,127
3,070
3,715

187
193
164
58
64 2,743

Treasury
currency
outstanding

5,575
6 5 3l7
6,784
6 795
6,852

43,340
47,177
52,03!
56,624
63,584

13,733
13,159
11,982
10,367
10,367

57
261
106
68
999
1,126

1 123 67 918
1,068 76,515
1,260 78,551
1,152 86,072
3,195 92,208
3,312 102,506

10 732
10,132
10,410
11,567
11,652
11f 599

400
400
400
400
400
500

10,112

966
993
665
1,185
865
682
685
840
948
1,047
727
1,126

3,518
3,005
3 f 072
3,297
2,984
2.997
3,196
3,012
3f259

92,187
91,861
92,537
101,880
96,712
95,926
92,758
93,588
98,461
99 f 6t2
3 [252 98,303
3,312 102,506

400
400
400
400
500
500
500
500
500
500
500
500

9,305
9,371
9,453
9,531
9,669
9,687
9,769
9,851
9,934
9,906
10,138
10,112

7 149
7,710
8,313
8,716
9,253

1
U.S. Govt. securities Include Federal agency obligations held under repurchase agreement beginning
Dec. 1, 1966, and Federal agency issues bought outright beginning Sept. 29, 1971.
2
Beginning with 1960 reflects a minor change in concept; sec Feb. 1961 Federal Reserve Bulletin,
p. 8164.
Principally acceptances and industrial loans; authority for industrial loans expired Aug. 21, 1959,
4
The total of F.R. Bank capital paid In, surplus, other capital accounts, and other liabilities and
accrued dividends less the sum of bank premises and other assets. Beginning Apr. 16, 1969, "Other
F.R, assets" and "Other F.R, liabilities and capital" are shown separately; formerly, they were netted
together and reported as "Other F.R. accounts."
* Before Jan, 30, 1934, included gold held in F.R. Banks and In circulation.
• Includes currency and coin—other than gold—issued directly by the Treasury, The largest components
are fractional and dollar coins. For details see "Money In Circulation" in the Treasury Bulletin.
7
Presently consists of the coin and paper currency held by the Treasury as well as Treasury gold
holdings in excess of the gold that serves as security against gold certilcates.
» Part allowed as reserYes Dec 1, 1959—Nov. 23, 1960; all allowed thereafter. From Jan. 1963 to
Sept. 11, 1968, figures are estimated. Beginning Sept. 12, 1968, amount is based on close-of-business
figures for reserve period 2 weeks preYlous to report date.
» These figures are estimated through 1958. Before 1929 available only on call dates (in 1920 and
1922, the call dates were Dec. 29). Beginning Sept, 12, 1968, amount is based on close-of-business
figures for reserve period 2 weeks previous to report date.

390

Continued

Factors absorbing reserve funds

rcncv
If!

w.isli

hoUI»ny>' 7

I
I

t» -

]«, 1.

1 hi'ii<«. >

I H I M t «. '

lion

4 4 'i*JH

]
i

I OS,

vtith Ki <. R m k >

civ-

cllltl-

than iivt

Ticas-

HI'.

>» 1 C! - I

.ilHf
j t a»4(i'

elfl.e.

;

WISH

(

Hi -

I M.
Ku.Ks

si,:v

R*j •

42,056
44,663
47,226
50,961
53,950

760
1,176
1,344
695
596

57,091
61,068
66,5!'*
72,497
79,74*

4H
460
;«45
> 17
1X5
425

76,313
76 831

250
"•54
"\l)7
301
373

nimi
78,441
79t?H2
it i^ft
81 4 ^
81, »i2

81,707

82,16]
86,'4W

lq0
V->4
3(i0

409
463
475

7U'

I {;

1 I )A
2
1 , !"•" ^ '

3 ,111 '
7

747 1
807 !

3 M O ! * VI
iM
2
4 ?(,%.) I
7{)
8
7 II'6 '
j()
v
5 , 7 ^ > ? 1\
W)
2
'
2 , 7< 4 ( i '
> |
8
5
8, ^I 7
J
"* 47
4 »mi
7
'.J

1,2 V, ,

1,986
J , 131

840 1
12
1,4 !v '
is 1,271 !
i,0W j

?,143
- , 669
.1,935
, .1,968
1
j
-,415
? 326
•|l20
^,452
i 396
\ 354
<354
4,311
(
*,472

!
7W •
901 j
70-)
57 5
i 1 ^r<
* Till '
6h«t I

776 i
611»
8SS
1.1UU ,

in?
.MO
1, (>^ I

<} •> [

2 1 1 8 J ?*

^}4

25
*»!

18,44?
19 S 7* t }
21 G'^2

2W '
- 14; I .
_77 ^ 1

4 If, j

1 J-^

> 498
''403

;

- ',968

22,0'.-'

,H7

24,150
27,7*-.
25,6 K'
27,060
25,843
26,097

/ i!
,2io
6 ,781
7 ,370
8 ,030

28,839
28,644
27,139
32,028
26,445
25,976
25,740
26,484
25,913
:.«, 140
.7^,971

7 ,431
6 ,950
6 ,826
7 ,01.8
6 ,893
7 ,105
7 ,546
7 ,356
7 ,561
,524

;<>,«>'» 7

4-13
0

H ,0*0

Y <•
cess
. , 1.

. i l l •"

22.84H
24,321
25,905
27,439
28,173

-238
-232
-182
^700
-901

_4r,o
30,033
1 <)">*.
32,496
32,044
— 1 , MM
35,268
37,011 — 3 , 7 1 ^
35,188 is_l'fOSS
37,556
35,333
34,513
35,014
34,493
34,428
34,687
34,447
34,414
34,082
34,504
35,188

— 1,28*
2h I
— ^4H
4 1H2
—1|i 3 ^
-1,U7
— 1,401
_ 607
_4ig
-96!

10
Includes, beginning 1969, securities loaned—fully guaranteed n;. ii.S, ( rovt. securities pledged
with F.R. Banks—and excludes (If any) securities sold and scheduled to be bought back under matched
sale-purchase
transactions.
11
Beginning with week ending Nov. 15, 1972, Includes $450 million of reserve deficiencies on which
F.R. Banks are allowed to waive penalties for a transition period in connection with bank adaptation
to Regulation J as amended, effective Nov. 9, 1972, Allowable deficiencies (beginning with first statement
week of quarter) Included are (In millions): 1973—Ql, $279; Q2» $172; Q3, $!. 12; Q4, $84; and 1974—
Ql,12 $67, and Q2, $5§. The transition period ended after the second quarter of 1974,
Beginning July 1973, this item includes certain deposits of domestic nonmember banks and foreignowned banking institutions held with member banks and redeposlted in full with F.R, Banks in connection with voluntary participation by nonmember Institutions In the Federal Reserve System's
program of credit restraint.
As of Dec. 12, 1974, the amount of voluntary nonmember bank and foreign-agency and branch
deposits at F.R. Banks that arc associated with marginal reserves are no longer reported. However,
two amounts are reported; (1) deposits voluntarily held as reserves by agencies and branches of foreign
banks operating in the United States, and (2) Euro-dollar liabilities.
13
Beginning with week ending Nov. 19, 1975, adjusted to include waivers of penalties for reserve
deficiencies, In accordance with change in Board policy that became effective Noy, 19, 1975,

NOTE.—For description of igures and discussion of their significance, see "Member Bank Reserves
and Related Items," Section 10 of Supplement to Banking and Monetary Statistics, Jan. 1962.

391

19. Changes in number of banking offices in the United States during 1975 1
Commercial banks (inch stock savings
banks and nondeposlt trust companies)
Type of
office

A'l

BANK*

U, 1974

N. ivn.^.cti :••
NV.IM.SU vd

.11

Net "change

10- j

BEANCHES AND
ADDITIOMAL OFFICES.

Dec. 3 1 , I f 74

K,,,,,,

*TiM««es d u r i n g I f 7 5 :
i)t

n o v o . . . .

I-I

^ ?

IV.7^0 f 15,578

4 2'J2

1^7

18?

Dvc 3 1 , 1975 . ,

f
l.»nks convcted .
p;scontinu'_J.
. .
Sale of bramJi, ,

i f . 879

2-8,337

S 4C

1 gt7

i,tiii ;

4 ,
- 9 1

•

- 35

Mutual

Interclass changes:
Nonmembcr to—
National
, ..,,,,
State member. . . . , . , . . . . . .
State member t o National
Nonmember.....
National to—State m c m b e i . . . . . . . .
Nonmembei
NoninsureU to insured
, ..
Noninsui^d mutual to insured
mutual...... . ...
Facilities recfassified as branches.
Other.. . . . . . . . .
N e t c h a n g e . . . . . . . . . . . ,.
Pec. 31, 1975 . . . . . . . . . .
BANKING F A C I L I T I E S

Dec. 3 1 , 1 9 7 4 \ .

40
19

......

-43

119

"in

— 117

14
1,742

....

31,621

........

197

1
Includes 2 national banks (8 branches) in the Virgip islands M\\ > 'l
bank in Puerto Rico; other banks or branches located In ihc possess! >
excluded,
2
One bank involved in litigation was suspended and reopened twice.

'43*
-119

4
1,538
29,775

......

-19
40

Changes during 1975.
Established . , . . .
....
Discontinued . .
..
Imerclass changes'
National to nonmembcr . . . . . . .
Facilities rec!a<sihcd is branches,
Net c h a n g e . . . .

Dec, 31, 197S

1
6
745

9
553

192

791

2l»»525

16,131

4,394

9,200

156

1
_4

2
5(1 ,

181 •

1,568

_4
-4

4
J

192

158

147

'•As, et Dec, 3i, 19 75. 4 Sutt- munbet noninsured trust companies are in• iuvlcd.
4
Excludes banking facilities.
5
Provided at military and other G « \ c
establishments through arrangetnents made by the Treasury.

20. Number of. par and nonpar banking offices,
December 31,1975
Par
Nonpar
(nonineniber)

1 otal
F.R. district,
State, or
other area

Member

Nonmember

Branches
Branches
Sanks & offices Banks
DISTRICT
Boston
New York.. . .
Philadelphia. .

2s040
370
4,588 • -478
2,182
394

2,040
4,588
2,182

767
Cleveland....
Richmond.. . .
795
A t l a n t a . , , . . . . 1,987

767
2,553
4,266
791
2,635 I»950

2,553
4,266
2,594

Chicago
St. Louis. . . . .
Minneapolis, .

2,709
1,427
1.400

3,129 2,709 • '3,129
I»504
1,504 1,427
•414 1,400
414

y
Dallas
...
San Francisco.

2,200
I ,496
472

648 2,200
457 1,464
5,819
472

648
444
5,819

3©,235 14,422

30,1SI

370
478
3l)4

4,495
STATE
Alabama
Alaska
Arizona......
Arkansas. . . . . j
California . . . . t
Colorado.. . . .!
Connecticut.».;
Delaware.. . . .}
District of
j
Columbia... i
Florida,......'

299
11
15
259
200
277
72
17

457
88
443
318
3,578
54
564
137

16
741

129
196

443
Georgia
•
Hawaii..... . i
8
Idaho
24
Illinois
j 1 228
India n n . . . . . . J
406
Iowa
!
660
616
Kansas... . . . i
342
Kentucky...,.!
2^4
Louisiana.,.. J
45
Maine....,..[

299
11
15
259

457
88
443
318

•• 2 0 0

• -3,578

277
72
17

54
564
137

16
741

129
196

692
443
151
8
200
24
216 1,228
909
406
408
660
151
616
509
342
585
1J9
287
45

692
151
200
216
909
408
151
509
531
287

193
91
61
23

71
291
2S6
161

751
905
1,562
50
546
320
16
96
111

47
90
209
231
45
174
100
128
5

449
670
1,228
27
228
102
11
51
94

Maryland . . . j
Massachusetts.]
Michigan
j
Minnesota.. . . j
Mississippi,.. . j
Missouri.....!
M o n t a n a . ...,'.
Nebraska.... j
Nevada
;
New Ha rap- i
shire....... j

115
150
351
746
185
702
154
448
8

751
905
1,562
50
546
320
16
96

115
150
351
746
185
702
154
448

111

li!

New Jersey
New Mexico. . :
New Y o r k . , , .
North
Carolina..,.
North
Dakota
Ohio....,....
Oklahoma.
Oregon.......
Pennsylvania..
R h o d e Island..

209
HO
299

1,417
206
3,200

209
80
299

1,417
206
3,200

134
43
220

1,188
125
3,026

1»586

l,5§€

768

•• 1 7 1

•89

-171
496
463
47
395
16

• 89

47
331
208
7
258

25
1,386
59
299
1,540

496
. 463
47
395
16

394

1,674
99
447
2,276
220

•

1,674
99
447
2,276
220

20.—Continued

Nonpar
(oonmeoiber)

F.R. district,
State, or j
other area

Nonmember
niches Banks Branches! Banks Branches
& offices^
& offices
offices

Banks
Banks!|Branc
& offices:
& offices

STATE—
Cont.
South
Carolina... .
South Dakota.
Tennessee....
Texas
Utah.........
Vermont.....

Virginia.
Washington.. .
West Virginia.
Wisconsin. . . .
Wyoming.

90:
158|
3431,342
631
31!
2901
97:
219'
623
77

12,
772
138
204
139
,174
685
35
336
2

86
158
343
,338
63
31
290
97
219
62
77

601
125!
772!
138:
204:
685
35'
336

25
60
90
623
17
16
174
29
132
160
59

306
89
418
36
140
48
896
563
23
106

61
98
253
715
46
15
116
68
87
463
18'

295
36
354|
102
64
91
27S
122!
Z30(
f

OTHER
AREA
American
Samoa 2 . . . .
Guam 2 . . . . . .
Puerto Rico 3 .,
Virgin
Islands 3 . . . .

3
17
221

317!
2211

1
14

8|.
198

1
Includes 1 Los Angeles branch and 19 New York City brunches of 3 Insured nonmember Puerto
Rican
banks.
2
American Samoa and Guam assigned to the San Francisco District for check-clearing and collection
purposes.
All member branches in Guam are branches of California and New York banks.
3
Puerto Rico and the Virgin Islands assigned to the New York District for check-clearing and collection purposes. All member branches in Puerto Rico and ail except 8 in the Virgin Islands are branches
of banks located in California, New York, and Pennsylvania, Certain branches of Canadian banks (2
in Puerto Rico and 5 in the Virgin Islands) are included above as nonmember banks; and nonmember
branches in Puerto Rico include 8 other branches of Canadian banks.

NOTE.—Comprises all commercial banking offices on which checks are drawn, including 192 banking
facilities. Number of banks and branches differs from that in Table 19 because this table includes banks
in Guam, Puerto Rico, and the Virgin Islands but excludes banks and trust companies on which no
checks are drawn.

395

21, Description of each merger, consolidation, acquisition--of
. assets or assumption of liabilities approved by the. Board of
Governors during 1975

CONTENTS

APPLICANT BANK

Bank of Buffalo, Buffalo, N.Y.

OTHER BANK(S)

Niagara Frontier Bank of New
York, Buffalo, N.Y.

Page

405

'County Trust Company, White
Plains, N.Y.
Valley Bank of New York, Valley
Stream, N.Y.
Bank of New York, Albany,
Albany, N.Y.
Exchange Bank of ©lean, Glean, \
N.Y.
Metropolitan Bank of Syracuse,
Syracuse, N.Y.
Bank of Mew York, Southern
Tier, Endicott, N.Y.
.Bank of Buffalo, Buffalo, N.Y.

407

Thurmont Bank, Thurmont, Md.

410

'Chemical lank of Suffolk, Nationa! Association, Smithtown,-•
N.Y.

404

Security National Bank, Hemp. stead, N.Y,

399

Commercial Trust Company of
Mew Jersey, Jersey City, N J ,

First National Bank, Piscataway,
Piscataway, N.I.

404

FTB Bank, Cincinnati, Ohio

Fifth Third Bank, Cincinnati,
Ohio

400

Louisville Trust Company, Louis. yille, Ky.

Louisville Trust Bank Company,
Louisville, Ky.

398

Manufacturers ani Traders Trust
Company, Buffalo, N.Y.

First Empire Bank—New York,
New York, N.Y,

409

Bank of New York, New York,
N.Y..

Catoctln Trust Company, Thurmont, Md.

Chemical Bank, New York, N.Y.

21.—Con tinned

CONTENTS—Continued

Page

Arm >CANT BANK

OTHER BANK(S)

Marine Midland Bank, Buffalo,
N.Y.

Marine Midland lank—New
York, New York, N.Y.
Marine Midland Bank-—Western,
Buffalo, N.Y.
Marine Midland Bank—Central,
Syracuse, N.Y.
Marine Midland Bank—Mociester, Rochester, N.Y.
Marine Midland Bank of Southeastern Mew York, N.A.,
Poughkeepste, N.Y.
Marine Midland Bank—Southern,
Eimira, N.Y.
Marine Midland Banfc—Eastern,
N.A., Troy, N.Y.
Marine Midland Tinker—National Bank, East Setauket,
N.Y.
Marine Midland Bank—Northern,
Walertown, N.Y,
Marine Midland Bank—Chautauqua, N.A., Jamestown, N.Y.

lank and Trust Company,
Springfield, ¥a,

Northern Virginia Bank, Springfield, Va.

398

Peoples Bank and Trust Company, RichiEond, Va.

Mew Bank of Richmond, Richmond, Va.

402

SSI1 Bank, Chicago, III.

Seal's lank and Trust Company,
Chicago, 111

403

United Jersey lank, Hackensack,

Second National Bank of Orange,
Orange, N J .

402

United Jersey Bank, Hackensack,
NJ.

401

NJ.

United Jersey lank/North west,
Dover, N J ,

408

397

21, Description of each merger, consolidation, acquisition of
assets or assumption of 1liabilities approved by the Board of
Governors during 1975 —Continued

Name of bank, and type of transaction 2
(in chronological order of determination)

No. 1—The Louisflie Trust Company,
Louisville, Ky.,
to merge with
Tie Louisville Trust Bank
Company, Louisville, Ky.

Assets
(in millions
of dollars)

272

Banking offices
To be
operated
21

(Newly organized bank;
not in operation)

SUMMARY REPORT BY THE ATTGENEY GENERAL (10-31-74)

The proposed merger is part of a plan through which The Louisville
Trust Company would become a wholly owned subsidiary of United
Kentucky, Inc., a proposed bank holding company. The instant merger,
however, • would merely combine an existing bank with a nonoperatlng
institution [The Louisville Trust Bank Company] and, as such, without
regard to the acquisition of the survi¥ing bank by United Kentucky, Inc.,
would ha¥e no effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (1-6-75)

The proposal is a transaction to facilitate the acquisition of The Louisville Trust Company by United Kentucky, Inc., Louisville, Kentucky, a
proposed bank holding company.
The proposed merger would, in itself, have no adverse competitive
effects. The financial and convenience and needs factors are consistent
with approval of the application.

No. 2—-Nora Bank'and Trust Company,
Springield, Va.,
to merge with
The Northern Virginia Bank,
Sprfngfeld, Va.

(Newly organized bank;
not in operation)
114

SUMMAEY REPORT BY THE ATTOENEY GENERAL (12-9-74)

The proposed merger is part of a plan through which The Northern
Virginia Bank would become a subsidiary of New Virginia Bancorporation,
a proposed bank holding company. The instant merger, however, would
merely combine an existing bank with a nonoperating institution [Nova
Bank and Trust Company] and, as such, without regard to the acquisition
of the surviving bank by New Virginia Bancorporation, would have no'
effect on competition.

398

21 .—Continued

Name of bank, and type of transaction 2
(in chronological order of determination)

Assets
(in millions I
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY FEDERAL RESER¥E BANK ON BEHALF OF BOARD
OF GOVMINORS UNDER DELEGATED AUTHORITY (1-6-75)

The proposal is a transaction to facilitate the acquisition of The
Northern "Virginia Baafc • by New Virginia • Bancorporation, Springfield,
Virginia, a proposed bank holding company,
The proposed merger would, in Itself, have no adYerse competitive
effects. The financial and convenience and needs factors are consistent
with approval of t i e application.
No. 3—Chemical Bank, New York, N.Y.,
to acquire the assets and
assume ike liabilities of
Security National Bank,
Hempstead, N.Y.

22,990

248

1,300

346

SUMMARY REPORT BY THE ATTORNEY GENERAL (1-17-75)

An acquisition of Security National Bank (hereinafter Security) by
Chemical Bank would thus eliminate existing competition and increase
concentration in the New York metropolitan area and in various counties
in that area, particularly' on Long Island. Accordingly, we conclude that
such an acquisition would have some adYerse competitive effects.
On the basis of information supplied to ustoythe Comptroller [of the
Currency] concerning serious- financial problems which -exist at Security, we
believe that consideration of benefits to the "convenience and needs of the
community to be served** may well'be relevant in assessing the significance
of the competltlYe effect of this possible transaction. In. this respect, the
decision of the Supreme Court in United States y. Third National Bank
in Nashville, 390 U.S. .171, indicates that the availability -of-any qualified
and capable alternative purchasers who are not significant competitors
of Security, particularly • in • retail banking on Long island, would be
relevant.
BASIS FOE APPROVAL BY THE BOARD OF Go¥EiNoms (1-19-75)

Action by the Board followed a determination by the Comptroller of the
Currency of the existence of an emergency at. Security. National Bank
(hereinafter Security) and a request for immediate action to prevent a
probable failure of that -bank. The Comptroller said external forces and
public confidence ha¥e adversely affected the operations and condition
of Security to the point that an emergency exists.

For notes see p. 410,

399

21. Description of each merger, consolidation, acquisition of
assets or assumption of 1liabilities approved by the Board of
Governors during 1975 —Continued
Name, of bank,, and type of transaction2
(in chronological order of determination)

Assets
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOE APPROVAL BY THE BOARD OF GOVERNOIS—-Continued

Such anticompetitive effects as will be attributable to consummation of
the transaction will be clearly outweighed In the public interest by considerations relating to and in¥ol¥e4 In the emergency situation found to
exist. From the record in the case, it does not appear that there are reasonable alternative acquisition possibilities available at this time. Accordingly,
it is the Board's judgment that any disposition of the application other
than approval would be inconsistent with the public Interest, and the
Board concludes that the proposed transaction should be approved on a
basis that would not preclude immediate consummation of the proposal.

Mo. 4—The FTB Bank,
Cincinnati, Ohio,
to merge with
The Fifth Third Bank,
CiEcinnatl, Ohio

(Newly organized bank;
not in operation)
754

SUMMARY REPORT BY THE ATTORNEY GEMERAL (1-17-75)

The proposed merger Is part of a plan through which The Fifth Third
Bank would become a subsidiary of Fifth Third Bancorp, a proposed
bank holding company. The instant merger, however, would merely combine an existing bank with a noiioperatieg institution [The FTB Bank]
and, as such, without regard to the acquisition of the surviving "bank by
Fifth-Third- Bancorp, would ita¥e no effect on competition.
BASIS FOR APPROVAL BY FEDERAL RESERYE BANK OM BEHALF OF BGAMD
OF GOVERMGES UMDEE DELEGATED AUTHORITY ( 2 - 3 - 7 5 )

The proposal is a transaction to facilitate the acquisition of The Fifth
Third Bank by Fifth Third Bancorp, Cincinnati, Ohio, a proposed bank
holding company.
The proposed merger wouldf in itself, haYe no ad?erse competitive
effects. The- financial and con¥enience and needs factors are -consistent
with'approval ai the application.

For notes see p. 410.

400

21 .—Con tinned

Name of bank, and type of transaction 2
(ie chronological order of determination)

Assets
(in million *•
of dollar:.

Banking
hi

No S—United Jersey itank > Northwest.

Dover, N.J.,
to acquite the assets and assumf
the liabilities of certain branch
offices of
United Jersef Bank,
Hackensack, NJ.
SUMMARY REPORT BY THE ATTORNEY GBMTKM

{5 • f 2-7^ »

TMs transaction Is essentially part of a corporate nwi^ifw/nikn
would have no adverse competitive impact.

a^»f

BASIS FOE APPROVAL BY THE BOARD OF GOVEEMORS (6-6-75)

United Jersey Bank/Northwest (hereinafter Applicant) proposes to
acquire 6 existing branch'offices and 2 approved, unopened branch offices
of United Jersey Bank, Hackensack (hereinafter Hackensack Bank). Applicant is a subsidiary of United Jersey Banks, Princeton, New Jersey (hereinafter United), a bank holding company, and operates 7 offices In northwestern New Jersey in the Morristown commercial banking market. With
deposits of $58 million, • Applicant controls 10.3 per cent of the total
market deposits and Is the 4th largest of 11 banking organizations operating therein. Hackensack Bank, also a subsidiary of United, holds deposits
of $1 billion and Is the 2nd largest bank ie New Jersey and the 12th largest commercial bank In the Metropolitan New York market. The offices
proposed to be acquired by Applicant are the only offices of Hackensack
Bank located in northwestern New Jersey. This proposal represents part of
a plan of United, the parent holding company of .Applicant and Hackensack Bank, to redistribute and centralize the control .of offices of its subsidiary banks. The proposal raises no competitive issues because Applicant
and Hackeesack * Bank are under common ownership. Accordingly, competitive considerations are consistent with approYal of the application.
The financial and managerial resources of Applicant are generally
satisfactory5 and the prospects of Applicant following consummation of
the transaction appear favorable. Banting factors, therefore, are consistent with approval of the application. Although, there are -no expanded
services planned for tie offices to be transferred to Applicant, considerations relating to the convenience and needs of the communities to be
ser¥ed are also regarded as being consistent with approval of the application. It Is the Board's judgment that consummation of the proposal would
be in the public Interest.

For notes see p. 410.

401

21. Description of each merger, consolidation, acquisition" of
assets or assumption of liabilities approved by the Board of
Governors during 1975 '—Continued

Name of bank, and type of transaction 2
(In chronological order of deteniiitiaiioii)

Assets
(in millions
of dollars) I

Banking offices
In s

To be
operated

I ope rut ion

No. 6—United Jersey Bank,
Hackensaek,*N.Jf.,

j
{

[j 4b

SUMMARY REPORT BY THE ATTOEMEY GENERAL (5-12-75)

The merging banks are both wholly owned subsidiaries of the same
bank holding company. As such, their proposed merger is 'essentially a
corporate reorganization and would have no effect on'competition.
BASIS FOE APPEO¥AL BY THE BOAED OF GO¥EEMOES- (6-20-75)

•

The 2. merging banks are .both subsidiaries of United Jersey Banks,
Princeton, New Jersey, a bank holding company. United Jersey Bank'Is
the 2nd largest commercial bank In New Jersey and the" 12th largest in'the
Metropolitan 'Mew York" banking market The -Second-National-Bank-of
Orange is the -17th largest -of 46-commercial banks in the Greater. Newark
banking • market The merger.. .raises no competitive Issues because both
banks, are subsidiaries of the same holding company.
The financial and managerial resources of each' bank are ' consistent
with"approval of the application. Although the proposal-is-not-expected-toproduce -any -significant public benefits, the holding, company... anticipates
that- the--merger of the two banks would result In.-an Increase in operating
efficiency.. Accordingly, considerations relating to both the banking' factors'
and the convenience amd meeds of the communities to be" "served are
regarded' as" "being consistent with approval of the application. It-is-the
judgment--of t i e Board of Governors that consummation ..of ...the...proposal
would-be consistent with the public interest and that the application should
be approved.

No. 7—The Peoples Bank and Trust
Company, Richmond, Va,,
to merge with
New Bank of Richmond,
Richmond, Va.

)

StJMMAEY EEPOMT BY THE ATTORNEY GENERAL (6-24-75)

" Tie merging banks are both wholly owned subsidiaries of the same
bank" holding-company. As such, -their proposed merger Is essentially a
corporate reorganization and would have no effect on competition.

For notes see p. 4iO»

402

21 .—Continued

N a m e of bank, a n d type of transaction '
(in chronological order of determinatiop

A> o r ,
' So <*<n^on

,__...

BASIS FOR APPROVAL BY FEDERAL RESERYE BANK OM BEHALF OF BOARD
OF GOVERNORS UNDER DELEGATED AUTHORITY (7-24-75)

The two merging banks are both subsidiaries of MB Corporation,
Charlottesville, Virginia, a bank holding company. The Peoples Bank and
Trust Company is the 14th largest of 19 competing banks In the relevant
banking market, the Richmond-Ranally metropolitan area. New Bank of
Richmond is located In the same market, where it ranks 18th. The merger
.raises no competitive Issues because both banks are commonly owned.
Accordingly, competitive considerations are consistent with approval.
The financial and managerial resources of each bank are generally
satisfactory, and the prospects of the resulting bank following consummation of the transaction appear favorable. Banking factors, therefore, are
consistent with approval of the application. NB Corporation anticipates
that the merger would result in an increase In operating efficiency and
reduced costs, and would provide bank customers with trust sendees and
increased lending capabilities. Accordingly, considerations relating to the
convenience and needs of the communities to be served. lend weight toward
approval of the application. It is concluded that consummation of tie
proposal would bt consistent with the public interest and that the application should be approved.
No.

8—SBT Bank, Chicago, 111,
to merge with
Sears Bank and Trust

(Newly organized bank;
273

not in operation)
•
I
i

Company, Chicago, 111.

SUMMARY REPORT -BY THE ATTORNEY GENVPU {8-27-75*

The proposed merger Is part of a plan through whhh Scar* flank and
Trust Company would become a wholly owned" -.uK'tllir) ui Midland
Bancorp, Inc., a proposed bank holding company. The instant merger,
howe¥er» would merely combine an existing bank' with a nonoperating
institution [SBT Bank] and, as such, without regard to the acquisition of
the surviving bank by Midland Bancorp, Inc., would have no effect on
competition.
BASIS FOR APPROVAL BY FEDERAL RESERVE BANK OM BEHALF OF BOARD
OF GO¥ERMOES U.NDER DELEGATED AUTHORITY (10-2-75)

The proposal Is a transaction to facilitate the acquisition of Sears Bank
and Trust Company by Midland Bancorp, Inc., Chicago, Illinois, a proposed bank holding company.
The proposed merger • would, in Itself, have no- adverse competitive
effects. The financial and convenience and needs factors are consistent with
appro¥al of the application.

For notes see p. 410,

403

21. Description of each merger, consolidation, acquisition of
assets or assumption of liabilities approved by the Board of
Governors during 1975 '—Clou tin tied

Name of bank, ami type of transaction *
(in chronological order of determination)

s
Assets

Hanking offices

|. _ ,

_ _

tin millions •

of dollars) j
;

No. 9—Chemical Bank, New York, N.Y..

hi
j To be
operation j operated
248

in merge ivitfi

Chemical Bank of Suffolk, National
Association, Smithtown, N.Y.

261

SUMMARY REPORT, BY THE ATTORNEY GENERAL (7-31-75)

The merging banks are both wholly owned subsidiaries of the same
bank holding. company. As such, their proposed merger is essentially a
corporate reorganization and would have no effect on competition.
BASIS FOE APPMOYAL BY THE BOARD OF GQYERNGES (10-8-75)

Both 'Chemical Bank and Chemical Bank of Suffolk, National Association, are subsidiaries of Chemical New York Corporation, New York,
New York, m bank holding-company with 8 subsidiary banks-whose- aggregate domestic deposits total approximately $13.8 billion. Because both
banks- involved -in--the subject proposal are subsidiaries of the same.holding,
company, consummation of the proposal would not eliminate any existing
or potential, competition, increase the concentration of. banking resources,
nor ha¥e an adYerse effect on other banks within the relevant market,
Therefore, the Board concludes that competiti¥e considerations are consistent with approval of the merger.
It is expected that the merger will result In some imprewement In the
financial" position of Chemical Bank because of increased • operating • efficiencies due to the elimination, of certain offices of the 2 banks that are
presently in close proximity. Thus, the banking factors-lend some weight,
toward approval of the application. Although Chemical Bank proposes
no-major changes In its services or operations as a result of ..the. proposed
merger, considerations relating to the convenience and needs of the communities to be served are consistent with approval of the application.
No, 10—Commercial Trust Company of
New Jersey, Jersey City, N.J.,
to acquire the assets and
assume ihe liabilities of
H e First National Bank,
Piscataway»Plscataway, N.J.

258

SUMMARY REPOET BY THE ATTOEMEY GENERAL (11-4-75)

We -have-reviewed -this application and conclude that it would not
a substantial competitive impact.

For notes see p, 410.

404

21 .—Continued

\)h

Name of bank, and type of transaction 2
(in chronological order of determination)

Assets
(In millions
of d d h r ^

Commercial Trust Company of New Jersey fhr?<,imifkx Applicant)
operates its offices In the Metropolitan New York maikei, whaicm The
First National Bank, Piscataway (hereinafter First National), seizes the
Plainfield market. The nearest offices of the merging banks are 26 miles
apartj and their service areas are quite distinct. Accordingly, consummation of the proposal would not eliminate any direct competition or lead
to an increase In market concentration. Consummation of the proposed
acquisition of assets would foreclose a small amount of potential competition between the 2 banks in the Plainfield market, which, because of
recent population and industrial growth, has become a desirable area for
de n€)vo expansion. Eight banking organizations have entered the market
de novo since 1970. Although it appears that Applicant is capable of
entering the market de novo, it has Indicated reluctance to do so because
of the distance involved.
The financial and managerial resources of Applicant and First National
are satisfactory, and the prospects for the resulting bank are favorable.
Consequently, banking factors are consistent with approval of the application. Applicant would provide a broad range of services not currently
offered by First National-—such as a wider Yariety of loans and mortgages,
personal and corporate trust services, customer computer services, and
purchase and sale of foreign exchange. In addition, the resulting bank
would have a significantly larger lending limit. While it is likely that First
National could offer some of these services on Its own, it Is clear that
some others, especially the expanded lending limit, are beyond its grasp
within the near future. Although all of the proposed services are aYallable
In First National's service area, approval would provide customers In the
PJainfeld market with an additional convenient source of full-service banking. ConYeiiience and needs, therefore, lend some v/cight toward approval
and outweigh the slightly adverse effects that the pi-vposal would have on
pole 01 ia I com pet i tion.
No. II- Rank of Buffalo, Buffalo, N.Y.,
to mctge with
Niagara Frontier Bank of
New York, Buffalo, N.Y.

141

SUMMARY R E P O R T BY THE ATTORNEY G E N E K M

!
!
\

U
6

;

\)
^ 1 9
•;
,I

I ! ! * 8 75 >

The parties are In direct competition in and around Hie city a\ Buffalo,
Erie County, New York, Their nearest offices are scpuratnl bv ie^s than
0,5 miles. Thus, it appears that the proposed transaction would eliminate
existing competition between the parties In Erie County,

For notes see p. 410,

405

21. Description of each merger, consolidation,' acquisition'of
assets or assumption of 1liabilities approved by the Board of
Governors during 1975 —Continued
!
Name of bank, and type of transaction - !
Assets
(in chronological order of determination; ' {in millions
;
of dollars;
;

,
Ranking offices
|
*
!
;
;
In
j To be
\ operation j operated

SUMMARY RFPORT BY iHt ,-VUORNF v GrNFRAi.-—Continued

Bank of Buffalo holds approximately 4.3 per cent of Erie County
deposits and Niagara Frontier Bank of New York holds 1.2 per cent, for
a. combined, slare of. approximately. 5.5 per cent. The 2 largest banks with
offices in Erie County hold about 75 per cent of total deposits, while the
4 largest hold more than 95 per cent of total county deposits. Thus, the
proposed transaction will Increase concentration in commercial banking In
Erie County, a highly concentrated banking market. Recent entry by major
New York City bank holding companies has, however, provided some
potential for future deconcentration in the Buffalo area.
We conclude that the proposed transaction would have some adverse
competitive effects.
BASIS FOE APPMG¥AL BY THE BOAED OF GOVERNORS (11-19-75)

Niagara Frontier Bank of New York (hereinafter Niagara Frontier) is
a subsidiary of The Bank of New York Company, Inc., New York, New
York, a bank holding company. The holding company lied an application
to acquire Bank of Buffalo and at the same time filed an application to
merge Bank of Buffalo with Niagara Frontier.
Bank of Buffalo is the 4th largest of 14 banking organizations operating
in the Buffalo banking market, holding approximately 4 per cent of the
total deposits in commercial banks In the market. Niagara Frontier also
operates offices' in the Buffalo banking market and controls approximately
1 per cent of the total deposits In commercial banks In the market. Thus,
it appears that consummation of the proposed merger would result in the
elimination of some existing and futore competition in the Buffalo banking
market. Howe¥er» this situation is mitigated to some extent by the presence
in the market of 12 alternative commercial banking organizations, including
5 that are affiliated with large bank holding companies based in New York
City. It is concluded that consummation of the proposal would not result
• in -a significant adverse effect on competition, The financial and- managerial
resources of Bank of Buffalo and Niagara Frontier are reasonably satisfactory and are consistent with approval of the application. As a subsidiary
of the holding company, the resulting bank will be able to draw upon the
holding companyfs financial and managerial resources and extensive correspondent bank network, and to offer improved and expanded banking
services including international banking services, full trust services, and
commercial checking services. In, addition, the resulting bank will offer its
customers day-of-cleposit to day-of-withdrawal saYlngs accounts, reduce
charges for commercial checking accounts, and maintain....free...personal
checking accounts and low-interest auto loans. Accordingly, considerations
relating to the con¥enience and needs of the communities to be served lend
weight toward appro?ai of the application. It is the Board's judgment that
the proposed transaction would be in the public interest.

For notes see p. 410,

406

21,—Continued

Name of bank, and type of transaction 'l
(in chronological order of determination)

Assets
(in million^

°f dollars''

.^ 475
Til m . / \ v

i«'lf'/

!, 125
V

White I J.I'(SS
?

N K

\ ctllcv O«utk «f Ntw \ o r k ,

276
72

The

, N V,,

147

61
59

The Bnuk of Nvv* Vurk, Sowihtrn
Tier* tndicc^u N V ^n.1

55
188

SUMMARY R E P O R T BY THE ATTORNEY GENEK*H

The merging banks are all wholly owned siibsidLtri? of the same bank
holding company. As such, their proposed merge i < ess* nfiaPy ;i cor-

porate reorganization and would have no effect on c^mr
BASIS FOR APPROYAL BY THE BGAMD OF GOVERNORS (11-19-75)

This proposal represents a corporate reorganization whereby The Bank
of New York Company, inc., 'New York, New York, a bank holding company, would merge 8 of its existing subsidiary banks into a single bank.
Since all of the banks inYol¥eci in this proposal are subsidiaries of the
holding company, consummation- of the proposal • would -not eliminate any
existing or potential competition, increase the concentration, of banking
resources, nor ha¥e any adverse effect on other banks'within the respective
banking markets. Accordingly, the Board concludes that competitiYe considerations are consistent with approval of the application.
The financial and managerial resources and future -prospects of each
bank are consistent with appiwai of the application. The holding company anticipates that the- merger of- the 8 banks would result in an increase
in operating efficiency due to the centralization of tie administration of
certain functions. The resulting bank will be able' to "provide a broader
range of trust semces to upstate. customers and. will provide daily compounding of interest on sa?ings deposits at all branches. In addition, it will
be better able to ser¥e large -corporate customers as a- -result of a higher
lending limit. Accordingly, considerations relating to the con¥enieece and
needs of the communities to 'be' setYed are regarded as consistent with
approval of the application. It is the Board's judgment that consummation
of the proposal would be in the public Interest,

For notes see p. 410.

407

21. Description of each merger, consolidation, acquisition of
assets or assumption of 1liabilities approved by the Board of
Governors during 1975 —Continued
Name of bank, and type of transaction ?
(in chronological order of determination)

No, 13 —Marine Midland Bank,
Buffalo, MY,,
to merge with
Marine Midland Bank--New York,
Mew York, N.Y.,
Marine Midland Bank—-Western,
Buffalo, N.Y.,
Marine Midland Bank—Central,
Syracuse, N.Y.,
Marine Midland Bank—Rochester,
Rochester, N.Y.,
Marine Midland Bank of
Southeastern New York, N.A.,
Poughkeepsie, N.Y.,
Marine Midland Bank—Southern,
Elmira, N.Y.,
Marine Midland Bank—Eastern,
N.A., Troy, N.Y.,
Marine Midland Tinker---National
Bank, East Setauket, N.Y.,
Marine Midland Bank—Northern,
Water!own, N.Y.,
Marine Midland Bank—-Chitutaiiqua, N.A., Jamestown, N.Y.

Banking offices
Assets
(in millions
of dollars) |
To be
In
j operation operated
(Newly organized bank;
noi in operation)
,404

,842

740

609

358

357

254

187

208

163

342

SUMMARY REPORT BY THE ATTORNEY GENERAL

(No report receded)
BASIS FOE APPEOYAL BY THE BOAEP OF GG¥BMNGE5 (11-19-75)

Marine Midland Bank Is being organized to facilitate the merger of 10
banks that are presently subsidiaries of Marine Midland Banks, inc.,
Buffalo, New York, a bank holding company. Since each of the banks to
be merged Into the new bank is presently controlled by the same holding
company, consummation of the merger would not, in the Board's opinion,
change competitive conditions or have adYerse effects on any other bank
In any relevant area, it appears that the quality of services to bank customers in each of tie communities seiYed would be improved through
certain efficiencies of operation and the utilization of centralized managerial expertise. Con¥enience and needs factors, therefore, lend weight
toward approval. The Board further concludes that considerations relating
to the financial and managerial resources and future prospects of the
holding company and resulting bank are consistent with, and lend weight
toward, appfGYai of the application since consummation should strengthen

For notes see p. 410,

408

21 .—Continued

Mame of bank, and type of transaction f
(in chrooological order of determination)

I
Banking offices
Assets
;_
(In mill ons I
)
of dollars) !
In
j To be
j operation | operated

BASIS r o i APPROVAL in THE BOARD UP GOVERNORS—Continued

the Marine organization by allowing it to better manage its over-all asset,
liability, and equity positions, and to facilitate the de¥elopment of greater
management depth.
No. 14—Manufacturers and Traders
Trust Company, Buffalo, N.Y.,
to merge with
First Empire lank--—Mew York,
New York, N.Y.

j I f 342
|
>
|
156
j

j
j
;
i
j

79
2

i f 81

SUMMARY REPORT BY THE ATTORNEY GENERAL (t i-4-75)

The merging banks are both wholly owned subsidiaries of the same bank
holding company. As such, their proposed merger is essentially a corporate
reorganization and would ha¥e no effect on competition.
BASIS FOE APPROVAL BY THE BGAMP OF GOVERNORS (11-26-75)

Manufacturers and Traders Trust Company (hereinafter Applicant) is
the 15th largest commercial bank in New York State and the 2nd largest
bank in the Buffalo banking market, where it controls approximately 32
per cent of the total deposits in commercial banks in the market. Applicant
also operates branch, offices in 4 other markets in western New York State.
First Empire Bank—New York (hereinafter First Empire) is located in
New York City, and it operates a branch office in Paris, France, and a
subsidiary bank In Curacao, Netherlands Antilles, First Empire controls a
negligible share of the'total deposits in commercial'banks in the New York
City banking market and engages in a "wholesale" business that specializes
ie international banking services for business. First Empire does not
offer sa¥ings accounts to individuals, nor does it grant consumer loans or
real estate mortgage loans.
Because both of the banks inYolYed In this proposal are subsidiaries of
the same holding company, and because they operate In separate banking
markets, consummation of this proposal would not eliminate any existing
or potential competition, Increase the concentration of banking resources,
nor faaYe any adverse effect -on other banks within t i e respective banking
markets. Accordingly, the Board concludes that competiti?e considerations
are coasistent with approval of the application.
The financial and managerial resources and future prospects of Applicant are consistent with approval of the application. It Is anticipated that
tie merger of these 2 bants would result in an increase In operating effi-

For notes see p. 410.

409

21. Description of each merger, consolidation, acquisition of
assets or assumption of liabilities approved by the Board of
Governors during 1975 *—Continued
j
;
Banking offices
Name-of bank, and type of transaction L> i Assets
i_
__ "_ _
(in chronological order of determination) ! (in millions •:
1 of dollars;
Jo
| To be
;
! operation ' operated

BASIS I-OR APPROVAL BY HIE BOARD OF GOVERNORS—Continued

ciency and more effective reliance on Applicant*s .financial resources, and
managerial expertise. The Board is of the Ylew that, under the circumstances of this case, financial and managerial considerations lend weight
toward approval of the application. Consideration relating to the convenience and needs of the community to be served are consistent with
approval" of-the-application. Accordingly,--it-is-the Board's judgment thatconsummation of the proposal would be in the public interest and that
the application should be approved,
No. 15—Catoctin Trust Company,
Thurmont, Md.,
to merge with
The Thurmont Bank,
Thurmont, Md.

(Newly organized bank;' '
not in operation)
23

SUMMARY REPORT BY THE ATTOEMEY GENEIAL

(No report received.)
BASIS FOR APPRO¥AL BY FEDEEAL RESERVE BANK ON BEHALF OF BOARD
OP GOVERNORS UNDER DELEGATED AUTHORITY (12-18-75)

The proposal is a transaction to facilitate the acquisition of The Thiirmont Bank by Suburban Bancorporation, Hyattsville, Md., a bank holding
company, by combining an existing bank with a nonoperating institution—
Catoctin Trust Company.
. ...The. proposed merger would, in Itself, have no ad?erse competitive
effects. Thefinancialand convenience and needs factors are consistent with
of the application.

1
During 1975 the Board disapproved 1 merger application. However, under Section 18(c)
of the Federal Deposit Insurance Act only those transactions approved by the Board must
be2 described in its ANNUAL MFPHRI to Congress.
Each transaction was proposed to be effected under the charter of the first-named bank.
3
Although United Jereey Bank, Hackcnsaek, N.J., actually has 51 billion in assets and
43 offices in operation, it is only selling 6 of Its offices in operation ^ n d 2 approved,
unopened offices. The 6 offices in operation have assets of about $30 million.

410

•C THE

FEDERAL

RESERVE

SYSTEM ] •

BOUNDARIES OF FEDERAL RESERVE DISTRICTS AND THEIR BRANCH TERRITORIES

•Dram byZW. Qdvin,Out

Legend
Boundaries of Federal Reserve Districts
- Boundaries of Federal Reserve Branch Territories
© Board of Governors of the Federal Reserve System
Federal Reserve Bank Cities
• Federal Reserve Branch Cities
• Federal Reserve Bank Facilities

zfederal 'Reserve
^Directories and

Board of Governors
of the Federal Reserve System
December 31, 1975
Term expires
ARTHUR F. BURNS, of New York, Chairman*
GEORGE W. MITCHELL, of Illinois, Vice Chairman*
ROBERT C. HOLLAND, of Nebraska
PHILIP E. COLDWELL, of Texas
PHILIP C. JACKSON, JR., of Alabama
JEFFREY M. BUCHER, of California
HENRY C. WALLICH, of Connecticut
JOHN M. DENKLER, Managing
JOSEPH R. COYNE,

Director for Operations
J. CHARLES PARTEE, Managing

Director for Research and
Economic Policy
THOMAS J. O'CONNELL, Counsel to
the Chairman
ROBERT SOLOMON, Adviser to the
Board

January 31, 1984
January 31, 1976
January 31, 1978
January 31, 1980
January 31, 1982
January 31, 1986
January 31, 1988
Assistant to the

Board
KENNETH A. GUENTHER, Assistant

to the Board
JAY PAUL BRENNEMAN, Special
Assistant to the Board
FRANK O'BRIEN, JR., Special
Assistant to the Board
DONALD J. WINN, Special Assistant

to the Board
OFFICE OF MANAGING DIRECTOR FOR OPERATIONS
JOHN M. DENKLER, Managing

Director
ROBERT J. LAWRENCE, Deputy

Managing Director
GORDON B. GRIMWOOD, Assistant

Director and Program Director
for Contingency Planning

WILLIAM W. LAYTON, Director of

Equal Employment Opportunity
BRENTON C. LEAVITT, Program

Director for Banking Structure
PETER E. BARNA, Program Director

for Bank Holding Company
Analysis

OFFICE OF MANAGING DIRECTOR FOR RESEARCH AND
ECONOMIC POLICY
J. CHARLES PARTEE, Managing

Director
STEPHEN H. AXILROD, Adviser to

the Board
ARTHUR L. BROIDA, Assistant to

the Board

STANLEY J. SIGEL, Assistant to

the Board
MURRAY ALTMANN, Special

Assistant to the Board
NORMAND R. V. BERNARD, Special

Assistant to the Board

OFFICE OF THE SECRETARY
THEODORE E. ALLISON, Secretary

LEGAL DIVISION
JOHN D. HAWKE, JR., General

Counsel
BALDWIN B. TUTTLE, Assistant
General Counsel

GRIFFITH L. GARWOOD, Assistant
5eCre a

' °'

CHARLES R. MCNEILL, Assistant

to the General Counsel
ROBERT E. MANNION, Adviser
ALLEN L. RAIKEN, Adviser
GARY M. WELSH, Adviser

DIVISION OF RESEARCH AND STATISTICS
LYLE E. GRAMLEY, Director
JAMES L. KICHLINE, Associate
Director
JOSEPH S. ZEISEL, Associate
Director
EDWARD C. ETTIN, Adviser

HELMUT F. WENDEL, Associate
Adviser
JAMES R. WETZEL, Associate
Adviser
ROBERT M. FISHER, Assistant
Adviser

• The designations as the Chairman and the Vice Chairman expire January 31, 1978, and
April 30, 1977, respectively, unless the services of these members of the Board shall have
terminated sooner.

414

Ub RfiSEAR*
JOHN H . KALCHBRENNER,

i \hf ' p Hi ^ I ?%1 K .£>—Continued

1?M»«

PETER M. KEIR, Adviser

! > ORTLAND G, P E E E T , A ssistant

ulviser

JAMES B. ECKEET, Associate

•>* s »'HEN P. TAYLOR, Assistant

Adviser

JOHN J. MINGO, Associate Adviser
ELEANOR J. STOCKWELL, Associate

LEVON H. GAMABEDIAN, Assistant
Director

Adviser
DIVISION OF INTERNATIONAL FINANCE
f RALPH C. BRYANT, Director

GEORGE B. HENMY, Associate

JOHN E. REYNOLDS, Acting Director
ROBERT F. GEMMILL, Adviser

REED J. IRVINE, Adviser

Adviser
CHARLES J. SIEGMAN, Associate

Adviser

tHELEN B. JUNZ, Adviser

EDWIN M. TEUMAN, Associate

SAMUEL PIZER, Adviser

Adviser

DIVISION OF FEDERAL EBSERVE BANK OPERATIONS
JAMES R. KUDLINSKI, Director
tE. MAURICE MCWHIRTER,

Associate Director

HAERY A. GUINTER, Assistant

WALTEP A ATTHATTSFN. Awfctant

Ob H'UERA!
AND BUlKJt- I S

BRIAN M. CAEEY, Assistant
Director

Director

f'*i\SlR\L F i \ K \ I*XAM1N \ I IONS

WILLIAM I J . W O L M I , Director

I n<« - ^, h , Mi a»,

CLYDE II, i \ k x ^ ^ j n h , fm.»
Assistant Director

hr a><t
F, 11 Wf'viM A ssistant

Assistant

Director

DIVISION OF BANKING SUPERVISION AND Rf GULATION
BRENTON C. LEAVITT, Director

FREDERICK R. DAHL, Assistant

Director
JACK M. EGERTSON, Assistant

Director
JOHN N, LYOM, Assistan* Director

J^MN 1 , %Ui LINTGCK, Assistant

Director

JOHN E. RYAN, Assistant Director
THOMAS A, SIDMAN, Assistant

Director
WILLIAM W. WILES, Assistant

Director
OFFICE OF S-WFR AND CONSUMER AFFAIRS
FREDERIC SOLOMON, Assistant to

the Board and Director
JANET O. HAET, Deputy Director

JEEAULD C. KLUCKMAN, Assistant

Director
ROBEET S. PLOTUN, Assistant

Director
DIVISION OF PERSONNEL
KEITH D. ENOSTRUM. Director

CHARLES W. WOOD, Assistant

Director
DIVISION OF ADMINISTRATIVE SERVICES
WALTER W. KEEIMANN, Director

JOHN D. SMITH, Assistant Director

DONALD E. ANDEMSGM, Assistant

Director
OFFICE OF THE CONTROLLER
JOHN KAKALEC, Controller

TYLEE E. WILLIAMS, JR., Assistant

Controller
DIVISION OF DATA PROCESSING
CHARLES L. HAMPTON, Director

WARREN N. MINAMI, Assistant

BEUCE M. BEARDSLEY, Associate
Director
GLENN L. CUMMINS, Assistant

Director
ROBERT J. ZEMEL, Assistant
Director

Director

415

Federal Open Market Committee
December 31,1975

MEMBERS
ARTHUR F. BURNS, Chairman (Board of Governors)
PAUL A. VOLCKER, Vice Chairman (Elected by Federal Reserve Bank of New
York)
ERNEST T. BAUGHMAN (Elected by Federal Reserve Banks of Atlanta, St. Louis,
and Dallas)
JEFFREY M. BUCHER (Board of Governors)
PHILIP E. COLDWELL (Board of Governors)

DAVID P. EASTBURN (Elected by Federal Reserve Banks of Boston, Philadelphia, and Richmond)
ROBERT C. HOLLAND (Board of Governors)
PHILIP C. JACKSON, JR. (Board of Governors)

BRUCE K. MACLAURY (Elected by Federal Reserve Banks of Minneapolis,
Kansas City, and San Francisco)
ROBERT P. MAYO (Elected by Federal Reserve Banks of Cleveland and Chicago)
GEORGE W. MITCHELL (Board of Governors)
HENRY C. WALLICH (Board of Governors)

OFFICERS
ARTHUR L. BROIDA, Secretary
MURRAY ALTMANN,

Deputy Secretary
NORMAND R. V. BERNARD,

Assistant Secretary
THOMAS J. O'CONNELL,

General Counsel

EDWARD G. BOEHNE,

Associate Economist
* RALPH C. BRYANT,

Associate Economist
RICHARD G. DAVIS,

Associate Economist

EDWARD G. GUY,
T

Deputy General Counsel
_
_

***** T « G * E E N '
Associate Economist

J. CHARLES PARTEE,

Senior Economist

STEPHEN H. AXILROD, Economist
(Domestic Finance)
LYLE E. GRAMLEY, Economist
(Domestic Business)
ROBERT SOLOMON, Economist

JOHN KAREKEN,

Associate Economist
JoHN R

REYNOLDS>

Associate Economist
K A R L

°-

ScHELD

(International Finance)
Associate Economist
ALAN R. HOLMES, Manager, System Open Market Account
PETER D. STERNLIGHT, Deputy Manager for Domestic Operations
SCOTT E. PARDEE, Deputy Manager for Foreign Operations
*On leave of absence.
During 1975 meetings of the Federal Open Market Committee were generally held at monthly intervals. (See Record of Policy Actions taken by the
Committee in 1975 on pp. 155-250 of this REPORT.)

416

Federal Advisory Council
December 31, 1975

MEMBERS
District No. 1—GEORGE B. ROCKWELL, Vice Chairman, State Street Bank and
Trust Company, Boston, Mass.
District No. 2—ELLMORE C. PATTERSON, Chairman, Morgan Guaranty Trust
Company, New York, N.Y.
District No. 3—JAMES F. BODINE, President and Chief Operating Officer, First
Pennsylvania Corporation and First Pennsylvania Bank, N.A., Philadelphia,
Pa.
District No. 4—CLAIR E. FULTZ, Chairman and Chief Executive Officer,
Huntington Bancshares, Inc., Columbus, Ohio
District No. 5—THOMAS I. STORRS, Chairman of the Board, NCNB Corporation, Charlotte, N.C.
District No. 6—LAWRENCE A. MERRIGAN, President, The Bank of New Orleans
and Trust Company, New Orleans, La.
District No. 7—WILLIAM F. MURRAY, Chairman of the Board, Harris Trust
and Savings Bank, Chicago, 111.
District No. 8—EDWIN S. JONES, Chairman of the Board, First National Bank
in St. Louis, St. Louis, Mo.
District No. 9—GEORGE H. DIXON, Chairman of the Board and President,
First National Bank of Minneapolis, Minneapolis, Minn.
District No. 10—EUGENE H. ADAMS, Chairman of the Board, The First National Bancorporation, Denver, Colo.
District No. 11—BEN F. LOVE, Chairman of the Board and Chief Executive
Officer, Texas Commerce Bank, N.A., Houston, Tex.
District No. 12—JAMES B. MAYER, Chairman of the Board and Chief Executive Officer, Valley National Bank, Phoenix, Ariz.

OFFICERS
THOMAS I. STORRS, President

(Vacancy) Vice President

HERBERT V. PROCHNOW, Secretary
WILLIAM J. KORSVIK, Associate Secretary

EXECUTIVE COMMITTEE
THOMAS I. STORRS, ex officio

ELLMORE C. PATTERSON
GEORGE H. DIXON

Meetings of the Federal Advisory Council were held on February 6-7,
May 1-2, September 11-12, and November 6-7, 1975. The Board of Governors met with the Council on February 7, May 2, September 12, and November 7. The Council, which is composed of 12 leading bankers, one from each
Federal Reserve district, is required by law to meet in Washington at least
four times each year, and is authorized by the Federal Reserve Act to consult
with and advise the Board on all matters within the jurisdiction of the Board.

417

Federal Reserve Banks and Branches
December 31,1975

CHAIRMEN AND DEPUTY CHAIRMEN OF
BOARDS OF DIRECTORS
Federal Reserve
Bank of—

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City.
Dallas
San Francisco

Chairman and
Federal Reserve Agent

Louis W. Cabot
Roswell L. Gilpatric
John R. Coleman
Horace A. Shepard
Robert W. Lawson, Jr.
H. G. Pattillo
Peter B. Clark
Edward J. Schnuck
Bruce B. Dayton
Robert T. Person
John Lawrence
O. Meredith Wilson

Deputy Chairman

Robert M. Solow
Frank R. Milliken
Edward J. Dwyer
Robert E. Kirby
E. Craig Wall, Sr.
Clifford M. Kirtland, Jr.
Robert H. Strotz
Sam Cooper
James P. McFarland
Harold W. Andersen
Charles T. Beaird
Joseph F. Alibrandi

CONFERENCE OF CHAIRMEN
The Chairmen of the Federal Reserve Banks are organized into a Conference
of Chairmen that meets from time to time to consider matters of common
interest and to consult with and advise the Board of Governors. Such meetings, attended also by Deputy Chairmen of the Reserve Banks, were held in
Washington on May 30 and December 4 and 5, 1975.
Mr. Roswell L. Gilpatric, Chairman of the Federal Reserve Bank of New
York, who was elected Chairman of the Conference and of its Executive Committee in December 1974, served in that capacity until the close of the 1975
meetings. Mr. H. G. Pattillo, Chairman of the Federal Reserve Bank of
Atlanta, and Mr. John Lawrence, Chairman of the Federal Reserve Bank of
Dallas, served with Mr. Gilpatric as members of the Executive Committee;
Mr. Pattillo also served as Vice Chairman of the Conference.
On December 5, 1975, Mr. Pattillo was elected Chairman of the Conference
and of its Executive Committee to serve for the succeeding year; Mr. Louis W.
Cabot, Chairman of the Federal Reserve Bank of Boston, was elected Vice
Chairman of the Conference and a member of the Executive Committee; and
Dr. John R. Coleman, Chairman of the Federal Reserve Bank of Philadelphia,
was elected as the other member of the Executive Committee.

418

F.R. BANKS AND BRANCHES—Continued

DIRECTORS
Class A and Class B directors are elected by the member banks of the
district. Class C directors are appointed by the Board of Governors of the
Federal Reserve System.
The Class A directors are chosen as representatives of member banks and,
as a matter of practice, are active officers of member banks. The Class B
directors may not, under the law, be officers, directors, or employees of banks.
At the time of their election they must be actively engaged in their district
in commerce, agriculture, or some other industrial pursuit.
The Class C directors may not, under the law, be officers, directors, employees, or stockholders of banks. They are appointed by the Board of
Governors as representatives not of any particular group or interest, but of
the public interest as a whole.
Federal Reserve Bank branches have either five or seven directors, of
whom a majority are appointed by the Board of Directors of the parent
Federal Reserve Bank, and the others are appointed by the Board of Governors of the Federal Reserve System.

Term

District 1—BOSTON

DTC.TI

Class A:
William N. Honey

President, The Martha's Vineyard National
Bank, Vineyard Haven, Mass
1975
Francis N. Southworth.. Chairman of the Board and President, Concord
National Bank, Concord, N.H
1976
James F. English, Jr
Chairman, The Connecticut Bank and Trust
Co., Hartford, Conn
1977

Class B:
Alfred W. Van Sinderen.President, The Southern New England Telephone Company, New Haven, Conn
1975
G. William Miller
President, Textron Inc., Providence, R.I
1976
Weston P. Figgins
Chairman of the Board, Wm. Filene's Sons
Company, Boston, Mass
1977
Class C.Louis W. Cabot
Kenneth I. Guscott
Robert M. Solow

Chairman of the Board, Cabot Corporation,
Boston, Mass
1975
President, Ken Guscott Associates, Boston,
Mass
1976
Institute Professor, Massachusetts Institute of
Technology, Cambridge, Mass
1977

419

KR. HANKS AND EIIANCHFS

CmtiiiucJ
Term

District 2—NEW YORK

Dec'fi

C/ass A :
Newman E. Wait, J r . . . .President, Adirondack Trust C o m p a n y , Saratoga Springs, N . Y . . . . . . . . . . . . . . . . . . . . . . . 1975
David- Rockefeller. . . . » . C h a i r m a n of t h e Board, T h e Chase- M a n h a t t a n
Bank, N . A . , N e w York., N . Y . . . . . . . . . . . . . . 1976
Stuart M c C a r t y . . . . . . . . P r e s i d e n t , First-City National Bank of Bingh a m t o n , Binghamton, N . Y . . . . . . . , . » . . , . . , 1977
Class B:
Jack 1 . J a c k s o n . . . . . . . . P r e s i d e n t , J. C. Penney Co., Inc., New York,
N . Y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
Maurice F. Granville. . .Chairman of the Board, Texaco,' Inc.,"New
York, N . Y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1976
William S. Sneath. . . . . .President, Union Carbide Corporation, New
York, N . Y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1977
Class C:
Frank R. Milliken..... .President, Kemiccoti Copper Corporation,
New York, N.Y..
Alan Pifer.
President, Carnegie Corporation of New York,
New York, N.Y.
Roswell L. Gilpatric. . .Partner, Cravat h, Swaine and Moore, Attorneys, New York, N . Y . . . . . . . . . . . . . . . . . .

1975
1976
1977.

BUFFALO BRANCH
Appointed by Federal Reserve Bank :
Claude F . S h u c h t e r . . . . . C h a i r m a n a n d Chief Executive Officer, M a n u facturers a n d Traders Trust C o m p a n y ,
Buffalo, N . Y . . . . . . . . . . . . . . . . . . . . . . . . . . . .
J. Wallace E l y . . . . . . . . . C h a i r m a n of the Board, N e w York State C o r poration, Rochester, N . Y . . . . . . . . . . . . . . . . .
Daniel G, R a n s o m . . . . . President, T h e Wm. Hcngerer C o . , Buffalo,
N.Y.
Stephen T, C h r i s t i a n . . . . C h a i r m a n , Marine Midland Bank-Chautauqua •
N.A., Jamestown, N . Y . . . . . . . . . . . . . . . . . . .
Appointed by Board of Governors:
D o n a l d - R . N e s b i t t . . . . . .Owner-Operator, Silver Creek F a r m s , Albion,
N.Y...................................
R u p e r t W a r r e n . . . . . . . . . F o r m e r President, Trico Products Corporation,
Buffalo, N . Y . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paul A ; Miller. . . . . . . . . P r e s i d e n t , Rochester Institute of Technology,
Rochester, N . Y . . . . . . . . . . . . . . . . . . . . . . . . . .

420

1975
1976
1976
1977

1975
1976
1977

VJK

*t\iVKS A N D BRANCHES-~Continuv'i

Term

District ,*- PHILADELPHIA

DTITI

Class A.John H . H a s s i e r . . . . . . . . P r e s i d e n t , I h e City National B a n k a n d T i t «4
C o m p a n y of Salem, Salem, N . J . . . . . . . . .
lil75
T h o m a s L . Miller. . . . . .President, U p p e r D a u p h i n N a t i o n a l Bank
Millersburg, P a . . . . . . . . . . . . . . . . . . . . . . .
. 1976
William B. Eagleson, J r . . C h a i r m a n of t h e B o a r d a n d President, T h e
G i r a r d Bank, Bala Cynwyd, P a . . . . . . . . . . . . 1977

Class J.H a r o l d A. S h a u b . . . . . . . P r e s i d e n t a n d Chief Executive Officer, C a m p bell S o u p C o . , C a m d e n , N . J . . . . . . . . . . . . . . . 1975
William S. M a s k e d . . . . . President, C. H . Masland & Sons, Carlisle, P a , . 1976
C. <"Tiahf»»i7 Brrwind, Jr. . C h a i r m a n a n d President, Berwind C o r p o r a t i o n ,
Philadelphia, P a , . . . . . . . . . . . . . . . . . . . . . . . . 1977
Class <'
Edwar'i T, n w v e r . . . . .
John R i okiman. . . .
(Vacancy)......

Chairman, of t h e Board, ESB Incorporated,
Philadelphia, P a . . . . . . . . . . . . . . . . . . . . . . . . . 1975
P H *»dent, Haverford College, Haverford, P a . . 1976
1977

District 4--CLEVKLANI)
Class A:
David L. Brumback, Jr., President, Van Wert National Bank, Van Wert,
O h i o . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
Edward W. B a r k e r . . . . . Chairman of the Board, First National Bank of
Middletown, Middletown, O h i o . . . . . . . . . . . 1 9 7 6
Merle E. Gilliand. . . . . . C h a i r m a n a n d Chief Executive Officer, Pittsb u r g h N a t i o n a l Bank, Pittsburgh, P a . . . . . . . 1977
Class B:
Rene C. MePlursnn

( iuirman of the Board and Chief Executive
Officer, Dana Corporal Ion. Toledo, O h i o . . . 1975
Charles \ f.:i/arus......Chairman of the Board, f he I• & R. I.a/arus
Co., Columbus, Ohio.
.
. . . 1976
DonaM V. N o l ^ l e . . . . . . . C h a i r m a n of the Board and Chief Executive
Officer, .Rubbermaid Incorporated, Wooster,
Ohio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1977

421

F.R. BANKS A N D BRANCHES—Continued
Term

District 4—CLEVELAND—Cont.

ISec^il

Class C.Otis A, Singletary. . . . . .President, University of Kentucky, Lexington,
Ky,. , , , , . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . 1975
Robert E. Kirby. . . . . . . C h a i r m a n and Chief Executive Officer, Westinghouse Electric Corporation, Pittsburgh,
pa........:.......:..:..•.•............:!"

Horace A. S h e p a r d . . . . . Chairman of the Board and Chief Executive
Officer, T E W Me., Cleveland, O h i o . . . . . . . .

1976

1977 •

CINCINNATI BRANCH
Appointed by Federal Reserve Bank:
Paul W. Christensen, Jr..President, The Cincinnati Gear Company,
Cincinnati, O h i o . . . . . . . . . . . . . . . . . . . . . . . .
Robert E . H a l l . . . . . . . . . P r e s i d e n t , The First" National Bank' & Trust
Company, Troy, O h i o . . . . . . . . . . . . . . . . . . .
Joseph- F . R i p p e . . . . . . . . President, The ProYident • Bank, Cincinnati,
Ohio..................................
Joe D. B l p u n t . . . . . . . . . . P r e s i d e n t , National Bank of Cynthiatia, Cynthiana, K y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appointed by Board of Governors:
Phillip R. Shrlver.......President, Miami University, Oxford, Ohio. , .
Clair F. V o e g h . . . . . . . . . Chairman, Productivity Research International,
Inc., Lexington, K y . . . . . . . . . . . . . . . . . . . . . . .
Lawrence H. Rogers, I I . President, Taft Broadcasting Company, Cincinnati, Ohio, . . . . . . . . . . . . . . . . . . . . . . . • . . '

1975
1975
•
1976
1977
•"
1975
. .
1976
1977

PITTSBURGH BRANCH
Appointed by Federal Reserve Bank:
Robinson F . B a r k e r . . . . Chairman and Chief Executive Officer, PPG
Industries, Inc., Pittsburgh, P a . . . . . . . . . . . . .
Jerry A, Halverson. , . . .President, The First National Bank and-TrustCompany of Wheeling, Wheeling, W. Va....
Malcolm E. Lambing, Jr..President and Chief Executive Officer, The
First National Bank of Pennsylvania, Erie,
Pa.....................................
Richard D. Edwards... .President, Union National Bank ? Pittsburgh,
Pa.

422

1975
1975

1976
1977

F.R, RANK'* W T D i*R VNVHFS

Cmitinu*"*

Disturi 4—<:LFVh'l,ANI) -Omt,

Term
expires

Dec* 31

PITT SB U RGH BMA^€H—Continued
Appointed by Board of Governors:
W. H. K n o e i l . . . . . . . . . .President, Cyclops Corporation, Pittsburgh, Pa. 1975
G, Jackson Tankers]*\v f'resident, Consolidated Natural Gas Company,
Pittsburgh, P a . . . . . . . . . . . . . . . . . . . . . . . . . . . 1976
Arnold R. Weber...
Ocmi, Graduate School of Industrial AdminisI ration, Carnegie-Mellon University, Pittsburgh, P a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1977

District 5-RICH MONO
Class A:
John H. Lumpkle, . . . . C h airman and Chief Executive Officer, The
South Carolina National Bank, Columbia,
S.C....................................
1975
Plato P. Pearson, J r . . . . . Chairman and President, The Citizens National
Bank, Gastonia, N . C . . . . . . . . . . . . . . . . . . . . . 1976
James A. Hardison, Jr.. .Chairman and President, The First National
Bank of Alison County, Wadesboro, N . C . . . 1977
Class B:
Osby L. Weir.

Retired General Manager, 1 Metropolitan Washington-Baltimore Area, Sears? Roebuck and
Company, Bethesda, M d . . . . . . . . . . . . . . . . . 1975
Andrew L, Clark. . . . I'resident, Andy Clark Ford, Inc., Princeton,
W. V a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1976
H. Clay Hofheimer, 11 .Chairman, Virginia Real Estate Investment
Trust, Norfolk, V a . . . . . . . . . . . . . . . . . . . . . . . 1977

Class C.Robert W. Lawson, Jr.. .Senior Partner, Charleston Office, Steptoe and
Johnson, Attorneys, Charleston, W. V a . . . , . 1975
P. Angus Powell. . . . .. .President, Chesterfield Land &, Timber Corp.,
Midlothian, V a . . . . . . . . . . . . . . . . . . . . . . . . . . 1976
E, Craig Wall, Sr.. .
.Chairman, of the Board, Canal Industries, Inc.,
Conway, S . C . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1977

423

F.R. BANKS AND BRANCHES—Continued
Term

District 5—RICHMOND—Cont.

Dec^fl

BALTIMORE BRANCH
Appointed by Federal Reserve Bank:
J. R. Chaffinch, J r . . . . . .President, The Denton National Bank, Denton,
'Md....................................
J.-Stevenson Peck. . . . . .Chairman of the Board, Union Trust Company
of Maryland, Baltimore, M d . . . . . . , , . , . . . . ,
Lacy I. Rice, J r . , , . , . . . .President, The Old National Bank of Martinsburg, Martinsburg, W. Va., and President,
Surburban National Bank of- Martinsborg,
Martinsburg, W. V a . . . . . . . . . . . . . . . . . . . . . . . .
J. Pierre Bernard, . . . . . . Chairman ofthe Board, The Annapolis Banking
and Trust Company, Annapolis,' M d . . . . . ' , ' . '

1975
• 1976

1976
1977

Appointed by Board of Governors:
DaYid W. Barton, Jr.. ..President, The Bartoe-GIliet Company, Baltimore, Md.. . . . . . . . . . . . . . . . . . . . . - . . - . . . • . • . ; • • 1975
I. E. Killian. . . . . . . . . . . M a n a g e r , Eastern Region, Exxon Company,
U.S.A., Baltimore, M d . . . . . . . . . . . . . . . . . . . 1976
James G. H a r l o w . . . . . . . P r e s i d e n t , West Virginia University, Morgantown, W. Va.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1977
CHARLOTTE BRANCH
Appointed by Federal Reserve Bank:
William W. Bruner. . . . .Chairman of the Board and President, First"
National Bank of South Carolina, Columbia, • •
S.C....................................
1975
Thomas L. B e n s o n . . . . . President, The Conway National Bank, Conway, S . C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • 1976
W. B. Apple, J r . . . . . . . . President, First National Bank of Reidsville,
Reidsville, N . C . . . . . . . . . . . . . . . . . . . . . . . . . . 1976
J o h n T . Fielder, . . . . . . . P r e s i d e n t , J. B. Ivey and Company, Charlotte,
N . C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1977
Appointed by Board of Governors:
Robert C. E d w a r d s . . . . .President, Clemson University, Clemsoe, S.C.. • 1975
Charles W. D e B e l l . . . . . .General Manager, North Carolina Works,
Western Electric Company, Inc., WinstonSalem, N . C . . . . . . . . . . . . . . . . . . : . : . . . . . . . . 1976
Charles F. B e n b o w . . . . . Senior Yice President, R. J. Reynolds Industries, l a c , Winston-Salem, N. C . . . . . . . . . . . 1977

424

F.R. BANKS AND BEANCHES—Continued
Term
expires
Dec. 3!

District 6—ATLANTA
Class A:
Sam I, Yarnell.

. . Chairman, American National Bank and Trust
Company, Chattanooga, T e n n . . . . . . . . . . . . . 1975
John T. Oliver, J r . . . . . . . President, First National Bank of Jasper,
Jasper, A l a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1976
Jack P. K e i t h . . . . . . . . . . P r e s i d e n t , First National Bank of West Point,
West Point, G a . . . . . . . . . . . . . . . . . . . . . . . . . . 1977

Class B:
George W. Jenkins. . . . .Chairman, Publix Super Markets, Inc., Lakeland, F l a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
Robert T. H o m b e c k . . . . Manager, Tennessee Operations, Aluminum
Company of America, Alcoa, T e n n . . . . . . . . . 1976
Ulysses V. G o o d w y n . . . .Executive Vice President, Southern N a t u r a l
Resources, Inc., Birmingham, A l a . . . . . . . . . . 1977

Class C;
P . Evans F a r w e l l . . . . . . . P r e s i d e n t , Milliken & Harwell, Inc., N e w
Orleans, L a . . . . . . . .
, . . . . . . . . 1975
C. M . Kirtiand, Jr. . . . . .President, C o x Broadcasting Corporation,
Atlanta, G a .
. . . . . . . . . . . . . 1976
H. G , P a t t i l l o . . . . . . . . . . C h a i r m a n , Pattillo Construction Company,
Inc., Decatur, G a . . . . . . . . . . . . . . . . . . . . . . . 1977

BIRMINGHAM

BRANCH

Appointed by Federal Reserve Bank :
John Alexander, J r . . . . . .President, City National Bank of Birmingham,
Birmingham, A l a , . . . . . . . . . . . . . . . . . . . . . . . .
Clarence L. Turnipseed.. President, First National Bank, Brewton, Ala..
John- Maples, J r . . . . . . . . Executive Vice President, Union Bank & Tryst
Company, Montgomery, A l a . . . . . . . . . . . . . .
D, C. Wadsworth, J r . . . . President, American National Bank of Gadsden, Gadsden, A l a . . . . . . . . . . . . . . . . . . . . . . .

1975
1976
1976
1977

Appointed by Board of Governors:
F r a n k P. Samford, J r . . . .Chairman of the Board, Liberty National Life
Insurance Company, Birmingham, A l a . . . . . 1975
William H . Martin, III. .Executive Vice President Martin Industries,
Inc., Sheffield, A l a . . . . . . . . . . . . . . . . . . . . . . . 1976
Harold B. Blacfa, J r . . . . .President, J. Blach & Sons, Inc., Birmingham,
A l a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1977

425

F.R. BANKS AND BEANCHES—Continued
Term

District 6—ATLANTA—Gont.

DeV!fl

JACKSONVILLE BEANCH
Appointed by Federal Reserve Bank:
J o h n T , C a n n o n , H I . . . .President, B a r n e t t B a n k o f C o c o a , N . A . ,
Cocoa, Fia.,. . . . • : . . . . . . . . . . . . . . . . . . . . - . . . MacDonnell Tyre
Chairman, Sun First "National Bank of Orlando,
Orlando, F i a . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard A. Cooper. . . . .Chairman of the Board, First National Bank of
New Port Elchey, New Port" Richey, F i a . . . .
Chauncey W. LeYer..,. .Chairman, Florida National Banks of Florida,
Inc., Jacksonville, Pla.Y. . . . . . . . . . . . . . . . . . .

1975
•1976
• 1§76
1977

Appointed'by Board of Governors :
J a m e s E , L y o n s . . . . . . . . President, L y o n s I n d u s t r i a l
Corporation,
W i n t e r H a v e n , F i a . . . . . . . . . . . . . . . . . . . . . . . . . • 1-975
E g b e r t R . B e a i l . . . . . . . . President, BealTs D e p a r t m e n t Stores, B r a d e n ton, F i a . . . . . - . . . - . . . v . . . - . . . . . . . . . . . . . . . - . - . . 1976
Gert H. 'W.Schmidt....President, TeLeVision 12 of JacksoBville, • •
Jacksonville,'Fia. ...:...•...........•...•.•.. 1977

MIAMI BRANCH
Appointed by Federal Reserve Bank :
Michael. J. F r a n c o . . . . . . Chairman,, City National Bank of Miami s
Miami, F i a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1976
Harry Hood B a s s e t t . . . . Chairman of the Board, Southeast Banking
Corporation, Miami, F i a . . . , , . . , . . . . , . . , . 1977
Thomas F. Fleming, Jr.. Chairman of the Board, First Bancshares of
Florida, Boca Eaton, F i a . . . . . . . . . . . . . . . . . 1978
Jean McArthur Da¥ls,. .President, Me Arthur Dairy, Inc., Miami, Fia.. 1979
Appointed by Board of Governors:
Castle W. J o r d a n . . . . . . . P r e s i d e n t , Aegis Corporation, Coral Gables,
Fia...............................:....
1976
David G. R o b i n s o n . , . . .President, Edison Community College,' 'Fort
Myers, F i a . . . . . . . . . . . . . . . . . . . . . . . . . . ' . . . . 1977
Alvaro Luis C a r t a . . . . . .President, Gulf -H Western Americas Corporation, Vero Beach, F i a . . . . . . . . . . . . . . . . . . . . 1978

426

F.R. BANKS AND BRANCHES—Continued
Term
District 6—ATLANTA—Gout.

Dec.™

NASHVILLE BRANCH
Appointed by Federal Reserve Bank :
R o b e r t E. C u r r y . . . . . . . President, First N a t i o n a l B a n k of Pulaski,
Pulaski, T e n n . . . . . . . . . . . . . . . . . . . . . . . . . . .
T. Scott Fillebrown, Jr...Vice C h a i r m a n , First American N a t i o n a l B a n k
of Nashville, Nashville, T e n n . . . . . . . . . . . . . .
Fred R. L a w s o n . . . . . . . . President, M o u n t N a t i o n a l B a n k of Maryville,
Maryviie, T e n n . . . . . . . . . . . . . . . . . . . . . . . . .
W. M . J o h n s o n . . . . . . . . P r e s i d e n t , First N a t i o n a l Bank, Sparta, T e n n . .

1975
1976
1976
1977

Appointed by Board of Governors:
J o h n C . T u n e . . . . . . . . . . P a r t n e r , Butler, T i m e , a n d E n t r e k i n , A t t o r n e y s ,
Nashville, T e n n . . . . . . . . . . . . . . . . . . . . . . . . . 1975
J a m e s W . L o n g . . . . . . . . President, R o b e r t s o n C o u n t y F a r m B u r e a u ,
S p r i n g i e J d , T e e e . . . . . . . . . . . . . . . . . . . . . . . . 1976
J a m e s R . L a w s o n . . . . . . F i s k University, Nashville, T e n n . . . . . . . . . . . . . 1977

NEW GELEANS

BRANCH

Appointed by Federal Reserve Bank :
Ernest F . L a d d , J r . . . . . . C h a i r m a n , T h e M e r c h a n t s National B a n k ,
Mobile, A l a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
M a r t i n C. M i l e r . . . . . . . .Chairman of the Board and President, T h e
Hibernia N a t i o n a l Bank, N e w Orleans, L a . . 1976
Charles W. M c C o y . . . . . C h a i r m a n of the B o a r d a n d President, Louisiana
National Bank, B a t o n R o u g e , L a . . . . . . . . . . 1976
R. B. L a m p t o n . . . . . . . . .President, First N a t i o n a l B a n k of Jackson,
Jackson, M i s s . . . . . . . . . . . . . . . . . . . . . . . . . . . 1977

Appointed by Board of Governors:
E d w i n J. C a p l a n . . . . . . . P r e s i d e n t , Caplan*s M e n ' s S h o p s , I n c . , Alexa n d r i a , L a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
F l o y d W . L e w i s . . . . . . . . P r e s i d e n t , M i d d l e S o u t h Utilities, I n c . , N e w
O r l e a n s , L a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1976
Fred Adams, J r . . . . . . . . P r e s i d e n t , Cal-Maine Foods, Inc., Jackson,
M i s s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1977

427

F.R. BANKS AND BRANCHES—Contlnued
Term

District 7—CHICAGO
Cioss A;
Edward Byron Smith. . . Chairman of the Board, The Northern Trust
Company, Chicago, 1 1 1 . . . . . . . . . . . . . . . . . . .
Jay J, D e L a y . . . . . . . . . . President, Huron Valley National Bank, Ann
Arbor, M i c h . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John F. S p i e s . , , . . . , . . . President, Iowa Trust and Savings Bank,
Emmetsburg, Iowa . . . . . . . . . . . . . . . . . . . . .

DTI7I

1975
• •
1976
1977

Class B.Oscar G. M a y e r , . . . . . . . C h a i r m a n of the Executive Committee, Oscar
Mayer & Co., Inc., Madison, W i s . . . . . . . . . .
Paul ¥ . F a r v e r . . . . . . . . . P r e s i d e n t , Rolscreen Company, Pella,Iowa...
John T, H a c k e t t . . . . . . . . Executive Vice President, Cummins Engine
Company, Inc., Columbus, l i i d . . . . . . . . . . . .

1975
1976
1977

Class C.Peter B. C l a r k . . . . . . . . . C h a i r m a n and President, The Evening News
Association, Detroit, M i c h . . . . . . . . . . . . . . . .
Robert H. Strotz. . . . . . . P r e s i d e n t , Northwestern University, Evanston,
111...............................'.....'.

1975
1976

Leo H. Schoenhofen... .Chairman of the Board, Marcor, Inc., Chicago,
1 1 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1977

DETROIT BRANCH
Appointed by Federal Reserve Bank:
Joseph B. Foster, . . . . . . P r e s i d e n t , Ann Arbor Bank, Ann Arbor, Mich.. 1975
Roland A. Mewhort.... Director and Consultant, Manufacturers National Bank of Detroit, Detroit, M i c h . . . . . . 1975
Robert M. Surdam. . .. .Chairman of the Board, National Detroit
Corporation, Detroit, M i c h . . . . . . . . . . . . . . .
1976
Harold A. Eigas. . . . . . . P r e s i d e n t , Gaylord State Bank 5 Gay-lord Mien. .• • 1977
Appointed by Board of Governors:
W. M. Defoe, . . . . . . . . . C h a i r m a n of the Board, Defoe Shipbuilding
Company, Bay City, M i c h . . . . . . . . . . . . . . . . .
Jordan B. T a t t e r . . . . . . . President and Chief Executive Officer, Southern
Michigan Cold Storage Co. 5 Benton Harbor,
Mich...................................
Tom K i l l e f e r . . . . . . . . . . . E x e c u t i v e Vice President and General Counsel,
Chrysler Corporation, Detroit, M i c h , . . . . . .

428

1975

1976
1977

F.R. BANES AND BRANCHES—Continued
Term
exoires

District 8—ST. LOUIS

Dec. 31

Class A:
William E Weigel.

F u*ciitive Vice President, First National Bank
A Trust Co. 5 Centralia, 1 1 1 . . . . . . . . . . . . . 1975
Raymond C Burroughs President, The City National Bank of Morphysburo, Murphysboro, 1 1 1 . . . . . . . . . . . .
.,
1976
Donald N Btandin.
Chairman of the Board and President, The
Boatmen's National Bank of St. Louis,
St. Louis, Mo.
1977

Class B.T o m K . S m i t h . . . . . . . . . G r o u p Vice P r e s i d e n t , M o n s a n t o C o m p a n y ,
St. L o u i s , M o . . . . . . . . . . . . . . . . . . . . . . . . . .
F r e d I. B r o w n , J r . . . . . . .President, A r k a n s a s F o u n d r y C o m p a n y , Little
Rock, A r k . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
R a l p h C . B a i n . . . . . . . . . S e n i o r Vice P r e s i d e n t a n d G e n e r a l M a n a g e r ,
A r k l a I n d u s t r i e s , l e e , Evansville, I n d . . . . . . .

1975
1976
1977

C.Sam C o o p e r . . . . . . . . .

C h a i r m a n , H u m K o P r o d u c t s , Division of
kraftco Corporation, Memphis, T e n n . . . . . .
H a r r y M . Y o u n g , J r . . . . . Melrose F a r m , H e r n d o n , K y . . . . . . . . . . . . . . . .
E d w a r d J. S c h n u c k . . . . . C h a i r m a n of t h e B o a r d , Schnuck M a r k e t s , I n c . ,
Brldgeton, M o . . . . . . . . . . . . . . . . . . . . . . . . . .
LITTLE EGCK

1975
1976
1977

BEANCH

Appointed by Federal Reserve Bank :
Thomas G . VInson, . . . .Executive Vice President, T h e Citizens Bank,
Batesville, A r k . . . . . . . . . . . . . . . . . . . . . . . . . .
Field W a s s o n . . . . . . . . . . President, First National Bank, Siloam Springs,
Ark....................................
Herbert H . McAdams, Il.Chairman of the Board and Chief Executive
Officer, Union National Bank of Little Rock,
Little Rock 5 A r k . . . . . . . . . . . . . . . . . . . . . . . .
Thomas E, Hays, J r . . . . .President a n d Chief Executive Officer, First
National Bank of Hope, Hope, A r k . . . . . . . .

1975
1975

1976
1977

Appointed by Board of Governors:
G . Larry K e l i e y . , , . , . , .President, Pickens-Bond Construction C o m pany, Little Rock, A r k . . . . . . . . . . . . . . . . . . . 1975
Roland R. R e m i n d . . . . .Chairman of the Board, Southland Building
Products Co., Little Rock, A r k . . . . . . . . . . . . 1976
Ronald W. B a i l e y . . . . . . Executive Vice President and General Manager,
Producers Rice Mill, Inc., Stuttgart, A r k . . . . 1977

429

F.E. BANKS AND BRANCHES—Continued
Term

District 8—ST. LOUIS—Cont.

Itee.lu

LOUISVILLE BRANCH
Appointed by Federal Reserve Bank :
Herbert J. S m i t h . . . . . . . President, The American National Bank and
Trust Company of Bowling Green, Bowling
Green, K y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tom G. V o s s . . . . . . . . . . President, The Seymour National Bank, Seymour, I n d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harold E. J a c k s o n , . , . ..President, The Scott County State Bank,
Scottsburg, I n d . . . . . . . . . . . . . . . . . . . . . . . . . .
J, David G r i s s o m . . . . . . President and Chief Operating Officer, Citizens
Fidelity Corporation, Louisville, K y . . . . . . . .
Appointed by Board of Governors:
James H. D a v i s . . . . . . . . Chairman and Chief Executive Officer, Porter
Paint Co., Louisville, K y . . . . . . . . . . . . . . . . .
William H. S t r o u b e . . . . .Associate Dean, College of Science and Technology, Western Kentucky University, Bowling Green, K y . . . . . . . . . . . . . . . . . . . . . . . . . . .
James C. Hendershot. . .President, Reliance Universal, Inc., Louisville,
Ky.............

1975
1975
1976
1977

1975

1976
1977

MEMPHIS BRANCH
Appointed by Federal Reserve Bank:
Ridley A l e x a n d e r , . . . . . . C h a i r m a n , The Second National Bank of
Jackson, Jackson, T e n n . . . . . . . . . . . . . . . . . . .
William W. Mitchell... .Chairman and Chief Executive Officer, First
National Bank of Memphis, Memphis, Teen.
William M, Campbell, ..Chairman and Chief Executive Officer, First
National Bank of Eastern Arkansas, Forest
City, A r k . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charles S, Youngblood.. President and Chief Executive Officer, First
Columbus National Bank, Columbus, Miss..
Appointed by Board of Governors:
Jeanne L. H o l l e y . . . . . . . Associate Professor of Business Education,
University of Mississippi, University, Miss..
Robert E. H e a l y . . . . . . . Partaer-in-Charge of the Mid-South Area,
Price Waterhouse & Co., Memphis, T e n n . . .
Frank A. Jones, J r . . . . . .President, Cook Industries, Inc., Memphis,
Tenn...................................

430

1975
1975

1976
1977

1975
1976
1977

F.R. BANKS A N D B R A N C H E S ^ C o n t i n u e d
Term

District 9- -MINNEAPOLIS

DeV.Tl

Class A:
D a v i d M . S m i t h . . . . . . . . P r e s i d e n t , T h e First N a t i o n a l B a n k of R i v e r
Falls, R i v e r Falls, W i s . . . . . . . . . . . . . . . . . . . .
C h a r l e s T. U n d l i n . . . . . . P r e s i d e n t , F i r s t N a t i o n a l Bank of t h e B l a c k
Hills, R a p i d City, S. D a k . . . . . . . . . . . . . . . . .
William K. R>.'tn. . . . . . . P r e s i d e n t , Citizens S t a t e B a n k , O n t o e a g o n ,
Mich... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1975
1976
1977

Class B;
David M. Heskett. . . . . .President, Montana-Dakota Utilities Company,
Bismarck, N. D a k , . . . . . . . . . . . . . . . . . . . . . . 1975
Warree B. Jones. ......Secretary-Treasurer and General Manager,
Two Dot Land & Livestock Co., Harlowtoe,
Mont.
1976
Donald P. Helgeson.. . . .Secretary-Treasurer, Jack Frost, Inc., St. Cloud,
Minn.
1977
Class C.James P. McFarland... .Chairman of the Board, General Mills, Inc.,
Minneapolis, M i n n . . . . . . . . . . . . . . . . . . . . . . 1975
Howard R. Swearer
. Pi esident, Carleton College, Northfield, Minn.. 1976
Bruce B. Dayton
.Chairman of the Executive Committee, Dayton
Hudson Corporation, Minneapolis, M i n n . . . 1977

HELENA BRANCH
Appointed by Federal Reserve Bank:
Donald O l s s o n . . . . . . . . . P r e s i d e n t , R o n a n State Bank, Ronan, M o n t . . .
J o h n R e i c h e l . . . . . . . . . . . President, F i r s t N a t i o n a l B a n k , G r e a t F a i l s ,
Mont..................................
G e o r g e H . S e l o v e r . . . . . . P r e s i d e n t a n d G e n e r a l M a n a g e r , S d o v e r ButickJ e e p , I n c . , Billings, M o n t . . . . . . . . . . . . . . . . .

1975
1976
1976

Appointed by Board of Governors:
William A. Cordingley.»Publisher and President, Great Falls Tribune,
Great Fails, M o n t . . . . . . . . . . . . . . . . . . . . . . . 1975
James C, Garlington.... Senior Partner, Garlington, Lohn and .Robinson, Attorneys, Missoula, M o n t . . . . . . . . . . . . 1976

431

P.E. BANKS A N D BRANCHES—Continued
Term

District 10—KANSAS CITY

Dee'fj

Class A:
Roger D. Knight, J r . . . . . Chairman of the Board, United Banks of
Colorado, Inc., Denver, C o l o . . . . . . . . . . . . . . 1975
Philip H a m m , . . . . . . . . . P r e s i d e n t , First National .Bank and Trust
Company, El Dorado, K a n s . . . . . . . . . . . . . . . 1976
Craig B a c h m a n . . . . . . . . President, First National Bank of Centralia,
Centralia, K a n s . . . . . . . . . . . . . . . . . . . . . . . . . . 1977
Class B:
Cecil O. E m r i c h , . , , , . . . President, C. O . Emrich Enterprises, Norfolk, •
N e b r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
Donald J. H a l l . . . . . . . . . P r e s i d e n t , Hallmark Cards, Inc., Kansas' City,
M o , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1976
Frank C. L o v e . . . . . . . . . Of Counsel, Crowe, Dunlevy, Thweatt, Swinford5 Johnson and Burdick, Attorneys,
Oklahoma City, O k l a . . . . . . . . . . . . . . . . . . . . 1977
Class C:
Harold W. Andersen,.. .President, Omaha World-Herald Company,Omaha, N e b r . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
Robert T V P e r s o n . . . . . . . C h a i r m a n -of-the Board and President, Public
Service Co. of Colorado, Denver, C o l o . . . . . 1976
Joseph H. Williams... . .President, The Williams Companies, Tulsa,
Okla.
1977

DENVER BRANCH
Appointed by Federal Reserve Bank:
Felix Buchenroth, J r . . . . President, The Jackson State Bank, Jackson,
Wyo.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? ....... 1975
Dale R. H i n m a n . . . . . . . Chairman of the Board, The Greeley National
Bank, Greeley, Colo. . . . . . . . . . . . . . . . . . . . . . . 1976
William H. Vernon. . . , .Chairman and Chief Executive Officer, Santa Fe
National Bank, Santa Fe, N . M e x . . . . . . . . . . 1976
Appointed by Board of Governors:
Maurice B. M i t c h e l l . . . . Chancellor, University of Denver, Denver,
c o i o . . . . . . . . . . . . . . . . . . . . . . . . ; . . . . . . : . . . '1975
Edward R. L u c e r o . . . . . .President and Chairman, Colorado Economic
Development Association, Denver, C o l o . . . . 1976

432

F.R. BANKS AND BRANCHES—Continued
Term
District ltt--KANSAS O T Y - 4 knit

DecHn

OKLAHOMA C1TV BRANCH
Appointed by Federal Reserve Bank:
W. H. M c D o n a l d . . . . . . Retired Chairman, The First National Bank
and Trust Company of Oklahoma City,
Oklahoma City, O k i a . . . . . . . . . . . . . . . . . . . . 1975
Hugh C. Jones. . . . . . . . . E x e c u t i v e Vice President, The Bank of Woodward, Woodward, O k l a . . . . . . . . . . . . . . . . . . . 1976
V. M. Thompson, Jr., . . President, Utica National Bank and Trust
Company, Tulsa, O k i a . . . . . . . , . . . . , . . . . , , 1976

Appointed by Board of Governors:
James G. Harlow, J r . . . . President, Oklahoma Gas and Electric Company, Oklahoma City, O k l a . . . . . . . . . . . . . . . 1975
Harley C u s t e r . . . . . . . . . . General Manager, Oklahoma livestock Marketing Association, Oklahoma City, Okla., . 1976
OMAHA BRANCH

Appointed by Federal Reserve Bank:
Glenn Y a u s s i . . . . . . .
Roy G. D i e s d a l e . . . .
F. Phillips G i l t n e r . . .

Vice Chairman of the Board, National Bank of
Commerce Trust & Savings, Lincoln, Nebr.. 1975
. Chairman of the Board, Farmers National Bank
of Central City, Central City, N e b r . . . . . . . . . 1975
President,

First

National

Bank

of O m a h a ,

Omaha, N e b r . . . . . . . . . . . . . . . . . . . . . . . . . . .

1976

Appointed by Board of Governors:
D u r w a r d B . Y a m e t . . . . . P r e s i d e n t , University of N e b r a s k a , Lincoln.,
N e b r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
E d w a r d F. O w e n . . . . . . . President, P a x t o n & VIerling Steel C o m p a n y ,
O m a h a , N e b r . . . . . . . . . . . . . . . . . . . . . . . . . . . 1976

District 11—DALLAS
Class A:
Robert H. Stewart, 10 .Chairman of the Board, First International
Bancshares, Dallas, T e x . . . . . , . . . , . . , . . , . , 1975
Geee D. A d a m s . . . . . . . . President, The First National Bank of Seymour,
Seymour, T e x , . . . . . . . . . . . . . . . . . . . . . . . . . . 1976
Frank J u n e l l . . . . . . . . . . . C h a i r m a n of the Board, The Central National
Bank of San Angelo, San Angelo, Tex..
1977

433

F.R. BANKS AND BRANCHES—Continued
Term

District li—- D A L L A S --Cont.

Dec*¥i

Class B;
T h o m a s W . H e r r i c k . . . .Cattle a n d Investments, Amarillo, T e x . . . . . . . . 1975
S t e w a r t G r t o n . . . . . . . . President, F o l e y ' s , I n c . , H o u s t o n , T e x . . . . . . . . 1 9 7 6
Gerald D , Mines. . . . . . . O w n e r , Gerald D . Mines Interests, H o u s t o n ,
T e x . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1977
Class C.Charles T. Beatrd . . . .Chairman of The Board, Beaird-Poulan Division, Emerson Electric Co. 5 Shre¥eport» La..
John Lawrence,.,
...Chairman of the Board, Dresser Industries,
inc., Dallas, T e x . . . . . . . . . . . . . . . . . . . . . . . . .
Irving A. Mathews. , . . .Chairman of the Board and Chief Executive
Officer, Frost Bros,, Inc., San Antonio, Tex..

1975
1976
1977

EL PASO B R A N C H
Appointed by Federal Reserve Bank:
Reed H. Chittim. . . . . . .President, First National Bank of Lea County,
Hobbs, N. M e x . . . . . . . . . . . . . . . . . . . . . . . . . .
Sam D. Young, J r . . . . . .President, El Paso National Bank, El Paso, Tex.
C. J. Kelly. . . . . . . . . . . .President and Chairman of the Board, The
First National Bank of Midland, Midland,
Tex....................................
Wayne S t e w a r t . . . . . . . . . President, First National Bank in Alamogordo,
Alamogordo, N. M e x , . . . . . . . . . . . . . . . . . .
Appointed by Board of Governors:
J. Luther Davis. . . , , , , .Chairman of the Board and President, Tucson
Cias & Electric Company, Tucson, A r i z . . . . .
Herbert M. Schwartz. , ..President, Popular Dry Goods Co., Inc., El
Paso ? T e x . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gage Holland. . . . . . . . . O w n e r , Gage Hollaed Ranch, Alpine, T e i . . . .

1975
1975

1976
1977

1975
1976
1977

HOUSTON BEANCH
Appointed by Federal Reserve Bank:
BookmaE P e t e r s . . . . . . . . President, The City National Bank of Bryan,
Bryan, T e x . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nat S, Rogers, . . . . . . . . P r e s i d e n t , First City National Bank of Houston,
Houston, T e x . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page K. Stubbleield. . . . President, Victoria Bank & Trust Company,
Victoria, T e x , . . . . . . . . . . . . . . . . . . . . . . . . . . .
Seth W. D o r b a n d t , . . . . .Chairman and President, First National Bank
in Conroe, Conroe, T e x . . . . . . . . . . . . . . . . . .

434

1975
1975
1976
1977

P.M. ISANKS A N D BRANCHES—Continued

District II

DM-LAS-

I lout.

Term
expires
Dec, 31

HOUSTON BliANCll—Continued
Appointed by Board of Governors:
Alvin I. T h o m a s . . . . . . . P r e s i d e n t , Prairie Yiew A «v \ 1 University,
Prairie View, T e x . . . .
. . . . . . . . . . . . 1975
T h o m a s J. B a r l o w . . . . . .President and Chief Exc. JV^ v C )fficer, Anderson Clayton & Co., Houston, T e x . . . . . . . . . . 1976
Gene M. W o o d i n . . . . . .President, Chairman, a n d Chief Executive
Officer, Marathon Manufacturing Company,
Houston, T e x . . . . . . . . . . . . . . . . . . . . . . . . . . . 1977
SAN ANTONIO BRANCH
Appointed by Federal Ft'scrve Bank:
Richard W. Cal¥ert,.
President, National Bank of Commerce of San
Antonio, San Antonio, T e x . . . . . . . . . . . . . . .
W. O. R o b e r s o n . . .
Chairman of the Board, First National Bank at
Brownsville, Brownsville, T e x . . . . . . . . . . . . .
Ben R . L o w . . . . . . .
President, First National Bank of Kerrville,
Rerrville, T e x . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leon S t o n e . . . . . . . .
President, T h e Austin National Bank, Austin,
Tex.

1975
1975
1976
1977

Appointed by Board of Governors:
Pete J. Morales, J r . . . . . .President and General Manager, Morales Feed
Lots, Inc., De¥ine ? T e x . . . . . . . . . . . . . . . . . . . 1975
Margaret S. W i l s o n . . , . .Chairman of the Board a n d Chief Executive
Officer, Scarbroughs Department Store,
Austin, T e x . . . . . . . . . . . . . . . . . . . . . . . . . .
1976
Marshall Boykin, I I I . . . .Senior Partner, Wood, Boykln & Woiter,
Lawyers, Corpus Christi, T e x . . . . . . . . . . .
. 1977

District 12—SAN FRANCISCO
Class A:
James k\ Phillips. . .

President, First National Bank in Port Angeles,
Port Angeles, W a s h . . . . . . . . . . . . . . . . . . . .
1975
A, W. C l a u s e n . . . . . . . . . P r e s i d e n t and Chief Executive Officer, Bank of
America, N T & SA, San Francisco, Calif.,
W6
Carl E, Schroeder. . . . . .Chairman a n d Chief ExecutiYe Officer, T h e
First National Bank of Orange County,
Orange, C a l i f , . . . . . . . . . . . . . . . . . . . . . . . . . . . 1977

435

F.R. BANKS A N D BRANCHES—Continued

District 12- -SAN FRANCISCO- Cont.
(lass B:
Joseph Rosenblatt.

Clair L . P e c k . . . . . .
Charles R. D a h l . . . .

Term
expires
Dec, 31

. Honoran Chairman of the Board, The Eimco
Corporation, Salt Lake City, U t a h . . . . . . . . . 1.975
.. Chairman of the Board, C. L. Peck Contractor,
Los Angeles, C a l i f . . . . . . . . . . . . . . . . . . . . . . .
1976
.. President and Chief Executive Officer, Crown
Zeilerbach • Corporation, San Francisco,
Calif...................................
1977

Class C.Joseph F. AMbrandi.» , , . President and Chief Executive Officer, Whittaker Corporation, Los Angeles, C a l i f . . . . . . 1975
O. Meredith Wilson. , , .Retired President, Center for Advanced Study
In tlie.Beha¥loral Sciences, Stanford,.Calif,.
1976
Cornell C. Maier. ., . . .President and Chief Executive Officer, Kaiser
Aluminum & Chemical Corporation,, Oakland, C a l i f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1977

LOS A N G E L E S BRANCH
Appointed by Federal Reserve Bank :
W. Gordon Ferguson. . .President, National Bank of Whittier, Whitlier,
Calif...................................
1975
Linus E. Southwick.... .President, Valley National Bank, Glendale,
Calif...................................
1976
Robert A. B a r l e y , . . . . . . P r e s i d e n t , United California Bank, Los Angeles,
Calif.
1976
Rayburn S. Dezember... Chairman and President, American National
Bank, Bakersfield, C a l i f . . . . . . . . . . . . . . . . . . . 1977
Appointed by Board of Governors:
Harvey A. P r o c t o r . . . . . .Chairman of the Board, Southern California
Gas Company, Los Angeles, C a l i f . . . . . . . . . .
Armando-M. Rodriguez.President, East Los Angeles College, Los
Angeles, C a l i f . . . . . . . . . . . . . . . . . . . . . . . . . . .
Joseph R. V a u g h a n . . . . . President, Knudsen Corporation, Los Angeles,
Calif...................................

436

1975
1976
1977

F R , HANKS AND BRANCHES—Continur >t
Term
Dismet

SAN

W< VJM'JSt ;<)

Hunt

DecUl

P O R T L A N D I»R \ N i ; i I

L e R o y B . S t a v e r . . . . . . . D i r e c t o r , U n i t e d States N a t i o n a l B a n k of
Oregon, Portland, O r e g . . . . . . . . . . . . . . . . . .
Frank L. S e r v o s s , . . . . . . P r e s i d e n t , Crater National Bank, Medford,
Oreg...................................
J a m e s J. S t a e a r d . . . . . . . Executive Vice P r e s i d e n t , First N a t i o n a l B a n k
of M c M i n n v i l l e , M c M i n n v i l l e , O r e g . . . . . . . .

1975
1976
1976

Appointed by Board of Governors:
L o r a n L. S t e w a r t , . . . . . . P r e s i d e n t , Bohemia Inc., Eugene, O r e g . . . . . . .
J o h n R. H o w a r d . . . . . . . P r e s i d e n t , Lewis a n d C l a r k College, P o r t l a n d ,
Oreg.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SALT LAKE CITY

1975
1976

BRANCH

Appointed by Federal JRcscrvt' Bank:
M a r y S. J e n s e n . . . . . .
, C h a i r m a n of t h e B o a r d , I d a h o S t a t e B a n k ,
< Henns F e r r y , I d a h o . . . . . . . . . . . . . . . . . . . . .
R o y W . S i m m o n s . . . . . .President, Z i o n s F i r s t N a t i o n a l B a n k , Salt L a k e
City, U t a h . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D a v i d P . G a r d n e r . . . . . . President, U n i v e r s i t y of U t a h , Salt L a k e City,
Utah. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appointed by Board of Governors:
Theodore C. Jacobsen., .Partner, Jacobsen Construction Company, Inc.,
Salt Lake City, U t a h . . . . . . . . . . . . . . . . . . . .
Sam Bennion. . . . . . . . . . P r e s i d e n t , V-l Oil Company, Idaho Falls,
Idaho..................................

1975
1976
1976

1975
1976

SEATTLE 1 E A N C H
Appoin ted by Federal J?»! •.» c r vt lit ink:
Joseph C, Balllargeon
Chairman and Chief ExecutiYe Officer, Seattle
f'rust and Sa¥ings Bank, Seattle, W a s h . . . . .
Harry S. Goodfellom
Chairman of the Board and Chief Executive
Officer, Old National Bank of Washington,
Spokane, W a s h . . . . . . . . . . . . . . . . . . . . . . . . . .
Lloyd E. C o o n e y . . . . . . . President and General Manager, K1RG—•
Radio & Tete¥lsioe, Seattle, W a s h . . . . . . . . .
Appointed by Board of Governors:
Thomas T, H i r a i . . . . . . . President and Director, Quality Growers
Company, Woodinville, W a s h . . . . . . . . . . . . .
Malcolm T Sfnnijur
Prosidoni, TheBorim Company, Scnttk\Wnsb.

1975

1976
1976

1975

437

F.R. BANKS AND BRANCHES—Continued

PRESIDENTS AND VICE PRESIDENTS
December 31, 1975
Federal
Reserve
Bank

or branch
Boston.

President
First Vice President
Frank E. Morris
James A. Mclntosh

New York... Paul A. Volcker
Richard A. Debs

Buffalo

Vice Presidents

D. Harry Angney*
R. W. Eisenmenger*
Niels O. Larsen*
Bruce W. Bean
Norman S. Fieleke
Jay W. Kim
Richard E. Randall
Walter T. Sullivan
James T. Timberlake

Daniel Aquilino*
T. F. Hunt, Jr.*
Lee J. Aubrey
F. K. Cummings
Luther M. Hoyle, Jr.
D. A. Pelletier
Laurence H. Stone
J. M. Thayer, Jr.
Richard A. Walker

Alan R. Holmes t
T. M. Timlen, Jr.f
Edward G. Guy*
Fred W. Piderit, Jr. *
Thomas C. Sloane* W. H. Braun, Jr.
Richard G. Davis
Karl L. Ege
Chester B. Feldberg P. B. Henderson, Jr.
John T. Keane
Robert E. Lloyd, Jr.
Scott E. Pardee
A. M. Puckett
F. C. Schadrack, Jr. F. L. Smedley
Peter D. Sternlight H. David Willey
Ronald B. Gray

Philadelphia.

David P. Eastburn
Mark H. Willes

K. G. Adack*
Hugh Chairnoff
Richard W. Epps
Hiliary H. Holloway
Ira Kaminow
Donald J. McAneny
L. C. Murdoch, Jr.
Bipin C. Shah

Edward G. Boehne*
Thomas K. Desch
James F. Gaylord
W. Lee Hoskins
A. A. Kudelich
G. William Metz
William E. Roman
Richard L. Smoot

Cleveland....

Willis J. Winn
W. H. MacDonald

W. H. Hendricks*
John E. Birky
Paul Breidenback
William J. Hocter
R. Thomas King
Lester M. Selby
Donald G. Vincel
Charles A. Cerino
Robert D. Duggan*

Donald G. Benjamin
George E. Booth, Jr.
R. Joseph Ginnane
Harry W. Huning
T. E. Ormiston, Jr.
Harold J. Swart
Virginia L. Whitmer
Robert E. Showalter
Samuel G. Campbell

Robert P. Black
George C. Rankin

Welford S. Farmer*
James Parthemos *
R. E. Sanders, Jr. *
L. W. Bostian, Jr.
John G. Deitrick
William C. Glover
A. V. Myers, Jr.
Aubrey N. Snellings
James F. Tucker

John L. Nosker *
John F. Rand*
Elizabeth W. Angle
J. A. Broaddus, Jr.
George B. Evans
R. D. McTeer, Jr.
C. D. Porter, Jr.
Andrew L. Tilton
Joseph F. Viverette

Cincinnati
Pittsburgh
Richmond. .

For notes see p. 440.

438

F.R. BANKS AND BRANCHES—Continued

PRESIDENTS AND VICE PRESIDENTS—Continued

Federal
Reserve
Bank
or branch

President
First Vice President

Richmond—
Cont.
Baltimore

J. R. Monhollon* W. E. Pascoe, III
Gerald L. Wilson
Stuart P. Fishburne* Boyd Z. Eubanks
A. D. Tinkelenberg John G. Stoides

Charlotte
Culpeper *
Atlanta

Birmingham
Jacksonville
Miami
Nashville
New
Orleans
Chicago

Monroe Kimbrel
Kyle K. Fossum

R. P. Forrestal*
Arthur H. Kantner*
Harry Brandt
F. J. Craven, Jr.
Delmar Harrison
William G. Pfaff

Billy H. Hargett*
Brown R. Rawlings*
W. R. Caldwell
Charles D. East
Robert E. Heck
Pierre M. Viguerie

Hiram J. Honea
Edward C. Rainey* Vestus L. Crow
W. M. Davis
Jeffrey J. Wells
George C. Guynn
Robert P. Mayo
Daniel M. Doyle

Carl E. Bierbauer* Ward J. Larson*
James R. Morrison* Karl A. Scheld*
Harry S. Schultz* Bruce L. Smyth*
George W. Cloos
Robert P. Cornelisen
LeRoy A. Davis
F. S. Dominick
Franklin D. Dreyer Rudolph W. Dybeck
Joseph G. Kvasnicka Richard A. Moffatt
William T. Newport Dorothy M. Nichols
Louis J. Purol
William Rooney
R. M. Scheider
Roby L. Sloan
Carl E. Vander Wilt Eugene J. Wagner
Allen G. Wolkey
William C. Conrad Ronald Zile

Darryl R. Francis
Eugene A. Leonard

Anatol B. Balbach*
F. G. Russell, Jr.*
Ruth A. Bryant
W. W. Gilmore
John F. Otting, Jr.

Detroit
St. Louis

Vice Presidents

Lixiie

Rock
Louisville
Memphis

D. W. Moriarty, Jr. *
Charles E. Silva*
J. P. Garbarini
James R. Kennedy
Harold E. Uthoff

John F. Breen
Donald L. Henry *
L. Terry Britt

For notes see p. 440.

439

F.R. BANKS AND BRANCHES—Continued

PRESIDENTS AND VICE PRESIDENTS—Continued
Federal
Reserve
Bank

President
First Vice President

Vice Presidents

or branch
Minneapolis . Bruce K. MacLaury

Helena

Thomas E. Gainor* Roland D. Graham *
Clement A. Van Nice J. A. MacDonald* Melvin L. Burstein
F. J. Cramer
L. W. Fernelius
Lester G. Gable
Albert R. Hamilton
D. R. Hellweg
David R. McDonald
Clarence W. Nelson John P. Olin
R. W. Worcester
John D. Johnson

Kansas City.. George H. Clay

John T. Boysen

Denver
Oklahoma
City
Omaha
Dallas

W. T. Billington*
H. R. Czerwinski*
Raymond J. Doll* James R. Guffey *
James R. Bowen
Thomas E. Davis
Joseph R. Euans
Cecil B. Foley
Wayne W. Martin G. H. Miller, Jr.
M. L. Mothersead Sheldon W. Stahl
Robert E. Thomas John F. Zoellner
J. David Hamilton*
William G. Evans
Robert D. Hamilton

Ernest T. Baughman
T. W. Plant

El Paso
Houston
San
Antonio

Robert H. Boykin* Tony J. Salvaggio*
Joseph E. Burns
G. C. Cochran, III
Leon W. Cowan
Ralph T. Green
C. J. Pickering
W. M. Pritchett
Harry E. Robinson Thomas R. Sullivan
E. W. Vorlop, Jr.
Fredric W. Reed
James L. Cauthen * Rasco R. Story
Carl H. Moore

San
Francisco.. John J. Balles

John B. Williams

Los
Angeles
Portland
Salt Lake
City
Seattle
"Indicates Senior Vice President.
flndicates
Executive Vice President.
1
Culpeper Center not considered a branch.

440

John J. Carson*
Gerald R.Kelly*
Kent O. Sims*
Richard T. Griffith
Warren H. Hutchins
Thomas E. Judge
Rix Maurer, Jr.
WilhelmineVonTurk

Wesley G. DeVries*
Donald V. Masten*
Robert C. Dietz
Gordon Hammond
Henry B. Jamison
Michael W. Keran
Louis E. Reilly
Claude Woessner, Jr.

Richard C. Dunn* James M. Davis
Angelo S. Carella
A. Grant Holman
James J. Curran

F.R. BANKS AND BRANCHES—Continued

CONFERENCE OF PRESIDENTS
The Presidents of the Federal Reserve Banks are organized into a Conference of Presidents that meets from time to time to consider matters of common
interest and to consult with and advise the Board of Governors. At a meeting
on March 18, 1974, Mr. Frank E. Morris and Mr. David P. Eastburn, Presidents of the Federal Reserve Banks of Boston and Philadelphia, were elected
Chairman and Vice Chairman, respectively, for the forthcoming Conference
year, ending with the March 1975 meeting. At the meeting on March 19, 1975,
Mr. Eastburn and Mr. Robert P. Mayo, President of the Federal Reserve Bank
of Chicago, were elected Chairman and Vice Chairman, respectively, for the
remainder of the calendar year, ending with the December 1975 meeting.
At the March 1974 meeting, Mr. Herbert F. Wass, and Mr. Peter M.
DiPlacido, of the Federal Reserve Banks of Boston and Philadelphia, were
appointed Secretary and Assistant Secretary, respectively. At the March 1975
meeting, Mr. DiPlacido and Ms. Marie B. Reich of the Federal Reserve Bank
of Chicago, were appointed Secretary and Assistant Secretary, respectively, for
the remainder of the calendar year, ending with the December 1975 meeting.

CONFERENCE OF FIRST VICE PRESIDENTS
The Conference of First Vice Presidents of the Federal Reserve Banks was
organized in 1969 to meet from time to time, primarily for the consideration
of operational matters. On May 8, 1974, Mr. James A. Mclntosh, First Vice
President of the Federal Reserve Bank of Boston, was elected as Chairman,
and Mr. Mark H. Willes, First Vice President of the Federal Reserve Bank of
Philadelphia, as Vice Chairman of the Conference. Mr. Herbert F. Wass and
Mr. Peter M. DiPlacido were appointed Secretary and Assistant Secretary,
respectively.
On April 30, 1975, the Conference elected Mr. Willes as Chairman and
Mr. Daniel M. Doyle, First Vice President of the Federal Reserve Bank of
Chicago, as Vice Chairman; and appointed Mr. DiPlacido and Ms. Marie B.
Reich, as Secretary and Assistant Secretary, respectively, for the remainder of
the calendar year.

441

Index
Page

Acceptances, bankers:
Authority to purchase and to enter into repurchase
agreements
156-57, 207
Federal Reserve Bank—
Earnings
354, 374
Holdings
354, 364, 366, 368
Open market transactions during 1975
373
Repurchase agreements
157, 207, 364, 366, 368, 373
Assets and liabilities:
Banks, by classes
387
Board of Governors
358
Federal Reserve Banks
364-69
Balance of payments, review of 1975
67-80
Bank Examination Schools
306
Bank examiners, loans to, legislative recommendation
275
Bank failures
264-66, 270, 294
Bank financial condition reports
323
Bank holding companies:
Banking reform
264, 265-67
Board and Reserve Bank actions with respect to
297, 305
Legislative recommendations
270, 271-73, 274
Litigation
283-93
Regulation Y, amendment
136, 350
Bank mergers and consolidations
301, 305, 396-410
Bank premises, Federal Reserve Banks and branches. . 356, 364, 366, 368, 378
Bank supervision and regulation by Federal Reserve System:
Banking reform
262-69
1975
297-306
Bankers acceptances {See Acceptances, bankers)
Banking offices:
Number, changes
392
Par and nonpar, number
394
Banking reform
262-69
Board of Governors:
Audit of accounts
357
Banking reform
262-69
Congressional resolution
260

443

INDEX
Page
B o a r d of Governor's-—Continued
Delegation of certain authority, actions under . . . . . . . . . . . . . . . . . , 2 9 7 , 3 § 5
F o r e i g n applications processed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31)5
i n c o m e a n d expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5 7 - 6 1
Legislative recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 7 0 - 8 2
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 8 3 - 9 6
M e m b e r s and officers, list . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1 4
Office of SEYM* a n d C o n s u m e r A flairs . . . . . . . . . . . . . . . . . . . . . . . 3 1 0 , 3 3 6
Policy actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 7 - 5 4
Regulations a n d rules {See Regulations a n d rules. Board of G o v e r n o r s )
R e p o r t s t o Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 7 7 , 3 2 3 , 329, 3 3 5
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5 9
Branch banks:
Banks, b y classes, changes In n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 9 2
F e d e r a l Reserve;
Bank premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356, 3 7 S
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1 9 - 3 7
Vice Presidents In c h a r g e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3 8 ~ 4 §
F o r e i g n branches of m e m b e r banks;
Loans t o executive officers and certain insurance agency and
brokerage aetiYitles, a m e n d m e n t of Regulation M . . . . . . . . . . . . . 1 2 7
N u m b e r a n d location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 § 3
Reserve r e q u i r e m e n t o n E u r o - d o l l a r borrowings, amendment of
Regulation M . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 0
Budget, F e d e r a l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 9 , 2 6 1
Burns, A r t h u r F.» statements o n growth targets for m o n e t a r y
aggregates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1 - 1 1 4
Capital accounts:

B a n k s , b y classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8 7
Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365, 367, 3 6 9
C h a i r m e n a n d D e p u t y C h a i r m e n of Federal Reserve Banks . . . . . . . . . . . 4 1 8
C h e c k clearing a n d collection:
Electronic fund transfers, legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 1
Payments mechanism developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5 1
R e g u l a t i o n J , litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 3
V o l u m e a n d cost o f o p e r a t i o n s . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5 4 , 3 7 9 , 3 § §
C o m m e r c i a l b a n k s {Sec also F o r e i g n h a n k s ) :
A s s e t s a n d liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 S 7
B a n k i n g offices, c h a n g e s in n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 9 2
N u m b e r , b y class o f b a n k . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8 7
KeserYe r e q u i r e m e n t s , legislative r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . 2 7 5

444

INDEX
Page

C o n d i t i o n statement:
B a n k financial condition r e p o r t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
323
F e d e r a l Reser¥e Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6 4 - 6 9
C o n s u m e r affairs:
Bao.k financial condition r e p o r t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
323
B a n k Investments for c o m m u n i t y d e v e l o p m e n t , legislative
recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
282
C o m p l a i n t p r o c e d u r e s of F e d e r a l ReserYe . . . . . . . . . . . . . . . . . . . . . . . .
322
E d u c a t i o n of c o n s u m e r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324, 3 4 4
E q u a l C r e d i t O p p o r t u n i t y A c t (See E q u a l Credit O p p o r t u n i t y A c t )
F e d e r a l T r a d e C o m m i s s i o n I m p r o v e m e n t A c t (See F e d e r a l T r a d e
Commission Improvement Act)
Legislation, review a n d I m p l e m e n t a t i o n . . . . . , . , . , . , . . . . . , . . , . . . 3 # 7 - 2 4
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 4 , 2 9 5 , 2 9 6
L o a n d a t a , litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
294
Offi.ce of Saver a n d C o n s u m e r Affairs . . . . . . . . . . . . . . . . . . . . . . . . 310, 3 3 6
T r u t h in L e n d i n g (See T r u t h in Lending)
U n f a i r credit practices of banks, regulation . . . . . . . . . . . . . . . . . . . . . .
321
C r e d i t (See also L o a n s ) :
Banks, unfair practices, regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
321
E q u a l Credit O p p o r t u n i t y A c t (See E q u a l C r e d i t O p p o r t u n i t y A c t )
F e d e r a l Reserve B a n k s , a d v a n c e s b y . . . . . . . . . . . . . . . . . . . . . . . . . . . .
276
Stock (See Stock m a r k e t credit)
T r u t h in L e n d i n g (See T r u t h In L e n d i n g )
Defense p r o d u c t i o n l o a n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260, 3 5 5 , 3 8 6
Deposits:
Banks, by classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
387
F e d e r a l KeserYe Banks . . . . . . . . . . . . . . . . . . . . . . . . 3 6 5 , 3 6 7 , 3 6 9 , 3 8 9 , 3 9 1
Interest rates (See Interest o n deposits)
Reserve r e q u i r e m e n t s (See Reserve r e q u i r e m e n t s )
D e p u t y C h a i r m e n of F e d e r a l Reserve B a n k s . . . , , . . , . . . . . . . . , , . . . . . ,
418
Directors, Federal Reserve Banks and branches . . . . . . . . . . . . . . . . . . . . 4 1 9 - 3 7
Discount rates at F e d e r a l Reserve B a n k s (See Interest rates)
Discounts a n d adYances b y F e d e r a l Reserve B a n k s (See L o a n s )
Dividends, F e d e r a l Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . . 3 5 3 , 3 7 5 , 3 7 §
E a r n i n g s of F e d e r a l E e s e r ¥ e Banks . . . . . . . . . . . . . . . . . . . . . . . . 3 5 3 , 3 7 4 , 3 7 i
E c o n o m i c activity, course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 - 2 9
Electronic fund transfers, legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2§§
E m p l o y e e R e t i r e m e n t I n c o m e Security A c t of 1974 . . . . . . . . . . . . . . . . .
139

445

INDEX
Page
E q u a l Credit Opportunity A c t . . . . . . . . 135, 3 0 8 , 3 0 9 , 311, 3 1 3 , '324-29, 3 3 i
Euro-dollar borrowings, a m e n d m e n t of r e g u l a t i o n s " . . . . . . . . . . . . . . . . . . 1 2 0
Examinations:
Federal Reserve Banks
352
Foreign banking a n d financing corporations . . . . . . . . . . . . . . . . . . . . . . 3 § 3
M e m b e r banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 8
State m e m b e r banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 8
Executive officers of m e m b e r banks, loans t o . . . . . . . . . . . . . . . 127, 3©0» 3 0 1
Expenses:
Board of G o v e r n o r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357—61
Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5 3 , 3 7 4 , 3 7 i
F a i r Credit Billing Act (See T r u t h In Lending)
" F a i r t r a d e " laws, legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 0
F e d e r a l Advisory Council . . . . . . . . . . . . . . . . . . . . . . . . . i . . . . . . . . . . . . . 4 1 7
F e d e r a l agency securities:
Authority to purchase and to enter Into repurchase
agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5 6 - 5 7 , I f f , 2§7, 2 3 i
F e d e r a l Reserve Bank holdings a n d earnings . . . . .354, 3 6 4 , 366,. 368,. 3 7 1
Guidelines f o r operations In, revision . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 § §
O p e n m a r k e t transactions of Federal Reserve System during 1975 . . . . 3 7 3
Repurchase agreements . . . . . . . . . . . . . . 157, 2§7, 364, 366, 368, 3 7 1 , 3 7 3
Federal b a n k examination council . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 9
Federal Financing Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156, 3 7 1
Federal Open M a r k e t Committee:
Audit of System A c c o u n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5 2
Congressional resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 € §
Continuing authorizations, review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1S6
Foreign currencies, review of operations . . . . . . . . . . . . . . . . . . . . . . . . 2 5 1
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 5
Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5 5 , 4 1 6
M e m b e r s a n d officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1 6
Policy actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155~25§
Rules-of- Organization a n d Rules of Procedure, revisions . . . . . . . . . . . . . 1 7 8
F e d e r a l Reserve Act:
Section 14(b):
Authority of Reserve Banks t o b u y Govt. obligations directly from
the United States, extension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 4
Section 19:
A u t h o r i t y to set interest rate ceilings, extension . . . . . . . . . . . . . . . . . 2 5 6

446

INDEX
Page
F e d e r a l ReserYe A g e n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
418
Federal Reserve Banks:
A d v a n c e s b y , legislative r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . . . . . . . .
276
A s s e s s m e n t f o r e x p e n s e s of B o a r d of G o v e r n o r s . . . . . . . . . . . . . . . . 3 5 9 , 3 7 4
A u t h o r i t y to b u y G o v t . o b l i g a t i o n s d i r e c t l y . . . . . . . . . . . . . . . . . . . . . . .
254
Bank premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356, 3 i 4 , 366, 3§8? 378
B r a n c h e s (See. B r a n c h b a n k s )
Capital accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365, 367, 369
Chairmen and Deputy Chairmen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
418
C h e c k c l e a r i n g a n d c o l l e c t i o n , R e g u l a t i o n J, l i t i g a t i o n . . . . . . . . . . . . .
293
Condition statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364-69
D e l e g a t i o n b y B o a r d of c e r t a i n a u t h o r i t y to . , , . . . . . . , . . . . . , . . . 2 9 7 , 3 § 5
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419-37
D i s c o u n t r a t e s (Sec I n t e r e s t r a t e s )
Dividends . . . .
.
.
,
.
, .. .
. . 353, 375, 376
E a r n i n g s a n d CVKMI.O.
« > .
. . . .
.352, 374, 3 7 i
Examination
. . . . . .
.
. .
. . . . . . . . . . .
.
...
352
F o r e i g n accour;)*. .
.
.
.
, ,
,,
. . . . . .
.. . . .
35€
Officers a n d e m p i i ^ c o v n n t n l n i a n d s a f a r i s . . .
, . . .......
.
381
O p e r a t i o n s , v o l u m e anil »,OM ,
, ,
.. .
. , . . . , . , . .
354. 379, 380
Payments mechanism developments
. . . , . , . .. . . . . . . . . . . . . . . . .
J51
P r e s i d e n t s a n d Yi'.i* Pii.siik'nK
,
, .
. . . . . . . .
438-41
Profit a n d loss
. ..
.
.,
,
. . . . .
. ..
375
U . S . G o v t . s e c u n i k i {Stc V,b. OuM.
^ccutmc^}
Federal Reserve notes:
Condition statement data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364-69
C o s t of p r i n t i n g , issue, a n d r e d e m p t i o n . . . . . . . . . . . . . . . . . . . . . . . . . .
359
Interest paid to Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353, 375, 37§
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
296
Federal Reser¥e System:
Bank Examination Schools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
306
B a n k s u p e r v i s i o n a n d r e g u l a t i o n b y . . . . . . . . . . . . . . . . . . . . 262—69, 2 9 7 - 3 0 6
F o r e i g n c u r r e n c y o p e r a t i o n s (See F o r e i g n jurrcm*> o p e r a t i o n s )
M a p of F e d e r a l R e s e r v e districts . ,
. ,
. .,.. ..
...........
411
Membership . . . . . . . . . . . . . . . . . . . . .
. ,...
......... ........
301
Payments mechanism developments . . .
. , , . , ... , , , . . . . . . . . .
351
F e d e r a l T r a d e C o m m i s s i o n I m p r o v t m o m Awl ,
.308, 309, 322, 3 2 § ^ 3 5 , 336
F i n a n c i a l m a r k e t s a n d m o n e t a r y policy
....,
,
......
, . . . . ,43—66
F o r e i g n a c c o u n t s of F e d e r a l R e s e r v e Hanks . .
.. ..,„,.,,......,..
356
Foreign applications processed by Board . . . . . . . . . . . .
,.. ,. .. ,.
3§5
F o r e i g n b a n k i n g a n d financing c o r p o r a t i o n ^ e x a m i n a t i o n a n d o p e r a t i o n
Ji3

447

INDEX
Page

Foreign banks, legislative recommendations . . . . . . . . . . . . . . . . . . . . . . . 272-74
Foreign branches of member banks (See Branch banks)
Foreign currency operations:
Authorization and directive . . . . . . . . . . . . . . . . 156, 159-64, 178, 1 8 i , • 222
Federal Reserve earnings on foreign currencies . . . . . . . . . . . . . . . . . . .
374
Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
251
Foreign exchange, banking reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264, 26$
Freedom o f Information Act, amendment of Board's rules
and litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118, 2§4» 295, 296
Gold, tables showing gold certificate accounts of Reserve Banks
and gold stock . . . . . . . . . . . . . . . . . . . . . . 3 6 4 , 366, 367, 368, 369, 388, 390
H o m e Mortgage Disclosure Act of 1975 . . . . . . . . . . . . . . . . . . . . 2 5 6 , 3D8, 309
Housing. (See Real estate)
Individual Retirement Accounts (IRA's) . . . . . . . . . . . . . . . . . . . . . . . . . . .
139
Insured commercial banks:
Assets- and- liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8 7
B a n k i n g offices^ c h a n g e s i n n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 9 2
I n t e r e s t o n deposits (See also Interest rates):
Individual Retirement Accounts (IRA's) . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3 9
• R e g u l a t i o n , legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
256
Time and savings deposits:
Business savings deposits, amendment of Regulation Q to permit . . . 133
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
293
Negotiable order of withdrawal (NOW) accounts issued to governmental units, amendment of Regulation Q to prohibit . . . . . . . . . . 119
Payment without penalty before maturity and payment after maturity,
amendment of Regulation Q . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123, 124
Preauthorized transfer of funds from depositor's savings account,
amendment of Regulation Q . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125
Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
384
Telephonic request to transfer or withdraw funds from • savings •
accounts, interpretation of Regulation Q . . . . . . . . . . . . . . . . . . . . .
118
Interest rates (See also Interest on deposits):
Defense production loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38i
Federal Reserve Banks:
Advances by, legislative recommendation . . . . . . . . . . . . . . . . . . . . . .
276
Changes
.................................................141-54
Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
381

448

INDEX
Page
Interlocking b a n k relationships, legislative recommendation . . . . . . . . . . . 2 7 4
International developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67-8©
Interpretation, Board of Governors, telephonic request t o transfer or
withdraw funds from savings accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Investments:
Banks:
By classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8 7
F o r c o m m u n i t y development, legislative recommendation . . . . . . . . . 2 8 2
Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364, 3 6 6 , 368
L a b o r market developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3§~34
Leasing, consumer, legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309, 3 2 3
Legislation:
Banks and banking;
Bank examiners, loans to, r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . . . . . 2 7 5
Bank holding companies, recommendations . . . . . . . . . . 270, 2 7 1 - 7 3 , 274
Bank investments for community development, r e c o m m e n d a t i o n . . . 282
Banking laws, civil penalties for violation, recommendations . . . . . . 2 7 1
Banking reform, recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . .262—69
Foreign, recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
Interlocking b a n k relationships, r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . 274
Congressional resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 §
Council o n W a g e a n d Price Stability A c t a m e n d m e n t s of 1975 . . . . . . 2 5 9
Defense Production A c t amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 i
Depository Institutions A c t of 1974 . . . . . : . . . . . . . . . . . . . . . . . . . . 137, 2 5 6
Emergency Housing Act. of 1975 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25S
Emergency Petroleum Allocation A c t a m e n d m e n t s . . . . . . . . . . . . . . . . 259
E m p l o y e e Retirement Income Security Act of 1974 . . . . . . . . . . . . . . . . 139
E q u a l Credit Opportunity Act (See Equal Credit Opportunity Act)
F a i r Credit Billing Act {See T r u t h in Lending)
"Fair t r a d e " laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 € §
Federal Reserve Banks:
Advances by, recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 7 6
Authority t o b u y Govt. obligations directly from the United States,
extension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 4
F e d e r a l savings a n d loan associations as custodians of individual
retirement accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 9
Federal T r a d e Commission I m p r o v e m e n t Act . . 308, 3 0 9 , 3 2 2 , 3 2 9 - 3 5 , 3 3 6
F l o o d Disaster Protection A c t of 1973 . . . . . . . . . . . . . . . . . . . . . . . . . . 122
F r e e d o m of Information Act, a m e n d m e n t s and litigation. 118, 2 9 4 , 2 9 5 , 2 9 6
H o m e Mortgage Disclosure A c t of 1975 . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 6

449

INDEX
Page

Legislation—Continued
Interest rates, flexible regulation and other pro¥isions . . . . . . . . . . . . . .
256
International Claims Settlement Act of 1949, litigation . . . . . . . . . . . .
296
Leasing, consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309, 323
New York City Seasonal Financing Act of 1975 . . . . . . . . . . . . . . . . . .
257
PriYacy Act of 1974 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132-33
Real Estate Settlement Procedures Act . . . . . . . . . .138, 255, 309, 316, 339
Reserve requirements, recommendation . . . . . . . . . . . . . . . . . . . . . . . . . .
275
Second Liberty Bond Act amendments to Increase public debt limit . . 259
Securities Acts amendments of 1975 . . . . . . . . . . . . . . . . . . . . . 136, 253, 35§
Tax reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
254
Truth In Lending Act {See Truth In Lending)
Litigation,;
Bank, holding companies, antitrust actions and review of Board's
actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283-93
Involving challenges to Board -procedures and regulations , .-.••.. •..-. .293—96
Truth ie Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
343
Loans (See also Credit):
Bank examiners, legislative recommendation . . . . . . . . . . . . . . . . . . . . . .
275
Banks, by classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3S7
Consumer, litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
294
Defense production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260, 355, 38€
Executive officers of member banks . . . . . . . . . . . . . . . . . . . . . . 127, • 300, 301
Federal Reserve Banks:
Advances by, legislative recommendation . . . . . . . . . . . . . . . . . . . . . . .
276
Holdings and earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354, 374
Interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
381
Yokime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6 4 , 366, 368, 379, 388, 390
Flood Disaster Act of 1973 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
122
Real estate (See Real estate)
Standby letters of credit and Ineligible acceptances as loans, amendment of Regulation H . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2i7
Stocks (See Stock market credit)
Margin requirements (Regulations G, T, and U):
PrfYate placement of securities, amendment to assist . . . . . . . . . . . . . . .
139
Same-day credit restriction for stock, extended suspension and'
reinstatement, amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121, 131
Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
385

450

INDEX
Page

M e m b e r b a n k s (See also N a t i o n a l b a n k s ) :
A s s e t s , liabilities, a n d c a p i t a l a c c o u n t s . . . . . . . . . . . . . . . . . . . . . . . . . . .
387
B a n k i n g offices, c h a n g e s In n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
292
B o r r o w i n g f r o m R e s e r v e B a n k s , legislative r e c o m m e n d a t i o n . . . . . . . .
276
B r a n c h e s (See B r a n c h b a n k s )
C r e d i t (See C r e d i t )
Examination
................................................
298
E x e c u t i v e officers, l o a n s t o , a m e n d m e n t of R e g u l a t i o n M a n d
reporting requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127, 300, 301
Foreign applications processed by Board . . . . . . . . . . . . . . . . . . . . . . . . .
305
Foreign branches, number and location . . . . . . . . . . . . . . . . . . . . . . . . . .
3§3
I n t e r l o c k i n g r e l a t i o n s h i p s , legislative r e c o m m e n d a t i o n . . . . . . . . . . . . . .
274
I n v e s t m e n t s for c o m m u n i t y d e v e l o p m e n t , legislative r e c o m m e n d a t i o n . .
282
N u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 0 1 , 387
R e s e r v e r e q u i r e m e n t s (See R e s e r v e r e q u i r e m e n t s )
Reserves and related items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8 8 - 9 1
S t a t e m e m b e r b a n k s (See S t a t e m e m b e r b a n k s )
M e r g e r s a n d c o n s o l i d a t i o n s . . . . . . . . . . . . . . . . . . . . . . . . . . . 3©1 ? 3 0 5 , 3 9 6 - 4 1 0
M o n e t a r y a g g r e g a t e s , official s t a t e m e n t s o n g r o w t h t a r g e t s . . . . . . . . . . 8 1 - 1 1 4
M o n e t a r y policy:
Financial m a r k e t s relative to . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3 - 6 6
R e v i e w of 1975 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3-80
M o r t g a g e s (See also R e a l e s t a t e ) :
H o m e M o r t g a g e D i s c l o s u r e A c t of 1975 . . . . . . . . . . . . . . . . . . 2 5 6 , 3©8, 3 0 9
M u t u a l savings banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387, 392
N a t i o n a l b a n k s (See also M e m b e r b a n k s ) :
A s s e t s a n d liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B a n k i n g offices, c h a n g e s in n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign branches:
A c t i v i t i e s , a m e n d m e n t of R e g u l a t i o n M . . . . . . . . . . . . . . . . . . . . . . .
Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I n v e s t m e n t s f o r c o m m u n i t y d e v e l o p m e n t , legislative r e c o m m e n d a t i o n
Number

387
392
127
3#3
.

282

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301, 387

Reserve requirement OE Euro-dollar borrowings . . . . . , . . , . . , . , , . . . .

120

N e g o t i a b l e o r d e r of w i t h d r a w a l ( N O W ) a c c o u n t s . . . . . . . . . . . . . . . . . . . .

119

N e w Y o r k C i t y S e a s o n a l F i n a n c i n g A c t of 1 9 7 5 . . . . . . . . . . . . . . . . . . . .

257

N o n m e m b e r banks:
A s s e t s a n d liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

387

B a n k i n g offices, c h a n g e s in n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

392

451

INDEX
Page

Nonmember banks—Continued
Borrowing from Reserve Banks, legislative recommendation . . . . . . . .
Reserve requirements, legislative recommendation . . . . . . . . . . . . . . . . .

276
275

Par and nonpar banking offices, number . . . . . . . . . . . . . . . . . . . . . . . . . . .
394
Payments mechanism developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
351
Petroleum Allocation Act amendments, legislation . . . . . . . . . . . . . . . . . .
259
Policy actions;
Board of Governors:
Discount rates at Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . 141-54
Regulations-and. rules (See Regulations-and rules, Board of Governors)
Federal Open Market Committee:
Authority to effect transactions In System Open Market Account:
Domestic operations . . . . . 156-59, 165, 1725 173, 179, 180, 185, 187,
I f 4 , Iff, 201,"209, 216, 222, 224, 23i» 231, 238, 245
Foreign currency operations . . . . . . . . . . . . . . . . . 156, 159-64, 178, 222
Review . . . . . . . . . : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
186
Guidelines for operations In Federal agency issues, revision . . . . . . . . . . 2§8
Presidents and Vice 'Presidents of Federal Reserve Banks:
Conference of Presidents and Conference of First Vice Presidents . . . .
441
List
.......................................................438-4§
. Salaries of. Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381.
Price movements, review, and price stability, legislation . . . . . . . . 35-42, 259
Profit and loss, Federal ReserYe Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . .
375
Meal estate (See also Mortgages):
Emergency Housing Act of 1975 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
258
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122, 25i» 275, 308, 309
Real Estate Settlement Procedures Act . . . . . . . . . . . . 138, 255, 309, 316, 339
Record of policy actions (See Policy actions)
Regulations and rales, Board of Go¥ernors;
B5 Equal Credit Opportunity:
Adoption of new Regulation B, interpretation and
legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3 5 , 311, 313, 324-2f
D, Reserves of Member Banks:
Business savings deposits, amendment to permit . . . . . . . . . . . . . . . . .
133
Demand deposits, net, reductions, amendment . . . . . . . . . . . . . . . . . .
117
Euro-dollar borrowings, amendment . . . . . . . . . . . . . . . . . . . . . . . . . . .
120
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
294
Time deposits with initial maturity of—
180-days but less than 4 years, reduction, amendment . . . . . . . . . .
140
4 years or more, reduction, amendment . . . . . . . . . . . . . . . . . . . . .
134

452

INDEX
Page

Regulations and rules, Board of Governors—Continued
F, Securities of Member State Banks:
Securities and Exchange Commission rules, amendment to conform 137
G, Securities Credit by Persons Other Than Banks, Brokers, or Dealers:
Same-day restriction for stocks, extended suspension and reinstatement, amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121, 131
H, Membership of State Banking Institutions in the Federal
Reserve System:
Acting as transfer agents, amendment . . . . . . . . . . . . . . . . . . . . . . . 136, 3 5 i
Flood Disaster Protection Act of 1973, amendments to conform . . .
122
Standby letters of credit and ineligible acceptances as loans,
amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
267
J, Collection of Checks and Other Items by Federal Reserve Banks:
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
293
M, Foreign Activities of National Banks:
Loans to executive officers and Insurance agency and brokerage
activities, amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
127
Reserve requirement on Euro-dollar borrowings, amendment . . . . . .
120
Q, Interest on Deposits:
Business savings deposits, amendment to permit . . . . . . . . . . . . . . . .
133
Individual Retirement Accounts, amendments to facilitate . . . . . . . .
139
Legislation extending flexible features and other provisions . . . . . . . .
25§
I it igation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
293
Negotiable order of withdrawal (NOW) accounts issued to governmental units, amendment to prohibit . . . . . . . . . . . . . . . . . . . . . . . .
119
Preauthorized transfer of funds from depositor's savings account,
amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125
Telephonic request to transfer or withdraw funds from savings
accounts, interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118
Time deposits, payment without penalty before maturity and payment
after maturity, amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123, 124
Rules Regarding Access to and ReYiew of Personal Information in
Systems of Records^ adoption . . . . . . . , . . . . . , . . . . . . . , , . , , . . , . . .
132
Rules Regarding Availability of Information, amendment . . . . . . . . . .
118
T, Credit by Brokers and Dealers:
Private placement of securities, amendment to assist . . . . . . . . . . . . .
139
Same-day restriction for stocks, extended suspension and reinstatement, amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121, 131
U, Credit by Banks for the Purpose of Purchasing or Carrying Margin
Stocks:
Same-day restriction for stocks, extended suspension and rein statement, amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121, 1 3 1

453

INDEX
Page

Regulations and rules, Board of Governors—Continued
Y, Bank Holding Companies:
Acting as transfer agents, amendment . . , . . . , . . . . , . . . . . . . , . , 136, 3§§
Z, Truth in Lending:
Amendments and interpretations . . . . . . . .-.126, 128, 131, 138, 3(19, 311,
316, 317, 33i~42» 343
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
343
Repurchase. -agreements:
Authority to purchase and to enter into . . . . . . . . . . . . . . . . . . . . . . . . 156—57
Bankers acceptances . . . . . . . . . . . . . . . . . . . . . 157, 2#7, 364, 366, 368, 373
Federal agency securities . . . . . . . . . . . . 157, 2©7, 364, 366, 368, 371, 373
U.S. Govt. securities . . . . . . . . 1 5 7 , 207, 364, 366, 368, 371, 373, 388,' 39§
Reserve requirements:
Legislative recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
275
Member banks:
Changes,' amendment of Regulation D (See Regulations and rules,
Board of Governors)
Euro-dollar borrowings, amendment of Regulations D and M . . . . .
12©
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
294
T a b l e " " . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V . . . . . ' . . . . " . ' 382
Reserves, member banks:
Reserve requirements (See Reserve requirements)
Reserves and related items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388-91
Salaries:
Board of Governors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

359

Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8 1
S a v i n g s a n d l o a n associations, legislation . . . . . . . . . . . . . . . . . . . . . . . . 2 5 6 , 2 5 9
Securities (See specific types):
State member banks, amendment, of Regulations H and F . . . 136, 137, 35©
Stocks (See Stock market credit)
Securities Acts amendments of 1975 . . . . . . . . . . . . . . . . . . . . . . . . . . . 253, 3 5 i
Special Drawing Rights . . . . . . . . . . . . . . . . . . . . . . . . . 3 6 4 , 366, 368, 388, 39#
State member banks (See also Member banks):
Acting as transfer agents, amendment of Regulation H . . . . . . . . . . 136, 35§
Assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
387
Banking offices, changes in number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
392
.Banking reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 2 - 6 9
Control, changes, reporting requirements . . . . . . . . . . . . . . . . . . . . . . . .
3§§
Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
298
Flood Disaster Protection Act, amendment of Regulation H to conform 122

454

INDEX
Page

State member banks—Continued
Foreign branches, number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
303
Investments for community development, legislative recommendation . 282
Mergers and consolidations . . . . . . . . . . . . . . . . . . . . . . . . .301, 3§5 5 39<i~410
Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .301. 387
Securities and Exchange Commission rules, amendment of Regulation
F to conform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
157
Standby letters of credit and ineligible acceptances as loans, amendment of Regulation H . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
267
Stock market credit:
Private placement of securities, amendment of Regulation T to assi< 139
Same-day credit restriction for stocks, extended suspension and
reinstatement, amendment of margin regulations . . . . . . . . . . . . ,121, 131
System Open Market Account;
Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
352
Authority to effect transactions i n Domestic opcrulions , . . . . . 1 5 6 - 5 9 , 165, 172, 173, 179, 180, 185, 187,

194, 199, 201, 209, 216, 222, 224 230. 231, 238, 245
Foreign currency opcralions
.
, . . • . . - • , . „ . . 156, 159—64. 178, 2 2 2
Review . . . . . . . . . . . .
.. . . . . . . . . . . . . . . . .
- ... . . . . . .
186
F o r e i g n c u r r e n c i e s , rcvu.-w of' o p i n i o n s . . . . . . . , , , , ,
. „, . , ,
251
TaY r e d u c t i o n s , legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
254
I r a i n i n g activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3§€
Truth in L e n d i n g (See also C o n s u m e r affairs):
C o n s u m e r Advisory Committee . . . . . . . . . . . . . . . . . . . . . . . . . 318? 342, 349
C o n s u m e r leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309, 3 2 3
F a i r C r e d i t Billing A c t . . . . . . . . . . . . . . . 1 2 8 , 3 § § , 3 0 9 , 3 1 1 , 3 3 6 ? 3 4 2 , 3 4 3
L e g i s l a t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3§7» 3 0 9 , 3 1 6 , 3 1 7 , 3 2 3
Legislative r e c o m m e n d a t i o n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 7 7 - S 2
litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
343
Office of S a v e r a n d C o n s u m e r Affairs . . . . . . . . . . . . . . . . . . . . . . . . 3 1 0 , 3 3 i
R e g u l a t i o n Z, a m e n d m e n t s a n d i n t e r p r e t a t i o n s . . . . 126, 1 2 8 , 1 3 1 , 1 3 8 , 3 0 9 ,
311, 316, 317, 336^42
R e p o r t to C o n g r e s s
.........................................335-4f
U . S . b a l a n c e of p a y m e n t s , r e v i e w of 1975 . . . . . . . . . . . . . . . . . . . . . . . . . 6 7 - 8 0
U.S. G o v t . securities:
A u t h o r i t y to p u r c h a s e a n d t o e n t e r i n t o r e p u r c h a s e
agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156-57, Iff, 2§7, 2 3 i
B a n k h o l d i n g s , b y class of b a n k . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3S7

455

INDEX
Page

U.S. Govt. securities—Continued
Federal agency securities (See Federal agency securities)
Federal Reserve Bank—
Authority to buy directly from the United States,
•extension . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157, 172, 179,- 1*5, 222, '254
Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 S 2 , -354, 374
Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .354, 364, 366, 368, .370, -388,- 390
Open market operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,155-250,. 372
Repurchase agreements . . . . . 157, 2§7, 364, 366, 368, 371, 373, 388, 390
Special certificates purchased directly from the United States . . . . . . . .
372
U.S. Govt. agency securities' (See Federal agency securities)
V loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 0 , - 3 5 5 , 386
Wage and Price Stability Act, legislation . . . . . . . . . . . . . . . . . . . . . . . . . . .

456

259

Full text of Annual Report of the Board of Governors of the Federal Reserve System : 1975

FRASER