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'Report
X£_> 1982

Board of Governors of the Federal Reserve System



Letter of Transmittal

BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Washington, D.C., April 15, 1983
THE SPEAKER OF
THE HOUSE OF REPRESENTATIVES

Pursuant to the requirements of section 10 of the Federal Reserve Act, I am
pleased to submit the Sixty-Ninth Annual Report of the Board of Governors
of the Federal Reserve System.
This report covers operations of the Board during calendar year 1982.
Sincerely,
Paul A. Volcker, Chairman




Contents
Part 1 Monetary Policy and the
U.S. Economy in 1982
3
5
5
8
9
9
10
12

INTRODUCTION
THE ECONOMY IN 1982
Household sector
Business sector
Foreign sector
Government sector
Labor market developments
Prices

14 MONETARY POLICY AND FINANCIAL MARKETS
15 Monetary aggregates and interest rates
20 Aggregate credit flows
24
25
27

INTERNATIONAL DEVELOPMENTS
U.S. international transactions
Foreign currency operations

30
30
42

MONETARY POLICY REPORTS TO CONGRESS
Report on February 10, 1982
Report on July 20, 1982




Part 2
59
59
59
63
63
64
65
66
67
67
69
70
70
71
72
74
79
79
81
82
84
85
92
99
105
114
121
128
134

Records, Operations,
and Organization

RECORD OF POLICY ACTIONS OF THE BOARD OF GOVERNORS
Regulation B (Equal Credit Opportunity)
Regulation D (Reserve Requirements of Depository Institutions)
Regulation D (Reserve Requirements of Depository Institutions)
and Regulation Q (Interest on Deposits)
Regulation E (Electronic Fund Transfers)
Regulation G (Securities Credit by Persons Other than Banks, Brokers, or
Dealers), Regulation T (Credit by Brokers and Dealers), and Regulation U
(Credit by Banks for the Purpose of Purchasing or Carrying Margin Stocks)
Regulation K (International Banking Operations)
Regulation L (Management Official Interlocks)
Regulation O (Loans to Executive Officers, Directors, and Principal
Shareholders of Member Banks)
Regulation Q (Interest on Deposits)
Regulation T (Credit by Brokers and Dealers)
Regulation U (Credit by Banks for the Purpose of Purchasing or Carrying
Margin Stocks)
Regulation Y (Bank Holding Companies and Change in Bank Control)
Regulation Z (Truth in Lending)
Policy statements and other actions
1982 discount rates
Rl ( OR!) OF POLICY ACTIONS OF THE FEDERAL OPEN
MARKET C O M M I T n . L
Authorization for domestic open market operations
Domestic policy directive
Authorization for foreign currency operations
Foreign currency directive
Meeting held on February 1-2, 1982
Meeting held on March 29-30, 1982
Meeting held on May 18, 1982
Meetings held on June 30-July 1, 1982, and on July 15, 1982
Meeting held on August 24, 1982
Meeting held on October 5, 1982
Meeting held on November 16, 1982
Meeting held on December 20-21, 1982




143 CONSUMER AND COMMUNITY AFFAIRS
143 Regulatory actions
146 Compliance aids
147 Collection and use of data
154 Compliance with consumer regulations
156 Legislative recommendations
157 Consumer Advisory Council
159 Community Reinvestment Act
159 Federal Financial Institutions Examination Council
161 LITIGATION
161 Bank holding companies—Antitrust action
—Review of Board actions
163 Other litigation involving challenges to Board procedures and regulations
167
167
167
170

LEGISLATION ENACTED
Export Trading Company Act
Garn-St Germain Depository Institutions Act
Continuing appropriations

171
171
178
183
186

BANKING SUPERVISION AND REGULATION
Supervision for safety and soundness
Regulation of U.S. banking structure
Enforcement of other laws and regulations
Federal Reserve membership

188
188
189
190
191
192
192

REGULATORY SIMPLIFICATION
Monetary policy and payments system
Banking structure and supervision
Consumer and community affairs regulations
Securities credit and securities activities
Regulatory impact studies
Regulatory Service and other informational services

193 FEDERAL RESERVE BANKS
193 Developments in the payments mechanism and in the pricing of Federal
Reserve services
197 Examination
197 Income and expenses
198 Federal Reserve Bank premises
199 Holdings of securities and loans
199 Volume of operations




201 r « - \K1> ' if GOVERNORS
>
201 Financial statements
207
208
210
214
216
216
217

218
222
226
226
227
227
230
232
233
234
238
240

STATISTICAL TABLES
1. Detailed statement of condition of all Federal Reserve Banks combined,
December 31, 1982
2. Statement of condition of each Federal Reserve Bank, December 31,
1982 and 1981
3. Federal Reserve open market transactions, 1982
4. Federal Reserve holdings of U.S. government and federal agency
securities, December 31, 1980-82
5. Number and salaries of officers and employees of Federal Reserve Banks,
December 31, 1982
6. Bank premises of Federal Reserve Banks and Branches, December 31,
1982
7.
7 Income and expenses of Federal Reserve Banks, 1982
8 Income and expenses of Federal Reserve Banks, 1914-82
9 Volume of operations in principal departments of Federal Reserve Banks,
1979-82
10 Revenue and expenses of priced services at Federal Reserve Banks, 1982
11 Federal Reserve Bank interest rates, December 31, 1982
12 Reserve requirements of depository institutions
13 Maximum interest rates payable on time and savings deposits at federally
insured institutions
14 Margin requirements
15 Principal assets and liabilities, and number of insured commercial banks,
by class of bank, June 30, 1982 and 1981
16 Reserves of depository institutions, Federal Reserve Bank credit, and
related items—Year-end, 1918-82, and month-end, 1982
17 Changes in number of banking offices in the United States, 1982
18 Mergers, consolidations, acquisitions of assets or assumptions of liabilities
approved by the Board of Governors, 1982

249

MAP OF FEDERAL Ki SERVE SYSTEM—DISTRICTS

251
252
254
255
256
257

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

277

INDEX




Part 1
Monetary Policy and
the U.S. Economy in 1982




Introduction
Production and employment in the
United States declined appreciably
during 1982 as the economy continued the difficult transition from inflation to price stability. Most broad
price indexes rose less than 5 percent
over the year, about half the increase
in 1981. The improved price performance was attributable in part to
generally weak product markets, exceptionally good harvests, and a
surplus of oil in world markets. But
more fundamental improvement was
evident also as underlying trends in
wages began to reflect more fully the
progress on the price front as well as
domestic and international competitive pressures; with businesses aggressively acting to strengthen productivity, unit labor costs in the
nonfarm business sector rose only
about 43/4 percent. The rise in the
foreign exchange value of the dollar
contributed to the moderation in
inflation by reducing import prices,
but the effect on export and import
volume of the decline in the competitive position of the United States in
world markets was a source of weakness in domestic economic activity.
Real disposable income edged up
over the four quarters of the year,
despite a decline in real gross national product. The tax cut in mid1982 and the increase in transfer
payments more than offset the weakness in wages and salaries. Purchases
of homes, automobiles, and other
durable goods were constrained by
the high cost of financing as well as
by the limited improvement in spendable real income. In addition, faced
with reduced sales volume, low profit



margins, and high rates of unused
capacity, businesses cut investment
spending and liquidated inventories.
Industrial production fell sharply in
1982, forcing widespread layoffs, and
employment dropped throughout the
year. The overall rate of civilian
unemployment reached a postwar
high of 10.8 percent at the end of
the year.
The principal objectives for monetary policy in 1982 were to maintain
the financial discipline necessary to
achieve further progress toward price
stability and, at the same time, to
foster conditions conducive to the
development of a sustained recovery
in economic activity. Accordingly,
the Federal Open Market Committee
adopted target ranges that provided
for some slowing in the underlying
growth of the monetary aggregates
from their rates of expansion in 1981.
As the year progressed, however,
the necessity arose to tolerate growth
above the upper limits of those
ranges to accommodate unusual demands for liquid assets; to have
maintained growth within the original targets in such circumstances
would have exacerbated recessionary
tendencies in the economy. Over the
four quarters of 1982, each of the
aggregates did, in fact, exceed its
targeted range. The overshoot for
Ml was especially large; the bulk of
the increase was in other checkable
deposits, which rose 34 percent over
the year. In the fourth quarter,
substantial inflows from maturing all
savers certificates were superimposed on already strong demands for
liquidity, and Ml rose at an annual

Introduction
rate of 13 percent. In anticipation of
this development and of distortions
that would be associated with the
introduction of money market deposit accounts in December, the
Committee in October shifted its
focus to the broader aggregates in
implementing its policy objectives.
Credit flows increased in 1982, as
stepped-up borrowing by all levels of
government more than offset reductions in financing by the private




sector. Interest rates remained relatively high, but declined significantly
in the third quarter. By the end of
the year, nominal interest rates across
the maturity spectrum had in most
cases reached the lowest levels in
more than two years. Mounting evidence of a slowing in underlying
inflation might well have produced
still larger declines in long-term rates
but for the threat of widening federal
deficits.

The Economy in 1982
Economic activity declined in 1982,
as real gross national product dropped
1.1 percent, continuing the recession
that began in mid-1981.1 The current
downturn came on the heels of a
sharp drop in GNP in the second
quarter of 1980 and a short-lived
recovery in the second half of 1980
and early 1981. As a result, by the
end of 1982 real GNP had fallen
below its level three years earlier.
The sharp drop in industrial production in 1982 was associated with
widespread layoffs and plant closings. And, with limited job opportunities in other sectors as well, the
unemployment rate rose to a postwar
high of 103/4 percent by the end of
the year. The economic downturn,
after the prolonged period of little
or no growth, brought about a significant slowing of inflation, with
most broad price measures rising less
than 5 percent.
Declines in activity were particularly large for business investment
and exports, which in real terms fell
8 and 13 Vi percent respectively in
1982. Consumption expenditures rose
over the year, as real disposable
income increased slightly, reflecting
a cut in federal taxes and the effects
of automatic countercyclical income
stabilizers. In addition, defense purchases increased rapidly. At the same
time, the large and growing federal
budget deficit weighed heavily on the
1. Throughout the discussion of the economy in 1982, annual growth rates reported
measure the changes from the fourth quarter
of 1981 to the fourth quarter of 1982 unless
indicated otherwise.



credit markets and, in the context of
continued efforts by the Federal
Reserve to maintain monetary discipline, tended to hold long-term interest rates at high levels relative to
the prevailing rate of inflation.
Inflation slowed dramatically in
1982. The price index for the gross
domestic business product rose only
AVi percent after an advance of 9
percent in 1981. The deceleration of
prices was not only sizable, but also
widespread: the rates of inflation for
consumer goods and services and
capital equipment were all appreciably lower. The slowdown in prices
was reinforced by progress in retarding the rate of increase of labor
costs. Slack labor markets, as well as
lower inflation and expectations of
inflation, contributed to the deceleration of wages. The improvement
was apparent across all major labor
market groups: wage increases in
manufacturing and services and for
white-collar and blue-collar workers
all moderated from the previous
year. In addition, wage concessions
were negotiated in a number of large
collective bargaining settlements.
Household Sector
Personal consumption expenditures
increased 2Vi percent in 1982, with
much of this rise reflecting an upswing in motor vehicle purchases at
the end of the year. Outside the auto
sector, the increase in outlays was
more moderate, as real disposable
income rose less than 1 percent
during 1982. In particular, the July
cut in personal taxes, which followed

6

The Economy in 1982

Indicators of Economic Performance
Percentage change, Q4 to Q4

Ratio

Real GNP
Inventory-sales ratio

-CL^-J
Millions of units

Index, 1967=100
Housing starts

Industrial production

Millions of units

Percent
Unemployment rate

Auto sales
10
Domestic

Foreign
!

Percentage change, Q4 to Q4

i

Percentage change

Gross domestic business product
price index

Unit labor costs

1
0

nr
p
1976

1978

1980

1982

All data are seasonally adjusted at annual rates.
The industrial production indexes (monthly) are Federal Reserve data; the unemployment rate (monthly)
and the change in unit labor costs are U.S. Department of Labor data; auto sales are from the Motor
Vehicle Manufacturers' Association. All other data
are from the U.S. Department of Commerce. Real
GNP and real final sales are in terms of 1972 dollars.



1976

1978

1980

1982

The inventory-sales ratio is based on real (1972 dollars) manufacturing and total trade sales and inventories. Prices are measured by the fixed-weight price
index for gross domestic business product (1972
weights). Unit labor costs are for the nonfarm business sector; percentage change is from four quarters
earlier.

The Economy in 1982

7

the earlier reduction in October 1981, drop in purchases of furniture and
served only to offset a sharp decline appliances.
Activity in the housing sector picked
in real wages and salaries. With
income growth sluggish and employ- up last year, with housing starts rising
ment and income prospects uncer- 45 percent from the postwar record
tain, consumers appeared reluctant lows reached in late 1981. Residento reduce saving and to acquire big- tial construction put in place, which
ticket durable goods. The saving rate lags starts, was up 1 percent in real
averaged 6.6 percent for the year as terms over 1982. The improvement
a whole, about the same as in 1981. stemmed primarily from a marked
The demand for new domestic decline in mortgage interest rates:
automobiles was poor in 1982: sales the interest rate on new commithave declined dramatically since early ments for fixed-rate conventional
1979 and last year averaged only 5.8 home mortgages at savings and loan
million units, the lowest level since associations dropped from a high of
1961. The pattern of auto sales fluc- 18V2 percent in the autumn of 1981
tuated considerably during the year to 13*/2 percent by the end of 1982.
as consumers reacted to incentives
Construction of both single- and
such as rebates. In the most success- multifamily units experienced gains.
ful program, in the fourth quarter, In the multifamily sector, starts rose
auto makers offered concessions on about 40 percent over the year to an
interest rates coupled with end-of- annual rate of 460,000 units in the
year price discounts on 1982 models, fourth quarter. The strength during
and the rate of sales was sustained the year resulted partly from an
above 6 million units for two consec- increase in units initiated under the
utive months for the first time since expiring section 8 subsidy program
the middle of 1981. Purchases of administered by the Department of
foreign cars held up well in 1982; at Housing and Urban Development.
2.2 million units for the year as a Starts of unsubsidized rental units
whole, they accounted for a record also appeared to pick up as vacancy
28 percent of total car sales. Sales of
Japanese cars, which made up about Income, Consumption, and Saving
80 percent of foreign auto sales, rose
Percentage change, Q4 to Q4
at the end of the year despite export
Real consumption
restrictions on most models.
Reat'ii^'^^'Mncome
Excluding motor vehicles, real per- r i _pi 1
sonal consumption expenditures rose
l3/4 percent during 1982, in part
0
because of an increase of nearly 2Vi
Percent
percent in spending for services. Real
outlays for food and gasoline also
grew over the year, although a smaller
portion of household budgets than in
recent years was devoted to gasoline
1978
1980
1982
purchases because of favorable price 1976
Based on U.S. Department of Commerce data, seatrends. Sales of all durable goods
annual
other than cars fell % percent in real sonally adjusted at income rates. Real consumption
and real disposable
are in terms of 1972 dolterms, mostly because of a 4 percent lars.



U fi I rn

8

The Economy in 1982

rates remained quite low despite
some increase at year-end, and rents
rose more rapidly than the general
rate of inflation.
Much of the improvement in the
single-family sector came toward the
end of the year, when the cost of
mortgage credit had fallen to affordable levels for many homebuyers.
Starts of single-family homes jumped
to an annual rate of 800,000 units in
the fourth quarter, almost 50 percent
above the year-earlier pace. Sales,
which had remained depressed
through the summer, revived toward
year-end, with sharp gains in sales of
new homes. Reflecting mainly the
unusually weak market conditions
during the first three quarters of the
year, the average price of homes sold
rose moderately in 1982. Measured
without regard to concessionary financing or to changes in quality, the
average price of existing homes sold
was up 3 percent over the year, and
the increase in average sales price of
new homes sold slowed to about 1
percent, both because of a moderation in construction costs and because of continued movement toward
smaller models.
Business Sector
Business fixed investment fell 8 percent in real terms during 1982. The
contraction in capital spending last
year came soon after the relatively
shallow decline in 1980. This period
of prolonged stagnation for the capital goods sector reflected weakness
in the underlying determinants of
capital spending. By the end of 1982,
real final sales were no higher than
in mid-1979; the rate of capacity
utilization in manufacturing declined
throughout 1982, slumping to a postwar low at year-end. Profit margins,



as measured by the share of beforetax profits in the gross domestic
product for the nonfinancial sector,
also dropped to a postwar low, and
the number of business failures
reached postwar highs. In addition,
interest rates remained high relative
to the pace of inflation last year,
exacerbating financial pressures.
Virtually all of the decline in fixed
investment last year was in equipment rather than in structures. Real
spending for producers' durable
equipment fell 103/4 percent over the
year, and reductions were widespread. The steepest declines occurred in outlays for heavy industrial
machinery such as engines, and for
construction machinery and farm
equipment. Purchases of most types
of transportation equipment, including aircraft and railroad equipment,
also fell sharply. Reductions in outlays for office and store machinery,
communications equipment, and instruments were relatively small.
Real outlays for nonresidential
structures declined only 2 percent in
1982. Reductions were concentrated
in petroleum and mining activity,
which dropped nearly HV2 percent
over the year as energy markets
softened. Spending on new factories
and commercial structures such as
shopping malls and retail stores also
fell. In contrast, real outlays for
construction of office buildings and
institutional structures continued to
increase.
The outlook for business fixed
investment continues to be weak.
Both private and public surveys of
capital spending plans indicate further reductions in the capital goods
sector into 1983. Forward-looking
indicators suggest that outlays for
producers' durable equipment are
likely to fall slightly in early 1983;

The Economy in 1982
these outlays are likely to stabilize
once a recovery in final demand is
well under way. But expenditures for
nonresidential buildings could decline substantially given the large
drop in the real value of contracts
for new construction and rising vacancy rates during 1982.
Business inventories increased over
the second half of 1981, and by the
beginning of 1982, manufacturing
and trade inventories, in real terms,
were exceptionally high relative to
sales. As a result, businesses cut
output further and liquidated stocks
at a rapid pace in the first quarter.
The reduction continued at manufacturers, but stocks in the trade sector
accumulated. During the summer the
inventory correction stalled as shipments and sales fell, and by the
autumn significant overhangs reemerged, with imbalances especially
severe among durable goods. A second round of aggressive liquidation
began in the fourth quarter. By the
end of the year inventory imbalances
were reduced, but stocks remained
high relative to sales in several key
sectors, such as primary metals and
nonelectrical machinery.
Foreign Sector
The foreign sector also contributed
significantly to the 1982 decline in
real GNP. Exports of goods and
services fell Yil/i percent over the
year as foreign demand was limited
by the continued strength of the
dollar (which reduced the price competitiveness of U.S. goods), by low
levels of economic activity in other
nations, and by financial constraints
in some developing countries. The
volume of imports of goods and
services increased during much of
1982 but dropped sharply in the



9

fourth quarter; imports ended the
year nearly 7 percent below their
level at the end of 1981. The decline
in the fourth quarter of last year
appears to have been associated in
part with the sharp liquidation in
inventories at that time. The strength
of imports that developed earlier in
the year, despite the weak domestic
economic situation, was greatly influenced by the increased price competitiveness of foreign goods brought
about by the appreciation of the
dollar.
Government Sector
Total government purchases of goods
and services rose 2% percent in real
terms during 1982. All of the increase
came from the federal sector; spending by state and local governments
was about unchanged.
The budget deficit for the federal
government on a national income
accounts basis increased from an
annual rate of $102 billion in the
fourth quarter of 1981 to a rate of
about $200 billion at the end of last
year. This marked widening of the
deficit resulted from a drop in receipts coupled with continued growth
of expenditures. Tax receipts fell
about Wi percent in nominal terms,
compared with increases of 9 to 12
percent in recent years, as both the
recession and the tax reductions enacted in 1981 cut into revenues from
personal income and corporate profit
taxes. In addition, the weak oil
market meant a reduction in receipts
from the windfall profits tax; and the
growth of contributions to social
security slowed markedly because of
weak income growth.
Total federal expenditures grew
about 12 percent in nominal terms,
down only slightly from the average

10

The Economy in 1982

rise of 13 percent during the preceding five years. About half of the increase in 1982 reflected a W/z percent
rise in transfer payments that would
have been even greater if increases in
expenditures had not been slowed by
smaller cost-of-living adjustments in
social security payments and cuts in
unemployment compensation. The
growth of net interest payments, at
about 12 percent, was considerably
slower last year than in 1981, as the
effect of declining interest rates partly
offset a record volume of financing.
Federal purchases for defense, measured in real terms, rose 6% percent,
about matching the administration's
target growth rate. Nondefense purchases also increased in real terms;
most of the rise reflected a sharp increase in payments for the federal agricultural support program in the
fourth quarter that was only partly
offset by reductions in discretionary
spending and purchases for the strategic petroleum reserve. Grants to
states and localities fell more than 43A
percent in nominal terms for the year
as a whole because of budget cuts in
a broad range of programs, from
medicaid to mass transit; the reductions in grants in both 1981 and 1982
came after steady increases for two
decades.
The state and local sector experienced increasing fiscal problems in
1982. In addition to the cuts in federal
grants, growth in own-source revenues slowed, partly because of smaller
increases in personal tax collections.
On the expenditure side, real purchases of goods and services were little changed last year; they have been
relatively flat since the late seventies
after decades of steady increases. The
recent reduction in the growth of state
and local purchases can be attributed
to both budgetary pressures arising



from slower revenue growth and cuts
in outlays for education resulting from
the decline in the school-age population. Transfer payments increased,
in nominal terms, in 1982 as state and
local governments attempted to compensate for some of the reductions
imposed at the federal level. As a result, total expenditures rose more than
5V2 percent last year, and the sector's
operating budget (total balance without social insurance funds) was in significant deficit for the first time since
1974.

Labor Market Developments
Employment fell throughout 1982 as
the recession continued to force
widespread layoffs. The reduction in
employment was concentrated in the
goods-producing sector, in which employment has now fallen for three
consecutive years; but even the service-producing sector, the primary
source of employment growth in
recent years, experienced declining
payrolls. By the end of 1982, total
nonfarm payroll employment reached
a level nearly 3 million below its July
1981 peak, a reduction of more than
3 percent.
The job losses last year were
concentrated in manufacturing, in
which monthly declines averaged
nearly 130,000. The cyclically sensitive durable goods industries experienced the largest reductions. Especially sharp declines were registered
in the metals, machinery, and transportation equipment industries, in
which inventory imbalances were most
severe. Payrolls in nondurable manufacturing industries were reduced
350,000 over the year, and nearly all
major industries were affected. Layoffs continued at construction sites,
despite gradual improvement in

The Economy in 1982
homebuilding during the year, and
mining employment was reduced
substantially. Employment in the
service-producing sector turned down
in 1982 after a year of relatively slow
growth in 1981. Reacting to sluggish
sales, trade establishments reduced
their staffs by 225,000. In the public
sector, budget restraint led to reductions in employment at all levels of
government.
These employment cutbacks were
reflected in a marked increase in the
unemployment rate. The overall rate
of unemployment reached a postwar
high of 10.8 percent in December,
well above the 7.2 percent level that
prevailed before the current contraction began. Nearly all of the increase
in the unemployment rate was among
those who previously had held jobs;
the inability of new entrants and
reentrants to the labor force to find
jobs accounted for only a small
fraction of the addition to the rolls
of the unemployed. The increase was
particularly large for adult men, who
hold a disproportionate number of
jobs in the durable goods and construction industries; the rate of unemployment for this group rose from
a low of 5.8 percent in July 1981 to
10.1 percent in December 1982.
Growth in the labor force slowed
markedly during 1982, reflecting both
cyclical factors and longer-term trends.
The l3/4 percent rate of growth of
the civilian labor force last year was
substantially below the 2xh percent
rate that had prevailed over the
previous decade. The acute deterioration of the labor market in 1982,
after two years of diminished employment opportunities, discouraged
entry into the labor force. With adult
women failing to join the labor force
at the rate typical of the 1970s, the
overall labor force participation rate



11

remained virtually flat last year. A
decline in the teenage population,
which meant fewer young jobseekers, was another factor that retarded
growth in the labor force in 1982.
Last year, productivity registered
its strongest advance since 1977.
Aggregate hours worked were reduced throughout the year, with
particularly sharp declines in the
second half of the year. The cut in
hours was greater than the reduction
in output, and productivity in the
nonfarm business sector increased
sharply over the final two quarters
of 1982 and for the year as a whole
was up 1% percent. The growth in
productivity was larger than is usual
near the trough of a business cycle;
this development reflects greater efforts on the part of firms to trim
work forces and to concentrate production in efficient plants during an
unusually long period of slack. It
may lead to some improvement in
the underlying trend rate of growth
of productivity.
The signs of declining increases in
wage rates observed in 1981 were
confirmed in 1982 by a pervasive
slowing in all measures of wages and
labor costs. Weak demand for labor
and continued progress in reducing
the rate of price inflation were the
major contributors to this slowdown.
The rate of wage increase for production workers declined from %Vi
percent in 1981 to less than 6 percent
in 1982, the smallest advance since
1967. Wage gains for white-collar
workers, as measured by the employment cost index, had failed to slow
in 1981, but decelerated nearly 2lh
percentage points last year to an
increase of less than 6V2 percent. The
slowdown in wages and the improvement in productivity combined to
hold the increase in unit labor costs

12

The Economy in 1982

in the nonfarm business sector to 43A
percent in 1982, down substantially
from a peak rate of IIV2 percent
over the four quarters of 1979.
The moderation in wage increases
was particularly notable in new contracts negotiated under collective
bargaining agreements. For the 3lA
million workers covered by new settlements, first-year increases averaged 3% percent in 1982, compared
with 8 percent the last time these
same workers negotiated new contracts. Important wage concessions
were negotiated during the heavy
bargaining schedule early in the year:
the auto, trucking, airline, and apparel industries departed significantly from traditional settlements
by deferring or eliminating scheduled
pay increases, cost-of-living adjustments, or both. Concession bargaining continued for a wide range of
contracts for smaller unions in the
second half of the year. Several
factors were responsible for the prevalence of concessions. First, high
relative labor costs left firms in some
industries in precarious financial condition as demand slackened. Second,
deregulation and intensified competition from both foreign firms and
domestic nonunion producers generated additional pressure in some
industries.
Prices
Inflation declined significantly further in 1982, with the deceleration
apparent in most types of goods and
services. The fixed-weight price index for gross domestic business product increased 4Vi percent last year,
after a 9 percent gain in 1981 and a
10V4 percent rise in 1980. Consumer
prices exhibited similar improvement: the consumer price index rose



just 4V2 percent in 1982, compared
with a peak increase of 123/4 percent
in 1979. In addition, producer prices
at the intermediate and crude stages
of processing were about unchanged
over the year. Although food and
energy prices contributed to the
slowdown, price inflation excluding
these items also declined sharply.
The price index for the gross domestic business product excluding food
and energy decelerated from a 9lA
percent rate of increase in 1981 to a
5 percent pace in 1982.
Food prices at the retail level
advanced just 3Vi percent in 1982.
This was the fourth consecutive year
in which food prices rose less than
the overall rate of inflation. To a
large extent, the same factors that
had restrained price increases in 1981
were present in 1982. For a second
year large harvests and mounting
grain stocks supplied ample crops. In
addition, weak income growth, both
at home and abroad, and the strong
value of the dollar limited the demand for farm products. However,
not all of the deceleration in food
prices was due to transistory factors;
labor costs in the food sector also
slowed substantially last year.
Despite an erratic quarterly pattern, changes in energy prices reflected the considerable weakness
evident in world petroleum markets
in 1982. Prices for refined petroleum
products plummeted in the first half
of last year. A portion of this decline
was retraced in the second half, but
prices were generally lower at the
close of 1982 than they had been at
its opening. Besides holding down
prices of gasoline and fuel oil, lower
petroleum prices helped to halve the
rate of increase in electricity prices.
In contrast, natural gas prices continued their steep ascent as deregulation

The Economy in 1982
proceeded under the Natural Gas
Policy Act of 1978.
In 1981, progress in reducing inflation outside of the volatile food and
energy sectors was small and confined to a limited number of sectors.
In contrast, the slowing in 1982 was
both more substantial and more evenly
balanced. Weak demand, decelerating labor costs, declining inflation
expectations, and a strong dollar all
acted to slow prices. Inflation for
consumer commodities excluding
food, energy, and homeownership
fell from 8VA percent in 1981 to 5lA
percent in 1982. Similarly, prices of
capital goods, as measured by the
producer price index, rose only 4lA
percent last year, less than half the
1981 pace. Prices of consumer services excluding energy, which had
failed to slow in 1981, decelerated
from a 103A percent rate of increase




13

in 1981 to a IV2 percent pace in 1982.
Medical care and education were the
only major categories in which inflation showed no sign of abating.
The pervasive slowing in labor
costs and prices has created a climate
in which continued progress in lowering inflation is likely. Reductions
in wage inflation and in price inflation tend to be mutually reinforcing
when accompanied by persistent
monetary discipline. Decelerating labor costs relieve pressure on prices,
while the improved price performance can, in turn, reduce inflation
expectations and formal or informal
cost-of-living adjustments, and thus
lead to a further slowing of labor
costs. An important aspect of the
1982 experience was that each of the
elements in this process was evident
in the substantially lower rates of
inflation.

14

Monetary Policy and Financial Markets
Monetary policy in 1982 continued
to aim at moderating inflationary
pressures and, in the process, to
provide a basis for sustainable growth
in real economic activity. Early in
the year the Federal Open Market
Committee adopted target ranges for
growth in the monetary aggregates
believed to be consistent with these
objectives. Those ranges were reaffirmed at midyear, with the proviso
that growth above the targets might
have to be tolerated for a time if
unusual demands for money and
liquidity emerged, as seemed possible in light of prevailing economic
and financial uncertainties. In the
second half of the year, demands for
highly liquid assets did prove to be
appreciably greater than had been
anticipated, leading, for the year as
a whole, to growth in the aggregates
above the upper limits of their respective target ranges. Indeed, over
the year the income velocities of the
monetary aggregates (defined as the
ratio of nominal gross national product to money) declined at the sharpest rates of the postwar period.
The conduct of monetary policy in
1982 was complicated by financial
developments that greatly hindered
the interpretation of movements in
narrow money, Ml. Specifically, the
component consisting of other checkable deposits (OCDs), which includes NOW accounts and similar
interest-bearing checking balances,
dominated the growth of Ml during
the year. OCDs are probably quite
sensitive to changes in the proportion
of savings that households want to
hold in highly liquid form for precautionary purposes; transaction mo-




tives are likely to be not so telling
for OCDs as for demand deposits.
Moreover, shifts of funds associated
with the maturation of a substantial
volume of all savers certificates and
with the introduction of money market deposit accounts distorted the
behavior of Ml in the fourth quarter.
Because the extent of these distortions could not be anticipated, the
FOMC at its meeting in early October decided to deemphasize Ml, at
least temporarily, as an operating
guide for monetary policy, and instead, to place greater emphasis on
M2 and M3 in the expectation that
these measures would be less affected by developments in the fourth
quarter.
Interest rates declined substantially on balance over 1982, mostly
after midyear. Yields on short-term
market instruments generally ended
the year 3 to 5 percentage points
below their levels of late 1981, and
long-term rates declined 3 to 4 percentage points. Although the weakness in private credit demands associated with slumping household and
business spending freed funds to
finance the government, a growing
federal deficit tended to hold longterm rates up. Thus, concerns with
the burgeoning deficit tended to
offset the effects on long-term rates
of diminishing inflation expectations.
Risk premiums in the interest rate
structure widened at times as problems of financial and industrial firms
sparked concerns about the safety of
investments.
In the aggregate, net borrowing by
nonfinancial sectors of the economy
increased somewhat in 1982. The

Monetary Policy and Financial Markets
Interest Rates

15

Percent per annum

Short-term

Federal funds

Long-term

State and local government bonds

1976

1978

1980

1982

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

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

federal government's demands on
the credit markets were up roughly
85 percent from the previous year,
and state and local government units
borrowed more than twice as much
as in 1981. In contrast, households
greatly curtailed additions to their
installment and mortgage debt while
they increased their acquisitions of
liquid assets. Business borrowing remained relatively strong during the
first three quarters of the year, but
dropped off sharply in the fourth.
Short-term debt fell even more sharply

toward the end of the year as lower
long-term interest rates allowed many
firms to repay short-term debt with
the proceeds of long-term security
issues.




Monetary Aggregates
and Interest Rates
Money market conditions during 1982
were influenced by changes in demands for and supplies of bank
reserves, and by investor concerns
about the effects of protracted weak-

16

Monetary Policy and Financial Markets

ness in the economy on the creditworthiness of borrowers. Short-term
interest rates turned upward in early
1982 as a brisk uptrend in Ml growth
over the final months of 1981 was
augmented by a burst in January.
Because monetary growth exceeded
by a considerable margin the System's objectives, the gap between
required reserves and the amount of
nonborrowed reserves consistent with
the System's objectives for monetary
growth widened substantially. After
peaking in mid-February, about 2 to
3 percentage points above the levels
posted at the beginning of the year,
money market rates receded slightly
over the remainder of the quarter in
response to the relative stability of
Ml after its January bulge.
Short-term rates continued to drift
lower through the second quarter.
However, yields on private credit
instruments rose relative to those on
Treasury securities in response to
heightened concerns about the creditworthiness of borrowers; these concerns were stirred by filings by several large firms under chapter 11 of
the federal bankruptcy laws, the
bankruptcies of two relatively small
securities dealers, and rising business
failures in general.
During the summer, weakness in
narrow money lowered reserve demands relative to the supply of nonborrowed reserves, and short-term
interest rates fell markedly. Further
downward movements in rates accompanied several reductions of Vz
percentage point each in the discount
rate in July and August. Spreads
between yields on lower- and higherrated private money market instruments, as well as between yields on
private and U.S. government securities, widened considerably over the



third quarter as loan losses suffered
by several large banks and the exposure of domestic banks to large
losses on foreign loans added to
investor concerns.
By early fall, weakness in the
economy, accompanied by unusually
strong liquidity demands and increasing financial strains domestically and
abroad, led the Federal Reserve to
adopt a more accommodative posture toward supplying reserves. As
short-term interest rates declined further, concerns about the financial
condition of borrowers diminished
and spreads related to credit quality
narrowed appreciably. Money market rates continued to fall through
year-end, a trend that was reinforced
by additional reductions in the discount rate.
Most long-term interest rates
changed little on balance over the
first half of the year. Despite apparent improvement in the outlook for
inflation, sentiment in the bond market over the period was dominated
by the impact of large prospective
federal deficits and the possibility
that, as the economy began to recover, demands for money and credit
would press harder against restricted
supplies. In the second half, bond
yields moved downward despite such
concerns, reflecting further progress
against inflation and a spreading view
among market participants that the
depth of the economic contraction
and international financial tensions
would preclude an early reversal of
the easing in money market conditions.
The relative growth and composition of the monetary aggregates in
1982 reflected the introduction of
new types of deposit accounts, uncertainties related to the weak econ-

Monetary Policy and Financial Markets

17

Reserves and Monetary Aggregates
Annual rates of change based on seasonally adjusted data unless otherwise noted, percent 1
iiem
Member bank reserves2
Total
Nonborrowed
Required
Monetary base3
Concepts of money4
Ml
Currency and traveler's
checks
Demand deposits
Other checkable deposits.
M2
Nontransaction
component
Small-denomination
time deposits6
Savings deposits and
money market
deposit accounts ...
General purpose and
broker/dealer
money market
mutual fund 7
assets (n.s.a.)
Overnight RPs and
Eurodollars
(n.s.a.)
M3
Non-M2 component
Large-denomination
time deposits
Institution-only money
market mutual
fund assets (n.s.a.)
Large term RPs (n.s.a.)

1980

1QO1
J.7O1

1982

1981
04

01

02

6.7
7.5
6.4
8.5

4.3
7.1
4.7
4.9

7.1
7.9
6.8
7.7

3.1
10.9
3.5
4.1

7.5
-0.9
7.1
7.9

.6
4.2
1.1
6.6

7.2

5.1(2.3)5

04

Q3
4.8
11.2
4.6
6.7

14.8
16.5
13.9
8.5

8.5

3.2

10.5

3.2

6.1

13.2

9.2
3.1
58.1

5.9
-12.5
181.7

7.8
.9
33.8

5.1
-2.5
19.6

7.9
.6
46.3

8.3
-5.4
19.6

6.9
-.1
21.6

7.3
8.5
33.7

9.0

9.4

9.2

9.6

8.7

7.0

10.9

9.2

9.6

10.9

9.5

11.7

8.0

8.3

12.4

8.0

14.2

15.6

5.3

14.2

3.1

9.4

12.0

-3.7

-4.4

-16.4

9.2

-12.2

3.7

-.6

.8

32.4

101.5

133.6

74.3

35.4

22.4

35.0

15.2

29.8

25.5

20.1

30.2

-17.9

56.3

2.4

27.9

25.2

9.7
14.0

11 7
24.3

10.1
14.3

10.6
15.4

8.6
8.2

8.5
16^0

12.5
20!0

9.4
10.4

12.7

21.3

11.9

6.0

10.7

17.5

13.4

4.3

76.8
8.0

115.0
7.5

44.6
8.0

125.2
16.8

8.7
-6.6

10.8
16.8

109.7
-12.6

32.7
35.2

1. Changes are calculated from the average amounts
outstanding in each quarter.
2. Annual rates of change in reserve measures have
been adjusted for regulatory changes in reserve requirements.
3. Consists of total reserves (reserve balances of
depository institutions in the current week plus vault
cash held two weeks earlier), currency in circulation
(currency outside the U.S. Treasury, Federal Reserve
Banks, and the vaults of depository institutions), and
surplus vault cash at depository institutions.
4. Ml consists of currency in circulation, traveler's
checks of nonbank issuers, demand deposits at all
commercial banks other than those due to domestic
banks, the U.S. government, and foreign banks, and
official institutions less cash items in the process of
collection and Federal Reserve float, and other checkable deposits (OCD). OCD consists of negotiable order of withdrawal and automatic transfer service accounts at depository institutions, credit union share
draft accounts, and demand deposits at mutual sav-




1Q09

ings banks. M2 is Ml plus overnight repurchase agreements (RPs) issued by commercial banks, overnight
Eurodollar deposits held by U.S. nonbank residents
at Caribbean branches of U.S. banks, taxable and
tax-exempt money market mutual fund shares other
than institution-only fund shares, savings deposits,
money market deposit accounts, and small time deposits (including retail RPs) at all depository institutions. M3 is M2 plus large time deposits at all depository institutions, large term RPs issued by
commercial banks and thrift institutions, and assets
of institution-only money market mutual funds.
5. Number in parenthesis is adjusted for the effects
of shifts from non-Mi sources into other checkable
deposits.
6. Balances in individual retirement accounts (IRAs)
and Keogh accounts at commercial banks and thrift
institutions are subtracted from small time deposits.
7. Excludes balances in IRA and Keogh accounts,
n.s.a. Not seasonally adjusted.

18

Monetary Policy and Financial Markets

omy, and interest rate movements.
Ml increased 8V2 percent over the
year, 3 percentage points above the
upper bound of the FOMC's target
range. Ml surged despite the sharp
reduction in income growth; and, as
a result, Ml velocity fell roughly 5
percent, the largest drop in any fourquarter span since World War II.
The changing character of Ml
made its behavior in 1982 difficult to
interpret. In particular, the bulk of
the growth in narrow money was
accounted for by OCDs, which not
only serve as a means of payment
but also, like savings deposits, are
used by many households as a repository of liquid assets. Because OCDs
have this savings feature, it was
difficult during the year to determine
whether movements in Ml reflected
mainly changes in the demand for
transaction balances, or instead, general changes in the demand for liquid
assets. On the whole, the latter
seems to have dominated: the substantial inflows to OCDs in 1982
appear to have been part of a broadly
based buildup of liquid assets by
households, which may have reflected mounting concerns about employment and income prospects as
well as the effects of declining open
market interest rates.
Growth in M2, at 9lA percent, was
associated with a decline of 5V2
percent in velocity, also a postwar
record.2 The most rapid expansion
within the nontransaction part of M2
2. The growth rates for M2 and M3 reported
in the text and in the table reflect minor
changes made to the definitions of these
aggregates in February 1983. Under these new
definitions, M2 and M3 include shares of taxexempt money market mutual funds and
exclude balances in IRA and Keogh accounts.
Under the previous definition, M2 growth in
1982 would have been 93A percent.



occurred in its most liquid components, including passbook savings
deposits, shares of money market
mutual funds, and overnight repurchase agreements (RPs) and Eurodollars.
Three new highly liquid deposit
accounts authorized by the Depository Institutions Deregulation Committee in 1982—the 91-day and 7- to
31-day small-denomination time deposit accounts, and the money market deposit account (MMDA)—also
registered sizable inflows. The 91day and 7- to 31-day small time
accounts (authorized effective May 1
and September 1) required minimum
balances of $7,500 and $20,000 respectively, and paid interest rates
whose ceilings were tied to recent
yields on 91-day Treasury bills.3 By
year-end deposits in these two accounts totaled $30 billion, only a
fraction of which apparently represented new funds for depository institutions; substantial amounts placed
in these accounts are thought to have
been shifted from other, longermaturity, small time deposits.
Unlike the new small time accounts, MMDAs (authorized effective December 14) have no fixed
minimum maturity and require only
a $2,500 average minimum balance
to qualify for the payment of unregulated interest rates. Moreover, up
to six automatic, preauthorized, telephone, or check-writing transfers can
be made from an MMDA each
month (but no more than three
transfers by check), making these
accounts competitive with shares of
money market mutual funds. Depos3. Effective January 5, 1983, the interest
rate ceiling on 7- to 31-day small time deposits
was removed, and minimum-balance requirements for both 91-day and 7- to 31-day small
time deposits were lowered to $2,500.

Monetary Policy and Financial Markets
Monetary, Bank Credit, and
Reserve Aggregates
Billions of dollars
Targeted and actual M1
475
450

Targeted and actual M2
1900

1800

Targeted and actual bank credit
1400
1350

Reserve aggregates

,
'81

N 011 borrowed reserves.
1982

Targets are ranges adopted by the FOMC for 1981
04 to 1982 04.
Target ranges for bank credit reflect the use of a
December 1981-January 1982 base to minimize the
effects of asset shifts into international banking facilities.
The reserve aggregate series have been adjusted to
remove discontinuities associated with changes in reserve requirement ratios. Nonborrowed reserves include extended credit.



19

itory institutions promoted MMDAs
heavily, and by the end of the year
balances in MMDAs stood at $87
billion, approximately three-fifths of
which were at commercial banks (the
remainder were at thrift institutions).
Although most of these balances
apparently were reallocated from
within M2, funds also were shifted
from large-denomination time deposits and term RPs, as well as from
sources outside M3.
Despite the large inflows to these
new types of accounts, overall expansion in the nontransaction component of M2 moderated in 1982 as
inflows to total small time deposits
and to money market mutual funds
abated sharply. Growth in the money
market mutual funds, though still
substantial, dropped to only onefourth of the 1981 pace, reflecting to
some extent an inevitable deceleration in the number of accounts as
the pace of the public's learning
about this instrument slowed. At the
same time, growth in small time
deposits declined by two-thirds: sizable runoffs of six-month money
market certificates and all savers
certificates (ASCs) more than offset
rapid expansion of retail RPs, 2V2year small savers certificates, and
balances in the new 91-day and 7- to
31-day accounts. Small time deposits
were especially weak in the fourth
quarter; they were depressed by
lower open market rates after midyear, which apparently encouraged
many investors to place significant
amounts of maturing ASC funds in
OCDs and savings deposits, as well
as by runoffs of balances accumulated in anticipation of MMDAs.
M3 increased 10 percent in 1982,
compared with IP/4 percent in 1981,
as markedly slower expansion of
both large-denomination time depos-

20

Monetary Policy and Financial Markets

its and assets of institution-only money Aggregate Credit Flows
market mutual funds more than off- Total funds raised by domestic nonset the uptick in M2 growth.4 The financial sectors increased 9 percent
reduced issuance of large-denomina- in 1982 to $412 billion, led principally
tion time deposits by commercial by an unprecedented pace of borrowbanks reflected stronger expansion ing by government at all levels.
of core deposits in combination with Business financing, although down
somewhat slower growth in bank from the extraordinary 1981 pace,
credit.
remained substantial until late in the
From a base calculated as the year, when reductions in capital and
average for December 1981 and Jan- inventory outlays relative to interuary 1982, bank credit expanded at nally generated funds enabled firms
a 7 percent rate, about the same as to reduce their reliance on external
it had over the previous year, al- sources of finance. As households
though the pace of expansion slowed made concerted efforts to rebuild
considerably after the first quarter.5 liquidity, their borrowing weakened
Much of the deceleration during the noticeably. Funds raised by foreign
year occurred in business loans, re- entities in U.S. markets also dropped
flecting weak economic activity and, markedly in response to relatively
in the second half of the year, steeply high interest rates in the United
declining interest rates that encour- States, a rising dollar, and weakening
aged many firms to refinance short- economic activity abroad.
term indebtedness with longer-term
The U.S. Treasury raised approxbonds. Real estate lending also slowed
imately $160 billion in U.S. credit
noticeably in the second half. Lending to consumers remained depressed markets to finance a combined deficit
until late in the year, when bank of the federal government and offfinancing of consumer auto pur- budget agencies of $146 billion for
chases spurted. In addition, acquisi- calendar year 1982; the Treasury
tions of securities—mainly Treasury used about half of the excess to build
obligations—surged in 1982, in re- up its cash balance. Issuance of
sponse to heavy Treasury borrowing marketable debt totaled approxiand strong inflows of core deposits mately $163 billion, as outstanding
relative to loan demands. U.S. bank- nonmarketable debt and other boring offices again made substantial rowing from the public declined by
advances to their foreign affiliates as small amounts. Coupon issues acthe interest costs on domestic liabil- counted for roughly three-fifths of
ities, compared with Eurodollar rates, the funds raised, and net sales of
continued to favor such funding of Treasury bills for the remainder. As
in 1981, money market mubank assets.
tual funds acquired a substantial part
of the net issuance of short-term
Treasury debt. State and local gov4. Under the previous definition, the growth ernments also were major purchasers
rate of M3 in 1982 would have been WA of Treasury securities, likely using
percent.
such investments as a temporary
5. Unlike the monetary aggregates, the base repository for funds raised through
for the FOMC's target for bank credit was accelerated bond sales. Households
specified as the December-January average
and commercial banks bought most
to reduce the distorting effects of shifts of
of the remainder.
assets to international banking facilities.



Monetary Policy and Financial Markets

21

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

1980

1981

19812

19821

19822
H2

HI

HI

H2 1

Net funds raised
Total, all sectors

466

496

515

534

459

492

538

Domestic nonfinancial
U.S. government
State and local government .

368
79
27

379
87
22

412
161
47

404
82
25

356
93
20

365
99
42

459
223
53

Private
Business
Household

262
144
118

270
150
120

203
118
85

297
156
141

244
144
100

224
141
84

182
96
87

Domestic financial
Private intermediaries
Sponsored credit agencies.
Mortgage pool securities ..

68

89
44
30
15

86

25
24
19

25
13
47

96
53
27
16

83
35
33
15

110
51
21
38

62
1
5
57

Foreign

29

27

18

35

20

17

18

Total, all sectors

466

496

515

534

459

492

538

Domestic nonfinancial
U.S. government
State and local government

115
21
22

95
24
20

136
19
47

102
27
20

87
21
20

113
14
32

160
24
63

Private
Business
Household

70
-2
72

51
8
43

70
13

55
7
48

46
8
37

67
5
62

73
21

57

Domestic financial
Private intermediaries
Commercial banking
Thrift institutions
Insurance and pension funds.
Other 3

322
273
100

352
280
99
24
106
51

393
352
108
43
98
103

367
297
99
5
93
100

353
299
121
29
106
43

349
260
77
18

93
26

379
324
103
24
95
102

25
19
5

31
15
9

15
47
10

29
16
-4

33
15
22

23
37
-6

7
57
26

29

22

28

39

26

30

Net funds supplied

Sponsored credit agencies.
Mortgage pool securities ..
Federal Reserve System...
Foreign

54

52

106

59

1. Includes preliminary data for the fourth quarter.
2. Seasonally adjusted annual rates.
3. Includes finance companies, money market funds,

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

State and local governmental units
issued both general-obligation and
revenue bonds in large amounts
throughout most of 1982, in part
because of continued pressures on
tax revenues. Net of retirements,
funds raised by state and local governments more than doubled between 1981 and 1982, while the
issuance of industrial revenue bonds
(included in borrowing by the corporate sector) recorded a smaller but
nevertheless substantial rise as eligible private borrowers availed themselves of the lower rates on taxexempt obligations. Offerings of state


and local debt surged to record levels
in the final months of the year in
response to declining interest rates;
at the same time, a provision of the
Tax Equity and Fiscal Responsibility
Act (passed in August), requiring all
municipal bonds to be issued in
registered form beginning in 1983,
evidently prompted many issuers to
advance the marketing of bonds
planned for that year. The effective
date for the new registration requirement was, in fact, postponed six
months in mid-December, but most
of this accelerated financing had
been accomplished by that time.



22

Monetary Policy and Financial Markets

Funds Raised by
Domestic Nonfinancial Sectors
Billions of dollars
Federal government

300

200
Business and households
100
State and local governments
1978

1982

Includes equities. Data are quarterly totals at seasonally adjusted annual rates.

For the second year in a row, a
large slate of municipal bonds met
with weakening demand from the
traditional institutional buyers in this
market. Commercial banks and
property and casualty insurance companies on net acquired virtually no
tax-exempt securities in 1982; these
investors provided almost 30 percent
of the net funds raised in the municipal market in 1981 and 60 percent
the year before that. Commercial
banks evidently found other ways to
shelter their income, while many
property and casualty insurance companies, suffering continued heavy
underwriting losses, had no need for
tax-exempt income. Thus households
purchased nearly all of the record
volume of offerings by state and local
governments, for the most part directly but also through mutual funds
and unit investment trusts. Reflecting the reduced investments by institutional investors and the unusually
heavy issuance, the ratio of taxexempt to taxable yields remained
near the record high level reached
late in 1981.




Faced with low profits, nonfinancial corporations continued to rely
heavily on external sources of funds
during much of 1982. Toward the
end of the year, however, their
financing needs dropped off sharply
as they made substantial cuts in both
inventories and expenditures for plant
and equipment. For the year as a
whole, corporate business financing
in debt and equity markets combined
was about 20 percent less than in
1981.
The sharp decline in interest rates
that began in July and the subsequent
strong rally in stock prices brought
Financing Pattern of
Nonfinancial Corporations
Financing gap
Capital

Net funds raised in credit markets:
Total

By type

50

Securities and mortgages
1976 '

1978

1980

'l982

Excludes equities. Data are seasonally adjusted
quarterly totals at annual rates.
IVA, inventory valuation adjustment.

Monetary Policy and Financial Markets
about a marked shift in the composition of business financing. Through
the first half of the year, high longterm rates of interest induced businesses to rely mainly on bank loans
and commercial paper, as they had
done so extensively in 1981. As a
result, the ratio of short-term to total
debt on the balance sheets of U.S.
companies reached a record level.
From July through December, however, yields on long-term corporate
bonds fell approximately 4 percentage points to about 12 percent for
top-rated issues, and stock prices
rose 35 to 45 percent. Taking advantage of the lower yields, businesses
floated substantial quantities of longterm debt and equity, using much of
the proceeds to pay down commercial paper and bank loans. Even with
these shifts, however, only a massive,
sustained restructuring effort could
restore debt ratios to the levels of a
few years ago.
Stimulated by the midyear tax cut
as well as by growing concerns about
employment and income prospects,
households increased their savings in
1982; they concentrated heavily on
accumulating financial assets, many
of which bore extraordinarily high
real rates of return. Despite some
pickup in mortgage borrowing late
in the year as interest rates declined,
the addition to home mortgage debt
was the smallest since 1976 and less




23

than half the record amount in 1979.
Growth in installment debt was sluggish through most of 1982, reflecting
in part continued restrictive lending
standards as well as reluctance by
consumers to assume debt for the
purchase of major durable goods;
toward year-end, however, such
lending picked up appreciably when
car makers offered concessionary financing.
Growth in the value of financial
assets held by households during
1982 was nearly twice the pace of
1981, and with the slowdown in debt
accumulation, household net worth
expanded much more rapidly than it
had the year before. At the same
time, delinquency rates on consumer
loans fell during the year—an unusual occurrence during a period of
slack economic activity.
In contrast, mortgage loan delinquencies and defaults increased
sharply, as households that lost income found it difficult to meet the
large monthly payments on highinterest-rate loans. The rise in mortgage delinquencies and defaults also
may have reflected the effects on
homeowners' equity of softness in
house prices in some parts of the
country. On balance, however,
households by year-end had made
considerable progress in strengthening their balance sheets and in reducing their exposure to financial stresses.

24

International Developments
Worldwide economic activity continued to stagnate in 1982. The generally expected upturn from the slow
pace of 1981 did not occur, and
activity in nearly all countries slowed
further. For foreign industrial countries, real growth (measured fourth
quarter to fourth quarter) was negative, while for developing countries—especially those in Latin
America—there was an abrupt deceleration from the substantial growth
rates of recent years. The lack of
buoyancy in the world economy since
1979 reflects a concerted effort in
industrial countries to contain the
high rates of inflation that resulted
in part from the second steep increase in oil prices late in 1979.
During 1982, foreign industrial countries continued to aim at fiscal discipline, and also generally maintained
restrictive monetary policies. To some
extent the policy stance of other
countries was influenced by the high
real interest rates experienced in the
United States, which tended to raise
the value of the dollar in the market
and aggravate inflation abroad.
By late 1982, however, the outlook
began to brighten. Inflation rates
were generally subsiding, with the
help of moderating wage settlements
and a lower level of commodity
prices, especially for oil. Responding
to this easing of inflationary pressures and the steep slide in demand,
nominal interest rates in the United
States and other industrial countries
declined considerably. Still, real interest rates remained exceptionally
high, blunting the revival of consumer spending and business invest


ment. Pervasive weakness of private
investment and mounting unemployment were the most telling indicators
of the extent of the world economic
slowdown.
Certain features of the slowdown
in activity and the disinflationary
atmosphere of 1982 assumed special
importance. One of these was the
resurgence of protectionist forces in
the United States and elsewhere.
Such a development was especially
dangerous because it hampered a
renewal of growth in the volume of
world exports, which has declined
for two successive years. Over the
GNP and Consumer Price Index
1970=100
Gross national product

United States

Percentage change from previous year
Consumer price index
15
United States

r

^

x

10

Foreign
5

1978

1980

1982

Foreign is multilaterally weighted average of the
Group of Ten (G-10) countries plus Switzerland, using 1972-76 total trade weights.
Data for the United States are from the U.S. Department of Commerce.

International Developments
years, growth in foreign trade has
been one of the major supports of
gains in general economic welfare.
A second significant feature was the
emergence of severe liquidity problems for developing countries that
had been financing rapid growth by
borrowing large amounts from commercial banks. The burden of servicing this debt, much of it of relatively short maturity, became heavier
very rapidly when export proceeds
fell, the cost of oil and other imports
remained high, and real dollar interest rates rose sharply.
Lending to developing countries
other than members of the Organization of Petroleum Exporting Countries (OPEC), by U.S.-chartered
banks, including their foreign
branches, has expanded greatly in
recent years—from about $50 billion
outstanding at the end of 1978 to
about $105 billion by September
1982. Of that total, about half was
accounted for by Mexico, Argentina,
and Brazil. During 1982, severe pressure had developed on the Mexican
peso, forcing the government of
Mexico to allow its value to depreciate several times during the year
and to seek external financial assistance in dealing with a critical erosion of liquidity. Bank lending to
Mexico and other debtors, especially
in Latin America, threatened to dry
up. Working with the International
Monetary Fund (IMF), Mexico, Argentina, and Brazil agreed to change
their economic policies sufficiently
to qualify for financial assistance
from that institution. In conjunction
with those agreements, commercial
banks undertook to provide some
new financing, and special short-term
bridge financing was arranged with
U.S. monetary authorities, in some
cases acting with other monetary



25

authorities through the Bank for
International Settlements (BIS). As
a further measure to help stabilize
the international financial system,
the United States supported an adequate increase in quotas in the IMF,
as well as an enlargement and extension to all members of a borrowing
facility built on the General Arrangements to Borrow, for use by the IMF
in emergency situations that threatened the stability of the international
monetary system.
The U.S. dollar resumed a strong
upward trend in exchange markets
early in 1982, and by the end of the
year its weighted average value had
risen 13 percent. However, the dollar's value peaked early in November
and declined moderately thereafter.
From the beginning of the upsurge
in the second half of 1980 through
the end of 1982, the weighted average value of the dollar rose more
than 40 percent, to about 20 percent
above its level when generalized
floating began in March 1973. As
discussed later, there is no simple
explanation for the extent of the
dollar's rise in this period, but the
effects on prices and activity in the
United States, as well as on the U.S.
balance of international transactions,
were significant.
U.S. International Transactions
Under the influence of slack economic activity abroad and of a greatly
appreciated dollar, the U.S. current
account slid from a moderate surplus
in 1981 to a growing deficit during
1982. The trade deficit rose to about
$36 billion for the year and was near
a $50 billion annual rate in the
second half. Export volume dropped
about 15 percent from the fourth
quarter of 1981 to the fourth quarter

26

International Developments

U.S. Balances on Trade and
Current Account
Billions.of dollars
Current account

20

40
Merchandise trade

1978

1980

1982

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

of 1982, with export prices changing
only slightly. That decline in export
volume was considerably greater than
the average for other industrial countries. Imports declined about 9 percent in volume, including a sharp
drop in imports of petroleum. In
1982, weak activity abroad and a
strong dollar reduced U.S. net receipts from abroad of investment
income and for services. In particular, earnings of U.S. direct investments abroad dropped more than
one-fourth.
The decline in real U.S. exports
of goods and services in 1982 represented more than one-third of the
total decline in U.S. gross national
product in that year. This sector was
also a negative factor in 1981. Such
prolonged weakness in the export
sector contrasts with the generally
supportive behavior of exports in
earlier periods of slack in the U.S.
economy. At the same time, the rise
in the value of the dollar over the
past two years probably reduced the
inflation rate nearly \xh percentage
points during 1982.



Net outflows of private capital, as
recorded in the international accounts, declined considerably in 1982.
Flows through banking channels accounted for much of the reduction,
reflecting in part a slowdown in
lending to some developing countries
after midyear. The authorization by
the Federal Reserve of international
banking facilities (IBFs) at the end
of 1981 resulted in a sizable shift of
eligible foreign assets and liabilities
to these offices from both U.S. and
offshore affiliates of banks, but had
no net effect on U.S. international
capital flows.
A considerable net inflow resulted
from heightened interest by foreign
investors in U.S. Treasury obligations and especially in U.S. corporate
bonds offered in offshore markets.
Those offerings rose from about $6
billion in 1981 to more than $14
billion in 1982. Nearly all of these
issues are sold by the offshore financial affiliates of U.S. companies, and
most of the proceeds are accounted
for as direct investment inflows when
passed on to the U.S. parent company. These transfers, together with
the lower reinvested earnings of U.S.
companies abroad, account for the
net inflows from U.S. direct investments abroad. A contrasting development was a drop in foreign direct
investment in the United States from
the peak 1981 amount. The persistence of a large positive statistical
discrepancy in the international accounts suggests a continuing demand
for dollar assets that is operating
through channels that are not well
covered in the reporting system.
In official capital flows, foreign
official assets in the United States
rose only slightly in 1982 despite a
record level of intervention sales of
dollars by foreign monetary authori-

International Developments
ties. A substantial portion of those
sales apparently were financed from
current earnings, borrowing, or assets held outside the United States.
Assets of OPEC countries held in
the United States increased moderately. U.S. official reserves rose
somewhat during the year; the U.S.
reserve position with the IMF increased as that institution used dollars to provide liquidity to other
members, and reserve gains also
reflected swap agreements with Mexico and Brazil.

27

Foreign Currency Operations
The weighted average exchange value
of the dollar rose sharply further in
1982, recording a net increase of 13
percent from December to December. The dollar's rise reflected, in
part, a perceived improvement in
U.S. price performance, both actual
and prospective, relative to that
abroad. Nominal interest differentials shifted slightly against the dollar
over the year, but differentials in
real interest rates may have moved

U.S. International Transactions1
Billions of dollars
Year

Quarter

Transaction
1981

1982

1982

1981
04

3

-6.7
-36.1
211.2
247.3
28.2
8.9

01

Q2

-.9
-9.2
57.6
66.8
8.5
1.6

1.1
-5.9
55.6
61.5
6.9
2.1

2.2
-5.8
55.0
60.8
7.7
2.0

Q3

Q42

-4.2
-12.5
52.3
64.8
7.4
2.5

-5.6
-11.9
48.2
60.1
6.2
2.4

Current account
Merchandise trade balance
Exports
Imports
Investment income (net) 4
Other services
Unilateral transfers, private and
government

4.5
-27.9
236.3
264.1
33.0
5.9
-6.6

-7.7

-1.9

-2.0

-1.7

-1.7

-2.3

Private capital flows
Bank-reported capital, net
(outflows, - )
U.S. net purchases ( - ) of foreign
securities
Foreign net purchase ( + ) of U.S.
Treasury securities
Foreign net purchase of other U.S.
securities
U.S. direct investment abroad 4
Foreign direct investment in United
States4
Other corporate capital flows, net

-25.8

-22.2

-16.0

-1.0

-7.5

-8.2

-5.5

-43.3

-42.5

-22.2

-7.3

-14.4

-10.8

-10.0

-5.4

-7.5

-2.8

-.5

-.4

-3.1

-3.5

2.9

6.7

1.2

1.3

2.1

1.3

2.0

7.1
-8.7

5.9
5.5

.4
-1.0

1.3
-.1

2.5
2.6

.1
1.0

2.0
2.0

21.3

8.3
1.5

9.3
-1.0

1.2
3.1

2.8
-2.6

2.3
1.1

2.0

3.0

8.1

-3.1

2.0

2.1

2.0

-12.5
-2.5

-.7
-.4

-2.0

-2.7
-.8

-3.2

-4.7
-.7

-2.1

.7

-7.9

-.9

38.3

2.5
7.0

Foreign official assets in United States
(increase, + )
U.S. government foreign assets, net
(increase, - )
Reserve position in IMF
Convertible currencies and other reserve assets
U.S. government foreign credits and
other claims, net
Allocation of special drawing rights—
Seasonal adjustment discrepancy
Statistical discrepancy

.2
4.8
-10.3
-2.5
-.9
-7.0
1.1
25.8

1. Details may not add to totals because of rounding.
2. Data for fourth quarter are partial and preliminary, and include Federal Reserve staff estimates.
3. Current account seasonally adjusted; other accounts not seasonally adjusted.




-.5
-.5
-1.0
— 9

-.3
-1.5
.6
5.4

-.5
-.3
-2.4
-2.0
15.5

-1.0
-3.0
2.3
7.5

4. Includes reinvested earnings.
SOURCE. U.S. Department of Commerce, Bureau
of Economic Analysis.

28

International Developments

Weighted Average Exchange Value and
Interest Rate Differential
Pc

March 1973=100
Weighted average exchange
value of the dollar

100
rential
90

1980

1981

1982

Exchange value of U.S. dollar is the index of
weighted average exchange value of the U.S. dollar
against currencies of the other G-10 countries plus
Switzerland, using 1972-76 total trade weights.
Interest rate differential is the interest rate on threemonth U.S. certificates of deposit minus the weighted
average foreign three-month interest rate for other
G-10 countries plus Switzerland using 1972-76 total
trade weights.

weighted averages, the mark held
fairly steady through the year; the
yen weakened during the first nine
months, in part because of political
uncertainties, then advanced sharply
at year-end; and sterling held fairly
steady till late in the year, when it
fell sharply as concern mounted that
oil prices could drop significantly.
Major foreign central banks sold,
net, some $40 billion in official intervention operations, after sales of
nearly $30 billion in 1981. U.S.
monetary authorities sold $132 million against foreign currencies, interSelected Exchange Rate Indexes
December 1979=100

80

slightly in favor of dollar assets. A
substantial part of the strength of the
dollar appeared to be related to "safe
haven" considerations—concerns
about political uncertainties abroad
and about strains on the international
banking system, particularly in the
wake of the Mexican debt crisis of
midsummer. Developments in the
U.S. current account seemingly had
little effect on the dollar until November, when public forecasts by
U.S. officials of very large trade and
current account deficits in 1983 may
have contributed to a 4 percent
decline in the dollar.
Over the year, the dollar rose
against all major foreign currencies;
gains ranged from 5V* percent against
the Canadian dollar to 20 percent
against the French franc. Against the
mark, yen, and sterling the dollar
advanced 7, IOV2, and 173A percent
respectively. Calculated on their



Dollar/mark

100
Dollar/yen

Dollar/pound

1980

1981

1982

The weighted average value for each currency is
its exchange value against the currencies of the other
G-10 countries plus Switzerland, using 1972-76 total
trade weights.

International Developments
vening on five days during the year.
Of this total, $30 million was sold in
the second quarter, $11 million in
the third quarter, and $91 million in
the fourth quarter. The Federal Reserve's share of U.S. purchases of
foreign currencies amounted to $43
million equivalent of yen and $33
million equivalent of marks.
The Federal Reserve's holdings of
foreign currencies at year-end were
valued at $4,437 million, mostly in
marks. Mexico had $483 million outstanding on its regular swap line with
the System ($700 million drawn in




29

August, $217 million repaid in December) and an additional $286 million outstanding on the special swap
line with the System (part of the
$1.85 billion package arranged
through the BIS in August). In
addition, the Federal Reserve held,
under warehousing agreement, some
$1,292 million equivalent of foreign
currencies for the Treasury. The
Federal Reserve incurred foreign exchange translation losses of $150
million on its foreign exchange position at year-end, reflecting the dollar's appreciation during the year.

30

Monetary Policy Reports to Congress
Given below are reports submitted
to the Congress by the Federal Reserve on February 10, 1982, and on
July 20, 1982, pursuant to the Full
Employment and Balanced Growth
Act of 1978.
Report on February 10, 1982
Monetary Policy and the
Performance of the Economy
in 1981
The economy was growing rapidly as
1981 began, continuing the sharp
cyclical rebound that had started in
mid-1980. Activity leveled out during
the spring and summer, however,
and it fell in the final quarter of the
year. As a result, the rate of production of goods and services—real gross
national product—was only slightly
higher at the end of 1981 than it had
been a year earlier. With the weakening of output late in the year, the
margin of unutilized plant capacity
widened and the unemployment rate
rose sharply to near postwar record
levels.
While economic activity was disappointing last year, signs of progress
in reducing inflationary pressures were
emerging. The rate of price inflation
slowed from the extremely rapid
pace of the preceding two years, and
as 1981 progressed there also were
indications of an easing in the rate
of wage increases, particularly in
some key pattern-setting industries.
Confidence in the restoration of
reasonable overall price stability is
needed if economic growth is to be
resumed on a sustained basis. The
accelerating inflation of earlier years



had been eroding the foundations of
the nation's economy: capital formation had slowed; productivity was
sagging; the functioning of basic
market mechanisms was being impaired; and inequitable and capricious transfers of wealth were harming many of the weakest among us.
The task of reversing the inflationary
trend of earlier years was made more
difficult because a decade of escalating prices and unsuccessful anti-inflation policies had led to firmly held
expectations of continued high—if
not accelerating—rates of inflation.
Thus, it was recognized that reducing
inflation would take time and that
anti-inflation policies would have to
be applied with persistence if they
were to be effective in altering expectations and slowing the rate of
increases in prices.
While fiscal policy and decisions
made in the private sector have much
to do with the course of economic
developments, economic theory and
experience alike indicate that progress toward price stability cannot be
obtained without adequate restraint
on the growth of money and credit.
Monetary policy was conducted in
1981 with this crucial fact in mind.
The Federal Reserve set objectives
for the growth of the monetary
aggregates that it believed would
help to damp inflation and would
lead to movement over time toward
trend rates of monetary expansion
consistent with the growth of potential output at stable prices.
Short-term market rates of interest
began 1981 at record levels, as rapid
growth of economic activity in the

Monetary Policy Reports
second half of 1980 had pushed up
the demand for money and credit
faster than could be accommodated
within the target ranges for growth
of the monetary aggregates and bank
reserves. Early in 1981 these demands began to subside, pressures
on bank reserve positions were relieved, and money market rates declined for a time. A bulge in money
demand early in the second quarter
was steadily resisted by restraining
the supply of reserves, and in the
process short-term interest rates
moved back to their earlier highs.
By midsummer, short-term interest
rates were declining, as demands for
money and credit slackened while
the Federal Reserve expanded nonborrowed reserves in an effort to
maintain adequate monetary growth.
Those declines in interest rates accelerated in October and November
as the recession took hold.
On balance, short-term interest
rates—although
volatile—moved
down considerably over the course
of 1981. In contrast, long-term rates
rose substantially over the period,
despite declines in the last quarter of
the year. The pressure on long-term
rates appeared to reflect a combination of factors. Of continuing strong
investor concern were anticipations
that continued large federal budget
deficits would clash with private credit
demands particularly as the economy
expanded and put strong pressures
on credit markets. Despite reductions in the growth of many federal
spending programs, federal borrowing in calendar year 1981 siphoned
off roughly a quarter of the total
funds available to domestic nonfinancial borrowers. In the background
were continuing doubts and skepticism that anti-inflation programs
would be carried through. Moreover,



31

the volatility of the markets may
have inhibited aggressive buying of
longer-term securities.
The tensions in credit markets in
1981 had their greatest impact on
capital formation by businesses and
households. Housing construction fell
to its lowest level in the postwar
period; only 1.1 million new housing
units were started in 1981. The weakness in real estate markets last year
reflected a number of influences. Of
paramount importance in the short
run was the cost of mortgage funds.
The average rate on mortgages closed
for new homes was 15.3 percent in
the fourth quarter of 1981, up from
12.6 percent a year earlier. But it
was not higher mortgage rates alone
that cut into housing demand: high
prices also adversely affected the
ability of those seeking new homes
to afford the monthly payments.
Although house prices changed little
in 1981, over the preceding five years
prices of new and existing homes had
risen half again as fast as the overall
rate of inflation. As a result, the
share of average family disposable
income needed to service the monthly
payment on a typical new mortgage
rose from 21 percent in 1976 to
nearly 40 percent last year.
Slow income growth and rising
unemployment, along with the increased cost of credit, combined to
damp consumer spending in 1981—
particularly for more discretionary,
large-ticket items such as autos,
furniture, and appliances. Since the
mid-1970s, household real after-tax
income has only been rising at an
annual rate of Vi percent, compared
with a long-run trend of 2 percent.
At the same time, the prices of
essential items such as food, gasoline, heating fuel, utilities, and medical services—as a group—have been

32

Monetary Policy Reports

rising faster than the overall inflation
rate, and the share of disposable
income devoted to these items has
been increasing. The resulting squeeze
on family budgets led many households to overextend themselves during the second half of the 1970s,
taking on more and more debt to
finance their purchases.
With household balance sheets
debt-laden and credit costs rising, a
retrenchment in consumer borrowing
began in 1980, and continued through
1981. As the year progressed, household balance sheets appeared to be
improving. Consumer debt burdens
(the ratio of monthly debt repayment
obligations to income) declined to
their lowest level in more than five
years. Moreover, partly in response
to the higher after-tax income after
the tax cut on October 1, the saving
rate rose from about 5 percent in the
first three quarters of 1981 to 6
percent in the fourth quarter.
In real terms, personal consumption expenditures rose IVi percent
over the four quarters of 1981. The
gain was concentrated in the early
months of the year as real consumer
spending fell, on balance, over the
final three quarters of 1981. Purchases of new automobiles were
hardest hit. Sales of domestically
produced cars totaled 6.2 million
units in 1981, the poorest performance in 20 years. The depressed
conditions in the auto sector were
related, in part, to the typical cyclical
volatility in the demand for motor
vehicles and to credit market conditions, which affected the cost of
financing new car and truck purchases. However, the current problems in the industry appear to be
related mainly to longer-term trends
in the demand for automobiles. These
include the rapid increase in the



price of new cars, high gasoline and
other operating costs, sluggish growth
of real income, intense foreign competition, and government regulations
that have necessitated large investments to comply with emission control standards and to improve fuel
efficiency. As 1981 was ending, the
auto industry appeared to be taking
aggressive actions to reduce costs
and to improve the competitiveness
of its products.
Business firms, like households,
restrained their spending on investment goods in 1981. Demand was
damped by a substantial degree of
excess capacity and by the rising
trend in corporate bond rates
throughout much of the year, which
boosted the real cost of capital. In
real terms, expenditures for new
plant and equipment rose only IV2
percent over the four quarters of
1981. Although spending for new
structures increased during the year,
real equipment outlays fell for the
second year in a row; the biggest
declines were for electrical machinery and transportation equipment,
while spending for most other capital
goods remained weak.
In contrast to fixed investment
outlays, sizable unintended inventory
accumulation boosted business financing requirements. As the year
went on, unexpectedly weak demand
led to a buildup of excess stocks in
several industries. The most pronounced problem was in autos, but
other manufacturers and retailers
also found their inventory levels
uncomfortably high relative to sales.
On balance, total nominal business
capital spending—fixed investment
and inventories—rose about 20 percent above the 1980 average.
Early in 1981, strong economic
growth helped boost corporate inter-

Monetary Policy Reports
nal funds, greatly reducing corporate
needs for external financing. But as
the economy slowed, corporate profits turned sluggish and businesses
were forced to rely more heavily on
credit markets to satisfy their rising
capital needs. The bulk of business
borrowing last year was in short-term
markets, as most firms felt it best to
defer making long-run commitments
in the current financial environment.
With the accumulation of additional
short-term debt, however, corporate
balance sheet positions deteriorated
further, and the ratio of short-term
to total debt of the nonfinancial
corporate sector rose to a record
high.
Real purchases of goods and services at all levels of government rose
only moderately during 1981 as a
sharp increase in purchases by the
federal government was partly offset
by curtailed spending at the state
and local level. The rise in federal
spending on goods and services reflected another large increase in defense purchases, while federal payroll reductions helped to contain
increases in nondefense outlays. At
the state and local level, real purchases fell 2 percent owing to a
combination of the withdrawal of
federal support for many activities,
the continued impact of tax limitation measures, and the effects of a
sluggish economy on tax revenues.
The weighted-average value of the
dollar against major foreign currencies rose nearly one-fourth during
the period from January to August.
The dollar eased somewhat in the
last part of 1981, but at the end of
the year still remained well above its
year-earlier level. The improvement
in the inflation outlook in the United
States was a factor in the appreciation of the dollar. Moreover, at



33

various times during the year changes
in the differential between interest
rates on dollar assets and rates of
return on foreign currency assets also
had a noticeable impact on exchange
rates.
Real exports of goods and services
increased in the first quarter of 1981,
in part because of strong growth of
GNP in one of our major trading
partners, Canada. But for the next
three quarters, real exports declined
in response to a slowing of economic
growth abroad and the effect of the
appreciation of the dollar in 1980
and 1981. The volume of imports,
other than oil, rose fairly steadily
throughout the year. The current
account, reflecting this weakened
trade performance, shifted from a
surplus in the first quarter to a deficit
by the fourth quarter.
Employment grew at a moderate
rate during the first three quarters of
1981 and the unemployment rate
edged down. Job increases were
strongest in the service and trade
sectors. As economic activity began
to contract in the autumn, the demand for labor fell sharply and the
unemployment rate climbed to 8.8
percent in December—only fractionally below its postwar high. Layoffs
in the durable goods and construction industries accounted for much
of the drop in employment. As a
result, the unemployment rate of
adult men—who tend to be more
heavily employed in these industries—jumped to a postwar record of
7.9 percent in December 1981.
Labor productivity (output per hour
worked) showed considerable fluctuation during 1981, reflecting the
course of economic activity. Productivity rose at an annual rate of \lA
percent in the first three quarters of
1981. However, as often happens at

34

Monetary Policy Reports

the beginning of a cyclical downturn,
output fell more than employment in
the fourth quarter and productivity
declined, offsetting the gains earlier
in the year. Averaging across shortrun cyclical movements, productivity
has shown little improvement in recent years, and thus has provided
virtually no offset to the impact of
rapidly rising compensation on unit
labor costs.
Compensation and wage increases
did decelerate during 1981—with continuing progress observed throughout the year. But the slowing was
moderate, reflecting the basic inertia
of the wage-determination process, in
which many union contracts last three
years or more and nonunion wage
agreements usually are set annually.
By the second half of 1981, however,
some changes in those traditional
wage-setting practices were under way
in several important industries: management and workers alike began to
reconsider planned wage adjustments; some expiring contracts were
renegotiated well in advance of termination dates; and labor agreements
at a number of firms were modified
in an effort to ease cost pressures and
to enable firms to compete more effectively. These adjustments, coupled with the progress seen in reducing inflation during 1981, suggest that
the nation's anti-inflation policies have
set the stage for a sustained unwinding of wage and price increases.
The trend in inflation improved
noticeably during 1981, and by yearend virtually all aggregate price indexes were advancing well below
double-digit rates for the first time
since 1978. The consumer price index
rose 8.9 percent over the course of
1981, down from the average rate of
nearly 13 percent in 1979 and 1980.
Important factors in the slowing of



inflation were exceptionally favorable agricultural supplies and declines, after the first quarter, in world
oil prices. Inflation in areas other
than food and energy—particularly
consumer commodities and capital
equipment—also began to abate, although price pressures persisted in
the consumer service sector, notably
for medical care. As the year progressed, surveys of consumer expectations suggested that the inflationary psychology, which had increasingly
permeated many aspects of economic
behavior in earlier years, appeared
to be subsiding.

The Growth of Money and
Credit in 1981
The Board of Governors in its report
to the Congress last February indicated that the System intended to
maintain restraint in the expansion
of money and credit in 1981. The
specific ranges chosen by the Federal
Open Market Committee (FOMC)
for the various monetary aggregates
anticipated a deceleration in monetary growth that would encourage
further improvement in price performance. Measured from the fourth
quarter of 1980 to the fourth quarter
of 1981, and abstracting from the
effects on deposit structure of the
authorization of negotiable order of
withdrawal (NOW) accounts nationwide, the ranges adopted were as
follows: for Ml-A, 3 to 5Vi percent;
for Ml-B, 3Vi to 6 percent; for M2,
6 to 9 percent; and for M3, 6V2 to
9x/2 percent. The associated range for
commercial bank credit was 6 to 9
percent.
In formulating its objectives for
1981, the FOMC knew that the
growth rates of the narrow aggre-

Monetary Policy Reports
gates would be affected markedly by
shifts into NOW accounts, which for
the first time became available nationwide in January. Transfers into
NOW accounts, which are included
in Ml-B, from savings deposits and
other asset holdings not included in
Ml were expected to be particularly
large in the early months of the year.
Thus, in order to avoid confusion
about the intent of policy and to
facilitate comparisons with previous
years, the objectives announced for
Ml-B abstracted from such shifts.1
Even after accounting for such shifts,
however, the FOMC anticipated that
the growth rates of the various aggregates were likely to diverge more
than usual, reflecting the rapid pace
of institutional change in financial
markets. The FOMC indicated that
if Ml-B growth (adjusted for shifts
into new NOW accounts and other
checkable deposits) was about in the
middle of its annual range, the growth
of M2 was likely to be in the upper
part of its range, given the popularity
of the nontransaction components of
M2 that pay market-related interest
rates. It also was noted that the
relationship of M3 and bank credit
to their respective ranges would be
influenced in an important way by
the pattern of credit flows that would
emerge, and particulary by whether
financial conditions would be conducive for corporations to refinance
short-term borrowing in the bond
and equity markets.
It soon became apparent as 1981
unfolded that the behavior of the
aggregates was turning out to be
even more divergent than had been
anticipated. Growth rates of the
1. The shift adjustments were estimated on
the basis of survey evidence and were published regularly over the past year.



35

shift-adjusted narrow aggregates were
low in the opening months of the
year, a development that was welcome following rapid growth in the
latter part of 1980. A strong surge in
April was offset by weakness over
the remainder of the second quarter.
On the whole, average growth in
adjusted Ml-B over the first half of
1981 was well below the growth that
would have been expected on the
basis of historical relationships among
money, GNP, and interest rates. On
the other hand, despite the weakness
in Ml-B, the broader aggregates
expanded quite rapidly in early 1981.
Growth in M2 over the first half was
near the upper end of its annual
range, while the expansion of M3
placed this aggregate above the upper bound of its range at midyear.
After reassessing its objectives for
1981 at midyear, the FOMC elected
to leave unchanged the previously
established ranges for the aggregates
over the remainder of the year.
However, in light of the reduced
growth in Ml-type balances over the
first half of the year, indications that
this weakness might reflect a lasting
change in cash management practices
of individuals and businesses related
to the growth of alternative means
of holding highly liquid funds, and
given the relatively strong growth of
the broader aggregates, the FOMC
anticipated that growth of the narrow
aggregates might likely and desirably
end the year near the lower bounds
of their annual ranges. Even so,
given the sluggishness early in the
year, this decision implied that growth
of Ml-A and of Ml-B would accelerate over the balance of the year.
At the same time, the FOMC indicated that M2 and M3 might well
end the year around the upper ends
of their ranges. This expectation also

36

Monetary Policy Reports

reflected in part the possibility that
regulatory and legislative actions as
well as the popularity of money
market mutual funds might intensify
the public's preference to hold the
type of assets encompassed in the
broader aggregates.
Although growth of narrow money
in the second half of the year was on
average about the same as in the
first half, Ml-B strengthened appreciably in the final two months of the
year. This acceleration appeared to
reflect in part a lagged response to
large short-term interest rate declines
in the summer and fall and in part a
shift to preferences for very liquid
assets in an environment of heightened economic and financial uncertainty. Similarly, M2 growth in the
second half was about in line with
expansion in the first half, although
growth in this measure also picked
up at the end of the year. The
expansion in M3, on the other hand,
decelerated from the rapid pace of
the first half, as sales of large certificates of deposit slowed in concert
with a slackening in growth of bank
credit and stronger growth in core
deposits.
Measuring growth for the year
from the fourth quarter of 1980 to
the fourth quarter of 1981, growth in
Ml-B adjusted for shifts into NOW
accounts was about 2VA percent—IVi
percentage points below the lower
end of its targeted range.2 Growth
rates, of course, are affected by the
particular pattern of variation that
develops over the course of the year.
Measuring expansion from December to December, growth in adjusted
Ml-B in 1981 was at a rate of 3%
2. Unadjusted for shifts into NOW accounts, Ml-B increased 5.0 percent from the
fourth quarter of 1980 to the fourth quarter
of 1981.



percent. On a yearly average basis,
which reflects movements through
the year as a whole relative to the
level of the previous year, the increase was at a rate of 4% percent.
At the same time, measured from
the fourth quarter of 1980 to the
fourth quarter of 1981, growth of M2
was 9.4 percent, 0.4 percentage point
above the upper limit of its range.
Also, growth of M3 exceeded the
upper end of its range by 1.9 percentage points, while bank credit
growth was just inside the upper end
of its annual range.
The table puts the performance of
the aggregates during 1981 into a
somewhat longer-term perspective,
showing two measures of annual
growth. No matter which of the
measures of annual growth is used,
a marked deceleration in Ml-B since
1978 is apparent. The table also
clearly illustrates that growth rates
for the broader aggregates have been
maintained around a higher level,
and larger divergences have developed from growth of Ml-B. In considerable part, these differences can
Growth of Money and Bank Credit
Percentage changes
Period

Ml-B 1

M2

M3

Bank
credit2

Fourth quarter to
fourth quarter
1978
1979 .
1980
1981

8.3
7.5
6.6
2.3

8.3
8.4
9.1
9.4

11.3
9.8
9.9
11.4

13.3
12.6
8.0
8.8

Annual average to
annual average
1978
1979
1980
1981

8.2
7.7
5.9
4.7

8.8
8.5
8.3
9.7

11.8
10.3
9.3
11.5

12.4
13.5
8.5
9.4

1. Growth rates for 1980 and 1981 adjusted for
shifts to other checkable deposit accounts since the
end of the preceding year.
2. The December level used for calculating these
1981 growth rates incorporates an adjustment to
abstract from the shifting of assets from domestic
banking offices to international banking facilities.

Monetary Policy Reports
be explained by structural changes in
financial markets.
As noted earlier, it was already
obvious last February when the
FOMC was meeting to set its objectives for 1981 that shifts into NOW
accounts after their nationwide authorization at the beginning of 1981
would alter the behavior of the
narrow aggregates. Data for early
January had pointed to a very large
movement of funds at the beginning
of the year. However, the pattern
and magnitude of subsequent movements could not be predicted with
any certainty. As events unfolded,
the shifts into NOW accounts were
more concentrated in the early part
of 1981 than was anticipated by the
working assumptions of the Board's
staff. Through June, the adjustments
made to the aggregates to correct for
such shifts had the effect of raising
Ml-A by $28 billion and lowering
Ml-B by $9Vz billion. Over the
second half of 1981, further adjustments for shifts into NOW accounts
raised Ml-A by only another $6
billion and lowered Ml-B by about
$2V2 billion more. While these adjustments are imprecise and based
on evidence from a variety of sources,
data on the number of NOW accounts coupled with other available
information confirm that the shifting
of funds from demand deposits to
new interest-bearing checking accounts tapered off considerably by
the fall. A surge in NOW account
balances near the end of the year
and early in 1982 appeared to reflect
primarily the precautionary savings
behavior already noted rather than
shifting of funds into new accounts.
As already indicated, the growth
of the narrow aggregates adjusted
for shifts into NOW accounts was
low in 1981 compared with the other



37

aggregates and also relative to past
relationships with income and interest rates. Continued high interest
rates provided a substantial incentive
for businesses to intensify efforts to
pare narrow money balances and to
make increasingly widespread use of
sophisticated cash management techniques. At the same time, explosive
growth of money market mutual
funds (MMMFs), many of which
offer check-writing or other thirdparty-payment services comparable
with conventional checking accounts,
appeared to induce some households
to minimize checking account balances. Also, the broader availability
of NOW accounts may have stimulated households to reconsider in a
more general way their habits of cash
management.
Likewise, the strong growth of M2
over the past few years reflected
changing financial practices. Money
market funds and instruments offered by depository institutions that
pay market-related interest rates have
been accounting for an increasing
proportion of M2, as such assets
have become much more competitive
with open market instruments. Indeed, the attractiveness of small time
deposits was enhanced last year by
the liberalization of the interest rate
ceilings on small savers certificates
and to a limited extent by the introduction of all savers certificates.
Even so, three-fourths of the increase in the nontransaction components of M2 was accounted for by
MMMFs, which grew 140 percent
last year.
The distortions in the aggregates
resulting from the expansion in
MMMFs are difficult to quantify.
Surveys of household behavior and
data on account turnover suggest
that most shareholders of money

38

Monetary Policy Reports

funds have made little or no use of
their accounts for transaction purposes. Thus, the direct substitution
effect of MMMFs on the growth of
Ml has appeared small, perhaps on
the order of 1 percentage point on
the rate of growth for the year.
However, indirect effects may have
been larger as the potential availability of such a highly liquid asset
may facilitate holding less funds in
demand and NOW accounts.
The direct effect of MMMFs on
M2 appears more substantial in dollar terms. Presumably, the great bulk
of the inflow of $20 billion in 1981
to MMMFs catering only to institutional investors was funds that otherwise would have been invested in
assets not included in M2. In addition, it seems likely that a small
portion of the growth of $90 billion
in other types of MMMFs also reflected diversions from assets not in
M2.
In light of the sizable distortions
created by the growth of institutiononly MMMFs, such funds have been
excluded from the revised M2, but
they will continue to be a component
of M3. In addition, M2 has been
revised to include retail repurchase
agreements (RPs). Retail RPs, which
previously had been a component
only of M3, were promoted on a
substantial scale in 1981, likely attracting funds mainly from household
small-denomination time deposits and
MMMF holdings and thus resulting
in a downward bias on M2 growth.
The net effect on M2 growth of
reclassifying institution-only MMMFs
and retail RPs, along with other
minor revisions, was small.
M3 increased more rapidly than
M2 last year largely because of the
substantial expansion in large CDs,
particularly over the first half of the



year. With growth of core deposits
weak on balance over the year,
depository institutions increased their
managed liabilities to support expansion in loans and investments.
Growth in bank credit accelerated
somewhat in 1981 but stayed just
within the upper end of its annual
target range. The pickup in bank
credit growth was concentrated in
business loans. Growth in this category was bolstered by the high level
of corporate bond rates through most
of the year, which tended to focus
business credit demands on shortterm borrowing such as bank loans
and commercial paper. Although
merger activity contributed significantly to the growth of loan commitments over the year, actual takedowns for this purpose influenced
loan growth only slightly. Real estate
loans at banks in 1981 grew at about
the same moderate pace as in 1980,
while consumer lending strengthened
a little from 1980. Security holdings
at banks grew somewhat more slowly
than loans in 1981.
The bank credit data in December
were affected by the shifting of assets
to accounts in the newly authorized
international banking facilities (IBFs).
About $22 billion of loans to foreign
customers are estimated to have
shifted from U.S. offices to IBFs in
December. The data presented in
this report are adjusted for this shift.
Without this adjustment, the increase in bank credit from the fourth
quarter of 1980 to the fourth quarter
of 1981 was 8!/4 percent, Vi percentage point less than shown by the
adjusted data.
Broader measures of credit flows
reflected the slowing pace of production and income in 1981 and the
effects of high interest rates. Households and businesses continued to

Monetary Policy Reports
increase their borrowing over the
first three quarters, but their use of
credit contracted in the fourth quarter
in response to the weakening of the
economy. In view of the high level
of long-term interest rates during
most of 1981, virtually all of the
increase in funds raised was in shortterm debt instruments. Overall, net
funds raised by nonfinancial sectors
rose 7 percent in 1981 and continued
to fall relative to GNP for the third
consecutive year.

The Federal Reserve's
Objectives for the Growth
of Money and Credit
The Federal Reserve remains committed to restraint on the growth of
money and credit in order to exert
continuing downward pressure on
the rate of inflation. Such a policy is
essential if the groundwork is to be
laid for sustained economic expansion.
A distinct slowing of inflation occurred during 1981, and the prospects for further progress are good.
Failure to persist in the effort to
maintain the improvement would have
long-lasting and damaging consequences. Once again, underlying expectations would deteriorate, with
potentially adverse effects on financial markets, particularly long-term
rates. The result would be to embed
inflation even more deeply into the
nation's economic system—with the
attendant debilitating consequences
for the performance of the economy.
A failure to continue on the current
path would mean that the next effort
would be associated with still greater
hardship.
Progress toward price stability can
be achieved most effectively and with
the least amount of economic disrup


39

tion by the concerted application of
monetary, fiscal, regulatory, and other
economic policies. But quite clearly
inflation cannot persist over an extended period unless financed by
excessive growth of money. Thus, a
policy of restraint on the growth of
the monetary aggregates is a key
element in an anti-inflation strategy.
Targets for the monetary aggregates have been set with the aim of
slowing the expansion of money over
time to rates consistent with the
needs of an economy growing in line
with its productive potential at reasonably stable prices. The speed with
which the trend of monetary growth
can be lowered without unduly disturbing effects on short-run economic performance depends, in part,
on the credibility of anti-inflation
policies and their effects on price
expectations as well as on other
forces influencing interest rates and
credit market demands, including
importantly the fiscal position of the
federal government. More technically, financial innovation or other
factors affecting the demand for specific forms of money need to be
monitored.
In its deliberations concerning the
target ranges for 1982, the Committee recognized that the recent rapid
increase in Ml placed the measure
in January well above the average
level during the fourth quarter of
1981. the conventional base for the
new target. Experience has shown
that, from time to time. Ml growth
can fluctuate rather sharply over
short periods, and these movements
may be at least partially reversed
fairly quickly. The available analysis
suggested that the recent increase
reflected in part some temporary
factors of that kind, rather than
signaling a basic change in the amount

40

Monetary Policy Reports

of money needed to finance growth
in nominal GNP.
In light of all these considerations,
the FOMC reaffirmed the following
ranges of monetary expansion—tentatively set out in mid-1981—for the
year ending in the fourth quarter of
1982: for ML 2Vi to 5V2 percent; for
M2, 6 to 9 percent, and for M3, Wi
to 9V2 percent.3 The FOMC also
adopted a corresponding range of 6
to 9 percent for commercial bank
credit. These ranges are the same as
those agreed to in July and reaffirm
the Federal Reserve's commitment
to reduce inflationary forces. As has
been typical in the past, these changes
are measured from actual fourthquarter levels from the previous year.4
During 1981, Ml-B (shift-adjusted) rose slowly in relation to
nominal GNP.5 On the assumption
3. The objective for growth of narrowly
defined money over 1982 is set in terms of
Ml only. Last February, when the FOMC set
its targets for narrow money, it recognized
that regulatory changes allowing for the establishment of nationwide NOW accounts would
distort the observed behavior of Ml-A and
Ml-B. Accordingly, the targets were set on a
basis that abstracted from the shifting of funds
into interest-bearing checkable deposits. Based
on a variety of evidence suggesting that the
bulk of the shift to NOW accounts had
occurred by late 1981, the Federal Reserve
reaffirmed in December its previously announced intention that starting in January
1982 shift adjustments would no longer be
published and only a single Ml figure would
be released with the same coverage as Ml-B.
4. Because of the introduction of IBFs, the
bank credit data after December 1981 are not
comparable with earlier data. The targets for
1982 are in terms of growth from an average
of December 1981 and January 1982 to the
average level in the fourth quarter of 1982.
5. Ml-B velocity, before shift adjustment,
rose at a rate closer to historical experience.
However, the shift of funds from savings
accounts or other sources of funds not included in measures of the narrow money
supply temporarily depressed that velocity
figure, particularly early in the year.



that the relationship between growth
of Ml and the rise of nominal GNP
is likely to be more normal in 1982,
and given the relatively low base for
the range of Ml-B, the Committee
contemplated that growth in Ml this
year may well be in the upper part
of its range. At the same time, the
FOMC elected to retain the lower
bound of 2V2 percent for growth of
Ml that was tentatively set last July
in recognition of the possibility that
financial innovations—especially
techniques for economizing on the
use of checking account balances
included in Ml—could accelerate,
with restraining effects on growth of
Ml.
The actual and potential effects on
Ml of ongoing changes in financial
technology and the greater availability of a wide variety of moneylike
instruments and near-monies strongly
suggest the need for also giving
careful attention to developments
with respect to broader money measures in the implementation of monetary policy. The range for growth
of M2 is the same as in 1981 when
actual growth slightly exceeded the
upper bound of the range. The Committee contemplated that M2 growth
in 1982 would be somewhat below
the 1981 pace, although probably in
the upper part of the range. However, should personal saving, responding to recent changes in tax
law or other influences, grow much
more rapidly in relation to income
than now anticipated, or should depository institutions attract an exceptionally large inflow to individual
retirement accounts from sources
outside measured M2, growth of M2
might appropriately reach—or even
slightly exceed—the upper end of the
range. The ability of depository institutions to compete for the public's

Monetary Policy Reports
savings will, of course, also be affected in part by deregulatory decisions that may be made by the
Depository Institutions Deregulation
Committee.
The 1982 ranges for M3 and bank
credit were left unchanged from those
for 1981. These aggregates again will
be influenced importantly by the
degree to which credit demands tend
to be focused on short-term borrowing and are funded at home or
abroad.

The Outlook for the Economy
in 1982
Economic activity still appears to be
contracting; industrial production and
employment certainly declined further in January, with the extent of
the fall worsened by exceptionally
bad winter storms. Demand in the
key sectors that had led the decline—
housing and consumer spending—
showed some signs of leveling off as
the year began, and the recent cuts
in production likely have helped to
relieve some of the remaining inventory imbalances. Recent weatherrelated disruptions may affect the
incoming data for a time, but the
economy appears to be in the process
of bottoming out, and a perceptible
recovery in business activity seems
likely before midyear.
One element supporting final demands in the economy is the federal
government. Part of the recent expansion in the deficit reflects the
cushioning effects of reduced taxes
and increased government expenditures that result from declining income growth and rising unemployment. In addition, however, the
buildup in defense spending is a
continuing source of stimulus. The
second phase of the tax reductions



41

that occurs in July will provide another expansionary impetus to the
economy. At the same time, the
deficit—particularly if expected to
continue at exceptionally high levels
in later years—adversely influences
current financial market conditions.
The Federal Reserve's objectives
for money growth in 1982 are consistent with recovery in economic
activity. The expansion is likely to
be concentrated initially in consumer
spending. Given the substantial margin of excess capacity, outlays for
business fixed investment may remain weak, particularly if long-term
interest rates continue to fluctuate
near their current high levels. A
continuation of high levels of longterm rates also would inhibit the
recovery in residential housing, although demographic factors will continue to buttress demands in that
sector.
The effort to deal with inflation is
at a critical juncture. The upward
trend in inflation clearly has been
halted and the process of reversal is
under way. There are signs that price
setting, wage bargaining, and personal spending decisions are beginning to be made and that these
decisions over time will serve to
moderate, rather than to intensify,
inflationary pressures. Nonetheless,
the behavior of financial markets and
other evidence strongly suggests the
continued existence of considerable
skepticism that progress in reducing
inflation will be maintained. Lasting
improvement in financial markets—
particularly for longer-term instruments—is dependent on confidence
that progress against inflation will
continue; looming federal deficits
have served to shake that confidence.
Prospects for lower interest rates and
for sustaining recovery over a long

42

Monetary Policy Reports

period—indeed for the timing of
recovery—are thus tied to prospects
for a more stable price level.
How we emerge from the current
recession will be crucial to curtailing
inflation further. The recovery phases
that have followed recent recessions
have sometimes been associated with
an acceleration of inflation. However, if monetary and fiscal policies
are appropriately disciplined, this
pattern need not recur; and recovery
from the current recession will be
consistent with further progress toward achieving sustainable growth,
price stability, and lower levels of
interest rates.
Given the current circumstances
and in light of the objectives for the
monetary aggregates for the coming
year, the individual members of the
FOMC have formulated projections
for economic performance in 1982
that generally fall within the ranges
indicated in the table. The members
of the FOMC expect inflation to
continue to moderate in 1982. At the
same time, real activity is expected
to accelerate with most of the growth
coming in the second half of the
year. With inflation continuing to be
substantial and the prospect of the
federal budget deficit remaining large
even as the recovery gathers momenEconomic Projections for 1982
Percent
Projected for 1982
Period

Changes, fourth
quarter to
fourth quarter
Nominal GNP ...
Real GNP
GNP deflator....
Average level in
the fourth
quarter
Unemployment
rate

Actual
1981

FOMC
members

Administration

8 to 10'/2
12 to 3
/

9.3
.7
8.6

61/2 tO 73/4

10.4
3.0
7.2

8.3

81/4 t o 91/2

8.4




turn, demands for credit should intensify as the year progresses. In
these circumstances, the recovery is
likely to be somewhat restrained,
with the result that unemployment
probably still will be substantial at
year-end.
The FOMC members' projections
generally encompass those that underlie the administration's recent
budget proposals. The consensus view
of the FOMC anticipates an improvement in inflation during 1982 comparable with the administration's as
well as a similar outlook for the labor
market. The administration's projection for real growth falls at the high
end of the FOMC consensus. In the
event prices and wages should respond more rapidly to anti-inflation
policies than historical experience
would suggest or should more favorable productivity trends develop, then
the recovery could be faster without
adverse pressures developing on
prices, wages, and interest rates.
Report on July 20, 1982
Performance of the Economy
in the First Half of 1982
The contraction in economic activity
that began in mid-1981 continued
into the first half of 1982, although
at a diminished pace. Declines in
production and employment slowed,
while sales of automobiles improved.
Real gross national product fell at an
annual rate of 4 percent between the
third quarter of 1981 and the first
quarter of 1982. With output declining, the margin of unused plant
capacity widened and the unemployment rate rose to a postwar record.
By mid-1982, however, the recession seemed to be drawing to a close.
Inventory positions had improved
substantially, home building was beginning to revive, and consumer

Monetary Policy Reports
spending appeared to be rising.
Nonetheless, business investment
showed signs of increased weakness.
Although final demands apparently
fell during the second quarter, the
rate of inventory liquidation slowed,
and on balance, real GNP apparently
changed little. If, in fact, this spring
or early summer is determined to
have been the cyclical trough, both
the depth and the duration of the
decline in activity will have been
about the same as in other postwar
recessions.
The progress in reducing inflation
that began during 1981 continued in
the first half of 1982. The greatest
improvement was in prices of food
and energy—which benefited from
favorable supply conditions—but increases in price measures that exclude these volatile items also have
slowed markedly. Moreover, increases in employment costs, which
carry forward the momentum of
inflation, have diminished considerably. Not only have wage increases
eased for union workers in hardpressed industries as a result of
contract concessions, but wage and
fringe benefit increases also have
slowed for nonunion and white-collar
workers in a broad range of industries. In addition there has been
increasing use of negotiated workrule
changes as well as other efforts by
business to enhance productivity and
trim costs. At the same-time, purchasing power has been rising; real
compensation per hour increased 1
percent during 1981 and rose at an
annual rate of about 3 percent over
the first half of 1982.
Interest Rates

As the recession developed in the
autumn of 1981, short-term interest
rates moved down substantially.
However, part of this decline was



43

retraced at the turn of the year as
the demand for money bulged and
reserve positions tightened. After the
middle of the first quarter, shortterm rates fluctuated but generally
trended downward, as money—particularly the narrow measure, Ml—
grew slowly on average and the
weakness in economic activity continued. In mid-July, short-term rates
were distinctly below the peak levels
reached in 1980 and 1981. Nonetheless, short-term rates were still quite
high relative to the rate of inflation.
Long-term interest rates also remained high during the first half of
1982. In part, this reflected doubts
by market participants that the improved price performance would be
sustained over the longer run. This
skepticism was related to the fact
that, during the past two decades,
episodes of reduced inflation have
been short-lived, followed by reacceleration to even faster rates of
price increase. High long-term rates
also have been fostered by the prospect of huge deficits in the federal
budget even as the economy recovers. Fears of deepening deficits
have affected expectations of future
credit market pressures, and perhaps
also have sustained inflation expectations. The resolution on the 1983
fiscal year budget that was adopted
by the Congress represents a beginning effort to deal with the prospect
of widening deficits: and the passage
of implementing legislation should
work in the direction of reducing
market pressures on interest rates.
Domestic Credit Flows
Aggregate credit flows to private
nonfinancial borrowers increased
somewhat in the first half of 1982
from the reduced pace in the second
half of 1981, according to very preliminary estimates. Business borrow-

44

Monetary Policy Reports

ing rose while households reduced
further their use of credit. Borrowing
by the federal government increased
sharply in late 1981, after the 5
percent cut in personal income tax
rates, and remained near the new
higher level on a seasonally adjusted
basis during the first half of 1982.
Reflecting uncertainties about the
future economic and financial environment, both lenders and borrowers
have shown a strong preference for
short-term instruments.
Much of the slackening in credit
flows to nonfinancial sectors in the
last part of 1981 was accounted for
by households, particularly by household mortgage borrowing. Since then,
mortgage credit flows have picked
up slightly. The advance was encouraged in part by the gradual decline
in mortgage rates from the peaks of
last fall. In addition, households have
made widespread use of adjustablerate mortgages and "creative" financing techniques—including relatively short-term loans made by sellers at below-market interest rates
and builder "buydowns." About twofifths of all conventional mortgage
loans closed recently were adjustable-rate instruments, and nearly
three-fourths of existing home transactions reportedly involved some sort
of creative financing.
Business borrowing dropped sharply
during the last quarter of 1981,
primarily reflecting reduced inventory financing needs. However, use
of credit by nonfinancial corporations rose significantly in the first
half of 1982, despite a further drop
in capital expenditures. The high
level of bond rates has discouraged
corporations from issuing long-term
debt, and a relatively large share of
business borrowing this year has
been accomplished in short-term



markets—at banks and through sales
of commercial paper. The persistently large volume of business borrowing suggests an accumulation of
liquid assets as well as an intensification of financial pressures on at
least some firms. Signs of corporate
stress continue to mount, including
increasing numbers of dividend reductions or suspensions, a rising
fraction of business loans at commercial banks with interest or principal
past due, and relatively frequent
downgradings of credit ratings.
After raising a record volume of
funds in U.S. credit markets in 1981,
the federal government continued to
borrow at an extraordinary pace
during the first half of 1982 as
receipts (national income and product accounts basis) fell while expenditures continued to rise. Owing to
the second phase of the tax cut that
went into effect on July 1 and the
effects on tax revenues of the recession and reduced inflation, federal
credit demands will expand further
in the period ahead.
Consumption
Personal consumption expenditures
(adjusted for inflation) fell sharply
in the fourth quarter of 1981, but
turned up early in 1982 and apparently strengthened further during the
second quarter. The weakness in
consumer outlays during the fourth
quarter was concentrated in the auto
sector, as total sales fell to an annual
rate of 7.4 million units—the lowest
quarterly figure in more than a decade—and sales of domestic models
plummeted to a rate of 5.1 million
units.
Price rebates and other sales promotion programs during the early
months of 1982 provided a fillip to
auto demand, and sales climbed to a

Monetary Policy Reports
rate of 8.1 million units. Auto markets remained firm into the spring,
boosted in part by various purchase
incentives. But as has generally occurred when major promotions have
ended, auto purchases fell sharply in
June. Outside the auto sector, retail
sales at most types of stores were up
significantly for the second quarter
as a whole. Even purchases at furniture and appliance outlets, which
had been on a downtrend since last
autumn, increased during the spring.
Real after-tax income has continued to edge up, despite the sharp
drop in output during the recession.
The advance reflects not only typical
cyclical increases in transfer payments but also the reduction in
personal income tax rates on October
1. Households initially saved a sizable proportion of the tax cut, boosting the personal saving rate from 5lA
percent in mid-1981—about equal to
the average of the late 1970s and
early 1980s—to 6.1 percent in the
fourth quarter of 1981. During early
1982, however, consumers increased
spending, partly to take advantage
of price markdowns for autos and
apparel, and so the saving rate fell.
Business Investment
As typically occurs during a recession, the contraction in business fixed
investment has lagged behind the
decline in overall activity. Indeed,
even though real GNP dropped substantially during the first quarter of
1982, real spending for fixed business
capital actually rose a bit. An especially buoyant element of the investment sector has been outlays for
nonfarm buildings—most notably,
commercial office buildings, for which
appropriations and contracts often
are set a year or more in advance.
In contrast to investment in struc


45

tures, business spending for new
equipment showed little advance
during 1981 and weakened considerably in the first half of 1982. Excluding business purchases of new cars,
which also were buoyed by rebate
programs, real investment in producers' durable equipment fell at an
annual rate of 2 percent in the first
quarter. The decline evidently accelerated in the second quarter. In April
and May, shipments of nondefense
capital goods, which account for
about 80 percent of the spending on
producers' durable equipment, averaged nearly 3 percent below the firstquarter level in nominal terms.
Moreover, sales of heavy trucks
dropped during the second quarter
to a level more than 20 percent
below the already depressed firstquarter average.
Businesses liquidated inventories
at a rapid rate during late 1981 and
in the first half of 1982. The adjustment of stocks followed a sizable
buildup during the summer and autumn of last year that accompanied
the contraction of sales. The most
prominent inventory overhang by the
end of 1981 was in the automobile
sector as sales fell precipitously.
However, with a combination of
production cutbacks and sales promotions, the days' supply of unsold
cars on dealers lots had improved
considerably by spring.
Manufacturers and nonauto retailers also found their inventories rising
rapidly last autumn. Since then, manufacturers as a whole have liquidated
the accumulation that occurred during 1981, although some problem
areas still exist—particularly in primary metals. Stocks held by nonauto
retailers have been brought down
from their cyclical peak, but they
remain above prerecession levels.

46

Monetary Policy Reports

Residential Construction
Housing activity thus far in 1982 has
picked up somewhat from the depressed level in late 1981. Housing
starts during the first five months of
1982 were up 10 percent on average
from the fourth quarter of 1981. The
improvement in home building has
been supported by strong underlying
demand for housing services in most
markets and by the continued adaptation of real estate market participants to nontraditional financing
techniques that facilitate transactions.
The turnaround in housing activity
has not occurred in all areas of the
country. In the south, home sales
increased sharply in the first part of
1982, and housing starts rose 25
percent from the fourth quarter of
1981. In contrast, housing starts declined further, on average, during
the first five months of 1982 in both
the west and the industrial north
central states.
Government
Federal government purchases of
goods and services, measured in
constant dollars, declined over the
first half of 1982. The decrease occurred entirely in the nondefense
area, primarily reflecting a sharp
drop in the rate of inventory accumulation by the Commodity Credit
Corporation during the spring quarter.
Purchases by the Commodity Credit
Corporation had reached record levels during the previous two quarters,
owing to last summer's large harvests
and weak farm prices. Other nondefense outlays fell slightly over the
first half of the year as a result of
cuts in employment and other expenditures under many programs.
Real defense spending apparently
rose over the first half of the year,
and the backlog of unfilled orders



grew further. The federal deficit on
a national income and product account basis widened from $100 billion at the end of 1981 to about $130
billion during the spring of this year.
Much of this increase in the deficit
reflects the effects of the recession
on federal expenditures and receipts.
At the state and local government
level, real purchases of goods and
services fell further over the first half
of 1982 after having declined 2 percent during 1981. Most of the weakness this year has been in construction outlays as employment levels
have stabilized after large reductions
in the federally funded program
(under the Comprehensive Employment and Training Act) led to sizable
layoffs last year. The declines in state
and local government activity in part
reflect fiscal strains associated with
the withdrawal of federal support for
many activities and the effects of
cyclically sluggish income growth on
tax receipts. Because of the serious
revenue problems, several states have
increased sales taxes and excise taxes
on gasoline and alcohol.
International Payments and Trade
The weighted-average value of the
dollar, after having declined about
10 percent from its peak last August,
began to strengthen sharply again
around the beginning of the year,
and since then it has appreciated
nearly 15 percent on balance. The
appreciation of the dollar has been
associated to a considerable extent
with the declining inflation rate in
the United States and the rise in
dollar interest rates relative to yields
on assets denominated in foreign
currencies.
Reflecting the effects of the
strengthening dollar, as well as the
slowing of economic growth abroad,
real exports of goods and services

Monetary Policy Reports
have been decreasing since the beginning of 1981. The volume of imports
other than oil, which rose fairly
steadily throughout last year, dropped
sharply in the first half of 1982,
owing to the weakness of aggregate
demand—especially for inventories—in the United States. In addition, both the volume and the price
of imported oil fell during the first
half of the year. The current account,
which was in surplus for 1981 as a
whole, recorded another surplus in
the first half of this year as the value
of imports fell more than the value
of exports.
Labor Markets
Employment has declined nearly Wi
million since the peak reached in
mid-1981. As usually happens during
a cyclical contraction, the largest job
losses have been in durable goods
manufacturing industries—such as
autos, steel, and machinery—as well
as at construction sites. The job
losses in manufacturing and construction during this recession follow a
limited recovery from the 1980 recession; as a result, employment levels
in these industries are more than 10
percent below their 1979 highs. In
addition, declines in aggregate demand have tempered the pace of
hiring at service industries and trade
establishments over the past year.
As often happens near a businesscycle trough, employment fell faster
than output in early 1982 and labor
productivity showed a small advance
after having declined sharply during
the second half of 1981.
Since mid-1981 the overall unemployment rate has risen 2lA percentage points to a postwar record of 9lA
percent. The effects of the recession
have been most severe in the durable
goods and construction industries,
and the burden of rising unemploy


47

ment has been relatively heavy on
adult men who tend to be more
concentrated in these industries. At
the same time, joblessness among
young and inexperienced workers
remains extremely high; hardest hit
have been black male teenagers who
experienced an unemployment rate
of nearly 60 percent in June 1982.
Reflecting the persistent slack in
labor markets, most indicators of
labor supply also show a significant
weakening. For example, the number of discouraged workers—that is,
persons who report that they want
work but are not looking for jobs
because they believe they cannot find
any—has increased nearly a half
million over the past year, continuing
an upward trend that began before
the 1980 recession. In addition, the
labor force participation rate—the
proportion of the working-age population that is employed or actively
seeking jobs—has been essentially
flat for the last two years after rising
about Vi percentage point annually
between 1975 and 1979.
Prices and Labor Costs
A slowing in the pace of inflation,
which was evident during 1981, continued through the first half of this
year. During the first five months of
1982 (the latest data available), the
consumer price index (CPI) increased at an annual rate of 3.5
percent, sharply lower than the 8.9
percent rise during 1981. Much of
the improvement was in energy and
food prices as well as in the volatile
CPI measure of homeownership costs.
But even excluding these items, the
annual rate of increase in consumer
prices has slowed to 5Vi percent this
year compared with 9Vz percent last
year.
The moderation of price increases
also was evident at the producer

48

Monetary Policy Reports

level. Prices of capital equipment
have increased at an annual rate of
4V4 percent thus far this year—well
below the 9lA percent pace of 1981.
In addition, the decline in raw materials prices, which occurred
throughout last year, has continued
in the first half of 1982.
Gasoline prices at the retail level,
which had remained virtually flat
over the second half of 1981, fell
substantially during the first four
months of 1982. Slack domestic demand and an overhang of stocks on
world petroleum markets precipitated the decline in prices. However,
gasoline prices began to rise again in
May in reflection of rising consumption, reduced stocks, and lower production schedules by major crude oil
suppliers.
The rate of increase in employment costs decelerated considerably
during the first half of 1982. The
index of average hourly earnings, a
measure of wage trends for production and non-supervisory personnel,
rose at an annual rate of 6Vi percent
over the first half of this year,
compared with an increase of 8V4
percent during 1981. Part of the
slowing was due to early negotiation
of expiring contracts and renegotiation of existing contracts in a number
of major industries. These wage
concessions are expected to relieve
cost pressures and to enhance the
competitive position of firms in these
industries. Increases in fringe benefits, which generally have risen faster
than wages over the years, also are
being scaled back. Because wage
demands, not to mention direct escalator provisions, are responsive to
price performance, the progress made
in reducing the rate of inflation
should contribute to further moderation in labor cost pressures.



The Growth of Money and
Credit in the First Half of 1982
The annual targets for the monetary
aggregates announced in February
were chosen to be consistent with
continued restraint on the growth of
money and credit in order to exert
sustained downward pressure on inflation. At the same time, these
targets were expected to result in
sufficient money growth to support
an upturn in economic activity.
Measured from the fourth quarter of
1981 to the fourth quarter of 1982,
the growth ranges for the aggregates
adopted by the Federal Open Market
Committee (FOMC) were as follows:
for Ml, 2Vi to SVi percent; for M2,
6 to 9 percent; and for M3, 6J/2 to
9V2 percent. The corresponding range
specified by the FOMC for bank
credit was 6 to 9 percent.6
When the FOMC was deliberating
on its annual targets in February, the
Committee was aware that Ml already had risen well above its average level in the fourth quarter of
1981. In light of the financial and
economic backdrop against which the
bulge in Ml had occurred, the Committee believed it likely that there
had been an upsurge in the public's
demand for liquidity. It also seemed
probable that this strengthening of
money demand would unwind in the
months ahead. Thus, under these
6. Because of the authorization of international banking facilities (IBFs) on December
3, 1981, the bank credit data starting in
December 1981 are not comparable with
earlier data. The target for bank credit was
put in terms of annualized growth measured
from the average of December 1981 and
January 1982 to the average level in the fourth
quarter of 1982 so that the shift of assets to
IBFs that occurred at the turn of the year
would not have a major impact on the pattern
of growth.

Monetary Policy Reports
circumstances and given the relatively low base for the Ml range for
1982, it did not appear appropriate
to seek an abrupt return to the
annual target range, and the FOMC
indicated its willingness to permit Ml
to remain above the range for a
while. At the same time, the FOMC
agreed that the expansion in Ml for
the year as a whole might appropriately be in the upper part of its
range, particularly if available evidence suggested the persistence of
unusual desires for liquidity that had
to be accommodated to avoid undue
financial stringency.
In setting the annual target for
M2, the FOMC indicated that M2
growth for the year as a whole
probably would be in the upper part
of its annual range and might slightly
exceed the upper limit. The Committee anticipated that demands for
the assets included in M2 might be
enhanced by new tax incentives such
as the broadened eligibility for individual retirement and Keogh accounts, or by further deregulation of
deposit rates. The Committee expected that M3 growth again would
be influenced importantly by the
pattern of business financing and, in
particular, by the degree to which
borrowing would be focused in markets for short-term credit.
As anticipated—and consistent with
the FOMC's short-run targets—the
surge in Ml growth in December
and January was followed by appreciably slower growth. After January,
Ml increased at an annual rate of
only 1V4 percent on average, and the
level of Ml in June was only slightly
above the upper end of the Committee's annual growth range. From the
fourth quarter of 1981 to June, Ml
increased at a 5.6 percent annual
rate. M2 growth so far this year also



49

has run a bit above the FOMC's
annual range; from the fourth quarter
of 1981 through June, M2 increased
on average at an annual rate of 9.4
percent. From a somewhat longer
perspective, Ml has increased at an
annual rate of 4.7 percent, measuring
growth from the first half of 1981 to
the first half of 1982 and abstracting
from the shift into NOW accounts in
1981; and M2 has grown at a 9.7
percent annual rate on a half-year
over half-year basis.
Although Ml growth has been
moderate on balance thus far this
year, that growth has considerably
exceeded the pace of increase in
nominal GNP. Indeed, the firstquarter decline in the income velocity of Ml—that is, GNP divided by
Ml—was extraordinarily sharp. Similarly, the velocity of the broader
aggregates has been unusually weak.
Given the persistence of high interest
rates, this pattern of velocity behavior suggests a heightened demand for
Ml and M2 over the first half.
The unusual demand for Ml has
been focused on its negotiable order
of withdrawal account component.
After the nationwide authorization
of NOW accounts at the beginning
of 1981. the growth of such deposits
surged. When the aggregate targets
were reviewed this past February, a
variety of evidence indicated that the
major shift from conventional checking and savings accounts into NOW
accounts was over; in particular, the
rate at which new accounts were
being opened had dropped off considerably. As a result of that shift,
however, NOW accounts and other
interest-bearing checkable deposits
had grown to account for almost 20
percent of Ml by the beginning of
1982. Subsequently, it has become
increasingly apparent that Ml is more

50

Monetary Policy Reports

sensitive to changes in the public's
desire to hold highly liquid assets.
Ml is intended to be a measure of
money balances held primarily for
transaction purposes. However, in
contrast to the other major components of Ml—currency and conventional checking accounts—NOW accounts also have some characteristics
of traditional savings accounts. Apparently reflecting precautionary motives to a considerable degree, NOW
accounts and other interest-bearing
checkable deposits grew surprisingly
rapidly in the fourth quarter of last
year and the first quarter of this
year. Although growth in this component has slowed recently, its growth
from the fourth quarter of last year
to June has been 30 percent at an
annual rate. The other components
of Ml increased at an annual rate of
less than 1 percent over this same
period.
Looking at the components of M2
not also included in Ml, the so-called
nontransaction components, these
items grew at a 103/4 percent annual
rate from the fourth quarter of 1981
to June. General-purpose and broker-dealer money market mutual
funds were an especially strong component of M2, increasing at an annual rate of almost 30 percent this
year. Compared with last year, however, when the assets of such money
funds more than doubled, this year's
increase represents a sharp deceleration.
Perhaps the most surprising development affecting M2 has been the
behavior of conventional savings deposits. After declining in each of the
past four years—falling 16 percent
last year—savings deposits have increased at an annual rate of about 4
percent thus far this year. This turnaround in savings deposit flows, taken



together with the strong increase in
NOW accounts and the still substantial growth in money funds, suggests
that stronger preferences to hold safe
and highly liquid financial assets in
the current recessionary environment
are bolstering the demand for M2 as
well as for Ml.
M3 increased at an annual rate of
9.7 percent from the fourth quarter
of 1981 to June, just above the upper
end of the FOMC's annual growth
target. Early in the year, growth of
M3 was relatively moderate as a
strong rise in large-denomination CDs
was offset by declines in term RPs
and in money market mutual funds
restricted to institutional investors.
During the second quarter, however,
M3 showed a larger increase; the
weakness in its term RP and money
fund components subsided and heavy
issuance of large CDs continued.
With growth of "core deposits" relatively weak on average, commercial
banks borrowed heavily in the form
of large CDs to fund the increase in
their loans and investments.
Commercial bank credit grew at
an annual rate of 8.3 percent over
the first half of the year, in the upper
part of the FOMC's range for 1982.
Bank loans have increased on average at an annual rate of about 9x/2
percent, with loans to nonfinancial
businesses expanding at an annual
rate of 14 percent. In past economic
downturns, business loan demand at
banks has tended to weaken, but
consistently high long-term interest
rates in the current recession have
induced corporations to meet the
bulk of their external financing needs
through short-term borrowing. Real
estate loans have increased at an
annual rate of IVA percent this year,
somewhat slower than the growth in
each of the past two years. Consumer

Monetary Policy Reports
loans outstanding during the first
half of the year have grown at the
same sluggish pace of 3 percent
experienced last year. The investment portfolios of banks have expanded at an annual rate of about 5
percent, with the rate of increase in
U.S. government obligations about
twice as large as the growth in
holdings of other types of securities.

The Federal Reserve's
Objectives for Growth
of Money and Credit
There is a clear need today to
promote higher levels of production
and employment in our economy.
The objective of Federal Reserve
policy is to create an environment
conducive to sustained recovery in
business activity while maintaining
the financial discipline needed to
restore reasonable price stability. The
experience of the past two decades
has amply demonstrated the destructive impact of inflation on economic
performance. Because inflation cannot persist without excessive monetary expansion, appropriately restrained growth of money and credit
over the longer run is critical to
achieving lasting prosperity.
The policy of firm restraint on
monetary growth has contributed importantly to the recent progress toward reducing inflation. But when
inflationary cost trends remain entrenched, the process of slowing
monetary growth can entail economic and financial stresses, especially when so much of the burden
of dealing with inflation rests on
monetary policy. These strains—reflected in reduced profits, liquidity
problems, and balance sheet pressures—place particular hardships on
industries, such as construction, busi


51

ness equipment, and consumer durables, that depend heavily on credit
markets.
Unfortunately, these stresses cannot be easily remedied through accelerated money growth. The immediate effect of encouraging faster
growth in money might be lower
interest rates, especially in shortterm markets. In time, however, the
attempt to drive interest rates lower
through a substantial reacceleration
of money growth would founder, for
the result would be to embed inflation and expectations of inflation
even more deeply into the nation's
economic system. It would mean that
this recession was another wasted,
painful episode instead of a transition
to a sustained improvement in the
economic environment. The present
and prospective pressures on financial markets urgently need to be
eased not by relaxing discipline on
money growth, but by adopting policies that will ensure a lower and
declining federal deficit. Moreover,
a return to financial health will require the adoption of more prudent
credit practices on the part of private
borrowers and lenders alike.
In reviewing its targets for 1982
and setting tentative targets for 1983,
the FOMC had as its basic objective
the maintenance of the longer-range
thrust of monetary discipline in order
to reduce inflation further, while
providing sufficient money growth to
accommodate exceptional liquidity
pressures and support a sustainable
recovery in economic activity. At the
same time, the Committee recognized that regulatory actions or
changes in the public's financial behavior might alter the implications
of any quantitative monetary goals
in ways that cannot be fully predicted.

52

Monetary Policy Reports

In light of all these considerations,
the Committee concluded that a
change in the previously announced
targets was not warranted at this
time. Because of the tendency for
the demand for money to run strong
on average in the first half, and also
responding to the congressional
budget resolution, careful consideration was given to the question of
whether some raising of the targets
was in order. However, the available
evidence did not suggest that a large
increase in the ranges was justified,
and a small change in the ranges
would have represented a degree of
"fine tuning" that appeared inconsistent with the degree of uncertainty
surrounding the precise relationship
of money to other economic variables at this time. However, the
Committee concluded, based on current evidence, that growth this year
around the top of the ranges for the
various aggregates would be acceptable.
The Committee also agreed that
possible shifts in the demand for
liquidity in current economic circumstances might require more than
ordinary elements of flexibility and
judgment in assessing appropriate
needs for money in the months
ahead. In the near term, measured
growth of the aggregates may be
affected by the income tax reductions
that occurred on July 1, by cost-ofliving increases in social security
benefits, and by the ongoing difficulties of accurately accounting for seasonal movements in the money stock.
But more fundamentally, it is unclear
to what degree businesses and households may continue to wish to hold
unusually large precautionary liquid
balances. To the extent the evidence
suggests that relatively strong precautionary demands for money per


sist, growth of the aggregates somewhat above their targeted ranges
would be tolerated for a time and
still would be consistent with the
FOMC's general policy thrust.
Looking ahead to 1983 and beyond, the FOMC remains committed
to restraining money growth in order
to achieve sustained noninflationary
economic expansion. At this point,
the FOMC feels that the ranges now
in effect can appropriately remain as
preliminary targets for 1983. Because
monetary aggregates in 1982 more
likely than not will be close to the
upper ends of their ranges, or perhaps even somewhat above them,
the preliminary 1983 targets would
be fully consistent with a reduction
in the actual growth of money in
1983.
In light of the unusual uncertainty
surrounding the economic, financial,
and budgetary outlook, the FOMC
stressed the tentative nature of its
1983 targets. On the one hand,
postwar cyclical experience strongly
suggests that some reversal of this
year's unusual shift in the assetholding preferences of the public
could be expected; with economic
activity on an upward trend, any
lingering precautionary motives for
holding liquid balances should begin
to fade, thus contributing to a rapid
rise in the velocity of money. Moreover, regulatory actions by the Depository Institutions Deregulation
Committee that increase the competitive appeal of deposit instruments—
as well as the more widespread use
of innovative cash management techniques, such as "sweep" accounts—
also could reduce the demand for
money relative to income and interest rates. On the other hand, factors
exist that should increase the attractiveness of holding cash balances.

Monetary Policy Reports
The long upward trend in the velocity
of money since the 1950s took place
in an environment of rising inflation
and higher nominal interest rates—
developments that provide incentives
for economizing on money holdings.
As these incentives recede, it is
possible that the attractiveness of
cash holdings will be enhanced and
that more money will be held relative
to the level of business activity.

The Outlook for
the Economy
The economy at midyear appears to
have leveled off after sizable declines
last fall and winter. Consumption has
strengthened with retail sales up
significantly in the second quarter.
New and existing home sales have
continued to fluctuate at depressed
levels, but housing starts nonetheless
have edged up. In the business sector, substantial progress has been
made in working off excess inventories, and the rate of liquidation
appears to have declined. On the
negative side, however, plant and
equipment spending, which typically
lags an upturn in overall activity, is
still depressed. And the trend in
export demand continues to be a
drag on the economy, reflecting the
dollar's strength and weak economic
activity abroad.
An evaluation of the balance of
economic forces indicates that an
upturn in economic activity is highly
likely in the second half of 1982.
Monetary growth along the lines
targeted by the FOMC should accommodate this expansion in real
GNP, given the increases in velocity
that typically occur early in a cyclical
recovery and absent an appreciable
resurgence of inflation. The 10 percent cut in income tax rates that



53

went into effect July 1 is boosting
disposable personal income and
should reinforce the growth in consumer spending. Given the improved
inventory situation, any sizable increase in consumer spending should,
in turn, be reflected in new orders
and a pickup in production. Another
element supporting growth in real
GNP will be the continuing rise in
defense spending and the associated
private investment outlays needed
for the production of defense equipment.
At least during the initial phase,
the expansion is likely to be more
heavily concentrated in consumer
spending than in past business cycles,
as current pressures in financial markets and liquidity strains may inhibit
the recovery in investment activity.
With mortgage interest rates high,
residential construction does not seem
likely to contribute to the cyclical
recovery to the extent that it has in
the past. Likewise, the high level of
corporate bond rates, and the cumulative deterioration in corporate
balance sheets resulting from reliance in recent years on short-term
borrowing, may restrain capital
spending, especially given the considerable margin of unutilized capacity
that now exists.
The excellent price performance
so far this year has been helped by
slack demand and by exceptionally
favorable energy and food supply
developments. For that reason, the
recorded rate of inflation may be
higher in the second half. However,
prospects appear excellent for continuing the downtrend in the underlying rate of inflation. As noted
earlier, significant progress has been
made in slowing the rise in labor
compensation, and improvement in
underlying cost pressures should con-

54

Monetary Policy Reports

tinue over the balance of the year.
Unit labor costs also are likely to be
held down by a cyclical rebound in
productivity growth as output recovers. Moreover, lower inflation
will contribute to smaller cost-ofliving wage adjustments, which will
moderate cost pressures further.
The Federal Reserve's objectives
for money growth through the end
of 1983 are designed to be consistent
with continuing recovery in economic
activity. A critical factor influencing
the composition and strength of the
expansion will be the extent to which
pressures in financial markets moderate. This, in turn, depends importantly on the progress made in further reducing inflationary pressures.
A marked decrease in inflation will
take pressure off financial markets
in two ways. First, slower inflation
will lead to a reduced growth in
transaction demands for money, given
any particular level of real activity.
It follows that a given target for
money growth can be achieved with
less pressure on interest rates and
accordingly less restraint on real
activity, the greater is the reduction
in inflation. Second, further progress
in curbing inflation will help lower
long-term interest rates by reducing
the inflation premium contained in
nominal interest rates. The welcome
relief in inflation seen recently apparently is assumed by many to
represent a cyclical rather than a
sustained drop in inflation. But the
longer that improved price performance is maintained, the greater will
be the confidence that a decisive
downtrend in inflation is being
achieved. Such a change should be
reflected in lower long-term interest
rates and stronger activity in the
interest-sensitive sectors of the economy.



Another crucial influence on financial markets and thus on the nature
of the expansion in 1983 will be the
federal budgetary decisions that are
made in coming months. The budget
resolution that was recently passed
by the House and the Senate is a
constructive first step in reducing
budget deficits as the economy recovers. However, much remains to
be done in appropriation and revenue legislation to implement this
resolution. How the budgetary process unfolds will be an important
factor in determining future credit
demands by the federal government
and thus the extent to which deficits
will preempt the net savings generated by the private economy. A
strong program of budget restraint
would minimize pressures in financial
markets and thereby enhance the
prospects for a more vigorous recovery in home building, business fixed
investment, and other credit-dependent sectors.
In assessing the economic outlook,
the individual members of the FOMC
have formulated projections for several key measures of economic performance that fall generally within
the ranges in the accompanying table.
In addition to the monetary aggreEconomic Projections < FOMC
3f
Members
Projected

Actual
1981

1982

1983

Changes, fourth
quarter to
fourth quarter,
percent
Nominal GNP ...
Real GNP
GNP deflator....

9.8
.9
8.9

51/2 tO 71/2
1/2 tO V/2
43/4 t o 6

7 to 9^2
2Vi to 4
4 to 53/4

A verage level in
fourth quarter,
percent
Unemployment
rate

8.3

9 to 93/4

8Vi to 91/2

Item

Monetary Policy Reports
gate objectives discussed earlier, these
projections assume that the federal
budget will be put on a course that
over time will result in significant
reductions in the federal deficit.
Revised administration forecasts
for the economy were not available
at the time of the Committee's deliberation. Our understanding, however, is that the administration's
midyear budgetary review will be
.presented within the framework of
the economic assumptions used in
the first budget resolution. For the
remainder of 1982, those assumptions imply somewhat more rapid
recovery than the range now thought
most likely by members of the FOMC,




55

but are consistent with the monetary
targets outlined in this report on the
assumption of growth in velocity
characteristic of the early stages of a
number of past recoveries. Looking
further ahead, the Committee members, like the administration and the
Congress, foresee continued economic expansion in 1983, but currently anticipate a less rapid rate of
price increase and somewhat slower
real growth than the assumptions
underlying the budget. The monetary
targets tentatively set for 1983, which
will be reviewed early next year,
would imply, under the budgetary
assumptions, relatively high growth
in velocity.

Part 2
Records, Operations,
and Organization




59

Record of Policy Actions
of the Board of Governors
Regulation B
(Equal Credit Opportunity)
October 7, 1982—Interpretations
and Withdrawal of Amendments
The Board adopted two interpretations of Regulation B, effective April
1, 1983, dealing with the treatment
of income in judgmental and creditscoring systems and the selection and
disclosure of reasons for adverse
credit actions. The Board also withdrew proposed amendments to provisions in the regulation dealing with
business credit.
Votes for these actions: Messrs. Martin, Wallich, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against these
actions: None. Absent and not voting:
Messrs. Volcker and Partee.
One interpretation specifies how
creditors should treat income from
sources such as alimony, child support, part-time employment, retirement benefits, or public assistance in
order to comply with the requirement
not to discount or exclude such income when evaluating credit applications. The second interpretation
describes how creditors should select
and disclose the principal reasons for
denying credit or other adverse credit
actions.
The Board also withdrew several
proposed amendments to the business credit provisions of Regulation
B. The amendments related only to
the mechanical requirements of the
regulation and not to the prohibitions
against discrimination in any aspect
of a business credit transaction.




Regulation D
(Reserve Requirements of
Depository Institutions)
March 24, 1982—Amendment
The Board amended Regulation D,
effective April 28, 1982, to make
permanent a temporary rule adopted
in 1981 to ensure that the phase-in
of reserve requirements for new institutions was not used for reserve
avoidance.
Votes for this action: Messrs. Volcker,
Wallich, Partee, Mrs. Teeters, and Mr.
Rice. Votes against this action: None.
Absent and not voting: Mr. Gramley.1
In November 1981, the Board
adopted a temporary amendment to
Regulation D to change the manner
in which reserve requirements of certain institutions are phased in. The
regulation previously had allowed
newly established institutions to phase
in reserve requirements over two
years. This allowance was designed to
reduce the start-up problems that new
institutions typically experience.
In connection with recent actions
by Delaware and South Dakota to
permit out-of-state holding companies to establish subsidiaries in those
states, a number of large banking organizations outside those states announced plans to establish such subsidiaries and to transfer a significant
volume of deposits to them. The Board

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

60

Board Policy Actions

believed these new institutions would
not experience the typical start-up
problems and should not be eligible
for the two-year phase-in provision.
The Board, therefore, decided that
an institution that began operations
after November 17, 1981, would lose
its eligibility for the phase-in provision after its reservable liabilities exceeded $50 million.

April 26, 1982—Amendment
The Board amended Regulation D,
effective April 29, 1982, to establish
reserve requirements for a recently
authorized time deposit.
Votes for this action: Messrs. Volcker,
Martin, Wallich, Partee, Mrs. Teeters,
and Mr. Rice. Votes against this action: None. Absent and not voting: Mr.
Gramley.
Beginning May 1, 1982, the Depository Institutions Deregulation Committee (DIDC) authorized a 3!/2-year
time deposit not subject to interest
rate ceilings. Under existing provisions of Regulation D, nonpersonal
time deposits with maturities of four
years or more are subject to a zero
percent reserve requirement; those
with shorter maturities have a 3 percent reserve requirement, after completion of the phase-in periods. The
Board, therefore, amended the regulation by changing from four years
to three and one-half years the minimum maturity of time deposits subject to the zero percent reserve requirement. The Board noted,
however, that this action should not
be interpreted as a commitment to
continue to shorten deposit maturities in conjunction with the phase-out
of interest rate ceilings proposed by
the DIDC. Any subsequent decision
on reserve requirements will reflect
experience, prevailing monetary and



economic conditions, and implications for Treasury revenues.
The amendment was effective April
29, and was applicable to the reserve
maintenance period beginning May
13, 1982.
August 20, 1982—Amendment
The Board amended Regulation D,
effective September 1, 1982, to define as a time deposit the new deposit
instrument authorized by the Depository Institutions Deregulation Committee.
Votes for this action: Messrs. Martin,
Wallich, Partee, Rice, and Gramley.
Votes against this action: None. Absent and not voting: Mr. Volcker and
Mrs. Teeters.
Regulation D had defined a time
account as a deposit that has an initial
maturity or a notice period of 14 days
or more; accounts with shorter maturities are considered demand deposits. The Depository Institutions
Deregulation Committee authorized
federally insured institutions to offer
a new deposit instrument with a maturity of 7 to 31 days, a minimum balance of $20,000, and a ceiling rate tied
to the rate on 91-day Treasury bills.
The Board amended Regulation D to
define the new instrument as a time
deposit that is eligible for the lower
reserve requirements applicable to
time deposits.
The amendment was effective September 1, and was applicable to the
reserve maintenance period beginning September 9, 1982.

September 29, 1982—
Amendments
The Board amended Regulation D,
effective February 2, 1984, to implement a contemporaneous accounting

Board Policy Actions
system for assessing and maintaining
reserve requirements for transaction
accounts at depository institutions.
Votes for these actions: Messrs.
Volcker, Martin, Wallich, Partee, and
Rice. Votes against these actions: Mrs.
Teeters and Mr. Gramley.
Under the current system of lagged
reserve accounting, an institution's
reserve requirements are assessed on
the basis of deposit levels averaged
over a seven-day period; required reserves are maintained for a seven-day
period two weeks later. The contemporaneous system for transaction accounts shortens to two days the lag
between the end of the reserve calculation period and the beginning of
the reserve maintenance period. Reserves will be computed and maintained, however, on the basis of deposits averaged over a two-week
period. Required reserves on nonpersonal time deposits will continue
to be maintained on a lagged basis.
The Board also adopted certain technical amendments to Regulation D to
adjust the reserve maintenance periods of institutions that are not on a
weekly reserve maintenance schedule
to coincide with the contemporaneous system.
Governors Teeters and Gramley
opposed adoption of the contemporaneous accounting system. They were
not persuaded that the system would
significantly improve monetary control, and they believed it would increase the short-run volatility of interest rates because institutions would
need to adjust their reserve positions
more promptly. They also thought the
cost of implementing the system, both
for the Federal Reserve and the affected institutions, would not be offset by sufficient public benefits. The
other Board members, however, be


61

lieved the benefits resulting from improved monetary control would outweigh the costs.
The Board set February 2, 1984, as
the effective date of the amendments
to ensure that the Reserve Banks and
financial institutions would have time
to adjust their procedures.

October 4, November 3, and
December 22, 1982—
Amendments
The Board adopted a temporary
amendment to Regulation D, effective October 5, 1982, that defined as
a transaction account a time deposit
linked to a line of credit against
which third-party transfers can be
made. The Board later revised the
rule, and on December 22 made the
amendment permanent, effective
January 22, 1983.
Votes for the October and November
actions: Messrs. Volcker, Martin,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against these
actions: None.
Votes for the December action:
Messrs. Martin, Wallich, Partee, Mrs.
Teeters, Messrs. Rice, and Gramley.
Votes against this action: None. Absent and not voting: Mr. Volcker.
In October, the Board amended
Regulation D to impose the reserve
requirements of transaction accounts
on any time deposit linked to a line
of credit that can be used for writing
checks or for making other third-party
transfers. The Board acted to discourage the use of these complex arrangements designed to avoid regulatory requirements. The temporary
amendment was effective immediately for time deposits issued after
October 4 and for deposits that matured and were renewed after that
date. The Board also requested comment on the effects of its action, with

62

Board Policy Actions

the understanding that a permanent
rule would be adopted later.
After adoption of the temporary
amendment, the Board was informed
that some institutions were having
difficulties terminating certain deposit contracts. To ensure that those
institutions would not be adversely
affected by later Board action, and to
allow a convenient transition to the
new money market deposit account
authorized beginning December 14,
the Board exempted from the amendment time deposits issued before October 5 and renewed automatically
before December 31, 1982.
In December, the Board made the
amendment permanent, effective
January 22,1983. It also clarified that
time deposits pledged as collateral for
incidental overdrafts in a checking account were not covered by the
amendment.

October 27, 1982—Amendment

moval of reserve requirements through
October 1985. The Board, therefore,
amended Regulation D to provide a
phased reduction in reserve requirements for these former member banks,
effective with the reserve maintenance period beginning October 28,
1982.
November 24, 1982—
Amendments
The Board adopted three amendments to Regulation D that (1)
increased the amount of transaction
balances to which the lower reserve
requirement applied; (2) effectively
exempted small institutions from reserve requirements; and (3) established reserve requirements for a
newly authorized money market deposit account.
Votes for these actions: Messrs. Martin, Wallich, Partee, Mrs. Teeters,

Messrs. Rice, and Gramley. Votes
against these actions: None. Absent and
not voting: Mr. Volcker.

The Board amended Regulation D,
effective October 28, 1982, to impleUnder the Monetary Control Act
ment recent statutory changes in
reserve requirements for former of 1980, depository institutions, Edge
and Agreement corporations, and
member banks.
U.S. agencies and branches of foreign
Votes for this action: Messrs. Volcker, banks are subject to reserve requireMartin, Partee, Mrs. Teeters, Messrs. ments set by the Board. The reserve
Rice, and Gramley. Votes against this
action: None. Absent and not voting: requirements initially imposed under
the act were 3 percent on the first $25
Mr. Wallich.
million of an institution's transaction
The Monetary Control Act of 1980 balances and 12 percent on balances
required banks that withdrew from above that level. The act further dimembership in the Federal Reserve rected the Board to adjust that level
System on or after July 1, 1979, to annually to reflect changes in the level
maintain reserves in amounts equal of transaction balances in the banking
to the reserve requirements of mem- system nationwide. The amount was
ber banks. The Garn-St Germain increased to $26 million for 1982, and
Depository Institutions Act of 1982 recent growth in such balances indimodified the reserve requirements for cated that a further increase of $0.3
member banks that withdrew be- million was warranted. Accordingly,
tween July 1, 1979, and March 31, the Board amended Regulation D to
1980, to provide for the gradual re- increase to $26.3 million the amount



Board Policy Actions
of transaction balances subject to the
lower reserve requirement. The
amendment was effective December
30, 1982, and applicable to the reserve maintenance period that begins
January 13, 1983.
In a second action, the Board implemented provisions of the Garn-St
Germain Depository Institutions Act
of 1982 that reduced to zero percent
the reserve requirements on the first
$2 million of an institution's reservable liabilities. That act also provided
that, beginning in 1982, the Board shall
increase the amount of the exemption
annually based on deposit growth nationwide over a 12-month period ending June 30. Accordingly, the Board
amended Regulation D, effective December 9, 1982, to incorporate provisions of the Garn-St Germain act
and to establish the exemption at $2.1
million.
In a third action, the Board established reserve requirements for a new
money market deposit account, effective December 14, 1982, the date
on which the Depository Institutions
Deregulation Committee authorized
federally insured institutions to begin
offering the new account. The Board
determined that money market deposit accounts that permit no more
than six transfers from the account
per month, of which no more than
three may be by check, will have the
same reserve requirements as savings
accounts. Accounts that permit a depositor to make more than six transfers or draw more than three checks
per month are subject to the reserve
requirements on transaction accounts.
Regulation D
(Reserve Requirements of
Depository Institutions) and



63

Regulation Q
(Interest on Deposits)

December 22, 1982—
Amendments
The Board adopted technical amendments to Regulations D and Q,
effective January 5, 1983, to incorporate changes approved by the Depository Institutions Deregulation
Committee in the rules governing the
payment of interest on deposits.
Votes for these actions: Messrs. Martin, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes
against these actions: None. Absent and
not voting: Mr. Volcker.
The Depository Institutions Deregulation Act of 1980 transferred to the
DIDC the authority to prescribe rules
governing the payment of interest on
deposits that previously had been held
by the Board and the other federal
regulators of financial institutions. To
conform to recent actions by the
DIDC, the Board amended Regulation D and Regulation Q as follows:
(1) reduced to $2,500 the minimum
denomination of 26-week money
market deposits, 91-day time deposits, and 7- to 31-day time deposits; (2)
removed the interest rate ceilings on
7- to 31-day time deposits; (3) established money market deposit accounts; and (4) removed the interest
rate ceilings on negotiable order of
withdrawal (NOW) accounts of $2,500
or more.
Regulation E
(Electronic Fund Transfers)
September 29, 1982—
Amendments
The Board adopted four amendments to Regulation E, effective
October 12, 1982, relating to exemp-

64

Board Policy Actions

tions for certain preauthorized transfers, terminal receipts, periodic statements, and procedures for certain
foreign transactions.

quirement to provide duplicate statements when a customer transfers funds
between two accounts at the same institution. The fourth change liberalVotes for the preauthorized transfer ized the documentation requirements
amendment: Messrs. Volcker, Martin, and the error-resolution procedures
Wallich, Partee, Rice, and Gramley. for electronic fund transfers initiated
Vote against this action: Mrs. Teeters. in foreign countries.
Votes for the other three amendments: Messrs. Volcker, Martin, Wal- Regulation G (Securities Credit
lich, Partee, Mrs. Teeters, Messrs. Rice,
and Gramley. Votes against these ac- by Persons Other than Banks,
Brokers, or Dealers),
tions: None.
Regulation T (Credit by Brokers
The Board amended Regulation E and Dealers), and Regulation U
to exempt institutions with assets of (Credit by Banks for the
$25 million or less from the require- Purpose of Purchasing or
ments governing participation in Carrying Margin Stocks)
preauthorized credit and debit pro- January 13, 1982—Amendments
grams of the federal and private sectors. Governor Teeters opposed these The Board revised and simplified
changes because she preferred that portions of Regulations G, T, and U
private-sector payments not be ex- as part of its Regulatory Improveempt from the regulation. She be- ment Project. All of the changes
lieved that the notices and disclosures were effective February 15, 1982,
required by the regulation provided except the amendment to Regulation
appropriate safeguards and that cus- U concerning collateral, which was
tomers of small institutions should effective March 31, 1982.
have the same protections as those of
Votes for these actions: Messrs.
larger institutions.
Volcker, Schultz, Wallich, Partee, Rice,
and Gramley. Votes against these acThe other Board members noted
tions: None. Absent and not voting:
that smaller institutions are governed
Mrs. Teeters.
by the operating rules of the clearinghouse associations to which they
In mid-1981, the Board published
belong. Moreover, institutions would for comment proposals to substanhave difficulty separating other re- tially revise the Board's margin regcurring payments from private-sector ulations. Although the rewriting of the
transfers to take advantage of the ex- regulations would not be completed
emption. For these reasons, the other for some time, the Board decided to
Board members approved the adopt certain amendments in advance
amendment.
of the revisions to grant relief and
Another amendment expanded an flexibility in areas in which the comexemption governing receipts given ments disclosed no significant disafor transfers initiated at electronic greement. These amendments are diterminals; it provided that institutions rected at simplifying the language,
need not indicate on the terminal re- reducing regulatory burden, and acceipt the type of account involved if knowledging innovations in securities
only one of the consumer's accounts markets.
can be accessed at that terminal. A
Among the changes adopted was
third amendment eliminated the re- an amendment to Regulation G that



Board Policy Actions

65

into account changing market conditions and exchange practices. One of
the revisions permitted issues of foreign stock to be included on the OTC
list if the issuer has registered with
the Securities and Exchange Commission. Previously, foreign stocks
were excluded because of difficulty in
obtaining financial data about issuers.
Under the previous rules, a company could be included on the OTC
list if it met the standards on two of
the three criteria for eligibility: price,
capital, and market value. The Board
decided to eliminate the market-value
criterion, since it was found to be of
limited value, and to make conformance with the price and capital criteria
mandatory. In addition, the Board
changed those two criteria, as follows: (1) To be included initially on
the list, an issuer must have at least
$4 million in capital and 400,000 shares
outstanding (previously, $5 million and
May 12, 1982—Amendments
500,000). (2) For continued inclusion
The Board amended its margin credit on the list, a company must have $1
regulations (G, T, and U), effective million in capital and a price per share
June 12, 1982, to change the criteria of at least $2 (previously, $2.5 million
for including a company's shares on and $3). Stocks that are currently listed
the list of stocks traded over the but do not meet the new eligibility
counter that are eligible for margin standards will be retained on the OTC
credit.
list for two years.
Votes for these actions: Messrs. MarThe Board also announced that futin, Partee, Mrs. Teeters, Messrs. Rice, ture editions of the OTC list, which
and Gramley. Votes against these ac- is published three times a year, will
tions: None. Absent and not voting:
become effective two weeks after
Messrs. Volcker and Wallich.
publication, rather than immediately,
The Board regularly publishes a list to allow brokers and other users time
of stocks traded over the counter to adjust their operations.
(OTC) that are sufficiently similar to
securities traded on the major exchanges as to be afforded similar
treatment under the Board's margin Regulation K (International
regulations. If a company meets the Banking Operations)
Board's criteria for inclusion on the
OTC list, its stock is eligible for trad- March 10, 1982—Amendment
ing on margin.
The Board amended Regulation K,
The amendments to Regulations G, effective March 12, 1982, to permit
Edge corporations to provide certain
DigitizedT, and U revised those criteria to take
for FRASER
expanded the lending activities permissible for creditors covered by the
regulation and the types of collateral
they may accept. The amendment also
clarified the definition of an indirect
security for a loan.
Regulation T was revised to permit
brokers and dealers to provide investment banking services that include the arranging of credit. Regulation U was revised to exempt from
the regulation bank credit not secured by margin equity securities. In
addition, the definition of indirect security credit was changed to parallel
that in Regulation G. All three regulations were revised to remove the
provisions governing equity-building
devices, thereby giving investors with
highly leveraged margin accounts
greater flexibility in reallocating their
portfolios.



66

Board Policy Actions

investment advisory and management services in the United States.
Votes for this action: Messrs. Volcker,
Partee, Mrs. Teeters, Messrs. Rice, and
Gramley. Votes against this action:
None. Absent and not voting: Mr.
Wallich.1
The International Banking Act of
1978 directed the Board to remove
from its regulations limitations that
unnecessarily restrict or put Edge
corporations at a disadvantage in
competing with foreign-owned banking institutions in the United States.
In keeping with that directive, the
Board amended Regulation K to permit Edge corporations to provide several types of economic and investment advisory and management
services to their foreign customers,
including the following: (1) general
economic information; (2) portfolio
investment advice on securities, other
financial instruments, and real estate;
and (3) management of investment
portfolios, with discretionary authority to buy or sell securities. Also, Edge
corporations may provide their U.S.
customers with advisory services regarding foreign investments. The
amendment does not authorize Edge
corporations to manage real estate or
commercial or industrial properties.
The amendment was expected to
further competitive equality between
domestic and foreign banks in the
United States by enabling U.S. banks,
through their Edge subsidiaries, to
offer a range of financial services similar to those that may be offered by
U.S. branches of foreign banks.
Regulation L (Management
Official Interlocks)
September 15 and December 22,
1982—Amendments
DigitizedThe Board amended Regulation L,
for FRASER


effective October 26, 1982, to implement recent revisions in the Depository Institution Management Interlocks Act of 1978.
Votes for this action: Messrs. Volcker,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Martin.
In December, the Board further
amended Regulation L, effective
February 7, 1983, to clarify the circumstances under which certain management interlocks may be continued
until November 10, 1988.
Votes for this action: Messrs. Martin,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Volcker.
The act and the implementing regulations of the federal regulatory
agencies generally prohibited certain
interlocking relationships involving
officers of unaffiliated organizations.
Interlocking relationships in existence when the act was passed were
permitted to continue for 10 years;
that time period was to be shortened
if the circumstances of either interlocking institution changed.
Recent amendments to the act,
however, clarified congressional intent that certain changes in circumstances—a merger, an acquisition, the
establishment of new offices, or a sizable increase in assets—did not require termination of the interlocking
relationship. Therefore, the Board and
the other agencies amended their regulations to delete that requirement.
Other amendments to Regulation L
were adopted in September to conform with the statutory changes, including one that permits a management official to continue serving at
both a depository and a nondeposi-

Board Policy Actions
tory organization even if the latter becomes a diversified savings and loan
holding company.
When the Board amended Regulation L in September, it published
for comment a proposed amendment
that would permit a management official who had terminated a "grandfathered" interlock because of provisions in the existing regulation to
resume the interlock for the remainder of the 10-year permissible period.
After consideration of comments received, the Board amended Regulation L in December to allow the resumption of such an interlocking
relationship until November 10,1988.
Regulation O
(Loans to Executive Officers,
Directors, and Principal
Shareholders of Member Banks)
October 22, 1982—Amendment
The Board amended Regulation O,
effective November 1, 1982, to conform to the requirements of the
Garn-St Germain Depository Institutions Act of 1982 dealing with bank
loans to officials.
Votes for this action: Messrs. Volcker,
Martin, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes
against this action: None.

Before passage of the Depository
Institutions Act of 1982, lending by a
member bank to its executive officers
had been limited by the Federal Reserve Act and Regulation O to the
following amounts: $60,000 for a home
mortgage, $20,000 for the education
of an officer's children, and $10,000
for other purposes-. In addition, loans
to bank officials or their interests that
exceeded $25,000 required the prior
approval of the bank's board of directors.
The Depository Institutions Act



67

eliminated the dollar limitations on
mortgage and education loans, and
the Board amended Regulation O to
remove those dollar amounts. The act
also deleted the limitations on loans
for other purposes and on the maximum loan amount that does not require board approval, and authorized
each federal regulatory agency to establish appropriate limitations for the
institutions under its jurisdiction. The
Board decided to retain the limitations currently in Regulation O for
those two purposes pending completion of a review of the regulation and
adoption of final rules to implement
the act.

Regulation Q
(Interest on Deposits)
August 20, 1982—Amendments
and Interpretation
The Board adopted several amendments to Regulation Q relating primarily to recent actions by the Depository Institutions Deregulation
Committee; it also issued an interpretation regarding the secondary
market for certificates of deposit
(CDs).
Votes for these actions: Messrs. Martin, Wallich, Partee, Rice, and Gramley. Votes against these actions: None.
Absent and not voting: Mr. Volcker
and Mrs. Teeters.

One amendment revised the rules
under which member banks may offer
small-denomination repurchase
agreements. Before these amendments were adopted, repurchase
agreements (RPs) on U.S. government and agency securities in denominations of less than $100,000 and with
maturities of 90 days or more were
considered time deposits subject to
the interest rate ceilings of Regula-

68

Board Policy Actions

tion Q; small-denomination RPs with
maturities of less than 90 days were
exempt from the ceilings unless they
were automatically renewable. In a
series of actions, the DIDC authorized a greater variety of deposit instruments for financial institutions and
removed interest rate ceilings for time
deposits with maturities of three and
one-half years or longer. Because these
actions reduced the incentive for institutions to raise longer-term funds
through the issuance of RPs, the Board
decided it was no longer necessary to
subject small-denomination RPs of 90
days or more to interest rate ceilings
or to restrict member banks from offering automatically renewable RPs
with maturities of less than 90 days.
The Board, therefore, amended Regulation Q, effective August 24, 1982,
to exempt RPs of member banks from
interest rate limitations. The Federal
Deposit Insurance Corporation and
the Federal Home Loan Bank Board
had taken similar actions for RPs of
institutions in their jurisdictions.
Other amendments to Regulation
Q, effective September 1, 1982, were
adopted in conjunction with actions
taken by the DIDC. One amendment
changed the definition of a time deposit to allow member banks to issue
time deposits in book-entry form
rather than as written contracts. The
remaining changes were technical
amendments to conform the regulation to actions of the DIDC. Those
amendments affected maximum rates
payable on time and savings deposits,
the advertisement of rates paid on
certain short-term deposits, penalties
for early withdrawal of time deposits,
and treatment of obligations issued
by a parent bank holding company.
The Board also issued an interpretation, effective August 24, 1982, regarding a member bank's participa


tion in the secondary market for
negotiable time deposits it had issued. The interpretation stated that a
member bank may assist a depositor
in finding a purchaser for a negotiable
CD, as an alternative to the depositor's incurring a penalty for early
withdrawal. A bank also may arrange
for unaffiliated third parties to purchase deposits from its customers. A
member bank may not, however,
purchase its own deposits from customers, enter into reciprocal arrangements with another institution to purchase deposits from one another, or
reimburse a third party for purchasing the bank's deposits.

October 4, 1982—Interpretation
The Board adopted an interpretation
of Regulation Q, effective October
18, 1982, regarding the interest rate
charged on a loan for which a borrower has pledged a time deposit as
collateral. That interest rate must be
at least 1 percentage point above the
effective interest rate paid on the
time deposit.
Votes for this action: Messrs. Volcker,
Martin, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes
against this action: None.
The Board had become aware of
various deposit arrangements designed to evade the interest rate ceilings of Regulation Q or the reserve
requirements of Regulation D. By
adopting this interpretation—and a
related amendment to Regulation D—
the Board sought to ensure that the
rules regarding interest rate ceilings
on deposits and penalties for withdrawal of time deposits before maturity were not violated. The interpretation clarifies that the minimum
annual rate of interest that may be
charged on a loan for which a time

Board Policy Actions
deposit is pledged as collateral is 1
percentage point above the effective
annual rate paid on the deposit. The
loan rate must take into account the
effect compounding has on the interest paid on the deposit. The interpretation is applicable to loans made, extended, renewed, or agreed to after
October 17, 1982.

November 24, 1982—
Amendment
The Board amended Regulation Q,
effective October 15, 1982, to permit
governmental units to maintain negotiable order of withdrawal (NOW)
accounts at member banks.
Votes for this action: Messrs. Martin,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Volcker.
The Garn-St Germain Depository
Institutions Act of 1982, which was
enacted and became effective October 15, permits the deposit of public
funds in NOW accounts by all domestic and territorial governmental
units. The Board, therefore, adopted
the amendment to conform Regulation Q with the provisions of the act.
December 22, 1982—
Amendments
These actions are discussed under
Regulation D.
Regulation T
(Credit by Brokers and Dealers)
January 13, 1982—Amendments
These actions are discussed under
Regulation G.
May 12, 1982—Amendment
The Board amended Regulation T,




69

effective May 17, 1982, to include as
acceptable collateral in stock lending
and borrowing transactions certain
letters of credit, U.S. government
securities, certificates of deposit, and
bankers acceptances.
Votes for this action: Messrs. Martin,
Partee, Mrs. Teeters, Messrs. Rice, and
Gramley. Votes against this action:
None. Absent and not voting: Messrs.
Volcker and Wallich.
Regulation T had permitted only
cash to be pledged as collateral by
brokers and dealers for borrowing or
lending securities. In November 1981,
the Board proposed to amend the
regulation so that brokers and dealers
could borrow and lend against letters
of credit issued by banks insured by
the Federal Deposit Insurance Corporation and against U.S. government securities. Commenters indicated that the proposal was too
restrictive. After consideration of the
comments, the Board decided to
amend the regulation by expanding
the list of acceptable collateral to include the following: U.S. government
and agency securities; negotiable bank
certificates of deposit and bankers acceptances, if issued and payable in the
United States; and irrevocable letters
of credit issued either by a domestic
bank that is insured by the FDIC or
by a foreign bank that has filed an
appropriate agreement with the Board.
May 12, 1982—Amendments
Additional actions for this date are
discussed under Regulation G.
December 8, 1982—Amendment
The Board amended Regulation T,
effective January 17, 1983, to specify
the characteristics that make private
mortgage pass-through securities acceptable collateral for margin credit.

70

Board Policy Actions

Votes for this action: Messrs. Volcker,
In conjunction with a request by a
Martin, Wallich, Partee, Mrs. Teeters, bank holding company to perform
Messrs. Rice, and Gramley. Votes certain management consulting servagainst this action: None.
ices, the Board sought public comThe amendment, which is appli- ment on whether to permit the activcable to securities not guaranteed by ity generally. On the basis of comments
an agency of the federal government, received, the Board decided to perestablished the following criteria for mit holding companies to provide
eligibility for margin credit: (1) the consulting services to unaffiliated
original issue must be at least $25 mil- nonbank depository institutions, sublion; (2) the issuer must have filed ject to the same restrictions that apply
current registration reports with the when such services are provided to
Securities and Exchange Commis- bank clients.
The Board also amended the regsion; and (3) the creditor must have
ulation to permit holding companies
a reasonable basis for believing that
the servicing agent is passing through to have management officials in comthe payment of mortgage interest and mon with the institutions to which they
principal according to the terms of the provide consulting services, if such interlocks are permitted by certain prooffering.
visions of Regulation L (Management
Official Interlocks).
Regulation U (Credit by Banks
for the Purpose of Purchasing or
Carrying Margin Stocks)
April 28, 1982—Determination
on Reinsurance Activities
January 13, 1982—Amendments
The Board determined that the reinMay 12, 1982—Amendments
surance of group mortgage life insurThese actions are discussed under ance was not an activity closely
Regulation G.
related to banking and that it should
not be permissible for bank holding
Regulation Y
companies.
(Bank Holding Companies and
Votes for this action: Messrs. Volcker,
Change in Bank Control)
Martin, Partee, Mrs. Teeters, and Mr.
Rice. Votes against this action: None.
March 10, 1982—Amendments
Absent and not voting: Messrs. Wallich and Gramley.
The Board amended Regulation Y,
effective April 20, 1982, to permit
bank holding companies to provide
A bank holding company proposed
management consulting services to to reinsure group credit life insurance
unaffiliated nonbank depository in- for real estate loans made by its substitutions and, under certain condi- sidiaries. The Board earlier had detions, to have management interlocks termined that underwriting mortgage
with those institutions.
life insurance was not closely related
to banking and therefore was imperVotes for these actions: Messrs. missible. Although the applicant cited
Volcker, Partee, Mrs. Teeters, Messrs. distinctions between its proposed acRice, and Gramley. Votes against these
actions: None. Absent and not voting: tivities and those involved in underMr. Wallich.1
writing insurance, the Board found



Board Policy Actions
those distinctions insufficient to warrant reversal of its previous decision.
Consequently, the Board decided that
there was no reasonable basis for determining that the activity is closely
related to banking, and therefore that
the activity is not permissible for bank
holding companies.

June 30, 1982—
Termination of Rulemaking

71

case by case, and therefore it withdrew the proposed amendment.
August 20, 1982—Amendments
The Board amended Regulation Y
and a related interpretation, effective
September 25, 1982, to clarify and
expand the scope of data processing
activities permissible for bank holding companies.
Votes for these actions: Messrs. Martin, Wallich, Partee, Rice, and Gramley. Votes against these actions: None.
Absent and not voting: Mr. Volcker
and Mrs. Teeters.

The Board terminated a rulemaking
proceeding that would have amended
Regulation Y to make acting as a
futures commission merchant for
nonaffiliated customers a permissible
In July 1982, after reviewing public
activity for bank holding companies.
comments and the results of a public
Votes for this action: Messrs. Volcker, hearing on the matter, the Board apMartin, Wallich, Partee, Mrs. Teeters, proved the application of a bank
Messrs. Rice, and Gramley. Votes
holding company to engage in a broad
against this action: None.
range of data processing activities. At
In December 1981, the Board pub- that time the Board also agreed to
lished for comment a proposal to make those activities permissible for
amend Regulation Y to add to the list all holding companies, under certain
of activities permissible for bank conditions. The Board, therefore,
holding companies acting as a futures amended Regulation Y to permit accommission merchant for nonaffil- tivities such as transmission of data,
iated customers. Such activity would provision of data bases, and provision
include executing and clearing futures of data processing hardware in concontracts covering bullion, foreign junction with the provision of perexchange, U.S. government securi- missible software. The amendment
ties, and money market instruments also specified activities that may be
that are traded on major exchanges. performed for the internal operations
The proposal resulted from an ap- of the holding company and its subplication by a bank holding company sidiaries and those that may be perto act as a futures commission mer- formed for others. The related interchant. The Board approved the ap- pretation explained that packaged data
plication because of the holding com- processing and transmission facilities
pany's special expertise in that activity provided by holding companies should
and because of the safeguards and be limited to the performance of
commitments to which the company banking functions.
had agreed. Because of the inherent
risks, however, the Board preferred Regulation Z (Truth in Lending)
not to make the activity generally permissible for holding companies. In- February 10, 1982—Amendment
stead, the Board decided to review The Board amended Regulation Z,
applications to engage in the activity effective February 19, 1982, to ex-




72

Board Policy Actions

elude from the definition of an arranger of credit those people, such as
real estate brokers, who arrange
financing by sellers of real property.
Votes for this action: Messrs. Schultz,
Wallich, Partee, Rice, and Gramley.
Vote against this action: Mrs. Teeters.
Absent and not voting: Mr. Volcker.
The 1980 revisions to the Truth in
Lending Act required disclosures from
persons who are not usually considered creditors but who routinely arrange for credit to be extended. This
requirement raised the question
whether real estate brokers and agents
who arrange seller-financed purchases of homes are required to provide truth-in-lending disclosures, and
a proposal was made to include such
arrangers of credit in the requirements of Regulation Z. Most Board
members, however, preferred not to
amend the regulation until the Congress, which was expected to consider
that question later in the year, had
reached a decision on the matter.
Governor Teeters believed real estate brokers should be included for
the protection of borrowers. The other
Board members believed the real estate industry should not have to incur
the expense and difficulty of attempting to comply with a new requirement
that the Congress later might make
moot. The Board, therefore, excluded such brokers from the definition of an arranger of credit, with the
understanding that it might be necessary to consider the matter again.
Policy Statements and
Other Actions
May 20, 1982—Mandatory
Convertible Securities
The Board issued guidelines, effective immediately, to clarify whether



debt securities that contain a requirement for future conversion to equity
securities qualify as primary capital.
The guidelines were issued jointly
with the Comptroller of the Currency.
Votes for this action: Messrs. Volcker,
Martin, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes
against this action: None.
In December 1981, the Board and
the Comptroller of the Currency
jointly issued guidelines for assessing
the capital adequacy of national and
state member banks and bank holding companies. The guidelines established two measures of capital: total
capital and primary capital. One of
the components of primary capital is
mandatory convertible securities.
After adoption of the capital adequacy guidelines, several banking organizations issued or proposed to issue mandatory convertible debt
securities in one of two basic types.
Under the conditions of issuance of
one type, holders of the debt instruments are obligated to purchase similar amounts of the issuer's stock by
the time the instruments mature. With
the second type, issuers of such debt
instruments are obligated to sell stock
in sufficient amounts to replace the
instruments at maturity.
The revisions to the capital adequacy guidelines specify that the instruments will qualify as primary capital only if certain conditions are met.
The conditions are designed to assure
that the instruments will be replaced
with permanent equity and will be issued in a form consistent with sound
banking principles. In adopting these
guidelines, the Board noted that if an
inadequately capitalized banking organization issues mandatory convertible securities, the instruments should

Board Policy Actions
not serve as the basis for additional
leverage that would reduce its capital
ratios.
Although the guidelines were effective immediately, the Board and
the Comptroller sought comment on
them, with the understanding that they
might be revised later.

June 30, 1982—Nonvoting
Equity Investments by
Bank Holding Companies
The Board adopted a policy statement, effective July 8, 1982, governing bank holding company acquisitions of nonvoting equity shares of
other bank holding companies.
Votes for this action: Messrs. Martin,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Volcker.
The Bank Holding Company Act
prohibits a holding company from acquiring control of another bank or
bank holding company without prior
approval of the Board and also prohibits the acquisition of more than 5
percent of the voting shares of a bank.
In anticipation of possible statutory
changes that would make interstate
banking permissable, a number of
bank holding companies have made
substantial equity investments in the
preferred or nonvoting common stock
of banking organizations located in
other states. In the typical equity investment arrangement, a holding
company acquires a significant portion of another holding company's
nonvoting stock, with the understanding that, if interstate banking
becomes permissible, the investing
organization will merge with or acquire the other holding company.
Some agreements include restrictive



73

or limiting provisions to protect the
investment of the banking organization.
To determine whether the terms of
equity investment agreements are
consistent with the Bank Holding
Company Act, the Board adopted a
policy statement that outlines the factors it will consider. In recognition of
the variety of possible arrangements,
the Board decided not to establish rigid
rules for making determinations of
control but, instead, to provide general guidelines. The statement describes the types of arrangements that
indicate that controlling interest has
been acquired by the investing bank
holding company, and those arrangements that create the presumption that
control has been acquired. In making
its determinations, the Board will look
at all aspects of the proposed investment, including the amount of nonvoting stock being acquired, the existence of terms or conditions that
unduly restrict the operations of the
banking organization in which a holding company is investing, and the size
and terms of any warrants or options
to acquire voting shares. The statement also requested any company
considering such a nonvoting equity
investment to review the investment
with the Board before entering into
the agreement.

September 13, 1982—
Modification of the
Policy on Mandatory
Convertible Securities
The Board modified the criteria it
uses to determine whether mandatory convertible securities issued by
state member banks and bank holding companies qualify as primary
capital. The revised policy is applicable to securities issued after September 27, 1982.

74

Board Policy Actions

The reasons for the Board's deciVotes for this action: Messrs. Volcker,
Wallich, Partee, Mrs. Teeters, Messrs. sions are reviewed below. In reachRice, and Gramley. Votes against this ing those decisions the Board also
action: None. Absent and not voting: took into account the economic and
Mr. Martin.
financial developments that are covIn May, the Board adopted a policy ered in greater detail elsewhere in
statement, issued jointly with the this REPORT. A listing of the Board's
Comptroller of the Currency, that set discount rate actions during 1982,
forth the conditions under which including the votes on the actions,
mandatory convertible debt securities follows this review.
qualify as primary capital for purposes of determining capital ade- January to Mid-July:
quacy. Although the policy was ef- No Change in Discount Rate
fective immediately, the Board sought
comment on certain issues, with the During the latter part of 1981, interunderstanding that the policy might est rates had declined considerably
and the Board had approved reducbe revised later.
tions in the basic discount rate from
After consideration of the com- 14 percent in late October to 12
ments received, the Board made one percent in early December. In the
substantive change in the criteria: it closing weeks of 1981 and the early
established a limitation on equity- weeks of 1982, relatively rapid growth
commitment notes, a type of man- in the monetary aggregates and widedatory convertible security. The re- spread discussion of large prospecvised policy limits the issuance of such tive federal deficits had fostered an
notes to 10 percent of an organiza- upturn in market interest rates, and
tion's primary capital exclusive of by February short-term rates had
mandatory convertible issues. The risen to levels well above the basic
Board believed that that limitation discount rate.
would encourage organizations to rely
On March 1, the Board disapmore on equity notes than on equityproved a request from one Federal
commitment notes. Certain other
technical changes in the policy also Reserve Bank to raise the discount
rate by 1 percentage point to 13
were made.
percent. The other eleven Banks had
The Comptroller of the Currency proposed that the current rate be
adopted similar revisions to the policy maintained. The Board decided that
for national banks.
a higher discount rate was not warranted by conditions in financial
1982 Discount Rates
markets. Short-term interest rates,
The Board approved seven changes although still relatively high, had
in the basic discount rate during edged down from recent peaks, and
1982. All were reductions of Vi monetary growth appeared to have
percentage point and they lowered subsided in previous weeks. In reachthe rate from 12 percent in mid-July ing its decision the Board also gave
to 8% percent by year-end. The weight to indications of current
Board also voted on four occasions weakness in economic activity.
On April 12, the Board turned
to turn down requests for rate changes
submitted by individual Federal Re- down a request by one Reserve Bank
to increase the discount rate by 1
serve Banks.



Board Policy Actions

75

August 13, and August 26. Apart
from serving to bring the discount
rate into better alignment with shortterm market interest rates, the reductions were deemed appropriate
in view of the continued relatively
moderate growth in money and of
evidence of reduced credit demands
at banks. In reaching its decisions
the Board also took into account
indications of continued relatively
sluggish economic activity.
The Board disapproved a pending
reduction of Vi percentage point in
the discount rate on September 13 in
light of prevailing conditions in financial markets and of the recent performance of the monetary aggregates. Subsequently, the Board
approved a reduction of Vi percentage point to 9Vi percent on October
8. Short-term market rates had declined substantially just before this
action, after what proved to be a
temporary upturn in previous weeks.
In the circumstances the Board decided that a decrease of Vi percentage
point would maintain an appropriate
Mid-July to Mid-December:
alignment between the discount rate
Reductions in Discount Rate
and short-term market rates.
The final discount rate actions of
During the first part of July, market
interest rates declined substantially, the year were reductions of Vi perespecially short-term rates. Treasury centage point approved on Novembill rates fell below the discount rate. ber 19 and December 13. These
On July 19, the Board approved a actions were viewed as consistent
reduction in the basic discount rate with the prevailing pattern of shortfrom 12 percent to WVi percent. The term interest rates and were taken
action was taken in the context of against a background of continued
the decline in market rates and was progress toward price stability and
also deemed to be appropriate in indications of persisting sluggishness
light of the relatively restrained growth in economic activity. The Board
of money and credit over the course recognized that recent monetary
growth had been relatively rapid but
of recent months.
Market interest rates declined also noted that such expansion was
sharply further during subsequent associated with current economic and
weeks, and the Board approved ad- financial uncertainties that were in
ditional reductions of V2 percentage turn generating exceptional demands
point in the discount rate on July 30, for liquidity.
percentage point and requests by two
other Banks to lower the rate by V2
percentage point and 1 percentage
point respectively. Short-term interest rates had changed little during
previous weeks and remained considerably above the basic discount rate.
The Board took note, however, of
the moderation in monetary growth
since the early weeks of the year and
of key economic indicators that
pointed to a decline in economic
activity during the first quarter. After
weighing these developments, the
Board concluded that on balance
current economic and financial conditions argued against a change in
the discount rate.
Subsequently, on June 21, the
Board disapproved a request by one
Reserve Bank to reduce the discount
rate by xh percentage point to IIV2
percent. The Board decided that a
lower discount rate would not be
appropriate after the recent increases
in market rates.




76

Board Policy Actions

Votes on Reserve Bank
Actions to Change the
Discount Rate
Under the provisions of the Federal
Reserve Act, the boards of directors
of the Federal Reserve Banks are
required to establish rates on discounts for and advances to depository institutions at least every 14
days and to submit such rates to the
Board for review and determination.
The Board votes listed below are
those that involved approval or disapproval of actions to establish new
rates or to change existing rates.
Reference is made in this report
to the basic discount rate, which is
the rate on discounts and advances
to depository institutions for shortterm adjustment credit. Other categories of discount window credit
include advances made over extended periods to depository institutions that are under sustained liquidity pressure. Such extended credit
may also be provided when exceptional circumstances or practices adversely affect a particular depository
institution. Finally, so-called seasonal credit may be provided for
periods longer than those permitted
under adjustment credit to assist
smaller institutions in meeting regular needs for funds arising from
certain expected movements in their
deposits and loans.
As of December 31, 1982, the
structure of rates was as follows: a
basic rate of 8V2 percent for shortterm adjustment credit; a rate for
seasonal credit of 8V2 percent; and a
rate on extended credit of 8V2 percent
for the first 60 days of borrowing,
9V2 percent for the next 90 days of
borrowing, and IOV2 percent after
150 days.



March 1, 1982
The Board disapproved an action
taken by the directors of the Federal
Reserve Bank of St. Louis on February 23, 1982, to increase the basic
discount rate from 12 percent to 13
percent.
Votes for this action: Messrs. Volcker,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None.1

April 12, 1982
The Board disapproved actions taken
by the directors of the Federal Reserve Bank of St. Louis on April 6
to increase the basic discount rate to
13 percent, and by the directors of
the Federal Reserve Banks of Chicago and Dallas on April 8 to reduce
the basic discount rate to IIV2 percent and 11 percent respectively.
Votes for these actions: Messrs.
Volcker, Martin, Wallich, Partee, Mrs.
Teeters, and Mr. Gramley. Votes
against these actions: None. Absent and
not voting: Mr. Rice.
June 21, 1982
The Board disapproved an action
taken by the directors of the Federal
Reserve Bank of Chicago on June
10 to reduce the basic discount rate
to ll!/2 percent.
Votes for this action: Messrs. Martin,
Wallich, Partee, Mrs. Teeters, and Mr.
Rice. Votes against this action: None.
Absent and not voting: Messrs. Volcker
and Gramley.
July 19, 1982
Effective July 20, 1982, the Board
approved actions taken by the direc1. This note appears on p. 59.

Board Policy Actions
tors of the Federal Reserve Banks of
New York, Richmond, Atlanta, Chicago, Kansas City, Dallas, and San
Francisco to reduce the basic discount rate from 12 percent to 11V2
percent.
Votes for this action: Messrs. Volcker,
Martin, Partee, Mrs. Teeters, and Mr.
Rice. Votes against this action: None.
Absent and not voting: Messrs. Wallich and Gramley.

The Board subsequently approved
similar actions taken by the directors
of the Federal Reserve Banks of Boston, Cleveland, St. Louis, and Minneapolis, effective July 21, and Philadelphia, effective July 23, 1982.

July 30, 1982
Effective August 2, 1982, the Board
approved actions taken by the directors of the Federal Reserve Banks of
Boston, New York, Philadelphia,
Richmond, Atlanta, Chicago, St.
Louis, Minneapolis, Kansas City,
Dallas, and San Francisco to reduce
the basic discount rate to 11 percent.
Votes for this action: Mr. Volcker, Mrs.
Teeters, Messrs. Rice, and Gramley.
Votes against this action: None. Absent and not voting: Messrs. Martin,
Wallich, and Partee.

The Board subsequently approved
a similar action taken by the directors
of the Federal Reserve Bank of
Cleveland, effective August 3, 1982.

August 13, 1982
Effective August 16, 1982, the Board
approved actions taken by the directors of all of the Federal Reserve
Banks to reduce the basic discount
rate to lOVi percent.



77

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

August 26, 1982
Effective August 27, 1982, the Board
approved actions taken by the directors of the Federal Reserve Banks of
Boston, New York, Philadelphia,
Richmond, Atlanta, Chicago, St.
Louis, Minneapolis, Kansas City,
Dallas, and San Francisco to reduce
the basic discount rate to 10 percent.
Votes for this action: Messrs. Volcker,
Martin, Wallich, and Partee. Votes
against this action: None. Absent and
not voting: Mrs. Teeters and Messrs.
Rice and Gramley.

The Board subsequently approved
a similar action taken by the directors
of the Federal Reserve Bank of
Cleveland, effective August 30, 1982.
September 13, 1982
The Board disapproved an action
taken by the directors of the Federal
Reserve Bank of Chicago on September 9 to reduce the basic discount
rate to 9Vi percent.
Votes for this action: Messrs. Volcker,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Martin.

October 8, 1982
Effective October 12, 1982, the Board
approved actions taken by the directors of the Federal Reserve Banks of
Boston, New York, Philadelphia,
Richmond, Atlanta, Chicago, St.
Louis, Minneapolis, Kansas City,
and Dallas to reduce the basic discount rate to 9V2 percent.

78

Board Policy Actions

Effective October 11, 1982, the
Board approved an action taken by
the directors of the Federal Reserve
Bank of San Francisco and those of
its branches that were open on that
date to reduce the basic discount
rate to 9V2 percent; the effective date
for the Salt Lake City Branch was
October 12.
Votes for these actions: Messrs.
Volcker, Martin, Partee, Mrs. Teeters, Messrs. Rice, and Gramley. Votes
against these actions: None. Absent and
not voting: Mr. Wallich.
The Board subsequently approved
a similar action taken by the directors
of the Federal Reserve Bank of
Cleveland, effective October 13,1982.
November 19, 1982
Effective November 22, 1982, the
Board approved actions taken by the
directors of the Federal Reserve
Banks of Boston, New York, Philadelphia, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas
City, and San Francisco to reduce
the basic discount rate to 9 percent.
Votes for this action: Messrs. Volcker,
Martin, Wallich, Partee, Mrs. Teeters,




Messrs. Rice, and Gramley. Votes
against this action: None.
The Board subsequently approved
similar actions taken by the directors
of the Federal Reserve Banks of Dallas, effective November 23, and Cleveland, effective November 26, 1982.

December 13, 1982
Effective December 14, 1982, the
Board approved actions taken by the
directors of the Federal Reserve
Banks of Boston, Atlanta, Chicago,
St. Louis, Minneapolis, Dallas, and
San Francisco to reduce the basic
discount rate to 8V2 percent.
Votes for this action: Messrs. Volcker,
Martin, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Wallich.
The Board subsequently approved
similar actions taken by the directors
of the Federal Reserve Banks of New
York, Cleveland, Richmond, and
Kansas City, effective December 15,
and Philadelphia, effective December 17, 1982.

79

Record of Policy Actions of the
Federal Open Market Committee
The record of policy actions of the
Federal Open Market Committee is
presented in the ANNUAL REPORT of
the Board of Governors pursuant to
the requirements of section 10 of the
Federal Reserve Act. That section
provides that the Board shall keep a
complete record of the actions taken
by the Board and by the Federal Open
Market Committee on all questions
of policy relating to open market operations, that it shall record therein
the votes taken in connection with the
determination of open market policies and the reasons underlying each
such action, and that it shall include
in its ANNUAL REPORT to the

Con-

gress a full account of such actions.
In the pages that follow, there are
entries with respect to the policy actions taken at the meetings of the
Federal Open Market Committee held
during the calendar year 1982, including the votes on the policy decisions made at those meetings as well
as a resume of the basis for the decisions. The summary descriptions of
economic and financial conditions are
based on the information that was
available to the Committee at the time
of the meetings, rather than on data
as they may have been revised later.
It will be noted from the record of
policy actions that in some cases the
decisions were made by unanimous
vote and that in other cases dissents
were recorded. The fact that a decision in favor of a general policy was
by a large majority, or even that it
was by unanimous vote, does not necessarily mean that all members of the
DigitizedCommittee were equally agreed as to
for FRASER


the reasons for the particular decision
or as to the precise operations in the
open market that were called for to
implement the general policy.
During 1982 the policy record for
each meeting was released a few days
after the next regularly scheduled
meeting and was subsequently published in the Federal Reserve Bulletin.

Policy directives of the Federal
Open Market Committee are issued
to the Federal Reserve Bank of New
York as the Bank selected by the
Committee to execute transactions for
the System Open Market Account. In
the area of domestic open market activities, the Federal Reserve Bank of
New York operates under two separate directives from the Open Market
Committee: an Authorization for Domestic Open Market Operations and
a Domestic Policy Directive. (A new
Domestic Policy Directive is adopted
at each regularly scheduled meeting.)
In the foreign currency area, it operates under an Authorization for
Foreign Currency Operations and a
Foreign Currency Directive. These
four instruments are shown below in
the form in which they were in effect
at the beginning of 1982. 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, 1982
1. The Federal Open Market Committee authorizes and directs the Federal

80

FOMC Policy Actions

Reserve Bank of New York, to the extent
necessary to carry out the most recent
domestic policy directive adopted at a
meeting of the Committee:
(a) To buy or sell U.S. Government
securities, including securities of the Federal Financing Bank, and securities that
are direct obligations of, or fully guaranteed as to principal and interest by,
any agency of the United States in the
open market, from or to securities dealers and foreign and international accounts maintained at the Federal Reserve
Bank of New York, on a cash, regular,
or deferred delivery basis, for the System
Open Market Account at market prices
and, for such Account, to exchange
maturing U.S. Government and Federal
agency securities with the Treasury or
the individual agencies or to allow them
to mature without replacement; provided
that the aggregate amount of U.S. Government and Federal agency securities
held in such Account (including forward
commitments) at the close of business on
the day of a meeting of the Committee
at which action is taken with respect to
a domestic policy directive shall not be
increased or decreased by more than $4.0
billion1 during the period commencing
with the opening of business on the day
following such meeting and ending with
the close of business on the day of the
next such meeting;
(b) When appropriate, to buy or sell
in the open market, from or to acceptance dealers and foreign accounts maintained at the Federal Reserve Bank of
New York, on a cash, regular, or deferred delivery basis, for the account of
the Federal Reserve Bank of New York
at market discount rates, prime bankers
acceptances with maturities of up to 9
months at the time of acceptance that
(1) arise out of current shipment of goods
between countries or within the United
States, or (2) arise out of the storage

1. Pursuant to an action taken by the
Committee at its meeting on December 2122, 1981, the limit on changes between Committee meetings in System Account holdings
of U.S. government and federal agency securities was set at $4.0 billion for the period
through the close of business on February 2,
1982, at which time it reverted to $3.0 billion.



within the United States of goods under
contract of sale or expected to move into
the channels of trade within a reasonable
time and that are secured throughout
their life by a warehouse receipt or
similar document conveying title to the
underlying goods; provided that the aggregate amount of bankers acceptances
held at any one time shall not exceed
$100 million;
(c) To buy U.S. Government securities, obligations that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the
United States, and prime bankers acceptances of the types authorized for
purchase under l(b) above, from dealers
for the account of the Federal Reserve
Bank of New York under agreements for
repurchase of such securities, obligations,
or acceptances in 15 calendar days or
less, at rates that, unless otherwise expressly authorized by the Committee,
shall be determined by competitive bidding, after applying reasonable limitations on the volume of agreements with
individual dealers; provided that in the
event Government securities or agency
issues covered by any such agreement
are not repurchased by the dealer pursuant to the agreement or a renewal
thereof, they shall be sold in the market
or transferred to the System Open Market Account; and provided further that
in the event bankers acceptances covered
by any such agreement are not repurchased by the seller, they shall continue
to be held by the Federal Reserve Bank
or shall be sold in the open market.
2. The Federal Open Market Committee authorizes and directs the Federal
Reserve Bank of New York (or, under
special circumstances, such as when the
New York Reserve Bank is closed, any
other Federal Reserve Bank) (a) to lend
to the Treasury such amounts of securities held in the System Open Market
Account as may be necessary from time
to time for the temporary accommodation of the Treasury, under such conditions as the Committee may specify; and
(b) to purchase directly from the Treasury for renewable periods not to exceed
30 days, when authorized by the Board
of Governors of the Federal Reserve
System pursuant to an affirmative vote
of not less than five members, for its
own account (with discretion, in cases

FOMC Policy Actions
where it seems desirable, to issue participations to one or more Federal Reserve
Banks) such amounts of special shortterm certificates of indebtedness as may
be necessary from time to time for the
temporary accommodation of the Treasury, provided that the rate charged on
such certificates shall be a rate of VA of 1
percent below the discount rate of the
Federal Reserve Bank of New York at
the time of such purchases and provided
that the total amount of such certificates
held at any one time by the Federal
Reserve Banks shall not exceed $2 billion.
3. In order to ensure the effective
conduct of open market operations, the
Federal Open Market Committee authorizes and directs the Federal Reserve
Banks to lend U.S. Government securities held in the System Open Market
Account to Government securities dealers and to banks participating in Government securities clearing arrangements
conducted through a Federal Reserve
Bank, under such instructions as the
Committee may specify from time to
time.
4. In order to ensure the effective
conduct of open market operations, while
assisting in the provision of short-term
investments for foreign and international
accounts maintained at the Federal Reserve Bank of New York, the Federal
Open Market Committee authorizes and
directs the Federal Reserve Bank of New
York (a) for System Open Market Account, to sell U.S. Government securities
to such foreign and international accounts on the basis set forth in paragraph
1 (a) under agreements providing for the
resale by such accounts of those securities
within 15 calendar days on terms comparable to those available on such transactions in the market; and (b) for New
York Bank account, when appropriate,
to undertake with dealers, subject to the
conditions imposed on purchases and
sales of securities in paragraph 1 (c),
repurchase agreements in U.S. Government and agency securities, and to arrange corresponding sale and repurchase
agreements between its own account and
foreign and international accounts maintained at the Bank. Transactions undertaken with such accounts under the
provisions of this paragraph may provide
for a service fee when appropriate.



81

Domestic Policy Directive
In Effect January 1, 19822
The information reviewed at this meeting
suggests that real GNP declined appreciably in the fourth quarter and that
prices on the average rose less rapidly
than over the first three quarters of the
year. In November industrial production
fell more than in preceding months;
nonfarm payroll employment, especially
in manufacturing, declined sharply further; and the unemployment rate rose an
additional 0.4 percentage points to 8.4
percent. The nominal value of retail sales
increased, but the level was still well
below the average for the third quarter.
Housing starts remained at a depressed
level. The rise in the index of average
hourly earnings has been somewhat less
rapid this year than during 1980.
The weighted average value of the
dollar against major foreign currencies
has changed little on balance since midNovember. The U.S. foreign trade deficit
in October widened substantially from
the unusually low rate in September, and
the average for the two months was
about the same as that for July and
August.
Ml-B (adjusted for estimated shifts
into NOW accounts) expanded substantially in November and early December,
but its level in November was still well
below the lower end of the Committee's
range for growth over the year from the
fourth quarter of 1980 to the fourth
quarter of 1981. Growth of M2 accelerated sharply in November, raising its
level above the upper end of its range
for the year. Short-term market interest
rates and bond yields continued to decline in the latter part of November, but
since then they have risen to levels
generally higher than those of midNovember; over the period since midNovember, mortgage interest rates have
declined further. On December 3 the
Board of Governors announced a reduction in Federal Reserve basic discount
rates from 13 to 12 percent.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce infla2. Adopted by the Committee at its meeting
on December 21-22, 1981.

82

FOMC Policy Actions

tion, promote a resumption of growth in
output on a sustainable basis, and contribute to a sustainable pattern of international transactions. At its meeting in
early July, the Committee agreed that its
objectives would be furthered by reaffirming the monetary growth ranges for
the period from the fourth quarter of
1980 to the fourth quarter of 1981 that it
had set at the February meeting. These
ranges included growth of 3Vi to 6
percent for Ml-B, abstracting from the
impact of flows into NOW accounts on a
nationwide basis, and growth of 6 to 9
percent and 6^2 to 9!/2 percent for M2
and M3 respectively. The Committee
recognized that the shortfall in Ml-B
growth in the first half of the year partly
reflected a shift in public preferences
toward other highly liquid assets and that
growth in the broader aggregates had
been running at about or somewhat
above the upper end of their ranges. In
light of its desire to maintain moderate
growth in money over the balance of the
year, the Committee expected that growth
in Ml-B for the year would be near the
lower end of its range. At the same time,
growth in the broader aggregates might
be high in their ranges. The associated
range for bank credit was 6 to 9 percent.
The Committee also tentatively agreed
that for the period from the fourth
quarter of 1981 to the fourth quarter of
1982 growth of Ml, M2, and M3 within
ranges of 2V21to 5Vi percent, 6 to 9
percent, and 6 /2 to 91/2 percent respectively would be appropriate.
In the short run, the Committee seeks
behavior of reserve aggregates consistent
with growth of Ml and M2 from November 1981 to March [1982] at annual rates
of around 4 to 5 percent and 9 to 10
percent respectively. The target for Ml
no longer reflects the "shift-adjustment"
for conversion of outstanding interestbearing assets into new NOW accounts,
formerly estimated in the "shift-adjusted" Ml-B series. In setting the Ml
target, the Committee took account of
the relatively rapid growth that had
already taken place through the first part
of December; it also recognized that
interpretation of actual money growth
may need to take account of the significance of fluctuations in NOW accounts,
which have recently been growing relatively rapidly. The Chairman may call



for Committee consultation if it appears
to the Manager for Domestic Operations
that pursuit of the monetary objectives
and related reserve paths during the
period before the next meeting is likely
to be associated with a federal funds rate
persistently outside a range of 10 to 14
percent.

Authorization for Foreign
Currency Operations
In Effect January 1, 1982
1. The Federal Open Market Committee authorizes and directs the Federal
Reserve Bank of New York, for System
Open Market Account, to the extent
necessary to carry out the Committee's
foreign currency directive and express
authorizations by the Committee pursuant thereto, and in conformity with
such procedural instructions as the Committee may issue from time to time:
A. To purchase and sell the following foreign currencies in the form of
cable transfers through spot or forward
transactions on the open market at home
and abroad, including transactions with
the U.S. Treasury, with the U.S. Exchange Stabilization Fund established by
Section 10 of the Gold Reserve Act of
1934, with foreign monetary authorities,
with the Bank for International Settlements, and with other international financial institutions:
Austrian schillings
Belgian francs
Canadian dollars
Danish kroner
Pounds sterling
French francs
German marks

Italian lire
Japanese yen
Mexican pesos
Netherlands guilders
Norwegian kroner
Swedish kronor
Swiss francs

B. To hold balances of, and to have
outstanding forward contracts to receive
or to deliver, the foreign currencies listed
in paragraph A above.
C. To draw foreign currencies and
to permit foreign banks to draw dollars
under the reciprocal currency arrangements listed in paragraph 2 below, provided that drawings by either party to
any such arrangement shall be fully
liquidated within 12 months after any
amount outstanding at that time was first
drawn, unless the Committee, because
of exceptional circumstances, specifically
authorizes a delay.

FOMC Policy Actions
D. To maintain an overall open
position in all foreign currencies not
exceeding $8.0 billion. For this purpose,
the overall open position in all foreign
currencies is defined as the sum (disregarding signs) of net positions in individual currencies. The net position in a
single foreign currency is defined as
holdings of balances in that currency,
plus outstanding contracts for future
receipt, minus outstanding contracts for
future delivery of that currency, i.e., as
the sum of these elements with due
regard to sign.
2. The Federal Open Market Committee directs the Federal Reserve Bank of
New York to maintain reciprocal currency arrangements ("swap" arrangements) for the System Open Market
Account for periods up to a maximum
of 12 months with the following foreign
banks, which are among those designated
by the Board of Governors of the Federal
Reserve System under Section 214.5 of
Regulation N, Relations with Foreign
Banks and Bankers, and with the approval of the Committee to renew such
arrangements on maturity:
Foreign bank

Amount of arrangement
(millions of
dollars equivalent)

Austrian National Bank
National Bank of Belgium
Bank of Canada
National Bank of Denmark
Bank of England
Bank of France
German Federal Bank
Bank of Italy
Bank of Japan
Bank of Mexico
Netherlands Bank
Bank of Norway
Bank of Sweden
Swiss National Bank
Bank for International Settlements
Dollars against Swiss francs
Dollars against authorized European
currencies other than Swiss francs

250
1,000
2,000
250
3,000
2,000
6,000
3,000
5,000
700
500
250
300
4,000
600
1,250

Any changes in the terms of existing swap
arrangements, and the proposed terms of
any new arrangements that may be authorized, shall be referred for review and
approval to the Committee.
3. All transactions in foreign currencies
undertaken under paragraph 1(A) above
shall, unless otherwise expressly authorized by the Committee, be at prevailing
market rates. For the purpose of provid


83

ing an investment return on System holdings of foreign currencies, or for the purpose of adjusting interest rates paid or
received in connection with swap drawings, transactions with foreign central
banks may be undertaken at nonmarket
exchange rates.
4. It shall be the normal practice to arrange with foreign central banks for the
coordination of foreign currency transactions. In making operating arrangements with foreign central banks of System holdings of foreign currencies, the
Federal Reserve Bank of New York shall
not commit itself to maintain any specific
balance, unless authorized by the Federal
Open Market Committee. Any agreements or understandings concerning the
administration of the accounts maintained by the Federal Reserve Bank of
New York with the foreign banks designated by the Board of Governors under
Section 214.5 of Regulation N shall be
referred for review and approval to the
Committee.
5. Foreign currency holdings shall be
invested insofar as practicable, considering needs for minimum working balances.
Such investments shall be in liquid form,
and generally have no more than 12 months
remaining to maturity. When appropriate
in connection with arrangements to provide investment facilities for foreign currency holdings, U.S. Government securities may be purchased from foreign
central banks under agreements for repurchase of such securities within 30 calendar days.
6. All operations undertaken pursuant
to the preceding paragraphs shall be reported promptly to the Foreign Currency
Subcommittee and the Committee. The
Foreign Currency Subcommittee consists
of the Chairman and Vice Chairman of
the Committee, the Vice Chairman of the
Board of Governors, and such other
members of the Board as the Chairman
may designate (or in the absence of members of the Board serving on the Subcommittee, other Board Members designated
by the Chairman as alternates, and in the
absence of the Vice Chairman of the
Committee, his alternate). Meetings of the
Subcommittee shall be called at the request of any member, or at the request
of the Manager for Foreign Operations,
for the purposes of reviewing recent or
contemplated operations and of consult-

84

FOMC Policy Actions

ing with the Manager on other matters
relating to his responsibilities. At the request of any member of the Subcommittee, questions arising from such reviews
and consultations shall be referred for determination to the Federal Open Market
Committee.
7. The Chairman is authorized:
A. With the approval of the Committee, to enter into any needed agreement or understanding with the Secretary
of the Treasury about the division of responsibility for foreign currency operations between the System and the Treasury;
B. To keep the Secretary of the
Treasury fully advised concerning System
foreign currency operations, and to consult with the Secretary on policy matters
relating to foreign currency operations;
C. From time to time, to transmit
appropriate reports and information to the
National Advisory Council on International Monetary and Financial Policies.
8. Staff officers of the Committee are
authorized to transmit pertinent information on System foreign currency operations to appropriate officials of the
Treasury Department.
9. All Federal Reserve Banks shall participate in the foreign currency operations
for System Account in accordance with
paragraph 3G(1) of the Board of Governors' Statement of Procedure with Respect to Foreign Relationships of Federal
Reserve Banks dated January 1, 1944.

Foreign Currency Directive
In Effect January 1, 1982
1. System operations in foreign currencies shall generally be directed at count-




ering disorderly market conditions, provided that market exchange rates for the
U.S. dollar reflect actions and behavior
consistent with the IMF Article IV,
Section 1.
2. To achieve this end the System
shall:
A. Undertake spot and forward
purchases and sales of foreign exchange.
B. Maintain reciprocal currency
("swap") arrangements with selected foreign central banks and with the Bank for
International Settlements.
C. Cooperate in other respects with
central banks of other countries and with
international monetary institutions.
3. Transactions may also be undertaken:
A. To adjust System balances in
light of probable future needs for currencies.
B. To provide means for meeting
System and Treasury commitments in
particular currencies, and to facilitate
operations of the Exchange Stabilization
Fund.
C. For such other purposes as may
be expressly authorized by the Committee.
4. System foreign currency operations
shall be conducted:
A. In close and continuous consultation and cooperation with the United
States Treasury;
B. In cooperation, as appropriate,
with foreign monetary authorities; and
C. In a manner consistent with the
obligations of the United States in the
International Monetary Fund regarding
exchange arrangements under the IMF
Article IV.

FOMC Policy Actions
Meeting Held on
February 1-2, 1982

85

Sales of new domestic automobiles
fell to an annual rate of 4.9 million
units in December, the lowest
Domestic Policy Directive
monthly pace in 22 years. Auto sales
picked up in the first few weeks of
Preliminary estimates of the Com- January, but continued at an excepmerce Department indicated that tionally low rate.
real gross national product had dePrivate housing starts rose 13 perclined at an annual rate of about 5]A cent in December from the depercent in the fourth quarter of 1981. pressed rate in November, but reAverage prices, as measured by the mained below an annual rate of 1
fixed-weight price index for gross million units. Nearly all of the indomestic business product, in- crease was in multifamily units.
creased at an annual rate of about 7 Sales of existing homes picked up
percent, much less rapidly than over somewhat in December, as had sales
the first three quarters of the year. of new homes in November; neverDuring 1981, real GNP and nominal theless, total home sales in NovemGNP grew about 3A percent and 9lA ber were about one-third below their
percent respectively, and the price year-earlier level.
index referred to above rose about 9
The producer price index for finpercent.
ished goods rose 0.3 percent in DeThe index of industrial production cember, compared with 0.5 percent
fell 2.1 percent further in December, in November. During 1981 the index
for a cumulative decline of about 7 rose 7 percent, compared with the
percent over the last five months of increase of nearly 12 percent over
1981. The decline in December again 1980. Producer prices of consumer
was broadly based, reflecting output foods rose only a little during 1981,
reductions for nearly all major prod- and the rise in energy prices moderuct groupings, and it was particular- ated, as a surge early in the year
ly sharp for durable consumer goods after decontrol of oil prices was foland both durable and nondurable lowed by some decline in the second
goods materials. Available data, no- half. Producer prices of other contably for the automotive and steel sumer goods and capital equipment
industries, suggested further produc- also rose less rapidly in 1981 than in
1980. The consumer price index rose
tion cutbacks in January.
Total nonfarm payroll employ- 0.4 percent in December; over the
ment declined sharply in December year the index increased about 9
for the third consecutive month. Job percent, compared with a rise of
losses in manufacturing continued about 12V2 percent over 1980. Insizable, totaling more than 700,000 creases were smaller in 1981 than in
in the fourth quarter. The unemploy- 1980 for all major components of the
ment rate rose an additional 0.5 per- index.
The rise in the index of average
centage point in December to 8.9
hourly earnings slowed considerably
percent.
The nominal value of retail sales in the final three months of 1981
increased somewhat further in De- from the pace earlier in the year.
cember, but the level remained be- Over the year, the index rose about
low the average for the third quarter. SVA percent, compared with an in


86

FOMC Policy Actions

crease of about 9Vi percent over
1980.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies rose
about 4 percent during January, reflecting primarily responses to the
widening differential between U.S.
and foreign interest rates. Foreign
monetary authorities intervened
considerably to resist the depreciation of their currencies. The U.S.
trade deficit increased in the fourth
quarter from the rate in the previous
two quarters, as nonagricultural exports declined and non-oil imports
rose.
At its meeting on December 2122, 1981, the Committee had decided
that open market operations in the
period until this meeting should be
directed toward behavior of reserve
aggregates consistent with growth of
Ml and M2 from November 1981 to
March 1982 at annual rates of around
4 to 5 percent and around 9 to 10
percent respectively. In setting the
objective for Ml, the Committee
took account of the relatively rapid
growth that had already taken place
through the first part of December.
The intermeeting range for the federal funds rate, which provides a
mechanism for initiating consultation of the Committee between regularly scheduled meetings, was set at
10 to 14 percent.
Ml grew at an annual rate of 11 !/2
percent in December and accelerated in January to a rate estimated to
be above 20 percent. Expansion in
checkable deposits other than demand accounts (other checkable deposits, or OCDs), which accounted
for a substantial part of the acceleration of Ml growth in November and
December, apparently was even
more rapid in January. Growth of



M2 moderated in December to an
annual rate of about 73A percent, but
picked up in January to a rate estimated at about 11 percent; the substantial growth over the two months
reflected strength in the more liquid
of the nontransaction components as
well as in Ml. 1 Some evidence suggested that the disproportionate
growth in NOW and similar accounts in recent months had resulted
at least in part from a desire of
individuals to hold liquid balances
because of uncertainties about economic prospects and interest rates.
The pace of monetary growth in
December and January raised required reserves and generated demands for reserves considerably in
excess of the volume supplied during
1. The growth rates cited are based on
revised data for the monetary aggregates,
reflecting new benchmarks and revised seasonal factors and some minor changes in the
definition of M2, that were published on February 5. As redefined, M2 no longer includes
institution-only money market mutual funds
(which remain in M3) and includes retail repurchase agreements (RPs) in denominations
of less than $100,000 (which were already in
M3).
The monetary aggregates are defined as
follows: Ml comprises demand deposits at
commercial banks and thrift institutions, currency in circulation, traveler's checks, negotiable order of withdrawal (NOW) and automatic transfer service (ATS) accounts at
banks and thrift institutions, and credit union
share draft accounts. M2 contains Ml and
savings and small-denomination time deposits
at all depository institutions, overnight repurchase agreements (RPs) at commercial banks
and retail RPs at all depository institutions,
overnight Eurodollars held at Caribbean
branches of member banks by U.S. residents
other than banks, and money market mutual
fund shares other than those restricted to
institutions. M3 is M2 plus large-denomination time deposits at all depository institutions, large-denomination term RPs at commercial banks and savings and loan
associations, and institution-only money market mutual funds.

FOMC Policy Actions
the intermeeting period through System open market operations. Consequently, borrowings from Federal
Reserve Banks for purposes of adjusting reserve positions expanded
sharply; borrowings averaged nearly
$1.3 billion in the four statement
weeks ending January 27, compared
with an average of about $425 million in the four weeks ending December 23. The federal funds rate
rose from around 121A percent in the
days preceding the December meeting to about 14 percent in the days
just before this meeting.
Against a background of continued rapid growth in monetary aggregates and large prospective federal
deficits, market interest rates had
risen on balance since the Committee's meeting in December: shortterm rates increased about Wi to 2Vi
percentage points and bond yields
rose about Vi to 1 percentage point.
The prime rate charged by most
commercial banks on short-term
business loans remained at 153/4 percent during the intermeeting interval. Average rates on new commitments for fixed-rate conventional
home mortgage loans increased
nearly 3A of a percentage point.
Total credit at U.S. commercial
banks, adjusted for shifts of assets
from U.S. offices of banks to recently established international banking
facilities (IBFs), expanded at an annual rate of about 11 percent in December.2 Growth in business loans
accelerated substantially, and security, real estate, and consumer loans
2. International banking facilities began operations on December 3, 1981. The adjustment made in calculating growth in bank
credit involved adding back assets estimated
to have been transferred from U.S. banking
offices to IBFs.



87

also registered sizable gains. From
the fourth quarter of 1980 to the
fourth quarter of 1981, bank credit
expanded S3A percent. Issuance of
commercial paper by nonfinancial
institutions was relatively strong in
December, but slowed in early January.
Staff projections presented at this
meeting suggested that real GNP
would decline further in the current
quarter and then begin to recover in
the second quarter. The unemployment rate was expected to increase
to a peak in the second quarter,
while inflation, as measured by the
fixed-weight price index for gross
domestic business product, was projected to slow further over the year.
Views of Committee members
concerning economic activity and
prices during 1982 generally differed
little from the staff projections. The
members thought that recovery in
activity most likely would begin before long, although they differed
somewhat with regard to its probable strength. Their projections of
growth in real GNP over the year
ending in the fourth quarter of 1982
ranged from V2 percent to 3 percent.
However, a number of members expressed concern about the risk that
the recession might be prolonged by
greater weakness in business capital
investment than currently anticipated or by other developments. Members were unanimous in the view
that the reduction in the rise in
prices was likely to continue: their
projections for the increase in the
GNP implicit deflator over the year
ranged from 6V2 to VIA percent, compared with a rise of about 8V2 percent over the year ending in the
fourth quarter of 1981.
At this meeting, the Committee
completed the review, begun at the

88

FOMC Policy Actions

meeting in December 1981, of the
ranges for growth of monetary aggregates over the period from the
fourth quarter of 1981 to the fourth
quarter of 1982 within the framework of the Full Employment and
Balanced Growth Act of 1978. At its
meeting in July 1981, the Committee
had reaffirmed the ranges for growth
over the year ending in the fourth
quarter of 1981 that it had set in early
February. These ranges were 3 to
51/2 percent for Ml-A and V/i to 6
percent for Ml-B, abstracting from
the impact of the introduction of
NOW accounts on a nationwide basis; 6 to 9 percent for M2; and 6V2 to
9!/2 percent for M3. The associated
range for growth of commercial bank
credit was 6 to 9 percent. For the
year ending in the fourth quarter of
1982, the Committee had tentatively
agreed that growth of Ml, M2, and
M3 within ranges of 2Vi to 5Vi percent, 6 to 9 percent, and 6V2 to 9Vi
percent respectively would be appropriate.3
When the Committee reaffirmed
the ranges for 1981 at its meeting in
July, it recognized that the divergence in growth of the various monetary aggregates was proving to be
considerably greater than had been
anticipated at the beginning of the
year, even after allowance for the
effects of shifts into NOW accounts.
Thus it was thought likely and desirable that growth of Ml-B over the
3. In looking ahead to 1982, it had been
decided to abandon the compilation of Ml-A
and the shift-adjusted Ml-B (that is, Ml-B
adjusted to exclude that portion of flows into
NOW accounts in 1981 estimated to have
come from other interest-bearing assets rather
than from demand deposits). The remaining
aggregate for Ml is the one formerly labeled
Ml-B, which includes the total amount of
NOW accounts.



year would be near the lower bound
of its range and that growth of M2
and M3 might well be around the
upper ends of their ranges.
The divergence in behavior between the narrow monetary aggregate and the broader ones proved to
be even greater than had been expected at midyear. From the fourth
quarter of 1980 to the fourth quarter
of 1981, growth of Ml-B adjusted for
shifts into NOW accounts was about
2!/4 percent, approximately VA percentage points below the lower end
of its range. Growth in this aggregate
over the year was slow in relation to
growth of nominal GNP, as financial
innovations and high interest rates
induced changes in cash-management techniques. Growth of M2 and
M3 over the year was about 9Vi
percent and 11 ]A percent respectively, about Vi percentage point and VA
percentage points above the upper
ends of their ranges. The relatively
strong growth of M2 reflected in part
shifts of funds from market instruments to money market mutual
funds and the expansion of small
savers certificates at depository institutions in response to liberalization of interest rate ceilings; M3
grew more than M2 because of a
substantial expansion in large-denomination CDs, as depository institutions increased their managed liabilities to support expansion in
loans and investments.
In contemplating ranges for 1982,
the Committee continued to face unusual uncertainties concerning the
forces affecting monetary growth. It
seemed likely that the recent expansion in NOW accounts would prove
to be mostly a temporary aberration
in individuals' liquidity preferences
and that the relationship between
growth of money and of nominal

FOMC Policy Actions
GNP would be closer to historical
patterns. The ongoing changes in
financial technology, which had reduced demand for Ml for most of
1981, were generally presumed to
have effects in 1982 consistent with
earlier experience, unless such arrangements as "sweeps" of individual checking accounts into money
market funds or other instruments
became widespread. With respect to
M2, growth could be augmented if
the scheduled reduction in federal
income taxes or other influences
raised the personal saving rate or if
depository institutions attracted an
exceptionally large flow of funds into
individual
retirement
accounts
(IRAs) from sources not included in
M2.
In the Committee's discussion of
ranges for monetary growth in 1982,
the members were in agreement on
the need to maintain the commitment to the long-standing goal of
restraining growth of money and
credit, thereby contributing to a further reduction in the rate of inflation
and providing the basis for restoration of economic stability and sustainable growth in output. Nevertheless, members differed somewhat in
their views concerning the particular
ranges most appropriate for the
year.
For Ml, most members favored
reaffirming the range of 2!/2 to 5Vi
percent that had been tentatively
adopted at the meeting in July 1981.
One member advocated a somewhat
higher range, with a view to promoting more growth of real GNP and a
lower rate of unemployment. In addition, some sentiment was expressed for retaining the range of 2Vi
to 5!/2 percent but taking the base
level of Ml in the fourth quarter of
1981 to be the lower end of the



89

Committee's range for last year.
Such an adjustment of the base
would in effect recognize that the
recent burst in growth of Ml had
brought its level more in line with
the lower end of the 1981 range and,
unless the burst proved to be temporary, could provide a more appropriate starting point.
Members differed somewhat more
in their views concerning the broader monetary aggregates. Most desired to reaffirm the tentative range
of 6 to 9 percent adopted last July.
However, a substantial number initially favored specification of slightly higher ranges, largely because of
their assessments of the likely impact of various developments that
would tend to raise growth of M2
relative to that of Ml. One member
suggested that in pursuit of its objectives during the course of the year
the Committee give more weight to
M2 than to Ml, because of the volatility of the behavior of the narrower
aggregate in the short run reflecting,
among other things, the response of
NOW accounts to changing liquidity
preferences and interest rates. More
generally, it was felt that considerable weight should be given to M2 in
interpreting developments during
the year.
At the conclusion of the discussion, the Committee decided to reaffirm the ranges for 1982 that had
been tentatively established in mid1981. Thus the Committee adopted
the following ranges for growth of
the monetary aggregates from the
fourth quarter of 1981 to the fourth
quarter of 1982: for Ml, 2Vi to 5Vi
percent; for M2, 6 to 9 percent; and
for M3, 6!/2 to 9!/2 percent. The associated range for commercial bank
credit was 6 to 9 percent.
In setting the range for Ml, the

90

FOMC Policy Actions

Committee recognized that the recent rapid increase in that aggregate
placed it in January well above the
average in the fourth quarter of 1981
but that it was too early to judge
conclusively the extent to which the
upsurge reflected temporary influences rather than a basic change in
the amount of money needed to finance growth of nominal GNP. On
the assumption that the relationship
between growth of Ml and the expansion of nominal GNP was likely
to be closer to normal than it had
been in 1981, the Committee contemplated that growth of Ml in 1982
might acceptably be in the upper
part of its range. The lower part of
the range was considered appropriate to allow for the possibility that
institutional or regulatory changes
would speed the process of economizing on the cash balances included
in Ml. The Committee also contemplated that growth of M2 was likely
to be high within its range, although
growth still would be somewhat below that in 1981. However, growth
of M2 might appropriately reach or
even slightly exceed the upper end
of its range if personal savings grew
much more rapidly in relation to
income than anticipated or if depository institutions attracted an exceptionally large flow of funds into IRAs
from sources outside measured M2.
In light of the unusual growth of
NOW accounts in recent weeks, it
was emphasized that the Committee
might wish to reconsider the range
for Ml should evidence suggest a
more lasting change in individuals'
liquidity preferences; in any event, it
would reconsider the ranges in July
within the framework of the Full
Employment and Balanced Growth
Act of 1978.



The Committee adopted the following
ranges for growth in the monetary aggregates for the period from the fourth quarter of 1981 to the fourth quarter of 1982:
Ml, Vh to 51/2 percent; M2, 6 to 9 percent; and M3, 6I/2 to 9Vi percent. The
associated range for bank credit is 6 to 9
percent.
Votes for this action: Messrs.
Volcker, Solomon, Boehne, Boykin,
Corrigan, Gramley, Keehn, Partee,
Rice, Schultz, and Wallich. Vote
against this action: Mrs. Teeters.

Mrs. Teeters dissented from this
action because she believed that
somewhat higher monetary growth
over the year ahead was needed to
promote adequate expansion in economic activity and a reduction in the
rate of unemployment. Specifically,
she favored a range for Ml that was
at least Vi percentage point higher
than that adopted by the Committee
and a range for M2 that provided for
somewhat greater growth in the
broader aggregate relative to that in
Ml.
In contemplating its objectives for
monetary growth over the remainder
of the first quarter of the new year,
the Committee took account of the
very rapid rise in Ml in recent
months, especially in January. Given the apparent persistence of slow
growth in nominal GNP in the first
quarter, it seemed quite likely that
the demand for money would abate
substantially over the months ahead.
Even if Ml grew no further from
January to March, its income velocity on the average for the first quarter
could well decline at a postwar record rate. While some decline in Ml
seemed desirable, the Committee
did not feel that much stronger measures than those already in place
would be necessary or appropriate in

FOMC Policy Actions
the period immediately ahead to
force such a decline.
Against this background, the
Committee decided to seek behavior
of reserve aggregates associated
with no further growth of Ml from
January to March and with growth of
M2 at an annual rate of around 8
percent, with a view to bringing
growth of both aggregates over time
into their longer-run target ranges
for the year. It was also agreed that
some decline in Ml, which would be
associated with a faster return to its
longer-run range, would be acceptable in the context of reduced pressure in the money market. The intermeeting range for the federal funds
rate, which provides a mechanism
for initiating consultation of the
Committee, was set at 12 to 16 percent.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting indicates that real GNP declined appreciably in the fourth quarter of 1981
and that prices on the average rose much
less rapidly than over the first three
quarters of the year. In December industrial production and nonfarm payroll employment declined sharply for the third
consecutive month, and the unemployment rate rose an additional 0.5 percentage point to 8.9 percent. The nominal
value of retail sales increased somewhat
further, but the level was still below the
average for the third quarter. Although
housing starts expanded, they remained
at a depressed level. The rise in the index
of average hourly earnings was considerably less rapid over the fourth quarter of
1981 than on the average earlier in the
year.
The weighted average value of the
dollar against major foreign currencies
rose substantially during January; foreign monetary authorities intervened
considerably to resist the depreciation of
their currencies. In the fourth quarter the



91

U.S. foreign trade deficit increased from
the rate in the previous two quarters.
Ml grew rapidly in December and
January, reflecting in part rapid expansion in checkable deposits other than
demand accounts. Growth of M2 also
was substantial, owing to strength in the
more liquid of the nontransaction components as well as in Ml. Short-term
market interest rates and bond yields on
balance have risen further in recent
weeks, and mortgage interest rates have
also increased.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation, promote a resumption of growth in
output on a sustainable basis, and contribute to a sustainable pattern of international transactions. The Committee
agreed that its objectives would be furthered by growth of Ml, M2, and M3
from the fourth quarter of 1981 to the
fourth quarter of 1982 within ranges of
2xh to 5V2 percent, 6 to 9 percent, and 6V2
to 9!/2 percent respectively. The associated range for bank credit was 6 to 9
percent.
The Committee seeks behavior of reserve aggregates over the balance of the
quarter consistent with bringing Ml and
M2 over time into their longer-run target
ranges for the year. Taking account of
the recent surge in growth of Ml, the
Committee seeks no further growth in
Ml for the January-to-March period and
growth in M2 at an annual rate of around
8 percent. Some decline in Ml would be
associated with more rapid attainment of
the longer-run range and would be acceptable in the context of reduced pressure in the money market. The Chairman
may call for Committee consultation if it
appears to the Manager for Domestic
Operations that pursuit of the monetary
objectives and related reserve paths during the period before the next meeting is
likely to be associated with a federal
funds rate persistently outside a range of
12 to 16 percent.
Votes for this action: Messrs.
Volcker, Solomon, Boehne, Boykin,
Corrigan, Gramley, Keehn, Partee,
Rice, Schultz, Mrs. Teeters, and Mr.
Wallich. Votes against this action:
None.

92

FOMC Policy Actions

Meeting Held on
March 29-30, 1982
1. Domestic Policy Directive
The information reviewed at this
meeting suggested that real GNP,
which had declined at an annual rate
of 4!/2 percent in the fourth quarter of
1981, fell appreciably further in the
first quarter of this year. However,
the level of final purchases in real
terms was sustained, and the contraction in activity apparently moderated during the quarter. Average
prices, as measured by the fixedweight price index for gross domestic business product, were estimated
to have risen much less than the
annual rate of 7.5 percent in the
preceding quarter.
The index of industrial production
rose 1.6 percent in February, after a
decline of 2.5 percent in January that
was accounted for partly by severe
winter weather. Although curtailments in output continued early this
year, the rate of decline in industrial
production from December to February was notably smaller than in the
last four months of 1981.
Like industrial production, nonfarm payroll employment in February recovered some of its January
decline. Over the two months the
average monthly decline amounted
to a little less than 100,000, compared with an average of about
300,000 in the fourth quarter. The
unemployment rate in February, at
8.8 percent, was the same as in December.
The nominal value of retail sales,
also distorted in January by the unusually severe weather, rebounded
in February to about the level in
December. Almost all categories of
retail sales increased in February
after having declined in January.



Unit sales of new domestic automobiles rose to an annual rate of 6.2
million in February, buoyed by rebates and other price concessions;
unit sales dropped in the first few
weeks of March despite the continuation of purchase-incentive programs, but remained above the depressed fourth-quarter rate.
The Department of Commerce
survey of business spending plans
taken in January and February suggested that current-dollar expenditures for plant and equipment in 1982
would be about IVA percent greater
than in 1981. The results implied a
year-to-year decline of about 1 percent in real terms.
Private housing starts edged up in
January and February from their unusually depressed pace in the fourth
quarter of 1981, but the annual rate
in February remained less than 1
million units for the seventh consecutive month. Sales of new and existing houses fell in January, reflecting
the adverse weather conditions in
many areas of the country in addition to the high level of mortgage
interest rates; sales of existing
homes picked up in February, but
sales of new homes declined markedly further.
The rise in both producer and consumer prices moderated substantially in the first two months of the year.
The producer price index for finished goods declined 0.1 percent in
February, after a rise of 0.4 percent
in January. Reductions in energy
prices and rebates on motor vehicles
contributed to the February decline
in producer prices and to a deceleration in consumer prices as well. The
consumer price index rose only 0.3
percent and 0.2 percent in January
and February respectively. The rise
in the index of average hourly earn-

FOMC Policy Actions
ings over the first two months of the
year remained at a reduced pace.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies rose
about 4 percent further in February
and March, partly reflecting a widening of the differential between
U.S. and foreign interest rates during much of the intermeeting interval. However, the differential narrowed somewhat toward the end of
the period. Monetary authorities of
some foreign countries intervened
on a substantial scale to resist the
depreciation of their currencies. The
U.S. foreign trade deficit in January
and February was somewhat less on
average than in the fourth quarter,
reflecting declines in imports of both
oil and non-oil products. Exports
also declined further from the
fourth-quarter rate.
At its meeting on February 1-2,
1982, the Committee had adopted
the following ranges for growth of
the monetary aggregates over the
period from the fourth quarter of
1981 to the fourth quarter of 1982:
Ml, 2Vi to 51/2 percent; M2, 6 to 9
percent; and M3, 6'/2 to 91/2 percent.
The associated range for bank credit
was 6 to 9 percent.
At the February meeting, the
Committee recognized that rapid
monetary growth over the recent
months had placed both Ml and M2
in January above the ranges adopted
for growth over the year. Consequently, the Committee had also decided that open market operations in
the period until this meeting should
be directed toward behavior of reserve aggregates over the balance of
the first quarter consistent with
bringing growth of Ml and M2 over
time into their longer-run target
ranges. For the period from January



93

to March, the Committee sought no
further growth in Ml and growth in
M2 at an annual rate of around 8
percent. It was also agreed that
some decline in Ml, which would be
associated with a faster return to its
longer-run range, would be acceptable in the context of reduced pressure in the money market. The intermeeting range for the federal funds
rate, which provides a mechanism
for initiating consultation of the
Committee, was set at 12 to 16 percent.
After having grown rapidly for
three months, Ml declined at an
annual rate of about 33A percent in
February and expanded only a little
in early March. A substantial contraction in demand deposits accounted for the decline in February, as
flows into other checkable deposits
continued strong. Growth of M2
slowed to an annual rate of 4lA percent in February, reflecting a slackening of the expansion in its nontransaction component as well as the
decline in Ml, but partial data suggested that growth accelerated in
March.
Nonborrowed reserves declined
substantially in February and then
turned up in March; in the statement
week ending March 24, such reserves remained somewhat below
the average for the month of January. Borrowings from Federal Reserve Banks for purposes of adjusting reserve positions averaged a
little less than $1.1 billion in the four
statement weeks ending March 24
compared with an average of $1.2
billion in four weeks ending January
27, although such borrowings averaged nearly $1.5 billion in the intervening four weeks.
The federal funds rate, which had
been about 14 percent in the days

94

FOMC Policy Actions

preceding the February meeting,
generally fluctuated in a range of
133/4 to 15!/2 percent during the subsequent intermeeting period. Most
other short-term market interest
rates declined Vz to 1 percentage
point on balance over the intermeeting interval and long-term yields fell
about Vi to VA percentage point. The
prime rate charged by most commercial banks on short-term business
loans, which had been raised from
153/4 to I6V2 percent on February 2,
was unchanged during the remainder
of the intermeeting period. Average
rates on new commitments for fixedrate home mortgage loans moved
down nearly Vi percentage point to
about 17 percent.
Total credit outstanding at U.S.
commercial banks, adjusted for
shifts of assets to IBFs, expanded at
an average annual rate of about 11
percent in January and February,
the same as in December. Growth in
total loans picked up in February,
and expansion in business loans continued sizable in both months. Issuance of commercial paper by nonfinancial institutions was quite strong
in February.
Staflf projections presented at this
meeting suggested that real GNP
would begin to recover in the second
quarter and would expand moderately over the balance of 1982. The
unemployment rate was expected to
reach a peak in the second quarter,
while inflation, as measured by the
fixed-weight price index for gross
domestic business product, was projected to slow somewhat further
over the year.
Views of Committee members
concerning the most probable direction of economic activity and the
behavior of prices in the remaining
three quarters of 1982 generally dif


fered little from the staflf projections,
but several members emphasized the
unusual uncertainties that could produce a different result. The prospective cut in federal income taxes at
midyear and the current expansion
in defense orders and outlays, together with a reduction or a reversal
of inventory liquidation, were expected to contribute to economic
recovery before long; but whether
recovery would begin as early as in
the second quarter was questioned,
in part because a number of sensitive
indicators of activity had continued
to point to weakness. Concern was
also expressed that continuing deterioration in both agriculture and nonagricultural industries and regions
might dampen some types of consumer expenditures and overall outlays for plant and equipment. Moreover, there was a general feeling that
the recovery could be more restrained than in earlier cycles, partly
because financial stringency and
high interest rates had prevailed for
so long. With respect to inflation,
progress recently had been greater
than expected, and some further reduction in the underlying trend of
costs and prices was thought likely;
current price indicators were expected to show particularly small increases for some months.
The Committee considered objectives for monetary growth over the
period from March to June in light of
several circumstances bearing on the
recent and prospective behavior of
the monetary aggregates. It appeared that growth of both Ml and
M2 from January to March would be
close to the rates that the Committee
had specified for that period. Consistent with the targets established
for the year, however, slower
growth than in the first quarter as a

FOMC Policy Actions
whole would be needed in the remaining quarters. The level of M2 in
March appeared close to the upper
end of its longer-run range.
A staff analysis suggested that the
demand for money in the three
months through June might be expected to moderate significantly
from its growth in the first quarter.
Growth of Ml on average in the first
quarter had been considerably greater than would have been predicted
on the basis of the actual behavior of
nominal GNP and interest rates; the
income velocity of Ml had declined
very sharply after a small decline in
the last quarter of 1981. Velocity
declines of this magnitude and duration have been rare in the postwar
period, and they were particularly
unusual in the absence of declines in
short-term interest rates.
The great bulk of the first-quarter
growth of Ml had occurred in NOW
accounts, suggesting that individuals
wished to hold increased liquid balances in an environment of considerable uncertainty about the prospects
for economic activity and interest
rates. That interpretation was supported by renewed growth over recent months in highly liquid savings
deposits that had relatively low
yields. In the course of the second
quarter, the accumulated liquidity
balances might be drawn down to
some extent, either for spending or
for investing in other assets, especially if the economy strengthened
and uncertainties were reduced.
Thus at some point, relatively slow
growth of Ml, consistent with a fairly prompt return to its longer-run
range, could be associated with a
substantial rise in velocity. Should
the recently increased preference for
liquidity be more enduring, somewhat greater growth in Ml over time



95

might be needed to foster economic
recovery.
The task of judging the trend in
Ml and of implementing monetary
policy in the period immediately
ahead would be complicated by
problems involved in assessing the
pattern of monetary growth during
the early part of the second quarter.
Calculation of seasonal adjustments
for that part of the year is particularly difficult because of large tax payments, differences in the speed of
their processing, and uncertainties
about the size of tax refunds. The
behavior of Ml is also affected by
the extent to which funds accumulated in anticipation of tax payments
are held in Ml deposits or, for example, in money market mutual funds.
Seasonal factors allow for a large
rise in unadjusted Ml in April. However, the computation of the seasonal factors for the month has been
complicated by the sharp variation
in growth patterns in April for the
past two years and by the related
difficulties of isolating the impact of
such nonrecurring influences as the
credit control program in 1980 from
possible shifts in the seasonal influences over time. Thus, inherent difficulties in the seasonal adjustment
process as well as the usual uncertainties related to large tax payments
and refunds raised the possibility
that, while aiming at a second-quarter deceleration in monetary growth,
allowance would need to be made
for some bulge of growth in April.
Given the uncertainties about the
near-term economic prospects as
well as about the technical and other
factors affecting the monetary aggregates, almost all members of the
Committee felt that it would be desirable to set a course for the second
quarter as a whole designed to per-

96

FOMC Policy Actions

mit modest growth of Ml, consistent
with moving toward the longer-run
growth objective over a period of
time. Considerable attention was
paid to evaluating the significance of
recent behavior of NOW accounts.
In the Committee's decision, the
point was made that the growth of
Ml since October could be traced
almost entirely to extraordinarily
rapid growth in NOW accounts. A
number of factors suggested that the
growth of NOW accounts, as well as
the accompanying growth in savings
accounts, reflected a desire of individuals to hold more highly liquid
assets, at least temporarily, in the
light of uncertainties about economic activity and interest rates. Growth
in demand deposits, which are held
by businesses as well as by individuals, had been sluggish. Moreover,
growth of the larger M2 aggregate,
especially since December, appeared generally in line with the
Committee's expectations.
Liquid balances accumulated in
NOW accounts might be drawn
upon in the second quarter, but if
they were not, an effort to return Ml
to its longer-run range might imply a
more restrictive policy than was intended or would be desirable. It was
suggested that if individuals evidenced a continuing desire to hold
large liquid balances, the Committee
would need to consider the implications of such a shift in liquidity preference for its range of growth of Ml
over 1982. At the same time, it was
noted that growth of Ml over a longer period extending back into 1981
understated the expansion of transaction balances to the extent that the
accumulation of shares in money
market mutual funds represented
such balances. Partly for that reason, some members suggested that a



stronger effort to reduce growth of
Ml would be desirable to maintain
pressure for continuation of the reduction in the rate of inflation.
Considering the pattern of growth
in the period ahead and the seasonal
uncertainties, most members believed that the behavior of Ml in
April should be evaluated partly in
light of the behavior of M2. Thus, for
example, relatively rapid growth
of Ml in April should be more readily accepted if M2 appeared to be
growing at a pace consistent with
the Committee's expectations for
growth over the year. Should Ml
growth in April be relatively rapid,
offsetting behavior in the ensuing
months would be expected. At the
same time, sentiment was expressed
for prompt efforts to contain an undue bulge in growth of Ml in April,
on the grounds that the absence of
such efforts would be interpreted as
a weakening of the Committee's
anti-inflationary stance and could
have adverse consequences in longterm bond markets.
At the conclusion of the discussion, the Committee decided to seek
behavior of reserve aggregates associated with growth of Ml and M2
from March to June at annual rates
of about 3 percent and 8 percent
respectively. It was understood that
most, if not all, of the expansion in
Ml over the period might well occur
in April, and within limits, an April
bulge in Ml alone should not be
strongly resisted. In any event, it
was agreed that deviations from
those targets should be evaluated in
light of the probability that over the
period, M2 would be less affected
than Ml by deposit shifts related to
the mid-April tax date and by
changes in the relative importance of
NOW accounts as a savings vehicle.

FOMC Policy Actions
Some shortfall in growth of Ml, consistent with progress toward the upper part of the range for the year as a
whole, would be acceptable in the
context of appreciably reduced pressures in the money market and relative strength of other aggregates.
The intermeeting range for the federal funds rate, which provides a
mechanism for initiating further consultation of the Committee, was set
at 12 to 16 percent.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that real GNP declined appreciably further in the first quarter of
1982 but that final purchases were sustained and the contraction in activity
moderated during the quarter; prices on
the average rose much less rapidly than
in the preceding quarter. In January
weakness in activity was accentuated by
unusually severe weather, and in February the nominal value of retail sales
rebounded while industrial production
and nonfarm payroll employment recovered part of their January declines. The
unemployment rate in February, at 8.8
percent, was unchanged from December. Although housing starts rose further
in the first two months of the year, they
remained at a depressed level. The rise
in both the consumer price index and the
producer price index for finished goods
moderated substantially, and the advance in the index of average hourly
earnings on the average remained at a
reduced pace.
The weighted average value of the
dollar against major foreign currencies
continued to rise strongly in February
and March; foreign monetary authorities
intervened on a substantial scale to resist
the depreciation of their currencies. The
U.S. foreign trade deficit in January and
February on the average was somewhat
less than the fourth-quarter rate.
Ml declined in February, after three
months of rapid growth, and then increased moderately in early March.
Growth of M2 slowed appreciably in
February, owing to a slackening of the



97

expansion in the nontransaction component as well as to the decline in Ml.
Short-term market interest rates and
bond yields on balance have declined
since early February, and mortgage interest rates have edged down.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation, promote a resumption of growth in
output on a sustainable basis, and contribute to a sustainable pattern of international transactions. At its meeting in
early February, the Committee agreed
that its objectives would be furthered by
growth of Ml, M2, and M3 from the
fourth quarter of 1981 to the fourth quarter of 1982 within ranges of 2Vi to 5!/2
percent, 6 to 9 percent, and 6V2 to W2
percent respectively. The associated
range for bank credit was 6 to 9 percent.
In the short run, the Committee seeks
behavior of reserve aggregates consistent with growth of Ml and M2 from
March to June at annual rates of about 3
percent and 8 percent respectively. The
Committee also noted that deviations
from these targets should be evaluated in
light of the probability that M2 would be
less affected over the period than Ml by
deposit shifts related to the tax date and
by changes in the relative importance of
NOW accounts as a savings vehicle.
Some shortfall in growth of Ml, consistent with progress toward the upper part
of the range for the year as a whole,
would be acceptable in the context of
appreciably reduced pressures in the
money market and relative strength of
other aggregates. The Chairman may call
for Committee consultation if it appears
to the Manager for Domestic Operations
that pursuit of the monetary objectives
and related reserve paths during the period before the next meeting is likely to be
associated with a federal funds rate persistently outside a range of 12 to 16
percent.
Votes for this action: Messrs.
Volcker, Solomon, Balles, Ford,
Gramley, Partee, Rice, Mrs. Teeters,
and Mr. Winn. Votes against this action: Messrs. Black and Wallich.

Messrs. Black and Wallich dissented from this action because they

98

FOMC Policy Actions

favored specification of somewhat
lower rates for monetary growth
from March to June than those
adopted by the Committee, which
would be associated with a relatively
prompt return of Ml growth to its
range for the year. Mr. Black believed that continued growth of Ml
above its longer-run range for any
extended period would adversely affect economic activity by exacerbating inflationary expectations and
weakening markets for longer-term
securities; for that reason, he felt
that it was particularly important to
resist any surge in growth of Ml that
might develop in April. In Mr. Wallich's opinion, it would be desirable
to restrain the pace of the prospective recovery in economic activity,
consistent with some reduction in
the unemployment rate, to sustain a
degree of pressure for continuation
of the reduction in the underlying
rate of inflation.

2. Review of Continuing
Authorizations
At this, the first regular meeting of
the Federal Open Market Committee
following the election of new members from the Federal Reserve
Banks to serve for the year beginning March 1, 1982, 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, the foreign currency directive, and the procedural
instructions with respect to foreign
currency operations in the forms in
which they were currently outstanding.



Votes for these actions: Messrs.
Volcker, Solomon, Balles, Black,
Ford, Gramley, Partee, Rice, Mrs.
Teeters, Messrs. Wallich and Winn.
Votes against these actions: None.
In reviewing the authorization for
domestic open market operations,
the Committee took special note of
paragraph 3, which authorizes the
Reserve Banks to engage in the lending of U.S. government securities
held in the System Open Market
Account under such instructions as
the Committee might specify from
time to time. That paragraph had
been added to the authorization on
October 7, 1969, on the basis of a
judgment by the Committee that
such lending of securities was reasonably necessary to the effective
conduct of open market operations
and to the implementation of open
market policies, and on the understanding that the authorization
would be reviewed periodically. At
this meeting the Committee concurred in the judgment of the Manager for Domestic Operations that the
lending activity in question remained
reasonably necessary and that the
authorization should remain in effect
on a continuing basis, with the understanding that the manager would
monitor the lending operation closely and would recommend discontinuing it in the event that it was no
longer reasonably necessary to the
effective conduct of open market operations.

3. Agreement with Treasury
to Warehouse
Foreign Currencies
At its meeting on January 17-18,
1977, the Committee had agreed to a
suggestion by the Treasury that the
Federal Reserve undertake to

FOMC Policy Actions
"warehouse" foreign currencies—
that is, to make spot purchases of
foreign currencies from the Exchange Stabilization Fund and
simultaneously to make forward
sales of the same currencies at the
same exchange rate to the ESF. Pursuant to that agreement, the Committee had agreed that the Federal
Reserve would be prepared to warehouse for the Treasury or for the
ESF up to $5 billion of eligible foreign currencies. At this meeting the
Committee reaffirmed the agreement
on the terms adopted on March 18,
1980, with the understanding that it
would be subject to annual review.
Votes for this action: Messrs.
Volcker, Solomon, Balles, Black,
Ford, Gramley, Partee, Rice, Mrs.
Teeters, Messrs. Wallich and Winn.
Votes against this action: None.

4. Authorization for Domestic
Open Market Operations
On April 13-14, 1982, members of
the Committee voted to increase
from $3 billion to $5 billion the limit
on changes between Committee
meetings in System Account holdings of U.S. government and federal
agency securities specified in paragraph l(a) of the authorization for
domestic open market operations,
effective immediately, for the period
ending with the close of business on
May 18, 1982.
Votes for this action: Messrs.
Volcker, Solomon, Balles, Black,
Gramley, Martin, Partee, Rice, Mrs.
Teeters, Messrs. Wallich, Winn, and
Roos. Votes against this action:
None. Mr. Roos voted as alternate for
Mr. Ford.

This action was taken on recommendation of the Manager for Domestic Operations. The Manager



99

had advised that since the March
meeting, large-scale net purchases of
securities had been undertaken to
counter the effects on member bank
reserves of increases in currency in
circulation and in Treasury balances
at Federal Reserve Banks. The
amount of these purchases was approaching $3 billion, leaving no leeway for further purchases over the
current intermeeting interval. It appeared likely that sizable additional
purchases would be required in the
period ahead because of a projected
further rise in Treasury balances associated with expansion in tax receipts.
On April 26-27, the Committee
voted to approve an additional increase of $1 billion, to $6 billion, in
the intermeeting limit on changes in
holdings of U.S. government and
federal agency securities, after the
Manager had advised that the rise in
Treasury balances at Federal Reserve Banks apparently would be
considerably larger than anticipated
earlier.
Votes for this action: Messrs.
Volcker, Solomon, Black, Martin,
Partee, Rice, Mrs. Teeters, Messrs.
Wallich, Winn, Guflfey, and Roos.
Votes against this action: None. Absent: Mr. Gramley. Messrs. Guffey
and Roos voted as alternates for
Messrs. Balles and Ford respectively.

Meeting Held
on May 18, 1982
The information reviewed at this
meeting suggested that real GNP
would change little in the current
quarter after declining at annual
rates of about 4 percent in the first
quarter, according to preliminary estimates of the Commerce Department, and Axh percent in the fourth

100

FOMC Policy Actions

quarter of 1981. In the current quarter, business inventory liquidation
appeared to be moderating from the
first quarter's extraordinary rate.
The rise in average prices, as measured by the fixed-weight price index for gross domestic business
product, appeared to be slowing
somewhat further from the annual
rate of about 5Vi percent in the first
quarter indicated by the preliminary
estimates.
The nominal value of retail sales
increased appreciably in April, according to the advance report, following little change on average over
the first quarter. The advance report
indicated especially strong sales
gains in the automotive group, at
stores selling building materials and
related items, and at furniture and
appliance stores. Unit sales of new
domestic automobiles were at an annual rate of 5.5 million units compared with a rate of nearly 6 million
in March and in the first quarter as a
whole; unit sales picked up appreciably in early May, buoyed by new
purchase-incentive programs.
The index of industrial production
fell 0.6 percent in April, following a
decline of 0.8 percent in March. In
both months output of business
equipment, construction supplies,
and durable goods materials declined substantially, while production of consumer durable goods rose
markedly. In April, industrial output
was 8V2 percent below its prerecession peak in July 1981.
Nonfarm payroll employment declined in March and April, reflecting
continued sizable job losses in manufacturing and construction and
smaller losses in other major sectors. The unemployment rate rose an
additional 0.4 percentage point in
April to 9.4 percent.



Private housing starts edged up in
March for the fifth consecutive
month, but at an annual rate still
below 1 million units, they remained
depressed. Sales of new homes declined further, while sales of existing
homes picked up slightly.
The producer price index for finished goods changed little in March
and April. Prices of energy-related
items declined substantially in
March and fell even more sharply in
April. Prices of other nonfood consumer goods and of capital equipment rose in both months, and prices
of foods and food materials rose
sharply in April following little
change in March. The consumer
price index declined 0.3 percent in
March, largely because of substantial reductions in costs of gasoline
and homeownership, but declines in
food prices also had a moderating
influence. Thus far in 1982, both the
producer price index for finished
goods and the consumer price index
have risen at annual rates of 1 percent or less on balance, and the
advance in the index of average
hourly earnings has remained at a
reduced pace.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies rose
somewhat further in early April but
then fell about VA percent over the
following month, reflecting in part a
decline in U.S. interest rates relative
to foreign rates and market expectations of further declines. The U.S.
foreign trade deficit was about onethird less in the first quarter than in
the preceding quarter, as imports fell
more sharply than exports.
At its meeting on March 29-30,
the Committee had decided that
open market operations in the period
until this meeting should be directed

FOMC Policy Actions
toward behavior of reserve aggregates consistent with growth of Ml
and M2 from March to June at annual rates of about 3 percent and 8
percent respectively. It was understood that most, if not all, of the
expansion in Ml over the period
might well occur in April, and within
limits, an April bulge in Ml alone
should not be strongly resisted. In
any event, it was agreed that deviations from those targets should be
evaluated in light of the probability
that over the period M2 would be
less affected than Ml by deposit
shifts related to the mid-April tax
date and by changes in the relative
importance of NOW accounts as a
savings vehicle. Some shortfall in
growth of Ml, consistent with progress toward the upper part of the
range for the year as a whole, would
be acceptable in the context of appreciably reduced pressures in the
money market and the relative
strength of other aggregates. The
intermeeting range for the federal
funds rate, which provides a mechanism for initiating further consultation of the Committee, was set at 12
to 16 percent.
Growth of Ml accelerated to an
annual rate of I PA percent in April
from 2!/2 percent in March. But the
expansion was concentrated in the
first half of the month and was largely retraced by month-end. As in other recent months, checkable deposits other than demand deposits
(OCDs) posted a sizable increase.
Growth of M2 moderated to an annual rate of about 9V2 percent in
April from 1114 percent in March,
reflecting a slackening in the expansion of its nontransaction component.
Total credit outstanding at U.S.
commercial banks grew at an annual



101

rate of 73A percent in April, about the
same as in March. Banks added substantially to their holdings of Treasury securities, but expansion in
their total loans, including business
loans, moderated somewhat further.
Business borrowing from other
sources also moderated, as issuance
of commercial paper by nonfinancial
businesses slowed substantially and
offerings of corporate securities declined.
Nonborrowed reserves, adjusted
to include special borrowing and
other extended credit from Federal
Reserve Banks, changed little in
April. Virtually all of the increase in
total reserves associated with the
expansion of Ml was provided
through the discount window. Borrowing from Federal Reserve Banks
for purposes of adjusting reserve positions (including seasonal borrowing) rose to an average of $1.5 billion
in the two statement weeks ending
April 28 from a weekly average of
about $1.2 billion in March and the
first half of April. Such borrowing
subsequently fell back to an average
of about $1.1 billion in the two
weeks ending May 12.
The federal funds rate, which had
been about 15 percent at the time of
the March meeting, generally fluctuated in a narrow range of about 143A
to 15!/2 percent during the subsequent intermeeting period. Most other short-term interest rates fell Vi to
1 percentage point on balance over
the intermeeting interval, and longterm yields registered similar declines. The prime rate charged by
commercial banks on short-term
business loans remained at the I6V2
percent rate that has prevailed since
early February. Average rates on
new commitments for fixed-rate
mortgage loans at savings and loan

102

FOMC Policy Actions

associations declined slightly, to
about 163/4 percent.
During the meeting the Committee
was apprised of developments in the
market for U.S. government securities stemming from the failure of a
securities firm to make sizable interest payments that were due on borrowed Treasury obligations. System
officials were monitoring the situation closely and it was understood
that they would continue to do so.
Staff projections at this meeting
suggested that real GNP would expand moderately over the balance of
1982. Inflation, as measured by the
fixed-weight price index for gross
domestic business product, was projected to remain moderate while the
unemployment rate was expected to
remain near its April level.
Views of Committee members
concerning prospects for economic
activity and the behavior of prices
generally differed little from the staff
projections. However, several members commented that the risks of a
deviation from the projections were
on the downside; they noted reports
of gloomy sentiment prevailing
among businessmen and consumers
and of financial strains being experienced by many business firms, financial institutions, farmers, and
consumers. Reduced economic activity and high interest rates were
adversely affecting profits and eroding financial positions; the impact on
key sectors of the economy such as
capital investment, housing, and
spending on consumer durables
could impede the recovery.
A few members gave more emphasis to elements of strength in the
near-term outlook, which they believed reduced the risks of prolonged
recession and enhanced the prospects for a near-term recovery in



economic activity. The favorable
factors included the large tax cut at
midyear and the concurrent increase
in social security payments. In addition, liquidation of business inventories, which had been of unusual
proportions in recent months, was
likely to be reduced or reversed,
thereby contributing to economic recovery. It was also suggested that
spending in interest-sensitive sectors
of the economy was likely to revive,
perhaps more quickly than many anticipated, if inflation remained relatively moderate and interest rates
declined.
It was emphasized during the discussion that a key element in the
economic outlook would be developments affecting the federal budget
and the size of future deficits. Significant progress in reducing prospective deficits would serve to improve
business and consumer confidence
and help to achieve and maintain the
lower interest rates necessary to
support a sustained economic recovery.
It was noted during the discussion
that considerable progress had been
made in the fight against inflation.
Although the major price indexes
overstated the extent of the recent
improvement, the underlying rate of
inflation was down substantially and
cost pressures in general appeared to
be continuing to ease. Inflationary
expectations also appeared to have
moderated somewhat further, but
they remained sensitive to developments in the fiscal and monetary
policy areas.
At its meeting on February 1-2,
1982, the Committee had adopted
the following ranges for growth of
the monetary aggregates over the
period from the fourth quarter of
1981 to the fourth quarter of 1982:

FOMC Policy Actions
Ml, 2V2 to 5Vi percent; M2, 6 to 9
percent; and M3, 6V2 to 9Vi percent.
The associated range for bank credit
was 6 to 9 percent.
At this meeting the Committee reviewed the short-run objectives for
monetary growth that it had established in late March calling for expansion at annual rates of about 3
percent for Ml and about 8 percent
for M2 over the three months from
March to June. The Committee took
note of a staff analysis suggesting
that, despite the bulge in April as a
whole, growth of Ml was generally
consistent with the objective for the
three-month period, reflecting weakness in late April and early May.
Thus the level of Ml, although still
above a path consistent with the
Committee's range for growth from
the fourth quarter of 1981 to the
fourth quarter of 1982, had moved
down toward that path somewhat
more rapidly than had been anticipated earlier. Growth of M2 also
appeared to be consistent with the
Committee's objective for the
March-to-June period, and the level
of that aggregate remained close to
the upper end of its range for 1982.
As at the previous meeting, staff
analysis suggested that the demand
for money, as defined by Ml, might
moderate significantly in the current
quarter. In the first quarter, growth
of Ml had been considerably greater
on average than would have been
expected on the basis of the actual
behavior of nominal GNP and interest rates; as a result, the income
velocity of Ml had shown an unusually large decline. The great bulk of
the growth in Ml in the first quarter,
and indeed in the period since October 1981, had occurred in its NOW
account component. A variety of
evidence suggested an increased



103

preference on the part of individuals
to accumulate highly liquid balances
in an environment of considerable
uncertainty about prospects for economic activity and interest rates. It
was thought that in the course of the
current quarter the strong savings or
precautionary demands for liquid
balances were likely to begin to
moderate, and perhaps to unwind, if
economic prospects appeared to be
improving as projected and if uncertainties about financial conditions
were reduced. While considerable
uncertainties remained, the behavior
of NOW accounts in late April and
early May was consistent with that
expectation.
The staff analysis also suggested
that continued pursuit of the secondquarter objectives for monetary
growth set at the preceding meeting
and the related provision of reserves
through open market operations
would be consistent with at least
modest easing in bank reserve positions. Such easing in turn could be
reflected in some decline in shortterm interest rates. Rates appeared
high, considering the recession in
activity, the slower rise in prices,
and more technically, the degree of
pressure on bank reserve positions.
During the Committee's review of
its second-quarter objectives, almost
all the members agreed that growth
rates consistent with those adopted
at the previous meeting remained
appropriate under current economic
and financial conditions. Some sentiment was expressed for moderately
faster monetary growth in the current quarter with the objective of
improving liquidity and easing financial pressures, but no member favored substantially faster monetary
expansion. Pursuit of the latter policy course, it was suggested, would

104

FOMC Policy Actions

probably exacerbate inflationary expectations, especially in light of the
outlook for large deficits in the federal budget, and thereby exert upward pressure on interest rates.
Given the uncertainties relating to
the public's demand for liquid balances, notably NOW accounts, most
members continued to believe that
the behavior of Ml should be evaluated partly in light of the behavior of
M2 over the weeks ahead. Thus, for
example, somewhat more rapid
growth of Ml might be accepted if it
appeared to be associated with a
continuing desire by the public to
build up liquid balances and with
growth of M2 near its specified rate.
At the conclusion of the discussion the Committee agreed to reaffirm the objectives for monetary
growth established at the previous
meeting and to seek behavior of reserve aggregates associated with
growth of Ml and M2 from March to
June at annual rates of about 3 percent and 8 percent respectively. The
Committee noted that deviations
from these objectives should be
evaluated in light of changes in the
relative importance of NOW accounts as a savings vehicle. The
intermeeting range for the federal
funds rate, which provides a mechanism for initiating further consultation of the Committee, was set at 10
to 15 percent.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that real GNP will change
little in the current quarter after the
appreciable further decline in the first
quarter, as business inventory liquidation moderates from last quarter's extraordinary rate. In April the nominal
value of retail sales expanded, while
industrial production and nonfarm pay


roll employment continued to decline.
The unemployment rate rose 0.4 percentage point to 9.4 percent. Although
housing starts edged up in March for the
fifth consecutive month, they remained
at a depressed level. The rate of increase
in prices on the average appears to be
slowing somewhat further in the current
quarter; so far this year both the consumer price index and the producer price
index for finished goods have risen little
on balance, and the advance in the index
of average hourly earnings has remained
at a reduced pace.
The weighted average value of the
dollar against major foreign currencies,
after rising somewhat further in early
April, has fallen sharply over the past
month, reflecting in part a decline in
U.S. interest rates relative to foreign
rates and market expectations of further
declines. The U.S. foreign trade deficit
in the first quarter was one-third less
than in the preceding quarter.
Ml increased sharply in April, but the
expansion was concentrated in the first
half of the month and was largely retraced later. Growth of M2 moderated
somewhat, owing to a slackening of the
expansion in the nontransaction component. Short-term market interest rates
and bond yields on balance have declined since the end of March, and mortgage interest rates have edged down further.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation, promote a resumption of growth in
output on a sustainable basis, and contribute to a sustainable pattern of international transactions. At its meeting in
early February, the Committee agreed
that its objectives would be furthered by
growth of Ml, M2, and M3 from the
fourth quarter of 1981 to the fourth quarter of 1982 within ranges of 2Vi to 5Vi
percent, 6 to 9 percent, and 6V2 to 9Vi
percent respectively. The associated
range for bank credit was 6 to 9 percent.
In the short run, the Committee seeks
behavior of reserve aggregates consistent with growth of Ml and M2 from
March to June at annual rates of about 3
percent and 8 percent respectively. The
Committee also noted that deviations
from these targets should be evaluated in
light of changes in the relative impor-

FOMC Policy Actions
tance of NOW accounts as a savings
vehicle. The Chairman may call for
Committee consultation if it appears to
the Manager for Domestic Operations
that pursuit of the monetary objectives
and related reserve paths during the period before the next meeting is likely to be
associated with a federal funds rate persistently outside a range of 10 to 15
percent.
Votes for this action: Messrs.
Volcker, Balles, Black, Ford, Gramley, Mrs. Horn, Messrs. Martin, Partee, Rice, Wallich, and Timlen. Vote
against this action: Mrs. Teeters. (Mr.
Timlen voted as alternate for Mr.
Solomon.)

Mrs. Teeters dissented from this
action because she favored specification of somewhat higher rates of
monetary growth from March to
June with the objective of improving
liquidity and easing financial pressures. In her opinion, the time had
come to foster lower and less variable interest rates in order to enhance prospects for significant recovery in output and employment.
Meetings Held on
June 30-July 1, 1982,
and on July 15, 19821
Domestic Policy Directive
The information reviewed at this
meeting suggested that real GNP had
changed little in the second quarter,
after declining at an annual rate of
1. At its meeting on June 30-July 1, 1982,
in accordance with the Full Employment and
Balanced Growth Act of 1978 (the HumphreyHawkins Act), the Committee reviewed its
ranges for growth of the monetary and credit
aggregates for the period from the fourth
quarter of 1981 to the fourth quarter of 1982
and gave preliminary consideration to the
objectives for monetary growth that might be
appropriate for 1983. The conclusion of the
Committee's consideration of the ranges was



105

3.7 percent in the first quarter, as
business inventory liquidation moderated from an extraordinary rate.
The rise in average prices, as measured by the fixed-weight price index for gross domestic business
product, appeared to have slowed
somewhat from the annual rate of
about 43/4 percent in the first quarter.
The nominal value of retail sales
rose Wi percent further in May, according to the advance report. Sales
gains were widespread and were especially strong at automotive, general merchandise, and apparel outlets.
Unit sales of new domestic automobiles rose about I6I/2 percent to an
annual rate of 6.4 million units. Auto
sales dropped sharply in the first 20
days of June, however, following the
termination of most purchase-incentive programs.
The index of industrial production
edged down 0.2 percent in May,
following declines of 0.8 percent in
each of the two preceding months.
Output of business equipment continued to drop sharply, and production of durable goods materials also
declined further. But production of
consumer durable goods rose markedly for the second month in a row,
reflecting primarily an appreciable
increase in automobile assemblies.
Nonfarm payroll employment was
essentially unchanged in May, after
having declined substantially in
March and April. In manufacturing,
job losses were appreciably less in
May than in the earlier months, and
deferred until July 15, 1982, owing to the long
interval before the date of Chairman
Volcker's testimony in conjunction with the
Board's midyear report under the act, which
was scheduled for July 20 before the Senate
Committee on Banking, Housing, and Urban
Affairs. The Board's report also was transmitted to the Congress on July 20.

106

FOMC Policy Actions

the average workweek edged up 0.1
hour to 39.1 hours. In contrast to the
payroll data, the survey of households indicated a substantial increase in employment; but growth in
the civilian labor force was even
greater, and the unemployment rate
edged up 0.1 percentage point to 9.5
percent.
The Department of Commerce
survey of business spending plans
taken in late April and May suggested that current-dollar expenditures
for plant and equipment would rise
only 2lA percent in 1982, compared
with 7lA percent reported in the February survey and an actual expansion of about 83/4 percent in 1981.
The survey results implied a year-toyear decline of about 2V2 percent in
real terms.
Private housing starts rose appreciably in May to an annual rate of 1.1
million units, exceeding a rate of 1
million units for the first time since
last July. Most of the May increase
was in the more volatile multifamily
sector: multifamily starts rose nearly
50 percent, compared with an increase of about 9 percent in singlefamily starts. Sales of new homes
increased substantially in May,
while sales of existing homes were
unchanged; total home sales were
nearly 25 percent below the level of
a year earlier.
The producer price index for finished goods changed little in May, as
sharp declines in prices of energyrelated items about offset increases
in prices of food and other consumer
goods and capital equipment. Over
the first five months of the year, the
index was virtually stable. The consumer price index, which had registered a small net increase over the
first four months of the year, rose 1
percent in May, reflecting sharp in


creases in the volatile homeownership and energy components of the
index and a considerable rise in food
prices. Through May, the rise in the
index of average hourly earnings
was at a significantly less rapid pace
than during 1981.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies had
risen about 7 percent over the period
since the last FOMC meeting, to its
highest level since early 1971. The
strength of the dollar reflected a rise
in U.S. interest rates relative to foreign rates as well as heightened concerns because of hostilities in the
Middle East. The U.S. foreign trade
deficit in the first five months of 1982
was at a rate substantially less than
that in the fourth quarter of last year,
as imports declined more than exports.
At its meeting on May 18, the
Committee had reaffirmed the objectives for monetary growth established at its meeting at the end of
March; thus, it had decided to seek
behavior of reserve aggregates associated with growth of Ml and M2
from March to June at annual rates
of about 3 percent and 8 percent
respectively. The Committee had
also agreed that deviations from
these objectives should be evaluated
in light of changes in the relative
importance of NOW accounts as a
savings vehicle. The intermeeting
range for the federal funds rate,
which provides a mechanism for initiating further consultation of the
Committee, was set at 10 to 15 percent.
Ml declined at an annual rate of
about 2 percent in May, following
expansion at an annual rate of about
103/4 percent in April. The contraction was attributable to a sizable

FOMC Policy Actions
decline in other checkable deposits,
which had exhibited extraordinary
growth over the preceding six
months. M2 grew at an annual rate
of about IOI/2 percent in May, a little
above the rate in April.
Total credit outstanding at U.S.
commercial banks grew at an annual
rate of about 8Vi percent in May,
down slightly from the pace in April.
Growth in business loans, at an annual rate of nearly 19 percent, accounted for much of the rise in bank
credit, as most other categories of
loans and investments registered
only moderate growth or contraction. Business demands for credit,
especially short-term credit, were
exceptionally strong in May, as nonfinancial businesses also issued a
sizable volume of commercial paper.
Nonborrowed reserves, adjusted
to include extended credit from Federal Reserve Banks, expanded substantially in May, after having
changed little in April. Total reserves grew moderately, however,
as borrowing from Federal Reserve
Banks for purposes of adjusting reserve positions (including seasonal
borrowing) declined appreciably. In
the two statement weeks ending
June 23, such borrowing averaged
about $875 million, compared with
an average of about $940 million in
May.
The federal funds rate averaged
about WA percent in the two statement weeks ending June 23, compared with around 14!/2 percent in
the days immediately preceding the
Committee meeting on May 18. The
rate moved toward 15 percent in the
days just before this meeting, influenced by the approach of the June 30
statement date. Most other interest
rates rose about Vi to 1 Vi percentage
points over the intermeeting period.



107

The failure of one dealer in U.S.
government securities and difficulties being experienced by another
dealer heightened concerns about
credit risks throughout the securities
markets and induced some widening
of risk premiums.2 The prime rate
charged by most commercial banks
on short-term business loans remained at 16V2 percent. Average
rates on new commitments for fixedrate mortgage loans at savings and
loan associations edged up slightly.
The staff projections presented at
this meeting suggested that real GNP
would grow at a moderate pace over
the year ahead but that the unemployment rate would remain near its
recent high level. The rise in prices,
as measured by the price index for
gross domestic business product,
was expected to pick up somewhat
in the second half of 1982 from the
substantially reduced rate in the first
half, but continued improvement in
the underlying trend was anticipated.
Views of Committee members
concerning prospects for economic
activity and the behavior of prices
generally were similar in character
to the staff projections. Consumption seemed likely to rise in response
to the 10 percent reduction in federal
income taxes at midyear, the concurrent cost-of-living increase in social security payments, and other
factors; and the extraordinary rate of
liquidation of business inventories in
the first half of 1982 also seemed
likely to contribute to some economic growth.
2. Neither of these firms was on the Federal Reserve Bank of New York's list of primary dealers in U.S. government securities
that file reports on their operations with the
Bank's Market Reports Division.

108

FOMC Policy Actions

As had been the case at the May
meeting of the Committee, however,
several members commented that
the principal risks of a deviation
from the projection of moderate
growth in real GNP were on the
downside, and some expressed concern that any recovery could falter.
Business and consumer sentiment
was reported to have deteriorated
further, reflecting, among other
things, greater uneasiness about the
effects of high interest rates, increased bankruptcies, and difficulties affecting certain financial and
industrial institutions. In these circumstances, business and consumer
demands for liquidity might increase, rather than decline as many
expected, extending the contraction
in business capital expenditures and
limiting consumer outlays for housing and durable goods. Concerning
the prospective behavior of consumers, most statistical measures suggested that their liquidity was improving. The point was made,
however, that rapidly rising prices of
existing houses and readily available
mortgages, which were characteristic of earlier years, were no longer
providing stimulus for spending.
Starting in 1983, a significant volume
of balloon payments on earlier
house-purchase loans would mature.
Moreover, the recovery in activity
could be impeded by weak expansion abroad, by import-financing
problems of some major trading
partners of the United States, and by
the deterioration in the competitiveness of U.S. exports associated with
the sharp rise in the foreign-exchange value of the dollar.
It was stressed during the meeting
that considerable uncertainty remained about the size of the federal
budget deficit for fiscal 1983, as well



as for later years, although the recent congressional action on a budget resolution for the coming fiscal
year represented progress toward a
more restrained fiscal policy. To implement the resolution, a great deal
remained to be done in legislating
appropriations and additional revenues. Several Committee members
observed, moreover, that the deficit
would be considerably larger than
that contained in the resolution, only
in part because the latter was based
on relatively optimistic assumptions
concerning the performance of the
economy. The degree of progress in
reducing prospective federal deficits
would have a major impact on pressures in financial markets and thus
on the performance of such creditsensitive sectors as homebuilding
and business fixed investment. In
the absence of significant progress,
private investment outlays of all
types would be less than otherwise.
With respect to prices, the members noted that considerable progress had been made in reducing the
rate of increase but that the risks of
exacerbating inflationary expectations remained serious. In any case,
the underlying rate of inflation was
not so low as might be inferred from
the recent behavior of major indexes
of prices, and the rise in those indexes was generally expected to pick up
somewhat from the substantially reduced pace of 1982 to date.
At its meeting on February 1-2,
1982, the Committee had adopted
the following ranges for growth of
the monetary aggregates over the
year from the fourth quarter of 1981
to the fourth quarter of 1982: for Ml,
2!/2 to 5Vi percent; for M2, 6 to 9
percent; and for M3, 6V2 to W2 percent. The associated range for bank
credit was 6 to 9 percent. In setting

FOMC Policy Actions
the range for Ml, the Committee
recognized that the level of that aggregate in January was well above
the average in the fourth quarter of
1981 but that it was too early to
judge conclusively the extent to
which the recent upsurge in growth
reflected temporary influences rather than a basic change in the amount
of money needed to finance growth
of nominal GNP. On the assumption
that the relationship between growth
of Ml and the expansion of nominal
GNP was likely to be closer to normal than it had been in 1981, and
given the relatively low base in the
fourth quarter of 1981, the Committee contemplated that growth of Ml
in 1982 might acceptably be in the
upper part of its range. The Committee also contemplated that growth of
M2 was likely to be high within its
range.
At this meeting, the Committee
reviewed its ranges for growth of the
monetary and credit aggregates for
the period from the fourth quarter of
1981 to the fourth quarter of 1982
and gave preliminary consideration
to objectives for monetary growth
that might be appropriate for 1983.
With respect to the current year, the
Committee noted that the levels of
the monetary aggregates in June
were slightly above the upper ends
of their ranges for 1982. The upsurge
in Ml in January was followed by
quite slow growth on average over
the next five months, and from the
fourth quarter of 1981 to June, Ml
had increased at an annual rate of 5.7
percent. Over the same period, M2
and M3 had grown at annual rates of
9.4 percent and 9.7 percent respectively.
Although the growth of Ml was
moderate over the first half of 1982,
it considerably exceeded the growth



109

of nominal GNP; in the first quarter,
the decline in the income velocity of
Ml was extraordinarily sharp. Similarly, the income velocity of the
broader monetary aggregates was
unusually weak in the first half. Given the persistence of relatively high
interest rates, the behavior of velocity in the first half suggested a heightened demand for Ml and M2.
The unusual demand for Ml in the
first half was concentrated in NOW
accounts and other interest-bearing
checkable deposits, which have
some characteristics of traditional
savings deposits. The enlarged share
of these accounts in Ml had made
this aggregate more sensitive to
changes in the public's desire to hold
highly liquid assets.
Growth of M2 as well as that of
Ml appeared to have been bolstered
in the first half of 1982 by increased
preferences for holding highly liquid
financial assets. Conventional savings deposits actually increased, after having contracted in the preceding four years, and money market
mutual funds continued to expand
strongly, although less so than in
1981. Altogether, the nontransaction
component of M2 (M2 less Ml) grew
at an annual rate of IOV2 percent
from the fourth quarter of 1981 to
June.
In reconsidering the ranges for
1982, Committee members remained
in agreement on the need to maintain
the commitment to the long-standing
goal of restraining growth of money
and credit in order to contribute to a
further reduction in the rate of inflation and provide the basis for restoration of economic stability and sustainable growth in output. At the
same time, the Committee took account of the need to provide sufficient monetary growth to encourage

110

FOMC Policy Actions

recovery in economic activity over
the months ahead. Growth consistent with the current longer-run
ranges, quite possibly around the
upper end, was thought to be adequate in view of the sizable rise in
the velocity of money that generally
developed in the early stages of a
cyclical recovery in economic activity. Still, the members recognized
that regulatory actions and changes
in the public's preferences for various assets, as well as shifts in liquidity demands generally, would tend to
affect the velocity of money and
would need to be taken into account
in evaluating the behavior of the
monetary aggregates. To the extent
that precautionary demands for
money remained strong, for example, growth of the major monetary
aggregates near, or possibly somewhat above, the upper ends of their
ranges for 1982 might well be consistent with the Committee's general
policy objectives.
In the Committee's discussion at
this meeting, almost all members
preferred retention of the previously
established ranges for growth of the
monetary aggregates in 1982, with
the understanding that growth
around the upper ends of the ranges
would be acceptable, but some sentiment was expressed for small upward adjustments in the ranges. Several members observed that any
increase in the ranges might well be
misinterpreted as a relaxation of the
Committee's commitment to the
long-run objective of restraining monetary growth and contributing to a
further reduction in the rate of inflation, thereby adversely affecting inflationary expectations and longterm interest rates. It was also noted
that minor adjustments in the ranges
might seem to suggest an unrealistic



degree of precision with which monetary growth could be controlled and
might not be sufficient in any case to
allow for a temporary bulge related
to exceptional demands for liquidity,
should they develop.
With respect to 1983, most members felt that the current ranges for
1982 could appropriately be retained; but they recognized that, in
light of all the current uncertainties
surrounding the economic, financial,
and federal budgetary outlook,
ranges adopted at this time would be
especially tentative. The current
ranges would be consistent with a
reduction in monetary growth in
1983 if, as seemed likely, growth of
the monetary aggregates in 1982 was
around the upper ends of their
ranges. Some sentiment was expressed for a reduction in the ranges
for 1983, particularly if those for
1982 were raised, in line with the
general objective of reducing monetary growth gradually over time.
The implications for monetary
policy of the recent congressional
action on a budget resolution were
considered at some length. Committee members generally felt that a
fifrn follow-through in current efforts
to reduce budgetary deficits should
\contribute to easing financial market
strains within the context of the current ranges for monetary growth; to
help assure that result, in their view,
it was important that action beyond
the magnitude incorporated in the
first budget resolution be taken affecting future years. It was not
thought that the budgetary effort itself would warrant even greater
growth in the monetary aggregates
than was being contemplated. Excessive monetary growth would tend
to work against the benefits of an
improved budgetary outlook in curb-

FOMC Policy Actions
ing inflation and inflationary expectations. The Committee concluded
its discussion and reached a decision
on the longer-run ranges during a
telephone conference on July 15,
1982.
The Committee considered policy
for the period from June to September in light of the apparent consensus for retaining the previously established ranges for growth of the
monetary aggregates over the year,
with the understanding that growth
near, or for a time somewhat above,
the upper ends of those ranges
would be acceptable depending on
emerging strength of liquidity demands in a period of economic uncertainty. The data becoming available at the time of the meeting
indicated that growth of Ml had
weakened appreciably after midJune and that growth of both Ml and
M2 over the whole period from
March to June apparently had been
in line with the Committee's objectives for growth over that period at
annual rates of about 3 percent and 8
percent respectively. The levels of
Ml and M2 in June, as noted earlier,
were just slightly above the upper
ends of their ranges for 1982.
Evaluating the behavior of Ml and
implementing policy in the period
immediately ahead would be complicated by a number of special influences. The midyear reduction in
withholding rates for federal income
taxes and the cost-of-living increase
in social security payments were
generally expected to lead to some
bulge in monetary growth in July. It
was also expected, however, that
any such bulge would be offset in
ensuing months. More fundamentally, some easing in demands for liquidity and precautionary balances,
and a concomitant increase in the



111

income velocity of money, was anticipated over the months ahead, but
the public's liquidity preferences
could not be predicted with much
confidence, especially in the current
environment of financial strains.
Given these problems, most members stressed the need for flexibility
in interpreting the behavior of the
monetary aggregates in the period
ahead. Thus, while still aiming to
provide moderate monetary growth
consistent with the objectives for
growth over the year, those members would be willing to tolerate a
bulge early in the period to the extent that it appeared to be a temporary effect of the tax reduction and
increased social security payments,
perhaps compounded by seasonal
adjustment problems. They would
also accept somewhat faster growth
over the quarter as a whole if it
appeared that demands for liquidity
and precautionary balances were not
easing as anticipated. In general,
they wished to guard against the
possibility that short-term aberrations in the behavior of money or
exceptional demands for liquidity in
circumstances of unusual uncertainty would generate financial market
pressures that would impede the
prospective recovery in output.
A few members of the Committee
were concerned that accommodation of much of a bulge in monetary
growth in July or a relatively rapid
expansion over the summer months
as a whole might jeopardize prospects for achieving the monetary objectives for the year and thus would
risk exacerbating inflationary expectations. Accordingly, they believed
that tendencies toward such monetary growth rates in the months
ahead should be met by increased

112

FOMC Policy Actions

pressures on bank reserve positions
and in the money market.
On the other hand, one member
advocated a strategy directed toward a prompt easing of money market conditions with a view to promoting reductions in short-term
interest rates. It was also suggested
by one member that the Committee
adopt an effective ceiling of 15 percent for fluctuations in the federal
funds rate over the weeks until the
next scheduled meeting, in an effort
to avoid any significant backing up
of interest rates in the current environment and to strengthen prospects
for the anticipated recovery in economic activity. Several members observed, however, that such a strategy was more likely to be viewed as a
fundamental change in the Committee's approach to targeting monetary
growth and would have adverse market reactions because of its potential
for producing an unduly rapid expansion in bank reserves and money.
At the conclusion of the discussion, the Committee agreed to seek
behavior of reserve aggregates associated with growth of Ml and M2
from June to September at annual
rates of about 5 percent and about 9
percent respectively. It decided that
somewhat more rapid growth would
be acceptable depending on evidence that economic and financial
uncertainties were leading to exceptional liquidity demands. It was also
noted that seasonal uncertainties, together with increased social security
payments and the initial impact of
the tax cut on cash balances, might
lead to a temporary bulge in the
monetary aggregates, particularly
Ml. The intermeeting range for the
federal funds rate, which provides a
mechanism for initiating further con


sultation of the Committee, was continued at 10 to 15 percent.
The following domestic policy directive was transmitted to the Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real GNP changed little
in the second quarter, after the appreciable further decline in the first quarter, as
business inventory liquidation moderated from an extraordinary rate. In May
the nominal value of retail sales continued to pick up, while industrial production declined only a little further and
nonfarm payroll employment was essentially unchanged. The unemployment
rate edged up 0.1 percentage point to 9.5
percent. Housing starts rose appreciably
from a depressed level.
The price index for gross domestic
business product appears to have risen at
a relatively slow rate in the second quarter. Over the first five months of this
year the producer price index for finished goods was virtually stable, and the
advance in the index of average hourly
earnings remained at a reduced pace.
The consumer price index rose sharply
in May, after a small net increase over
the preceding four months.
The weighted average value of the
dollar against major foreign currencies
has risen sharply over the past month,
reaching its highest level since early
1971, in response to a rise in U.S. interest rates relative to foreign rates as well
as to hostilities in the Middle East. The
U.S. foreign trade deficit in the first five
months of 1982 was at a rate substantially less than in the fourth quarter of last
year, as imports declined more than exports.
Ml declined somewhat in May, after
its sharp rise in April, while growth of
M2 remained substantial. Business demands for credit, especially short-term
credit, were exceptionally strong. Shortterm market interest rates and bond
yields generally have risen since late
May, and mortgage interest rates have
increased.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation, promote a resumption of growth in
output on a sustainable basis, and con-

FOMC Policy Actions
tribute to a sustainable pattern of international transactions. At its meeting in
early February, the Committee agreed
that its objectives would be furthered by
growth of Ml, M2, and M3 from the
fourth quarter of 1981 to the fourth quarter of 1982 within ranges of 2!/2 to 5Vi
percent, 6 to 9 percent, and 6V2 to W2
percent respectively. The associated
range for bank credit was 6 to 9 percent.
These ranges were under review at this
meeting.
In the short run, the Committee seeks
behavior of reserve aggregates consistent with growth of Ml and M2 from June
to September at annual rates of about 5
percent and about 9 percent respectively. Somewhat more rapid growth would
be acceptable depending on evidence
that economic and financial uncertainties
are leading to exceptional liquidity demands and changes in financial asset
holdings. It was also noted that seasonal
uncertainties, together with increased
social security payments and the initial
impact of the tax cut on cash balances,
might lead to a temporary bulge in the
monetary aggregates, particularly Ml.
The Chairman may call for Committee
consultation if it appears to the Manager
for Domestic Operations that pursuit of
the monetary objectives and related reserve paths during the period before the
next meeting is likely to be associated
with a federal funds rate persistently
outside a range of 10 to 15 percent.
Votes for this action: Messrs.
Volcker, Solomon, Balles, Gramley,
Martin, Partee, Rice, and Keehn.
Votes against this action: Messrs.
Black, Ford, Mrs. Teeters, and Mr.
Wallich. Mr. Keehn voted as alternate for Mrs. Horn.
Messrs. Black, Ford, and Wallich
dissented from this action because
they favored a policy for the period
immediately ahead that was firmly
directed toward bringing growth of
Ml down to its range for 1982 by the
end of the year. They were concerned that accommodation of relatively rapid growth over the summer
months might jeopardize achievement of the monetary objectives for



113

the year and thus would risk exacerbating inflationary expectations. Accordingly, they believed that tendencies toward rapid monetary expansion in the months immediately
ahead should be met by greater pressures on bank reserve positions and
in the money market.
Mrs. Teeters dissented from this
action because she favored specification of somewhat higher rates for
monetary growth during the third
quarter along with an approach to
operations early in the period that
would clearly signal an easing in
policy. In her opinion, policy at this
point should be directed toward exerting downward pressure on shortterm interest rates in order to promote recovery in output and
employment.
At a telephone meeting on July 15,
the Committee concluded its review
of the ranges for growth of the monetary aggregates in 1982 and the tentative ranges for 1983 and took the
following actions.
The Committee reaffirmed the following ranges for growth of the monetary
aggregates over the year from the fourth
quarter of 1981 to the fourth quarter of
1982 that it had adopted in early February: for Ml, 2!/2 to 5Vi percent; for M2, 6
to 9 percent; and for M3, 6V2 to 9Vi
percent. The associated range for bank
credit was 6 to 9 percent. At the same
time, the Committee agreed that growth
in the monetary and credit aggregates
around the top of the indicated ranges
would be acceptable in the light of the
relatively low base period for the Ml
target and other factors, and that it
would tolerate for some period of time
growth somewhat above the target range
should unusual precautionary demands
for money and liquidity be evident in the
light of current economic uncertainties.
Votes for this action: Messrs.
Volcker, Solomon, Balles, Black,
Ford, Mrs. Horn, Messrs. Martin,

114

FOMC Policy Actions

and Partee. Vote against this action:
Mrs. Teeters. Absent and not voting:
Messrs. Gramley, Rice, and Wallich.

Mrs. Teeters dissented from this
action because she favored an explicit statement that growth of Ml
above the upper end of the Committee's range for 1982 by 1 percentage
point, or even as much as VA percentage points, might be acceptable.
In her opinion, it was important to
indicate the acceptable degree of
growth of Ml above the range in
order to foster market behavior that
would lower interest rates and enhance the prospects for sustaining
recovery in output and employment.
The Committee indicated that for 1983
it was tentatively planning to continue
the current ranges for 1982, but would
review that decision carefully in the light
of developments over the remainder of
1982.
Votes for this action: Messrs.
Volcker, Solomon, Balles, Black,
Ford, Mrs. Horn, Messrs. Martin,
Partee, and Mrs. Teeters. Votes
against this action: None. Absent and
not voting: Messrs. Gramley, Rice,
and Wallich.

Shortly
afterwards,
Messrs.
Gramley, Rice, and Wallich, who
had been unable to attend the meeting on July 15 but who had been
present for the main discussion of
the longer-run ranges for monetary
growth held at the meeting on June
30-July 1, associated themselves
with the Committee in its actions
with respect to the ranges for both
1982 and 1983.
Following the Committee's actions on July 15, the next to last
paragraph of the domestic policy directive adopted at its meeting on
June 30-July 1 read as follows:



The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation, promote a resumption of growth in
output on a sustainable basis, and contribute to a sustainable pattern of international transactions. At its meeting in
early February, the Committee had
agreed that its objectives would be furthered by growth of Ml, M2, and M3
from the fourth quarter of 1981 to the
fourth quarter of 1982 within ranges of
2V2 to 5!/2 percent, 6 to 9 percent, and 6V2
to W2 percent respectively. The associated range for bank credit was 6 to 9
percent. The Committee began a review
of these ranges at its meeting on June 30July 1, and at a meeting on July 15, it
reaffirmed the targets for the year set in
February. At the same time the Committee agreed that growth in the monetary
and credit aggregates around the top of
the indicated ranges would be acceptable
in the light of the relatively low base
period for the Ml target and other factors, and that it would tolerate for some
period of time growth somewhat above
the target range should unusual precautionary demands for money and liquidity
be evident in the light of current economic uncertainties. The Committee also indicated it was tentatively planning to
continue the current ranges for 1983, but
would review that decision carefully in
the light of developments over the remainder of 1982.

Meeting Held on August 24, 1982
1. Domestic Policy Directive
The information reviewed at this
meeting suggested that real GNP
would advance only a little further in
the current quarter, following an increase at an annual rate of about 1XA
percent in the second quarter. Average prices, as measured by the fixedweight price index for gross domestic business product, were continuing to rise more slowly than in
1981.
The nominal value of retail sales
rose 1 percent in July, according to
the advance report, recovering only

FOMC Policy Actions
part of the 3lA percent decline recorded in June. Sales of new domestic automobiles, which had dropped
to an annual rate of 4.8 million units
in June, rose a little in July and early
August.
The index of industrial production
was about unchanged in July, following a cumulative decline of more
than 10 percent from the prerecession level in July 1981. Production of
business equipment continued to
drop at its recent pace of 2 to 3
percent per month, while output of
defense and space equipment continued to expand. Output of consumer
goods picked up, reflecting mainly
an increase in automobile assemblies, but automobile output in July
was at a rate substantially above the
sales pace of June and July, and
production schedules for August
were cut back.
Nonfarm payroll employment, after declining sharply in June, was
essentially unchanged in July, as
continued job losses in manufacturing were about offset by gains in
trade and service industries. The unemployment rate rose 0.3 percentage
point to 9.8 percent, as the civilian
labor force expanded and total civilian employment was unchanged.
Private housing starts rose 34 percent in July, more than reversing the
decline in June; but at an annual rate
of 1.2 million units, starts remained
low by historical standards. All of
the July increase was in multifamily
units; starts of such units more than
doubled, in part because of an upsurge in those qualifying for rental
subsidies under a federal government program terminating on September 30. That impending termination also apparently contributed to a
substantial rise in July in newly issued permits for multifamily units;



115

permits for single-family dwellings
declined slightly and were at about
the same pace as in the second quarter as a whole. Combined sales of
new and existing homes in June continued about 25 percent below those
of a year earlier.
The producer price index for finished goods and the consumer price
index both rose 0.6 percent in July,
following increases of 1.0 percent in
June. At the producer level, prices
of energy-related items increased
sharply in both months and in July
accounted for nearly all of the rise in
the index; prices of food and food
materials fell substantially in July.
At the consumer level, food prices
edged down in July, while increases
in energy prices and homeownership
costs moderated from the rapid rates
recorded in June. Over the first seven months of the year, the producer
price index for finished goods and
the consumer price index rose at
annual rates of about 3 percent and
5!/2 percent respectively, compared
with increases of about 7 percent
and 9 percent in 1981. The advance
in the index of average hourly earnings also was considerably less rapid
through July than during 1981.
In foreign exchange markets the
trade-weighted value of the dollar
against major currencies, while fluctuating over a wide range, had
changed little on balance since late
June despite a sharp decline in U.S.
interest rates relative to foreign
rates. The strength of the dollar in
the face of narrowing interest rate
differentials apparently reflected
concerns of market participants
about economic and financial difficulties abroad. The U.S. foreign
trade deficit in the second quarter
was somewhat below the first-quarter deficit, reflecting primarily a sub-

116

FOMC Policy Actions

stantial drop in petroleum imports;
the total of other imports rose somewhat and exports were about unchanged.
At its meeting on June 30-July 1,
the Committee had agreed to seek
behavior of reserve aggregates associated with growth of Ml and M2
from June to September at annual
rates of about 5 percent and about 9
percent respectively. It had also decided that somewhat more rapid
growth would be acceptable depending on evidence that economic and
financial uncertainties were leading
to exceptional liquidity demands.
Moreover, the Committee had noted
that seasonal uncertainties, together
with increased social security payments and the initial impact of the
tax cut on cash balances, might lead
to a temporary bulge in the monetary
aggregates, particularly Ml. The intermeeting range for the federal
funds rate, which provides a mechanism for initiating further consultation of the Committee, was set at 10
to 15 percent.
Ml in fact declined slightly in
July, following declines in May and
June, as demand deposits continued
to contract and growth in currency
slowed further. Growth of M2, after
moderating in June from a rapid pace
in previous months, accelerated
again in July. Small-denomination
time deposits increased sharply during the month, and shares in money
market mutual funds continued to
expand at a relatively strong pace; in
contrast, savings deposits at all depository institutions declined substantially after growing moderately
during earlier months of the year.
Total credit outstanding at U.S.
commercial banks grew at an annual
rate of about 6V2 percent in July, well
below the pace in the first half of the



year. Growth in business loans
slowed in July, but generally strong
business demands for short-term
credit were reflected in an increase
in loans booked at foreign branches
of U.S. banks and in a sharp acceleration in issuance of commercial
paper by nonfinancial businesses. Issuance of publicly offered bonds
rose in July.
Nonborrowed reserves expanded
relatively rapidly in July. However,
with the demand for reserves weak,
in part reflecting the sluggishness of
Ml, adjustment borrowing by depository institutions (including seasonal
borrowing) declined from an average
of about $1.1 billion in June to about
$330 million in the two statement
weeks ending August 18.
Market interest rates had declined
sharply over the period since the
last Committee meeting. Short-term
market rates fell 4 to 6 percentage
points. The federal funds rate, for
example, declined from around 141/2
percent at the end of June to about
10 percent in the statement week
ending August 18 and to around 9
percent in the days immediately preceding this Committee meeting.
Bond yields declined about PA to 2
percentage points. A substantial part
of the decline in long-term rates occurred in an unusually strong rally in
debt markets around mid-August,
when record price increases also occurred in the stock market. The
strength of the downward movement
in interest rates apparently reflected
a shift in market sentiment about the
outlook for interest rates against the
background of strains in financial
markets, relatively weak economic
indicators, and legislative action on
the federal budget. Over the intermeeting interval, the prime rate
charged by commercial banks on

FOMC Policy Actions
short-term business loans was lowered from 16'/2 percent to W/i percent. In conjunction with the decline
in short-term market rates, the Federal Reserve discount rate was reduced in three steps from 12 percent
to 10^2 percent over the period. In
home mortgage markets, average
rates on new commitments for fixedrate conventional loans at savings
and loan associations declined about
!/2 percentage point on balance.
The staff projections presented at
this meeting suggested that real GNP
would grow at a moderate pace over
the year ahead but that the unemployment rate would remain near its
recent high level. Inflation, as measured by the fixed-weight price index for gross domestic business
product, was expected to pick up
somewhat over the months ahead
from the substantially reduced pace
in the first half of 1982, but continued improvement in the underlying
trend was anticipated.
In the Committee's discussion of
the economic situation and outlook,
several members commented that
the timing of an economic recovery
was subject to considerable uncertainty, but no member expressed
disagreement with the general character of the staff projection. As at
other recent meetings, some Committee members suggested that the
principal risks of a deviation from
the projection were on the down
side. Reference was made to the
growing expressions of concern in
the business community and to financial strains being experienced by
many business firms, financial institutions, and others. In this situation,
spending might well remain weak in
key sectors of the economy. Business capital spending was cited as
especially vulnerable to remaining



117

depressed, particularly in the event
of renewed upward pressure on
long-term interest rates. On the other hand, it was observed, continued
success in the fight against inflation
would over time ease pressures in
long-term debt markets, improve
business confidence, and strengthen
business capital spending.
Some members commented that
to date the midyear reduction in federal income taxes and the concurrent
cost-of-living increase in social security payments appeared to have
had little impact on consumer spending. The view was expressed, however, that the midyear tax actions
were likely to exert a positive influence on a delayed basis. It was also
noted that the recently reduced levels of interest rates, if they were
sustained, would help to relieve financial pressures throughout the
economy and thereby contribute to
improvement in economic activity
over the months ahead.
At its meeting on June 30-July 1,
the Committee had begun a review
of the monetary growth objectives
for the period from the fourth quarter of 1981 to the fourth quarter of
1982 that it had set in early February. Subsequently, at a meeting on
July 15, the Committee had reaffirmed those objectives, which included ranges of 2!/2 to 5!/2 percent
for Ml, 6 to 9 percent for M2, and
6!/2 to 9Vi percent for M3. The associated range for bank credit was 6 to
9 percent. At the same time the
Committee agreed that growth in the
monetary and credit aggregates
around the top of the indicated
ranges would be acceptable in the
light of the relatively low base period
for the Ml target and other factors,
and that it would tolerate for some
period of time growth somewhat

118

FOMC Policy Actions

above the target range should unusual precautionary demands for money
and liquidity be evident in the light
of current economic uncertainties.
The Committee also indicated that it
was tentatively planning to continue
the current ranges for 1983 but that it
would review that decision carefully
in the light of developments over the
remainder of 1982.
At this meeting the Committee reviewed the short-run objectives that
it had established at the previous
meeting calling for expansion at annual rates of about 5 percent for Ml
and about 9 percent for M2 over the
three months from June to September. Data available through mid-August indicated that growth in Ml was
running below the Committee's objective, while partial data suggested
that growth in M2 had moved above
the objective for the three-month
period. In relation to the Committee's objectives for the year as a
whole, the latest staff estimates indicated that the expansion of Ml was
within its longer-run range, while
that of M2 was somewhat above its
1982 range.
During the Committee's discussion, most of the members agreed
that the short-run growth objectives
adopted at the previous meeting remained appropriate under current
economic and financial conditions
and should be retained. The view
was expressed that the substantial
recent decline in interest rates,
which in part reflected growing public awareness of the progress that
had been made in curbing inflation,
provided welcome relief in easing
financial strains throughout the
economy. A number of members expressed concern, however, about
the volatility of interest rates and
some commented that further sharp



movements in either direction over
the near term might have damaging
consequences. Some members emphasized that a pronounced increase
from current levels would aggravate
financial strains and inhibit recovery
in interest-sensitive sectors of the
economy. Some members also suggested that a large further decline
might foster a resurgence of inflationary expectations and could
prove to be unsustainable and therefore unsettling to financial markets.
Several members expressed the
view that the Committee should review its policy if reserve provision to
meet monetary growth objectives
was fostering a substantial change in
pressures on bank reserve positions
and in credit markets.
Reference was made to the relative strength in M2 over the course
of recent weeks that appeared to be
related in part to unusual demands
for liquid investments, such as money market funds, at comparatively
attractive yields. The members
agreed that under prevailing circumstances, growth in M2 somewhat
above its short-run target would be
acceptable over the period immediately ahead.
At the conclusion of the discussion the Committee agreed to reaffirm the objectives for monetary
growth established at the June 30July 1 meeting for the June to September period. The Committee decided that somewhat more rapid
growth in the monetary aggregates
would be acceptable depending upon
evidence that economic and financial uncertainties were fostering unusual liquidity demands for monetary assets and were contributing to
substantial volatility in interest
rates. The intermeeting range for the
federal funds rate, which provides a

FOMC Policy Actions
mechanism for initiating further consultation of the Committee, was set
at 7 to 11 percent.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests only a little further advance
in real GNP in the current quarter, following a relatively small increase in the
second quarter, while prices on the average are continuing to rise more slowly
than in 1981. In July the nominal value of
retail sales rose somewhat from a sharply reduced June level; housing starts
increased substantially, though from a
relatively low rate; and industrial production and nonfarm payroll employment were essentially unchanged. The
unemployment rate rose 0.3 percentage
point to 9.8 percent. Over the first seven
months of the year the advance in the
index of average hourly earnings was
considerably less rapid than during 1981.
The weighted average value of the
dollar against major foreign currencies,
while fluctuating over a wide range, has
changed little on balance since late June
despite a sharp decline in U.S. interest
rates relative to foreign rates. Demand
for dollars appeared to reflect concern
about economic and financial difficulties
abroad. The U.S. foreign trade deficit in
the second quarter was somewhat below
the first-quarter deficit, with petroleum
imports down substantially.
Ml declined slightly in June and July,
while growth of M2 moderated somewhat from its average pace earlier in the
year. Business demands for credit, especially short-term credit, remained generally strong. Market interest rates have
declined sharply since around midyear,
reflecting a shift in market sentiment
about the outlook for interest rates
against the background of strains in financial markets, relatively weak economic indicators, and legislative action
on the federal budget. The Federal Reserve discount rate was reduced in three
steps from 12 percent to IOV2 percent
during the period.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation, promote a resumption of growth in



119

output on a sustainable basis, and contribute to a sustainable pattern of international transactions. At its meeting in
early February, the Committee had
agreed that its objectives would be furthered by growth of Ml, M2, and M3
from the fourth quarter of 1981 to the
fourth quarter of 1982 within ranges of
2!/2 to 5Vi percent, 6 to 9 percent, and 6V2
to 91/2 percent respectively. The associated range for bank credit was 6 to 9
percent. The Committee began a review
of these ranges at its meeting on June 30July 1, and at a meeting on July 15, it
reaffirmed the targets for the year set in
February. At the same time the Committee agreed that growth in the monetary
and credit aggregates around the top of
the indicated ranges would be acceptable
in the light of the relatively low base
period for the Ml target and other factors, and that it would tolerate for some
period of time growth somewhat above
the target range should unusual precautionary demands for money and liquidity
be evident in the light of current economic uncertainties. The Committee also indicated that it was tentatively planning to
continue the current ranges for 1983 but
that it would review that decision carefully in the light of developments over
the remainder of 1982.
In the short run, the Committee continues to seek behavior of reserve aggregates consistent with growth of Ml and
M2 from June to September at annual
rates of about 5 percent and about 9
percent respectively. Somewhat more
rapid growth would be acceptable depending on evidence that economic and
financial uncertainties are leading to exceptional liquidity demands and changes
in financial asset holdings. The Chairman may call for Committee consultation if it appears to the Manager for
Domestic Operations that pursuit of the
monetary objectives and related reserve
paths during the period before the next
meeting is likely to be associated with a
federal funds rate persistently outside a
range of 7 to 11 percent.
Votes for this action: Messrs.
Volcker, Solomon, Balles, Black,
Ford, Mrs. Horn, Messrs. Martin,
Partee, Rice, and Mrs. Teeters. Vote
against this action: Mr. Wallich. Absent and not voting: Mr. Gramley.

120

FOMC Policy Actions

Mr. Wallich dissented from this
action because he favored an approach to operations early in the
period that would lessen the chances
of short-term interest rates remaining below the prevailing discount
rate or falling further below it. He
was concerned that such interest
rate behavior would tend to accelerate monetary expansion and that
the necessary restraint of reserve
growth to curb such expansion might
lead to a sizable rebound in shortterm rates with adverse implications
for business and consumer confidence.

2. Authorization for Foreign
Currency Operations
At this meeting Committee members
were apprised of the status of ongoing discussions with the Government
of Mexico regarding short-term financing arrangements to support
Mexico's efforts to strengthen its
economic and financial position. At
its meeting on June 30-July 1, the
Committee had agreed, in response
to a request by officials of the Bank
of Mexico, that it would stand ready
to provide to the Bank of Mexico up
to the full $700 million available under the Federal Reserve System's
existing swap arrangement with that
Bank. Subsequently, on August 4,
1982, the Bank of Mexico, which
had drawn on its swap line on an
overnight basis on a few occasions in
recent months, drew $700 million for
a period of three months.
At the time of this meeting, negotiations were under way among Mexico, the U.S. Treasury, major central
banks, and other lenders to provide
multilateral financial support to
Mexico. The purpose of the support
was to effect an orderly transition to



an economic stabilization program
that the Government of Mexico had
announced was being developed.
The Committee authorized Federal
Reserve participation in the proposed multilateral financing package
through the temporary establishment of a special swap arrangement
of $325 million with the Bank of
Mexico in addition to the regular
arrangement of $700 million. Accordingly, paragraph 2 of the Committee's authorization for foreign
currency operations was amended,
effective August 28, 1982, for the
period through August 23, 1983, to
read as follows:
2. The Federal Open Market Committee directs the Federal Reserve Bank of
New York to maintain reciprocal currency arrangements ("swap" arrangements)
for the System Open Market Account for
periods up to a maximum of 12 months
with the following foreign banks, which
are among those designated by the Board
of Governors of the Federal Reserve
System under Section 214.5 of Regulation N, Relations with Foreign Banks
and Bankers, and with the approval of
the Committee to renew such arrangements on maturity:

Foreign bank

Amount of arrangement
(millions of
dollars equivalent)

Austrian National Bank
National Bank of Belgium
Bank of Canada
National Bank of Denmark
Bank of England
Bank of France
German Federal Bank
Bank of Italy
Bank of Japan
Bank of Mexico
Regular
Special
Netherlands Bank
Bank of Norway
Bank of Sweden
Swiss National Bank
Bank for International Settlements
Dollars against Swiss francs
Dollars against authorized European
currencies other than Swiss francs

250
1,000
2,000
250
3,000
2,000
6,000
3,000
5,000
700
325
500
250
300
4,000
600
1,250

FOMC Policy Actions
Any changes in the terms of existing
swap arrangements, and the proposed
terms of any new arrangements that may
be authorized, shall be referred for review and approval to the Committee.
Votes for this action: Messrs.
Volcker, Solomon, Balles, Black,
Ford, Mrs. Horn, Messrs. Martin,
Partee, Rice, Mrs. Teeters, and Mr.
Wallich. Votes against this action:
None. Absent and not voting: Mr.
Gramley.
On August 30, 1982, the U.S.
Treasury and the Federal Reserve
announced that they were participating with central banks of other
Group of Ten countries, Spain, and
Switzerland, under the aegis of the
Bank for International Settlements,
in making available to the Bank of
Mexico short-term financing totaling
$1.85 billion. The Treasury would
provide $600 million though the Exchange Stabilization Fund, in conjunction with the $325 million that
the Federal Reserve was making
available through its additional swap
arrangement. The multilateral financing program provided that
drawings by Mexico would be made
in line with progress toward agreement between the Mexican Government and the International Monetary
Fund (IMF) on an economic adjustment program that will permit Mexico to qualify for drawings under the
IMF's Extended Fund Facility.

Meeting Held on October 5, 1982
Domestic Policy Directive
The information reviewed at this
meeting suggested that real GNP had
changed little in the third quarter,
following an increase at an annual
rate of about 2 percent in the second
quarter. Average prices, as mea


121

sured by the fixed-weight price index for gross domestic business
product, were continuing to rise
more slowly than in 1981.
The nominal value of retail sales
fell nearly 1 percent in August, according to the advance report, returning to the sharply reduced June
level. Sales declines were particularly marked at automotive outlets and
at general merchandise, apparel, and
furniture and appliance stores. Sales
of new domestic automobiles increased slightly in August to an annual rate of 5.3 million units; sales
rose further to an annual rate of 6
million units in the first 20 days of
September, apparently in response
to purchase incentives offered by
manufacturers in an effort to reduce
excess stocks of 1982 models.
After having changed little in July,
the index of industrial production
declined 0.5 percent in August to a
level about 1 percent below its second-quarter average and more than
10 percent below its prerecession
level in July 1981. Production of
consumer goods fell in August, following a sizable advance over the
preceding four months, and output
of business equipment continued to
drop at a rapid rate. Output of defense and space equipment expanded further. Limited information currently available for September was
generally indicative of some further
decline in production.
Nonfarm payroll employment fell
further in August, mainly reflecting
sizable job losses in the manufacturing and trade sectors. In contrast
to the payroll data, the survey of
households indicated an increase in
employment, and the unemployment
rate was unchanged at 9.8 percent.
But initial claims for unemployment
insurance rose to a new high in mid-

122

FOMC Policy Actions

September, suggesting further deterioration in the labor markets.
The Department of Commerce
survey of business spending plans
taken in late July and August suggested that businesses had again reduced their spending plans for 1982.
The survey results indicated that
current-dollar expenditures for plant
and equipment would rise only 3A of
a percent in 1982, compared with an
estimated 2lA percent in the May
survey and 7 lA percent in the February survey. Actual expansion in 1981
was about 83/4 percent.
Private housing starts fell in August to an annual rate of 1.0 million
units, reversing much of the substantial increase in July. While starts in
August were above the average in
the second quarter, they remained
quite low by historical standards.
Sales of existing homes declined 5
percent in August to the lowest
monthly pace since 1970, while sales
of new homes continued at the sluggish pace of recent months.
The producer price index for finished goods rose 0.6 percent in August, the same as in July. The consumer price index rose only 0.3
percent in August; food prices declined for the second consecutive
month and energy prices leveled off
after increasing sharply over the preceding three months. So far this year
the producer price index and the
consumer price index had risen at
annual rates of about 33A percent and
5 percent respectively. In recent
months the advance in the index of
average hourly earnings had remained considerably less rapid than
during 1981.
In foreign exchange markets the
trade-weighted value of the dollar
had risen about 5 percent over the
period since the last FOMC meeting.



The dollar's strength reflected in
part a continuing concern in the market about economic and financial
difficulties abroad and also some
firming of U.S. interest rates relative
to foreign rates after a considerable
drop earlier. The U.S. foreign trade
deficit rose sharply in August, reflecting primarily a substantial rebound in nonpetroleum imports. The
deficit on average in July and August
was at a rate well above that for the
first half of the year, mainly because
of increased imports of oil.
At its meeting on August 24, the
Committee had agreed to continue
seeking behavior of reserve aggregates consistent with growth of Ml
and M2 from June to September at
annual rates of about 5 percent and
about 9 percent respectively. It had
also agreed that somewhat more rapid growth in the monetary aggregates
would be acceptable depending upon
evidence that economic and financial uncertainties were leading to exceptional liquidity demands and
changes in holdings of financial assets. The intermeeting range for the
federal funds rate, which provides a
mechanism for initiating further consultations of the Committee, was set
at 7 to 11 percent.
Following three months of weakness, Ml grew at an annual rate of
about IOV2 percent in August and
appeared to have grown more rapidly in September. Much of the
strength of Ml was accounted for by
rapid growth in other checkable deposits, but demand deposits also expanded in both months, after contracting on average since early in the
year. The expansion in checkable
deposits may have reflected in part
the early impact on take-home pay
of the tax cut as well as unusual
liquidity demands in the face of

FOMC Policy Actions
continued economic uncertainties.
Moreover, the lower level of shortterm market interest rates had reduced the earnings disadvantage of
keeping funds in checkable accounts. Growth in M2 accelerated to
an annual rate of about 14!/4 percent
in August, but was estimated to have
slowed substantially in September as
expansion in its nontransaction component decelerated markedly.
Total credit outstanding at U.S.
commercial banks grew at an annual
rate of about 6!/2 percent in August,
the same as in July but well below
the pace in the first half of the year.
Partial data for September suggested
that growth slowed somewhat despite a pickup in growth of business
loans from the sharply reduced August pace; a significant part of the
strengthening in business loans appeared to have been associated with
merger activity. Other short-term
borrowing by nonfinancial businesses generally was weak: the volume of commercial paper outstanding edged down in August and
dropped further in September. However, the weakness in short-term
borrowing was largely offset by increased long-term financing in the
bond market.
Total reserves expanded quite
rapidly in September, after having
grown relatively little on average
over the preceding several months.
A little less than half of the September growth in total reserves was supplied by nonborrowed reserves, and
adjustment borrowing (including
seasonal borrowing) by depository
institutions increased from an average of about $420 million in August
to about $815 million in September.
Most short-term market interest
rates rose somewhat on balance over
the intermeeting interval. Rates had



123

declined substantially over the preceding two months, and decreases
were particularly marked around the
time of the August 24 meeting of the
Committee, when expectations of
continued declines in short-term
market rates were strong. Effective
August 27, the Federal Reserve discount rate was reduced from lOVi to
10 percent. Subsequently federal
funds traded at rates somewhat
above the discount rate, as compared with a trading level of around
9 percent in the last statement week
of August, and rates on private
short-term instruments also rose by
about 1 to 2 percentage points from
their late August lows. At the same
time, rates on Treasury bills moved
up only slightly, partly reflecting the
increased preference for quality on
the part of investors. The well-publicized problems in recent months of a
few banks here and abroad, the
acute external financing difficulties
of Mexico, and emerging financing
problems in other developing countries led to a more cautious atmosphere in private credit markets and
a widening of yield spreads between
U.S. government securities and
some private credit instruments.
Bond yields continued to decline
over the intermeeting period, falling
!/4 to 3A percentage point. Average
rates on new commitments for fixedrate conventional home mortgage
loans declined about 1 percentage
point.
The staff projections presented at
this meeting suggested that real GNP
would grow moderately in the
course of 1983, but that any recovery in economic activity in the
months just ahead was likely to be
quite limited. The projections for the
year ahead also suggested that unemployment would remain at a high

124

FOMC Policy Actions

level. The rise in prices, as measured
by the fixed-weight price index for
gross domestic business product,
was expected to slow gradually from
a rate in the third quarter of 1982 that
was estimated to be somewhat higher than that in the first half of the
year.
In the Committee's discussion of
the economic situation and policy, it
was generally agreed that growth in
real GNP over the next year at about
the relatively restrained pace projected by the staff was a reasonable
expectation. Expansion in output at
a somewhat faster pace might occur,
if consumer and business confidence
in the outlook improved during the
next few months. So far, however,
the widely held expectations of recovery beginning in the spring or
summer had been disappointed, and
there were still no signs of a
strengthening in the economy. The
projected expansion in consumer demands associated with the midyear
cut in federal income taxes had not
yet developed; prospects for business plant and equipment spending
and for commercial construction had
deteriorated; and agricultural income and expenditures had remained depressed. In September industrial output and employment
most likely had declined further, and
the unemployment rate had almost
surely risen from the July-August
level of 9.8 percent. Against that
background, it was recognized that
there were risks of a shortfall from
the projection of moderate growth in
real GNP over the quarters ahead.
At the same time, progress in reducing the rate of inflation had been
substantial, exceeding expectations
of many, even after allowance for
the influence of volatile prices of
energy products and foods. More


over, further moderation in labor
cost and price pressures and also in
inflationary expectations was a reasonable anticipation, given an environment of moderate expansion in
output and employment, relatively
low levels of resource utilization,
and prospects for improvement in
productivity.
Domestic problems were being intensified because the recession in
economic activity was worldwide; it
had affected every major industrial
country and, through its impact on
foreign trade and commodity prices,
the developing countries as well.
Many of the latter countries had
accumulated large external debts
over a number of years, and they
now faced difficult financing and adjustment problems. Altogether,
these circumstances had been contributing to an atmosphere of nervous uncertainty, which was reflected in, among other things, the
foreign exchange value of the dollar.
Over recent months, the dollar had
risen against other major currencies
even when dollar interest rates were
declining relative to foreign rates,
and the high exchange value currently had serious implications both for
U.S. export industries and for efforts
abroad to pursue flexible monetary
policies.
The U.S. banking system had
been subjected to pressures, owing
in part to well-known problems of
particular institutions but also to a
more general uneasiness about the
possibility of further credit problems
domestically or internationally. An
unusually cautious attitude in private credit markets had led to a
widening of risk premiums, with the
result that private interest rates had
declined less than rates on Treasury
securities since midsummer, and in

FOMC Policy Actions
recent weeks private short-term
market rates had tended to move up.
Altogether, these circumstances appeared to have been associated with
business efforts to generate and conserve cash, with market participants' concerns about the quality of
credit, and with a general increase in
precautionary demands for money
and liquidity. In financial markets
and elsewhere, a sense of disarray
could develop, which could increase
the atmosphere of uncertainty.
With respect to the period ahead,
the Committee continued to face uncertainties about the interpretation
of the behavior of the monetary aggregates in general, arising from the
impact of the current economic environment on precautionary demands
for money and liquidity. Moreover,
the behavior of Ml in particular during the final three months of the year
would inevitably be distorted by two
institutional developments. First, a
very large volume of all savers certificates would mature in the first
part of October, and disposition of
the proceeds could be expected to
induce temporary bulges in both the
demand deposit and NOW account
components of Ml. Second, later in
the quarter, as the Depository Institutions Deregulation Committee
(DIDC) implemented recent legislation, depository institutions would
be authorized to offer a new account
(or accounts) that would be free
from interest rate ceilings, would be
usable to some degree for transaction purposes, and would be competitive with money market mutual
funds. The new account was likely
to have a substantial impact on the
behavior of Ml, but no basis existed
for predicting its magnitude. While
the new account seemed likely to
have a depressing effect on currently



125

defined Ml as it drew money from
NOW accounts, the direction of the
overall effect was in some doubt
since that would depend in part on
the exact characteristics of the instrument or instruments authorized
by the DIDC. The new instrument
could include even more transaction
features than the account specifically provided for in the legislation. The
new instrument could also be expected to affect the composition of
M2 and perhaps in some degree its
total as well. It seemed clear, however, that the new instrument would
affect the behavior of M2 and other
broader aggregates to a much smaller extent than that of Ml.
Because of these difficulties in interpreting the behavior of Ml during
the fourth quarter, the Committee
decided that it would place much
less than the usual weight on that
aggregate's movements during this
period and that it would not set a
specific objective for its growth. In
the view of most members, against
the background of prevailing economic and financial developments,
added pressures on bank reserve positions and money markets in response to a bulge in Ml related to
the maturing of all saver certificates
were not justified; indeed, some easing of the pressures of recent weeks
in some sectors of the private credit
markets would be desirable, if that
could be consistent with growth in
the broader aggregates in line with
longer-term objectives.
The Committee agreed that in all
the circumstances, it would seek to
maintain expansion in bank reserves
needed for an orderly and sustained
flow of money and credit, consistent
with growth of M2 (and M3) from
September to December at an annual
rate in a range of around 8V2 to 9Vi

126

FOMC Policy Actions

percent, and taking account of the
desirability of somewhat reduced
pressures in private credit markets
in the light of current economic conditions. Growth of M2 from the
fourth quarter of 1981 to the fourth
quarter of 1982 might be somewhat
above the range for the year that the
Committee had reaffirmed in July;
the Committee had also agreed then
that for a time it would tolerate
growth somewhat above the target
range, in the event of unusual precautionary demands for money and
liquidity, and that such growth
would be consistent with longerterm objectives. Recent and prospective market and economic conditions appeared consistent with that
approach. Somewhat slower growth
over the period from September to
December, bringing those aggregates around the upper part of the
ranges for the year ending in the
fourth quarter of 1982, would be
acceptable and desirable in a context
of declining interest rates. Should
economic and financial uncertainties
lead to still stronger liquidity demands, somewhat more rapid
growth in the broader aggregates
would be tolerated. The intermeeting range for the federal funds rate,
which provides a mechanism for initiating further consultation of the
Committee, was set at 7 to 10!/2
percent.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:

industrial production and nonfarm payroll employment also declined. Housing
starts fell, reversing much of the substantial July increase. The unemployment rate was unchanged at 9.8 percent
in August, but claims for unemployment
insurance have risen further in recent
weeks and there are indications of some
further decline in production. In recent
months the advance in the index of average hourly earnings has remained considerably less rapid than during 1981.
The weighted average value of the
dollar against major foreign currencies
has risen strongly further over the past
month, reflecting in part a continuing
concern in the market about economic
and financial difficulties abroad and also
some firming of U.S. interest rates relative to foreign rates after a considerable
drop earlier. The U.S. merchandise
trade deficit rose sharply in August and
on average in July and August the deficit
rate was well above that for the first half.
After three months of weakness, Ml
grew rapidly in August and September;
growth in M2 accelerated in August from
an already rapid pace but appears to
have slowed markedly in September.
Following large declines over the preceding two months, short-term market
interest rates have risen somewhat on
balance since late August, while bond
yields and mortgage rates have continued to decline. The Federal Reserve
discount rate was reduced from IOV2
percent to 10 percent in late August.
Meanwhile, reflecting some well-publicized problems in recent months of a few
banks here and abroad and the financing
difficulties of Mexico, a more cautious
atmosphere in private credit markets has
been reflected in wider spreads between
U.S. government and some private credit instruments.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation, promote a resumption of growth in
output on a sustainable basis, and conThe information reviewed at this meet- tribute to a sustainable pattern of intering suggests that real GNP changed little national transactions. In July, the Comin the third quarter, following a small mittee agreed that these objectives
increase in the second quarter, while would be furthered by reaffirming the
prices on the average continued to rise monetary growth ranges for the period
more slowly than in 1981. In August the from the fourth quarter of 1981 to the
nominal value of retail sales fell back to fourth quarter of 1982 that it had set at
the sharply reduced June level, while the February meeting. These ranges




FOMC Policy Actions
were 2Vi to 5'/2 percent for Ml, 6 to 9
percent for M2, and 6'/2 to 9V2 percent
for M3. The associated range for bank
credit was 6 to 9 percent. The Committee
agreed that growth in the monetary and
credit aggregates around the top of the
indicated ranges would be acceptable in
the light of the relatively low base period
for the Ml target and other factors, and
that it would tolerate for some period of
time growth somewhat above the target
range should unusual precautionary demands for money and liquidity be evident in the light of current economic
uncertainties. The Committee also indicated that it was tentatively planning to
continue the current ranges for 1983 but
that it would review that decision carefully in the light of developments over
the remainder of 1982.
Specification of the behavior of Ml
over the balance of the year is subject to
unusually great uncertainties because it
will be substantially affected by special
circumstances—in the very near term by
reinvestment of funds from maturing all
savers certificates and later by the public's response to the new account directly competitive with money market funds
mandated by recent legislation. The
probable difficulties in interpretation of
Ml during the period suggest much less
than usual weight be placed on movements in that aggregate during the current quarter. These developments are
expected to affect M2 and other broader
aggregates to a much smaller extent.
In all the circumstances, the Committee seeks to maintain expansion in bank
reserves needed for an orderly and sustained flow of money and credit, consistent with growth of M2 (and M3) in a
range of around SVi to 9!/2 percent at an
annual rate from September to December, and taking account of the desirability of somewhat reduced pressures in
private credit markets in the light of
current economic conditions. Somewhat
slower growth, bringing those aggregates
around the upper part of the ranges set
for the year, would be acceptable and
desirable in a context of declining interest rates. Should economic and financial
uncertainties lead to exceptional liquidity demands, somewhat more rapid
growth in the broader aggregates would
be tolerated. The Chairman may call for
Committee consultation if it appears to



127

the Manager for Domestic Operations
that pursuit of the monetary objectives
and related reserve paths during the period before the next meeting is likely to be
associated with a federal funds rate persistently outside a range of 7 to 10'/2
percent.
Votes for this action: Messrs.
Volcker, Solomon, Balles, Gramley,
Martin, Partee, Rice, Mrs. Teeters,
and Mr. Wallich. Votes against this
action: Messrs. Black and Ford and
Mrs. Horn.
Mr. Black dissented from this action because he preferred to direct
operations in the period immediately
ahead toward restraining monetary
growth. Although he was mindful of
the current difficulties of interpreting
the behavior of Ml, he was concerned that the recent strength in Ml
might be followed by still more rapid
growth in lagged response to the
substantial decline in short-term interest rates that had occurred in the
summer, which could require even
more restrictive operations later.
Mr. Ford dissented from this action because he preferred a policy
for the period immediately ahead
that was more firmly directed toward restraining monetary growth,
although he recognized that the behavior of Ml in particular would be
difficult to interpret. He was concerned that the Committee's policy
directive might be misinterpreted in
ways that could adversely affect pursuit of the System's longer-run antiinflationary objectives, particularly
in the context of a highly expansive
fiscal policy program.
Mrs. Horn dissented from this action because she preferred to continue setting a specific objective for
growth of Ml, as well as for M2,
over the current quarter, notwithstanding the problems of interpreting

128

FOMC Policy Actions

its behavior. In setting a target for
Ml, she would tolerate faster growth
early in the period, owing to the
uncertain impact of the proceeds
from maturing all savers certificates,
and would give greater weight to the
behavior of M2 for some weeks after
the introduction of the new instrument at depository institutions.

1981. Output of business equipment
fell substantially further in October,
and as in other recent months, defense and space equipment was the
only major category of final products
showing strength. Capacity utilization in manufacturing fell 0.8 percentage point to 68.4 percent, the
lowest level in the postwar period.
Nonfarm payroll employment fell
further in October, declining slightly
more than the average over the preMeeting Held
vious four months. Cutbacks in emon November 16, 1982
ployment were widespread and were
especially marked in durables manu1. Domestic Policy Directive
facturing. The unemployment rate
The information reviewed at this rose an additional 0.3 percentage
meeting suggested that real GNP point to 10.4 percent, with the rise
would change little in the fourth concentrated among adult workers.
quarter, after increasing at an annual In recent weeks, moreover, initial
rate of 3A percent in the third quarter claims for unemployment insurance
according to preliminary estimates remained exceptionally high.
of the Commerce Department. AverPrivate housing starts rose in Sepage prices, as measured by the fixed- tember and in the third quarter as a
weight price index for gross do- whole were nearly 17 percent higher
mestic business product, were than in the second quarter. Most of
continuing to rise at a much less the third-quarter increase was in the
rapid pace than in 1981.
multifamily sector and was attributThe nominal value of retail sales able mainly to a surge in federally
rose 0.6 percent in October, but the subsidized rental units at the end of
level was little higher than in the the fiscal year. In September, newly
second and third quarters. Sales in- issued permits for both single-family
creased at automotive outlets and and multifamily dwellings rose subfurniture and appliance stores, but stantially. Sales of new homes also
edged down at nondurable goods advanced appreciably, exceeding
stores. Unit sales of new domestic the 1981 average rate for the first
automobiles fell back to an annual time this year; sales of existing
rate of 5.3 million units, after having homes, however, remained at the
increased to an annual rate of 6.2 reduced August pace.
million units in September in reThe producer price index for finsponse to special promotions aimed ished goods rose 0.5 percent in Octoat reducing excess stocks of 1982 ber, following a decline of 0.1 permodels.
cent in September. Most of the
The index of industrial production October increase was attributable to
declined 0.8 percent in October, a higher prices for motor vehicles,
little more than in both August and which had been reduced in SeptemSeptember, and was about HVi per- ber by end-of-year liquidation allowcent below its recent peak in July ances and discounts on 1982 models.




FOMC Policy Actions
Prices of consumer foods and energy-related items edged down in October. Over the first ten months of
the year the index rose at an annual
rate of about VA percent, less than
half the pace in 1981. The consumer
price index rose 0.2 percent in September, as the homeownership component declined and most other categories registered relatively small
increases. Over the first nine months
of the year the index rose at an
annual rate of about 43/4 percent,
compared with an increase of about
9 percent in 1981. In recent months
the advance in the index of average
hourly earnings had remained considerably less rapid than it was during 1981.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies
continued to appreciate from the end
of September to mid-November.
The dollar strengthened further despite somewhat greater declines, on
balance, in U.S. interest rates than
in foreign interest rates over the period. Moreover, release of data indicating that the U.S. merchandise
trade deficit in the third quarter was
more than double the rate in the first
two quarters of the year apparently
had little impact on exchange rates.
At its meeting on October 5, the
Committee had agreed that it would
seek to maintain expansion in bank
reserves needed for an orderly and
sustained flow of money and credit,
consistent with growth of M2 (and
M3) from September to December at
an annual rate in a range of around
%Vi to 9Vi percent, and taking account of the desirability of somewhat reduced pressures in private
credit markets in the light of current
economic conditions. Somewhat
slower growth, bringing those aggre


129

gates around the upper part of
the ranges set for the year, would
be acceptable and desirable in a context of declining interest rates.
Should economic and financial uncertainties lead to exceptional liquidity demands, somewhat more rapid
growth would be tolerated. The
Committee had also decided that it
would place much less than the usual
weight on the movements of Ml
during the period from September to
December and would not set a specific objective for its growth, because its behavior would be substantially affected by special circumstances. The intermeeting range for
the federal funds rate, which provides a mechanism for initiating further consultation of the Committee,
was set at 7 to W/i percent.
Growth of M2 and M3, which had
been sluggish in September, picked
up to annual rates of about 8 percent
and 9 percent respectively in October; still, growth remained below the
brisk pace of earlier in the year.
Growth of Ml surged to an annual
rate of a little over 20 percent, influenced by shifts of funds in connection with the large volume of maturing all savers certificates.
Total credit outstanding at U.S.
commercial banks grew at an annual
rate of about 7 percent in October,
up somewhat from the reduced September pace. Banks acquired a sizable volume of U.S. Treasury securities, but growth in loans generally
remained relatively weak. Total
short-term borrowing by nonfinancial businesses slowed further, as
growth in business loans at banks
moderated and the volume of commercial paper outstanding contracted substantially for the second
month in a row. However, the weakness in short-term borrowing was

130

FOMC Policy Actions

offset in part by an increase in longterm financing in the bond market.
The demand for reserves was relatively strong in October, reflecting
particularly the rapid growth of Ml.
Nonborrowed reserves grew rapidly, and adjustment borrowing (including seasonal borrowing) fell to
an average of $337 million in October from an average of $815 million
in September.
Short-term market interest rates
on private instruments declined
about 1 Vi percentage points on balance over the intermeeting interval,
after a temporary reversal in September. Yields on short-term U.S.
Treasury securities declined less, by
about 3A to 1 percentage point, and
the rate on three-month Treasury
bills actually rose somewhat. Quality spreads in the money markets,
after widening in September, had
narrowed in recent weeks as concerns about private credit risks apparently lessened. On October 8 the
Federal Reserve announced a reduction in the discount rate from
10 percent to 9!/2 percent. Shortly
thereafter, and over the balance of
the intermeeting interval, federal
funds traded at rates close to the
new discount rate, compared with a
trading level somewhat above 10
percent in September and early October. In the long-term capital markets, bond yields continued to decline over the period, falling about 1
to VA percentage points; common
stock prices advanced sharply, with
many indexes touching new highs in
early November. In home mortgage
markets, average rates on new commitments for fixed-rate conventional
home mortgage loans declined about
VA percentage points further to
around 137s percent.
The staff projections presented at



this meeting, like those of early October, suggested that real GNP
would grow moderately during 1983,
but that any recovery in economic
activity in the months just ahead was
likely to be quite limited. The projections for the year ahead also suggested that unemployment would remain
at a high level. The rate of increase
in prices, as measured by the fixedweight price index for gross domestic business product, was expected
to drift down.
In the Committee's discussion of
the economic situation and outlook,
several members commented that
the staff projection of moderate
growth over the year ahead remained a reasonable expectation and
the view was expressed that the projected growth could be exceeded.
However, many members continued
to stress that there were substantial
risks of a shortfall from the projection. Considerable emphasis was
given to the widespread signs of
weakness in economic activity and
to the continuing absence of evidence that an economic recovery
might be under way. In the view of
some members, a number of indicators of economic activity were in
fact consistent with a further decline, at least over the near term.
Reference was also made to the unusually sharp impact of the drop in
exports—the consequence of worldwide recession and of the very high
foreign exchange value of the dollar—and to expectations of a very
slow recovery abroad. Moreover,
the prospects for worldwide recovery were complicated by the financing difficulties of many developing
countries.
Although widely held expectations
of a domestic recovery had been repeatedly disappointed, the members

FOMC Policy Actions
noted that the large decline in interest
rates over recent months had eased
financial strains in the economy, fostered some recovery in housing and
related industries, and appeared in
recent weeks to have improved confidence somewhat among businessmen
and consumers. One indicator of the
less bearish sentiment was the decline
in risk premiums in securities markets
as rates on private credit instruments
had fallen in recent weeks relative to
those on U.S. government obligations. The improvement in attitudes
was also reflected in the sharp rise of
prices in the stock market. Several
members commented, however, that
the apparent easing of concerns was
still quite tentative and could easily
be reversed, with highly adverse
consequences for the economy, if
interest rates were to rise significantly from current levels.
Some Committee members, while
acknowledging the absence of evidence of an imminent upturn in economic activity, nonetheless viewed
the prospects for recovery as relatively favorable. They emphasized
that fiscal policy and monetary policy tended to exert their impacts with
a lag and that the sharp turn toward
fiscal stimulus and the easing of conditions in financial markets were relatively recent developments. In this
connection, concern was expressed
that an overly expansive combination of fiscal and monetary policies
would stimulate inflationary expectations, foster a rise in long-term
interest rates, and limit or abort the
economic recovery.
Turning to policy, the Committee
reviewed the short-run objectives
for monetary growth that it had established at its meeting on October 5
calling for expansion in M2 (and M3)
at an annual rate in a range of around



131

8V2 to 9!/2 percent for the period from
September to December. No specific objective had been set for Ml
growth in the fourth quarter because
of the anticipated difficulty of interpreting the behavior of that aggregate during the quarter.
In their discussion the Committee
members agreed that the behavior of
Ml would continue to be distorted
by institutional developments. The
first involved the large buildup of
checkable deposits associated with
the maturing of a very large volume
of all savers certificates, especially
in early October. The resulting bulge
in Ml growth had persisted somewhat longer than some members had
anticipated; but, according to a staff
analysis, Ml growth could be expected to decelerate over the balance of the quarter as the transaction
balances built up from maturing all
savers certificates were invested or
drawn down. Growth of Ml and also
M2 could be positively affected in
the near term, however, by a possible buildup of balances for eventual
placement in the short-term deposit
account that had recently been
authorized by the Depository Institutions Deregulation Committee,
effective December 14, 1982. It was
generally expected that the new account, which would be free from
interest rate ceilings and could be
used to a limited extent for transaction purposes, would draw funds
from regular transaction accounts,
thereby tending to reduce Ml after
its introduction. In view of these
institutional distortions, the Committee decided that it would continue to give much less than the usual
weight to Ml and that it would not
set a specific objective for its growth
over the fourth quarter.
The behavior of M2 and M3,

132

FOMC Policy Actions

though not of their components, appeared to have been affected only
marginally by the maturing of all
savers certificates, and these broader aggregates were also expected to
be affected much less than Ml when
the new deposit account was introduced in mid-December. In reviewing the growth objectives for M2 and
M3 that had been set for the fourth
quarter, most of the Committee
members endorsed the view that
monetary growth running somewhat
above the Committee's target ranges
set early in the year was appropriate
given the indications of continuing
strong demands for liquidity during a
period of relatively weak economic
activity. In that connection, emphasis was placed by some members on
the evidence that velocity trends
over the past year or so seemed to
suggest a distinct break from earlier
postwar experience. While questions could be raised about the persistence of the slowdown in velocity,
available evidence suggested that
unusual economic and financial uncertainties, as well as lower interest
rates, were inducing a greater desire
to hold liquid assets than had been
assumed in setting the annual targets.
With regard to the choice of specific objectives for the broader aggregates in the fourth quarter, all of
the members favored growth rates
that were within or slightly above
the range adopted at the October 5
meeting. It was suggested that such
growth rates would balance the desirability of meeting current liquidity
needs and fostering economic recovery against the risk of creating excess liquidity that might later complicate the achievement of sustained
progress toward price stability, particularly in light of the prospect of



continuing large deficits as the economy recovered. Several members
commented that further declines in
interest rates would be welcome for
both domestic and international reasons, but concern was also expressed that any sizable declines in
association with unduly rapid monetary growth could prove to be unsustainable, with unsettling effects on
financial markets and adverse consequences for inflationary expectations and the economy.
At the conclusion of its discussion
the Committee agreed that, against
the background of prevailing economic and financial conditions and
current liquidity demands, it would
seek to maintain expansion in bank
reserves needed for an orderly and
sustained flow of money and credit,
consistent with growth of M2 (and
M3) from September to December at
an annual rate of around 9Vi percent.
The Committee also decided that
somewhat slower growth in M2 and
M3, to the extent of reducing their
expansion for the year to nearer the
upper part of the ranges for 1982,
would be acceptable and desirable if
such growth were associated with
declining interest rates. On the other
hand, somewhat more rapid growth
would be tolerated if continuing economic and financial uncertainties
should appear to be reflected in exceptional liquidity demands. The intermeeting range for the federal
funds rate, which provides a mechanism for initiating further consultation of the Committee, was set at 6
to 10 percent.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests little change in real GNP in

FOMC Policy Actions
the fourth quarter and continuation of
the rise in prices at a much less rapid
pace than in 1981. In October the nominal value of retail sales edged up, but
was little higher than in the second and
third quarters; industrial production and
nonfarm payroll employment continued
to decline; and the unemployment rate
rose another 0.3 percentage point to 10.4
percent. Initial claims for unemployment
insurance have remained exceptionally
high. In September and the third quarter
as a whole, housing starts had strengthened. In recent months the advance in
the index of average hourly earnings has
remained considerably less rapid than
during 1981.
The weighted average value of the
dollar against major foreign currencies
continued to appreciate from the end of
September to mid-November. The U.S.
merchandise trade deficit in the third
quarter was more than double the rate in
the first two quarters of the year.
Growth of M1, already rapid in August
and September, accelerated sharply in
October in association with the maturing
of a large volume of all savers certificates. Growth of M2 and M3 picked up
from sluggish rates in September, but
remained below the brisk pace of earlier
in the year. Most short-term market interest rates have declined on balance
since early October, after a reversal in
September, and bond yields and mortgage rates have declined further. On
October 8 the Federal Reserve announced a reduction in the discount rate
from 10 percent to 9Vi percent. Quality
spreads in the money markets, which
had widened, have narrowed in recent
weeks as interest rates have declined,
and common stock prices have advanced
sharply.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation, promote a resumption of growth in
output on a sustainable basis, and contribute to a sustainable pattern of international transactions. In July, the Committee agreed that these objectives
would be furthered by reaffirming the
monetary growth ranges for the period
from the fourth quarter of 1981 to the
fourth quarter of 1982 that it had set at
the February meeting. These ranges



133

were 2!/2 to 5Vi percent for Ml, 6 to 9
percent for M2, and 6V2 to 9XA percent
for M3. The associated range for bank
credit was 6 to 9 percent. The Committee
agreed that growth in the monetary and
credit aggregates around the top of the
indicated ranges would be acceptable in
the light of the relatively low base period
for the Ml target and other factors, and
that it would tolerate for some period of
time growth somewhat above the target
range should unusual precautionary demands for money and liquidity be evident in the light of current economic
uncertainties. The Committee also indicated that it was tentatively planning to
continue the current ranges for 1983 but
that it would review that decision carefully in the light of developments over
the remainder of 1982.
Specification of the behavior of Ml
over the balance of the year remains
subject to substantial uncertainty because of special circumstances in connection with the reinvestment of funds
from maturing all savers certificates and
the public's response to the new account
directly competitive with money market
funds mandated by recent legislation.
The difficulties in interpretation of Ml
continue to suggest that much less than
usual weight be placed on movements in
that aggregate during the current quarter.
In all the circumstances, the Committee seeks to maintain expansion in bank
reserves needed for an orderly and sustained flow of money and credit, consistent with growth of M2 (and M3) of
around 9Vi percent at an annual rate
from September to December. Somewhat slower growth, bringing those aggregates around the upper part of the
ranges set for the year, would be acceptable and desirable in a context of declining interest rates. Should economic and
financial uncertainties lead to exceptional liquidity demands, somewhat more
rapid growth in the broader aggregates
would be tolerated. The Chairman may
call for Committee consultation if it appears to the Manager for Domestic Operations that pursuit of the monetary objectives and related reserve paths during
the period before the next meeting is
likely to be associated with a federal
funds rate persistently outside a range of
6 to 10 percent.

134

FOMC Policy Actions

Votes for this action: Messrs.
Volcker, Solomon, Balles, Black,
Gramley, Mrs. Horn, Messrs. Martin,
Partee, Rice, Mrs. Teeters, and Mr.
Wallich. Vote against this action: Mr.
Ford.

the course of today's operations to
provide reserves to meet increased
seasonal needs.

Meeting Held
Mr. Ford dissented from this ac- on December 20-21, 1982
tion because he believed that it ran
the risk of complementing very large 1. Domestic Policy Directive
budget deficits with substantial in- The information reviewed at this
creases in the supply of money. In meeting suggested that real GNP,
his view the result would be an over- which had increased at an annual
ly stimulative combination of poli- rate of 0.7 percent in the third quarcies that could rekindle inflation and ter, declined in the fourth quarter,
drive up interest rates during 1983. although final sales apparently were
maintained. The rise in average
2. Authorization for Domestic
prices, as measured by the fixedOpen Market Operations
weight price index for gross domestic business product, remained much
At this meeting the Committee voted less rapid than in 1981.
to increase from $3 billion to $4
The nominal value of retail sales
billion the limit on changes between rose about 2]A percent in November,
Committee meetings in System Ac- after having increased IV2 percent
count holdings of U.S. government over the preceding two months. Aland federal agency securities speci- though gains in November were refied in paragraph l(a) of the authori- corded for all major categories of
zation for domestic open market op- stores, the rise was attributable
erations, effective immediately, for mainly to a sharp increase in sales at
the period from October 6, 1982, automotive outlets. Unit sales of
through the close of business on
new domestic automobiles increased
November 16, 1982.
to an annual rate of 63A million, as
Votes for this action: Messrs. buyers responded to interest rate
Volcker, Solomon, Balles, Black, concessions and other special proFord, Gramley, Mrs. Horn, Messrs. motions offered primarily on 1982
Martin, Partee, Rice, Mrs. Teeters,
and Mr. Wallich. Votes against this models. In the first 10 days of December, however, sales fell back to
action: None.
an annual rate of 53A million units.
This action was taken on the recPrivate housing starts, both singleommendation of the Manager for family and multifamily, rose subDomestic Operations. The Manager stantially in November, and at an
had advised that substantial net pur- annual rate of 1.4 million units, were
chases of securities in recent weeks nearly 500 thousand units higher
had reduced to about $500 million than the rate in the first half of the
the leeway for further purchases year. Newly issued permits for residuring the intermeeting period end- dential construction also strengthing with the close of business today. ened, rising 6 percent in November
Purchases of securities in excess of after increasing 17 percent in Octothat leeway seemed desirable during ber.



FOMC Policy Actions
Business fixed investment spending appeared to be continuing the
downtrend that began in mid-1981 as
shipments and orders for nondefense
capital goods declined in October,
the latest month for which data were
available. According to the Department of Commerce survey taken in
late October and November, plant
and equipment spending would rise
only 2 percent in the first half of 1983
from the level in the second half of
this year; in real terms, the survey
results implied a decline of more
than 2 percent. Along with capital
spending, inventory investment was
exerting a dampening influence on
economic activity, as businesses
continued their efforts to reduce inventories.
The index of industrial production
fell again in November, but the decline of 0.4 percent was half that in
each of the preceding two months.
Most major sectors registered reductions in output, with cutbacks especially pronounced in durable goods
industries. Defense and space equipment continued to be the only major
category of final products showing
strength. Capacity utilization in
manufacturing declined to 67.8 percent, a new postwar low.
Nonfarm payroll employment fell
165,000 in November, about the
same as the average monthly decline
earlier in the year. Job losses were
concentrated in the manufacturing
sector, particularly durable goods
manufacturing. The unemployment
rate rose 0.4 percentage point to 10.8
percent. Initial claims for unemployment insurance, although down from
the peaks in early autumn, remained
relatively high.
The producer price index for finished goods rose 0.6 percent in November. More than half of the rise



135

was attributable to sharp increases
in prices of energy-related items;
prices of consumer foods declined
somewhat, while prices of other consumer goods rose moderately. Over
the first 11 months of the year the
index increased at an annual rate of
about 33/4 percent. The consumer
price index edged up only 0.1 percent in November, as homeownership costs declined and price increases for most other major
expenditure categories slowed. Thus
far in 1982 the index had risen at an
annual rate of about Axh percent, half
the pace in 1981. The advance in the
index for average hourly earnings
slowed appreciably to an annual rate
of 4!/2 percent from June to November, compared with an annual rate of
6!/2 percent over the first half of 1982
and about 8V2 percent during 1981.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies had
declined about 4!/2 percent from
peaks reached in early November. A
major factor in the decline apparently was the market's reassessment of
prospects for the U.S. foreign trade
and current accounts. In October the
U.S. foreign trade deficit rose sharply further: agricultural exports declined somewhat from the reduced
third-quarter rate, and nonagricultural exports fell substantially while
imports rose.
At its meeting on November 16,
the Committee had agreed that it
would seek to maintain expansion in
bank reserves needed for an orderly
and sustained flow of money and
credit, consistent with growth of M2
(and M3) from September to December at an annual rate of around 9!/2
percent. The Committee also decided that somewhat slower growth in
M2 and M3, to the extent of reducing

136

FOMC Policy Actions

their expansion for the year to
nearer the upper part of the ranges
set for 1982, would be acceptable
and desirable if such growth were
associated with declining interest
rates. On the other hand, somewhat
more rapid growth would be tolerated if continuing economic and financial uncertainties should appear to
be reflected in exceptional demands
for liquidity. The Committee had
also decided that it would continue
to place much less than the usual
weight on the movements of Ml
during the period from September to
December and would not set a specific objective for its growth over the
fourth quarter. The intermeeting
range for the federal funds rate,
which provides a mechanism for initiating further consultation of the
Committee, was set at 6 to 10 percent.
The demand for reserves remained strong in November, reflecting particularly the continuing rapid
growth of transaction balances.
Nonborrowed reserves grew rapidly, although less so than in October,
and adjustment borrowing (including
seasonal borrowing) rose to an average of $433 million in November
from an average of $337 million in
October.
M2 grew at annual rates of about
8V4 percent and IVA percent in October and November respectively, and
M3 grew at an annual rate of about
9VApercent in both months. On average, expansion in these broader aggregates had remained at about or
somewhat below the rates of earlier
in the year. On the basis of partial
data, however, it was estimated that
expansion in M2 and M3 had slowed
substantially in recent weeks.
Growth of Ml had remained rapid in
recent months, influenced by shifts



of funds associated with the maturing in early October of a large volume of all savers certificates and
possibly with the recent and prospective introduction of new deposit
accounts at depository institutions.
Expansion in total credit outstanding at U.S. commercial banks
slowed to an annual rate of 1 Vi percent in November. Banks again acquired a sizable volume of U.S.
Treasury securities, but their total
loans outstanding fell. Business
loans contracted at an annual rate of
nearly 8 percent and security loans
declined markedly, while real estate
and consumer loans remained sluggish. The outstanding volume of
commercial paper of nonfinancial
businesses contracted substantially
for the third successive month, as
firms continued to raise funds in the
longer-term capital markets.
Short-term market interest rates
declined about Vs to 3A percentage
point on balance over the intermeeting period, while bond yields rose a
little in response to unusually heavy
borrowing by businesses and governments. The Federal Reserve announced reductions in the discount
rate from W2 to 9 percent on November 19 and to 8V2 percent on December 13. In recent weeks federal funds
had traded in the area of 8!/2 to 9
percent, compared with about 9Vi
percent over the previous intermeeting interval. The prime rate charged
by most commercial banks on shortterm business loans was reduced Vi
percentage point to 11 Vi percent in
late November. Average rates on
new commitments for fixed-rate
conventional home mortgage loans
had edged down further in recent
weeks.
The staff projections presented at
this meeting continued to suggest

FOMC Policy Actions
that real GNP would grow moderately during 1983. The projections also
suggested that unemployment would
remain at a high level. The rate of
increase in prices, as measured by
the fixed-weight price index for
gross domestic business product,
was expected to drift down.
The views of Committee members
with respect to the economic situation and outlook had changed little in
the period since the Committee
meeting in mid-November. Moderate growth in real GNP over the year
ahead accompanied by some further
improvement in the performance of
prices continued in general to be
regarded as a reasonable expectation.
Since mid-November, it was observed, additional signs of a nearterm strengthening in activity had
appeared, particularly in markets for
housing and consumer goods, and
there were indications of some improvements in business confidence
in many parts of the country. At the
same time, conditions in the industrial sector remained severely depressed, reflecting the sustained
downtrend in business fixed investment, the ongoing efforts to pare
business inventories, and the continued weakness in export markets. In
some industries, the expansion in
orders for defense equipment was
providing at least a partial offset to
the weakness in demands for nondefense equipment, but the translation
of such orders into production and
employment often involved extended lags. On balance, an upturn in
economic activity appeared to be in
the offing, although the evidence
was not conclusive and some Committee members stressed that there
were substantial risks of a shortfall
from the staff projection.



137

As in mid-November, it was noted
that financial market conditions had
eased significantly since midyear,
and fiscal policy over the second half
of 1982 had become highly stimulative. In fact, some members continued to express concern that an overly expansive combination of fiscal
and monetary policies might reinvigorate inflationary
expectations,
thereby fostering a rise in long-term
interest rates that would limit or
abort the expected recovery.
At a meeting in July 1982, the
Committee had reaffirmed the monetary growth ranges for the period
from the fourth quarter of 1981 to the
fourth quarter of 1982 that it had set
at its meeting in early February.
These ranges were V/i to 5!/2 percent
for Ml, 6 to 9 percent for M2, and
6V2 to 9!/2 percent for M3. The associated range for bank credit was 6 to
9 percent. The Committee had
agreed that growth in the monetary
and credit aggregates around the top
of the indicated ranges would be
acceptable in the light of the relatively low base period for the M1 target
and other factors, and that it would
tolerate for some period of time
growth somewhat above the target
range should unusual precautionary
demands for money and liquidity be
evident in the light of current uncertainties. The Committee had also
indicated in July that it was tentatively planning to continue the current ranges for 1983. That decision
will be reviewed at the Committee
meeting scheduled for February 8-9,
1983, taking into account the latest
economic developments and institutional changes associated with the
new deposit accounts authorized by
the Depository Institutions Deregulation Committee (DIDC).
In the Committee's discussion of

138

FOMC Policy Actions

policy for the near term, the period
from December 1982 to March 1983,
the members considered objectives
for monetary growth against the
background of the tentative ranges
for 1983 as a whole. In the discussion, it was recognized that the behavior of the aggregates would continue to be distorted by institutional
developments relating to deregulation of interest rates on deposits.
Depository institutions had begun to
offer the new money market deposit
account that had been authorized by
the DIDC, effective December 14,
1982. This account had limited transaction features and, while included
in M2, was excluded from Ml. The
DIDC had also authorized a minimum balance NOW account free of
interest rate ceilings, effective January 5, 1983, which would be included
in Ml.
The impact of the new accounts
on the behavior of the monetary
aggregates was highly uncertain, especially in the case of Ml for which
even the direction of the impact was
currently unclear. A staff analysis
referred to the large pool of liquid
assets that could be shifted into the
new accounts, possibly during a relatively short period of time. The
magnitude of such shifts and the
allocation of funds between the two
new accounts would depend on the
competitive pricing and promotion
of the accounts by depository institutions and on the response of depositors to interest rate relationships
and to the elements of convenience.
At one extreme, shifts of funds
could be dominated by flows into the
new NOW accounts, thereby causing Ml to rise sharply during some
transition period. At the other extreme, money market deposit accounts might attract most of the



shifted funds, including those from
deposits in Ml, retarding the growth
of Ml if not actually reducing its
level.
The shifts of funds would clearly
work in the direction of expanding
M2, although the magnitude of the
effect was very uncertain. A large
part of the shifts would probably
represent a redistribution of funds
among the components of M2, but in
addition funds would shift into M2
from market instruments and from
large-denomination certificates of
deposit. Growth in M3 was expected
to be affected the least because depository institutions would probably
curtail their issuance of large-denomination certificates of deposit in
response to the availability of funds
through the new accounts. The timing of the various shifts was also
subject to a great deal of uncertainty, although earlier experience with
the introduction of NOW accounts
suggested that a large part of the
transition to the new accounts would
be concentrated in a relatively short
period of time.
At its meetings held in October
and November, the Committee had
decided to place much less weight
than usual on Ml in the fourth quarter and not to set a specific objective
for its growth, because of the difficulties of interpreting its behavior in
a period of major institutional
changes. At this meeting, the members generally favored continuance
of that reduced attention to Ml during the first quarter. Thus, the Committee focused on setting objectives
for growth of M2 and M3.
Reference was made to the fact
that, despite some evidence of a
deceleration in the growth of these
broader aggregates most recently,

FOMC Policy Actions
their expansion over the year ending
in the current quarter would be
somewhat above the growth ranges
that had been set by the Committee.
At recent meetings, however, most
Committee members had endorsed
the view that monetary growth
somewhat above those ranges was
appropriate in light of the indications
of strong demands for liquidity during a period of relatively weak economic activity. The income velocity
of the broader aggregates, and also
of Ml, appeared to have declined at
an unusually sharp rate over the
year.
With respect to M2, most Committee members indicated a preference for setting a first-quarter
growth rate that would allow for
some modest shift of funds into components of that aggregate from market instruments and large-denomination certificates of deposit. They
were prepared, however, to accept
greater growth if analysis of incoming data and other evidence from
depository institutions and market
reports indicated that the new money market accounts were generating
substantial shifts of funds into those
aggregates from outside sources.
During the Committee's discussion, the observation was made that
the uncertainties that had generated
unusual demands for liquidity in relation to GNP during 1982—and the
accompanying decline in the velocity of the monetary aggregates—
could be expected to abate as economic activity strengthened and
consumer and business confidence
improved. Thus, abstracting roughly
from the impact of the new deposit
accounts, the velocity of money
could be expected to show much less
weakness in 1983 than in 1982,
though whether it might continue to



139

be affected by strong liquidity demands was open to question.
At the conclusion of the discussion, the Committee decided to seek
to maintain expansion in bank reserves consistent with growth of M2
at an annual rate of around W2 percent and growth of M3 at an annual
rate of about 8 percent for the period
from December to March. The objective for M2 would allow for a
modest amount of growth resulting
from shifts into the newly authorized
money market deposit accounts
from large-denomination certificates
of deposit or market instruments.
For both M2 and M3, the Committee
indicated that greater growth would
be acceptable if analysis of incoming
data and other evidence from banking and market reports indicated that
the new money market deposit accounts were generating more substantial shifts of funds into these
broader aggregates from market instruments. The intermeeting range
for the federal funds rate, which
provides a mechanism for initiating
further consultation of the Committee, was set at 6 to 10 percent.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that real GNP declined in
the fourth quarter, although final sales
apparently were maintained, and that the
rise in prices remained much less rapid
than in 1981. Retail sales and housing
activity have strengthened in recent
months, but business fixed investment
apparently has weakened further and efforts to reduce inventories have continued. In November industrial production
and nonfarm payroll employment declined further, and the unemployment
rate rose 0.4 percentage point to 10.8
percent. Initial claims for unemployment
insurance, although down from the early
autumn peaks, have remained relatively

140

FOMC Policy Actions

high. In recent months the advance in
the index of average hourly earnings has
slowed appreciably further.
The weighted average value of the
dollar against major foreign currencies
has declined from peaks reached in early
November. The U.S. merchandise trade
deficit rose sharply further in October.
Growth of Ml has remained rapid in
recent months, while growth of M2 and
M3 has continued at about or somewhat
below the rates of earlier in the year. On
balance short-term market interest rates
have declined since mid-November,
while bond yields have risen somewhat
in response to unusually heavy borrowing by businesses and governments;
mortgage rates have edged down further.
The Federal Reserve announced reductions in the discount rate from 9Vi percent to 9 percent on November 19 and to
8!/2 percent on December 13.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation, promote a resumption of growth in
output on a sustainable basis, and contribute to a sustainable pattern of international transactions. In July, the Committee agreed that these objectives
would be furthered by reaffirming the
monetary growth ranges for the period
from the fourth quarter of 1981 to the
fourth quarter of 1982 that it had set at
the February meeting. These ranges
were 2Vi to 5Vi percent for Ml, 6 to 9
percent for M2, and 6I/2 to 9 Vi percent
for M3. The associated range for bank
credit was 6 to 9 percent. The Committee
agreed that growth in the monetary and
credit aggregates around the top of the
indicated ranges would be acceptable in
the light of the relatively low base period
for the Ml target and other factors, and
that it would tolerate for some period of
time growth somewhat above the target
should unusual precautionary demands
for money and liquidity be evident in the
light of current economic uncertainties.
The Committee had also earlier indicated
that it was tentatively planning to continue the current ranges for 1983, but it will
review that decision carefully at its February 1983 meeting in light of economic
developments and institutional changes
associated with the new deposit accounts authorized by the Depository Institutions Deregulation Committee.



Specification of the behavior of Ml
over the months ahead remains subject
to substantial uncertainty because of
special circumstances in connection with
the public's response to the new deposit
accounts available at depository institutions. The difficulties in interpretation of
Ml continue to suggest that much less
than usual weight be placed on movements in that aggregate during the coming quarter. The institutional changes
also add a degree of uncertainty to the
behavior of the broader monetary aggregates.
In all the circumstances, the Committee seeks to maintain expansion in bank
reserves consistent with growth of M2 of
around 9Vi percent at an annual rate, and
of M3 at about an 8 percent rate, from
December to March, allowing in the case
of M2 for modest shifting into the new
money market accounts from large-denomination CDs or market instruments.
The Committee indicated that greater
growth would be acceptable if analysis of
incoming data and other evidence from
bank and market reports indicate that the
new money market accounts are generating more substantial shifts of funds into
broader aggregates from market instruments. The Chairman may call for Committee consultation if it appears to the
Manager for Domestic Operations that
pursuit of the monetary objectives and
related reserve paths during the period
before the next meeting is likely to be
associated with a federal funds rate persistently outside a range of 6 to 10 percent.
Votes for this action: Messrs.
Volcker, Solomon, Balles, Gramley,
Mrs. Horn, Messrs. Martin, Partee,
Rice, Mrs. Teeters, and Mr. Wallich.
Votes against this action: Messrs.
Black and Ford.

Mr. Black dissented because he
preferred to direct policy in the
weeks immediately ahead toward
ensuring that the growth of Ml, abstracting from temporary effects of
the introduction of new money market deposit accounts, would moderate from the extremely rapid rate of
recent months. While recognizing

FOMC Policy Actions
the difficulties in interpreting Ml
currently, he was concerned that excessive underlying growth in that
aggregate might reverse the progress
achieved in reducing inflation and
inflationary expectations and lead to
substantially weaker markets for
long-term securities.
Mr. Ford dissented from this action because he continued to prefer a
policy for the current period that
was more firmly directed toward restraining monetary growth, after allowance for the short-run impact of
the introduction of the new money
market deposit accounts. He remained concerned that rapid expansion in the supply of money together
with very large budget deficits would
produce an overly stimulative combination of policies that could rekindle inflation and inflationary expectations and lead to higher interest
rates during 1983 and 1984.
The Committee subsequently, on
several occasions, discussed the extraordinarily rapid growth in money
market deposit accounts (MMDAs)
that had taken place since they became available in mid-December and
the implications of this growth for
behavior and interpretation of the
monetary aggregates. At a telephone
conference on January 28, 1983, it
was noted that these accounts had
risen to a level of about $185 billion
on average by the week ending January 19, leading to a very sharp expansion in M2. Estimates of sources
of MMDA inflows at this time were
inevitably subject to considerable
uncertainty. Growth of M2 seemed
clearly to be on a track well above
the 9V2 percent annual rate for the
December to March period set at the
December meeting, but staff analysis—based on assessment of incom


141

ing data as well as various reports on
sources of MMDA inflows—suggested it was possible that virtually
all of the greater M2 growth might be
attributed to unexpectedly large
shifts into MMDAs out of instruments not included in M2. Effects on
M3 were more problematical, but
actual growth of this aggregate in
December and January on average
appeared to have been modest. Expansion of Ml had remained on the
strong side; while there may have
been some diversion from Ml to
MMDAs, its growth very recently
had been raised by the introduction
of Super NOW accounts. It was the
Committee consensus for the time
being to maintain the existing degree
of reserve restraint but not to increase this restraint further in response to the recent reported overtarget growth of the broader
monetary aggregates because that
growth appeared to be primarily related to the massive redistribution of
funds currently under way. The situation will be reviewed at the FOMC
meeting on February 8-9.

2. Authorization for Domestic
Open Market Operations
At this meeting the Committee voted
to increase from $3 billion to $4
billion the limit on changes between
Committee meetings in System Account holdings of U.S. government
and federal agency securities specified in paragraph l(a) of the authorization for domestic open market operations, effective immediately, for
the period ending with the close of
business on February 9, 1983.
Votes for this action: Messrs.
Volcker, Solomon, Balles, Black,
Ford, Gramley, Mrs. Horn, Messrs.
Martin, Partee, Rice, Mrs. Teeters,

142

FOMC Policy Actions

and Mr. Wallich. Votes against this
action: None.

This action was taken on the recommendation of the Manager for
Domestic Operations. The Manager
had advised that substantial net sales
of securities were likely to be required during January in order to
absorb reserves that had been provided over recent weeks to meet
seasonal needs for currency in circulation.
On January 25-26, 1983, the Committee voted to approve an additional increase to $5.5 billion in the intermeeting limit on changes in holdings




of U.S. government and federal
agency securities, effective immediately, for the period ending with the
close of business on February 9,
1983. This action was taken after the
Manager had advised that the seasonal need to absorb reserves in
association with the return flow of
currency would be greater than anticipated earlier.
Votes for this action: Messrs.
Volcker, Solomon, Balles, Black,
Ford, Gramley, Mrs. Horn, Messrs.
Martin, Partee, Rice, Mrs. Teeters,
and Mr. Wallich. Votes against this
action: None.

143

Consumer and Community Affairs
During 1982, the Board continued
its efforts to reduce the costs of
compliance with its consumer regulations, while maintaining the protections for consumers that the underlying statutes provide. These efforts
followed a complete rewriting in 1981
of Regulation Z (Truth in Lending)
and Regulation C (Home Mortgage
Disclosure) to ease the burdens of
compliance and to simplify and clarify regulatory provisions.
The Board used several approaches during 1982 to carry out
these efforts. It amended several
consumer regulations to reduce or
eliminate costly requirements that
failed to provide proportionate benefits to consumers; unified interpretations of consumer regulations by
providing commentaries that are updated periodically; distributed aids
to help smaller institutions comply
with the regulatory requirements;
and gathered and analyzed information to assist in rulemaking and
enforcement activities. All these actions are discussed in this report.
The report also examines the extent of compliance in 1982 with
Regulation Z (Truth in Lending),
Regulation B (Equal Credit Opportunity), and Regulation E (Electronic Fund Transfers); legislative
recommendations; the activities of
the Consumer Advisory Council; and
the Federal Reserve System's activities relating to the Community Reinvestment Act.
Regulatory Actions
Regulation Z and Regulation E were
amended in 1982 to reflect statutory




changes, changes in the marketplace,
and new comparisons of the burdens
of compliance with the benefits to
consumers. Interpretations of Regulation B were adopted, and official
staff commentaries of Regulation M
(Consumer Leasing) and Regulation
Z were issued.
Arranger of Credit
In October 1981, the Board published for comment a proposed
amendment under which Regulation
Z would apply to real estate brokers
who arrange financing by the seller.
This proposal was motivated both by
statutory changes and by issues arising from the more frequent use of
seller financing in the mortgage market. One of the original provisions
of the Truth in Lending Simplification and Reform Act required that
disclosures be given by persons who
regularly arrange for consumer credit
to be extended by someone who is
not a creditor. However, neither the
statutory amendment nor the formal
legislative history defined "arrangers
of credit" or clearly indicated the
type of person intended to be covered. The commenters raised issues
that called for a difficult balancing
of benefits to consumers against burdens on brokers. Supporters argued,
for example, that without truthin-lending disclosures, a consumer
might not be alerted to a large
balloon payment due after a few
years. Moreover, the act would impose no greater responsibilities on
real estate brokers than on others it
covered. Opponents of the proposal
argued that it would impose a burden

144

Consumer and Community Affairs

without really assisting buyers because the principal purpose of the
disclosure is to assist buyers in shopping for credit, and seller financing
is usually arranged only when other
kinds of financing are unobtainable
and thus shopping for credit is to no
avail. They also pointed out operational problems, and argued that no
new burdens should be laid on a real
estate industry already experiencing
serious problems.
In February, the Board amended
the definition of "arranger of credit"
in Regulation Z to exclude persons,
such as real estate brokers, who
arrange for seller financing of real
property. In making this decision,
the Board noted that the Congress
was considering the issue and that if
the Board covered brokers and they
were later excluded by the Congress,
the industry would incur needless
expense in preparing to comply.
In fact, the Garn-St Germain Depository Institutions Act of 1982, enacted in October, amended the Truth
in Lending Act to exclude all arrangers of credit (including real estate
brokers) from the definition of creditor and, therefore, from the coverage of the act.

Seller's Points
The Board also considered amending
Regulation Z to require the annual
percentage rate (APR) to include
seller's points (an amount a lender
requires the seller to pay to provide
financing to the buyer). Because the
exclusion of seller's points from the
finance charge might have created a
disclosure loophole, the Board in
July proposed several alternatives:
inclusion of seller's points in the
calculation of finance charges and of
annual percentage rates; an entry in
Digitizeddisclosure statements and advertisefor FRASER


ments of the amount of seller's points
being charged; a notice in disclosure
statements and advertisements of the
possible effect of seller's points on
the accuracy of APRs; and such a
notice in advertisements only.
Half of the commenters urged the
Board not to take any action. The
Board found that the advantages of
the disclosures to consumers would
be uncertain and that the disclosures
would involve costs and other burdens that appeared to outweigh their
benefits. Accordingly, the Board decided in September not to amend
Regulation Z at that time to require
disclosure of seller's points.

Preauthorized Electronic
Transfers
In October, the Board amended
Regulation E to exempt financial
institutions with assets of $25 million
or less from its requirements concerning preauthorized electronic
transfers. Many such institutions were
subject to those requirements only
because they receive electronically
initiated social security transfers for
their customers, and the Board found
that most were unduly burdened by
the requirements. In relieving such
institutions of that burden, the Board
hoped that more banks would undertake to provide electronic transfers
and thus that consumers would benefit from the safety, certainty, and
earlier availability of funds that the
service makes possible.
Other Amendments to
Regulation E
In 1982, Regulation E was amended
in these other ways to reduce regulatory burdens without sacrificing
consumer protection:
• An exemption was provided from
the requirement to disclose, on ter-

Consumer and Community Affairs
minal receipts, the type of account
involved in an automated teller machine transaction, when only a single
account can be accessed.
• An exemption was provided from
the requirement to provide a periodic
statement for each account when a
transfer is made between accounts of
the same consumer in the same
institution.
• Modifications were made to the
requirements for documentation and
for procedures to resolve errors for
transfers initiated outside the United
States.

Interpretations
In October, the Board adopted interpretations of Regulation B to clarify
procedures for compliance. The
interpretations, effective April 1,
1983, address the application of Regulation B. The first discusses the
ways a creditor can comply with the
regulation's prohibition against discounting or excluding "protected income" while using judgmental and
credit-scoring systems in considering a credit application. Protected
income is income derived from alimony, child support, separate maintenance, part-time employment, retirement benefits, or public assistance. The second interpretation deals
with the rules on the selection and
disclosure of the principal reasons
for adverse action.
Also in October, the Board withdrew proposed amendments to the
business credit provisions of the regulation because the costs and burdens appeared to outweigh limited
benefits of the proposals. The
amendments would have affected the
requirements for recordkeeping and
notification of adverse action in certain loan transactions, and would
Digitizedhave subjected business credit to the
for FRASER


145

general rule against asking for an
applicant's marital status. The withdrawal of the proposals does not
affect the substantive provisions of
the Equal Credit Opportunity Act
and Regulation B, which prohibit
discrimination on the basis of sex,
marital status, race, and certain other
protected characteristics in any aspect of a credit transaction.

State Exemptions
In 1982, the Board granted exemptions from certain parts of the Truth
in Lending Act to the states of
Maine, Connecticut, Massachusetts,
Oklahoma, and Wyoming. That act
directs the Board to exempt from its
provision transactions that are subject to state laws that meet certain
requirements. Under the act, consumer credit transactions may be
exempted from chapter 2 (credit
transactions) if the applicable state
law is substantially similar to the
federal act and if the state demonstrates adequate provision for enforcement. The act sets the same
exemption standards for chapter 4
(credit billing) and chapter 5 (consumer leases) respectively, but also directs the Board to consider whether
the state law is more protective of the
consumer.
The Board also renewed the exemptions of Connecticut, Massachusetts, New Jersey, and New York
from the disclosure requirements of
the federal Home Mortgage Disclosure Act, as amended in 1980, and
the Board's Regulation C, which
implements the act. These exemptions are based on the determination
that state law provides for substantially similar disclosures and that it
contains adequate provision for enforcement. Finally, the Board terminated the exemption granted to

146

Consumer and Community Affairs

state-licensed savings and loan associations in California in 1976. Such
associations must comply with the
federal act and Regulation C beginning with the reporting of data on
loans made in calendar year 1982.

Consolidation of Interpretations
In May, the Board published an
official staff commentary on Regulation M (Consumer Leasing). Like
the commentaries on Regulations Z
and E, this one, CL-1, consolidates
all regulatory interpretations and
provides for additions and changes
to be grouped and issued periodically. The commentary, which modifies the staffs previous approach of
providing interpretations one by one
in response to specific inquiries, also
provides interpretations of more general application. The changes in language, distribution, and organization
should help institutions keep abreast
of the official interpretations.
In September, the Board published the first revision of its official
staff commentary on Regulation Z.
The changes generally provide more
flexibility in compliance without
compromising basic consumer protection. The Board plans to amend
the commentary only when necessary
to respond to significant questions or
to clarify language. The revision
addresses the following issues:
• Use of the creditor's commercial
lending rate as the base rate in
variable-rate, open-end credit plans.
• Application of the rules about
finance charges to the offering of
cash discounts in the sale of motorvehicle fuel.
• Disclosures for several types of
mortgage financing plans, including
growth equity mortgages and graduated-payment, adjustable-rate mortgages.




Compliance Aids
Even the most exhaustive efforts to
simplify regulations cannot eliminate
all the burdens of compliance. The
difficulties include mastering the details of the law and figuring out the
effect of the rules on the institution's
operations. In 1982, to make compliance easier, the Board distributed
two aids: a booklet and a videotape.
The Board developed the booklet,
"A Guide to HMDA Reporting," to
help smaller institutions use census
tools and identify properties by census tract numbers in the course of
complying with the Home Mortgage
Disclosure Act (HMDA). The 14page booklet, distributed to all financial institutions subject to the act,
was developed in consultation with
the U.S. Bureau of the Census. It
explains the steps in the HMDA
reporting process and how to use
census tract maps and indexes. It
also contains sample reporting forms,
compliance checklists, and a directory of the regional offices of the
Bureau of the Census.
The two-hour videotape, "Regulation Z: The Simplified Rules,"
which provides an overview of the
revised regulation, helped institutions comply with the simplified Truth
in Lending rules by October 1, 1982,
the mandatory compliance date. The
Federal Reserve Banks lent copies
of the tape without charge to financial institutions, mortgage lenders,
retailers, and others. This service
proved to be an effective and comparatively inexpensive way of educating institutions in advance. About
12,000 people viewed the tape in
1982; smaller institutions appear to
have been the heaviest users.
To help consumers understand their
rights and responsibilities, the Board
and the Federal Reserve Banks con-

Consumer and Community Affairs
tinued distribution of a range of
popular pamphlets, films, and teaching aids; added "Your Credit Rights,"
a curriculum on credit laws produced
by the Federal Reserve Bank of
Minneapolis; continued a series of
nationwide workshops for teachers
on credit issues; and provided technical assistance to the media and to
private organizations preparing consumer education materials.
Collection and Use of Data
In 1982, the Board compiled, analyzed, and applied various data to
strengthen its enforcement and rulewriting efforts.
Consumer Survey
To improve administration of consumer protection regulations to support monetary policy, the Board has
joined with the Office of the Comptroller of the Currency (OCC), the
Federal Deposit Insurance Corporation (FDIC), the Federal Trade
Commission (FTC), and the Departments of Health and Human Services, Labor, and the Treasury in
sponsoring a comprehensive consumer survey in 1983. The survey,
which will be conducted by the University of Michigan's Survey Research Center, will be the first in six
years to correlate household balance
sheets with consumer financial decisions, and the first in more than
twenty years to collect comprehensive data on consumers' assets. It
should help the Board determine the
benefits to the consumer of the Truth
in Lending Act, the Equal Credit
Opportunity Act, and other consumer laws. After the survey is
cleared by the Office of Management
and Budget (under the Paperwork
Reduction Act), the Survey Re


147

search Center will start interviewing
in 5,000 households.
Compliance Cost Survey
In 1981 and 1982, the Board's Regulatory Improvement Project group
surveyed approximately 100 banks to
gather data on the incremental startup and on-going costs of complying
with Regulations B (Equal Credit
Opportunity), E (Electronic Fund
Transfers), and Z (Truth in Lending). The banks were asked to furnish cost data for the following functional categories: administration,
training, legal services, changes in
data processing systems, labor, postage, statements, disclosures, and
premises and equipment. The survey
questions also gave the banks an
opportunity to comment on the usefulness, effectiveness, and burden of
specific regulatory provisions and to
indicate which disclosures and documentation they would continue to
provide in the absence of regulatory
requirements. The Board will use the
results of this study to weigh compliance costs against consumer benefits
and to determine the need for any
changes in the regulations.
Consumer Complaints
The Federal Reserve System investigates and resolves complaints against
state member banks; it also forwards
to the appropriate enforcement agencies any complaints it receives that
involve other creditors or businesses.
In 1982, the Federal Reserve's computerized logging system registered
2,840 complaints: 1,891 by letter, 908
by telephone, and 41 in person.
In 1982, the System responded to
228 written inquiries concerning consumer credit laws and banking policies and procedures. In responding
to both inquiries and complaints, the

148

Consumer and Community Affairs

staff provides consumers with individualized explanations of laws, regulations, and banking practices, and
with printed material relevant to
their needs.
The Board's Division of Consumer
and Community Affairs assists the
Reserve Banks in handling consumer
complaints. Members of the Board's
staff regularly evaluate a sample of
the complaints resolved by the Reserve Banks for adherence to System
procedures and guidelines. Because
the results of the review are then
discussed with the Bank, the Board
believes this program is successful in
strengthening the complaint-handling system by providing feedback
and suggestions.
In 1982, the Board revised questionnaires that are directed to consumers whose complaints against state
member banks were handled by the
System. The revisions allow the Board
to assess more accurately consumer
attitudes about its system for handling complaints. A high percentage
of the respondents report favorable
reactions to the treatment of complaints by the Federal Reserve System. Approximately 63 percent found
the explanation they received clear
and understandable; 70 percent were
satisfied with the promptness with
which the complaint was handled; 95
percent were treated courteously by
Federal Reserve staff; 54 percent
believed the Federal Reserve was
complete and thorough in handling
the problem; and 79 percent would
contact the Federal Reserve again if
they should encounter another problem with a bank. Forty-six percent
of the respondents found the resolution of their complaint acceptable.
Those numbers suggest that many
people were satisfied with the System's handling of their complaints
Digitizedeven though those complaints were
for FRASER


not resolved in their favor. Many of
those cases involved practices that
are permissible for banks but that
consumers find objectionable or hard
to understand.
The accompanying table summarizes the nature and resolution of the
complaints against state member banks
that were received in 1982. About
53 percent of the complaints against
state member banks concerned
lending functions; of these, about 13
percent alleged discrimination on a
prohibited basis. The other 40 percent alleged improper notices, functions not related to discrimination,
improper disclosures of credit costs,
discrimination on other than the specifically prohibited bases, and other
problems with the lending functions.
Approximately 27 percent involved
interest on deposits and general practices concerning deposit accounts.
The System received 1,397 complaints about unregulated bank practices, 14 percent fewer than in 1981.
The Board continued to monitor consumer complaints about unregulated
practices to identify those that may
be unfair or deceptive and adopted
additional procedures for such monitoring. The Board also surveyed consumers about the practice of assessing
fees on inactive accounts, testified before a congressional subcommittee
concerning delayed funds availability, and discussed the system for handling complaints with the Consumer
Advisory Council.
As in the past, the Board identified
practices that are not subject to regulations, about which the System receives 15 or more complaints per
quarter, or 50 annually. Of the 1,397
complaints, 435 fell into this category. They were of six types: complaints about disputed deposits (99,
or 7.1 percent of all complaints about
unregulated practices); discrepancies

Consumer and Community Affairs

149

Consumer Complaints Received by the Federal Reserve System,
by Function and Resolution, 1982
Type of complaint
Type of resolution

Total complaints
Total concerning state
member banks
Insufficient information1
Information furnished2
Bank legally correct
No accommodation
Accommodation made 3
Clerical error, corrected
Factual dispute 4
Bank violation, resolved5
Possible bank violation,
unresolved6
Customer error
Pending, December 31

Total
complaints

Loan functions
Discrimination

Other

Deposit
function

Electronic
fund
transfers

Trust
services

Other

2,840

282

1,121

812

75

26

524

1.226
33
219

162
10
28

487
7
79

326
4
62

38
0
2

15
0
4

198
12
44

357
148
177
41
25

68
16
11
0
3

156
65
67
13
12

85
35
55
21
4

9
7
8
2
3

3
3
1
0
2

36
22
35
5
1

18
14
194

1
2
23

6
5
77

7
6
47

1
1
5

0
0
2

3
0
40

1. The staff has been unable, after follow-up correspondence with the consumer, to obtain sufficient
information to process the complaint.
2. When it appears that the complainant does not
understand the law and that there has been no violation on the part of the bank, the Federal Reserve
System explains the law in question and provides the
complainant with other pertinent information.
3. In these cases the bank appears to be legally
correct but chooses to make an accommodation.
4. These cases involve factual disputes not resolvable by the Federal Reserve System and contractual
disputes that can be resolved only by the courts. Con-

sumers wishing to pursue the matter may be advised
to seek legal counsel or legal aid, or to use small
claims courts.
5. In these cases a bank appears to have violated
a law or regulation and has taken corrective measures
voluntarily or as requested by the Federal Reserve
System.
6. When a bank appears to have violated a law or
regulation, customers are advised to seek civil remedy
through the courts. Cases that appear to involve criminal irregularity are referred to the appropriate law
enforcement agency.

in accounts (95, or 6.8 percent);
charges and procedures concerning
insufficient funds (81, or 5.8 percent);
debt-collection tactics (59, or 4.2 percent); bond redemption (51, or 3.7
percent); and excessive time to clear
checks (50, or 3.6 percent).
The two largest categories of complaints received (disputed deposits and
discrepancies in accounts) involve
factual disputes between the consumer and the bank in which no faulty
practice is clearly identified. Each of
these categories, however, accounts
for only a small fraction (6 percent or
less) of all consumer complaints received. The table on the next page
identifies by subject the consumer
complaints received by the Federal
DigitizedReserve System in 1982.
for FRASER

The Board formalized procedures
for gathering additional information
concerning complaints about unregulated practices to enhance the
Board's ability to fulfill its responsibilities under section 18f of the Federal Trade Commission Act. These
procedures stipulate that the Board
will continue to identify the types
and numbers of complaints received
by the System and to review periodically the complaints handled by the
Reserve Banks. The Board will, in
appropriate cases, enlist the aid of
examiners to investigate practices of
banks that these procedures reveal
as especially problematic. The Board
may also request data or summaries
from other banking agencies regarding similar types of practices in the



150

Consumer and Community Affairs

Consumer Complaints Received by the
Federal Reserve System, by Subject,
1982

consumers with inactive and active
accounts reported receiving written
disclosure statements and informaSubject
Number
tion about inactivity fees. Thus consumers with inactive accounts did not
Regulation B (Equal Credit
Opportunity)
544
appear less aware of the terms of deRegulation C (Home Mortgage
Disclosure)
2
posit accounts than those with active
Regulation E (Electronic Fund
deposit accounts.
Transfers)
63
Regulation Q (Interest on Deposits) . . . .
174
In March, the Board's Staff DirecRegulation X (Securities Credit)
0
tor for Federal Reserve Bank ActivRegulation Z (Truth in Lending)
500
Regulation BB (Community
ities testified for the Board on the isReinvestment)
1
sue of delayed funds availability beRegulation CC (Consumer Credit
Restraint)
0
fore the Senate's Subcommittee on
Consumer Affairs of the Committee
Fair Credit Reporting Act
63
Fair Debt Collection Practices Act
27
on Banking, Housing, and Urban
Fair Housing Act
0
Holder in due course
5
Affairs. The Board acknowledged
Transfer agents
4
that the practice by some depository
Municipal securities dealer regulation . . .
2
Unregulated bank practices
1,397
institutions of delaying the availabilOther1
58
ity of funds deposited by check has
2,840
Total
caused difficulties for consumers.
1. "Other" refers primarily to miscellaneous comGiven the wide variety of circumplaints against business entities.
stances inherent in the check-clearing
process, however, the Board believes
institutions they supervise. The pro- that an attempt to deal with the
cedures call for the Board's inquiry practice of delayed funds by regulation
to continue only until the Board has would be costly to banks and, ultisufficient information to determine mately, to consumers themselves.
whether regulatory action is neces- The Board continues to review the
sary. The Board believes these pro- situation and to consider several
cedures enhance the present program nonregulatory alternatives for imand ensure access to necessary infor- proving the situation. First, the Board
is undertaking a study of possible
mation in areas of concern.
In July 1982, as part of the Survey improvements in its check-collection
of Consumer Attitudes conducted by procedures that would speed hanthe Survey Research Center of the dling of return items or confirmation
University of Michigan, the Board of payment or nonpayment of checks.
asked consumers about their experi- In addition, the Board is working
ences with fees charged on inactive with the American Bankers Associchecking and savings accounts. Of the ation on ways to encourage banks to
respondents who had inactive ac- disclose their policy on the availabilcounts (22 percent of the total) 13 ity of funds, and will continue to
percent indicated that the financial monitor consumer problems and atinstitution had charged a fee on their titudes in this area.
accounts because too few deposits or
withdrawals were made during the
year. These data indicate that fees for Aggregated Home Mortgage
inactivity on deposit accounts were Disclosure Act Data
Federal Reserve examiners now use
relatively infrequent.
In addition, equal proportions of HMDA data, aggregated by the Fed


Consumer and Community Affairs
eral Financial Institutions Examination Council (FFIEC), to prepare
themselves for examinations of state
member banks. For each census tract
in a standard metropolitan statistical
area (SMS A), and for each SMS A
as a whole, the HMD A tables show
the number and the principal amount
of various kinds of residential loans:
government-insured, conventional,
home improvement, and home purchase loans; loans on multifamily
dwellings; and loans made to nonoccupant owners. The tables also
include the percentage of minority
population, the median family income, the median age of the housing
stock, and the number of owneroccupied units in each census tract.
The aggregated data, which are
available at central repositories, give
examiners a clearer picture of the
housing and income characteristics
of a bank's community. For example,
the data can help identify census
tracts that have predominantly older
housing units. For each SMSA, the
data also show the number of tracts
by three income categories (low and
moderate income, middle income,
and upper income, defined by the
relation of the median income in the
tract to the median income in the
SMSA as a whole) and the dollar
amount and number of housingrelated loans in census tracts in each
of those categories. These data help
examiners prepare questions for interviews with community representatives during examinations for compliance with the Community Reinvestment Act (CRA).
The aggregated data also are broken down by income and racial
characteristics. For instance, they
show the total principal amount and
number of loans extended in lowand moderate-income census tracts
Digitizedwith minority populations greater
for FRASER


151

than 80 percent. Examiners may, for
example, compare this information
with that for low- and moderateincome tracts with a minority population of less than 5 percent. Such
comparisons may suggest hypotheses
about compliance with the Equal
Credit Opportunity and Fair Housing
Acts that can be tested during the
compliance examination.
Regulation E—Economic
Impact Analysis
One of the provisions of the Electronic Fund Transfer Act directs the
Board to monitor the costs and
benefits that such transfers have for
financial institutions and consumers.
The economic impact of the act
increased during 1982 as more financial institutions offered electronic
fund transfers (EFTs) and more consumers used them. Over 76 percent
of commercial and mutual savings
banks and over 16 percent of all
other depository institutions now
provide EFT services that are covered by the statute's compliance
requirements. A large percentage of
banks in all size classes offer automated clearinghouse transfers and
access to automated teller machines
(ATMs), among other forms of EFT.
While larger banks are more likely
to offer a full range of consumer
EFT services than smaller ones,
shared networks and joint ventures
are rapidly making the more sophisticated EFT services accessible to
smaller banks as well. Because nearly
all banks now use computers, the
proportion of institutions offering
regulated consumer EFT services undoubtedly will increase.
Consumer demand for EFT services continued to grow during 1982,
as more transactions were conducted
through ATMs, telephone bill-pay-

152

Consumer and Community Affairs

ment systems, and automated clearinghouses. More households had accounts at financial institutions that
offered access to EFT services, and
the number of consumers using ATMs
and authorizing automatic direct
credits and debits to their accounts
increased. Additionally, the development of point-of-sale EFT and
home banking systems is accelerating.
The benefits to consumers from
the Electronic Fund Transfer Act are
difficult to measure because they
cannot be isolated from consumer
protections that would have been
provided otherwise. Some evidence
that comes from compliance statistics
in examination reports suggests,
however, that there are no widespread compliance problems or violations of the consumer rights established by the act. One of the five
federal agencies that regulate financial institutions reported no significant change from the previous year
in the percentage of institutions not
in full compliance; the others reported only a moderate increase in
noncompliance. The increase may be
explained largely by the substantial increase in the number of institutions becoming subject to the act:
new entrants into the EFT market
are likely to need time to adjust to
the act's many compliance requirements.
Further evidence that consumers
have no serious problems with EFT
lies in data from the Board's Consumer Complaint Control System.
Only 75 of the 2,840 complaints
processed in 1982 involved EFTs.
The Board forwarded 37 of these
complaints to other agencies for resolution; of the remaining 38, only 4
involved a violation of the regulation.
Digitized forSimilarly, costs associated with the
FRASER


act are difficult to quantify because
it is hard to know how the industry
would have evolved without the statutory requirements. Direct evidence
on the compliance costs and benefits
to financial institutions was obtained
from a survey conducted by the
Board in 1981 and 1982. The survey
asked for incremental start-up and
ongoing compliance costs—that is,
costs that were incurred above and
beyond operating expenses in the
absence of the act's requirements.
Some institutions found it difficult
to identify the procedures that they
would not have adopted in the absence of federal regulation—that is,
those attributable to Regulation E.
Some found it difficult to allocate
joint costs. For example, if a compliance officer is employed by an institution to deal with all regulatory
requirements, for what part of that
salary and overhead does Regulation
E account? Institutions generally
prorated such expenses according to
the percentage of employee time
spent on the regulation. They followed a similar procedure with capital equipment, such as computers,
furniture, and telephones.
Responding institutions were asked
to estimate only those expenses that
they could attribute directly to Regulation E. Information was requested
for seven categories of start-up costs,
for nine categories of ongoing costs,
and for overhead and fringe benefits.
In general, when a cost category
could not be estimated by a respondent, it went unreported. In analyzing the cost data, the Board staff
estimated missing data using reports
from similar institutions.
Start-up and ongoing costs of compliance per reporting institution are
shown in the accompanying table.
The table shows that larger institutions generally spent more than

Consumer and Community Affairs

153

Costs of Complying with Regulation E, by Deposit Size of Respondents
Dollars
Size of deposits (millions of dollars)
Type of cost

Less than
100

100-500

5001,000

1,0003,000

3,000 or

All
respondents

A. Average start-up costs per institution (dollars)

Total

6,206

18,808
6,010
17,248

17,275
10,521
15,035

75,663
28,374
23,960

37,846

83,082

173,681

687

2,333
1,102

3,361
2,421
3,255
7,257

Administration
Training
Legal services
Changes in data processing
systems
Premises, furniture, supplies,
and equipment
Statement forms and disclosure
documents
Other

464

9,047

5,804

1,698
417

3,769
949

15,187
6,745

50,836
14,387

19,096

85,094

156,893

372,704

684
572
450
634
432

B. Average ongoing costs per institution (dollars)
Administration
Labor
Training
Legal services
Printing or purchase of
statements
Postage
Premises, furniture, supplies,
and equipment
Telephone
Other
Total

2,992
6,351

7,143
7,370

42,995
39,197

4,107
15,787

23,282
80,310

446
168

1,077
1,017

4,332
1,676

2,366
1,550

12,786
9,891

1,306
753

951
1,427

3,134
13,145

22,662
17,633

16,747
40,281

393
122
264

1,520
909
526

144
485
0

0
385
1,095

21,418
468
18,702

12,794

21,940

105,108

65,588

223,886

C. Average start-up and ongoing costs per EFT transaction (dollars)
Average total start-up costs .

.116

.092

Average total ongoing costs .

.217

.090

Total average compliance
costs for first year

.333

.182

smaller institutions to comply with
the act.
The functions in which start-up
was most costly included changes in
data processing systems, administration, and statements and disclosures
related to the act's requirements for
documentation and disclosures (panel A of the table). Many institutions
made extensive changes in systems
to provide the detailed statements
required by the act. Increasing the
frequency of periodic statements for
certain savings accounts was particularly costly.
Labor, administration, and postDigitizedageFRASER
for were among the three most costly


.109

.124

.068

.077

.126

.049

.035

.047

.235

.173

.103

.124

elements of ongoing compliance. As
with start-up costs, the act's documentation requirements proved the
most costly (panel B). Labor costs
were associated with preparation of
statements and with the error-resolution procedures. Because of their
nature, labor costs are likely to
increase relative to other costs as the
volume of EFT transactions expands.
The compliance costs reported by
individual institutions varied according to many factors, such as the
degree to which data processing systems needed modification and the
way in which institutions chose to
comply. One important determinant

154

Consumer and Community Affairs

of costs was the number of EFT
transactions processed. The smallest
institutions had the highest costs per
transaction, and the largest institutions the lowest (panel C). Although
that relation was not consistent across
the size categories, on balance these
results suggest scale economies in
compliance with Regulation E: larger
institutions and those with higher
volumes of transactions incur relatively lower compliance costs per
transaction.
Three-fourths of the responding
institutions reported that the act did
not cause them to abandon any
existing or planned consumer services; those that indicated some reduction in services mentioned a ban
on EFT transactions for savings accounts, an end to payment of utility
bills at ATMs, and the delay of
planned EFT services until compliance could be achieved. Practically
no institutions reported that operating costs were reduced or eliminated
by the act, or that they enjoyed
benefits from the act or Regulation
E, though almost all reported that
consumers might benefit. Responding institutions were about equally
divided in their perceptions of how
the act and the regulation had affected the payments system: a third
found a net benefit from standardization; a third perceived an increase in
overall payment system costs; and the
rest detected no appreciable effect.
A complete summary of the survey
findings will be published as a Board
staff study. Further information on
the benefits of Regulation E will be
generated by a major consumer survey, to be conducted in early 1983.
Compliance with
Consumer Regulations
The five federal agencies that reguenforce


late financial institutions


compliance with the consumer regulations mainly through periodic examinations. The other agencies
charged with enforcing these laws
monitor compliance primarily through
investigating consumer complaints or
other monitoring procedures (except
for the Farm Credit Administration,
which enforces Regulations Z and B
through examination). This section
summarizes the information provided by the enforcing agencies on
compliance in 1982 with the Truth in
Lending Act, the Equal Credit Opportunity Act, and the Electronic
Fund Transfer Act. The reports cover
the period July 1, 1981, to June 30,
1982.
Regulation Z (Truth in Lending)
The Board of Governors, the Federal Deposit Insurance Corporation
(FDIC), the National Credit Union
Administration (NCUA), and the
Office of the Comptroller of the
Currency (OCC) reported that compliance with "old" Regulation Z
continued to improve in 1982. About
one-third of all institutions examined
were found to have no violations at
all, evidence of an improvement in
compliance. Moreover, of those that
did have violations, roughly half had
only a small number (one to five).
Thus, in the aggregate, about 75
percent of the financial institutions
were in substantial compliance with
Regulation Z. The Federal Home
Loan Bank Board (FHLBB), on the
other hand, reported a 13 percent
decrease in the number of institutions with no violations.
The following were the most frequent violations of the "old" Regulation Z:
• Failure to disclose accurately the
number, amount, due dates, or periods of scheduled payments on the
indebtedness.

Consumer and Community Affairs
• Failure to disclose the annual
percentage rate (APR) with sufficient accuracy.
• Failure to disclose the total
amount of the finance charge using
the term "finance charge," and the
sum of payments using the term
"total of payments."
• Failure to identify with the term
"balloon payment" any payment that
is more than twice the amount of a
regularly scheduled equal payment.
• Failure to include, when appropriate, charges or premiums for credit insurance covering life, accident,
health, or loss of income in the
finance charge disclosed.
The FDIC issued ten cease-anddesist orders, and the FHLBB issued
two, that cited Regulation Z violations. Both agencies, as well as the
OCC and the Board, also issued
memoranda of understanding and
other administrative enforcement actions that included provisions requiring compliance with Regulation Z.
The five member agencies of the
Federal Financial Institutions Examination Council reported that in 1982
approximately 1,450 institutions reimbursed a total of $5.5 million on
about 105,000 accounts under the
Regulation Z enforcement policy.
Although this total is somewhat higher
than the 1981 figure of $4.7 million,
the dollar volume of restitutions
decreased 55 percent from the rate
in the last two quarters of 1981 to
the first two quarters of 1982. This
marked decline indicates that compliance with provisions on the APRs
and finance charges of Regulation Z
was improving over that period.
The Federal Trade Commission
(FTC) reported that it is inquiring
into compliance with provisions of
two acts: those in the Fair Credit
Billing Act, for resolution of disputes
DigitizedandFRASER
for unauthorized use of credit cards,


155

and those in the Truth in Lending
Act for advertising as they relate to
television and the Consumer Leasing
Act. The FTC has investigated several companies for inaccurate APR
and finance charges, and has monitored compliance with the Cash Discount Act of 1981 and with the
advertising provisions for closed-end
credit in connection with consent
judgments that were filed against 12
firms in 1981. According to the FTC,
compliance with requirements for
credit advertising and cash discounts
remains problematic.
The other agencies with responsibilities for enforcement of the Truth
in Lending Act are the Packers and
Stockyards Administration of the
Department of Agriculture and the
Farm Credit Administration. The
former reported no truth in lending
complaints or enforcement actions in
1982; the latter reported only two
minor complaints.
Regulation B
(Equal Credit Opportunity)
All the federal agencies responsible
for regulating financial institutions
reported improved compliance with
the Equal Credit Opportunity Act
(ECOA) and Regulation B. About
67 percent of the institutions examined had no violations, up from 51
percent in 1981; and most institutions
with violations had fewer than five.
The following were the most frequent violations of Regulation B in
1982:
• Failure to provide or properly
complete a written notice of adverse
action.
• Failure to provide the name and
address of the federal supervisory
agency on an adverse action notice.
• Failure to observe time limits on
sending out adverse action notices.

156

Consumer and Community Affairs

• Failure to provide the required
notice concerning "other income."
The federal regulators issued eight
cease-and-desist orders in 1982 that
cited violations of Regulation B, and
seven agreements or memoranda of
understanding, most of which involved that regulation.
The FTC took formal enforcement
action against two creditors for violations of Regulation B: one for failure to give written notices of adverse
action and accurate reasons for denial, and the other for failure to retain
copies of rejected applications for 25
months.
Although most creditors seem to
be complying, the FTC staff continues to find serious problems: some
creditors are illegally requiring a
spouse's signature on a promissory
note, failing to consider applications
from consumers who rely on alimony
and other forms of protected income,
illegally discouraging elderly applicants from filing credit applications,
and failing to retain rejected applications as required by Regulation B.
The other regulatory agencies reported satisfactory compliance. The
Farm Credit Administration had only
a few ECO A complaints, none of
which involved illegal discrimination.
The Civil Aeronautics Board (CAB)
received 21 complaints, and none
warranted formal action.

Regulation E
(Electronic Fund Transfers)
The Board, FDIC, FHLBB, and
NCUA reported that about 26 percent of the institutions failed to
comply with some provisions of Regulation E and the Electronic Fund
Transfer Act in 1982, up from about
20 percent in 1981. The majority of
these institutions, however, had only



one to five violations. On the other
hand, the OCC reported a slight
increase in compliance.
The following were the most frequent violations of Regulation E in
1982:
• Failure to provide initial disclosures, or failure to provide correct
initial disclosures, when a consumer
contracts for EFT service or before
the first electronic transfer on the
account.
• Failure to provide a notice of
error-resolution procedure at least
once each calendar year.
• Failure to include on the periodic disclosure the address and telephone number for inquiries or notification of an error.
• Failure to include in the periodic
disclosure statement the name of any
third party to or from whom funds
were transferred.
• Failure to provide notice by one
of the allowed means when a consumer's account is credited by "routine" preauthorized transfers.
The FTC encountered no problem
severe enough to justify enforcement
action, and the CAB and the Securities and Exchange Commission reported that organizations subject to
their jurisdiction engage in no activities covered by the Electronic Fund
Transfer Act.
Legislative Recommendations
The FDIC, the FTC, and the OCC
have recommended several changes
in the Truth in Lending, Equal Credit
Opportunity, and Electronic Fund
Transfer Acts. The FDIC, which
believes that truth in lending requirements are complex and unmanageable, calls for a "complete overhaul"
of the act and regulation. The FDIC
suggested that exemptions from dis-

Consumer and Community Affairs
closure for simple interest loans with
identical annual percentage and simple-interest rates and with a finance
charge that is "entirely a function of
the amount of credit extended and
the time it was outstanding."
The FTC recommended that the
Congress remove the prohibition on
credit surcharges imposed by the
Cash Discount Act (section 167 of
the Truth in Lending Act). According to the FTC, the widespread
confusion of businesses and consumers stems from the lack of practical difference between a cash discount and a credit surcharge. The
FTC also said that the ban against
credit surcharges has spurred many
corporate policies and state regulations that not only fail to benefit the
public but also harm retailers by
imposing unnecessary compliance
costs and causing the loss of customer
goodwill.
The OCC favors further simplification of the Truth in Lending Act,
but prefers that no changes be made
until the full effects of simplification
and the recent update of the Regulation Z commentary are known.
The OCC recommended that the
Congress reconsider certain provisions of the Electronic Fund Transfer
Act. It criticized the three-tier schedule for determining consumer liability (which may be $50, $500, or
unlimited, depending on the circumstances). These provisions, according
to the OCC, make it unnecessarily
complicated to establish consumer
liability because financial institutions
must prove when the consumer
learned of the loss or theft and, in
some instances, whether the losses
would have occurred if the consumer
had notified the institution.
The OCC also recommended that
the Congress clarify its intent with



157

regard to a financial institution's
burden of proof in a dispute about
authorization of a transfer. The OCC
pointed out that Regulation E requires merely a good-faith investigation of the institution's records in
resolving the dispute. As a result,
the financial institution does not bear
so heavy a burden of proof of unauthorized use as the act intended. In
addition, the OCC wants the Congress to clarify whether the requirement about the burden of proof
applies only in a judicial procedure
or in the pretrial stages of a consumer
dispute as well.
Consumer Advisory Council
In 1982, the Consumer Advisory
Council (CAC) met quarterly to
advise the Board with regard to its
responsibilities under the consumer
credit protection laws and to discuss
other issues relating to consumer
finances. The council has 30 members, representing a wide spectrum
of consumer and creditor interests.
The CAC invited public comment
in March on several questions related
to the availability and affordability
of credit for consumers, neighborhood reinvestment projects, and
community programs in the current
economic environment. The council
received nearly 60 letters; those from
financial institutions generally said
that the high cost of funds and the
inability of consumers to afford credit
have led to an "overall reduction in
credit." Some of the industry comments said that these factors have
had the greatest negative impact in
low- and moderate-income neighborhoods.
Most of the other comments came
from local nonprofit community organizations. These commenters be-

158

Consumer and Community Affairs

lieved that the main obstacles to
obtaining credit to meet community
needs were high interest rates, cuts
in federal programs, unemployment,
and the recession in general. They
said that high interest rates have
caused problems for the credit programs that benefit the low-income
consumers who have been hit especially hard by the recession.
The solutions to these problems,
according to the creditors, lay in a
lower inflation rate; more community services, such as credit counseling; bond programs to help the thrift
industry; an end to usury ceilings;
revisions of bankruptcy laws; reductions in compliance costs; and more
education for consumers. The community organizations stressed federal
programs, such as the block grant
program for community development; job training; and funds for
nonprofit housing corporations and
for home improvement loans. These
organizations called on the Board to
make credit available to banks for
loans for housing low- and moderateincome people, for small businesses,
and for farmers.
In 1982, the CAC also discussed
practices in the financial services
industry that may be deceptive or
unfair to consumers—for example,
the advertising of individual retirement accounts (IRAs). Some council
members expressed concern that many
advertisements give consumers the
impression that investments and
earnings in IRAs are tax-free forever, and say nothing about withdrawal penalties, maintenance fees,
or cancellation periods. The council
formed a special committee to investigate IRA advertising and to formulate recommendations. At its October meeting, the CAC adopted the
committee's report, which recom


mended that IRA advertisements
should disclose the following:
• The penalties for early withdrawal.
• The basis for projected longterm earnings (together with a warning as to the effect of inflation) and
the extent to which the sponsor is
committed to maintain the underlying rates.
• If applicable, the term of the
account, the simple rate of interest,
and the yield.
• The amounts or rates of all
charges imposed on the account.
• The type of investment or instrument and whether insured.
• The way the consumer can get
additional advance information.
The recommendations also stated
that IRA advertisements should not
use "scare tactics" by warning about
the inadequacy of pensions or other
benefits.
The council also discussed consumer needs for disclosure of fees
and reduced earnings on inactive
accounts, the advantages and disadvantages of surcharges and cash discounts on credit-card transactions,
and the effect of the prime rate on
consumer credit rates. Some members of the council suggested that the
disclosure practices relating to variable-rate loans should be monitored
carefully.
At the request of Chairman
Volcker, the CAC established in
1982 a committee to review the
Board's policies and procedures under
the Community Reinvestment Act
(CRA). The CRA Review Committee is evaluating the System's examination activity, procedures for applications and complaints, training of
personnel, and community affairs
and public information functions relating to the CRA. The committee

Consumer and Community Affairs
plans to present its report in early
1983.
Community Reinvestment Act
The Board of Governors, the Federal
Deposit Insurance Corporation, the
Federal Home Loan Bank Board,
and the Office of the Comptroller of
the Currency are required by the
Community Reinvestment Act (CRA)
to encourage the institutions under
their jurisdiction to help meet the
credit needs in their communities,
including low- and moderate-income
neighborhoods, consistent with the
safety and soundness of the institutions. The act requires the agencies
to assess the record of institutions in
meeting the needs of their communities and to take that record into
account in deciding certain applications that the institution may file.
Most applications to the Federal
Reserve are considered by the Federal Reserve Banks acting on behalf
of the Board. The Board itself considers applications that raise significant legal or policy questions and
those from institutions that have
unsatisfactory CRA records.
In 1982, the Board processed eight
applications protested by community
groups challenging the applicant's
record of meeting community credit
needs, and eighteen unprotested cases
that involved applicants with CRA
ratings that were less than satisfactory. One of the protested cases was
approved following a negotiated
agreement between the applicant and
the protestant. One of the unprotested applications was withdrawn to
allow the applicant time to improve
its CRA performance. The remaining applications were approved on
the basis of additional information
about the applicant's performance or



159

commitments by the applicant to the
Board or the community groups.
In the 1982 reporting period, Federal Reserve System personnel examined 854 state member banks for
CRA compliance, using the Uniform
Interagency Community Reinvestment Act Assessment Rating System. This system ranks financial
institutions on a scale of 1 through
5, with 5 representing the lowest
level of performance and 3, less than
satisfactory performance. About 79
percent of the state member banks
received a rating of 2; 12 percent, a
rating of 1; 13 percent, a rating of 3;
and less than 1 percent, a rating of
4. No bank received a 5.
To assure a balanced perspective
in determining community credit
needs and assessing the CRA performance, Federal Reserve examiners often interview community representatives outside the financial
institution. In the 1982 reporting
period, 1,271 such interviews were
conducted with government officials,
community-based organizations, trade
associations, community development corporations, and civil rights
and consumer advocates. Also, to
assist the Board in encouraging state
member banks to help meet the
credit needs of their communities,
each Reserve Bank has appointed a
Community Affairs Officer, who facilitates communication between
bankers and community groups.
Federal Financial Institutions
Examination Council
In 1982, the Federal Financial Institutions Examination Council (FFIEC)
approved uniform examination procedures for the Truth in Lending,
Fair Debt Collection, and Home
Mortgage Disclosure Acts. It also

160

Consumer and Community Affairs

sponsored the production of a videotape course for examiners, entitled
"Outside Contact Interviews: Interviewing for Information from the
Community." The purpose of the
course is to teach examiners how to
interview community representatives
for information about the economic




condition and the credit needs of the
bank's community. This information
should help examiners assess the
CRA performance of a financial
institution; it may also be helpful in
examinations relating to the Fair
Housing and Equal Credit Opportunity Acts.

161

Litigation
During 1982, the Board of Governors was named in 34 lawsuits, compared with 43 in 1981. Of the 19
actions filed in 1982, 6 raised questions under the Bank Holding Company Act, compared with 5 in 1981.
As of December 31, 1982, 17 cases
were pending, 4 of which involve the
Bank Holding Company Act. A brief
description of each of these cases
and of those disposed of in 1982
follows.

denied petitioner's petition for certiorari (102 S. Ct. 2958).
Litigation was completed in the
suits filed by Option Advisory Service, Inc. In Option Advisory Service, Inc. v. Board of Governors, no.
81-4174 (2d Circuit, filed September
24, 1981), petitioner sought review
of the Board's order approving the
application of Midland Bank, Ltd.,
London, England, to acquire Crocker
National Bank, San Francisco, California (Federal Reserve Bulletin, volume 67, September 1981, page 729).
Bank Holding Companies—
On December 28, 1.981, the court of
Antitrust Action
appeals dismissed the petition for
In 1982, the U.S. Department of review on the ground that petitioner
Justice filed no challenges under the lacked standing. On February 18,
antitrust laws of the United States to 1982, the court of appeals awarded
acquisitions or mergers by bank hold- court costs to Midland Bank. On
ing companies that had been ap- June 28, 1982, the Supreme Court
proved by the Board, and as of the denied petitioner's petition for cerend of the year, no such cases were tiorari (50 U.S.L.W. 3998.20).
pending from previous years.
In Option Advisory Service, Inc.
v. Board of Governors, no. 81-4176
(2d Circuit, filed September 24, 1981),
Bank Holding Companies—
petitioner sought judicial review of a
Review of Board Actions
Board order approving the applicaIn Wilshire Oil Company of Texas v. tion of Credit and Commerce AmerBoard of Governors, no. 81-1560 ica Holdings, N.V., Willemstad,
(3rd Circuit, filed April 9, 1981), Netherlands Antilles, to acquire Fipetitioner sought judicial review of a nancial General Bankshares, Inc.,
Board order determining that peti- Washington, D.C. (Federal Reserve
tioner continued to be subject to the Bulletin, volume 67, September 1981,
Bank Holding Company Act and page 737). On December 28, 1981,
directing it to terminate its status as the court of appeals dismissed the
a bank holding company. On Decem- petition for review on the ground
ber 31, 1981, the court of appeals that petitioner lacked standing. Peaffirmed the Board's order (668 F.2d titioner then filed a petition for
732). On February 1, 1982, the court certiorari, which was denied by the
of appeals denied petitioner's request Supreme Court on May 17, 1982 (102
for a rehearing en bane, and on June S. Ct. 2242).
21, 1982, the U.S. Supreme Court
In Option Advisory Service, Inc.



162

Litigation

v. Board of Governors, no. 81-4248
(2d Circuit, filed December 21, 1981),
petitioner sought judicial review of a
Board order approving the application of J.P. Morgan & Co., Inc.,
New York, New York, to acquire
Morgan Bank (Delaware), Wilmington, Delaware (Federal Reserve Bulletin, volume 67, December 1981,
page 917). The action was dismissed
for lack of standing on January 26,
1982.
In First Lakefield Bancorporation
et al. v. Board of Governors, no. 482-8 (D. Minn., filed January 6,
1982), plaintiff sought a declaratory
judgment that its application for
Board approval to acquire First Trust
Bank in Lakefield, Lakefield, Minnesota, had been approved by operation of law because the Board had
failed to act within 91 days of receipt
of the complete record of the application, as required by the Bank
Holding Company Act. By stipulation of the parties, the action was
dismissed with prejudice on June 8,
1982.
In C.A. Cavendes, Sociedad Financiera v. Board of Governors, no.
82-1030 (D.C. Circuit, filed January
8, 1982), petitioner sought judicial
review of the Board's order approving an application by Florida National Banks of Florida, Inc., Jacksonville, Florida, to merge with
Alliance Corporation, Jacksonville,
Florida (Federal Reserve Bulletin,
volume 68, January 1982, page 49).
The Board's order was affirmed without opinion on March 29, 1982 (675
F.2d 1339).
In Gustafson v. Board of Governors, nos. 82-4113 and 82-4213 (5th
Circuit, filed March 24 and June 4,
1982), petitioner seeks judicial review of an order of the Federal
Reserve Bank of Dallas approving



the application of Raymondville State
Bancshares, Inc., Raymondville,
Texas, to acquire Raymondville State
Bank, Raymondville, Texas, pursuant to authority delegated by the
Board of Governors (Federal Reserve
Bulletin, volume 68, April 1982, page
260). The case has been fully briefed
and is awaiting argument.
In First Bancorporation v. Board
of Governors, no. 82-1401 (10th
Circuit, filed April 9, 1982), petitioner seeks judicial review of a
Board order approving petitioner's
application to acquire an industrial
loan company, providing the acquired company does not simultaneously offer negotiable order of withdrawal (NOW) accounts and also
engage in the business of commercial
lending, and that any NOW accounts
offered be subject to reserve requirements and federal limitations on
interest rates (Federal Reserve Bulletin, volume 68, April 1982, page
253). The case has been fully briefed
and is awaiting argument.
In Florida National Banks of Florida, Inc. v. Board of Governors, nos.
82-1483 (D.C. Circuit) and 82-1048
(D.D.C., both filed April 15, 1982),
petitioner sought review of a Board
order, dated April 5, 1982, that
determined not to disapprove—under
the Change in Bank Control Act—
the acquisition of petitioner's shares
by C.A. Cavendes, Sociedad Financiera, Caracas, Venezuela, and that
after such acquisition, Cavendes
would not be considered to be controlling petitioner for purposes of the
Bank Holding Company Act. By
stipulation of the parties, both actions were dismissed with prejudice
on June 11, 1982.
In Wyoming Bancorporation v.
Board of Governors, no. 82-1634
(10th Circuit, filed May 20, 1982),

Litigation
petitioner seeks judicial review of
the Board's order dated April 22,
1982 (Federal Reserve Bulletin, volume 68, May 1982, page 313), disapproving petitioner's application to
acquire the American National Bank
of Powell, Powell, Wyoming. Petitioner challenges the Board's definition of the relevant geographic market for assessing the competitive
impact of this proposal. The case has
been fully briefed and is awaiting
argument.
In Association of Data Processing
Service Organizations, Inc., et al. v.
Board of Governors, nos. 82-1910
and 82-2108 (D.C. Circuit, filed
August 6 and September 20, 1982),
petitioners seek judicial review of
Board orders approving an application by Citicorp, New York, New
York, to engage through a subsidiary
in certain data processing activities
(Federal Reserve Bulletin, volume 68,
August 1982, page 505), and amending the Board's Regulation Y to
designate those activities as closely
related to banking and thus permissible for bank holding companies in
general (Federal Reserve Bulletin,
volume 68, September 1982, page
552). The actions are pending.
Other Litigation Involving
Challenges to Board
Procedures and Regulations
The following cases are arranged either
according to the act under which they
were filed or under the category Employment Actions.
Monetary Control Act of 1980
In First Bank & Trust Co. v. Board
of Governors, no. 81-38 (E.D. Ky.,
filed February 24, 1981), plaintiff
seeks declaratory and injunctive relief from a Board determination that



163

plaintiff is ineligible to qualify for
the phasing-in of reserve requirements on deposits, which is permitted for nonmember banks under the
Monetary Control Act. The parties'
cross-motions for summary judgment
or dismissal are pending.
In Bank Stationers Association et
al. v. Board of Governors, no. C811417A (N.D. Ga., filed July 27,
1981), plaintiffs seek declaratory and
injunctive relief from the fee schedule for automated clearinghouse
services that was adopted by the
Board pursuant to the Monetary
Control Act. By order dated December 22, 1981, the district court dismissed plaintiffs' complaint for lack
of standing. On January 21, 1982,
plaintiffs filed an appeal in the U.S.
Court of Appeals for the Eleventh
Circuit (no. 82-8058). The case has
been fully briefed and is awaiting
decision.
Financial Institutions
Supervisory Act of 1966
In Hall v. Board of Governors, no.
C81-1786A (N.D. Ga., filed September 28, 1981), plaintiff sought declaratory and injunctive relief and compensatory damages in connection with
an order issued by the Board pursuant to the Financial Institutions
Supervisory Act. On March 10, 1982,
the case was transferred to the U.S.
District Court for the Middle District
of Florida. By stipulation of the
parties, the case was dismissed with
prejudice on November 10, 1982.
In Wolfson v. Board of Governors,
no. 81-913 CWTK (M.D. Fla., filed
September 28, 1981), plaintiff seeks
declaratory and injunctive relief and
compensatory damages in connection
with the Board's issuance of an order
pursuant to the Financial Institutions

164

Litigation

Supervisory Act. The Board's motion for summary judgment is pending.
In Gabriel v. Board of Governors,
no. 82-7190 (9th Circuit, filed April
6, 1982), petitioner sought judicial
review of an order of removal and
prohibition issued by the Board pursuant to the Financial Institutions
Supervisory Act. By stipulation of
the parties, the petition for review
was dismissed on July 30, 1982.

bia Circuit reversed the action of the
district court and upheld the Board's
statement under the Glass-Steagall
Act. Petitions for rehearing, filed by
the Securities Industry Association
and by A.G. Becker, Inc., are pending.

Freedom of Information Act

In 9 to 5 Organization for Women
Office Workers v. Board of Governors, no. 80-2905-C (D. Mass., filed
December 30, 1980), plaintiff sought
under the Freedom of Information
Glass-Steagall Act
Act, records from a wage survey
In A.G. Becker Inc. v. Board of conducted by a consortium of emGovernors et al., no. 80-2614 ployers in Massachusetts and used
(D.D.C., filed October 14, 1980), by the Board in approving salaries
and Securities Industry Association v. for the Federal Reserve Bank of
Board of Governors et al, no. 80- Boston. By orders dated December
2730 (D.D.C., filed October 24, 21, 1981, and June 17, September
1980), plaintiffs seek review of a 30, and December 2, 1982, the disBoard statement, dated September trict court partially granted and par26, 1980, denying in part plaintiffs' tially denied each of the parties'
petition that the Board prohibit cross-motions for summary judgBankers Trust Company, a state ment.
member bank, from selling thirdIn Flagship Banks, Inc. v. Board
party commercial paper as an agent
of Governors, no. 82-2920 (D.D.C.,
of the issuer. Plaintiffs also filed
petitions for review of the Board's filed October 12, 1982), plaintiff
statement in the Court of Appeals seeks disclosure of Board records
for the District of Columbia Circuit pertaining to a notice filed pursuant
(nos. 80-2258 and 80-2314, filed to the Change in Bank Control Act.
October 14 and 24, 1980 respec- The Board filed an answer to the
tively). In an opinion and order complaint on November 12, 1982.
dated July 28, 1981 (519 F. Supp.
602), the district court declined to Government in the Sunshine Act
order the Board to initiate enforce- In A.G. Becker, Inc. v. Board of
ment proceedings against Bankers Governors, no. 80-2175 (D.D.C.,
Trust, but invalidated the legal con- filed August 25,1980), plaintiff seeks
clusions in the Board's statement. declaratory and injunctive relief under
The Board and A.G. Becker ap- the Government in the Sunshine Act
pealed the judgment of the district with respect to the Board's determicourt (nos. 81-2070, 81-2058, and nation to exclude the public from a
81-2096).
meeting at which plaintiffs petition
In an opinion and order dated for initiation of enforcement proNovember 2, 1982, the U.S. Court ceedings was discussed. In an order
of Appeals for the District of Colum- and opinion dated November 26,



Litigation
1980 (502 F. Supp. 378), the district
court granted in substantial part the
Board's motion for summary judgment, holding that the Board had
acted properly in closing the meeting
to the public, but had not given
public notice of the meeting at the
earliest practicable time.
Plaintiff appealed the action (no.
81-1493, D.C. Circuit, filed May 4,
1981). The appeal was consolidated
with Board of Governors v. A.G.
Becker, Inc., no. 80-2258 (see the
discussion of cases under the GlassSteagall Act); and in an opinion and
order dated November 2, 1982, the
U.S. Court of Appeals upheld the
Board's action on the merits. Plaintiff's petition for a rehearing is pending.

Administrative Procedure Act

165

motion for summary judgment. In
an opinion and order dated July 13,
1981 (650 F.2d 1093), the U.S. Court
of Appeals for the Ninth Circuit
affirmed the district court's judgment
in favor of the Reserve Bank. On
February 22, 1982, plaintiffs petition
for certiorari was denied by the
Supreme Court (102 S. Ct. 1449).
In Hilliard v. Volcker et al., no.
76-1655 (D.D.C., filed December 8,
1976), the district court, after remand from the Court of Appeals
(659 F.2d 1125), found no grounds
for plaintiffs claim of discrimination
and rendered judgment for the Board
on January 12, 1982.
In Hilliard v. Cooper, no. CA
0950-82 (D.C. S. Ct., filed January
25, 1982), removed to the U.S.
District Court for the District of
Columbia (no. 82-0355), and Hilliard v. Langley, no. CA 1322-82
(D.C. S. Ct., filed February 2,1982),
removed to the U.S. District Court
for the District of Columbia (no. 820454), the court dismissed plaintiffs'
complaints of discrimination by orders dated June 4, 1982, on grounds
of collateral estoppel based on the
prior decision of the district court in
Hilliard v. Volcker et al. (discussed
in previous paragraph).

In Philadelphia Clearing House Association et al. v. Board of Governors, no. 82-3245 (E.D. Pa., filed
July 27, 1982), plaintiffs seek injunctive and other relief under the Administrative Procedure Act with respect to a Board determination to
set a uniform deadline of 12 noon
for presentment of "city items" by
Federal Reserve Banks to depository
institutions for clearing and settlement. The case is pending.
Other Actions
In Berkovitz et al. v. Government of
Employment Actions
Iran, no. C80-0097-WWS (N.D. Cal.,
In Bollow v. Board of Governors et filed June 13, 1980), plaintiffs seek
al, no. C76-977 (N.D. Cal., filed to impose a trust on the assets of the
May 12, 1976), a former employee government of Iran and to recover
of the Federal Reserve Bank of San damages in connection with the death
Francisco sought damages and other of Martin Berkovitz, a U.S. citizen.
relief against the Board and the In September 1981, the court entered
Reserve Bank in connection with the a stipulated stay of all proceedings
termination of his employment. By pending further order of the court.
order dated September 23, 1977, the
In Gordon v. Heimann et al., nos.
district court granted the Board's C8O-1265A (N.D. Ga., filed July 25,



166

Litigation

1980) and 81-288A (N.D. Ga., filed
February 15, 1981), plaintiff sought
damages from 44 defendants in connection with alleged violations of the
Securities Act of 1933, the Securities
Exchange Act of 1934, and the Racketeer Influenced and Corrupt Organizations Act (RICO). The two actions were dismissed by the district
court, by orders dated December 2,
1980, and May 28, 1981 respectively.
By orders dated September 25, 1981,
the district court awarded attorneys'
fees to certain defendants in both
cases and denied them to certain
defendants in no. C8O-1265A.
Plaintiffs appeals from the district
court's orders of September 25, 1981
(nos. 81-8017 and 81-8018) were
consolidated before the U.S. Court
of Appeals for the Eleventh Circuit
with cross-appeals from the defendants denied attorneys' fees (no.
C80-1265A). The case is pending.
In Public Interest Bounty Hunters
v. Board of Governors; no. C811184A (N.D. Ga., filed June 25,
1981), plaintiff alleges that various
Board actions violate the Bank Holding Company Act and the GlassSteagall Act. On November 29, 1982,
plaintiff appealed the district court's
orders dated June 23, 1982, dismissing the action, and September 30,
1982, awarding attorneys' fees to the
defendant.
In Christian Educational Association , Inc. v. Federal Reserve System,
no. 82-88 CIV-T-H (M.D. Fla.,
filed January 29, 1982), plaintiff
sought declaratory and other relief
in connection with the issuance of
Federal Reserve notes as legal tender.
The Board's motion to dismiss, filed
March 29, 1982, was granted by the
court on June 11, 1982.
In Vick v. Volcker, no. 82-0592
(D.D.C., filed March 2,1982), plain


tiff seeks damages and other relief in
connection with the alleged unconstitutionally of the Federal Reserve
Act. The district court dismissed the
complaint for lack of standing. Plaintiff filed notices of appeal (D.C.
Circuit: nos. 82-1504, 82-1505, 821506, and 82-1510), and the appeals
are stayed pending the filing of
plaintiffs motion to proceed in forma
pauperis in the district court.
In Richter v. Board of Governors
etal, no. 82-C-3150 (N.D. 111., filed
May 21, 1982), plaintiff seeks injunctive relief in connection with the
Board's conduct of national monetary policy. The Board's motion to
dismiss is pending.
In Montgomery v. State of Utah et
al., no. C82-1504 W (D. Utah, filed
May 3, 1982), plaintiff sought declaratory and other relief with respect to
the issuance of Federal Reserve notes
as legal tender. Following a hearing
on the Board's motion to dismiss,
the district court dismissed the complaint.
In Bowler v. Treasurer of the
United States et al9 no. 82-0151-B
(D. Me., filed July 15, 1982), plaintiff seeks relief in connection with
the alleged unconstitutionality of issuance of Federal Reserve notes as
legal tender. The district court granted
the Board's motion to dismiss by
order dated November 17, 1982.
Plaintiffs appeal from the order is
pending in the U.S. Court of Appeals
for the First Circuit (no. 82-1879).
In Hay ton v. State of Utah et al.y
no. C82-6595 (D. Utah, filed September 10, 1982), plaintiff seeks
declaratory, injunctive, and compensatory relief in connection with the
alleged unconstitutionality of issuance of Federal Reserve notes as
legal tender. The Board's motion to
dismiss is pending.

167

Legislation Enacted
Export Trading Company Act
Public Law 97-290, approved October 8, 1982, consists of four titles.
1. Title I, the Export Trading
Company Act of 1982, encourages
the formation and operation of export trading companies to promote
exports.
2. Title II, the Bank Export Services Act of 1982, amends section 4
of the Bank Holding Company Act
to permit bank holding companies
and bankers' banks, and Edge and
Agreement corporations that are
subsidiaries of bank holding companies, to invest in export trading
companies pursuant to Federal Reserve regulation.1 Investment by
banking institutions in export trading
companies generally is subject to a
prudential limit of 5 percent of the
institution's consolidated capital and
surplus.
Title II also increases the statutory
ceiling on eligible bankers acceptances to 150 percent of a member
bank's capital and surplus without
prior Board approval and to 200
percent with Board approval. These
ceilings apply also to U.S. branches
and agencies of foreign banks that
are covered by section 7 of the
International Banking Act of 1978.
3. Title III (Export Trade Certificates of Review) establishes proce1. Under this act bankers' banks are defined
as depository institutions that are organized
solely to do business with other financial
institutions; that are owned primarily by the
financial institutions with which they do business; and that do not do business with the
general public.



dures for the Secretary of Commerce, with the concurrence of the
Attorney General, to issue certificates of review to export trading
companies. Such a certificate protects its holder from criminal and
civil antitrust actions for conduct that
is specified in, and complies with the
terms of, the certificate.
4. Title IV, the Foreign Trade
Antitrust Improvements Act of 1982,
amends the Sherman Act and the
Federal Trade Commission Act to
supplement the antitrust certification
provisions in Title III.
Garn-St Germain
Depository Institutions Act
Public Law 97-320, the Garn-St
Germain Depository Institutions Act
of 1982, approved October 15, 1982,
consists of eight titles.
Title I, the Deposit Insurance
Flexibility Act, expands the authority
of the Federal Deposit Insurance
Corporation (FDIC) and the Federal
Savings and Loan Insurance Corporation (FSLIC) to deal with the
unusual financial pressures that many
depository institutions now face.
Among other things, the Deposit
Insurance Flexibility Act does the
following:
1. Permits the FDIC and the FSLIC
to provide capital assistance to insured commercial banks or savings
banks and to insured savings and
loan associations respectively when
severe financial conditions threaten
the stability of a number of insured
institutions or of insured institutions
with significant resources. The agencies may provide such assistance if it

168

Legislation Enacted

would lessen the risk of loss to the
insurance funds.
2. Expands the forms of permissible capital assistance.
3. Expands the powers of the
regulatory agencies to facilitate
mergers between depository institutions through the conversion of mutual organizations to stock form.
4. Under certain conditions, permits the acquisition by out-of-state
thrift institutions or bank holding
companies of insured savings and
loan associations, closed insured
commercial banks with assets of $500
million or more, and insured savings
banks with assets of $500 million or
more that have failed or are in
danger of failing.
Certain provisions of Title I expire
three years after the date of enactment.
Title II, the Net Worth Certificate
Act, authorizes the FDIC and the
FSLIC to increase or maintain the
capital of troubled, qualified depository institutions through the purchase of net worth certificates. The
authority to purchase additional net
worth certificates expires three years
from the date of enactment.
Title III, the Thrift Institutions
Restructuring Act, expands the lending, investment, and liability powers
of federally chartered thrift institutions. This title includes the following
provisions, among others:
1. Authorizes federal savings and
loan associations and savings banks
to invest up to 10 percent of assets
in commercial loans and expands
their consumer lending authority.
2. Requires the elimination of the
differential on deposit interest rate
ceilings in favor of thrift institutions
on or before January 1, 1984.
3. Directs the Depository Institutions Deregulation Committee to es


tablish, within 60 days of enactment,
an account that is "directly equivalent to and competitive with money
market mutual funds."
4. Preempts state laws prohibiting
enforcement of due-on-sale provisions, except for a limited period of
time specified in the law.
Title IV amends various statutes
relating to national and state member
banks. It includes the following provisions, among others:
1. Increases the lending limit for a
single borrower for national banks
from 10 to 15 percent of unimpaired
capital and surplus, with an additional 10 percent if the loan is fully
secured by marketable collateral. The
new limits are subject to a number
of exceptions.
2. Revises section 23A of the
Federal Reserve Act, governing loans
to affiliates of member banks and
other FDIC-insured institutions, to
do the following, among other things:
(a) Limit the aggregate amount
of "covered transactions" between a
bank and any one affiliate to 10
percent of the bank's capital and
surplus (20 percent in the case of all
affiliates).
(b) Require that covered transactions between a bank and its affiliates be on terms and conditions
consistent with safe and sound banking practices.
(c) Eliminate restrictions on
transactions among most bank subsidiaries of a holding company, except for the restriction on the purchase of low-quality assets.
(d) Expand the definition of
"affiliate" to include, among other
things, any organization sponsored
and advised on a contractual basis
by a bank or its affiliates and any
investment company advised by a
bank or its affiliates.

Legislation Enacted
(e) Expand the types of collateral permitted on bank loans and
extensions of credit to affiliates, while
requiring that these new types of
collateral have a high value relative
to the loan.
3. Exempts all depository institutions from reserve requirements on
the first $2 million of liabilities on
which reserves are required. The
exemption is indexed and will increase annually by a dollar amount
calculated by applying to the $2
million 80 percent of the percentage
increase in the total liabilities of all
depository institutions that are subject to reserves.
4. Amends the Financial Institutions Regulatory and Interest Rate
Control Act of 1978 to do the following, among other things:
(a) Eliminate the statutory limitations on loans by member banks to
their executive officers for purchasing their own homes and for their
children's education. The $10,000
limit on loans for any other purpose
is replaced by authority to bank
regulators to set an appropriate limit.
(b) Replace the $25,000 limit
above which loans to insiders must
be approved by the board of directors with an authorization for bank
regulators to set an appropriate limit.
(c) Authorize the bank regulators to develop alternative reporting
and disclosure requirements for bank
loans to insiders. When the new requirements are effective, the existing
requirements will be repealed.
5. Extends the deadline for bank
holding companies to divest real
estate or interests in real estate from
December 31, 1982, to December
31, 1984.
Title V amends the Federal Credit
Union Act to provide greater operating flexibility for federal credit



169

unions and for the National Credit
Union Administration.
Title VI amends the Bank Holding
Company Act to prohibit bank holding companies from providing insurance as underwriter, agent, or broker. Exceptions to the general
prohibition include the following,
among other things:
1. Any insurance agency activity
engaged in by a bank holding company with consolidated assets of less
than $50 million.
2. Any insurance agency activity
engaged in by a bank holding company before May 1, 1982, and certain
expansions of those activities.
3. Any insurance agency activity
in communities of less than 5,000 or
in any place in which the bank
holding company demonstrates that
insurance agency facilities are inadequate.
4. Activity as underwriter, agent,
or broker with respect to credit life,
credit disability, and involuntary unemployment insurance in connection
with an extension of credit.
5. Sale of property insurance on
loan collateral by finance company
subsidiaries. The insurance must be
limited to repayment of the outstanding balance on the loan and may not
exceed $10,000 ($25,000 if the loan
is for the purchase of a mobile
home).
Title VII contains miscellaneous
changes to various statutes that,
among other things, do the following:
1. Exempt certain student loans
from the Truth in Lending Act and
exclude arrangers of credit, including
real estate brokers and loan brokers,
from the definition of "creditor" in
the Truth in Lending Act.
2. Authorize negotiable order of
withdrawal accounts for all federal,
state, and local public units.

170

Legislation Enacted

3. Permit bank service corporations to engage in certain nonbanking
activities, with the prior approval of
the Board of Governors.
4. Designate the Federal Reserve
Board building as the Marriner S.
Eccles Federal Reserve Board Building.
5. Require each of the federal
deposit insurance agencies to conduct a study of the current system of
federal deposit insurance and transmit a report to the Congress within
six months of the date of enactment.
The studies are to include, among
other things, the feasibility of the
following:
(a) Offering depositors the option to purchase additional deposit
insurance.
(b) Basing deposit insurance
premiums on risk.
(c) Consolidating the three separate insurance funds.




Title VIII, the Alternative Mortgage Transaction Parity Act of 1982,
authorizes nonfederally chartered
housing creditors to offer alternative
types of mortgages in order to achieve
parity with federally chartered institutions.

Continuing Appropriations
Public Law 97-377, the Further Continuing Appropriations Act, approved December 21, 1982, contains
a provision declaring it to be the
sense of the Congress that the Federal Reserve, with due regard for
controlling inflation, should continue
to take such actions as are necessary
to achieve and maintain a level of
interest rates low enough to generate
significant economic growth and
thereby reduce the current intolerable level of unemployment.

171

Banking Supervision and Regulation
One of the Federal Reserve's principal responsibilites is the supervision
and regulation of commercial banking organizations. In carrying out its
duties, the Federal Reserve supervises and regulates state member
banks; bank holding companies and
their nonbank subsidiaries; the international activities of banks and bank
holding companies; and the U.S.
banking and nonbanking activities of
foreign banks. Many of these supervisory activities are conducted in
coordination with other federal and
state regulatory agencies. A description of how the System fulfilled these
responsibilities during 1982 follows.
Supervision for
Safety and Soundness
The Federal Reserve conducts three
main types of supervisory activities
to ensure the safety and soundness
of financial institutions: on-site examinations and inspections, surveillance and monitoring activities, and
enforcement and other supervisory
actions.
Examinations and Inspections
The on-site review of operations is
the primary mechanism for ensuring
the safety and soundness of financial
institutions. Examinations or inspections of these operations entail (1)
an appraisal of the quality of the
institution's assets; (2) an evaluation
of management, along with internal
operations, policies, and procedures;
(3) an assessment of the key financial
factors of capital, earnings, asset and
liability management, and liquidity;



and (4) a review for compliance with
applicable laws and regulations.1
State Member Banks
The Federal Reserve is the primary
federal supervisor and regulator of
state-chartered commercial banks that
are members of the System. At the
end of 1982, there were 1,040 state
member banks, accounting for about
7 percent of all insured commercial
banks. Because these banks typically
were larger than the average, they
held around 18 percent of total assets
of insured commercial banks.
State member banks are examined
every 18 months, except when significant weaknesses or other conditions
call for more frequent examination.
In 1982, System personnel conducted
809 examinations, many jointly or
concurrently with examiners from
state regulatory agencies.
Bank Holding Companies
During 1982, the number of bank
holding companies increased by 853
to a total of 4,557. These organizations control commercial banks that
hold about 84 percent of the total
assets of insured commercial banks
in the United States.
1. The Board's Division of Consumer and
Community Affairs handles compliance with
consumer and civil rights laws through the use
of specially trained examiners at the Federal
Reserve Banks. These regulatory responsibilities are covered in the "Consumer and
Community Affairs" section of this REPORT.
Compliance with other statutes and regulations, which is treated in this section, is the
responsibility of the Board's Division of Banking Supervision and Regulation and of the
Reserve Bank examiners, who check for safety
and soundness.

172

Banking Supervision and Regulation

U.S. activities of foreign banks. In
recent years, foreign entities have
rapidly expanded their operations in
the United States; today they are a
significant element in the U.S. banking system. As of December 31,
1982, 205 foreign banks operated 338
state-licensed uninsured branches and
agencies, 31 state-licensed branches
insured by the Federal Deposit Insurance Corporation, and 53 branches
and agencies licensed by the Office
of the Comptroller of the Currency
(of which 2 have FDIC insurance).
Foreign banks also owned a controlInternational Activities
Edge and Agreement corporations. ling interest in 69 U.S. subsidiary
Edge corporations are chartered by banks. Altogether, these foreign
the Board to conduct an interna- banks controlled 14.4 percent of U.S.
tional banking business to provide banking assets as of June 30, 1982.
The Federal Reserve has broad
all segments of the U.S. economy
with a means of financing interna- residual and oversight authority for
tional trade, in particular exports. the supervision and regulation of
Agreement corporations are state- foreign banks that engage in banking
chartered companies that enter into in the United States through branches,
an agreement with the Board to limit agencies, commercial lending comtheir operations to international panies, and subsidiary banks. In
banking. During 1982, the Federal fulfilling this responsibility, the FedReserve conducted 112 examinations eral Reserve relies on examinations
of Edge and Agreement corporations conducted by the appropriate federal
regulatory agency for insured branches
and their branches.
Overseas operations of U.S. bank- and for federally licensed branches
ing organizations. Examinations of and agencies, or commercial bank
the international operations of state subsidiaries; and by the appropriate
member banks, Edge corporations, state authority for state-licensed
and bank holding companies are branches and agencies. Although the
conducted at the banking organiza- states have primary authority for
tion's head office in the United examining state-licensed uninsured
States, where the ultimate responsi- branches and agencies, the Federal
bility for overseas facilities lies. To Reserve participated in the examiverify and supplement the results of nation of 118 such offices in 1982.
the head-office examinations, on-site
reviews of important overseas facilities are performed at least every 3
years. In 1982, the Federal Reserve Specialized
examined 12 foreign branches of Examinations
state member banks and 10 overseas The Federal Reserve conducts spesubsidiaries of Edge corporations and cialized examinations in the followbank holding companies.
ing areas of bank activity.
Most large bank holding companies, as well as small companies with
significant nonbank assets, are inspected at least every eighteen
months, others at least every three
years. The inspection focuses on the
operations of the parent holding
company and its nonbank subsidiaries; the subsidiary banks are examined by their federal banking regulatory agency. During the year,
System staff conducted 1,273 inspections of bank holding companies.




Banking Supervision and Regulation
Electronic Data Processing
The Federal Reserve examines the
electronic data processing (EDP) activities of state member banks, as
well as independent centers that
provide EDP services to these banks.
During the year, System EDP examiners conducted 296 on-site reviews of state member banks and
independent data centers. In addition, the Federal Reserve reviewed
96 EDP examination reports of independent centers providing EDP
services to state member banks that
were prepared by other federal agencies under the Interagency EDP Examination Program.
Trust Activities
The Federal Reserve examines trust
departments of state member banks,
trust companies that are members of
the Federal Reserve System, and
certain nondepository trust-company
subsidiaries of bank holding companies. These examinations review the
trust functions to ensure they are
conducted in accordance with applicable fiduciary principles and with
laws and regulations. During the
year, the Board examined 305 institutions that exercise trust powers
under its supervision.
Municipal Securities Dealers
and Clearing Agents
Under the Securities Acts Amendments of 1975, the Board is responsible for supervising state member
banks and bank holding companies
that act as municipal securities dealers or as clearing agencies. In 1982,
the Board examined 34 of the 50
state member banks registered with
the Board as dealing in municipal
securities for their trading accounts.
A clearing agency acts as a custodian of securities for the settlement
of securities transactions by book


173

keeping entries. The three agencies
registered with the Board were examined in 1982; one examination
was conducted jointly with the Securities and Exchange Commission.
Transfer Agents
System examiners conduct separate
reviews of state member banks and
bank holding companies that act as
transfer agents. Transfer agents
countersign and monitor the issuance
of securities, register the transfer of
securities, and exchange or convert
securities. During 1982, the Board
examined 137 such banks and bank
holding companies.
Improvements to
Examinations and Inspections
During the year, the Federal Reserve
took a number of steps to enhance
its examination and inspection programs.
New Examination Report
for Commercial Banks
In recent years, it has become evident that a new format for reports
was required to respond to developments in the banking industry. To
meet that need, in 1982 the Federal
Reserve adopted a new report for
commercial bank examinations conducted after January 1, 1983.
The report was designed to respond to changing banking practices,
particularly with respect to funding
and asset-liability management, and
to place additional emphasis on the
evaluation of management policies,
procedures, and internal systems and
controls. Each examination report
makes extensive use of data from
reports of condition and income filed
by state member banks and from the
uniform bank performance report,
as well as information obtained di-

174

Banking Supervision and Regulation

rectly from the bank under examination. The report balances the presentation of these data with written
analyses of important aspects of the
bank's management, loan quality,
and financial condition. In addition
to asset quality and liquidity, the
report emphasizes the analysis of
interest rate sensitivity and off-balance-sheet items of banks, and incorporates the revised definition and guidelines relating to capital adequacy
that were implemented in 1982.
Because the report makes extensive
use of readily available data, it will
result in more efficient examinations
and will free examiners to devote
more time to the review of problem
areas requiring supervisory attention.
Supervisory Reporting
Requirements
During the year, the Federal Reserve
participated with the other federal
banking regulators under the auspices of the Federal Financial Institutions Examination Council (FFIEC)
in developing quarterly schedules to
be completed by commercial banks
in conjunction with the reports of
condition and income.2 These reports
will be of particular importance to
the supervisory and examination
processes. One such schedule, ''Repricing Opportunities for Selected
Balance Sheet Categories," provides
information that will assist examiners
in analyzing the interest rate sensitivity of banks' earning assets and
interest-bearing liabilities, and the
effect of interest rate changes on a
2. The Federal Financial Institutions Examination Council is composed of the Comptroller of the Currency, the Federal Deposit
Insurance Corporation, the Federal Home
Loan Bank Board, the National Credit Union
Administration, and the Board of Governors
of the Federal Reserve System.



bank's condition. Another, "Commitments and Contingencies," provides information that will help examiners assess the potential impact
that off-balance-sheet items—such as
loan commitments, foreign exchange
contracts, interest rate futures contracts, and letters of credit might
have on a bank's financial condition.
The FFIEC also developed and
implemented a quarterly schedule on
past-due, nonaccrual, and renegotiated loans and leases, which bear
on the quality of a bank's loan
portfolio. In carrying out these
changes, the regulatory agencies attempted to balance the needs for
better and more timely supervisory
information and for minimizing the
reporting burden.
Definition of Bank Capital and
Capital Adequacy Guidelines
Nineteen eighty-two marked the first
full year of applying the broadened
definition of bank capital in determining its adequacy in state member
banks. The FFIEC recommended the
definition to promote uniformity
among federal bank regulators and
to provide guidance to commercial
banks. Under the new definition,
bank capital consists of primary capital and secondary capital. Primary
capital comprises common and perpetual preferred stock, surplus and
undivided profits, contingency and
other capital reserves, mandatory
convertible instruments, and 100 percent of the funds set aside as reserves
for possible loan losses. Secondary
capital comprises limited-life preferred stock, and subordinated notes
and debentures; however, there are
restrictions upon the amount of these
less permanent funds that may be
counted as part of a bank's capital
structure.

Banking Supervision and Regulation
This was also the first full year of
implementing the new ratio guidelines issued by the Federal Reserve
and the Office of the Comptroller of
the Currency (OCC) for assessing
the adequacy of capital in the examination and supervision of national
banks, state-chartered banks that are
members of the Federal Reserve
System, and bank holding companies. The guidelines address the longterm decline in capital ratios, particularly those of certain large multinational banks; introduce greater
uniformity in the supervisory assessment of capital adequacy; provide
banks and holding companies with
direction for capital and strategic
planning; and permit some reduction
of the disparities in capital ratios
between banking organizations of
different size. In general, the guidelines apply to sound, well-managed
organizations and will be applied so
as to allow for differences in the
risks assumed by institutions.
Criteria for Determining
Primary Capital Status of
Mandatory Convertible Securities

In 1982, the Federal Reserve and the
OCC jointly adopted criteria for
determining whether debt securities
that require conversion to, or the
issuance of, equity can qualify as
part of the primary capital of a
banking organization in an assessment of that organization's compliance with the capital adequacy guidelines. Two types of these securities
were issued during the year, equity
notes and equity commitment notes.
Equity notes require the holder to
buy the common stock or perpetual
preferred stock of the issuer. Equity
commitment notes require the issuer
to sell sufficient equity over the life
of the security to liquidate the debt.



175

The criteria adopted to evaluate
these securities include provisions
that ensure the issuance of equity
capital within a certain period of
time and that limit the total amount
of such securities an organization
may include in its primary capital.
Coordination of Examinations
of Large Banks and Their
Parent Holding Companies
In December 1981, the Federal Reserve and the OCC agreed to conduct
certain examinations concurrently,
and in 1982 the Federal Deposit
Insurance Corporation (FDIC) entered the agreement. The Federal
Reserve, the OCC, and the FDIC
plan to implement the new agreement in 1983. Under the agreement,
bank holding companies with more
than $1 billion in consolidated assets
and their lead national or state nonmember bank subsidiaries are to be
examined concurrently on an annual
basis by the Federal Reserve and the
OCC when a lead national bank is
involved, and by the Federal Reserve
and the FDIC when the lead bank is
a state nonmember bank. The purpose of the program is to strengthen
coordination and consistency in the
supervision of large banking organizations. The program is also expected to enhance cooperation among
the federal banking agencies, to eliminate duplication, and to reduce the
burden of multiple examinations on
commercial banks and their parent
companies.
New Manual on Bank Use of
Certain Financial Contracts
In 1982, the Board's Division of
Banking Supervision and Regulation
developed and implemented a new
manual for examiners, ''Manual for
Examination of Bank and Bank
Holding Company Use of Interest

176

Banking Supervision and Regulation

Rate Futures and Forward Contracts." The manual contains procedures for verifying compliance with
the Board's policy statements governing bank and bank holding company activities in futures and forward
contracts. The policy and manual are
designed to ensure that the involvement of banks and holding companies in interest rate futures and
forward transactions is in accordance
with safe and sound banking practices and is undertaken for the purpose of limiting or hedging banking
risks.
Revised Examination
Report and Manual,
and New Rating System,
for Edge Corporations
During 1982, the Federal Reserve
revised its examination report for
Edge corporations and the accompanying manual to reflect changes in
the structure of these organizations
resulting from branching. In addition, a new system for rating the
financial condition and management
performance of Edge corporations
involved in banking activities was
implemented. The rating system
closely parallels the CAMEL system
used in rating commercial banks, but
places special emphasis on rating the
quality of assets, earnings, and management.3 These components are
rated on a scale of 1 through 5, in
descending order of performance,
and a composite rating is also calculated. The new rating system will
summarize important information
about the financial condition of Edge
corporations and will help focus supervisory efforts on companies with
financial deficiencies.
3. CAMEL refers to the rating system used
by the federal supervisory agencies to assess
the financial condition of commercial banks.



Examination Guidelines for
Retail Repurchase Agreements
In light of the increased use by
banking organizations of retail repurchase agreements (RPs) involving
U.S. government or agency securities, the Federal Reserve developed
guidelines concerning this activity to
be used in the examination of state
member banks. In addition, the Federal Reserve sent a letter to each
state member bank addressing the
issues and risks associated with retail
RPs, as well as setting forth certain
disclosure guidelines and requirements to ensure that retail RPs are
not misconstrued or misrepresented
as insured bank deposits.
EDP Examinations
In 1982, the Federal Reserve, in
conjunction with the other agencies
of the FFIEC, issued a statement to
all financial institutions emphasizing
the importance of obtaining and
analyzing financial data on their institution's independent data processing servicers. In addition, each agency
adopted a uniform examination program for multiregional data processing servicers (MDPS). Under the
program, major data processing servicers with centers across the country
are examined on a nationwide, consolidated basis. The program eliminates duplication of effort, fosters
cooperation and uniformity, and reduces the burden of multiple examinations on data processing servicers.
In addition, the Federal Reserve
and the FDIC adopted new guidelines and procedures for the supervision of electronic fund transfer
systems (EFTS) of state-chartered
banks. The banking industry's rapid
expansion of retail and wholesale
EFTS services necessitated the revision of previous guidelines.

Banking Supervision and Regulation

Surveillance and
Monitoring Program
The Federal Reserve System performs computer surveillance of member banks on a quarterly basis and
of large bank holding companies on
a semiannual basis. Current financial
reports of banks and bank holding
companies are screened periodically
at the Board and sent to the Reserve
Banks, which do the financial analysis and take any corrective action.
If surveillance indicates that a
bank or bank holding company is in
good financial condition and that
there is no trend toward serious
deterioration in its key financial ratios, then the time between on-site
examinations of these organizations
may be lengthened. On the other
hand, if surveillance suggests a poor
and deteriorating financial condition,
the banking organization is likely to
have its examination date accelerated. During 1982, the Board revised
its bank holding company performance report (BHCPR) and developed a user's guide to conform to
the FFIEC's uniform bank performance report. Since its introduction,
the BHCPR has been successfully
used by the federal regulatory agencies as well as some state banking
regulatory agencies.

177

Board may also assess civil money
penalties for violations of a ceaseand-desist order, of the Bank Holding Company Act, or of certain
provisions of the Federal Reserve
Act.
In 1982, the Reserve Banks recommended or initiated 44 enforcement actions, most dealing with unsafe or unsound banking practices;
30 were completed by year-end. In
connection with the completed actions, the Board issued 15 cease-anddesist orders and entered into 23
written agreements: 17 involved
banks; 13, bank holding companies
or their subsidiaries; and 8, individuals participating in the affairs of the
financial institutions.
In 1982, the Board collected ten
civil money penalties totaling $540,900
and assessed, but did not fully collect, an additional civil money penalty. Of the total, one was paid by a
bank, two were paid by or assessed
against bank holding companies, and
eight were paid by individuals.
The Board made available to the
public a description of all formal
supervisory actions completed during
the year and the reasons for them.
This action was taken to achieve the
fullest public disclosure of information consistent with valid concerns of
confidentiality.

Enforcement Actions and
Civil Money Penalties

Staff Training

Under the Financial Institutions Supervisory Act of 1966, the Board of
Governors has the authority to enter
into written agreements or ceaseand-desist actions with state member
banks, bank holding companies, and
persons associated with such organizations that engage in unsafe or
unsound practices or that violate
applicable laws or regulations. The

System training continued to emphasize analytical and supervisory themes
common to the four areas of supervision and regulation—examinations,
inspections, applications, and surveillance—and to stress areas of interdependence. During 1982, the
Federal Reserve conducted fourteen
schools, seven of which offered core
banking courses—two introductory,




178

Banking Supervision and Regulation

three intermediate, and two ad- state banking activities of these forvanced. Other schools included two eign banks and for foreign banks
dealing with credit analysis—a new that control a U.S. subsidiary comsubject—two with bank holding com- mercial bank.
pany applications, two with consumer compliance, and one with a Bank Holding Company Act
financial analysis program for senior By law, a company must obtain the
examiners. The two credit analysis Board's approval to form a bank
schools were held in Washington and holding company by securing control
were followed by regional programs of one or more banks. Moreover,
at four Reserve Banks for 115 stu- once formed, a bank holding comdents. Additional training programs pany must receive the Board's apin specialized areas, including trusts, proval before acquiring more banks
international banking, electronic data or related nonbanking companies.
processing, activities of municipal
In reviewing an application filed
securities dealers, management, and
by a bank holding company, the
instructor training, were conducted
Board considers the convenience and
by the FFIEC.
needs of the community, the appliIn 1982, 516 employees completed cant's financial and managerial reSystem training programs and 214 sources, the prospects of both the
completed FFIEC courses. As in applicant and the firm to be acprevious years, staff from state bank- quired, and the likely effects of the
ing departments and several foreign proposal on competition.
central banks also attended the SysIn 1982, the Board—and, under
tem schools.
delegated authority, the Federal Reserve Banks, the Director of the
Regulation of
Board's Division of Banking SuperU.S. Banking Structure
vision and Regulation, and the
The Board of Governors administers Board's Office of the Secretary—
the Bank Holding Company Act, the acted on 2,401 bank holding comBank Merger Act, and the Change pany applications. The System apin Bank Control Act. In doing so, proved 1,086 proposals to organize
the Federal Reserve acts on a variety holding companies and denied 3;
of proposals that directly or indi- approved 418 bank acquisitions by
rectly affect U.S. banking structure existing bank holding companies and
at the local, regional, and national denied 4; and approved 839 requests
levels. The Board also has primary to acquire nonbank companies that
responsibility for regulating the in- are closely related to banking and
rejected 3. Data on holding company
ternational operations of domestic decisions are shown in the accompabanking organizations and of the nying table.
U.S. operations of foreign banks that
engage in banking in the United
States, either directly through a branch Bank Merger Act
or agency, or indirectly through a The Bank Merger Act requires that
subsidiary commercial lending com- all proposed bank mergers receive
pany. In addition, the Board has the prior approval of the appropriate
established regulations for the inter- federal bank regulatory agency. If



Banking Supervision and Regulation

179

Bank Holding Company Decisions by the Federal Reserve,
Domestic Applications, 1982
Direct action

Proposal

B o a r d of
Governors

Delegated authority
Office of
Federal
Division Director1
the
Reserve Banks
Secretary

Total

A p p r o v e d | D e n i e d Approved Denied Approved Approved Permitted

Formation of
holding
company
Retention of bank.
Acquisition
Bank
Nonbank
Merger of holding
company
Other
Total

47

3

...

...

8

1,031
1

. . .
...

1,089
1

26
60

4
3

...
...

...
...

53
6

339
111

...
662

422
842

12
5

1
1

...
7

...
2

2
...

17
...

...
...

32
15

150

12

7

2

69

1,499

662

2,401

1. This heading refers to decisions approved or denied
by the Director of the Division of Banking Supervision and Regulation.

the bank surviving the merger is a
state member bank, the Federal Reserve has primary jurisdiction.
Before approving a bank merger,
the Federal Reserve considers the
community's convenience and needs,
the financial and managerial resources and prospects of the existing
and proposed institution, and the
competitive effects of the proposal.
The Board must also consider the
views of certain other agencies on
the competitive factors involved in
the transaction.
During 1982, the Federal Reserve
approved 52 merger applications: 3
were approved by the Board, 2 by
the Secretary of the Board under
delegated authority, and 47 by the
Reserve Banks under delegated authority. As required by law, each
merger is described in table 18 in the
Statistical Tables section of this REPORT.

When the Comptroller of the Currency or the Federal Deposit Insurance Corporation has jurisdiction
over a merger, the Board is asked to
comment on the competitive factors
to assure comparable enforcement of



the antimonopoly provisions of the
act.
On behalf of the Board, the Reserve Banks submitted 736 reports
on competitive factors to the Comptroller of the Currency and the FDIC.
The Board and those agencies have
adopted standard terminology for
assessing competitive factors in bank
merger cases to assure consistency in
administering the Bank Merger Act.
Change in Bank Control Act
The Change in Bank Control Act of
1978 gave the federal banking agencies the authority to disapprove
changes in the control of banks and
bank holding companies. The Federal Reserve is the agency responsible for changes in the control of state
member banks and bank holding
companies. Factors to be considered
in determining whether a transfer of
control should be denied include the
financial condition, competence, experience, and integrity of the acquiring person, and the effect on competition.
In 1982, 152 changes in ownership

180

Banking Supervision and Regulation

of the stock of state member banks
and holding companies were reported; all but four were processed
by the Reserve Banks. There was
only one denial.
International Activities of
U.S. Banking Organizations
The Board has three principal statutory responsibilities in supervising
the international operations of U.S.
banking organizations: to issue licenses for foreign branches of member
banks and regulate the scope of their
activities; to charter and regulate
Edge corporations and their investments; and to authorize and regulate
overseas investments by member
banks, Edge corporations, and bank
holding companies.
Foreign Branches of Member Banks
Under provisions of the Federal Reserve Act and Regulation K, member
banks may establish branches in foreign countries subject, in most cases,
to the Board's prior approval. In
reviewing proposed foreign branches,
the Board considers the requirements of the governing statute, the
condition of the bank, and the bank's
experience in international business.
In 1982, the Board approved the
opening of 43 foreign branches.
By the end of 1982, 163 member
banks were operating 877 branches
in foreign countries and overseas
areas of the United States, a net
increase of 36 from the revised figure
for 1981. One hundred twenty-nine
national banks were operating 744 of
these branches, while 34 state member banks were operating the remaining 133 branches.
International Banking Facilities

Effective December 3, 1981, the
Board amended its Regulations D



and Q to permit the establishment
of international banking facilities
(IBFs) in the United States. Subject
to conditions specified by the Board,
IBFs may be established by U.S.
depository institutions, by Edge and
Agreement corporations, and by U.S.
branches and agencies of foreign
banks.
An IBF is essentially a set of asset
and liability accounts that is segregated from other accounts of the
establishing office. In general, deposits from and credit extended to
foreign residents or other IBFs can
be booked at these facilities free
from domestic reserve requirements
and interest rate limitations. By the
end of 1982, 430 offices had established IBFs.
Edge and Agreement Corporations
Under sections 25 and 25(a) of the
Federal Reserve Act, Edge and
Agreement corporations may engage
in international banking and foreign
financial transactions. These corporations, which are usually subsidiaries of member banks, provide their
owner organizations with additional
powers in two areas: (1) they may
conduct a deposit and loan business
in states other than that of the
parent, provided that the business is
strictly related to international transactions; and (2) they have somewhat
broader foreign investment powers
than member banks, being able to
invest in foreign financial organizations, such as finance companies and
leasing companies, as well as in
foreign banks. In 1982, the Board
approved the establishment of 9 Edge
corporations and 1 Agreement corporation, and the operations of 25
branches by established Edge corporations. The Board requires each
Edge corporation that is engaged in

Banking Supervision and Regulation
banking to maintain a ratio of equity
to risk assets of at least 7 percent.
At midyear, half of the banking
corporations had ratios that were
more than twice this minimum.
Foreign Investments
Under authority of the Federal Reserve Act and the Bank Holding
Company Act, in 1982 the Board
authorized 118 foreign investments
by member banks, Edge and Agreement corporations, and bank holding
companies. Most were for additional
investments in financially related
companies.
Export Trading Companies
In 1982, the Bank Export Services
Act amended section 4 of the Bank
Holding Company Act to permit
bank holding companies, their subsidiary Edge or Agreement corporations, and bankers' banks to invest
in export trading companies subject
to certain limitations and after Board
review. The purpose of the act is to
allow for meaningful and effective
participation by bank holding companies in the financing and development of export trading companies.
The Board has proposed regulations
to achieve the objectives set forth in
the law: to facilitate the export of
goods and services produced in the
United States and to help avoid
adverse effects on the subsidiary
banks of the bank holding companies
involved.

Delegation of Applications
In exercising its responsibility to
formulate policies and procedures in
the applications area, the Board has
delegated certain regulatory functions—including the authority to approve, but not deny, certain types of
applications—to the Reserve Banks



181

and to the Board's Division of Banking Supervision and Regulation and
Office of the Secretary.
In September 1979, the Board
issued revised rules that delegated
additional authority to the Reserve
Banks to approve applications for
bank holding companies and bank
mergers. During 1980, the first full
year under expanded delegation, 89
percent of all holding company and
merger applications were acted on
under delegated authority while the
proportion during 1982 increased to
93 percent. In contrast, only 78
percent were processed by the Reserve Banks in 1978, the last full
year before expanded delegation. In
1982, the Board delegated to the
Reserve Banks authority to approve
domestic branches of Edge corporations and foreign "shell" branches of
member banks. In addition, the Board
reduced from 60 to 45 days the
notification period for foreign investments by U.S. banking organizations. The benefits that were expected from broadened delegation
continue to be achieved: routine
cases have been removed from the
Board's agenda to allow more efficient use of staff of both the Board
and the Reserve Banks.
Timely Processing
of Applications
Although the number of applications
by holding companies increased 27
percent from 1981 to 1982, the System still acted on 97 percent of these
proposals within 90 days of the filing
of a complete application.
In 1982, 48 of the 52 applications
for bank mergers were processed
within 90 days; the 4 that took longer
involved protest proceedings. The
System also prepared 736 reports on

182

Banking Supervision and Regulation

the competitive factors of proposed
mergers for the other two banking
agencies; all but a few were completed within 30 days. Of the 152
change-of-control notices, 148 were
handled within 90 days.
The System also measures its performance in processing international
applications against a 90-day standard. During 1982, the Federal Reserve acted on 244 international applications, 95 percent of which were
decided in 90 days or less.
During 1982, several changes in
procedures were instituted to expedite still further the processing of
applications so as to reduce the
burden on applicants and to make
more efficient use of Board and
Reserve Bank staff. These changes
included the revision of application
forms and the further streamlining
of certain internal procedures.

Pamphlet on
Processing Applications
The Board issued a pamphlet, "Processing Bank Holding Company and
Merger Applications," to facilitate
the filing of an application by those
without experience in this area. The
pamphlet, designed as a compact
reference, not only assists an applicant in preparing and filing an application, but also explains the steps in
processing and outlines the factors
the System must consider when reviewing an application.
Public Notice
of Board Decisions
Each action by the Board or its
delegated representative on a case
involving a bank holding company,
bank merger, change in control, or
international banking is effected by



an order or announcement. Orders
set forth the essential facts of the
application, the basis for the decision, and the decision. Announcements state merely the action taken
by the Federal Reserve. All orders
and announcements are released immediately to the public and are
reported in the Board's weekly H.2
statistical release, "Actions of the
Board; applications and reports" and
the monthly Federal Reserve Bulletin.
Announcements of applications and
notices received by the System but
not yet acted on are also made in
the H.2 release.

Board Policy Decisions
and Developments
in Bank-Related Activities
During 1982, the Board expanded
the list of permissible bank holding
company activities contained in Regulation Y to include additional data
processing and transmission services
to third parties, and management
consulting advice to nonaffiliated
nonbank depository institutions. The
Board also approved by order two
other activities: acting as a futures
commission merchant for nonaffiliated persons in the execution and
clearance of certain financial futures
contracts, and arranging equity financing for commercial and industrial income-producing properties.
Certain restrictions on the way these
activities are to be offered are outlined either in Regulation Y or in
the related Board order. The conditions are intended to ensure that
these activities by bank holding companies are conducted in a manner
consistent with the public interest.
In recognition of its supervisory
responsibilities, the Board also ap-

Banking Supervision and Regulation
proved the acquisitions of savings
and loans associations by two bank
holding companies. The Board had
previously stated that it preferred to
defer to the Congress the question
of whether a bank holding company
should be permitted to operate a
savings and loan association. In approving the two acquisitions, the
Board took note of the distressed
financial condition of the two acquired associations, the lack of any
viable alternative, and the condition
of the thrift industry in general. In
each instance, the Board determined
that substantial public benefits would
result from preserving these institutions as competitors in the thrift
industry.
Subsequent to approval of the
acquisition of the two institutions,
the Congress passed the Garn-St
Germain Depository Institutions Act
of 1982. Among the important provisions of this act, the Congress
established specific criteria for permitting a bank holding company to
acquire a federally insured thrift
institution when severe financial conditions threaten the stability of a
number of such institutions or of
such institutions with significant resources.
Enforcement of Other
Laws and Regulations
The preceding sections discussed the
Board's activities in carrying out its

statutory responsibilities for the supervision of bank safety and soundness and the regulation of banking
structure. This section describes the
enforcement of other laws, rules,
and regulations.
Financial Disclosure
by State Member Banks
The Board's Regulation F deals with
the disclosure requirements for state
member banks that have securities
registered under the Securities Exchange Act of 1934. Seventy-three
state member banks, most of which
are of small or medium size, were
registered with the Board under this
regulation. These institutions must
file certain materials, such as financial reports and proxy statements,
that are of interest to investors. The
Board's staff reviews these filings for
compliance with the regulation.
The disclosure rules under Regulation F are substantially similar to
those issued by the Securities and
Exchange Commission.
Loans to Executive Officers
Under section 22(g) of the Federal
Reserve Act, state member banks
must include with their quarterly
report of condition a list of loans to
executive officers. The table summarizes these data for the last quarter
of 1981 and the first three quarters
of 1982.

Total loans to executive officers
Period
October 1—December 31, 1981
January 1—March 31, 1982
April 1—June 30, 1982
July 1—September 30, 1982




183

Number

Amount (dollars)

1,074
778
971
989

6,866,599
5,459,960
7,016,053
5,365,086

Range of
interest rates
charged
(percent)
6-26
6-27
7-21
6-21

184

Banking Supervision and Regulation

Applications by
State Member Banks
The Board's authority over state
member banks covers permission to
open new branches, to make investments in bank premises that exceed
100 percent of capital stock, to add
to the capital base from sales of
subordinated debt, and the waiver of
the six months' notice of intention to
withdraw from membership in the
System. The Federal Reserve employs the application or notification
process to administer these statutory
provisions.
With few exceptions, these matters
are handled under delegated authority by the Federal Reserve Banks or,
in the case of proposed sales of
subordinated debt, by the Director
of the Board's Division of Banking
Supervision and Regulation.

Stock Repurchases by
Bank Holding Companies
A bank holding company sometimes
purchases its own shares from existing shareholders. Often such stock
repurchases are financed through
borrowings, so that the net effect of
the transaction is to increase the debt
of the bank holding company at the
very time that its equity is decreased.
Because relatively large repurchases
may adversely affect the financial
condition of a bank holding company
and its bank subsidiary, the Board,
by regulation, requires holding companies to provide advance notice of
repurchases that retire 10 percent or
more of their consolidated equity
capital.
The Federal Reserve reviewed 150
such notifications during 1982, all
but 2 of which were acted on by the
Reserve Banks on the Board's behalf.



Securities Regulation
Under the Securities Exchange Act
of 1934 (1934 Act), the Board is
responsible for regulating credit used
to purchase or carry securities. In
fulfilling its responsibility under the
1934 Act, the Board limits the amount
of credit that may be provided by
securities brokers and dealers (Regulation T), by banks (Regulation U),
and by other lenders (Regulation G).
Regulation X extends these credit
limitations, or margin requirements,
to certain borrowers and certain
credit extensions, such as credit obtained from foreign lenders by U.S.
citizens.
The SEC, the National Association of Securities Dealers, and the
national securities exchanges examine brokers and dealers for compliance with Regulation T. The three
bank supervisory agencies examine
banks for compliance with Regulation U, with the Board being responsible for state member banks that
extend stock-secured credit for the
purpose of buying margin stock.
The Board, the National Credit
Union Administration, and the Farm
Credit Administration examine other
lenders under their respective jurisdictions for compliance with Regulation G. At the end of 1982, there
were 536 such lenders, 296 of which
were subject to the Board's supervision. During the year, Federal Reserve examiners inspected 99 lenders
that were subject to Regulation G
(these lenders are inspected on a
biennial basis) for compliance with
the Federal Reserve's margin requirements.
Regulations G and U, in general,
impose credit limitations on banks
and other lenders only when a loan
is for the purpose of purchasing or

Banking Supervision and Regulation
carrying publicly held equity securities and is secured by such securities.
Regulation T limits the amount of
credit that brokers and dealers may
extend based on the value of securities serving as collateral. This collateral must consist of stocks and bonds
traded on national securities exchanges or certain over-the-counter
stocks and bonds that the Board
designates as having characteristics
similar to those of stocks listed on
national exchanges. The latter category of stocks appear on the Board's
"List of OTC Margin Stocks."
The Board published revised lists
of OTC stocks subject to its margin
regulations on March 1, July 26, and
October 18, 1982. In March, the list
consisted of 1,576 stocks. The Board's
Division of Banking Supervision and
Regulation monitors the market activity of all OTC stocks to determine
what stocks to place on this list.
Stocks must meet certain criteria,
established by the Board, before they
can be eligible for the OTC margin
stock list. On May 12, 1982, the
Board changed those criteria (1) to
allow foreign issuers to be eligible
for listing, (2) to replace certain
alternative criteria with mandatory
requirements, and (3) to relax financial requirements to make them comparable to those of major stock
exchanges.
In 1982, there were other significant amendments to the margin regulations and further proposals to
amend them. On January 18, the
Board adopted several amendments
to relax certain restrictions in Regulations G, T, and U. Lenders subject
to Regulation G now have broader
lending powers and greater flexibility
as to the types of collateral for loans
they may accept. The January
amendments also exempted from



185

Regulation U bank credit that was
not secured by margin equity securities and simplified the definition of
indirect security. The latter change
was also made in Regulation G. At
the same time, the Board relaxed
restrictions on the arranging of credit
by brokers and dealers to permit
them to engage in investment banking services that had been previously
prohibited.
In another area, on February 25,
the Board proposed a regulatory
framework for establishing margin
requirements on contracts for stockindex futures. As of December 31,
1982, the Board had not imposed
formal margin requirements on these
contracts.
On March 25, as part of its Regulatory Improvement Project, the
Board proposed for public comment
a total revision of Regulation T. The
new proposal would incorporate
amendments already adopted on January 18 (mentioned above).
On April 19, the Board filed a
brief as amicus curiae in support of
the U.S. Securities and Exchange
Commission in Board of Trade of the
City of Chicago vs. SEC, 611 F.2d
1137 (7th Cir. 1982); vacated as
moot, 51 U.S.L.W. 3418 (U.S. Sup.
Ct., November 29, 1982); a case in
which the U.S. Court of Appeals for
the Seventh Circuit ruled that options on securities of the Government National Mortgage Association
(GNMA) were not securities upon
which margin requirements apply. If
the court's decision were left standing, the Board's regulation governing
options on GNMA and other government securities, adopted on October
5, 1981, would be invalidated. The
Board also believed that the sweeping nature of the Seventh Circuit's
decision could challenge its authority

186

Banking Supervision and Regulation

to set margins on a wide variety of
other options, which have consistently been treated as securities over
which the Board has margin authority.
This decision was effectively reversed by the enactment of legislation (in October 1982) that specifically makes GNMA options securities
for purposes of the federal securities
laws. On November 29, the Supreme
Court vacated the judgment of the
Seventh Circuit on the basis that the
litigation was mooted by the new
amendments to the federal securities
laws.
On May 12, the Board amended
Regulation T to permit brokers and
dealers who are authorized to borrow
and lend securities for certain purposes to accept letters of credit, U.S.
government securities, bank certificates of deposit, and bankers acceptances as collateral. Before the
amendment, brokers and dealers were
permitted to borrow and lend securities only against a deposit of cash.
The Board's amendment also permits
foreign banks to issue letters of credit
in stock lending and borrowing transactions if they have filed with the
Board agreements to comply with
the same rules and regulations applicable to member banks in securities
credit transactions.
On December 9, the Board amended Regulation T to permit brokers and
dealers to extend credit on private
mortgage pass-through securities. The
amendment added a provision to the
definition of an over-the-counter
margin bond, on which brokers and
dealers may extend good-faith credit.
In order for brokers and dealers to
extend credit on private mortgage passthrough securities, the securities must
have an original issue size of at least
$25 million. The issuer must file current reports with the Securities and




Exchange Commission and appear to
be meeting material obligations under
the terms of the offering.
Under section 8 of the 1934 Act, a
broker or dealer may not borrow from
a bank on the collateral of registered
securities unless the bank is either a
member of the Federal Reserve System or one that files an agreement
with the Board undertaking to comply with all statutes, rules, and regulations applicable to member banks
with respect to their securities credit
activities. Domestic and foreign nonmember banks must file these agreements, designated T-l and T-2 respectively, before they engage in the
business of lending to brokers and
dealers on the collateral of registered
securities. During the year, the Board
processed four T-l and T-2 agreements.
During 1982, the Board's Securities
Regulation Section of the Division of
Banking Supervision and Regulation
issued 36 interpretations of the margin regulations that presented sufficiently important or novel issues to
be published in the Securities Credit
Transactions Handbook, which is part
of the Federal Reserve Regulatory
Service. These interpretations, which
were published monthly, serve as a
guide to compliance with the margin
regulations.
Federal Reserve Membership
At the end of 1982, 5,619 banks
were members of the Federal Reserve System, a net increase of 145
from the previous year. Member
banks operated 26,953 branches on
December 31, 1982, a net increase
of 1,192 for the year.4

4. This figure includes 1,818 automatic teller
machine branches.

Banking Supervision and Regulation
Member banks accounted for 38
percent of all commercial banks in
the United States, and for 64 percent
of commercial banking offices. Complete figures on changes in the num-




187

ber of banks and banking offices by
charter class are provided in table 17
in the Statistical Tables section of
this REPORT.

188

Regulatory Simplification
Action taken by the Board of Governors in 1982 to comply with the
Financial Regulation Simplification
Act of 1980 is reported here, as
required by section 805 of that act.
Also discussed are the Board's efforts
under the Regulatory Flexibility Act
and the Board's Statement of Policy Regarding Expanded Rulemaking
Procedures. These acts and the
Board's policy statement are intended to improve the regulatory
process.
The Financial Regulation Simplification Act (Title VIII of the Depository Institutions Deregulation and
Monetary Control Act of 1980) requires that each federal financial
regulatory agency assure that its
regulations impose no more burdens
than are necessary, that they are
adopted only after interested persons
are heard, and that they are written
simply and clearly. The act also
requires each agency to establish a
program of periodic review of its
regulations to determine whether the
regulations meet these objectives.
The following are examples of
steps the Board has recently taken
to meet statutory objectives and to
carry out its policy statement.
Monetary Policy and
Payments System

Reserve Requirements of
Depository Institutions
(Regulation D)
Since passage of the Monetary Control Act, the Board has deferred
reserve and reporting requirements
for nonmember depository institutions with total deposits of less than




$2 million. In 1982, the Congress
enacted legislation that would permanently exempt the first $2 million
of a depository institution's reservable liabilities from reserve requirements, thereby exempting almost
25,000 institutions.
Whenever it could do so consistent
with the needs of monetary policy,
the Board attempted to ease the
regulatory burden. Thus, before substituting a contemporaneous reserve
accounting system for lagged reserve
accounting, the Board sought estimates of the cost and complications
institutions would incur in altering
their systems for collecting and reporting information on deposits and
in managing a contemporaneous system. Moreover, the Board delayed
the change until February 1984, to
permit institutions to make the necessary adjustments in their administrative and data processing procedures.

Collection of Checks
and Other Items and
Wire Transfers of Funds
(Regulation J)
The Board proposed to amend Regulation J to reduce float by changing
the schedule for payment of cash
items on midweek closing days and
nonstandard holidays. It also adopted an amendment to extend the times
during which checks may be deposited for collection, in order to
improve the speed and efficiency of
the nation's payments mechanism.
Institutions of all sizes will benefit
substantially from the better funds
availability that the program affords.

Regulatory Simplification

189

Interest on Deposits
(Regulation Q)

Management Official Interlocks
(Regulation L)

To implement the Garn-St Germain
Depository Institutions Act of 1982,
the Board amended Regulation Q in
several ways. Banks were permitted
to offer money market deposit accounts, with a limit of three checks
per month, and Super NOW accounts,
with unlimited transfers, both without interest rate ceilings provided that
balances exceed $2,500. In addition,
all governmental units may maintain
NOW accounts.
Another amendment permitted
member banks to issue all time
deposits in book-entry form as an
alternative to issuing certificates of
deposit in definitive form, a change
that should yield cost savings to
depositors and institutions.

The Board reviewed its experience
under the new Regulation L and
decided to take additional steps to
lighten the regulatory burdens.
Among other things, the proposed
amendments would aid depository
institutions, including small ones,
that face a disruptive loss of management because of the Depository Institutions Management Interlocks Act.
They also would relieve institutions
of the need to apply for the statutory
maximum grace period of 15 months
in which to terminate any interlock
that becomes prohibited because of
changes in circumstances; the grace
period is automatically granted to all
affected institutions. The Board also
implemented a statutory change preserving grandfather rights of current
management officials for 10 years
despite a change in circumstances.

Banking Structure and
Supervision

International Banking
Operations
(Regulation K)
Recently, the Board amended Regulation K to permit Edge corporations in the United States to offer
certain investment advisory and management services, and thereby to
remove a barrier to entry into new
business fields. This change continues the policy established with the
International Banking Act of 1978 of
enhancing the organizational and operational flexibility with which U.S.
banks can conduct international activities; that policy has emphasized
upgrading the competitive capabilities of Edge corporations at home
and abroad.
The Board also changed the procedures for establishing a U.S. branch
of an Edge corporation and shortened certain investment notification
Digitizedperiods from 60 to 45 days.
for FRASER


Bank Holding Companies and
Change in Bank Control
(Regulation Y)
The Board has added to the list of
permissible nonbanking activities in
which bank holding companies may
engage. The new activities are providing expanded data processing; acting as a futures commission merchant; offering securities discount
brokerage (approved in early 1983);
arranging equity financing with institutional lenders for income-producing property; consulting on management to thrift institutions; acquiring
a troubled or failing savings and loan
institution in another state; and offering information, advice, and transactions in connections with foreign
exchange (approved in early 1983).
Staff work is continuing on a
complete revision of Regulation Y
under the Board's Regulatory Im-

190

Regulatory Simplification

provement Project. This work has
focused on eliminating applications
whenever possible and improving
System processing of applications
that are still required. The redrafted
regulation will incorporate essential
statutory material and a number of
Board rulings to make it self-contained and more useful.
The Board proposed guidelines, in
the form of a policy statement, to be
used to assess competitive factors
under the Bank Holding Company
Act and the Bank Merger Act. Such
guidelines should aid applicants by
fostering greater certainty and generally expediting the application
process.
The Board published criteria for
determining the primary capital status of mandatory convertible securities, to be used in connection with
capital adequacy guidelines issued
jointly by the Board and the Comptroller of the Currency in 1981.
Consumer and Community
Affairs Regulations
Equal Credit Opportunity
(Regulation B)
In response to industry requests for
clarification, the Board adopted interpretations concerning the use of income from various sources in creditscoring systems and the disclosure of
creditors' reasons for adverse decisions. Also, the Board withdrew
proposed amendments that would
have subjected some business-credit
transactions to all requirements related to adverse actions and retention
of records.
Electronic Fund Transfers
(Regulation E)
The Board adopted four amendDigitized ments to grant relief to providers of
for FRASER


EFT services. One amendment eliminates duplicate periodic statements
for certain intrainstitutional transfers; a second exempts small institutions from provisions regulating preauthorized electronic transfers; and
the others lift certain burdens from
institutions that are members of debit-credit card networks.

Truth in Lending (Regulation Z)
The Board updated the Official Staff
Commentary of Regulation Z, which
has replaced 1,500 individual staff
interpretations. The commentary is
revised on a regular schedule to
answer significant questions that
have arisen during the preceding
six months.
As indicated in the ANNUAL REPORT for 1981, the Board declined
in February 1982 to adopt a proposed
amendment that would have redefined "arranger of credit" so as to
require real estate brokers to provide
truth in lending disclosures to buyers
of residential property when sellers
are providing some or all of the
financing. The Board asked the Congress to clarify the matter, and the
Congress amended the Truth in
Lending Act to exclude all arrangers
of credit from disclosure requirements. Thus the Board did not need
to define ''arranging," and real estate
brokers and sales persons involved
with seller-financed transactions are
spared the expense of complying with
the regulation.
The Board also considered alternative disclosure requirements to
deal with seller's points. The points
paid by a seller to a creditor became
an issue because of the widespread
use and advertising of reduced-rate
plans for financing purchases of homes
and automobiles. The Board subsequently declined to amend the regu-

Regulatory Simplification
lation because of doubts about the
benefits to consumers and because
of practical difficulties—notably, ensuring compliance in advertising and
determining the influence of points
on negotiated prices.

191

Credit by Brokers and Dealers
(Regulation T)

As separate matters, the Board
adopted two proposals that affect
regulation of brokers and dealers.
One permits brokers and dealers to
use irrevocable letters of credit and
Securities Credit and
other instruments as collateral when,
Securities Activities
in the ordinary course of business,
they borrow or lend securities. This
Securities Credit Regulations
type of transaction arises from the
(Regulations G, T, U, and X)
need to complete short sales or to
As indicated in last year's ANNUAL settle customer transactions when the
REPORT, in January 1982 the Board broker has not yet received delivery
adopted amendments to simplify and of expected securities. Both brokers
modernize Regulations G, T, and U. and customers view the use of letters
These actions should foster compe- of credit favorably, and such use can
tition between banks and broker- be expected to reduce the net cost
dealers, reduce the compliance bur- of credit used by brokers and dealers
den for brokers and dealers, and in clearing transactions.
expand flexibility in making investThe other proposal that the Board
ment decisions. Proposals are under
adopted as an amendment to Regudevelopment to reorganize the account structure required at broker- lation T permits private mortgage
age firms, among other things, and pass-through certificates to be used
the regulations are being redrafted as collateral for margin credit. By
to embody terminology the industry treating these certificates as analonow uses. These changes simplify gous to OTC bonds, the amendment
and clarify various complex provi- should promote regulatory equality
sions and together with changes al- between broker-dealers and comready made should save more than mercial banks. This amendment is
one million reporting hours. Public not expected to have a significant
comment has been received on the adverse economic impact on a subcompletely rewritten Regulation T stantial number of small entities.
that incorporates these proposed
changes, and the redrafting of Regulations G, U, and X is proceeding. Stock Index Futures
The Board amended these regula- The Board published advance notice
tions to revise the criteria that over- of a proposal to establish a regulatory
the-counter stocks must meet initially framework for imposing margin reand the criteria that they must con- quirements for futures contracts based
tinue to meet to remain on the on stock indexes under Regulations
Board's "List of OTC Margin Stocks." G, T, and U. The notice solicited
The amendments involved a mixture information helpful in designing a
of relaxing and tightening changes, regulatory framework that presents
but none of the comments received the fewest operational problems,
indicated that the changes would should federal regulation become
have a significant economic impact necessary. The comments will be
on firms, whatever their size.
taken into consideration in the cur


192

Regulatory Simplification

rent joint agency study of federal
margin regulations.

Membership of State Banking
Institutions in the
Federal Reserve System
(Regulation H)
The Board, in conjunction with the
other banking agencies and the Securities and Exchange Commission,
revised form TA-1 for transfer agents
for securities transactions to reduce
substantially the information required.
Regulatory Impact Studies
The Board is engaged in a number
of projects to assess the costs and
burdens of regulations.
1. Working through the Survey
Research Center of the University of
Michigan, the Board conducted additional surveys of consumers' experience with depository institutions
and prepared the questionnaire for a
survey of the financial affairs of 5,000
consumers. Analysis of the results is
expected to help guide Federal Reserve regulatory actions.
2. The Board sponsored a colloquium on the deregulation of product
lines in banking that brought together representatives from financial
institutions and the banking agencies. The proceedings of the colloquium are available from the Board.
3. The Board has undertaken a
joint agency study regarding the
scope and effectiveness of federal
regulation of margin requirements.
The other participating agencies are
the Securities and Exchange Com-




mission and the Commodities Futures Trading Commission. Federal
authority in this area needs reexamination because the structure of financial markets has changed since
margins were first regulated in 1934.
The Board has noted that most
contracts for financial futures and
options, which have been introduced
and grown rapidly in recent years,
are bought and sold under a regulatory framework different from that
in the cash markets, although the
new instruments are partial substitutes for one with another and prices
are related across markets. The Board
has solicited public comment on specific areas in the study.
Regulatory Service and
Other Informational Services
The Board continues to update the
Federal Reserve Regulatory Service.
A significant step in 1982 was the
collection and publication of major
Board and staff rulings under Regulation Y (Bank Holding Companies
and Change in Bank Control). Previously, these rulings were not readily available.
The Board also continues to publish new educational materials. For
example, a pamphlet, "Processing
Bank Holding Company and Merger
Applications," tells a holding company how to prepare and file an
application with the System and explains the processing steps and timing
once the application is filed. The
pamphlet also outlines the factors
that the Board considers in acting on
holding company and merger applications.

193

Federal Reserve Banks
Developments in the
Payments Mechanism
and in the Pricing of
Federal Reserve Services
The pricing environment mandated
by the Monetary Control Act of 1980
continued to have a significant impact on the activities of the Federal
Reserve Banks in 1982. One of the
basic goals of the act was a less
costly, more effective payments
mechanism. To achieve that goal the
act required the Board to establish
fee schedules for services provided
by Reserve Banks to depository institutions. In the process, incentives
have changed, and resources are
being used more efficiently by both
the Reserve Banks and private depository institutions.
During 1982, the Federal Reserve
concentrated on (1) adjusting the
structure and level of fees to reflect
more accurately the cost of resources
devoted to providing services, and
(2) providing incentives for more
efficient use of resources in payments
services.

Commercial Check Collection
The total volume of commercial
checks cleared by the Federal Reserve Banks declined approximately
12 percent from 1981 to 1982. The
reduction was attributable largely to
the re-emergence and expansion of
local clearing arrangements following
the advent of pricing, and to changing deposit patterns. Further, the
business recession may have dampened check volume growth. More


over, depository institutions sought
ways that were more cost-effective
to clear checks through the Federal
Reserve—for example, by taking advantage of the generally lower prices
for collection of checks that are
completely sorted as to payor bank.
Because these shifts in volume were
greater than anticipated, revenues
were not so large as expected.
After six months of experience
with charging for check collection
services, several adjustments in prices
were made. Effective April 1, 1982,
the fee for completely sorted checks
was separated into two components:
a fee for each item and a fee for the
deposit as a whole. In addition,
prices were raised for nonmachinable
items and for deposits of unsorted
checks.
The Federal Reserve also sought
in 1982 to accelerate the collection
of checks. In August the Board
published for comment a proposed
program designed to improve funds
availability to institutions that deposit checks for collection through
the System. After careful consideration of the issues raised in the
comments it received, the Board in
December adopted a program that
was revised, among other reasons,
to take into account the concerns of
depository institutions of all sizes.
Under this program, which was
scheduled to become effective in
February 1983, institutions may deposit checks for collection later in
the day at Federal Reserve offices,
and the Reserve Banks will phase in
a schedule for presentment of checks
to payor institutions later in the

194

Federal Reserve Banks

tration transfers. The Banks also
will cooperate with the private sector
to facilitate electronic payments
among corporations through ACHs.
These enhancements to the ACH
service will promote efficiency in the
payments mechanism by encouraging
more rapid and less costly methods
Wire Transfer of Funds and
of payment.
Net Settlement
When it adopted the initial fee
The volume of wire transfers of funds schedule, effective August 1981, the
grew 15 percent in 1982; it averaged Board recognized that the full potenmore than 2.9 million transfers per tial for an ACH service had not been
month. The installation of terminals realized. To encourage the use of
at depository institutions to originate the ACH service, the Board set a
and receive wire transfers through fee schedule that assumed a mature
the Federal Reserve continued dur- volume of transactions, which was
ing the year. This spread of terminals expected to be achieved in about five
is expected to improve further the years.
efficiency of the system.
In April 1982, the Board anThe initial schedules of fees for nounced a plan for ending its incenwire transfers and net settlement tive pricing policy for the ACH
became effective early in 1981. After service. Support for ACH prices will
considerable review of alternative fee be reduced gradually over several
structures and of the costs of provid- years so that the fees established in
ing the service, the Board revised 1985 should fully recover the producthose fee schedules, effective April tion costs of the service plus the
29, 1982. The principal change im- private sector adjustment factor
posed fees on the receivers, as well (PSAF). This adjustment is the imas on the originators, of all wire puted cost that accounts for the taxes
transfers. Previously, receivers paid that would have been paid and the
fees only for transfers on which they return on capital that would have
requested notice.
been provided had the services been
furnished by a private-sector firm. A
revised schedule announced in NoAutomated Clearinghouse
vember 1982 set fees designed to
Service
recover 40 percent of costs plus the
The volume of transactions through PSAF, in accordance with the supautomated clearinghouses (ACHs) port program announced earlier in
expanded approximately 16 percent the year. In addition, the structure
during 1982, mostly because of the of fees was altered to set (1) separate
increase in commercial transactions. fees for day-cycle and night-cycle
In their efforts to enhance the com- processing in recognition of cost
mercial ACH service, the Reserve differentials, and (2) higher day-cycle
Banks plan to expand the night-cycle fees for credits than for debits in
service during 1983 to accommodate recognition of the benefits that acapplications other than cash-concen- crue to receivers of credits.
business day. The later deadlines
should facilitate faster collection of
checks, especially those that are deposited at institutions some distance
away from the institution on which
they are drawn.




Federal Reserve Banks

Coin and Currency Services
The initial fee schedule for the cash
transportation service became effective on January 28, 1982. To ease
the burden of adjustment to full-cost
pricing of cash transportation for
institutions in remote areas, the Board
established maximum fees to be
charged to individual institutions. It
also determined to review this pricesupport program at year-end, and if
it were to extend the program at that
time, to do so for no longer than one
year. In that review, on December
27, the Board increased the maximum fees for the cash transportation
service and affirmed its commitment
to terminate the program of support
at the end of 1983, in view of the
shifts in transportation arrangements
and new efforts in the private sector
toward more efficient distribution of
coin and currency. The Board also
endorsed a uniform accounting approach for cash shipments, effective
July 1, 1983, and revised guidelines
for the structure of cash transportation fees, effective January 27, 1983.
The initial fee schedule for the
coin wrapping service also became
effective on January 28, 1982. At
that time, only two Reserve Banks
offered the service. During the year,
however, three more Banks began
offering it, and others were expected
to participate in 1983.

Securities Services
The initial fee schedule for all securities services offered by Federal
Reserve Banks to depository institutions became effective October 1,
1981. Since that time, in anticipation
of repricing the services, the System
has devoted considerable effort to



195

analyzing the response to explicit
pricing, to considering potential service enhancements, and to reviewing
costs.
The Board published a proposed
fee schedule for book-entry services
for comment late in 1982, before
acting on a revised fee schedule
expected to become effective in the
second quarter of 1983. The proposed fees were higher than those
contained in the initial schedule. Part
of the proposal was the establishment
of a fee per issue.
During 1982, improvements were
made in the schedule of credit availability for past-due items in the noncash collection service. Several actions were also taken to expedite the
collection process for definitive securities, and to contain the costs of
providing the service. Despite these
improvements, which appeared to
make the services more attractive,
throughout 1982 the System continued to experience declines in volume
for most of the definitive securities
services offered by the Reserve Banks.
After adjustment for the drop in
volume, however, the float associated with definitive securities services declined markedly as a result
of the service improvements.
Float
Continuing the trend that began in
1980, Federal Reserve float declined
to a daily average of $2.3 billion in
1982, primarily because of further
operational improvements at the Reserve Banks. Those improvements
were part of a program announced
by the Board in 1980, whose purpose
was to reduce Federal Reserve float,
through operational improvements,
before its pricing. Since the inception

196

Federal Reserve Banks

of the program, nearly two-thirds of
System float has been eliminated.
In November 1982, the Board
published for comment three proposals related to the remaining float: (1)
changes in crediting procedures that
Reserve Banks use for interterritory
check shipments; (2) a charge to the
Reserve Bank account of the depositing institution for a returned interterritory check in the amount of
$50,000 or more on the day the
Federal Reserve gives credit to the
returning payor institution; and (3)
the explicit pricing of intraterritory
float. The Board will review comments on these proposals and expects
to take final action during the first
quarter of 1983.
Work is under way on proposals
for the most cost-effective approaches to eliminating or pricing
the remaining Federal Reserve float.
The Board expects to review such
proposals in 1983.

Administrative Matters
On November 22, 1982, the Board
announced changes in the Federal
Reserve's procedures for administering clearing balances. The changes,
which were to take effect in early
1983, permit any depository institution to establish a clearing balance.
Other changes adopted by the Board
simplify requirements for clearing
balances for smaller institutions.
On December 17, 1982, the Board
adopted a private sector adjustment
factor of 16 percent for 1983 pricing
purposes. Although based on more
recent data, the new PSAF is the
same as that in 1982.
Financial Performance
The Monetary Control Act directs
the Federal Reserve to set fees that,



over the long run, are based on (1)
all the direct and indirect costs of
providing services, and (2) an imputed cost (represented by the PSAF)
that accounts for the taxes that would
have been paid and the return on
capital that would have been provided had the services been furnished
by a private-sector firm.
For 1982, the total revenue from
pricing of services was $421.6 million
and the total expense of providing
them was $456.8 million. Thus expenses exceeded revenue by $35.2
million. Including the PSAF, the
expenses exceeded revenue by $90.9
million. Two adjustments can be
made to the 1982 results: (1) for the
incentive pricing program for the
ACH service, which anticipated recovery of only 20 percent of production costs plus the PSAF through
pricing; and (2) for the price support
program in the cash transportation
service. After the effect of these
programs, pro forma net revenue
after the private sector adjustment
was -$78.8 million. Table 10 in the
Statistical Tables section of this REPORT shows the revenue and expense
by major categories of priced services.
The revenues for Federal Reserve
services tend to be sensitive to the
volume of use because most of the
services are priced per item or per
transaction. In contrast, the costs of
providing services do not respond
readily to changes in volume. Early
in 1982, projected revenue for the
year fell short of projected costs plus
the PSAF by a considerable margin,
because the actual volume fell short
of expectations, especially in some
of the check and securities services,
and because the redistribution of
volume across services was not fully
anticipated. Changes in the fee

Federal Reserve Banks
schedules for wire transfers, net settlement, and some check services,
announced before mid-1982, mitigated the revenue shortfall somewhat. The fee schedules for other
services were not revised so readily
because of the complexities of the
issues associated with such revisions.
Through efforts to contain costs and
to improve their services, however,
the Federal Reserve Banks made
substantial progress in reducing the
shortfall over the course of 1982 so
that by the fourth quarter, the production costs of providing services
were recovered through pricing revenues, although not the full PSAF.
Initiatives are well under way to
eliminate the remaining shortfall;
and the Board expects that by the
end of 1983, the second full year of
experience with pricing services, pro
forma net revenue adjusted for the
programs that support the ACH and
cash transportation services will reflect the recovery of direct and indirect costs, including the private sector adjustment.
Examination
The Board's Division of Federal
Reserve Bank Operations examined

197

the 12 Reserve Banks and their 25
branches during 1982, as required by
section 21 of the Federal Reserve
Act.
In conjunction with the examination of the Federal Reserve Bank of
New York, the Board's examiners
audited the accounts and holdings
related to the Federal Reserve System Open Market Account and the
foreign currency operations conducted by that Bank in accordance
with policies formulated by the Federal Open Market Committee, and
furnished copies of these reports to
the Committee. The procedures that
were followed by the Board's examiners were surveyed and appraised
by a private firm of certified public
accountants, pursuant to the policy
of having such reviews made annually.
Income and Expenses
The accompanying table summarizes
the income, expenses, and distribution of net earnings of the Federal
Reserve Banks for 1982 and 1981.
Current income, at $16,517 million
in 1982, was $1,009 million higher
than in 1981. The principal change
was an increase of $942 million in
income on U.S. government obliga-

Income, Expenses, and Distribution of Net Earnings
of Federal Reserve Banks, 1982 and 1981
Thousands of dollars
Item

1982

Current income
Operating expenses
Current net income
Net deduction from current net income
Assessments for expenditures of Board of Governors
Net income before payments to U.S. Treasury
Dividends paid
Payments to U.S. Treasury (interest on Federal Reserve notes)
Transferred to surplus
1. Operating expenses include $4 million and $29
million in earnings credits granted to depository institutions in 1981 and 1982 respectively. In 1981, the




16,517,385
1,024,475
15,492,910
68,833
61,813
15,362,264
79,352
15,204,591
78,320

1981
15,508,350
901,120
14,607,230
368,873
63,163
14,175,194
74,574
14,023,723
76,897

cost of earnings credits was reported as a deduction
from current net income.
NOTE. Details may not add to totals because of
rounding.

198

Federal Reserve Banks

tions. Income from priced services
amounted to $387 million.
Operating expenses were $1,024
million, including $28 million of
earnings credits granted to depository institutions. Assessments for
expenditures of the Board of Governors totaled $62 million.
The profit and loss account showed
a net deduction of $69 million, principally because of an unrealized loss
of $150 million on assets denominated in foreign currencies related to
revaluation to market exchange rates,
and a gain of $85 million on sales of
U.S. government obligations.
Statutory dividends to member
banks totaled $79 million, $4 million
more than in 1981. This rise reflected
an increase in the capital and surplus
of member banks and a consequent
increase in the paid-in capital stock
of the Federal Reserve Banks.
Payments to the U.S. Treasury as
interest on Federal Reserve notes
totaled $15,205 million for the year,
compared with $14,024 million in
1981. This amount consists of all net
income after dividends and the
amount necessary to bring surplus to
the level of paid-in capital.

A detailed statement of the income
and expenses of each Federal Reserve Bank during 1982 is shown in
table 7, and a condensed historical
statement appears in table 8, in the
Statistical Tables section of this REPORT. A detailed statement of assessments and expenditures of the
Board of Governors appears in "Financial Statements," pages 201-06.
Federal Reserve
Bank Premises
During 1982, the Baltimore Branch
occupied its new quarters and sold
the vacated building and property.
With the approval of the Board of
Governors, the Omaha Branch acquired property for a future building
site; and the Birmingham Branch
acquired adjacent property for projected expansion.
Table 6, in the Statistical Tables
section of this REPORT, shows the
cost and book values of premises
owned or occupied by the Federal
Reserve Banks and branches, and of
real estate acquired for future banking-house purposes.

Securities and Loans of Federal Reserve Banks, 1980-82
Millions of dollars except as noted
Total

U.S.
government
securities1

Loans

Acceptances

Average daily holdings 2
1980
1981
1982

129,750
132,238
140,968

128,196
130,754
139,772

1,420
1,363
1,047

134
121
149

Earnings
1980 .
1981
1982

12,673
14,766
15,697

12,479
14,551
15,504

176
196
175

18
19
18

Average interest rate (percent)
1980
1981
1982

9.77
11.17
11.14

9.73
11.13
11.09

12.39
14.38
16.71

Item and year

1. Includes federal agency obligations.




13.43
15.70
12.08

2. Based on holdings at opening of business.

Federal Reserve Banks
and Loans
The accompanying table presents
holdings, earnings, and average interest rates on securities and loans
of the Federal Reserve Banks during
the past three years.
Average daily holdings of securities and loans during 1982 amounted
to $140,968 million, an increase of
$8,730 million over 1981. Holdings
of U.S. government securities increased $9,018 million; loans decreased $316 million; and acceptances increased $28 million.




199

The average rates of interest on
holdings decreased from 11.13 to
11.09 percent on U.S. government
securities; increased from 14.38 to
16.71 percent on loans; and decreased from 15.70 to 12.08 percent
on acceptances.
Volume of Operations
Table 9 in the Statistical Tables
section of this REPORT shows the
volume of operations in the principal
departments of the Federal Reserve
Banks for 1979-82.

201

Board of Governors
Financial Statements
The financial statements of the Board
for the years 1982 and 1981 were ex-

amined by Arthur Andersen & Co.,
independent public accountants.

A U D I T O R S ' REPORT

To the Board of Governors of the
Federal Reserve System:
We have examined the balance sheets of the Board of Governors of the Federal
Reserve System as of December 31, 1982 and 1981, and the related statements of
assessments and expenditures and changes in financial position for the years then
ended. Our examinations were made in accordance with generally accepted auditing
standards and, accordingly, included such tests of the accounting records and such
other auditing procedures as we considered necessary in the circumstances.
In our opinion, the financial statements referred to above present fairly the financial
position of the Board of Governors of the Federal Reserve System as of December
31, 1982 and 1981, 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.
f

Washington, D.C.,
February 18, 1983.




202

Financial Statements
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
BALANCE SHEETS
As of December 31,
ASSETS

1982

1981

OPERATING FUND

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

$ 4,613,805
554,928

$

6,164,961
634,532

257,495
—
5,426,228

240,040
334,562
7,374,095

1,301,314
61,056,512
8,636,512
6,845,572
77,839,910

1,301,314
60,787,084
8,085,073
5,893,872
76,067,343

$ 83,266,138

$ 83,441,438

$ 4,328,675
1,466,018
3,074,671

$

PROPERTY FUND, at cost (Note 1)
Land and improvements
Buildings
Furniture and equipment
Computer equipment
Total property fund

LIABILITIES AND FUND BALANCES
OPERATING FUND

Liabilities
Accounts payable
Accrued payroll and related taxes
Accrued annual leave (Note 1)

8,869,364

2,484,847
1,372,466
2,694,966
6,552,279

Commitments and contingencies (Notes 2 and 4)
Fund balance (Note 1)
Balance, beginning of year
Assessments (under) over funded expenditures
and unfunded accrued annual leave
Balance, end of year
Total operating fund

821,816
(4,264,952)
(3,443,136)
5,426,228

(2,809,658)
3,631,474
821,816
7,374,095

PROPERTY FUND (Note 1)

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

76,067,343
1,808,096
(35,529)
77,839,910
$ 83,266,138

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




75,262,877
852,955
(48,489)
76,067,343
$ 83,441,438

Financial Statements

203

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENTS OF ASSESSMENTS AND EXPENDITURES
For the years ended December 31,
1982

1981

$ 61,813,400

$ 63,162,700

85,766,269
147,579,669

84,859,336
148,022,036

43,874,292
7,598,440
1,765,093
1,316,441
1,289,216
1,268,450
1,228,791
1,038,630
982,601
906,766
626,559
476,168
386,917
248,829
889,123
63,896,316

41,014,846
6,227,869
1,591,343
1,179,604
1,791,588
1,273,657
867,466
862,981
788,394
655,030
560,350
442,897
347,152
173,693
690,950
58,467,820

1,802,331

848,062

ASSESSMENTS LEVIED ON FEDERAL RESERVE BANKS (Note 1)

For Board expenses and property additions
For expenditures made on behalf of the Federal Reserve
Banks for printing, issuance, and redemption of
Federal Reserve notes
Total assessments
F U N D E D EXPENDITURES (Note 1)

Board expenses
Salaries
Retirement and insurance contributions (Note 2)
Travel
Contractual services
Printing and binding
Heat, light, and power
Equipment, office space, and other rentals (Note 4)
Telephone and telegraph
Repairs and maintenance
Postage
Stationery, office, and other supplies
Cafeteria operations, net
Professional fees
Books and subscriptions
Other
Board property additions, net of recoveries on disposals
of $5,765 in 1982 and $4,893 in 1981 (Note 1)
Expenditures for printing, issuance, and redemption
of Federal Reserve notes on behalf of
the Federal Reserve Banks (Note 1)
Total funded expenditures
Assessments (under) over funded expenditures

85,766,269
151,464,916
(3,885,247)
379,705

U N F U N D E D ACCRUED A N N U A L LEAVE (Note 1) .
ASSESSMENTS (UNDER) OVER F U N D E D EXPENDITURES AND
U N F U N D E D ACCRUED A N N U A L LEAVE

84,859,336
144,175,218
3,846,818

$

215,344

(4,264,952)

$
The accompanying notes are an integral part of these statements.




3,631,474

204

Financial Statements
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENTS OF CHANGES IN FINANCIAL POSITION
For the years ended December 31,
1982

1981

$ 61,813,400

$ 63,162,700

85,766,269
5,765
1,937,380
396,711
149,919,525

84,859,336
4,893
836,495
570,458
149,433,882

63,896,316

58,467,820

85,766,269

84,859,336

—
269,428
586,968
951,700

3,485
451,216
397,224
1,030

151,470,681

144,180,111

SOURCES OF FUNDS

Assessments levied for Board expenses and
property additions
Assessments levied for expenditures made on behalf of the
Federal Reserve Banks
Recoveries from disposals of property
Increase in accounts payable, accrued payroll and related taxes
Decrease in receivables, inventories, and deferred costs
Total sources
APPLICATIONS OF FUNDS

Board expenses
Expenditures for printing, issuance, and redemption
of Federal Reserve notes on behalf of the
Federal Reserve Banks
Additions to property
Land and improvements
Buildings
Furniture and equipment
Computer equipment
Total applications
(DECREASE) INCREASE IN CASH

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

(1,551,156)

911,190

$ 4,613,805

$ 6,164,961

The accompanying notes are an integral part of these statements.




5,253,771

6,164,961

Financial Statements
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1982 AND 1981
(1) SIGNIFICANT ACCOUNTING POLICIES

In preparing its financial statements, the Board of
Governors of the Federal Reserve System (the Board)
has applied accounting principles which, in management's opinion, best reflect its financial position and
results of operations. These accounting principles include certain principles which are generally accepted
for organizations in the private sector and also certain
principles which are generally accepted for governmental units. A summary of significant accounting
policies is shown below.
Assessments, Board Expenses, and Property Additions—Assessments made on the Federal Reserve
Banks for Board expenses and additions to property
are calculated based upon expected cash needs. Assessments, Board expenses, and property additions
are recorded on the accrual basis of accounting.
Assessments and Expenditures Made on Behalf of
the Federal Reserve Banks—Assessments and expenditures made on behalf of the Federal Reserve
Banks for the printing, issuance, and redemption of
Federal Reserve notes are recorded on the cash basis.
This treatment produces results which are not materially different from those which would have been
produced using the accrual basis of accounting.
Property—The Board does not charge depreciation
as an operating expense. Property additions are charged
to expense in the Operating Fund in the year of acquisition; recoveries on the disposal of property are
recorded as a reduction of expense in the Operating
Fund in the year of disposal. When property is acquired or sold, the property asset accounts and the
balance in the property fund account are increased
or decreased at cost.

Employee Annual Leave—In accordance with
Statement of Financial Accounting Standards No. 43,
"Accounting for Compensated Absences," the Board
records the liability for employees' rights to receive
compensation for annual leave in the accompanying
Balance Sheets. In addition, the incremental expense
for this liability is separately presented in the accompanying Statements of Assessments and Expenditures
since it is not funded currently by assessments levied
on the Federal Reserve Banks.
(2) RETIREMENT PLANS

There are two major retirement plans for employees of the Board. Approximately 83 percent of the
employees are covered by the Federal Reserve Board
Plan. Substantially all new members of the staff who
do not come directly from a position in the federal
government are covered by this plan. The second plan,
the Civil Service Retirement Plan, covers all new employees who come directly from federal government
service. Employee contributions are the same percentage of salary under both plans, and benefits are
similar, being based upon the Civil Service Plan.
Under the Civil Service Plan, the Board's contributions directly match employee payroll deductions.
Under the Federal Reserve Board Plan, the Board's




205

contributions for active employees are actuarially determined and are funded in the current period.
The Board's contributions to the retirees' Cost-ofLiving Adjustment (COLA) totaled $1,937,000 in 1982
and $878,000 in 1981. The increase in the level of
these contributions was primarily attributed to a change
in policy. Consistent with federal government action
taken in 1981, the Board changed its method of computing the retirees' COLA from a semiannual basis
to an annual basis. Because it was the year of transition, however, the 1981 COLA only reflected the
change in the consumer price index that occurred during the six months ended December 31,1980. In 1982,
the COLA reflected the change in the consumer price
index that occurred during the twelve months ended
December 31, 1981.
Additionally, employees of the Board participate
in the Federal Reserve System's Thrift Plan. Under
this plan, the Board contributes a fixed percentage of
allowable employee savings to employee savings accounts.
Board contributions to the retirement plans and the
Thrift Plan totaled approximately $6,384,000 in 1982
and $5,338,000 in 1981.
As of January 1, 1982 and 1981 (the dates of the
most recent actuarial reviews), the accumulated plan
benefits for the Federal Reserve Board Plan were as
follows.
As of January 1,
1981

1982
Actuarial present value
of accumulated
plan benefits
Vested
$44,679,000
Nonvested
2,550,000

$43,931,000
2,791,000

$47,229,000

$46,722,000

The assumed rate of return used in determining the
present value of accumulated plan benefits was 10
percent in 1982 and 9 percent in 1981.
As of January 1,1982 and 1981, net assets available
for plan benefits exceeded the actuarial present value
of accumulated plan benefits.
(3) FEDERAL RESERVE REGULATORY SERVICE

The Board began publication of the Federal Reserve
Regulatory Service in 1981. This monthly looseleaf
service contains Board regulations, interpretations,
staff rulings, and other regulatory materials. The service is distributed without charge throughout the Federal Reserve System. It is also sold to depository institutions, legal firms, and others. Subscription revenues
in the amount of $844,000 and $711,000 were generated in 1982 and 1981, respectively. These revenues
were used to offset prior year's deferred publication
costs and current year publication costs.
(4) COMMITMENTS AND CONTINGENCIES

The Board leases office and computer equipment
and office and storage space under leases which may
generally be terminated within one year. At Decem-

206

Financial Statements

ber 31, 1982, fixed future rental commitments were
approximately $1,252,000 for 1983.
The Board has been named as a defendant in litigation involving challenges to, or appeals from, actions or proposed actions of the Board pursuant to
statutory requirement or authorization. Such lawsuits
generally seek injunctive or declaratory relief against
the Board rather than monetary awards. It is the opinion of Board counsel that lawsuits involving monetary
awards do not represent a material liability to the
Board.
The Board is self-insured with regard to (1) a group
term life and accident insurance plan for Board officers and (2) losses of its building and equipment
from fire or other casualties. Coverage for other customarily insured risks, such as workers' compensation
and comprehensive general liability, is carried by the
Board.




(5) FEDERAL FINANCIAL INSTITUTIONS
EXAMINATION COUNCIL

The Board is one of five member agencies of the
Federal Financial Institutions Examination Council
(the Council). During 1982 and 1981, the Board paid
$175,000 and $114,000, respectively, in assessments
for operating expenses of the Council.
The Board serves as custodian for the Council's
cash. (This cash is not reflected in the accompanying
financial statements.) It also processes accounting
transactions, including payroll for most employees,
and performs other administrative services for the
Council which are reimbursed.
The Board is not reimbursed for the costs of personnel who serve on the Council and on the various
task forces and committees of the Council. The costs
associated with these contributed services are included in the accompanying financial statements.

Statistical Tables




208

Tables

1. Detailed Statement of Condition of All Federal Reserve Banks Combined,
December 31, 1982
Thousands of dollars

ASSETS

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

11,147,909
4,618,000
439,297
714,833
1,479,978
8,936,836
587,795
54,425,660
62,625,895
18,555,734
135,607,289
3,704,305

Total U.S. government securities

139,311,594

Total loans and securities

151,031,036

Cash items in process of collection
Transit items

11,295,950

Other cash items

1,694,151

Total cash items in process of collection

12,990,101

Bank premises
Land
Buildings (including vaults)
Building machinery and equipment
Construction account
Total bank premises

350,982
131,762
128,676
611,420

Less depreciation allowance

152,960

90,322

458,460

Bank premises, net
Other assets
Furniture and equipment
Less depreciation
Total furniture and equipment, net
Denominated in foreign currencies 1
Interest accrued
Premium on securities
Due from Federal Deposit Insurance Corporation
Overdrafts
Prepaid expenses
Suspense account
Real estate acquired for banking-house purposes
All o t h e r . . . . .
Total other assets
Total assets




548,782
275,679
96,729
178,950
5,764,470
2,315,022
386,759
285,333
64,504
59,123
139,683
14,832
137,167
9,345,844
190,120,970

Tables

209

!.,--• Continued

LIABILITIES

Federal Reserve notes
Outstanding (issued to Federal Reserve Banks)
Less held by Federal Reserve Banks

159,979,052
17,989,453

Total Federal Reserve notes, net

141,989,599

Deposits
Depository institutions
U.S. Treasury—general account
Foreign—official accounts
Other deposits
Collected funds due to other Federal Reserve Banks
Officers' and certified checks
International organizations
All other 2

26,491,873
5,033,451
328,280
1,438,718
55,681
109,498
874,047

Total other deposits
Deferred availability cash items

2,477,944
8,813,035

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

- 171,901
1,412
2,060,878
38,528
338,080
4,893

Total other liabilities .

2,271,890

Total liabilities

187,406,071
CAPITAL ACCOUNTS

Capital paid in
Surplus
Other capital accounts 3
Total liabilities and capital accounts
1. Of this amount, $1,404.0 million was invested in securities
issued by foreign governments, and the balance was invested with
foreign central banks and the Bank for International Settlements.
Amount shown includes $1,291.8 million in foreign currencies
warehoused for U.S. Treasury.
2. In closing out the other capital accounts at year-end, the
Reserve Bank earnings that are payable to the Treasury are
included in this account pending payment.




1,357,449
1,357,449
190,120,970
3. During the year, this item includes undistributed net income, which is closed out on Dec. 31; see table 7 in the Statistical Tables section of this REPORT.
NOTE. Amounts in boldface type indicate items in the Board's
weekly statement of condition of the Federal Reserve Banks.

2. Statement of Condition of Each Federal Reserve Bank, December 31, 1982 and 1981
Millions of dollars
Total

Boston

Philadelphia

New York

Cleveland

Richmond

Item
1982

1981

11,148
4,618
438
717
0

1982

1981

3,160
951
18

554
225
13

531
141
19

744
302
48

805
253
38

967
408
51

1,147
288
46

559
0

101
0

212
0

19
0

19
0

108
0

102
0

1982

1981

1982

1982

11,151
3.318
377

570
241
26

1,017
165
20

3,212
1,335
32

1,604
0

15
0

77
0

90
0

1982

1981

1982

1981

ASSETS

Gold certificate account
Special drawing rights certificate account
(Join
Loans
To depository institutions
Other

1,480

195

0

0

1,480

195

0

0

0

0

0

0

8,937
588

9,125
269

413
0

388
0

2,811
588

2,657
269

298
0

327
0

590
0

662
0

758
0

729
0

U.S. government securities
Bought outright 1
Held under repurchase agreements

135,607
3,705

127,738
3,216

6,265
0

5,437
0

42,656
3,705

37,188
3,216

4,519
0

4,571
0

8,950
0

9,274
0

11,506
0

10,198
0

Total loans and securities

151,034

142,147

6,693

5,902

51,330

44,084

4,918

5,110

9,559

9,955

12,372

11,029

13,000
549

10,636
498

345
97

313
98

1,630
25

705
23

299
51

397
52

497
27

383
27

1,723
110

1,730
99

5,764
3,577

5,129
3,592

150
144

141
125

1,436
1,358

1,386
1,296

236
107

191
140

432
191

397
197

300
259

Acceptances held under repurchase agreements.
Federal agency obligations
Bought outright
Held under repurchase agreements

Cash items in process of collection
Bank premises
Other assets
Denominated in foreign currencies 2
All other
Interdistrict Settlement Account
Total assets




0

0

+ 101

+ 287

+ 871

+ 656

+ 364

-256

-1,322

-1,066

-307

256
222
+ 562

190,128

176,848

8,367

8,068

61,229

52,279

6,767

6,325

10,478

10,989

15,883

15,379

LIABILITIES

141,990

131,906

7,191

6,995

44,812

39,633

5,560

5,287

8,823

8,972

12,411

12,046

26,489
5,033
328
2,484

25,228
4,301
505
791

676
0
5
25

602
0
9
12

8,882
5,033
170
587

5,075
4,301
267
540

816
0
9
21

664
0
12
10

1,051
0
16
41

1,259
0
25
20

1,322
0
11
65

1,301
0
16
31

34,334

30,825

706

623

14,672

10,183

846

686

1,108

1,304

1,398

1,348

8,814
2,272

306
94

278
106

485
596

949
876

173
68

159
89

215
134

339
182

8,297

8,002

60,565

51,641

6,647

6,221

10,280

10,797

1,478
452
15,739

1,656
197

187,410

8,800
2,759
174,290

15,247

1,359
1,359
0

1,279
1,279
0

35
35
0

33
33
0

332
332
0

319
319
0

60
60
0

52
52
0

99
99
0

96
96
0

72
72
0

66
66
0

190,128

176,848

8,367

8,068

61,229

52,279

6,767

6,325

10,478

10,989

15,883

15,379

Federal Reserve notes outstanding (issued to Bank)
LESS: Held by Bank 4
Federal Reserve notes, net 5

159,979
17,989
141,990

151,033
19,127
131,906

8,050
859
7,191

7,885
890
6,995

47,896
3,084
44,812

43,654
4,021
39,633

7,546
1,986
5,560

7,374
2,087
5,287

9,463
640
8,823

9,882
910
8,972

13,708
1,297
12,411

13,348
1,302
12,046

Collateral for Federal Reserve notes
Gold certificate account
Special drawing rights certificate account
Other eligible assets
U.S. government and agency securities

11,148
4,618
107
126,717

11.151
3,318
0
117,437

570
241
0
6,380

1,017
165
0
5,813

3,212
1,335
0
40,265

3,160
951
0
35,522

554
225
0
4,781

531
141
0
4,615

744
302
0
7,777

805
253
0
7,914

967
408
0
11,036

1,147
288
0
10,611

Total collateral

141,990

131,906

7,191

6,995

44,812

39,633

5,560

5,287

8,823

8,972

12,411

12,046

Federal Reserve notes .. . .
Deposits
Depository institutions
U.S\ Treasury—General account
Foreign—Official accounts
Other
Total deposits
Deferred-availability cash items
Other liabilities and accrued dividends 3
Total liabilities
CAPITAL ACCOUNTS

Capital paid in
Surplus
Other capital accounts
Total liabilities and capital accounts
FEDERAL RESERVE NOTE STATEMENT

For notes see end of table.




2. Statement of Condition of Each Federal Reserve Bank, December 31, 1982 and 1981—Continued
Millions of dollars
Atlanta

Chicago

St. Louis

Minneapolis

Dallas

Kansas City

San Francisco

Item
1982

1981

1982

1981

1982

1981

1982

1981

1982

1981

1981

1982

1982

ASSETS

402
161
44

436
98
43

1,476
646
26

1,171
519
23

418
170
25

450
129
29

154
61
19

189
48
17

675
241
44

534
154
31

743
310
32

628
192
26

1,233
518
78

1,083
380
67

Loans
To depository institutions
Other

83
0

399
0

88
0

49
0

9
0

11
0

33
0

60
0

160
0

57
0

3
0

15
0

Acceptances held under repurchase agreements

ooo

Gold certificate account
Special drawing rights certificate account
Coin

44
0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

Federal agency obligations
Bought outright
Held under repurchase agreements

227
0

290
0

1,268
0

1,393
0

301
0

338
0

113
0

136
0

422
0

417
0

606
0

571
0

1,130
0

1,217
0

U.S. government securities
Bought outright 1
Held under repurchase agreements

3,452
0

4,059
0

19,246
0

19,501
0

4,565
0

4,734
0

1,709
0

1,911
0

6,406
0

5,842
0

9,192
0

7,992
0

17,141
0

17,031
0

Total loans and securities

3,687

4,393

20,597

21,293

4,954

5,121

1,831

2,058

6,861

6,319

9,958

8,620

18,274

18,263

Cash items in process of collection
Bank premises
Other assets
Denominated in foreign currencies2
All other

1,664
34
438
117

1,571
34

923
19

1,011
17

til
15

632
14

451
28

1,784
104

703
70

167
99

151
135

1,212
22
216
141

1,528
14

738
4686

1,366
24
259
165

1,404
16

377
151

688
27
213
62

375
203

945
438

809
411

-930

+ 742

-730

-702

-187

24,310

7,267

5,931

22,672

21,599

Interdistrict Settlement Account

-278

-434

813
4346
-158

Total assets

6,269

6,669

24,776




-275

161
52
-211

+ 873

+ 767

+ 91

306
254
+ 1,542

2,780

2,793

10,508

9,396

13,132

13,110

LIABILITIES

Federal Reserve notes
Deposits
Depository institutions
U.S. Treasury—General account
Foreign—Official accounts
Other

3,295

3,142

20,612

19,534

4,630

4,532

1.463

7,851

6,652

9,317

8,666

15,730

14,984

1.647
0
16
31

1,842
0
24
8

2,854
0
30
114

3.358
0
47
78

477
0
6
1,408

662
0
10
17

414
0
8
22

764
0
10
3

1,224
0
9
36

1,422
0
14
15

2,408
0
14
46

2,930
0
20
22

4,718
0
34
88

5,349
0
51
35

Total deposits

1,694

1,874

2,998

3,483

1,891

689

444

777

1,269

1,451

2,468

2,972

4,840

5,435

Deferred-availability cash items
Other liabilities and accrued dividend 3

1,007
55

1,360
99

508
288

554
379

603
67

544
92

452
28

420
39

1,168
96

1,064
115

1,024
135

1,149
155

1,395
259

328
430

Total liabilities . .

6,051

6,475

24,406

23,950

7,191

5,857

2,682

2,699

10,384

9,282

12,944

12,942

22,224

21,177

CAPITAL ACCOUNTS

Capital paid in
Surplus
Other capital accounts

97
97
0

185
185
0

6,269

6,669

24,776

24,310

7,267

Federal Reserve notes outstanding (issued to B a n k ) . . .
LESS: Held by Bank 4
Federal Reserve notes, net 5

5,522
2,227
3,295

5,270
2,128
3.142

22,048
1,436
20,612

21,111
1,577
19,534

Collateral notes for Federal Reserve notes
Gold certificate account
Special drawing rights certificate account
Other eligible assets
U.S. government and agency securities

402
161
0
2,732

436
98
0
2,608

1,476
646
0
18.490

Total collateral

3,295

3,142

20,612

Total liabilities and capital accounts. . .

19
0
109
0

180
180
0

38
38
0

37
37
0

49
49
0

47
47
0

62
62
0

5,931

2,780

2,793

10,508

5,440
810
4,630

5,546
1,014
4,532

2,206
448
1,758

1,995
532
1,463

1,171
519
0
17.844

418
170
0
4,042

450
129
0
3,953

154
61
0
1,543

19,534

4,630

4,532

1,758

57
57
0

94
94
0

84
84
0

224
224
0

211
211
0

9,3%

13,132

13,110

22,672

21,599

8,974
1,123
7,851

7,891
1,239
6,652

11,047
1,730
9,317

10,121
1,455
8,666

18,079
2,349
15,730

16,956
1,972
14,984

189
48
0
1,226

675
241
107
6,828

534
154
0
5,964

743
310
0
8,264

628
192
0
7,846

1,233
518
0
13,979

1,083
380
0
13,521

1,463

7,851

6,652

9,317

8,666

15,730

14,984

FEDERAL RESERVE NOTE STATEMENT

1. Includes securities loaned—fully guaranteed by U.S. government securities pledged with Federal
Reserve Banks— and excludes (if any) securities sold and scheduled to be bought back under matched
sale-purchase transactions.
2. Includes U.S. government securities held under repurchase agreement against receipt of foreign
currencies and foreign currencies warehoused for the U.S. Treasury. Assets shown in this line are
revalued monthly at market exchange rates.
3. Includes exchange-translation account reflecting the monthly revaluation at market exchange
rates of foreign-exchange commitments.




4. Beginning September 1980, Federal Reserve notes held by the Reserve Banks are exempt from
the collateral requirement.
5. Includes Federal Reserve notes held by U.S. Treasury and by Federal Reserve Banks other
than the issuing Bank.
6. Includes special investment account at Chicago of Treasury bills maturing within 90 days.
NOTE. Data for 1982 in tables 1 and 2 may differ because of rounding or closing adjustments,
which are not included in table 2.

214

Tables

3. Federal Reserve Open Market Transactions, 1982
Millions of dollars
Type of transaction

Jan.

Feb.

Mar.

Apr.

U.S. GOVERNMENT SECURITIES

Outright transactions (excluding matched transactions)

0
2,756
0
600

1,017
868
0
0

474
995
0
600

4,149
0
0
0

0
0
542
0
0

20
0
2,633
-940
0

0
0
900
-1,479
0

132
0
333
-525
0

1 to 5 years
Gross purchases
Gross sales
Maturity shift
Exchange

0
0
-542
0

50
0
-974
765

0
0
-900
1,479

570
0
-333
525

J to 10 years
Gross purchases
Gross sales
Maturity shift
Exchange

oooo

0
0
-1,659
100

oooo

81
0
0
0

Over 10 years
Gross purchases
Gross sales
Maturity shift
Exchange

oooo

0
0
0
75

oooo

Treasury bills
Gross purchases
Gross sales
Exchange
Redemptions

52
0
0
0

All maturities
Gross purchases
Gross sales
Redemptions

0
2,756
600

1,087
868
0

474
995
600

4,984
0
0

Matched transactions
Gross sales
Gross purchases

51,132
51,717

28,033
28,258

38,946
38,650

44,748
44,759

Repurchase agreements
Gross purchases
Gross sales

12,962
12,914

18,656
21,919

8,595
6,998

18,396
14,724

-2,724

-2,820

179

8,667

0
0
68

0
0
32

0
0
13

800
935

872
1,006

554
471

2,033
1,119

-203

-166

70

909

402

-597

488

280

-2,524

-3,583

737

9,856

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

Net change in U.S. government securities
FEDERAL AGENCY OBLIGATIONS

Outright transactions
Gross purchases
Gross sales
Redemptions
Repurchase agreements
Gross purchases
Gross sales
Net change in federal agency obligations
BANKERS ACCEPTANCES

Repurchase agreements, net
Total net change in System Open Market Account .




Tables

Oct.

Nov.

Dec.

774
0
0
0

2,552
0
0
0

1,897
731
0
200

17,067
8,369
0
3,000

0
0
733
-650
0

0
0
623
0
0

88
0
2,819
- 1,924
0

0
0
906
-943
0

312
0
17,295
-14,164
0

0
0
-4,938
3,078

0
0
-733
650

0
0
-623
0

485
0
-2,204
1,515

0
0
-906
943

1,797
0
- 14,524
11,804

0
0
601
837

()
0
0
0

0
0
0

194
0
-616
250

0
0
0
0

-2,172
2,128

0
0
-601
0

0
0
0

0
0
0

132
0
0
159

0
0

July

Aug.

1,559
0
200
0

1,905
1,175
-200
200

1.721
651
0
600

425
674
0
400

0
0
1,498
- 2,541
0

0
0
988
- 1.249
0

71
0
382
0
0

0
0
4,938
-3,914
0

II oo

May

0
0
-988
1.049

691
0
-382
200

0

113

595
519
0
400

0
-498
941

0
0

0

0

123
0
0

Sept.

3,452
0
()

1.897
731
200

19,870
8,369
3,0(X)

45.655
46.370

39,579
41,724

72.123
69.088

543.804
543,173

5.618
9,420

4,161
4.161

15,229
11,525

130.774
130,286

1,636

8,358

595
519
400

1,559
0
0

2,903
1.175
200

1,721
651
600

425
674
400

774
0

36.047
36.790

41,509
37,548

54.646
58,753

39,403
37.962

51.983
51.554

10.155
15.424

5,332
5.332

18,267
18,267

3.755
2.567

9.649
7.035
1.535

0
0
6

0
0
1

1,305
2,301

831
831

4,389
4.389

0
()
46
1.095
866

0
0
5

0
0
6

0
0

0
0
6

0
0
189

1,997
1,225

1,776
2.778

739
739

2.566
1,978

18.957
18,638

183

-768

0

0

565

248

-813

-2,408

5,634

966

2,550

-4,134




582

-1,008

-6,615

*Less than $500,000.
NOTE. Sales, redemptions, and negative figures reduce holdings of the System Open Market Account; all other figures

388

0

0

-2.402

Total

307
0
-601
234

()
()

0
0
1

215

0
5,5%

1,480

1.285

3,697

9,773

increase such holdings. Details may not add to totals because
of rounding.

216

Tables

4. Federal Reserve Bank Holdings of U.S. Government and
Federal Agency Securities, December 31, 1980-82
Millions of dollars
December 31

Increase or decrease ( - )

Description
1982

1. Includes securities held under repurchase agreements.
2. Excludes securities sold under matched agreements, and

1980

130,954
3,935
25,190
37,417
36,025
11,752
16,634

121,328
4,780
23,499
30,187
34,505
13,354
15,002

8,358
461
5,898
2,640
-923
343
-60

9,626
-845
1,691
7,230
1,520
-1,602
1,632

54,426
62,626
18,556
3,704

Federal agency obligations—Total
1-15 days
16-90 days
91 days to 1 year
1-5 years
5-10 years
Over 10 years
Held outright
Banks for Cooperatives
Export-Import Bank
Federal Farm Credit Banks
Federal Home Loan Banks
Federal Home Loan Mortgage Corporation
Federal Intermediate Credit Banks
Federal Land Banks
Farmers Home Administration
Federal National Mortgage Association
Government National Mortgage Association—PCs .
U.S. Postal Service
Washington Metropolitan Area Transit Authority ..
General Services Administration
Held under RPs

1981

139,312
4,3%
31,088
40,057
35,102
12,095
16,574

U.S. government securities—Total
1-15 days 1
16-90 days
91 days to 1 year
1-5 years
5-10 years
Over 10 years
Held outright 2
Treasury bills
Treasury notes
Treasury bonds
Held under RPs

|

49,359
59,978
18,401
3,216

43,688
58,718
16,893
2,029

5,067
2,648
155
488

5,671
1,260
1,508
1,187

9,525
730
564
1,954
4,780
979
518

9,394
530
631
1,443
5,256
962
573

9,264
705
426
1,519
4,838
1,092
685

131
200
-67
511
-476
17
-55

130
-175
205
-76
418
-130
-112

21
0
2,174
2,494
5
50
613
147
3,198
67
37
117
14
588

21
16
1,960
2,500
5
59
840
163
3,312
83
37
117
14
269

35
16
1,459
2,426
0
75
988
187
3,305
83
37
117
14
525

0
-16
214
-6
0
-9
-227
-16
-114
-16
0
0
0
319

-14
0
501
74
5
-16
-148
-24
7
0
0
0
0
-256

1982

1981

securities held under repurchase agreements.
NOTE. Details may not add to totals because of rounding.

5. Number and Salaries of Officers and Employees of
Federal Reserve Banks, December 31, 1982
President
Federal Reserve
Bank (including
branches)

Other officers

Employees
Number

Total

Annual
salary
(dollars)

Number

Annual
salaries
(dollars)

Fulltime

Parttime

Annual
salaries
(dollars)

Number

Annual
salaries
(dollars)

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta

111,000
145,000
82,000
92,000
97,000
106,000

50
150
42
40
71
67

2,477,500
8,716,000
2,085,000
1,808,000
3,325,300
3,194,600

1,267
3,946
1,026
1,214
1,873
2,063

172
93
73
62
95
44

26,863,227
87,266,680
19,428,094
22,251,700
30,786,903
37,586,333

1,490
4,190
1,142
1,317
2,040
2,175

29,451,727
96,127,680
21,595,094
24,151,700
34,209,203
40,886,933

Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

117,000
94,000
90,000
87,000
82,000
122,000

84
46
40
54
47
91

3,975,600
2,177,980
1,849,000
2,435,500
2,232,600
4,414,101

2,871
1,184
992
1,560
1,367
2,066

105
75
2
45
30
84

52,705,239
21,248,033
18,441,700
26,960,797
24,809,561
42,206,872

3,061
1,306
1,035
1,660
1,445
2,242

56,797,839
23,520,013
20,380,700
29,483,297
27,124,161
46,742,973

1,225,000

782

38,691,181

21,429

880

410,555,139

23,103

450,471,320

Total




Tables

217

Bank Premises of Federal Reserve Banks and Branches, D e c e m b e r 3 1 , 1982
Dollars
Federal
Reserve
Bank
or Branch

Cost
Total 2

Net
book
value

5,425,128
44,538

106,916,400
161,580

96,872,789
138,291

12,561,757
1,136,219
3,010,752

21,427,695
745,855
1,661,223

37,425,729
2,359,936
5,559,819

20,817,670
945,657
2,994,507

Land

Buildings
(including
vaults) 1

21,635,436
27,840

79,855,836
89,202

NEW YORK .
Annex
Buffalo

3,436,277
477,862
887,844

BOSTON
Annex

Building machinery and
equipment

PHILADELPHIA

1,876,601

52,360,009

5,253,502

59,490,112

51,170,428

CLEVELAND . . .
Cincinnati
Pittsburgh

1,074,281
1,997,249
1,658,376

5,802,520
13,541,212
5,113,033

4,439,911
7,521,727
3,064,907

11,316,712
23,060,188
9,836,316

3,704,841
15,496,563
7,757,737

RICHMOND
Annex
Baltimore
Charlotte

3,912,575
522.733
3,880,302
347,071

55,679,289
3,725,466
35,036,673
1,075,116

14,314,313
3,616,991
946,943

73,906,179
7,865,190
38,916,975
2,369,130

65,989,168
4,421,545
38,698,750
1,219,698

ATLANTA
Birmingham
Jacksonville
Annex
Miami
Nashville
New Orleans

1,202,255
2,361,070
164,004
107,925
3,547,571
592,342
3,087,693

6,565,323
1,905,770
1,706,794
76,236
11,776,944
1,474,678
2,754,272

3,558,580
1,046,244
778,505
15,843
2,116,440
1,175,891
1,476,257

11,326,159
5,313,084
2,649,303
200,003
17,440,955
3,242,912
7,318,222

6,293,027
3,603,775
875,565
155,826
16,598,408
1,546,874
5,053,452

CHICAGO
Annex
Detroit

4,511,942
53,066
797.734

16,439,102
302,249
3,137,976

11,448,225
136,878
1,972,024

32,399,268
492,193
5,907,734

15,289,180
457,478
2,779,316

ST. LOUIS
Little Rock
Louisville
Memphis

700,378
1,148,492
700,075
1,135,623

4,944,833
2,067,898
2,865,319
4,239,761

3,823,399
1,023,475
1,131,238
2,126,755

9,468,610
4,239,865
4,696,632
7,502,139

3,724,513
2,979,025
2,442,333
5,483,003

MINNEAPOLIS...
Helena
KANSAS CITY . . .
Denver
Oklahoma City
Omaha

1,394,384
289,619
1,338,737
2,997,746
646,386
1,030,226

26,664,805
104,184
12,059,988
3,646,679
2,370,476
1,550,902

7,692,189
61,906
5,813,699
2,374,384
1,717,342
817,215

35,751,378
455,709
19,212,423
9,018,808
4,734,204
3,398,342

26,749,830
343,588
12,929,195
5,998,423
3,473,865
1,848,063

DALLAS
El Paso
Houston
San Antonio

3,729,268
262,477
2,049,064
448,596

5,388,345
1,048,617
1,994,423
1,782,893

3,653,592
393,301
791,229
570,846

12,771,205
1,704,395
4,834,716
2,802,335

8,222,787
1,498,073
4,114,724
2,179,935

SAN FRANCISCO
Annex
Los Angeles
Portland
Salt Lake City
Seattle

12,436,775
247,201
644,238

83,288,534
131,114
4,711,365

2,174,233
62,078
2,426,971

97,899,542
440,393
7,782,575

92,806,072
340,809
4,423,713

207,381
480,222
274,772

1,678,512
1,974,295
2,018,722

649,432
1,036,376
1,234,879

2,535,324
3,490,893
3,528,373

1,956,146
2,380,543
2,006,517

Total

90,321,708

479,658,092

131,762,159

701,741,959

548,781,704

Other
real
estate 3

1. Includes expenditures for construction at some offices
pending allocation to appropriate accounts.
2. Excludes charge-offs of $17,698,968 before 1952.




1,224,363

1,675,944
166,845
951,793

283,753

5,323,439
479,076

4,726,662

14,831,874

3. Includes acquisitions for banking-house purposes, and
Bank premises formerly occupied and being held pending sale.
NOTE Details may not add to totals due to rounding.

218

Tables

7. Income and Expenses of Federal Reserve Banks, 1982
Dollars
Total

Item

Boston

New York

Philadelphia

Cleveland

CURRENT INCOME

Loans
Acceptances
U.S. government securities
Foreign currencies
Priced services
All other

174,599,512
18,282,868
15,492,891,505
432,541,731
386,732,282
12,337,230

72,915,122
18,282,868
4,828,055,401
109,322,456
58,982,951
5,947,971

10,790,342

7,476,261

694,660,256
11,216,663
23,845,933
532,768

524,668,313
17,608,710
14,867,390
241,276

1,047,056,094
32,333,016
23,999,246
318,797

Total

16,517,385,129

734,271,258

5,093,506,769

568,176,031

1,111,183,414

469,307,979

29,834,881

101,388,988

23,633,374

26,945,680

128,075,979
8,317,808
14,414,464

8,361,765
449,229
810,832

25,199,077
1,706,982
1,751,510

6,625,349
391,748
487,997

8,121,877
538,624
1,030,710

100,095,196
19,358,575
37,449,670

4,793,726
1,361,436
2,435,555

12,862,222
4,253,849
7,351,488

4,098,033
945,646
1,938,790

6,622,762
856,872
2,036,381

16,696,319
14,819,043
20,973,887
12,797,242
10,014,647

3,186,972
2,299,705
2,093,546
461,151
486,324

2,775,275
1,399,008
3,858,868
6,189,509
1,545,422

1,340,142
1,494,875
1,973,677
40,014
992,314

911,821
953,867
1,371,834
250,947
395,686

53,111,250
32,686,112

1,876,321
1,581,050

9,918,295
6,627,483

1,568,091
2,105,343

3,974,531
1,382,311

4,815,638

CURRENT EXPENSES

Salaries and other personnel expenses
Retirement and other
benefits
Fees
Travel
Postage and other shipping
costs
Communications
Materials and supplies . . . .
Building expenses
Taxes on real estate
Property depreciation...
Utilities
Rent
Other
Equipment
Rentals
Depreciation
Repairs and
maintenance
Cost of Federal Reserve
currency
Cost of earnings credits 1 . .
All other
Shared costs, net 2
Recoveries
Expenses capitalized 3

Total4
Reimbursements ... /
Net expenses

19,788,408

996,542

4,280,130

1,328,987

838,717

98,441,027
28,261,201
27,137,096
0
-4,109,109
-2,840,279

5,454,292
2,806,545
2,302,334
187,686
-310,360
-92,201

22,400,628
1,930,562
4,402,408
-172,581
-929,720
-7,223

4,524,085
1,392,678
1,161,926
227,777
-409,478
0

6,628,954
1,996,859
1,952,888
-408,380
-66,884
-163,438

1,100,277,278
-75,802,294
1,024,474,984

71,377,331
-6,788,241
64,589,090

218,732,180
-17,592,132
201,140,048

55,861,368
-4,435,281
51,426,087

66,172,619
-5,066,172
61,106,447




Tables

219

—Continued
Richmond

10,511,320

Atlanta

3,236,546

Chicago

St. Louis

Minneapolis

Kansas City

Dallas

San Francisco

17,978,090

6,129,624

5,719,762

15,125,041

8,690,546

1,283,449,216
22,369,054
28,019,258
624,751

421,329,511 2,235,496,829
32,699,165
60,766,531
44,695,757
61,051,781
874,700
1,321,170

534,237,701
12,495,072
19,113,403
442,936

204,995,294
15,911,316
21,180,961
276,880

720,536,314 1,019,659,201
19,343,250
27,925,967
28,565,313
26,088,093
216,183
621,310

1,978,747,375
70,550,531
37,122,196
918,489

1,344,973,599

502,835,679 2,376,614,401

572,418,737

248,084,213

779,872,280 1,089,419,612

2,096,029,138

11,211,220

35,501,997

39,248,272

59,495,404

24,015,714

20,737,835

31,245,710

28,233,617

49,026,507

10,148,260
511,661
1,190,997

10,921,503
543,532
1,228,466

16,811,432
1,107,989
2,245,578

6,523,239
568,350
688,040

5,370,653
378,621
820,755

8,457,956
442,820
1,304,750

7,512,907
491,067
1,013,983

14,021,961
1,187,185
1,840,846

10,039,965
1,416,153
3,561,839

10,400,429
2,001,465
3,681,688

13,748,988
2,303,212
4,211,219

6,178,235
705,674
2,276,020

4,998,600
1,003,036
1,393,603

7,590,579
1,206,278
2,879,994

7,394,045
1,285,382
2,518,135

11,367,612
2,019,572
3,164,958

1,352,197
2,937,441
1,929,376
934,038
1,142,517

1,033,949
905,828
1,744,942
107,127
869,558

1,784,092
639,016
2,037,457
1,873,096
1,717,288

402,122
530,443
1,133,923
284,084
399,492

1,808,307
957,600
817,877
76,638
625,524

514,805
810,918
1,147,115
46,473
586,590

667,569
663,518
1,285,565
767,275
627,232

919,068
1,226,824
1,579,707
1,766,890
626,700

5,842,954
2,710,779

6,159,046
1,993,281

9,425,786
2,488,330

2,003,530
1,791,311

1,927,345
1,577,600

2,204,446
3,007,295

3,148,144
3,012,638

5,062,761
4,408,691

1,553,834

1,474,999

1,788,136

1,252,165

904,671

1,650,394

1,466,867

2,252,966

10,400,382
2,740,820
1,470,755
239,011
-918,531
-231,247

7,987,997
4,379,560
1,962,581
603,069
-379,954
-184,515

12,131,492
8,068,853
4,942,415
-462,706
-68,889
-637,614

3,433,409
498,783
1,028,173
558,990
-518,924
-106,573

1,631,364
1,829,799
1,331,593
440,632
-84,794
-68,666

5,915,811
519,795
1,219,361
-224,193
-276,895
-759,478

4,755,151
806,271
2,085,616
-986,975
-116,829
-476,456

13,177,462
1,290,676
3,277,046
-2,330
-27,851
-112,868

96,682,823
-5,491,944
91,190,879

145,650,574
-9,323,489
136,327,085

53,646,200
-3,282,981
50,363,219

48,478,593
-2,188,905
46,289,688

69,490,524
-3,970,062
65,520,462

66,154,722
-3,786,618
62,368,104

118,074,383
-7,760,596
110,313,787

89,955,9614
-6,115,873
83,840,088

For notes see end of table.




220

Tables

7. Income and Expenses of Federal Reserve Banks, 1982—Continued
Dollars
Total

Item

Boston

New York

Philadelphia

Cleveland

PROFIT AND LOSS

Current net income
Additions to current net
income
Profits on sales of U.S.
government
securities
All other
Total additions
Deductions from current
net income
Losses on foreign cur- 5
rency transactions .
All other
Total deductions ...
Net additions to or deductions ( - ) from current net income
Assessment for expenditures of Board of
Governors6
Net income before payments to U.S.
Treasury
Dividends paid
Payments to U.S. Treasury
(interest on Federal
Reserve notes)
Transferred to surplus
Surplus, January 1
Surplus, December 31

15,492,910,149

669,682,167

4,892,366,721

516,749,946

1,050,076,967

85,240,779
1,162,530
86,403,309

3,989,431
311
3,989,742

27,142,214
18,637
27,160,851

2,806,247
606
2,806,853

5,533,135
706
5,533,841

149,612,214
5,624,246
155,236,460

3,889,918
43,557
3,933,475

37,253,441
1,239,217
38,492,658

6,134,101
46,663
6,180,764

11,220,916
43,094
11,264,010

-68,833,150

56,267

-11,331,807

-3,373,911

-5,730,169

61,813,400

1,605,700

15,383,800

2,579,800

4,639,900

15,362,263,601
79,352,304

668,132,734
2,039,198

4,865,651,114
19,582,450

510,796,235
3,393,997

1,039,706,899
5,891,495

15,204,590,947
78,320,350
1,279,128,350
1,357,449,200

664,574,836
1,518,700
33,434,500
34,953,200

4,833,139,264
12,929,400
318,683,300
331,612,700

500,598,188
6,804,050
52,986,600
59,790,650

1,031,120,404
2,695,000
96,451,300
99,146,300

1. In 1981, earnings credits were classified as a deduction
from current net income.
2. Includes distribution of costs for projects performed by
one Bank for the benefit of one or more other Banks.
3. This item includes expenses for labor and materials temporarily capitalized and charged to activities when the products
are consumed.
4. The total expense for Richmond has been adjusted to
exclude $4,519,237, which was allocated to the expenses of




other Federal Reserve Banks for operation of the Federal
Reserve Communications System.
5. This item consists of unrealized net losses related to revaluation of assets denominated in foreign currencies to market exchange rates.
6. For additional details, see the last three pages of the
section "Board of Governors, Financial Statements."
NOTE. Details may not add to totals because of rounding.

Tables

221

7—Continued
Richmom
id

Atlanta

Chicago

St. Louis

Minneapolis 1 Kansas City

Dallas

| San Francisco

1,261,133,511

411,644,801

2,240,287,316

522,055,518

201,794,525

714,351,818

1,027,051,508

1,985,715,351

7,303,207
844,771
8,147,978

2,080,775
18,418
2,099,193

11,946,614
8,155
11,954,769

2,822,073
1,410
2,823,483

1,040,924
29,883
1,070,807

4,047,928
1,648
4,049,576

5,851,259
40,300
5,891,559

10,676,972
197,685
10,874,657

7,779,835
60,625
7,840,460

11,370,528
129,006
11,499,534

21,095,322
508,627
21,603,949

4,338,754
23,094
4,361,848

5,535,652
9,845
5,545,497

6,732,550
176,117
6,908,667

9,724,794
688,177
10,412,971

24,536,403
2,656,224
27,192,627

307,518

-9,400,341

-9,649,180

-1,538,365

-4,474,690

-2,859,090

-4,521,412

-16,317,970

3,173,400

4,745,200

8,649,500

1,802,800

2,251,600

2,759,800

4,074,500

10,147,400

1,258,267,629
4,116,116

397,499,260 2,221,988,635
6,237,573
10,926,469

518,714,354
2,285,427

195,068,235
2,888,870

708,732,928
3,568,966

1,018,455,596
5,368,824

1,959,249,982
13,052,919

1,248,471,813
5,679,700
65,866,900
71,546,600

379,625,737
11,635,950
97,228,900
108,864,850

2,206,444,016
4,618,150
180,055,100
184,673,250

515,818,077
610,850
37,468,800
38,079,650

190,038,015
2,141,350
46,842,850
48,984,200

700,300,061
4,863,900
57,044,550
61,908,450

1,002,595,672
10,491,100
83,766,500
94,257,600

1,931,864,864
14,332,200
209,299,550
223,631,750

1. In 1981, earnings credits were classified as a deduction
from current net income.
2. Includes distribution of costs for projects performed by
one Bank for the benefit of one or more other Banks.
3. This item includes expenses for labor and materials temporarily capitalized and charged to activities when the products
are consumed.
4. The total expense for Richmond has been adjusted to
exclude $4,519,237, which was allocated to the expenses of




other Federal Reserve Banks for operation of the Federal
Reserve Communications System.
5. This item consists of unrealized net losses related to revaluation of assets denominated in foreign currencies to market exchange rates.
6. For additional details, see the last three pages of the
section "Board of Governors, Financial Statements."
NOTE. Details may not add to totals because of rounding.

222

Tables

8. Income and Expenses of Federal Reserve Banks, 1914—82
Dollars
Period, or Federal
Reserve Bank

Current income

Current
expenses

Net additions
or
deductions (—)

Assessments for
expenditures of
Board of
Governors

All Banks
1914-15 .
1916 ....
1917 ....
1918 ....
1919 ....

2,173,252
5,217,998
16,128,339
67,584,417
102,380,583

2,018,282
2,081,722
4,921,932
10,576,892
18,744,815

5,875
-193,001
-1,386,545
-3,908,574
-4,673,446

302,304
192,277
237,795
382,641
594,818

1920
1921
1922
1923
1924
1925
1926
1927
1928
1929

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

181,296,711
122,865,866
50,498,699
50,708,566
38,340,449
41,800,706
47,599,595
43,024,484
64,052,860
70,955.496

27,548,505
33,722,409
28,836,504
29,061,539
27,767,886
26,818,664
26,628,458
26,739,327
26,207,133
28,909,469

-3,743,907
-6,314,796
-4,441,914
-8,233,107
-6,191,143
-4,823,477
-3,637,668
-2,457,792
-5,026,029
-4,861,642

709,525
741,436
722,545
702,634
663,240
709,499
721,724
779,116
697,677
781,644

1930
1931
1932
1933
1934
1935
1936
1937
1938
1939

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

36,424,044
29,701.279
50,018.817
49,487.318
48,902.813
42,751.959
37,900.639
41,233,135
36,261,428
38,500,665

27,533,141
26,322,110
25,562,571
28,422,677
27,869,374
30,171,545
28,194,457
27,052,234
27,186,684
27,025,391

-93,136
311,451
-1,413,192
-12,307,074
-4,430,008
-1,736,758
485,817
-1,631,274
2,232,134
2,389,555

809,585
718,554
728,810
800,160
1,372,022
1,405,898
1,679,566
1,748,380
1,724,924
1,621,464

1940
1941
1942
1943
1944
1945
1946
1947
1948
1949

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

43,537,805
41,380,095
52,662,704
69,305,715
104,391,829
142,209,546
150,385,033
158,655,566
304,160,818
316,536,930

27,461,466
31,123,609
36,877,718
41,129,934
46,879,564
46,376,762
54,975,323
62,753,308
69,466,518
74,235,176

11,487,697
720,636
-1,568,208
23,768,282
3,221,880
-830,007
-625,991
1,973,001
-34,317,947
-12,122,274

1,704,011
1,839,541
1,746,326
2,415,630
2,296,357
2,340,509
2,259,784
2,639,667
3,243,670
3,242,500

1950
1951
1952
1953
1954
1955
1956
1957
1958
1959

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

275,838,994
394,656,072
456,060,260
513,037,237
438,486,040
412,487,931
595,649,092
763,347,530
742,068,150
886,226,116

77,138,071
91,373,589
100,572,489
109,415,220
105,558,331
105,865,923
115,842,696
124,306,103
131,804,455
138,232,106

36,294,117
-2,127,889
1,583,988
-1,058,993
-133,641
-265,456
-23,436
-7,140,914
124,175
98,247,253

3,433,700
4,095,497
4,121,602
4,099,800
4,174,600
4,194,100
5,339,800
7,507,900
5,917,200
6,470,600

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

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

1,103,385,257
941,648,170
1,048,508,335
1,151,120,060
1,343,747,303
1,559,484,027
1,908,499,896
2,190,403,752
2,764,445,943
3,373,360,559

147,348,575
155,009,475
169,481,234
179,700,557
188,740,689
195,713,790
198,379,526
209,351,250
228,152,172
259,953,236

13,874,702
3,481,628
-55,779
614,835
725,948
1,021,614
996,230
2,093,876
8,519,996
-557,553

6,533,700
6,265,100
6,654,900
7,572,800
8,655,200
8,576,396
9,021,600
10,769,596
14,198,198
15,020,084




Tables

223

8.—-Continued
Payments to U.S. Treasury
Dividends
paid

Franchise
tax

Under
section 13b

Interest on
Federal Reserve
notes

Transferred
to surplus
(section 13b)

Transferred
to surplus
(section 7)

217,463
1,742,775
6,804,186
5,540,684
5,011,832

2,703,894

1,134,234
48,334,341
70,651,778

5,654,018
6,119,673
6,307,035
6,552,717
6,682,496
6,915,958
7,329,169
7,754,539
8,458,463
9,583,911

60,724,742
59,974,466
10,850,605
3,613,056
113,646
59,300
818,150
249,591
2,584,659
4,283,231

82,916,014
15,993,086
-659,904
2,545,513
-3,077,962
2,473,808
8,464,426
5,044,119
21,078,899
22,535,597

10,268,598
10,029,760
9,282,244
8,874,262
8,781,661
8,504,974
7,829,581
7,940,966
8,019,137
8,110,462

17,308

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

1,134,234

2,011,418

8,214,971
8,429,936
8,669,076
8,911,342
9,500,126
10,182,851
10,962,160
11,523,047
11,919,809
12,329,373

297,667
227,448
176,625
119,524
24,579

-60,323
27,695
102,880
67,304
-419,140
-425,653

82,152
141,465
197,672
244,726
326,717
247,659
67,054
35,605

-54,456
-4,333
49,602
135,003
201,150
262,133
27,708
86,772

75,223,818
166,690,356
193,145,837

17,617,358
570,513
3,554,101
40,237,362
48,409,795
81,969,625
81,467,013
8,366,350
18,522,518
21,461,770

13,082,992
13,864,750
14,681,788
15,558,377
16,442,236
17,711,937
18,904,897
20,080,527
21,197,452
22,721,687

196,628,858
254,873,588
291,934,634
342,567,985
276,289,457
251,740,721
401,555,581
542,708,405
524,058,650
910,649,768

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

23,948,225
25,569,541
27,412,241
28,912,019
30,781,548
32,351,602
33,696,336
35,027,312
36,959,336
39,236,599

896,816,359
687,393,382
799,365,981
879,685,219
1,582,118,614
1,296,810,053
1,649,455,164
1,907,498,270
2,463,628,983
3,019,160,638

42,613,100
70,892,300
45,538,200
55,864,300
-465,822,800
27,053,800
18,943,500
29,851,200
30,027,250
39,432,450

For notes see end of table.




224

Tables

8. Income and Expenses of Federal Reserve Banks, 1914-82—Continued
Dollars

Period, or Federal
Reserve Bank

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982

Current income

.

.

.

..

. . .

Total, 1914-82
Aggregate for each
Bank,1914-82
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total




Current
expenses

Net additions
or
deductions (—)

Assessments for
expenditures of
Board of
Governors

3,877,218,444
3,723,369,921
3,792,334,523
5,016,769,328
6,280,090,965
6,257,936,784
6,623,220,383
6,891,317,498
8,455,390,401
10,310,148,406

300,145,586
344,550,798
379,371,852
450,705,676
506,424,874
551,488,714
606,948,264
623,859,582
652,617,206
693,559,531

11,441,829
94,266,075
-49,615,790
-80,653,488
-78,487,237
-202,369,615
7,310,500
-177,033,463
-633,123,486
-151,148,220

21,227,800
32,634,002
35,234,499
44,411,700
41,116,600
33,577,201
41,827,700
47,366,100
53,321,700
50,529,700

12,802,319,335
15,508,349,653
16,517,385,129

791,157,259
897,114,405
1,024,474,984

-115,385,855
-372,879,185
-68,833,150

62,230,800
63,162,700
61,813,400

131,617,347,653

11,941,561,317

-1,744,668,964

776,352,508

6,219,194,588
35,041,576,438
6,386,381,559
10,147,608,805
10,040,897,126
5,970,651,606
20,534,656,054
5,061,525,611
2,669,821,755
5,605,914,743
6,757,109,021
17,182,010,349

805,778,799
2,494,053,832
640,596,889
848,275,126
954,600,118
968,125,662
1,579,807,163
657,424,414
479,465,553
725,096,486
633,222,519
1,155,114,754

-65,166,284
-395,917,147
-74,921,868
-150,509,181
-103,566,012
-122,907,176
-286,247,684
-63,638,446
-48,484,094
-75,208,478
-104,680,109
-253,422,486

31,092,986
205,010,786
38,844,018
67,086,390
40,293,476
52,964,060
114,355,372
25,415,872
21,420,615
32,422,509
43,216,073
104,230,351

131,617,347,653

11,941,561,317

-1,744,668,964

776,352,508

Tables

225

-Continued
Payments to U.S. Treasury
Dividends
Franchise
tax

Under
section 13b

Interest on
Federal Reserve
notes

Transferred
to surplus
(section 13b)

Transferred
to surplus
(section 7)

41,136,551
43,488,074
46,183,719
49,139,682
52,579,643
54,609,555
57,351,487
60,182,278
63,280,312
67,193,615

3,493,570,636
3,356,559,873
3,231,267,663
4,340,680,482
5,549,999,411
5,382,064,098
5,870,463,382
5,937,148,425
7,005,779,497
9,278,576,140

32,579,700
40,403,250
50,661,000
51,178,300
51,483,200
33,827,600
53,940,050
45,727,650
47,268,200
69,141,200

70,354,516
74,573,806
79,352,304

11,706,369,955
14,023,722,907
15,204,590,947

56,820,950
76,896,650
78,320,350

1,526,526,198

149,138,300

2,188,893

113,990,793,736

-3,657

1,486,121,399'

69,634,479
425,946,071
86,855,954
137,110,589
75,522,467
93,222,820
214,302,447
50,597,141
40,004,409
62,278,088
80,740,837
190,310,896

7,111,395
68,006,262
5,558,901
4,842,447
6,200,189
8,950,561
25,313,526
2,755,629
5,202,900
6,939,100
560,049
7,697,341

280,843
369,116
722,406
82,930
172,493
79,264
151,045
7,464
55,615
64,213
102,083
101,421

5,194,946,365
31,083,837,366
5,464,469,990
8,827,331,955
8,783,187,479
4,610,265,182
18,114,465,130
4,218,513,883
2,022,262,284
4,637,866,142
5,795,996,936
15,237,651,024

135,411
-433,412
290,661
-9,906
-71,517
5,491
11,682
-26,515
64,874
-8,674
55,337
-17,089

45,048,025
368,869,271
74,120,872
112,380,093
77,426,408
114,131,390
200,002,004
43,199,278
52,861,413
66,048,400
98,535,078
233,499,167

1,526,526,198

149,138,300

2,188,893

113,990,793,736

-3,657

1,486,121,399!

l.The $1,486,121,399 transferred to surplus was reduced by
direct charges of $500,000 for charge-off on Bank premises
(1927), $139,299,557 for contributions to capital of the Federal
Deposit Insurance Corporation (1934), and $3,657 net upon




elimination of sec. 13b surplus (1958); and was increased by
$11,131,013 transferred from reserves for contingencies (1945),
leaving a balance of $1,357,449,198 on Dec. 31, 1982.
NOTE. Details may not add to totals because of rounding.

226

Tables

9. Volume of Operations in Principal Departments of
Federal Reserve Banks, 1979-82
Operation

1982

1981

1980

1979

Millions of pieces
Loans
Currency received and counted
Currency verified and destroyed
Coin received and counted
Checks handled
U.S. government checks
Postal money orders
All other2
Issues, redemptions, and exchanges of
U.S. government securities
Transfers of funds3
Food stamps redeemed

0)

10,679
4,147
16,859

3,510
17,023

3,197
17,700

8,839
2,969
18,756

655
126
13,971

683
126
15,880r

705
117
15,721r

718
117
15,067

156
58
2,565

188
54
2,625

301
43
2,541

335
35
1,730

Amounts (millions of dollars)
184,997
128,802
31,258
2,714

236,532
117,901
24,912
3,184

267,957
104,333
20,183
2,703

220,628
93,119
22,638
2,765

628,639
6,645
8,722,369

611,403
6,030
9,454,638r

598,569
6,164
9,365,649r

511,044
6,323
8,514,670

26,550,780
121,239,371
9,869

Loans
Currency received and counted
Currency verified and destroyed
Coin received and counted
Checks handled
U.S. government checks
Postal money orders
All other
Issues, redemptions, and exchanges of
U.S. government securities
Transfers of funds
Food stamps redeemed

12,728,458
93,968,246
9,547

10,326,013r
78,594,862
9,268

8,186,706r
64,231,109
7J79

1. Number handled (in thousands): 1982, 24; 1981, 36; 1980,
25; and 1979, 38.
2. Includes checks processed in pre-sorted bundles (fine sort
items) as follows (millions of bundles): 1980, 4.5, with a value
Trillions
19P
of $1,314,925 million; 1981, 8.3 with a value of $1,715,552
million; and 1982, 10.0, with a value of $1,383,735 million.

Before 1980, the volume of these items was insufficient to
warrant separate reporting.
3. Includes the volume processed at both sending and receiving offices of Federal Reserve Banks. The number of priced
wire transfers in 1982 was 35 million.
r Revised.

10. Revenue and Expense of Priced Services at Federal Reserve Banks, 1982
Thousands of dollars
Service
Item

Revenue
Expense
Net revenue
Private sector adjustment4
Net revenue after private
sector adjustment...

Federal
Reserve
System1

Wire transfer
and net
settlement

Definitive
Commer- Commercial Book-entry safekeeping
cial
check
and noncasn
2
ACH
collection
collection

Cash
transportation3

Coin
wrapping

421,571
456,824
-35,253
55,672

49,251
47,922
1,329
7,662

1,302
9,620
-8,318
1,510

283,034
304,004
-20,970
40,646

13,326
16,117
-2,791
2,575

14,503
20,349
-5,846
2,944

24,149
29,457
-5,308
226

1,167
1,094
73
109

-90,925

-6,333

-9,828

-61,616

-5,366

-8,790

-5,534

-36

MEMO: Pro forma net

revenue after private
sector adjustment,
after effect of the
ACH and cash transportation programs

-78,796

-924

1. Total System revenue comprises $386.7 million of income
from fees for services and $34.8 million of income related to
clearing balances established by depository institutions. Total
System expense includes $28.3 million of earnings credits granted
to depository institutions on clearing balances. Details may
not add to totals because revenue and expense data shown by
service do not reflect the income and expense related to clearing balances.
2. The Board established an incentive pricing program for
the commercial automated clearinghouse service that provides
for fee structures designed to recover an increasing share of
expenses over a period of several years. For 1982, revenue for
the commercial ACH service was expected to represent approximately 20 percent of expenses plus the private sector
adjustment factor.
Digitized for The Board adopted a transitional support program, to be
3. FRASER



-2,309
concluded at the end of 1983, for the cash transportation service,
and anticipated that expenses plus the private sector adjustment would exceed revenue for the duration of the program.
4. This adjustment is an imputed cost intended to reflect
the taxes that would have been paid and the return on capital
that would have been provided had a private sector firm furnished the services. In 1982, a PSAF of 16 percent was applied
to Bank expenses for priced services, except certain shipping
expenses.
NOTE. Revenue and expenses of priced services offered by
the Federal Reserve Banks are derived from the income and
expense data shown in table 7. Expenses for priced services
are based primarily on the Federal Reserve Planning and Control System, which provides for the allocation of expenses to
the principal areas of operation of the Banks.

Tables

227

11. Federal Reserve Bank Interest Rates, December 31, 1982
Percent per annum
Loans t o depository institutions
Federal Reserve
Bank

Short-term
adjustment credit
and seasonal
credit 1

Extended credit 2
Next 90 days
of borrowing

After 150
days

81/2

91/2

10V5

8V*

Boston
New York

First 60 days
of borrowing

9Vi

10V*

Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

8V*

1. Rates applied to short-term advances for the purpose of
meeting temporary funding requirements and to longer-term
advances made to smaller institutions for the purpose of meeting seasonally recurring needs for funds. See sections 201.3(a)
and 201.3(b)(l) of Regulation A .

2. Applicable t o advances when exceptional circumstances
or practices involve only a particular depository institution and
to advances when an institution is under sustained liquidity
pressures. See section 201.3(b)(2) of Regulation A .

12. Reserve Requirements of Depository Institutions
Percent of deposits
Through July 13, 1966
Net demand deposits2
Effective date1
1917—June 21
1936—Aug 16
1937_Mar. 1
May 1.
1938_Apr. 16
1941—Nov. 1
1942—Aug. 20
Sept 14
Oct. 3
194g_Feb 27
June 11
Sept. 24, 16
1949—-May 5 1
June 30, July 1
Aug 1
11, 16
18
25
Sept. 1
1951—jan ii 16
25, Feb. 1
1953—July 9, 1
1954—june 24 16
July 29, Aug. 1
1958—Feb. 27, Mar. 1
Mar. 20, Apr. 1
Apr. 17
24
.
I960—Sept. 1
Nov 24
Dec. 1
1962—July 28
Oct. 25, Nov 1
For notes see e n d of table.




Central reserve
city banks

Reserve city
banks

Country
banks

Time deposits
(all classes
of banks)

13
l9Vi
223/4
26
223/4
26
24
22
20
22
24
26
24

10
15
17V*
20
17V*
20

7
10V*
12V4
14
12
14

3
41/2
51/4
6
5
6

22
21
20

71/2
7
6

23V2
23
22 V*
22
23
24
22
21
20
19V*
19
18V*
18
17V*

19V*
19
18V5
18
19
20
19

16
15
14
13
12

13
14
13

6

18
YIVi
17

5

5

12
11V*
11

16V*
12

\Vi
(3)

4

228

Tables

12. Reserve Requirements of Depository Institutions—Continued
Percent of deposits
July 14, 1966, through Nov. 8, 1972 (deposit intervals in millions of dollars)
Time deposits4
(all classes of banks)

Net demand
deposits2
Effective date1

Reserve
city banks
0-5

|

Country
banks

Over 5

0-5

|

\6Vi5

1966-July 14, 21
Sept. 8, 11
1967-Mar. 2
16
1968-Jan. 11, 18
1969-Apr. 17
1970-Oct. 1

....
16V5
17
....

Over 5

0-5

125
....
....
....
17
17V4

Other
time

Savings

....
....

....
....

12
12Vi
....

45
....
3Vi
3
....

12Vi
13
....

|

45
....
3V4
3
....
....

Over 5
5
6
....
5

Nov. < 1972, 1hrough Nov. 12, 1980 (deposit intervals in millions ()f dollars
I
Net demand deposits 26

Time and savings deposits4
Time7

Effective date

1972-Nov. 9
16
1973-July 19
1974-Dec. 12
1975-Feb. 13
Oct 30
1976-Jan. 8
Dec. 30

0-2

2-10

10100

100400

10

12

10V5

8

12VS

16VS8
13
13VS

id

\2

13

. . .
7V2

Over
400

17V5

0-5, by
maturity

Savings

35

30179
days

Mi

113/4

4yrs.
or
more

30179
days

35

18
17V4
16V>>

180
days
to
4 yrs.

3

3

4yrs.
or
more

55
' 6'

3
2VS9

. ...

'Y

180
days
to
4yrs.

Over 5, by
maturity

I9

3
3
2Vz9

I9

12 /4
Beginning Nov. 13, 1980

Type of deposit, and
deposit interval10

Depository institution requirements
after implementation of the
Monetary Control Act11
Percent

Effective date

Net-transaction accounts1213
$0-$26.3 million
Over $26.3 million

3
12

12/30/82
12/30/82

Nonpersonal time deposits14
By original maturity
Less than 3Vi
3V2 years or more

3
0

4/29/82
4/29/82

Eurocurrency liabilities
All types

3

11/13/80

1. Reserves required during the period from inception of
the Federal Reserve System until June 20, 1917, were not
strictly comparable with later requirements; they were based
on aggregate amounts of deposits, and reserve balances with
the Reserve Banks were increased in stages.
When two dates are shown, the first applies to the change
at central reserve or reserve city banks and the second to the
change at country banks.
2. Demand deposits subject to reserve requirements, beginning Aug. 23, 1935, were total demand deposits minus cash
items in process of collection and demand balances due from
domestic banks (also minus war loan and Series E bond accounts during the period Apr. 13, 1943—June 30, 1947).
All required reserves were held on deposit with Federal
Reserve Banks from June 21,1917, until late 1959. Since then,
member banks were allowed to count vault cash as reserves,
as follows: country banks—in excess of 4 and 2Vi percent of




net demand deposits effective Dec. 1,1959, and Aug. 25,1960,
respectively; central reserve city and reserve city banks—in
excess of 2 and 1 percent effective Dec. 3, 1959, and Sept. 1,
1960, respectively. All institutions were allowed to count all
vault cash as reserves effective Nov. 24, 1960.
In graduated requirement schedules, each deposit interval
applies to that part of the deposits of each bank.
Beginning Oct. 16, 1969, Regulation M required reserves
against (a) net balances due from domestic offices to their
foreign branches and (b) foreign-branch loans to U.S. residents; Regulation D imposed a similar requirement against (c)
borrowings from foreign banks by domestic offices of a member bank. Limited reserve-free base amounts were originally
permitted under Regulation M but were eliminated for (b)
effective June 21,1973, and were lowered in steps for (a) and
(c) until eliminated effective Mar. 4,1974. Beginning June 21,
1973, loans aggregating $100,000 or less to any U.S. res-

Tables

229

12.—Continued
ident were excluded from computations, as were total loans
of a bank to U.S. residents if not exceeding $1 million. The
applicable reserve percentage, which was originally 10 percent,
was increased to 20 percent on Jan. 7, 1971; reduced to 8
percent on June 21, 1973, to 4 percent on May 22, 1975, and
to zero on Aug. 24, 1978. Effective Dec. 1, 1977, the reserve
required against deposits that foreign branches of U.S. banks
use for lending to U.S. residents was reduced to 1 percent,
and on Aug. 24, 1978, it was reduced to zero. For details see
Regulations D and M as described in "Record of Policy Actions of the Board of Governors," in previous ANNUAL REPORTS.

3. Authority of the Board of Governors to classify or reclassify cities as central reserve cities was terminated effective
July 28, 1962.
4. Time deposits such as Christmas and vacation club accounts became subject to the same requirements as savings
deposits, effective Jan. 5,1967. Negotiable order of withdrawal
(NOW) accounts were defined in the Board's Regulation Q
as savings deposits beginning Jan. 1, 1974. Effective with the
reserve computation period beginning Nov. 16,1978, domestic
deposits of Edge corporations were subject to the same reserve
requirements as deposits of member banks.
5. This rate had been established in the earlier structure. It
remained the same in the new structure established this date.
6. Effective Nov. 9, 1972, a new criterion was adopted to
designate reserve cities, and on the same date requirements
for reserves against net demand deposits of member banks
were restructured to provide that each member bank maintain
reserves related to the size of its net demand deposits. The
new reserve city designations were as follows: A bank having
net demand deposits of more than $400 million was considered
to have the character of business of a reserve city bank, and
the presence of the head office of such a bank constituted
designation of that place as a reserve city. Cities in which there
were Federal Reserve Banks or branches were also reserve
cities. Any bank, wherever located, having net demand deposits of $400 million or less was considered to have the character of business of banks outside of reserve cities and was
permitted to maintain reserves at ratios set for banks not in
reserve cities.
7. Beginning Nov. 2, 1978, a supplementary reserve requirement of 2 percent was added to the existing requirements
for time deposits of $100,000 or more and for certain other
liabilities. This supplementary requirement was eliminated with
the maintenance period beginning July 24, 1980.
From June 21,1973, through Dec. 11, 1974, member banks,
except as noted below, were subject to a marginal reserve
requirement against increases in the aggregate of the following
types of obligations: (a) outstanding time deposits of $100,000
or more, (b) outstanding funds obtained by the bank through
issuance by a bank's affiliate of obligations subject to the existing reserve requirements on time deposits, and (c) beginning
July 12, 1973, funds from sales of finance bills. For the period
June 21 through Aug. 29, 1973, (a) included only single-maturity time deposits. The requirement applied to balances above
a specified base, but was not applicable to banks having obligations of these types aggregating less than $10 million. Including the basic requirement (5 percent during the entire
period), requirements were as follows: 8 percent for (a) and
(b) from June 21 through Oct. 3, 1973, and for (c) from July
12 through Oct. 3, 1973; 11 percent from Oct. 4 through Dec.
26, 1973; and 8 percent from Dec. 27, 1973, through Sept. 18,
1974. Beginning Sept. 19, the 8 percent requirement applied
only to those obligations in (a), (b), and (c) with initial maturities of less than 120 days, and effective Dec. 12, 1974, the
remaining marginal reserve was removed on this type of obligation issued to mature in less than 4 months. For details,
see "Record of Policy Actions of the Board of Governors" in
1973 and 1974 ANNUAL REPORTS.

Effective with the reserve maintenance period beginning
Oct. 25, 1979, a marginal reserve requirement of 8 percent
was added to managed liabilities in excess of a base amount.
This marginal requirement was increased to 10 percent beginning Apr. 3, 1980, was decreased to 5 percent beginning June
12,1980, and was eliminated beginning July 24,1980. Managed
liabilities are defined as large time deposits, Eurodollar borrowings, repurchase agreements against U.S. government and
federal agency securities, federal funds borrowings from nonmember institutions, and certain other obligations. In general,
the base for the marginal reserve requirement was originally




the greater of (a) $100 million or (b) the average amount of
the managed liabilties held by a member bank, Edge corporation, or family of U.S. branches and agencies of a foreign
bank for the two reserve computation periods ending Sept. 26,
1979. For the computation period beginning Mar. 20, 1980,
the base was lowered by (a) 7 percent or (b) the decrease in
an institution's U.S. office gross loans to foreigners and gross
balances due from foreign offices of other institutions between
the base period (Sept. 13-26, 1979) and the week ending Mar.
12, 1980, whichever was greater. For the computation period
beginning May 29, 1980, the base was increased IVi percent
above the base used to calculate the marginal reserve in the
statement week of May 14-21, 1980. In addition, beginning
Mar. 19, 1980, the base was reduced to the extent that foreign
loans and balances declined.
8. The 16V^ percent requirement applied only for one week
and solely to former reserve city banks. For other banks, the
13 percent requirement was continued in this deposit interval.
9. The average of reserves on savings and other time deposits
had to be at least 3 percent, the legal minimum at that time.
10. The Garn-St Germain Depository Institutions Act of
1982 (P.L. 97-320) provides that $2 million of reservable liabilities (transaction accounts, nonpersonal time deposits, and
Eurocurrency liabilities) of each depository institution are subject to a reserve requirement of zero percent. Each year the
Board will adjust the amount of reservable liabilities subject
to the zero percent requirement 80 percent of the percentage
increase in the total reservable liabilities of all depository institutions as of June 30; no adjustment is made in the event
of a decrease.
Effective Dec. 9, 1982, the amount of the exemption was
established at $2.1 million. In determining the reserve requirements of a depository institution, the exemption applies in the
following order: (1) net negotiable order of withdrawal (NOW)
accounts (that is, NOW accounts less allowable deductions);
(2) net other transaction accounts; and (3) nonpersonal time
deposits or Eurocurrency liabilities, starting with those with
the highest reserve ratio. With respect to NOW and to other
transaction accounts, the exemption applies only to the accounts that would be subject to a 3 percent reserve requirement.
11. For nonmember banks and thrift institutions that were
not members of the Federal Reserve System on or after July
1, 1979, a phase-in period ends September 3, 1987. For banks
that were members on or after July 1, 1979, but withdrew on
or before Mar. 31, 1980, the phase-in period established by
P.L. 97-320 ends on Oct. 24,1985. For existing member banks
the phase-in period is about three years, depending on whether
their new reserve requirements are greater or less than the old
requirements. All new institutions will have a two-year phasein beginning with the date that they open for business, except
for those institutions that have total reservable liabilities of
$50 million or more.
12. Transaction accounts include all deposits on which the
account holder is permitted to make withdrawals by negotiable
or transferable instruments, payment orders of withdrawal,
and telephone and preauthorized transfers (in excess of three
per month) for the purpose of making payments to third persons or others. However, money market deposit accounts
(MMDAs) authorized under 12 CFR 1204.122, and similar
accounts offered by institutions not subject to the rules of the
Depository Institutions Deregulation Committee that permit
up to six preauthorized, automatic, or other transfers per month,
of which no more than three can be checks, are not transaction
accounts. Such accounts are savings deposits subject to the
reserve requirements for time deposits.
13. The Monetary Control Act of 1980 requires that the
amount of transaction accounts against which the 3 percent
reserve requirement applies be modified annually 80 percent
of the percentage change in transaction accounts held by all
depository institutions, as of June 30 each year. Effective Dec.
31, 1981, the amount was increased from $25 million to $26
million; and effective Dec. 30, 1982, to $26.3 million.
14. In general nonpersonal time deposits are time deposits,
including savings deposits, that are not transaction accounts
and in which the beneficial interest is held by a depositor that
is not a natural person. Also included are all transferable time
deposits and certain obligations issued to depository institution
offices located outside the United States. For details, see section 204.2 of Regulation D.

230

Tables

13. Maximum Interest Rates Payable on Time and Savings Deposits at Federally
Insured Institutions1
Percent per annum
Savings and loan associations and
mutual savings banks
(thrift institutions)

Commercial banks
Type and maturity of deposit

In effect
Dec. 31, 1982
Percent

Savings
Negotiable order of withdrawal
accounts 3
Time accounts 4
Fixed ceiling rates by
maturity 5
14-89 days *
90 days to 1 year
1 to 2 years 8
2 to 2XA years 8
2Vi to 4 years 8
4 to 6 years 9
6 to 8 years 9
8 years or more 9
Issued to governmental units
(all maturities) n
IRAs and Keogh (H.R. 10)
plans (3 years or
more)1112

Effective
date

Previous
maximum
Percent

Percent

Previous
maximum

Effective
date

Percent
51/4

5V4

7/1/79

7/1/73

5V5

7/1/79

5V4

12/31/80

1/1/74

51/4

12/31/80

5V4
53/4

8/1/79
1/1/80

6

7/1/73

6Vi
71/4
73/4

7/1/73
11/1/73
12/23/74
6/1/78

5Vi
5Vi
53/4
53/4

7/1/73
7/1/73
1/21/70
1/21/70
1/21/70

ii/1/73
3

5

63/4
71/2
73/4

53/4

()
11/1/73
12/23/74
6/1/78

(2)

1/1/74

1/1/80
61/2

Effective

6
6
(10)
71/2

()
1/21/70
1/21/70
1/21/70

' ii/1/73'

7

3

6/1/78

7 /4

12/23/74

6/1/78

7 /4

12/23/74

6/1/78

73/4

7/6/77

6/1/78

73/4

7/6/77

1. For the history of interest rate ceilings before 1982, see
previous editions of the A N N U A L R E P O R T .

2. July 1, 1973, for mutual savings banks; July 6, 1973, for
savings and loan associations.
3. Federally insured commercial banks, savings and loan
associations, cooperative banks, and mutual savings banks in
Massachusetts and New Hampshire were first permitted to
offer negotiable order of withdrawal ( N O W ) accounts on Jan.
1, 1974. Authorization to issue N O W accounts was extended
to similar institutions throughout New England on Feb. 27,
1976, in New York State on Nov. 10, 1978, New Jersey on
Dec. 28, 1979, and to similar institutions nationwide effective
Dec. 31, 1980.
4. For exceptions with respect to certain foreign time deposits see the Federal Reserve Bulletin for October 1962 ( p .
1279), August 1965 (p. 1084), and February 1968 (p. 167).
5. Effective Nov. 10, 1980, the minimum notice period for
public unit accounts at savings and loan associations was decreased to 14 days and the minimum maturity period for time
deposits at savings and loan associations in excess of $100,000
was decreased to 14 days. Effective Oct. 30, 1980, the minimum maturity or notice period for time deposits was decreased
from 30 to 14 days at mutual savings banks.
6. Effective Oct. 30, 1980, the minimum maturity or notice
period for time deposits was decreased from 30 to 14 days at
commercial banks.
7. N o separate account category.
8. N o minimum denomination. Until July 1, 1979, a minimum of $1,000 was required for savings and loan associations,
except in areas where mutual savings banks permitted lower
minimum denominations. This restriction was removed for
deposits maturing in less than 1 year, effective Nov. 1, 1973.
9. N o minimum denomination. Until July 1, 1979, the minimum denomination was $1,000 except for deposits representing funds contributed to an individual retirement account
(IRA) or a Keogh ( H . R . 10) plan established pursuant to the
Internal Revenue Code. T h e $1,000 minimum requirement
was removed for such accounts in December 1975 and November 1976 respectively.




Effective
date

In effect
Dec. 31, 1982

10. Between July 1, 1973, and Oct. 3 1 , 1973, certificates
maturing in 4 years or more with minimum denominations of
$1,000 had no ceiling; however, the amount of such certificates
that an institution could issue was limited to 5 percent of its
total time and savings deposits. Sales in excess of that amount,
as well as certificates of less than $1,000, were limited to the
6V2 percent ceiling on time deposits maturing in 2V!2 years or
more. Effective Nov. 1, 1973, ceilings were reimposed on certificates maturing in 4 years or more with minimum denomination of $1,000. There is no limitation on the amount of these
certificates that banks can issue.
11. Accounts subject t o fixed-rate ceilings. See footnote 8
for minimum denomination requirements.
12. Effective Jan. 1, 1980, commercial banks are permitted
to pay the same rate as thrift institutions on I R A and Keogh
accounts and accounts of governmental units when such deposits are placed in 2Vi-year-or-more variable-ceiling certificates o r in 26-week money market certificates regardless of
the level of the Treasury bill rate.
N O T E . Before Mar. 3 1 , 1980, the maximum rates that could
be paid by federally insured commercial banks, mutual savings
banks, and savings and loan associations were established by
the Board of Governors of the Federal Reserve System, the
Board of Directors of the Federal Deposit Insurance Corporation, and the Federal Home Loan Bank Board under the
provisions of 12 C F R 217, 329, and 526 respectively. Title II
of the Depository Institutions Deregulation and Monetary
Control Act of 1980 (P.L. 96-221) transferred the authority of
the agencies t o establish maximum rates of interest payable
on deposits to the Depository Institutions Deregulation Committee. The maximum rates on time deposits in denominations
of $100,000 or more with maturities of 30-89 days were suspended in June 1970; the maximum rates for such deposits
maturing in 90 days or more were suspended in May 1973.
For information regarding previous interest rate ceilings on all
types of accounts, see earlier issues of the Federal Reserve
Bulletin, the Federal Home Loan Bank Board Journal, and
the Annual Report of the Federal Deposit Insurance Corporation.

Tables

231

13.—Continued

TIME DEPOSITS SUBJECT TO
VARIABLE CEILING RATES
7- to 31-day time deposits. Effective Sept. 1,1982, depository
institutions are authorized to issue nonnegotiable time deposits
of $20,000 or more with a maturity or required notice period
of 7 to 31 days. The maximum rate of interest payable by thrift
institutions is the rate established and announced (auction average on a discount basis) for U.S. Treasury bills with maturities of 91 days at the auction held immediately before the
date of deposit or renewal ("bill rate"). Commercial banks
may pay the bill rate minus 25 basis points. The interest rate
ceiling is suspended when the bill rate is 9 percent or below
for the four most recent auctions held before the date of deposit or renewal.
91-day time deposits. Effective May 1, 1982, depository institutions were authorized to offer time deposits that have a
minimum denomination of $7,500 and a maturity of 91 days.
The ceiling rate of interest on these deposits is indexed to the
discount rate (auction average) on most recently issued 91-day
Treasury bills for thrift institutions and the discount rate minimum 25 basis points for commercial banks. The rate differential ends 1 year from the effective date of these instruments
and is suspended at any time the Treasury bill discount rate
is 9 percent or below for four consecutive auctions.
Six-month money market time deposits. Effective June 1,
1978, commercial banks and thrift institutions were authorized
to offer time deposits with a maturity of exactly 26 weeks and
a minimum denomination requirement of $10,000. The ceiling
rate of interest on these deposits is indexed to the discount
rate (auction average) on most recently issued 26-week U.S.
Treasury bills. Interest on these certificates may not be compounded. Effective for all 6-month money market certificates
issued beginning Nov. 1,1981, depository institutions may pav
rates of interest on these deposits indexed to the higher of (1)
the rate for 26-week Treasury bills established immediately
before the date of deposit (bill rate) or (2) the average of the
four rates for 26-week Treasury bills established for the 4
weeks immediately before the date of deposit (4-week average
bill rate). Ceilings are determined as follows:
Bill rate or 4-week
average bill rate
7.50 percent or below
Above 7.50 percent

7.25 percent or below
Above 7.25 percent, but
below 8.50 percent
8.50 percent or above, but
below 8.75 percent
8.75 percent or above

Commercial bank
ceiling
7.75 percent
l
A of 1 percentage point plus
the higher of the bill
rate or 4-week average
bill rate
Thrift ceiling
7.75 percent
l
/i of 1 percentage point plus
the higher of the bill
rate or 4-week average
bill rate
9 percent
VA of 1 percentage point plus
the higher of the bill
rate or 4-week average
bill rate

12-month all savers certificates. Effective Oct. 1, 1981, depository institutions are authorized to issue all savers certificates (ASCs) with a 1-year maturity and an annual investment
yield equal to 70 percent of the average investment yield for
52-week U.S. Treasury bills as determined by the auction of
52-week Treasury bills held immediately before the calendar
week in which the certificate is issued. A maximum lifetime
exclusion of $1,000 ($2,000 on a joint return) from gross income is generally authorized for interest income from ASCs.
2l/2-year to less than 31/2-year time deposits. Effective Aug.
1, 1981, commercial banks are authorized to pay interest on




any variable ceiling nonnegotiable time deposit with an original
maturity of 2Vi years to less than 4 years at a rate not to exceed
V4 of 1 percent below the average 2Vi-year yield for U.S.
Treasury securities as determined and announced by the Treasury Department immediately before the date of deposit. Effective May 1, 1982, the maximum maturity for this category
of deposits was reduced to less than 3Vi years. Thrift institutions may pay interest on these certificates at a rate not to
exceed the average 2^2-year yield for Treasury securities as
determined and announced by the Treasury Department immediately before the date of deposit. If the announced average
2Vi-year yield for Treasury securities is less than 9.50 percent,
commercial banks may pay 9.25 percent and thrift institutions
9.50 percent for these deposits. These deposits have no required minimum denomination, and interest may be compounded on them. The ceiling rates of interest at which they
may be offered vary biweekly.
Between Jan. 1, 1980, and Aug. 1, 1981, commercial banks
and thrift institutions were authorized to offer variable ceiling
nonnegotiable time deposits with no required minimum denomination and with maturities of 2l/2 years or more. Effective
Jan. 1, 1980, the maximum rate for commercial banks was 3/4
percentage point below the average yield on 2V£-year U.S.
Treasury securities; the ceiling rate for thrift institutions was
J
/4 percentage point higher than that for commercial banks.
Effective Mar. 1, 1980, a temporary ceiling of H3/4 percent
was placed on these accounts at commercial banks and 12
percent on these accounts at savings and loans. Effective June
2,1980, the ceiling rates for these deposits at commercial banks
and savings and loans were increased Vi percentage point. The
temporary ceiling was retained, and a minimum ceiling of 9.25
percent for commercial banks and 9.50 percent for thrift institutions was established.
TIME DEPOSITS NOT SUBJECT TO
INTEREST RATE CEILINGS, BY MATURITY
Money Market Deposit Accounts. Effective Dec. 14, 1982,
depository institutions are authorized to offer a new account
with a required initial balance of $2,500 and an average maintenance balance of $2,500 not subject to interest rate restrictions. No minimum maturity period is required for this account, but depository institutions must reserve the right to
require seven days' notice for withdrawals. When the average
balance is less than $2,500, the account is subject to the maximum ceiling rate of interest for NOW accounts; compliance
with the average-balance requirement may be determined over
a period of one month. Depository institutions may not guarantee a rate of interest for this account for a period longer
than one month or condition the payment of a rate on a requirement that the funds remain on deposit for longer than
one month. No more than six preauthorized, automatic, or
other third-party transfers are permitted per month, of which
no more than three can be checks. Telephone transfers to third
parties or to another account of the same depositor are regarded as preauthorized transfers.
IRAs and Keogh (H.R.10) plans (18 months or more). Effective Dec. 1, 1981, depository institutions are authorized to
offer time deposits not subject to interest rate ceilings when
the funds are deposited to the credit of, or in which the entire
beneficial interest is held by, an individual pursuant to an IRA
agreement or Keogh (H.R.10) plan. Such time deposits must
have a minimum maturity of 18 months, and additions may
be made to the time deposit at any time before its maturity
without extending the maturity of all or a portion of the balance
of the account.

nonnegotiable ti
of 3V2 years or more that are not subject to interest rate ceilings. Such time deposits have no minimum denomination, but
must be made available in a $500 denomination. Additional
deposits may be made to the account during the first year
without extending its maturity.

232

Tables

14. Margin Requirements1
Percent of market value

Effective date

For credit extended under Regulation T (brokers and dealers), U (banks),
G (others than brokers, dealers, or banks), and X (borrowers)
Margin
stocks

1934—Oct. 1
1936—Feb. 1
Apr. 1
1937—Nov. 1
1945—Feb. 5
July 5
1946—Jan. 21
1947_Feb. 1
1949—Mar. 3
1951—Jan. 17
1953—Feb. 20
1955—Jan. 4
Apr. 23
1958—Jan. 16
Aug. 5
Oct. 16
1960—July 28
1962—July 10
1963—Nov. 6
1968— Mar. 11
June 8
1970—May 6
1971—Dec. 6
1972—Nov. 24
1974—Jan. 3
1977—Jan. 1

Convertible
bonds

25-45

$
50
50
75
100
75
50
75
50
60
70
50
70
90
70
50
70
70
80
65
55
65
50
50

Writing options,
Tonly 2

(3)

55
40
50
75
100
75
50
75
50
60
70
50
70
90
70
50
70
70
80
65
55
65
50
50

25-55

1. Regulations T, U, G, and X, adopted by the Board of
Governors pursuant to the Securities Exchange Act of 1934,
limit the amount of credit to purchase and carry "margin securities" and "margin stock" (as defined in the regulations)
when such credit is collateralized by securities. Margin requirements are the difference between the market value (100
percent) and the maximum loan value of collateral as prescribed by the Board. Regulation T was adopted effective




Short sales,
Tonly

Q

50
60
50
50
50
50
50

30

Oct. 15,1934; Regulation U, effective May 1,1936; Regulation
G, effective Mar. 11, 1968; and Regulation X, effective
Nov. 1, 1971.
2. The margin is expressed as a percent of the current market
value of the stock underlying the option.
3. The requirement was the margin "customarily required"
by the brokers and dealers.

Tables

233

15. Principal Assets and Liabilities, and Number of Insured Commercial Banks,
by Class of Bank, June 30, 1982 and 1981 '
Asset and liability items shown in millions of dollars
Insured commercial banks
Item

Total

Member banks
Total

State

June 30, 1982
780,667,097
228,988,338

396,874,626

796,524,833
774,416,606
213,130,602
62,982,045
150,148,557
149,397,441

614,070,085
597,080,537
166,597,012
48,580,474
118,016,538
111,754,636

182,454,748
177,336,069
46,533,590
14,401,571
32,132,019
37,642,805

267,586,222
258,291,860
119,288,404
39,665,172
79,623,232
38,905,688

1,292,282,619
60,588,650
307,125,361
924,568,557
123,326,781

916,428,968
57,215,839
226,028,487
633,184,631
88,705,972

720,651,972
37,924,377
172,186,397
510,541,202
68,614,684

195,776,996
19,291,462
53,842,090
122,643,429
20,091,288

375,853,651
3,372,811
81,096,874
291,383,926
34,620,809

14,414

5,538

4,506

1,032

8,876

Loans and investments, total
Loans
Gross
Net
Investments
U.S. Treasury securities.
Other2
Cash assets, total

1,396,530,061 1,009,655,435
1,064,111,055
1,032,708,466
332,419,006
102,647,217
229,771,789
188,303,129

Deposits, total
Interbank
Other demand
Other time
Total equity capital...
Number of banks

National

Insured
nonmember
banks

June 30, 1981
Loans and investments, total
Loans
Gross
Net
Investments
U.S. Treasury securities.
Other2
Cash assets, total

1,254,421,202

896,060,439

698,551,950

197,508,489

1,254,421,202

935,344,629
906,046,456
319,076,573
104,364,322
214,712,251
205,148,743

688,185,284
668,064,557
207,875,155
66,055,466
141,819,689
169,096,631

536,702,702
521,110,004
161,849,248
50,423,955
111,425,293
115,756,522

151,482,582
146,954,553
46,025,907
15,631,511
30,394,396
53,340,109

935,344,629
906,046,456
319,076,573
104,364,322
214,712,251
205,148,743

Deposits, total
Interbank
Other demand ...
Other time
Total equity capital.

1,210,720,048
75,300,099
332,030,778
803,389,126
113,279,656

861,723,042
72,030,999
244,334,669
545,357,350
81,288,763

664,475,770
40,427,802
182,377,437
441,670,516
62,996,277

197,247,272
31,603,197
61,957,232
103,686,834
18,292,486

1,210,720,048
75,300,099
332,030,778
803,389,126
113,279,656

Number of banks...

14,443

5,472

4,453

1,019

8,971

1. All insured commercial banks in the United States.
2. Includes trading accounts for banks with assets of less
than $100 million.




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

234

Tables

16. Reserves of Depository Institutions, Federal Reserve Bank Credit, and Related
Items—Year-End 1918-82, and Month-End 1982
Millions of dollars
Factors supplying reserve funds
Federal Reserve Bank credit outstanding
U.S. government
securities
Period

Total

Bought
outright

Held
under
repurchase
agreement

drawing
rights
certificate
account

Treasury
currency
outstanding5

Loans

Float 1

All
other 2

Other
Federal
Reserve

294
575
262
146
273
355
390

0
0
0
0
0
0
0

2,498
3,292
3,355
1,563
1,405
1,238
1,302

2,873
2,707
2,639
3,373
3,642
3,957
4,212

0
0

1,795
1,707

0
0
0
0
0

1,709
1,842
1,958
2,009
2,025

0
0
0
0
0

1,459
1,381
1,655
1,809
1,583

4,112
4,205
4,092
3,854
3,997

0
0
0
0
0

1,977
1,991
2,006
2,012
2,022

1,373 4,306
1,853 4,173
2,145 4,226
2,688 4,036
2,463 8,238

0
0
0
0
0

2,027
2,035
2,204
2,303
2,511

2,486
2,500
2,612
2,601
2,593

10,125
11,258
12,760
14,512
17,644

0
0
0
0
0

2,476
2,532
2,637
2,798
2,963

Gold
stock 4

1918 .
.
1919 .
.
1920 .
.
1921 ..
1922 .
.
1923 .
.
1924 .
.

239
300

239
300

0
0

1,766
2,215

287
234
436
134
540

287
234
436
80
536

0
0
0
54
4

2,687
1,144
618
723
320

199
201
119
40
78
27
52

1925 ..
1926 .
.
1927 .
1928 .
1929.

375
315
617
228
511

367
312
560
197
488

3
57
31
23

643
637
582
1,056
632

63
45
63
24
34

378
384
393
500
405

1930 .
1931.
1932.
1933.
1934.

739
817
1,855
2,437
2,430

686
775
1,851
2,435
2,430

43
42
4
2
0

251
638
235

21
20
14
15
5

372
378
41
137
21

1935 .
1936.
1937.
1938.
1939.

2,431
2,430
2,564
2,564
2,484

2,430
2,430
2,564
2,564
2,484

1
0
0
0
0

5
3
10
4
7

12
39
19
17
91

38
28
19
16
11

1940.
1941.
1942.
1943.
1944.

2,184
2,254
6,189
11,543
18,846

2,184
2,254
6,189
11,543
18,846

0
0
0
0
0

3
3
6
5

94
471
681
815

10
14
10
4

0
0
0
0
0

2,274
2,361
6,679
12,239
19,745

21,995
22,737
22,726
21,938
20,619

0
0
0
0
0

3,087
3,247
3,648
4,094
4,131

1945.
1946.
1947.
1948.
1949.

24,262
23,350
22,559
23,333
18,885

24,262
23,350
22,559
23,333
18,885

0
0
0
0
0

249
163
85
223
78

578
580
535
541
534

2
1
1
1
2

0
0
0
0
0

15,091
24,093
23,181
24,097
19,499

20,065
20,529
22,754
24,244
24,427

0
0
0
0
0

4,339
4,562
4,562
4,589
4,598

1950.
1951.
1952.
1953.
1954.

20,778
23,801
24,697
25,916
24,932

20,725
23,605
24,034
25,318
24,888

53
196
663
598
44

67
19
156
28
143

1,368
1,184
967
935

3
5
4
2
1

0
0
0
0
0

22,216
25,009
25,825
26,880
25,885

22,706
22,695
23,187
22,030
21,713

0
0
0
0
0

4,636
4,709
4,812
4,894
4,985

1955.
1956.
1957.
1958.
1959.

24,785
24,915
24,238
26,347
26,648

24,391
24,610
23,719
26,252
26,607

394
305
519
95
41

108
50
55
64
458

1,585
1,665
1,424
1,2%
1,590

29
70
66
49
75

0
0
0
0
0

26,507
26,699
25,784
27,755
28,771

21,690
21,949
22,781
20,534
19,456

0
0
0
0
0

5,008
5,066
5,146
5,234
5,311

1960.
1961.
1962.
1963.
1964.

27,384
28,881
30,820
33,593
37,044

26,984
30,478
28,722
33,582
36,506

400
159
342
11
538

33
130
38
63
186

1,847
2,300
2,903
2,600
2,606

74
51
110
162
94

0
0
0
0
0

29,338
31,362
33,871
36,418
39,930

17,767
16,889
15,978
15,513
15,388

0
0
0
0
0

5,398
5,585
5,567
5,578
5,405




Tables

235

16.—Continued

Factors absorbing reserve funds
Deposits, other
than reserves, with
Federal Reserve Banks

Other
Federal
Reserve
liabilities
and
capital3

Member bank
reserves

Currency
in
circulation

Treasury
cash
holdings6

4,951
5,091

288
385

51
31

96
73

25
28

118
208

0
0

1,636
1,890

0
0

1,585
1,822

51
68

5,325
4,403
4,530
4,757
4,760

218
214
225
213
211

57
96
1
1
38
51

5
12
3
4
19

18
15
26
19
20

298
285
276
275
258

0
0
0
0
0

1,781
1,753
1,934
1,898
2,220

0
0
0
0
0

0
1,654
0
1,884
2,161

0
99
0
14
59

4,817
4,808
4,716
4,686
4,578

203
201
208
202
216

16
17
18
23
29

8
46
5
6
6

21
19
21
21
24

272
293
301
348
393

0
0
0
0
0

2,212
2,194
2,487
2,389
2,355

0
0
0
0
0

2,256
2,250
2,424
2,430
2,428

-44
-56
63
-41
-73

4,603
5,360
5,388
5,519
5,536

211
222
272
284
:
*,029

19
54
8
3
121

6
79
19
4
20

22
31
24
128
169

375
354
355
360
241

0
0
0
0
0

2,471
1,961
2,509
2,729
4,096

0
0
0
0
0

2,375
1,994
1,933
1,870
2,282

96
-33
576
859
1,814

5,882
6,543
6,550
6,856
7,598

:
2,566
2,376
3,619
:
2,706
;
2,409

544
244
142
923
634

29
99
172
199
397

226
160
235
242
256

253
261
263
260
251

0
0
0
0
0

5,587
6,606
7,027
8,724
11,653

0
0
0
0

2,743
4,622
5,815
5,519
6,444

2,844
1,984
1,212
3,205
5,209

8,732
11,160
15,410
20,499
25,307

2,213
;
2,215
:
2,193
:
2,303
;
2,375

368
867
799
579
440

1,133
774
793
1,360
1,204

599
586
485
356
394

284
291
256
339
402

0
0
0
0
0

14,026
12,450
13,117
12,886
14,373

0
0
0
0
0

7,411
9,365
11,129
11,650
12,748

6,615
3,085
1,988
1,236
1,625

28,515
28,952
28,868
28,224
27,600

2,287
:
:
2,272
1,336
1,325
1,312

977
393
870
1,123
821

862
508
392
642
767

446
314
569
547
750

495
607
563
590
106

0
0
0
0
0

15,915
16,139
17,899
20,479
16,568

0
0
0
0
0

14,457
15,577
16,400
19,277
15,550

1,458
562
1,499
1,202
1,018

27,741
29,206
30,433
30,781
30,509

1,293
1,270
1,270
761
796

668
247
389
346
563

895
526
550
423
490

565
363
455
493
441

714
746
111
839
907

0
0
0
0
0

17,681
20,056
19,950
20,160
18,876

0
0
0
0
0

16,509
19,667
20,520
19,397
18,618

1,172
389
-570
763
258

31,158
31,790
31,834
32,193
32,591

767
775
761
683
391

394
441
481
358
504

402
322
356
272
345

554
426
246
391
694

925
901
998
1,122
841

0
0
0
0
0

19,005
19,059
19,034
18,504
18,174

0
0
0
0
310

18,903
19,089
19,091
18,574
18,619

102
-30
-57
-70
-135

32,869
33,918
35,338
37,692
39,619

377
422
380
361
612

485
465
597
880
820

217
279
247
171
229

533
320
393
291
321

941
1,044
1,007
1,065
1,036

0
0
0
0
0

17,081
17,387
17,454
17,049
18,086

2,544
2,544
3,262
4,099
4,151

18,988
18,988
20,071
20,677
21,663

637
%
645
471
574

Treasury

Foreign

For notes see last two pages of table.




Other

Other
Federal
Reserve
accounts3

With
Federal
Reserve
Banks

Currency
and
coin7

Required8

Excess8

236

Tables

16. Reserves of Depository Institutions, Federal Reserve Bank Credit, and Related
Items—Year-End 1918-82, and Month-End 1982—Continued
Millions of dollars
Factors supplying reserve funds
Federal Reserve Bank credit outstanding
U.S. government
securities9
Period
Loans

Float1

AH
other 2

Other
Federal
Reserve

290
661
170
0
0

137
173
141
186
183

2.248
2.495
2,576
3.443
3.440

187
193
164
58
64

Held
under
repurchase
agreement

Special
drawing
rights
certificate
account

Treasury
currency
outstanding5

Total

Gold
stock 4

0
0
0
0
2,743

43,340
47,177
52,031
56,624
63,584

13,733
13,159
11,982
10,367
10,367

0
0
0
0
0

5,575
6,317
6,784
6,795
6,852

1,123
1,068
1,260
1,152
3,195

67,918
76,515
78,551
86,072
92,208

10,732
10,132
10,410
11,567
11,652

400
400
400
400
400

7,149
7,710
8,313
8,716
9,253

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
57,15410

1970
1971
1972
1973
1974

...
..
..
..
..

62,142
70,804
71,230
80,495
85,714

62,142
69,481
71,119
80,395
84,760

0
1,323
111
100
954

335
39
1,981
1,258
299

4.261
4.343
3.974
3.099
2.001

57
261
106
68
999

1975
1976
1977
1978
1979

..
..
..
..
..

94,124
104,093
111,274
118,591
126,167

92,789
100,062
108,922
117,374
124,507

1,335
4,031
2,352
1,217
1,660

211
25
265
1,174
1,454

3.688
2.601
3.810
6,432
6,767

1,126
991
954
587
704

3,312 102,461
3,182 110,892
2,442 118,745
4,543 131,327
5,613 140,705

11,599
11,598
11,718
11,671
11,172

500
1,200
1,250
1,300
1,800

10,218
10,810
11,331
11,831
13,083

130,592 128,038
140,348 136,863
148,837 144,544

2,554
3.485
4,293

1,809
1,601
717

4.467
1.762
2.735

776
195
1,480

8,739 146,383
9,230 153,136
9,890 163,659

11,160
11,151
11,148

2,518
3,318
4,618

13,427
13,687
13,786

134,025
134,436
133,005
137,996
138,415
136,007
141,641
140,624
139,540
141,023
146,619
144,544

3,397
0
1,679
6,265
0
0
0
1,418
4,803
0
0
4,293

2,217
1,180
2,646
1,799
1,058
1,638
458
449
1,123
438
374
717

1,635
2,959
1,882
1.507
1.776
2,545
1,713
1,446
550
1.168
2,401
2,735

597
0
488
768
0
0
0
565
813
0
0
1,480

11,151
11,150
11,150
11,149
11,149
11,149
11,149
11,148
11,148
11,148
11,148
11,148

3,318
3,568
3,568
3,818
3,818
3,818
4,018
4,018
4,218
4,218
4,418
4,618

14,523
14,579
13,734
13,756
13,767
13,781
13,786
13,786
13,786
13,786'
13,786
13,786

1980 ..
1981 ..
1982 ..
1982
Jan.
Feb.
Mar.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

137,422
134,436
134,684
144,261
138.415
136,007
141,641
142,042
144,343
141,023
146,619
148,837

1. Beginning with 1960, figures reflect a minor change in
concept; see Federal Reserve Bulletin, vol. 47 (February 1961),
p. 164.
2. Data consist principally of acceptances and, until Aug.
21, 1959, industrial loans, authority for which expired on that
date.
3. Before Apr. 16, 1969, this category includes the total of
Federal Reserve Bank capital paid in, surplus, other capital
accounts, and other liabilities and accrued dividends less the
sum of bank premises and other assets, and was reported as
"Other Federal Reserve accounts"; thereafter, "Other Federal
Reserve assets" and "Other Federal Reserve liabilities and
capital" are shown separately.
4. Before Jan. 30, 1934, data include gold held in Federal
Reserve Banks and in circulation.
5. These figures include currency and coin (other than gold)
issued directly by the Treasury. The largest components are
fractional and dollar coins. For details see the regular table,
"Currency and Coin in Circulation," in the Treasury Bulletin.




9,689
9,043
9,029
10,394
8,635
8,813
9,956
9,141
9,673
10,131
9,685
9,890

151,560
147,618
148,729
158,729
149,884
149,003
153,768
153,643
156,502
152,760
159,079
163,659

6. This category consists of the coin and paper currency held
by the Treasury, as well as any gold in excess of the gold
certificates issued to the Reserve Bank.
7. Between Dec. 1, 1959, and Nov. 23, 1960, part of the
amount was allowed as reserves; thereafter all was allowed.
8. These figures are estimated through 1958. Before 1929,
they were available only on call dates (in 1920 and 1922, the
call dates were Dec. 29). Beginning Sept. 12,1968, the amount
is based on close-of-business figures for the reserve period 2
weeks previous to the report date.
9. Beginning Dec. 1, 1966, these securities include federal
agency obligations held under repurchase agreements and beginning Sept. 29, 1971, federal agency issues bought outright.
10. Includes, beginning 1969, securities loaned—fully guaranteed by U.S. government securities pledged with Federal
Reserve Banks—and excludes (if any) securities sold and
scheduled to be bought back under matched sale-purchase
transactions.

Tables

237

16.—Continued

Factors absorbing reserve funds

Currency
in
circulation

Deposits, other
than reserves, with
Federal Reserve Banks
sury
cash
holdings6

Treasury

Foreign

Other

42,056
44,663
47,226
50,961
53,950

760
1,176
1,344
695
596

668
416
1,123
703
1,312

150
174
135
216
134

355
588
653
747
807

57,093
61,068
66,516
72,497
79,743

431
460
345
317
185

1,156
2,020
1,855
2,542
3,113

148
294
325
251
418

86,547
93,717
103,811
114,645
125,600

483
460
392
240
494

7,285
10,393
7,114
4,196
4,075

136,829
144,774
154,908

441
443
429

140,475
140,525
141,673
143,044
145,523
147,134
147,051
148,310
148,093
148,922
152,895
154,908

462
470
484
491
477
460
418
418
423
444
444
429

Other
Federal
Reserve
accounts3

Required
clear&
ances

Other
Federal
Reserve
liabilities
and
capital 3

Member bank
reserves11

With
Federal
Reserve
Banks

Currency
and
coin 7

Required8

X
cess

8*,12

211
-147
-773
-1,353
0

0
0
0
0
0

0
0
0
0
1,919

18,447
19,779
21,092
21,818
22,085

4,163
4,310
4,631
4,921
5,187

22,848
24,321
25,905
27,439
28,173

-238
-232
-182
-700
-901

1,233
999
840
1,41913
1,27513

0
0
0
0
0

0
0
0
0
0

1,986
2,131
2,143
2,669
2,935

24,150
27,788
25,647
27,060
25,843

5,423
5,743
6,216
6,781
7,370

30,033
32,496
32,044
35,268
37,011

-460
1,035
98 12
-1,360
-3,798

353
352
379
368
429

1,090
1,357
1,187
1,256
1,412

0
0
0
0
0

0
0
0
0
0

2,968
3,063
3,292
4,275
4,957

26,052
25,158
26,870
31,152
29,792

8,036
8,628
9,421
10,538
11,429

35,197
35,461
37,615
42,694
44,217

-1,103
-1,535
-1,265
-893
-2,835

3,062
4,301
5,033

411
505
328

617
781
1,033

0
0
0

0
117
436

4,671
5,261
4,990

27,456
25,111
26,053

13,654
15,576
16,666

40,558
42,145
41,391

675
-1,442
1,328

8,285
3,835
2,866
12,239
2,540
4,099
3,275
3,234
10,975
2,309
2,247
5,033

333
416
421
966
308
586
982
348
396
327
387
328

393
414
425
450
523
437
663
502
405
450
717
1,033

0
0
0
0
0
0
0
0
0
0
0
0

135
139
167
176
189
213
221
247
300
356
408
436

5,539
6,291
4,955
5,561
5,784
4,837
5,359
4,791
5,047
4,783
5,209
4,990

24,931
24,825
26,190
24,526
23,274
19,985
24,752
24,745
20,015
24,321
26,124
26,053

16,341
15,007
14,914
15,888
15,441
15,872
16,040
15,814
16,752
16,877
17,103
16,666

42,300
40,542
38,824
40,115
38,922
39,804
39,701
40,066
39,737
40,701
41,355
41,391

-1,028
-710
2,280
299
-207
-3,947
1,091
493
- 2,970
497
1,872
1,328

11. Beginning November 1979, includes reserves of member
banks, Edge Act corporations, and U.S. agencies and branches
of foreign banks. Beginning Nov. 13, 1980, includes reserves
of all depository institutions.
12. Beginning with the week ending Nov. 15, 1972, figures
include $450 million of reserve deficiencies on which Federal
Reserve Banks are allowed to waive penalties for a transition
period in connection with bank adaptation to Regulation J as
amended, effective Nov. 9, 1972. Allowable deficiencies (beginning with first statement week of quarter) included are (in
millions): 1973—Ql, $279; Q2, $172; Q3, $112; Q4, $84; and
1974—Ql, $67, and Q2, $58. The transition period ended after
the second quarter of 1974.
13. Beginning July 1973, this item includes certain deposits
of domestic nonmember banks and foreign-owned banking
institutions held with member banks and redeposited in full
with Federal Reserve Banks in connection with voluntary participation by nonmember institutions in the Federal Reserve




14

System's program of credit restraint.
As of Dec. 12, 1974, the amount of voluntary nonmember
bank and foreign-agency and branch deposits at Federal Reserve Banks that are associated with marginal reserves are no
longer reported. However, two amounts are reported: (1) deposits voluntarily held as reserves by agencies and branches
of foreign banks operating in the United States, and (2) Eurodollar liabilities.
14. Beginning with the week ending Nov. 19, 1975, figures
are adjusted to include waivers of penalties for reserve deficiencies, in accordance with change in Board policy that became effective Nov. 19, 1975.
NOTE. For a description of figures and discussion of their
significance, see "Member Bank Reserves and Related Items,"
Section 10 of Banking and Monetary Statistics, 1941-1970 (Board
of Governors of the Federal Reserve System, Sept. 1, 1976),
pp. 507-23.

238

Tables

17. Changes in Number of Banking Offices in the United States, 1982
Commercial banks (including stock savings
banks and nondeposit trust companies)
Type of office
and change

All
banks

Member
Total

Banks, Dec. 31, 1981
Changes during 1982
New banks
Ceased banking operation
Voluntary liquidation
Suspensions
Placed in receivership
Banks converted into
branches
Other
Interclass changes
Nonmember to national
Nonmember to state
member
State member to national . . .
State member to
nonmember
National to state member . . .
National to nonmember
Noninsured national to
national
Noninsured mutual to
insured mutual
Noninsured nonmember to
state member
Noninsured to insured
Noninsured state member
to noninsured
Noninsured nonmember
to insured
Insured mutual to
insured nonmember
Insured mutual to
federal mutual
Net change
Dec. 31, 1982




National

Mutal
savings
banks

Nonmember
Noninsured

State

Insured

15,323

14,882

5,474

4,454

1,020

378
-1
-4
-1
-6

378
-1
-4
-1
-6

240

199

41

-1

-1

-262
-45

-246
-42

-116
-16

-87
-15

36

36

II 2
9
-3
-9
1

1

-8
-9

8,927*
77
-1

481 »

Noninsured

330

111

-15
-2

-1
-1

-6

61
-1
-4

-1
-3
-29
-1

r

Insured

6

Total

-2

-130
-18

' ' ' 1'g''

-36
II 2
-9

-10

-3
g

3
9

1

2

2

-2
-1

l

1

1

1

I

2

2

1
3

_2
-2

-2
60

83

145

125

20

-106

44

-15

-8

15,383

14,965

5,619

4,579

1,040

8,821

525

315

103

Tables

239

17,—Continued
Mutual
savings
banks

Commercial banks (inc uding stock savings
banks and nondeposit trust companies)
Type of office
and change

All
banks

Member
Total

Branches and additional offices,
Dec. 31, 19816

Total

National

Insured

NonNon- Insured insured
insured

43,547

40,405

25,761

20,598

5,163

14,584

60

2,872

270

1,666
264
-443

1,575
247
-393
-5

847
174
-274
-1

691
140
-229
5

156
34
-45
-6

727
73
-119
-4

1

86
17
-48
5

-2

383

383

Changes during 1982
De novo
Banks converted
Discontinued
Sale of branch
Interclass changes
Nonmember to national
Nonmember to state
member
Nonmember to insured
mutual
State member to national . . .
State member to
nonmember
National to state member . . .
National to nonmember . .
Noninsured mutual to
insured mutual.
Insured mutual to
federal mutual
Insured mutual to
insured nonmember . . . .
Insured mutual
to national
Other
Discontinued ATM branches 5 .

-4
-2,888

Net change

-1,384

-926

-626

-436

42,163

39,479

25,135

20,162

Dec. 31, 19826

Nonmember
State

46 3

463

104

-383
104

-2

-58
2

-2
184
-14
-26

-160
-26

5

-184
-14
160

14
26
27

-25

-27

-25
37
2
-4
-2,429

Banking facilities
Dec. 31, 19817

154'

154r

Changes during 1982
Interclass changes
State member to national . ..
Other

-4

37
2
-3
-1,818

-4

2
-3
-1,423 " ' - 3 9 5 '

1
-4

Net change

-4

-4

-4

-2

-190

-299

-1

-436

-22

4,973

14,285

59

2,436

248

150

150

125

114

2

25

-1

-3

Dec. 31, 19827

- 2 ...
-2
-459

1
-611

117'

-4

-37

1. As of Dec. 1982, includes 13 state member noninsured
and 1 noninsured national trust companies.
2. Reflects 1 insured nonmember bank in Puerto Rico that
was admitted to Federal Reserve membership.
3. Reflects 1 noninsured nonmember bank in Puerto Rico
that became insured by the FDIC.
4. Branches of insured nonmember bank in Puerto Rico that
was admitted to Federal Reserve membership.




11

25

5. The Board no longer maintains ATMs.
6. Figures exclude banking facilities.
7. Data include facilities provided at military and other government establishments through arrangements made by the
Treasury.
r Revised.

240

Tables

18. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities
Approved by the Board of Governors, 1982
United Jersey Bank/Southwest, Camden, New Jersey, to acquire certain assets and assume the
deposit liabilities of a branch of The Bank of New Jersey, Camden, New Jersey
SUMMARY REPORT BY THE ATTORNEY GENERAL (2/19/82)

The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (2/4/82)

United Jersey Bank/Southwest (Applicant), with assets of $106 million, proposes to acquire
certain assets and assume the deposit liabilities of the Pine Hill office (Branch), with assets of
$7 million, of The Bank of New Jersey.
The relevant market in this proposal is the Philadelphia-Camden market, in which Applicant
ranks twenty-third among forty-five commercial banks, with 0.5 percent of the area's commercial
bank deposits. The proposed merger would not alter Applicant's rank in the market and would
not substantially increase Applicant's share of market deposits. The proposal would have no
significant effect on competition.
The proposal would not alter the generally satisfactory condition of Applicant, and it would
allow continued operation of an office that The Bank of New Jersey had intended to discontinue
in carrying out a decision to curtail retail operations. Thus the proposal would have a positive
effect on the convenience and needs of the area immediately surrounding Branch.
Michigan Bank-Port Huron, Port Huron, Michigan, to merge with Marine Bank & Trust, Marine
City, Michigan
SUMMARY REPORT BY THE ATTORNEY GENERAL

(No report received.)
BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (2/19/82)

Michigan Bank-Port Huron (Applicant), a proposed state member bank, with assets of $239
million, proposes to merge Marine Bank & Trust (Bank), with assets of $44 million. Applicant
is a subsidiary of Michigan National Corporation, Bloomfield Hills, Michigan (MNC), which
ranks second among Michigan's commercial banking organizations, with about 12 percent of the
deposits held by banking offices in the state.
The relevant market in this proposal is the Detroit area, in which MNC ranks fourth among
forty-nine commercial banking organizations, with 11.5 percent of area deposits. If the proposed
merger took place, MNC would continue to rank fourth in the market and would increase its
share of market deposits by 0.2 percentage point. The two closest commercial banking offices
to the sole office of Bank are both branches of Applicant. Two savings and loan associations,
with organizational deposits of $167 million and $449 million, operate offices in Marine City.
Overall, the competitive effect of the proposal would not be sufficiently adverse to warrant
disapproval.
Both Applicant and Bank are in satisfactory condition, and the condition of the resulting bank
would be satisfactory.
The proposal would improve the services at the Bank's current office. Among the new services
that would be offered are automatic payrolls, a foreign department, issuance of credit cards,
and electronic funds transfers. Further, trust services would be expanded, interest rates on
passbook savings accounts raised, and Saturday lobby hours would be expanded. The convenience
and needs of the community to be served are such as to outweigh any adverse competitive effects.
Accordingly, consummation of the proposal is consistent with the public interest.
The Toledo Trust Company, Toledo, Ohio, to merge with The Peoples Bank, Carey, Ohio
SUMMARY REPORT BY THE ATTORNEY GENERAL (2/19/82)

The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (2/24/82)

The Toledo Trust Company (Applicant), with assets of $1 billion, proposes to merge The Peoples
Bank (Bank), with assets of $23 million. Applicant is a subsidiary of Toledo Trustcorp, Inc.
(TTI), which ranks thirteenth among Ohio's commercial banking organizations, with 2 percent
of the deposits.



Tables

241

18.—-Continued

Bank ranks third among five commercial banks in the Wyandot County banking market, with
13.6 percent of total deposits. Neither Applicant nor any banking affiliate of TTI is represented
in the Wyandot market. The proposal would not have a significant effect on competition.
The proposal would add trust powers and leasing services to the banking services available in
the Wyandot County market. The convenience and need factors, including those relating to the
Community Reinvestment Act, are consistent with approval.
The financial and managerial resources of Applicant are satisfactory, and the banking factors
are consistent with approval.
Guardian State Bank, Salt Lake City, Utah, to merge with Empire State Bank, Salt Lake City,
Utah
SUMMARY REPORT BY THE ATTORNEY GENERAL (4/2/82)

The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (3/30/82)

Guardian State Bank (Applicant), with assets of $5 million, proposes to merge Empire State
Bank (Bank), with assets of $14 million.
In view of the financial condition of Bank, the Utah Commissioner of Financial Institutions
has recommended expeditious action by the Federal Reserve System to prevent the failure of
Bank. Thus the Reserve Bank requested that reports about competitive factors be furnished
within 10 days. The convenience and need factors, as well as the competitive factors, are consistent
with approval.
Peoples Bank of Danville, Danville, Virginia, to acquire certain assets and assume substantially all
of the liabilities of Aquia Bank and Trust Company, Stafford, Virginia
SUMMARY REPORT BY THE ATTORNEY GENERAL

(No report received. Requests for reports on the competitive factors were dispensed with, as
authorized by the Bank Merger Act, to permit the Reserve Bank to act immediately to safeguard
depositors of Aquia Bank and Trust Company.)
BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (4/5/82)

Peoples Bank of Danville (Applicant), with assets of $32 million, proposes to acquire certain
assets and assume substantially all of the liabilities of Aquia Bank and Trust Company (Bank),
with assets of $14 million.
On the basis of information before the Reserve Bank, an emergency situation clearly exists
so that, pursuant to the provisions of the Bank Merger Act, the Reserve Bank is required to
act immediately to safeguard Bank's depositors.
Bank has experienced financial and managerial problems that have reduced its competitiveness.
The financial and managerial resources and prospects of the proposed organization would benefit
the operations at the office now occupied by Bank without diminishing Applicant's prospects.
The financial and managerial resources and prospects of Applicant are satisfactory, and, as a
result of this proposal, Bank's customers would be served by a stronger organization.
First Virginia Bank-Highlands, Covington, Virginia, to merge with The Bath County National
Bank, Hot Springs, Virginia
SUMMARY REPORT BY THE ATTORNEY GENERAL (5/14/82)

The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (5/20/82)

First Virginia Bank-Highlands (Applicant), with assets of $54 million, proposes to merge The
Bath County National Bank (Bank), with assets of $19 million. Applicant is a subsidiary of First
Virginia Bank, Inc., Falls Church, Virginia, which ranks seventh among Virginia's commercial
banking organizations, with about 7 percent of the deposits held by banking offices in the state.
The relevant market in the proposal is the Bath County area, in which Bank is the only bank.
The merger would have no significant adverse effects on competition, and would improve the
services available at the offices now operated by Bank. The financial and convenience and need
Digitizedfactors are consistent with approval.
for FRASER


242

Tables

18. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities
Approved by the Board of Governors, 1982—Continued
The Connecticut Bank and Trust Company, Hartford, Connecticut, to merge with Orange National
Bank, Orange, Connecticut
SUMMARY REPORT BY THE ATTORNEY GENERAL (5/28/82)

The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (8/13/82)

The Connecticut Bank and Trust Company (Applicant), with assets of $3.6 billion, proposes to
merge Orange National Bank (Bank), with assets of $35 million. Applicant is the sole banking
subsidiary of CBT Corporation, Hartford, which is the largest commercial banking organization
in the state, holding 20.0 percent of the deposits. If the proposed merger took place, CBT
Corporation would hold 20.2 percent of the deposits held by commercial banking offices in
Connecticut.
The closest offices of the participating banks are 1.2 miles apart. The relevant market in this
case is the New Haven banking market, in which Applicant ranks fourth among fourteen commercial banking organizations, with 12.2 percent of the area's commercial bank deposits. If the
proposed merger were consummated, Applicant would continue to rank fourth in the New Haven
market and would hold 14.1 percent of area deposits. However, mutual savings banks control
73 percent of time and savings deposits at offices of commercial and mutual savings banks in
the New Haven market; and the town of Orange would no longer have home office protection
after this merger.
Applicant proposes to offer the following new services at the Orange office of the resulting
bank: automated teller machines, negotiable order of withdrawal accounts, trust services, and
international services. Convenience and need factors lend weight to approval.
Bank has experienced problems that have reduced its competitiveness. The resources and
prospects of the proposed organization would benefit the operations at the offices now occupied
by Bank without diminishing Applicant's prospects. The financial and managerial resources and
prospects of Applicant are satisfactory and, as a result of this proposal, Bank's customers would
be served by a stronger organization.
United Virginia Bank, Richmond, Virginia, to merge with The First National Bank of Martinsville
and Henry County, Fieldale, Virginia
SUMMARY REPORT BY THE ATTORNEY GENERAL (8/6/82)

The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE SECRETARY OF THE BOARD OF GOVERNORS (9/7/82)

United Virginia Bank (Applicant), with assets of $3.9 billion, proposes to merge The First
National Bank of Martinsville and Henry County (Bank), with assets of $203 million. Applicant
is a subsidiary of United Virginia Bankshares Incorporated, Richmond (UVB),which ranks first
among banking organizations in Virginia, with about 13.6 percent of deposits in the state.
The closest offices of the participating banks are about 40 miles apart. Applicant is not
represented in the Henry County market, in which Bank, with 39.1 percent of area deposits,
ranks first among six banks. The proposed merger would not have a significant effect on competition.
Applicant proposes to expand the trust services available to Bank's customers. Business and
commercial interests in the Henry County market should benefit from higher loan limits.
The banking factors are consistent with approval.
United Virginia Bank, Richmond, Virginia, to merge with Citizens National Bank, New Market,
Virginia
SUMMARY REPORT BY THE ATTORNEY GENERAL

(No report received.)
BASIS FOR APPROVAL BY THE SECRETARY OF THE BOARD OF GOVERNORS (9/7/82)

United Virginia Bank (Applicant), with assets of $3.9 billion, proposes to merge Citizens National
Bank (Bank), with assets of $36 million.
The closest offices of the participating banks are 20 miles apart. Applicant does not now
operate offices in the relevant Shenandoah County market, in which Bank ranks third among




Tables

243

18.-—Continued

commercial banks, with 17.3 percent of market deposits. The proposal would not have a significant effect on competition.
With respect to convenience and need factors, Applicant plans to provide at the offices now
operated by Bank several new or enhanced services, such as industrial development assistance,
investment advisory services, and a wide array of trust services.
The banking factors are consistent with approval.
St. Joseph Valley Bank, Elkhart, Indiana, to merge with First National Bank of Goshen, Goshen,
Indiana
SUMMARY REPORT BY THE ATTORNEY GENERAL (5/14/82)

St. Joseph Valley Bank (Applicant) is the only banking subsidiary of SJV Corporation and is
the second largest bank in Elkhart County, with total deposits of $286 million including $57
million in demand deposits of individuals, partnerships, and corporations (IPCs), and net income
for 1981 of $2 million. Applicant has fourteen banking offices, twelve located in various parts
of Elkhart City, and one office each in Nappanee and Bristol. Applicant also has five electronic
funds transfer units in Elkhart City and offices of affiliated corporations in Elkhart City and
Goshen, Indiana, and Decatur, Illinois.
First National Bank of Goshen (Bank) is an independent bank with five offices, all in Goshen.
As of December 31, 1981, Bank had total deposits of $72 million, including $13 million in IPC
demand deposits. For the year ending December 31, 1981, Bank had net income of $912,000.
Both Applicant and Bank are in Elkhart County, which is in northern Indiana, bordering on
Michigan to the north, St. Joseph County (where South Bend is located) on the west, and the
primarily rural counties of LaGrange on the east and Kosciusko on the south. In 1970, Elkhart
County had a population of 126,529 and had experienced a growth rate of 4.9 percent over the
previous decade; population in St. Joseph County had declined 7 percent during the same period.
Population estimates for 1978 indicated that the city and county of Elkhart continued their
growth, whereas South Bend and St. Joseph County lost population.
In 1979, Elkhart County was designated as a standard metropolitan statistical area (SMSA).
Goshen, the second largest city in the county, is approximately 10 miles from Elkhart, the largest
city. That city has about 93 separate companies with 50 or more employees and several large
employers with over 1,000 employees. Its industrial development is primarily on the east side.
Goshen has four companies with 300 or more employees and an industrial park south of the city
with 2,500 employees. The largest shopping center in Elkhart County, outside of downtown
Elkhart, is the Concord Mall, located southeast of Elkhart about halfway to Goshen.
Adjacent to the Elkhart SMSA is the South Bend SMSA, which consists of St. Joseph and
Marshall Counties and includes the cities of South Bend and Mishawaka. While Elkhart and St.
Joseph Counties are contiguous and the distance between Elkhart City and South Bend is
relatively short (about 13.5 miles), the true travel distances may be longer because of the way
industry is located in the various areas. The South Bend SMSA has substantial industrial development to the west and southwest of South Bend and toward the south of Mishawaka. The
statistics from the 1970 census (the latest available) indicate that only a few people commute
between Elkhart County and St. Joseph County. Furthermore, both counties have high unemployment at present (over 12 percent), so that commuting may be substantially lower than in
1970. The nearest major shopping area in St. Joseph County for Elkhart County residents is
downtown Mishawaka. Another shopping center is located just west of downtown Mishawaka.
Another significant factor in determining the geographic market is the very restrictive branching
and bank holding company laws of Indiana. Branching is permitted only within the county of a
bank's home office and only single bank holding companies are permitted. Thus banks in neither
county have the opportunity to compete with banks in the other by establishing branches there.
[Because of federal and state law the same conclusion holds for Michigan banks north of Elkhart
County. There may be some commuting between Michigan and Elkhart County.]
Therefore, we believe that the relevant geographic market for analyzing this acquisition is
Elkhart County.
Applicant and Bank compete in the relevant geographic market. The nearest offices of Applicant and Bank are a little over five miles apart, at the Concord Mall on U.S. Route 33 south




244
18.

Tables
Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities
Approved by the Board of Governors, 1982—Continued

of Elkhart and at U.S. Route 33 west and Bashor Road, on the northwest end of Goshen
respectively. Twelve of Applicant's offices are within 10 miles of one of Bank's offices.
Applicant is the second largest bank and depository institution in the market, with total deposits
of $286 million, accounting for 26.5 percent of the total deposits of all depository institutions in
the market. [All commercial bank data are as of June 30, 1981; savings and loan association
data are as of September 30, 1980; and credit union data are as of January 1,1981.] Bank is the
fourth largest bank and fifth largest financial institution, with total deposits of $72 million,
accounting for 6.9 percent of total deposits in the market. The four-firm concentration ratio is
80.7 percent, and the Herfindahl Index is 2067 (including savings and loan associations and
assuming 1 percent market shares for each of the 24 credit unions in the market). The resulting
bank would be the largest financial institution in the market, with total deposits of $358 million,
or 33.4 percent of total deposits. The four-firm concentration ratio would increase to 87.6 percent
and the Herfindahl Index would increase almost 400 basis points, to 2433.
The proposed transaction would eliminate direct competition and substantially increase concentration levels in the relevant geographic market, and thus would have a significantly adverse
effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (9/28/82)

St. Joseph Valley Bank (Applicant), with assets of $356 million, proposes to merge First National
Bank of Goshen (Bank), with assets of $85 million. Applicant has concurrently applied for
membership in the Federal Reserve System. All offices of Applicant are at least five miles from
any office of Bank.
Applicant and Bank are in the "South Bend Ranally Metro Area," as defined by the Rand
McNally Commercial Atlas, in which Applicant ranks fourth among twenty-two commercial
banking organizations, controlling 11 percent of market deposits. Upon consummation of the
proposed merger, Applicant would become the market's second largest commercial banking
organization and would control 13.9 percent of the total deposits in commercial banks in this
market, which has a relatively low level of concentration. The Board concludes that the proposed
merger would not have a significant adverse effect on existing or potential competition.
With respect to convenience and need factors, Applicant plans to provide at the offices now
operated by Bank several new or enhanced services such as industrial development assistance,
investment advisory services, and a wide array of trust services.
The financial and managerial resources of Applicant, its parent, and Bank are regarded as
generally satisfactory and their prospects appear favorable. As a result, the banking factors are
consistent with approval.
First Colbert National Bank, Sheffield, Alabama, to merge with Bank of Florence, Florence,
Alabama
SUMMARY REPORT BY THE ATTORNEY GENERAL (12/17/82)

The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (10/18/82)

First Colbert National Bank (Applicant), with assets of $59 million, proposes to merge Bank of
Florence (Bank), with assets of $15 million. Applicant proposes to convert to a state-chartered
institution, and has also applied for membership in the Federal Reserve System. Applicant ranks
fourth among eight banking organizations in the Florence banking market, with 10.2 percent of
total deposits. The bank resulting from the proposed merger would rank third in the Florence
market, with 12.7 percent of the area's commercial bank deposits. This merger would increase
the four-bank concentration to 88.3 percent; but, in fact, the two banks have been affiliated by
virtue of common ownership and director interlocks since the establishment of Bank in 1975.
Thus initial control of Bank did not eliminate any existing competition or increase market
concentration; the relationship between Bank and Applicant appears to be such that little if any
meaningful competition has ever developed between the two banks. In this light, the Board does
not regard the effects of the proposed acquisition on competition in the relevant banking market
as significant.
The financial and managerial resources of Applicant, its parent, and Bank are regarded as



Tables

245

18.-—Continued

generally satisfactory, and their prospects appear favorable. The banking factors thus are consistent with approval. The convenience and needs factors of the community to be served are
also consistent with approval. Accordingly, the Board has determined that consummation of the
transaction would be consistent with the public interest and that the application should be
approved.
First Virginia Bank-Franklin County, Rocky Mount, Virginia, to merge with Farmers and Merchants Bank, Boones Mill, Virginia
SUMMARY REPORT BY THE ATTORNEY GENERAL (10/29/82)

The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (11/9/82)

First Virginia Bank-Franklin County (Applicant), with assets of $60 million, proposes to merge
Farmers and Merchants Bank (Bank), with assets of $17 million. Applicant is a subsidiary of
First Virginia Bank, Inc., Falls Church, Virginia (FVB), which ranks seventh among Virginia's
commercial banking organizations, with about 7 percent of the deposits held by banking offices
in the state.
The relevant market in this proposal is the Roanoke market, in which FVB ranks fifth among
fourteen banking organizations, with 8.7 percent of the area's commercial bank deposits. Following the proposed merger, FVB would rank fourth in the Roanoke market, with 9.9 percent
of area deposits. The proposal would not have a significant effect on competition.
Bank has had financial and managerial problems that have reduced its competitiveness. The
financial and managerial resources and prospects of the proposed organization would benefit the
operations at the offices now occupied by Bank without diminishing Applicant's prospects. The
financial and managerial resources and prospects of Applicant are satisfactory and, as a result
of this proposal, Bank's customers would be served by a stronger organization.
Mergers Approved Involving Wholly Owned Subsidiaries of the Same Bank Holding Company
The following transactions involve banks that are subsidiaries of the same bank holding company.
In such case, the Summary Report by the Attorney General indicates that because the banks
are wholly owned subsidiaries of the same bank holding company, their proposed merger is
essentially a corporate reorganization and therefore will have no effect on competition. The
Board of Governors, the Federal Reserve Bank, or the Secretary of the Board of Governors,
whichever approved the application, determined that the competitive effects of the proposed
transaction, the financial and managerial resources, and the prospects of the banks concerned,
as well as the convenience and needs of the community to be served, were consistent with
approval.
Name of bank, type of transaction,
and other banks involved1

Fidelity Union Bank, Newark, New Jersey

Assets
(millions
of dollars)

1,349

Date of
approval by
Board or
Reserve Bank

3-1-82

Merger

Fidelity Union Bank, N.A., Red Bank, New Jersey
Fidelity Union Bank, N.A., Garden State, Paramus,
New Jersey
The Toledo Trust Company, Toledo, Ohio

498
828
1,018

Merger

Northwest Ohio Bank, Bowling Green, Ohio
The Oak Harbor State Bank Company, Oak Harbor, Ohio
National Bank of Fulton County, Delta, Ohio



42
34
23

3-23-82

246

Tables

18. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities
Approved by the Board of Governors, 1982—Continued
Name of bank, type of transaction,
and other banks involved1

First Virginia Bank, Falls Church, Virginia

Assets
(millions
of dollars)

680

Date of
approval by
Board or
Reserve Bank

4-7-82

Merger

First Virginia Bank-Loudoun, Leesburg, Virginia
First Virginia Bank-Eastern, Warrenton, Virginia
The Bank of New Jersey, Camden, New Jersey

29
7
550

4-8-82

Merger

Prospect Park National Bank, Wayne, New Jersey
First Virginia Bank-Shenandoah Valley, Woodstock, Virginia...

285
69

5-4-82

Merger

Bank of Frederick County, Stephens City, Virginia

11

Central Bank of the South, Birmingham, Alabama

2,231

5-27-82

Merger

Central Bank, N.A., Mobile, Alabama
AmeriTrust Company, Cleveland, Ohio

83
4,662

6-23-82

Merger

AmeriTrust Company of Toledo, Toledo, Ohio
Royal Trust Bank of Tampa, Tampa, Florida

6
17

7-1-82

Merger

Royal Trust Bank of St. Petersburg, Gulfport, Florida
Royal Trust Bank of Orlando, Orlando, Florida
American Bank and Trust Company, Lansing, Michigan

58
21
373

8-11-82

Merger

American Bank of Perry, Perry, Michigan

16

First Virginia Bank of the Southwest, Christiansburg, Virginia ..

48

10-21-82

Merger

First Virginia Bank-Bland County, Bland, Virginia

15

1. Each proposed transaction was to be effected under the charter of the first-named bank. The table is in chronological order
of approval.

Mergers Approved Involving a Nonoperating Institution with an Existing Bank

The following transactions have no significant effect on competition; they merely facilitate the
acquisition of the voting shares of a bank (or banks) by a holding company. In such cases, the
Summary Report by the Attorney General indicates that the transaction will merely combine
an existing bank with a nonoperating institution; in consequence, and without regard to the
acquisition of the surviving bank by the holding company, the merger would have no effect on
competition. The Board of Governors, the Federal Reserve Bank, or the Secretary of the Board
of Governors, whichever approved the application, determined that the proposal would, in itself,
have no adverse competitive effects, and that the financial and convenience and need factors
were consistent with approval.




Tables

247

18,—Continued

Name of bank, type of transaction,
and other banks involved1

Assets
(millions
of dollars)

DB Banking Co., Youngstown, Ohio

Date of
approval by
Board or
Reserve Bank

1-7-82

Merger

The Dollar Savings and Trust Company, Youngstown, Ohio

572

The Interim Dime Bank of Marietta, Marietta, Ohio

2-12-82

Merger

The Dime Bank of Ross County, N.A., Adelphi, Ohio
The Dime Bank, Marietta, Ohio

9
30

The FTB Fifth Bank, Russellville, Ohio

2-17-82

Merger

The Bank of Russellville, Russellville, Ohio

21

The FTB Sixth Bank, Fairborn, Ohio

(2)

3-4-82

Merger

The Farmers and Merchants Bank, Fairborn, Ohio

41

Whitley Banking Co., Columbia City, Indiana

(2)

3-22-82

Merger

The Farmer's Loan and Trust Company, Columbia City,
Indiana

45

Cullman County Bank, Cullman, Alabama

(2)

3-29-82

Merger

Parker Bank and Trust Company, Cullman, Alabama

36

Indiana Southern Bank of Sellersburg, Sellersburg, Indiana

41

4-16-82

Merger

Indiana Sointerim Bank of Sellersburg, Sellersburg, Indiana

(2)

City Bank and Trust Company, Dixon, Illinois

47

4-16-82

Merger

Third Bank of Dixon, Dixon, Illinois

(2)

The Scott County State Bank, Scottsburg, Indiana

47

4-16-82

Merger

Scottsburg Bank, Scottsburg, Indiana

(2)

New Valley Bank of Nevada, Las Vegas, Nevada

(2)

6-4-82

Merger

Valley Bank of Nevada, Las Ve*gas, Nevada
Bank One of Geauga County, Chardon, Ohio

915
(2)

6-11-82

Merger

The Chardon Savings Bank Company, Chardon, Ohio

94

The DeKalb Bank, DeKalb, Illinois

78

Merger

The DeKalb Interim Bank, DeKalb, Illinois




7-8-82

248

Tables

18. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities
Approved by the Board of Governors, 1982—Continued
Name of bank, type of transaction,
and other banks involved1

First Virginia Bank-Tazewell, Tazewell, Virginia
Merger
Tazewell National Bank, Tazewell, Virginia
Brownsburg Service Bank, Brownsburg, Indiana
Merger
Hendricks County Bank and Trust Company, Brownsburg,
Indiana
American Bank Company, Princeton, West Virginia
Merger
Princeton Bank & Trust Company, Princeton, West Virginia....

Assets
(millions
of dollars)

7-8-82
52
(2)

(2)

Bank of Pontiac, Pontiac, Illinois
Merger
Pontiac State Bank, Pontiac, Illinois .

62

HC State Bank, Harbor Beach, Michigan
Merger
Huron County Bank, Harbor Beach, Michigan

(2)

First Peoples State Bank, Cedar Rapids, Iowa
Merger
Peoples Bank and Trust Company, Cedar Rapids, Iowa.
First Trust & Savings Bank of Kankakee, Kankakee, Illinois....
Merger
Midwest Trust and Savings Bank of Kankakee, Kankakee,
Illinois
The New Bank, Vienna, Virginia
Merger
The Business Bank of the United States, Vienna, Virginia.
Peoples Liberty Bank and Trust Company, Covington,
Kentucky
Merger
Plibco Bank, Inc., Covington, Kentucky

8-2-82

140
59

State Bank of Waupun, Waupun, Wisconsin
Merger
Waupun Interim Bank, Waupun, Wisconsin.

7-28-82

45

The Union Bank & Savings Company, Bellevue, Ohio .
Merger
Bellevue Interim Bank, Bellevue, Ohio

Elliott State Bank, Jacksonville, Illinois.
Merger
ES Bank, Jacksonville, Illinois

Date of
approval by
Board or
Reserve Bank

8-12-82

(2)
8-25-82

(2)
8-30-82

25
128

8-31-82

(2)
39

9-30-82

10-19-82
150
135

11-23-82

(2)

12-9-82

6

128

12-10-82

1. Each proposed transaction was to be effected under the charter of the first-named bank. The table is in chronological order
of approval.

2. FRASER
Digitized for This is a newly organized bank, not in operation.


249

The Federal Reserve System
Boundaries of Federal Reserve Districts
and their Branch Territories

d,
HAWAII

©

Legend

o
®
•
•

Boundaries of Federal Reserve Districts
Boundaries of Federal Reserve Branch Territories
Board of Governors of the Federal Reserve System
Federal Reserve Bank Cities
Federal Reserve Branch Cities
Federal Reserve Bank Facilities




Federal Reserve
Directories and Meetings




252

Directories and Meetings

Board of Governors of the Federal Reserve System
December 31, 1982

Term expires
PAUL A. VOLCKER of New Jersey, Chairman 1
PRESTON MARTIN

January 31, 1992

of California, Vice Chairman l

January 31, 1996

NANCY H. TEETERS of Indiana
J. CHARLES PARTEE of Virginia

January 31, 1984
January 31, 1986

HENRY C. WALLICH of Connecticut
EMMETT J. RICE of New York

January 31, 1988
January 31, 1990

LYLEE. GRAMLEY of Missouri

January 31, 1994

OFFICE OF BOARD MEMBERS
JOSEPH R. COYNE, Assistant to the

Board
DONALD J. WINN, Assistant to the

OFFICE OF STAFF DIRECTOR
FOR FEDERAL RESERVE BANK
ACTIVITIES
THEODORE E. ALLISON, Staff Director

Board
Deputy Assistant
to the Board
ANTHONY F. COLE, Special Assistant to
the Board
WILLIAM R. JONES, Special Assistant to
the Board
WILLIAM R. MALONI, Special Assistant
to the Board

FRANK O'BRIEN, JR.,

NAOMI P. SALUS, Special Assistant to

the Board

OFFICE OF THE SECRETARY
WILLIAM W. WILES, Secretary
BARBARA R. LOWREY, Associate
Secretary
JAMES MCAFEE, Associate Secretary
LEGAL DIVISION
MICHAEL BRADFIELD,
ROBERT E. MANNION,

Counsel

OFFICE OF STAFF DIRECTOR
FOR MONETARY AND
FINANCIAL POLICY
STEPHEN H. AXILROD, Staff Director
EDWARD C. ETTIN, Deputy Staff

Director
MURRAY ALTMANN,

Board
STANLEY

Board

J.

SIGEL,

Assistant to the

Assistant to the

R.V. BERNARD, Special
Assistant to the Board

General Counsel
Deputy General

J. VIRGIL MATTINGLY, JR., Associate

General Counsel
T. SCHWARTZ, Associate
General Counsel
RICHARD M. ASHTON, Assistant
General Counsel

GILBERT

NANCY P. JACKLIN, Assistant General

Counsel

A. BROWN, Assistant to
the General Counsel

MARYELLEN

NORMAND

OFFICE OF STAFF DIRECTOR
FOR MANAGEMENT
JOHN M. DENKLER, Staff Director

T. MULRENIN, Assistant Staff
Director
JOSEPH W. DANIELS, SR., Federal
Reserve System EEO Program
Adviser
EDWARD

DIVISION OF RESEARCH
AND STATISTICS
JAMES L. KICHLINE, Director

JOSEPH S. ZEISEL, Deputy Director
MICHAEL J. PRELL,

Associate Director
DONALD L. KOHN, Senior Deputy

Associate Director
ELEANOR J. STOCKWELL, Senior Deputy

Associate Director
F. WENDEL, Deputy Associate
Director

HELMUT
1. The designations as Chairman and Vice Chairman expire on August 6, 1983, and March 30, 1986,
respectively unless the services of these members of
the Board shall have terminated sooner.




Associate Director

JARED J. ENZLER, Senior Deputy

Directories and Meetings
DIVISION OF RESEARCH
AND STATISTICS—Continued
MARTHA BETHEA, Assistant Director
JOE M. CLEAVER, Assistant Director
ROBERT M. FISHER, Assistant Director
DAVID E. LINDSEY, Assistant Director
LAWRENCE SLIFMAN, Assistant Director
FREDERICK M. STRUBLE, Assistant
Director
STEPHEN P. TAYLOR, Assistant Director
PETER A. TINSLEY, Assistant Director
LEVON H. GARABEDIAN, Assistant

Director (Administration)
DIVISION OF INTERNATIONAL
FINANCE

253

DIVISION OF BANKING
SUPERVISION AND REGULATION
JOHN E. RYAN, Director

R. DAHL, Associate
Director
DON E. KLINE, Associate Director
WILLIAM TAYLOR, Associate Director
JACK M. EGERTSON, Assistant Director
ROBERTA. JACOBSEN, Assistant
Director
ROBERTS. PLOTKIN, Assistant Director
THOMAS A. SIDMAN, Assistant Director
SIDNEY M. SUSSAN, Assistant Director
SAMUEL H. TALLEY, Assistant Director
LAURA M. HOMER, Securities Credit
Officer
FREDERICK

EDWIN M. TRUMAN, Director

F. GEMMILL, Associate
Director
CHARLES J. SIEGMAN, Associate
Director
LARRY J. PROMISEL, Senior Deputy**Associate Director
ROBERT

DALE W. HENDERSON, Deputy

Associate Director
SAMUEL PIZER, Staff Adviser
MICHAEL P. DOOLEY, Assistant

DIVISION OF CONSUMER
AND COMMUNITY AFFAIRS
GRIFFITH L. GARWOOD, Director

C.
Director

JERAULD

KLUCKMAN,

Associate

GLENN E. LONEY, Assistant Director
DOLORES S. SMITH, Assistant Director

Director DIVISION OF PERSONNEL

RALPH W. SMITH, JR., Assistant

Director
DIVISION OF FEDERAL RESERVE
BANK OPERATIONS
CLYDE H. FARNSWORTH, JR., Director
LORIN S. MEEDER, Associate Director
DAVID L. ROBINSON, Associate Director
C. WILLIAM SCHLEICHER, JR., Associate

DAVID L. SHANNON, Director
JOHN R. WEIS, Assistant Director
CHARLES

W.

WOOD,

Assistant Director

DIVISION OF SUPPORT SERVICES
DONALD E. ANDERSON, Director

ROBERT E. FRAZIER, Associate Director
WALTER W. KREIMANN, Associate

Director

Director

WALTER ALTHAUSEN, Assistant Director
CHARLES W. BENNETT, Assistant

Director

ANNE M. DEBEER, Assistant Director
JACK DENNIS, Assistant Director
RICHARD B. GRE,EN, Assistant Director
EARL G. HAMILTON, Assistant Director
ELLIOTT C. MCENTEE, Assistant

Director




OFFICE OF THE CONTROLLER
E. LIVINGSTON, Controller

GEORGE

DIVISION OF DATA PROCESSING
CHARLES L. HAMPTON, Director
BRUCE M. BEARDSLEY, Deputy

Director
ULYESS D. BLACK, Associate Director
GLENN L. CUMMINS, Assistant Director

NEAL H. HILLERMAN, Assistant

Director
ELIZABETH

Director
WILLIAM C.
Director

A.

JOHNSON,

Assistant

SCHNEIDER, JR., Assistant

ROBERT J. ZEMEL, Assistant Director

254

Directories and Meetings

Federal Open Market Committee
December 31, 1982

Members
PAUL A. VOLCKER, Chairman (Board of
ANTHONY M. SOLOMON, Vice Chairman

Governors)
(elected by Federal Reserve Bank of New

York)
J. BALLES (elected by Federal Reserve Banks of Minneapolis, Kansas City, and
San Francisco)
ROBERT P. BLACK (elected by Federal Reserve Banks of Boston, Philadelphia, and
Richmond)
WILLIAM F. FORD (elected by Federal Reserve Banks of Atlanta, St. Louis, and
Dallas)
LYLE E. GRAMLEY (Board of Governors)
KAREN N. HORN (elected by Federal Reserve Banks of Chicago and Cleveland)
PRESTON MARTIN (Board of Governors)
J. CHARLES PARTEE (Board of Governors)
EMMETT J. RICE (Board of Governors)
NANCY H. TEETERS (Board of Governors)
HENRY C. WALLICH (Board of Governors)

JOHN

Officers
STEPHEN H. AXILROD,

Staff Director
MURRAY ALTMANN,

Secretary
NORMAND R.V. BERNARD,

Assistant Secretary
NANCY M. STEELE,

Deputy Assistant Secretary
MICHAEL BRADFIELD,

General Counsel
JAMES H. OLTMAN,

Deputy General Counsel
ROBERT E. MANNION,

Assistant General Counsel
JAMES L. KICHLINE,

Economist
JOHN M. DAVIS,

RICHARD G. DAVIS,

Associate Economist
EDWARD C. ETTIN,

Associate Economist
MICHAEL W. KERAN,

Associate Economist
DONALD L. KOCH,

Associate Economist
JAMES PARTHEMOS,

Associate Economist
MICHAEL J. PRELL,

Associate Economist
CHARLES J. SIEGMAN,

Associate Economist
EDWIN M. TRUMAN,

Associate Economist
JOSEPH S. ZEISEL,

Associate Economist
Associate Economist
PETER D. STERNLIGHT, Manager for Domestic Operations,
System Open Market Account
SAM Y. CROSS, Manager for Foreign Operations,
System Open Market Account
During 1982, the Federal Open Market of the Federal Open Market Committee"
Committee held eight regularly scheduled in this REPORT.)
meetings. (See "Record of Policy Actions



Directories and Meetings

255

Federal Advisory Council
December 31, 1982

Members
District No. 1—WILLIAM S. EDGERLY, Chairman of the Board and President, State
Street Bank and Trust Company, Boston, Massachusetts
District No. 2—DONALD C. PLATTEN, Chairman of the Board, Chemical Bank, New
York, New York
District No. 3—JOHN H. WALTHER, Chairman of the Board, New Jersey National
Corporation and New Jersey National Bank, Trenton, New Jersey
District No. 4—JOHN G. MCCOY, Chairman, Bane One Corporation, Columbus, Ohio
District No. 5—VINCENT C. BURKE, JR., Chairman of the Board, The Riggs National
Bank of Washington, D.C., Washington, D.C.
District No. 6—ROBERT STRICKLAND, Chairman, Trust Company of Georgia, Atlanta, Georgia
District No. 7—ROBERT M. SURDAM, Chairman, National Bank of Detroit, Detroit,
Michigan
District No. 8—RONALD TERRY, Chairman of the Board, First Tennessee Bank, N.A.,
Memphis, Tennessee
District No. 9—CLARENCE G. FRAME, Vice Chairman, First Bank System, Inc.,
Minneapolis, Minnesota
District No. 10—GORDON E. WELLS, Chairman of the Board, First National Bank
of Kansas City, Kansas City, Missouri
District No. 11—T.C. FROST, JR., Chairman, Cullen/Frost Bankers, Inc., San Antonio, Texas
District No. 12—JOSEPH J. PINOLA, Chairman and Chief Executive Officer, First Interstate Bancorporation, Los Angeles, California

Officers
DONALD

C. PLATTEN, President

ROBERT M. SURDAM,
HERBERT V. PROCHNOW, Secretary
WILLIAM J. KORSVIK, Associate Secretary

Vice President

Directors
WILLIAM S. EDGERLY

CLARENCE G. FRAME
JOHN H. WALTHER

Meetings of the Federal Advisory Council
were held on February 4-5, May 20-21,
September 16-17, and November 4-5,
1982. The Board of Governors met with
the council on February 5, May 21, September 17, and November 5, 1982. The
council, which is composed of 12 repre-




sentatives of the banking industry, one from
each Federal Reserve District, is required
by law to meet in Washington at least four
times a year and is authorized by the Federal Reserve Act to consult and advise the
Board on all matters within the jurisdiction of the Board.

256

Directories and Meetings

Consumer Advisory Council
December 31, 1982
CHARLOTTE H. SCOTT, Charlottesville, Virginia, Chairman
MARGARET REILLY-PETRONE, Upper Montclair, New Jersey, Vice Chairman
ARTHUR F. BOUTON,

Little Rock, Arkansas
JULIA H. BOYD,

Alexandria, Virginia
ELLEN BROADMAN,

Washington, D.C.
GERALD R. CHRISTENSEN,

Salt Lake City, Utah
JOSEPH N. CUGINI,

Westerly, Rhode Island
RICHARD S. D'AGOSTINO,

Wilmington, Delaware
SUSAN PIERSON DE WITT,

SHIRLEY T. HOSOI,

Los Angeles, California
GEORGE S. IRVIN,

Denver, Colorado
HARRY N. JACKSON,

Minneapolis, Minnesota
F. THOMAS JUSTER,

Ann Arbor, Michigan
ROBERT J. MCEWEN,

S.J.,

Chestnut Hill, Massachusetts
STAN L. MULARZ,

Chicago, Illinois
WILLIAM J. O'CONNOR, JR.,

Springfield, Illinois

Buffalo, New York

JOANNE S. FAULKNER,

WlLLARD P. OGBURN,

New Haven, Connecticut
MEREDITH FERNSTROM,

New York, New York

Boston, Massachusetts
JANET J. RATHE,

Portland, Oregon

ALLEN J. FISHBEIN,

RENE REIXACH,

Washington, D.C.
E.C.A. FORSBERG, SR.,
Atlanta, Georgia

PETER D. SCHELLIE,

LUTHER R. GATLING,

NANCY Z. SPILLMAN,

New York, New York
VERNARD W. HENLEY,

Richmond, Virginia

Rochester, New York
Washington, D.C.
Los Angeles, California
CLINTON WARNE,

Cleveland, Ohio

JUAN J. HINOJOSA,

FREDERICK T. WEIMER,

Meetings Texas
Me Allen, between the Consumer Advisory Council and members of the Board
of Governors were held on January 2728, April 28-29, July 28-29, and October
27-28, 1982. The council, which is com-

posed of creditors, consumers, and others,
Chicago, Illinois
was established pursuant to the Equal
Credit Opportunity Act to advise the Board
on consumer-related matters.




Directories and Meetings

257

Federal Reserve Banks, Branches, and Offices
December 31, 1982

FEDERAL RESERVE
BANK, branch

Chairman1
Deputy Chairman

BOSTON2

Robert P. Henderson Frank E. Morris
Thomas I.
James A.
Atkins
Mclntosh

NEW YORK2

Robert H. Knight,
Esq.
Boris Yavitz
Frederick D.
Berkeley III

Anthony M. Solomon
Thomas M.
Timlen

PHILADELPHIA

Jean A. Crockett
Robert M.
Landis

Edward G. Boehne
Richard L.
Smoot

CLEVELAND2

J.L. Jackson
Karen N. Horn
William H.
William H.
Knoell
Hendricks
Clifford R. Meyer
Milton G. Hulme, Jr.

Buffalo

Cincinnati
Pittsburgh
RICHMOND2
Baltimore

Steven Muller
Paul E.
Reichardt
Edward H. Covell

President
First Vice President

John T. Keane

Robert D. McTeer,
Jr.
Stuart P. Fishburne
Albert D.
Tinkelenberg

Naomi G. Albanese

ATLANTA

William A. Fickling, William F. Ford
Jr.
Robert P.
John H.
Forrestal
Weitnauer, Jr.
William H. Martin
III
Copeland D.
Newbern
Eugene E. Cohen
Cecelia Adkins
Leslie B. Lampton

Jacksonville
Miami
Nashville
New Orleans
Atlanta
CHICAGO
Detroit
ST. LOUIS
Little Rock
Louisville
Memphis
MINNEAPOLIS

John Sagan
Stanton R. Cook
Russell G. Mawby

For notes see last page of listing.



Fred R. Herr
Charles D. East
Patrick K. Barron
Jeffrey J. Wells
James D. Hawkins
Delmar Harrison

Silas Keehn
Daniel M. Doyle
William C. Conrad

Armand C. Stalnaker Lawrence K. Roos
W.L. Hadley
Donald W.
Griffin
Moriarty, Jr.
Richard V. Warner
James F. Thompson
Donald B. Weis
William G. Phillips
John B. Davis,
Jr.

Robert E. Showalter
Harold J. Swart

Robert P. Black
Jimmie R.
Monhollon

Charlotte
Culpeper3

Birmingham

Vice President
in charge of branch

E. Gerald Corrigan
Thomas E.
Gainor

John F. Breen
Donald L. Henry
Randall C. Sumner

258

Directories and Meetings

FEDERAL RESERVE
BANK, branch

Chairman1
Deputy Chairman

Helena

Ernest B. Corrick

KANSAS CITY

Paul H. Henson
Doris M. Drury

Denver
Oklahoma City
Omaha

James E. Nielson
Christine H. Anthony
Robert G. Lueder

DALLAS

Gerald D. Hines.
John V. James

El Paso
Houston
San Antonio

A.J. Losee
Jerome L. Howard
Lawrence L. Crum

SAN FRANCISCO .

John J. Balles
Caroline L.
John B. Williams
Ahmanson
Alan C. Furth
Bruce M. Schwaegler
John C. Hampton
Wendell J. Ashton
John W. Ellis

Los Angeles
Portland
Salt Lake City
Seattle

President
First Vice President

Vice President
in charge of branch

Robert F. McNellis
Roger Guffey
Henry R.
Czerwinski

Wayne W. Martin
William G. Evans
Robert D. Hamilton

Robert H. Boykin
William H.
Wallace
Joel L. Koonce, Jr.
J.Z. Rowe
Thomas H.
Robertson

Richard C. Dunn
Angelo S. Carella
A. Grant Holman
Gerald R. Kelly

1. The Chairman of a Federal Reserve Bank, by
statute, also serves as Federal Reserve Agent.
2. Additional offices of these Banks are located at
Lewistown, Maine; Windsor Locks, Connecticut;
Cranford, New Jersey; Jericho, New York; Utica at
Oriskany, New York; Columbus, Ohio; Columbia,

South Carolina; Charleston, West Virginia; Des
Moines, Iowa; Indianpolis, Indiana; and Milwaukee,
Wisconsin.
3. Culpeper Communications and Records Center
is a facility.

Conference of Chairman

Conference of Presidents

The chairmen of the Federal Reserve
Banks are organized into a Conference of
Chairmen that meets to consider matters
of common interest and to consult with
and advise the Board of Governors. Such
meetings, attended also by the deputy
chairmen, were held in Washington on
May 23-24 and December 2-3, 1982.
The Executive Committee of the Conference of Chairmen during 1982 comprised John Sagan, Chairman, William A.
Fickling, Vice Chairman, and Paul H.
Henson, member.
On December 2, 1982, Robert P. Henderson was elected chairman of the conference and of its Executive Committee
to serve for the succeeding year; William
G. Phillips was elected vice chairman of
the conference and a member of the Executive Committee; and Steven Muller was
elected as the other member of the Executive Committee.

The presidents of the Federal Reserve
Banks are organized into a Conference
of Presidents that meets periodically to
consider matters of common interest and
to consult and advise the Board of
Governors. At a meeting held September
14-15, 1981, Lawrence K. Roos, President of the Federal Reserve Bank of St.
Louis, was elected Chairman, and Anthony M. Solomon, President of the
Federal Reserve Bank of New York, was
elected Vice Chairman for 1982. Lynn
A. David of the Federal Reserve Bank
of St. Louis was appointed Secretary,
and Thomas J. Campbell of the Federal
Reserve Bank of New York was appointed Assistant Secretary. Bradley K.
Sabel of the Federal Reserve Bank of
New York replaced Mr. Campbell as
Assistant Secretary on October 6, 1982.




Directories and Meetings
Conference of
First Vice Presidents
The Conference of First Vice Presidents
of the Federal Reserve Banks was organized in 1969 to meet periodically for the
consideration of operational and other
matters. On October 8, 1981, Donald
W. Moriarty, Jr., First Vice President of
the Federal Reserve Bank of St. Louis,
was elected Chairman, and Thomas M.
Timlen, First Vice President of the Federal Reserve Bank of New York, was
elected Vice Chairman of the conference
for 1982. Lynn A. David and Thomas J.
Campbell were appointed Secretary and
Assistant Secretary respectively. Mr.
Campbell was replaced by Bradley K.
Sabel on October 6, 1982.

Directors
Class A and Class B directors are elected
by the member banks of a Federal
Reserve District. Class C directors are
appointed by the Board of Governors of
the Federal Reserve System. One term
in each class of directors expires each

259

year. Directors are chosen without discrimination as to race, creed, color, sex,
or national origin.
The Class A directors are chosen as
representatives of member banks and, as
a matter of practice, are active officers
of member banks. Class B and Class C
directors represent the public and are
selected with due, but not exclusive,
consideration to the interests of agriculture, commerce, industry, services, labor, and consumers. Class B and Class
C directors may not be officers, directors,
or employees of any bank, nor may Class
C directors be stockholders of any bank.
Annually, the Board of Governors designates one Class C director of each
Reserve Bank to serve as chairman of
the Bank and one to serve as deputy
chairman.
Branches of Federal Reserve Banks
have either five or seven directors, of
whom a majority are appointed by the
board of directors of the parent Federal
Reserve Bank. The others are appointed
by the Board of Governors of the Federal
Reserve System. The chairmen of branch
boards are selected from among directors
appointed by the Board of Governors.

District 1—BOSTON

Term
expires
Dec. 31

Class A
H. Alan Timm

President, Bank of Maine, N.A., Augusta,
Maine
Henry S. Woodbridge, Jr..Chairman of the Board and Chief Executive
Officer, Rhode Island Hospital Trust National Bank, Providence, Rhode Island
James Stokes Hatch
President and Chief Executive Officer, The
Canaan
National
Bank,
Canaan,
Connecticut

1982
1983
1984

Class B
Carol R. Goldberg

Senior Vice President, The Stop & Shop Companies, Inc., Boston, Massachusetts
Joseph A. Baute
Chairman and Chief Executive Officer, Markem Corporation, Keene, New Hampshire
George N. Hatsopoulos....President, Thermo Electron Company, Waltham, Massachusetts



1982
1983
1984

260

Directories and Meetings

Class C
Thomas I. Atkins
Michael J. Harrington
Robert P. Henderson

Term
expires
Dec. 31
General Counsel, National Association for the
Advancement of Colored People, New York,
New York
Harrington
Company,
Peabody, Massachusetts
Chairman and Chief Executive Officer, Itek
Corporation, Lexington, Massachusetts ....

1982
1983
1984

District 2—NEW Y O R K
Class A
Gordon T. Wallis
Peter D. Kiernan
Robert A. Rough

Chairman of the Board, Irving Trust Company, New York, New York
Chairman and President, Norstar Bancorp Inc.,
Albany, New York
President, The National Bank of Sussex County,
Branchville, New Jersey

1982
1983
1984

Class B
William S. Cook

President, Union Pacific Corporation, New
York, New York
John R. Opel
President and Chief Executive Officer, International Business Machines Corporation,
Armonk, New York
Edward L. Hennessy, Jr. ..Chairman of the Board, Allied Chemical Corporation , Morristown, New Jersey

1982
1983
1984

Class C
Boris Yavitz

Paul Garrett Professor of Public Policy and
Business Responsibility, Columbia University, New York, New York
Robert H. Knight
Senior Partner, Shearman and Sterling, Attorneys, New York, New York
Gertrude G. Michelson ....Senior Vice President, R.H. Macy & Company, Inc., New York, New York

1982
1983
1984

BUFFALO BRANCH
Appointed by Federal Reserve Bank
M. Jane Dickman
Partner, Touche Ross & Co., Buffalo, New
York
Arthur M. Richardson
Chairman of the Board and Chief Executive
Officer, Security Trust Company, Rochester, New York
Carl F. Ulmer
President, The Evans National Bank of Angola, Angola, New York
Edward W. Duffy
Chairman of the Board, Marine Midland Bank,
N.A., Buffalo, New York
Appointed by Board of Governors
Frederick D. Berkeley III .Chairman of the Board and President, Graham Manufacturing Company, Inc., Batavia, New York



1982
1982
1983
1984

1982

Directories and Meetings

John R. Burwell
George L. Wessel

President, Rollins Container Corporation,
Rochester, New York
President, Buffalo AFL/CIO Council, Buffalo, New York

261
Term
expires
Dec. 31
1983
1984

District 3—PHILADELPHIA
Class A
Donald J. Seebold

President, The First National Bank of Danville, Danville, Pennsylvania
Roger S. Hillas
Chairman and President, Provident National
Bank, Philadelphia, Pennsylvania
Douglas Eugene Johnson..President, Ocean County National Bank, Point
Pleasant Beach, New Jersey
Class B
Eberhard Faber, IV
Harry A. Jensen
Richard P. Hauser
Class C
Jean A. Crockett
Robert M. Landis
George E. Bartol III

Chairman of the Board and Chief Executive
Officer, Eberhard Faber, Inc., Wilkes-Barre,
Pennsylvania
President and Chief Executive Officer, Armstrong World Industries, Inc., Lancaster,
Pennsylvania
Chairman and Chief Executive Officer, John
Wanamaker, Philadelphia, Pennsylvania...
Chairman, Department of Finance, Wharton
School, University of Pennsylvania, Philadelphia, Pennsylvania
Partner, Dechert Price & Rhoads, Philadelphia, Pennsylvania
Chairman of the Board, Hunt Manufacturing
Company, Philadelphia, Pennsylvania

1982
1983
1984

1982
1983
1984

1982
1983
1984

District 4—CLEVELAND
Class A
John W. Alford
J. David Barnes
Raymond D. Campbell
Class B
John W. Kessler
E. Mandell de Windt
Richard D. Hannan



Chairman of the Board and Chief Executive
Officer, The Park National Bank, Newark,
Ohio
Chairman of the Board, Mellon Bank, N.A.,
Pittsburgh, Pennsylvania
Director, The Oberlin Savings Bank Co.,
Oberlin, Ohio
President, John W. Kessler Company, Columbus, Ohio
Chairman of the Board, Eaton Corporation,
Cleveland, Ohio
Chairman of the Board and President, Mercury Instruments, Inc., Cincinnati, Ohio...

1982
1983
1984

1982
1983
1984

262

Directories and Meetings

Class C
John D. Anderson
William H. Knoell
J.L. Jackson

Term
expires
Dec. 31
Senior Partner, The Andersons, Maumee,
Ohio
President and Chief Executive Officer, Cyclops Corporation, Pittsburgh,
Pennsylvania
Executive Vice President and President, Coal
Unit, Diamond Shamrock Corporation,
Lexington, Kentucky

1982
1983
1984

CINCINNATI BRANCH
Appointed by Federal Reserve Bank
Oliver W. Birckhead
Chairman of the Board and Chief Executive
Officer, The Central Trust Company, N.A.,
Cincinnati, Ohio
O.T. Dorton
President, Citizens National Bank, Paintsville,
Kentucky
Richard Fitton
President and Chief Executive Officer, First
National Bank of Southwestern Ohio, Hamilton, Ohio
Sherrill Cleland
President, Marietta College, Marietta, Ohio.
Appointed by Board of Governors
Sister Grace Marie Hiltz...President, Sisters of Charity Health Care Systems, Inc., Cincinnati, Ohio
Clifford R. Meyer
Executive Vice President, Cincinnati Milacron
Inc., Cincinnati, Ohio
Don Ross
Owner, Dunreath Farm, Lexington,
Kentucky

1982
1983
1984
1984

1982
1983
1984

PITTSBURGH BRANCH
Appointed by Federal Reserve Bank
William D. McKain
President, Wheeling National Bank, Wheeling, West Virginia
Ernest L. Lake
President, The National Bank of North East,
North East, Pennsylvania
Robert C. Milsom
President, Pittsburgh National Bank, Pittsburgh, Pennsylvania
James S. Pasman, Jr
Executive Vice President of Finance, Aluminum Company of America, Pittsburgh,
Pennsylvania
Appointed by Board of Governors
Robert S. Kaplan
Dean, Graduate School of Industrial Administration, Carnegie-Mellon University,
Pittsburgh, Pennsylvania
Milton G. Hulme, Jr
President and Chief Executive Officer, Mine
Safety Appliances Company, Pittsburgh,
Pennsylvania
Quentin C. McKenna
President and Chief Executive Officer, Kennametal Inc., Latrobe, Pennsylvania



1982
1983
1984
1984

1982
1983
1984

Directories and Meetings

263
Term
expires

District 5—RICHMOND
Class A
William M. Dickson
J. Banks Scarborough
Joseph A. Jennings

Class B
James A. Chapman, Jr
Leon A. Dunn, Jr
Paul G. Miller

Class C
Paul E. Reichardt
Steven Muller
William S. Lee III

President and Senior Trust Officer, The First
National Bank in Ronceverte, Ronceverte,
West Virginia
Chairman and President, Pee Dee State Bank,
Timmonsville, South Carolina
Chairman and Chief Executive Officer, United
Virginia Bankshares Inc. and United Virginia Bank, Richmond, Virginia
Chairman of the Board and Chief Executive
Officer, Inman Mills, Inman, South
Carolina
Chairman, President, and Chief Executive Officer, Guardian Corporation and Subsidiaries, Rocky Mount, North Carolina
Chairman of the Board and Chief Executive
Officer, Commercial Credit Company, Baltimore, Maryland
Chairman of the Board and Chief Executive
Officer, Washington Gas Light Company,
Washington, D.C
President, The Johns Hopkins University,
Baltimore, Maryland
Chairman of the Board and Chief Executive
Officer, Duke Power Company, Charlotte,
North Carolina

Dec. 31

1982
1983
1984

1982
1983
1984

1982
1983
1984

BALTIMORE BRANCH
Appointed by Federal Reserve Bank
Hugh D. Shires
Senior Vice President, First National Bank of
Maryland, Cumberland, Maryland
A.R. Reppert
President, The Union National Bank of
Clarksburg, Clarksburg, West Virginia
Joseph M. Gough, Jr
President, The First National Bank of St.
Mary's, Leonardtown, Maryland
Pearl C. Brackett
Deputy Manager, Baltimore Regional Chapter of the American Red Cross, Baltimore,
Maryland
Appointed by Board of Governors
Edward H. Co veil
Vice President for Governmental and Industry
Affairs, Country Pride Foods Limited, Easton, Maryland
Robert L. Tate
Chairman, Tate Industries, Baltimore, Maryland




1982
1982
1983
1984

1982
1983

264

Directories and Meetings

Thomas H. Maddux

Executive Vice President and Chief Operating
Officer, Easco Corporation, Baltimore,
Maryland

Term
expires
Dec. 31
1984

CHARLOTTE BRANCH
Appointed by Federal Reserve Bank
W.B. Apple, Jr
President, First National Bank of Reidsville,
Reidsville, North Carolina
Marvin D. Trapp
President and Chief Executive Officer, The
National Bank of South Carolina, Sumter,
South Carolina
Nicholas W. Mitchell
Chairman of the Board, Piedmont Federal
Savings and Loan Association, WinstonSalem, North Carolina
Hugh M. Chapman
Chairman of the Board, The Citizens & Southern National Bank of South Carolina, Columbia, South Carolina
Appointed by Board of Governors
Naomi G. Albanese
Dean, School of Home Economics, University
of North Carolina at Greensboro, Greensboro, North Carolina
Wallace J. Jorgenson
President, Jefferson-Pilot Broadcasting Co.,
Charlotte, North Carolina
Henry Ponder
President, Benedict College, Columbia, South
Carolina
.

1982
1982
1983
1984

1982
1983
1984

District 6—ATLANTA
Class A
Dan B. Andrews
Hugh M. Willson
Guy W. Botts
Class B
Jean McArthur Davis
Harold B. Blach, Jr
Horatio C. Thompson
Class C
John H. Weitnauer, Jr
William A. Fickling, Jr
Jane C. Cousins



President, First National Bank, Dickson,
Tennessee
President, Citizens National Bank, Athens,
Tennessee
Chairman of the Board, Barnett Banks of
Florida, Inc., Jacksonville, Florida
President, McArthur Dairy, Inc., Miami,
Florida
President,
Blach's
Inc.,
Birmingham,
Alabama
President, Horatio Thompson Investment, Inc.,
Baton Rouge, Louisiana
Chairman and Chief Executive Officer, Richway, Atlanta, Georgia
Chairman and Chief Executive, Charter Medical Corporation, Macon, Georgia
President and Chief Executive Officer, Merrill
Lynch Realty/Cousins, Miami, Florida

1982
1983
1984

1982
1983
1984

1982
1983
1984

Directories and Meetings

BIRMINGHAM BRANCH
Appointed by Federal Reserve Bank
C. Gordon Jones
President and Chief Executive Officer, First
National Bank of Decatur, Decatur,
Alabama
Martha A. Mclnnis
Executive Vice President, Alabama Environmental Quality Association, Montgomery,
Alabama
Henry A. Leslie
President and Chief Executive Officer, Union
Bank and Trust Company, Montgomery,
Alabama
William M. Schroeder
Chairman and President, Central State Bank,
Calera, Alabama
Appointed by Board of Governors
William H. Martin III
President and Chief Executive Officer, Martin
Industries, Inc., Florence, Alabama
Samuel R. Hill, Jr
President, University of Alabama in Birmingham, Birmingham, Alabama
Louis J. Willie
Executive Vice President, Booker T.
Washington Insurance Co., Birmingham,
Alabama

265

Term
expires
Dec
- 31

1982
1982
1983
1984

1982
1983
1984

JACKSONVILLE BRANCH
Appointed by Federal Reserve Bank
Whitfield M. Palmer, Jr. ..Chairman, Mid-Florida Mining Company,
Ocala, Florida
Billy J. Walker
President, Atlantic Bancorporation, Jacksonville, Florida
Gordon W. Campbell
President and Chief Executive Officer, Exchange Bancorporation, Inc., Tampa,
Florida
Lewis A. Doman
President, The Citizens and Peoples National
Bank, Pensacola, Florida
Appointed by Board of Governors
Copeland D. Newbern
Chairman of the Board, Newbern Groves, Inc.,
Tampa, Florida
Joan W. Stein
Chairman, Regency Square Properties, Inc.,
Jacksonville, Florida
Jerome P. Keuper
President, Florida Institute of Technology,
Melbourne, Florida

1982
1982
1983
1984

1982
1983
1984

MIAMI BRANCH
Appointed by Federal Reserve Bank
M.G. Sanchez
President and Chief Executive Officer, First
Bankers Corporation of Florida, Pompano
Beach, Florida
Daniel S. Goodrum
Senior Executive Vice President, Sun Banks
of Florida, Ft. Lauderdale, Florida




1982
1983

266

Directories and Meetings

E. Llwyd Ecclestone, Jr. ..President and Chief Executive Officer, National Investment Co., West Palm Beach,
Florida
Stephen G. Zahorian
President, Barnett Bank of Fort Myers, N.A.,
Fort Myers, Florida
Appointed by Board of Governors
Sue McCourt Cobb
Attorney, Greenberg, Traurig, Askew, Hoffman, Lipoff, Quentel, and Wolff, P.A.,
Miami, Florida
Eugene E. Cohen
Chief Financial Officer and Treasurer, Howard Hughes Medical Institute, Coconut
Grove, Florida
Roy Vandegrift, Jr
President, Vandegrift-Williams Farms, Inc.,
Pahokee, Florida

Term
expires
Dec. 31
1984
1984

1982
1983
1984

NASHVILLE BRANCH
Appointed by Federal Reserve Bank
Charles J. Kane
Chairman and Chief Executive Officer, Third
National Bank in Nashville, Nashville,
Tennessee
John R. King
President, The Mason and Dixon Lines, Inc.,
Kingsport, Tennessee
James F. Smith, Jr
Chairman and Chief Executive Officer, Park
National Bank, Knoxville, Tennessee
Michael T. Christian
President and Chief Executive Officer, First
National Bank of Greeneville, Greeneville,
Tennessee
Appointed by Board of Governors
Cecelia Adkins
Executive Director, Sunday School Publishing
Board, Nashville, Tennessee
Robert C.H. Mathews, Jr. Managing General Partner, R.C. Mathews,
Contractor, Nashville, Tennessee
C. Warren Neel
Dean, College of Business Administration,
The University of Tennessee, Knoxville,
Tennessee

1982
1982
1983
1984

1982
1983
1984

NEW ORLEANS BRANCH
Appointed by Federal Reserve Bank
Patrick A. Delaney
Chairman and President, Whitney National
Bank of New Orleans, New Orleans,
Louisiana
Ben M. Radcliff
President, Ben M. Radcliff Contractor, Inc.,
Mobile, Alabama
Paul W. McMullan
Chairman and Chief Executive Officer, First
Mississippi National Bank, Hattiesburg,
Mississippi
Jerry W. Brents
President and Chief Executive Officer, First
National Bank, Lafayette, Louisiana



1982
1982
1983
1984

Directories and Meetings

Appointed by Board of Governors
Sharon A. Perlis
Attorney, Metairie, Louisiana
Leslie B. Lampton
President, Ergon, Inc., Jackson, Mississippi .
Roosevelt Steptoe
Professor, Southern University, Baton Rouge
Campus, Baton Rouge, Louisiana

267
Term
expires
Dec. 31
1982
1983
1984

District 7—CHICAGO
Class A
Patrick E. McNarny
Ollie Jay Tomson
Roger E. Anderson

Class B
Mary Garst
Leon T. Kendall
Dennis W. Hunt
Class C
Stanton R. Cook
John Sagan
Edward F. Brabec

President, First National Bank of Logansport,
Logansport, Indiana
President, The Citizens National Bank of
Charles City, Charles City, Iowa
Chairman of the Board, Continental Illinois
National Bank and Trust Company of Chicago, Chicago, Illinois
Manager of Cattle Division, Garst Company,
Coon Rapids, Iowa
Chairman of the Board and Chief Executive
Officer, Mortgage Guaranty Insurance
Corp., Milwaukee, Wisconsin
President, Hunt Truck Lines, Inc., Rockwell
City, Iowa
President, Tribune Company, Chicago, Illinois
Vice President-Treasurer, Ford Motor Company, Dearborn, Michigan
Business Manager, Chicago Journeymen
Plumbers, Local Union 130, U. A., Chicago,
Illinois

1982
1983
1984

1982
1983
1984

1982
1983
1984

DETROIT BRANCH
Appointed by Federal Reserve Bank
Dean E. Richardson
Chairman, Manufacturers National Bank of
Detroit, Detroit, Michigan
Lawrence A. Johns
President, Isabella Bank and Trust, Mount
Pleasant, Michigan
James H. Duncan
Chairman and Chief Executive Officer, First
American Bank Corporation, Kalamazoo,
Michigan
Thomas R. Ricketts
Chairman and President, Standard Federal
Savings and Loan Association, Troy,
Michigan

1984

Appointed by Board of Governors
Russell G. Mawby
President and Trustee, W.K. Kellogg Foundation, Battle Creek, Michigan


1982



1982
1983
1984

268

Directories and Meetings

Karl D. Gregory

Robert E. Brewer

Professor; Management and Economic Consultant, School of Economics and Management, Oakland University, Rochester,
Michigan
Executive Vice President, Finance, K Mart
Corporation, Troy, Michigan

Term
expires
Dec. 31
1983
1984

District 8—ST. LOUIS
Class A
Donald L. Hunt
Clarence C. Barksdale
George M. Ryrie
Class B
Mary P. Holt
Frank A. Jones, Jr
Jesse M. Shaver
Class C
Armand C. Stalnaker
Vacancy
W.L. Hadley Griffin

President, First National Bank of Marissa,
Marissa, Illinois
Chairman and Chief Executive Officer, Centerre Bank National Association, St. Louis,
Missouri
President, First National Bank & Trust Co.,
Alton, Illinois
President, Clothes Horse, Little Rock,
Arkansas
President, Dietz Forge Company, Memphis,
Tennessee
Consultant, Allis-Chalmers
Corporation,
Louisville, Kentucky
Chairman of the Board, General American
Life Insurance Co., St. Louis, Missouri....
Chairman of the Board, Brown Group, Inc.,
St. Louis, Missouri

1982
1983
1984

1982
1983
1984

1982
1983
1984

LITTLE ROCK BRANCH
Appointed by Federal Reserve Bank
William H. Bowen
Chairman and Chief Executive Officer, The
Commercial National Bank of Little Rock,
Little Rock, Arkansas
William H. Kennedy, Jr. ..Chairman of the Board, National Bank of
Commerce of Pine Bluff, Pine Bluff,
Arkansas
Gordon E. Parker
Chairman of the Board and President, The
First National Bank of El Dorado, El Dorado, Arkansas
Shirley J. Pine
Department of Communicative Disorders,
University of Arkansas at Little Rock, Little
Rock, Arkansas
Appointed by Board of Governors
E. Ray Kemp, Jr
Vice Chairman of the Board and Chief Administrative Officer, Dillard Department

Stores, Inc., Little Rock, Arkansas


1982
1983
1984
1984

1982

Directories and Meetings

Richard V. Warner
Sheffield Nelson

Group Vice President, Wood Products Group,
Potlatch Corporation, Warren, Arkansas ..
Chairman of the Board, President, and Chief
Executive Officer, Arkla, Inc., Little Rock,
Arkansas

269

Term
expires
Dec
- $1
1983
1984

LOUISVILLE BRANCH
Appointed by Federal Reserve Bank
Howard Brenner
Vice Chairman of the Board, Tell City National Bank, Tell City, Indiana
Frank B. Hower, Jr
Chairman and Chief Executive Officer, Liberty National Bank and Trust Company,
Louisville, Kentucky
R.I. Kerr, Jr
President and Managing Officer, Greater
Louisville First Federal Savings and Loan
Association, Louisville, Kentucky
John E. Darnell, Jr
Chairman of the Board, President, and Chief
Executive Officer, The Owensboro National Bank, Owensboro, Kentucky
Appointed by Board of Governors
James F. Thompson
Professor of Economics, Murray State University, Murray, Kentucky
William C. Ballard, Jr
Executive Vice President-Finance and
Administration, Humana, Inc., Louisville,
Kentucky
Sister Eileen M. Egan
President, Spalding College, Louisville,
Kentucky

1982
1983
1984
1984

1982
1983
1984

MEMPHIS BRANCH
Appointed by Federal Reserve Bank
Earl L. McCarroll
President, The Farmers Bank & Trust Co.,
Blytheville, Arkansas
Wayne W. Pyeatt
President, Memphis Fire Insurance Company,
Memphis, Tennessee
Edgar H. Bailey
Chairman and President, Leader Federal Savings and Loan Association, Memphis,
Tennessee
William M. Matthews, Jr. .Chairman of the Board and Chief Executive
Officer, Union Planters National Bank of
Memphis, Memphis, Tennessee
Appointed by Board of Governors
Patricia W. Shaw
Executive Vice President, Universal Life Insurance Company, Memphis, Tennessee...
Donald B. Weis
President, Tamak Transportation Corp., West
Memphis, Arkansas
G. Rives Neblett
Attorney, Neblett, Bobo & Chapman, Shelby,
Mississippi




1982
1983
1984
1984

1982
1983
1984

270

Directories and Meetings

District 9—MINNEAPOLIS
Class A
Henry N. Ness
Vern A. Marquardt
Dale W. Fern

Class B
Joe F. Kirby
Harold F. Zigmund
William L. Mathers

Senior Vice President, The Fargo National
Bank, Fargo, North Dakota
President, Commercial National Bank of
L'Anse, L'Anse, Michigan
President and Chairman of the Board, The
First National Bank of Baldwin, Wisconsin,
Baldwin, Wisconsin
Chairman, Western Surety Company, Sioux
Falls, South Dakota
President and Chief Executive Officer, Blandin Paper Company, Grand Rapids,
Minnesota
President, Mathers Land Co., Inc., Miles City,
Montana

Class C
Sister Generose Gervais ...Administrator, St. Mary's Hospital, Rochester, Minnesota
William G. Phillips
Chairman and Chief Executive Officer,
International Multifoods, Minneapolis,
Minnesota
John B. Davis, Jr
President, Macalester College, St. Paul,
Minnesota
•.

Term
expires
Dec. 31

1982
1983
1984

1982
1983
1984

1982
1984
1984

HELENA BRANCH
Appointed by Federal Reserve Bank
Jase O. Norsworthy
President, The N.R.G. Company, Billings,
Montana
Harry W. Newlon
President, First National Bank, Bozeman,
Montana
Roger H. Ulrich
President, The First State Bank of Malta, Malta,
Montana
Appointed by Board of Governors
Ernest B. Corrick
Vice President and General Manager, Champion International Corporation, Timberlands-Rocky Mountain Operation, Missoula, Montana
Gene J. Etchart
Past President, Hinsdale Livestock Company,
Glasgow, Montana

1982
1982
1983

1982
1983

District 10—KANSAS CITY
Class A
Howard K. Loomis
Wayne D. Angell



President, The Peoples Bank, Pratt, Kansas.
President, Council Grove National Bank, Ottawa, Kansas

1982
1983

Directories and Meetings

John D. Woods
Class B
Charles C. Gates
James G. Harlow, Jr
Duane Acker
Class C
Paul H. Henson
John F. Anderson
Doris M. Drury

Chairman and Chief Executive Officer, The
Omaha National Bank, Omaha, Nebraska
President and Chairman of the Board, Gates
Rubber Company, Denver, Colorado
President and Chief Executive Officer, Oklahoma Gas and Electric Co., Oklahoma City,
Oklahoma
President, Kansas State University, Manhattan, Kansas
Chairman, United Telecommunications, Inc.,
Kansas City, Missouri
President and Chief Executive Officer,
Farmland Industries, Inc., Kansas City,
Missouri
Professor of Economics; Director of Public
Affairs Program, University of Denver, Englewood, Colorado

271
Term
expires
Dec
- 31
1984

1982
1983
1984

1982
1983
1984

DENVER BRANCH
Appointed by Federal Reserve Bank
Delano E. Scott
President and Chairman, The Routt County
National Bank of Steamboat Springs,
Steamboat Springs, Colorado
George S. Jenks
Chairman and Chief Executive Officer, Albuquerque National Bank, Albuquerque,
New Mexico
Kenneth C. Naramore
President, Stockmen's Bank & Trust Company, Gillette, Wyoming
Donald D. Hoffman
Chairman, Central Bank of Denver, Denver,
Colorado
Appointed by Board of Governors
Alvin F. Grospiron
Denver, Colorado
Ralph F. Cox
Executive Vice President and Director,
Atlantic Richfield Company, Denver,
Colorado
James E. Nielson
President and Chief Executive Officer, J.N.,
Inc., Cody, Wyoming

1982
1982
1983
1984
1982
1983
1984

OKLAHOMA CITY BRANCH
Appointed by Federal Reserve Bank
Marcus R. Tower
Vice Chairman of the Board; Chairman of the
Credit Policy Committee, Bank of Oklahoma, Tulsa, Oklahoma
W.L. Stephenson, Jr
Chairman and Chief Executive Officer, Central National Bank and Trust Company, Enid,
Oklahoma



1982
1982

272

Directories and Meetings

William H. Crawford

President and Chief Executive Officer, First
National Bank and Trust Company, Frederick, Oklahoma

Appointed by Board of Governors
Samuel R. Noble
Chairman of the Board, Noble Affiliates, Inc.,
Ardmore, Oklahoma
Christine H. Anthony
Oklahoma City, Oklahoma

Term
expires
Dec
- 31
1983

1982
1983

OMAHA BRANCH
Appointed by Federal Reserve Bank
Donald J. Murphy
Chairman and Chief Executive Officer, United
States National Bank of Omaha, Omaha,
Nebraska
Joseph J. Huckfeldt
President, Gering National Bank and Trust
Company, Gering, Nebraska
William W. Cook, Jr
President, Beatrice National Bank and Trust
Company, Beatrice, Nebraska
Appointed by Board of Governors
Robert G. Lueder
President, Lueder Construction Company,
Omaha, Nebraska
Gretchen S. Velde
Chairman of the Board, Swanson Enterprises,
Inc., Omaha, Nebraska

1982
1983
1983

1982
1983

District 11—DALLAS
Class A
John P. Gilliam
Miles D. Wilson
Lewis H. Bond

Class B
Robert D. Rogers
Kent Gilbreath
J. Wayland Bennett




President and Chief Executive Officer, First
National Bank in Valley Mills, Valley Mills,
Texas
Chairman of the Board and President, The
First National Bank of Bellville, Bellville,
Texas
Chairman of the Board and Chief Executive
Officer, Texas American Bancshares Inc.,
Ft. Worth, Texas
President, Texas Industries, Inc., Dallas,
Texas
Associate Dean, Hankamer School of Business, Baylor University, Waco, Texas
Professor of Agricultural Finance and Associate Dean, College of Agricultural Sciences, Texas Tech University, Lubbock,
Texas

1982
1983
1984

1982
1983

1984

Directories and Meetings

Class C
Margaret S. Wilson
John V. James
Gerald D. Hines

273
Term
expires
Dec. 31

Chairman of the Board and Chief Executive
Officer, Scarbroughs Stores, Austin,
Texas
Chairman of the Board, Dresser Industries,
Inc., Dallas, Texas
Owner, Gerald D. Hines Interests, Houston,
Texas

1982
1983
1984

EL PASO BRANCH
Appointed by Federal Reserve Bank
Stanley J. Jarmiolowski ....Chairman of the Board and President, First
International Bank in El Paso, N. A., El Paso,
Texas
Claude E. Leyendecker... .President, Mimbres Valley Bank, Deming, New
Mexico
Ernest M. Schur
Chairman of the Executive Committee, The
First National Bank of Odessa, Odessa,
Texas
Gerald W. Thomas
President, New Mexico State University, Las
Cruces, New Mexico
Appointed by Board of Governors
A.J. Losee
Shareholder, Losee, Carson, & Dickerson,
Professional Association, Artesia, New
Mexico
Chester J. Kesey
C.J. Kesey Enterprises, Pecos, Texas
Mary Carmen Saucedo
Associate Superintendent, Central Area, El
Paso Independent School District, El Paso,
Texas

1982
1983
1984
1984

1982
1983
1984

HOUSTON BRANCH
Appointed by Federal Reserve Bank
Will E. Wilson
Chairman of the Board and Chief Executive
Officer, First Security Bank of Beaumont,
N.A., Beaumont, Texas
Raymond L. Britton
Labor Arbitrator, and Professor of Law, University of Houston, Houston, Texas
Ralph E. David
President, First Freeport National Bank, Freeport, Texas
Thomas B. McDade
Vice Chairman, Texas Commerce Baneshares, Inc., Houston, Texas
Appointed by Board of Governors
Jerome L. Howard
Chairman of the Board and Chief Executive
Officer, Mortgage & Trust, Inc., Houston,
Texas



1982
1983
1984
1984

1982

274

Directories and Meetings

Paul N. Howell
George V. Smith, Sr

Chairman of the Board and President, Howell
Corporation, Houston, Texas
President, Smith Pipe & Supply, Inc., Houston, Texas

Term
expires
Dec
- 31
1983
1984

SAN ANTONIO BRANCH
Appointed by Federal Reserve Bank
George Brannies
Chairman of the Board and President, The
Mason National Bank, Mason, Texas
John H. Garner
President and Chief Executive Officer, Corpus
Christi National Bank, Corpus Christi,
Texas
Charles E. Cheever, Jr
President, Broadway National Bank, San Antonio, Texas
Joe D. Barbee
President and Chief Executive Officer, Barbee-Neuhaus Implement Company, Weslaco, Texas
Appointed by Board of Governors
Pat Legan
Owner, Legan Properties, San Antonio,
Texas
Lawrence L. Crum
Professor of Banking and Finance, The University of Texas at Austin, Austin, Texas..
Carlos A. Zuniga
Partner, Zuniga Freight Services, Inc., Laredo, Texas

1982
1983
1984
1984

1982
1983
1984

District 12—SAN FRANCISCO
Class A
Frederick G. Larkin, Jr. ...Chairman of the Executive Committee, Security Pacific National Bank, Los Angeles,
California
Ole R. Mettler
President and Chairman, Farmers & Merchants Bank of Central California, Lodi,
California
Robert A. Young
Chairman and President, Northwest National
Bank, Vancouver, Washington

1982
1983
1984

Class B
Clair L. Peck, Jr

Chairman of the Board, C.L. Peck Contractor, Los Angeles, California
J.R. Vaughan
Senior Member, Richards, Watson, Dreyfuss
& Gershon, Los Angeles, California
George H. Weyerhauser...President and Chief Executive Officer, Weyerhauser Company, Tacoma, Washington .
Class C
Caroline L. Ahmanson



Chairman of the Board, Caroline Leonetti,
Ltd., Hollywood, California

1982
1983
1984

1982

Directories and Meetings

Fred W. Andrew
Alan C. Furth

President and Chief, Operating Officer, Superior Farming Company, Bakersfield,
California
President, Southern Pacific Company, San
Francisco, California

275
Term
expires
Dec. 31
1983
1984

LOS ANGELES BRANCH
Appointed by Federal Reserve Bank
Bram Goldsmith
Chairman of the Board, City National Bank,
Beverly Hills, California
William L. Tooley
Managing Partner, Tooley and Company, Investment
Builders,
Los
Angeles,
California
James D. McMahon
President, Santa Clarita National Bank, Valencia, California
Robert R. Dockson
Chairman and Chief Executive Officer, California Federal Savings, Los Angeles,
California
Appointed by Board of Governors
Togo W. Tanaka
President, Gramercy Enterprises, Los Angeles, California
Lola M. McAlpin-Grant ...Assistant Dean, Loyola Law School, Los Angeles, California
Bruce M. Schwaegler
President, Bullock's-Bullocks Wilshire, Los
Angeles, California

1982
1982
1983
1984

1982
1983
1984

PORTLAND BRANCH
Appointed by Federal Reserve Bank
Herman C. Bradley, Jr
President and Chief Executive Officer, TriCounty Banking Company, Junction City,
Oregon
William S. Naito
Vice President, Norcrest China Company,
Portland, Oregon
Jack W. Gustavel
President and Chief Executive Officer, The
First National Bank of North Idaho, Coeur
d'Alene, Idaho
John A. Elorriaga
Chairman of the Board and Chief Executive
Officer, United States National Bank of Oregon, Portland, Oregon
Appointed by Board of Governors
Phillip W. Schneider
Former Northwest Regional Executive, National Wildlife Federation, Portland,
Oregon
John C. Hampton
Chairman and President, Willamina Lumber
Company, Portland, Oregon
Carolyn S. Chambers
Executive Vice President and Treasurer, Liberty Communications, Inc., Eugene,
Oregon



1982
1983
1984
1984

1982
1983
1984

276

Directories and Meetings

SALT LAKE CITY BRANCH
Appointed by Federal Reserve Bank
Fred H. Stringham
President, Valley Bank and Trust Company,
South Salt Lake, Utah
Albert C. Gianoli
President and Chairman of the Board, First
National Bank of Ely, Ely, Nevada
Spencer F. Eccles
President and Chief Executive Officer, First
Security Corporation, Salt Lake City,
Utah
Lela M. Ence
Executive Director, University of Utah Alumni
Association, Salt Lake City, Utah
Appointed by Board of Governors
Robert A. Erkins
Geothermal Agri/Aquaculturist, White Arrow
Ranch, Bliss, Idaho
J.L. Terteling
President,TheTertelingCompany, Inc.,Boise,
Idaho
Wendell J. Ashton
Publisher, Deseret News, Salt Lake City,
Utah

Term
expires
Dec. 31

1982
1983
1984
1984

1982
1983
1984

SEATTLE BRANCH
Appointed by Federal Reserve Bank
Donald L. Mellish
Chairman of the Board, National Bank of
Alaska, Anchorage, Alaska
Lonnie G. Bailey
Chief Operating Officer and Executive Vice
President, Farmers & Merchants Bank of
Rockford, Spokane, Washington
John N. Nordstrom
Co-Chairman of the Board, Nordstrom, Inc.,
Seattle, Washington,
G. Robert Truex, Jr
Chairman, Rainier Bancorporation and Rainier National Bank, Seattle, Washington ....
Appointed by Board of Governors
Merle D. Adlum
President, Puget Sound District Council, Maritime Trades Department, AFL/CIO, Seattle, Washington
Virginia L. Parks
Vice President for Finance, and Treasurer, Seattle University, Seattle, Washington
John W. Ellis
President and Chief Executive Officer, Puget
Sound Power & Light Company, Bellevue,
Washington




1982
1983
1984
1984

1982
1983
1984

Index




279

Index
Acceptances, bankers {See Bankers acceptances)
Administrative Procedure Act, 165
Assets and liabilities
Banks, by class, 233
Board of Governors, 202
Federal Reserve Banks, 208-13
Balance of payments, review of 1982,
24-29
Bank capital, definition, 174
Bank holding companies
Control of, changes, 179-80
Equity investments, acquisitions by,
73
Examination, inspection, and regulation, 171-83
International banking operations,
65-66, 172, 180
Litigation, 161-63
Number and assets, 171
Regulation Y {See Regulations)
Stock repurchases, 184
Bank Holding Company Act, 73, 166,
167, 169, 177, 178, 181
Bank mergers and consolidations,
178-79, 182, 240-48
Bankers acceptances
Authority to purchase and enter into
repurchase agreements, 79-80
Collateral in stock lending and borrowing transactions, 69
Federal Reserve Banks
Earnings, 198, 199, 218
Holdings, 198, 199, 208, 210, 212
Legislation enacted, 167
Open market transactions, 214
Repurchase agreements, 208, 210,
212, 214
Banking offices, changes in number, 238
Banking supervision and regulation by
Federal Reserve System, 171-87
Board of Governors {See also Federal
Reserve System)
Consumer Advisory Council, 157, 256
Delegated authority, 178, 181, 184



Board of Governors—
Continued
Financial statements, 201-06
Interpretations {See Interpretations)
Legislation recommended, 156
Litigation, 161-66
Members and officers, 252
Policy actions and statements, 59-78
Publications {See Publications)
Regulations {See Regulations)
Regulatory improvement and simplification, 64, 147-50, 188-92
Salaries, 203
Training {See Training)
Branch banks
Changes in number, 239
Federal Reserve
Bank premises, 198, 217
Directors, 259-76
Vice presidents in charge, 257
Foreign, of U.S. banking organizations, 172, 180
Foreign banks, 172
Capital, bank, definition, 174
Capital accounts
Banks, by class, 233
Federal Reserve Banks, 209, 211, 213
Capital adequacy guidelines, 72, 73,
174, 175
Cash Discount Act, 157
Certificates of deposit, 67, 68, 69
Check clearing and collection {See
Transfers of funds)
Commercial banks
Assets and liabilities, 233
Banking offices, changes in number,
238
Number, by class, 233
Supervision and regulation by Federal
Reserve System, 171-87
Transfers of funds {See Transfers of
funds)
Community Reinvestment Act, 151, 158
Comptroller of the Currency, 72, 74

280

Index

Condition statement of Federal Reserve
Banks, 208-13
Consumer Advisory Council, 157, 256
Consumer and community affairs,
143-60
Consumer leasing, 146
Consumer survey, 147
Credit (See also Loans)
Equal Credit Opportunity (See Equal
Credit Opportunity)
Stocks, 64, 69, 184-86
Truth in Lending (See Truth in Lending)
Deposit Insurance Flexibility Act, 167

Depository Institution Management Interlocks Act of 1978, 66
Depository institutions
Interest on deposits (See Interest on
deposits)
Legislation enacted, 168
Reserve requirements, 59-63, 227
Depository Institutions Act of 1982, 67
Depository Institutions Deregulation
and Monetary Control Act of 1980,
62, 63, 67, 163, 188
Depository Institutions Deregulation
Committee, 60, 63, 68, 168
Deposits
Banks, by class, 233
Federal Reserve Banks, 209, 211,
213, 235, 237
Interest rates (See Interest on
deposits)
Reserve requirements (See Reserve
requirements)
Directors, Federal Reserve Banks and
branches, 259-76
Discount rates at Federal Reserve
Banks (See Interest rates)
Discounts and advances (See Federal
Reserve Banks)
Dividends, Federal Reserve Banks, 197,
220, 223, 225
Earnings of Federal Reserve Banks (See

Income of Federal Reserve Banks)
Economy in 1982, 5-13
Educational activities, 177-78
Electronic fund transfers (See Transfers
of funds)



Equal Credit Opportunity
Act, 156
Regulation B, 59, 145, 155, 190
Examinations and inspections
Bank holding companies, 171
Federal Reserve Banks, 197
Improvements, 173-77
International activities, 172
Specialized, 172
Staff training, 177
State member banks, 171
Expenses
Board of Governors, 201-06
Federal Reserve Banks, 197, 218,
222, 224
Export trading companies, 167, 181
Federal Advisory Council, 255

Federal agency securities
Authority to purchase and enter into
repurchase agreements, 79-81,
99, 134, 141
Federal Reserve Bank holdings and
earnings, 198, 208, 210, 212, 216
Federal Reserve open market transactions, 214
Repurchase agreements, 208, 210,
212, 214, 216
Federal Deposit Insurance Corporation,
68
Federal deposit insurance studies, 170
Federal Financial Institutions Examination Council, 150-51, 159, 176, 178
Federal Financing Bank, 80
Federal Home Loan Bank Board, 68
Federal Open Market Committee
Audit of System Open Market Account, 197
Continuing authorizations, review, 98
Meetings, 79, 254
Members and officers, 254
Policy actions, 79-142
Federal Reserve Act, 67, 79, 168
Federal Reserve Agents, 257-58
Federal Reserve Banks
Assessments for expenses of Board of
Governors, 203, 220, 222, 224
Bank premises, 198, 208, 210, 212,
217
Branches (See Branch banks)
Capital accounts, 209, 211, 213
Chairmen, deputy chairmen, 257, 258

Index
Federal Reserve Banks—
Continued
Condition statement, 208-13
Delegated authority, 178, 181, 184
Directors, 259-76
Discounts and advances, 208, 210,
212, 218, 234, 236
Dividends, 197, 220, 223, 225
Examination or audit, 197
Income and expenses, 197, 218, 222,
224
Interest rates, 227
Officers and employees, number and
salaries, 216
Operations, volume, 226
Presidents and vice presidents, 257
Pricing of System services and developments in payments mechanism,
193-97, 226
Profit and loss, 220
Securities and loans, holdings and
earnings, 198
Training, 177-78
U.S. government securities (See U.S.
government securities)
Federal Reserve notes
Condition statement data, 208-13
Cost of printing, issue, and redemption, 203
Interest paid to U.S. Treasury, 197,
220, 223, 225
Litigation, 166
Federal Reserve System (See also Board
of Governors)
Banking supervision and regulation
by, 171-87
Consumer affairs (See Consumer and
community affairs)
Foreign currency operations (See
Foreign currencies)
Map of Federal Reserve
Districts, 249
Membership, 62, 187
Pricing of System services and developments in payments mechanism,
193-97, 226
Training (See Training)
Financial Institutions Regulatory and
Interest Rate Control Act of 1978,
169
Financial Institutions Supervisory Act
of 1966, 163, 177



281

Financial markets and monetary policy,
14-23
Financial Regulation Simplification Act
of 1980, 188
Foreign banks, 62, 66, 69, 167, 172, 180
Foreign currencies
Authorization and directive for operations, 79, 82-84, 98, 120
Federal Reserve earnings, 218
Review, 98
Foreign stocks, 65
Freedom of Information Act, 164
Futures commission merchants, 71
Garn-St Germain Depository Institutions Act of 1982, 61, 63, 67, 69,

144, 167-70
Glass-Steagall Act, 164, 166
Gold certificate accounts of Reserve
Banks and gold stock, 208, 210,
211,212,213, 234, 236
Government in the Sunshine Act, 164
Home mortgage disclosure, 146, 150
Income of Federal Reserve Banks, 197,
218, 222, 224
Individual retirement accounts, 158
Insured commercial banks
Assets and liabilities, 233
Banking offices, changes in number,
238
Interest on deposits (See also Interest
rates)
Maximum rates payable on time and
savings deposits, table, 230
Regulation Q, 63, 67
Interest rates (See also Interest on
deposits)
Federal Reserve Banks
Changes, 74-78
Table on rates, 227
Legislation enacted, 170
Interlocking relationships, 66, 70
International Banking Act of 1978, 66,
167
International banking facilities, 180
International banking operations, 65-66,
172, 180
International developments, review,
24-29

282

Index

Interpretations, 59, 67, 68, 71, 145, 146
Investments
Banks, by class, 233
Federal Reserve Banks, 208, 210, 212
Foreign, by U.S. banking organizations, 181
Labor market developments, 10

Leasing, consumer, 146
Legislation (See also specific act)

Enacted, 167-70
Recommended, 156
Litigation
Bank holding companies, 161-63
Board procedures and regulations,
challenges, 163-66
Loans (See also Credit)
Affiliates of member banks, legislation enacted, 168
Banks, by class, 233
Executive officers of member banks,
67, 169, 183
Federal Reserve Banks
Discounts and advances, 208, 210,
212, 218, 234, 236
Holdings and earnings, 198, 218
Interest rates, 227
Volume, 208, 210, 212, 226, 234,
236
Margin requirements

Securities credit, 64, 65, 69-70, 185
Table, 232
Member banks (See also National
banks)
Affiliates, legislation enacted, 168
Assets, liabilities, and capital accounts, 233
Banking offices, changes in number,
238
Borrowings from Federal Reserve
Banks (See Loans)
Branches (See Branch banks)
International banking operations,
65-66, 172, 180
Loans to executive officers, 67, 169
Number, 233
Reserve requirements (See Reserve
requirements)
Reserves and related items, 242-45
State member banks (See State member banks)



Member banks—Continued
Transfers of funds (See Transfers of
funds)
Mergers and consolidations, 178-79,
182, 240-48
Monetary Control Act (See Depository
Institutions Deregulation and Monetary Control Act of 1980)
Monetary policy
Financial markets relative to, 14-23
Reports to Congress, 30-55
Review of 1982, 3-13
Money market deposits, 62, 63
Mortgage loans, 170
Mutual savings banks, 238
National banks (See also Member
banks)
Assets and liabilities, 233
Banking offices, changes in number,
238
Capital adequacy guidelines, 72, 73,
174, 175
Legislation enacted relating to, 168
Number, 233
Negotiable order of withdrawal accounts, 63, 69, 169
Nonmember depository institutions
Assets and liabilities, 233
Banking offices, changes in number,
238
Number, 233
Over-the-counter stocks, 65, 185
Payments mechanism, developments,

193-97, 226
Policy actions
Board of Governors
Discount rates at Federal Reserve
Banks, 74^78
Regulations (See Regulations)
Statements and other actions, 59-78
Federal Open Market Committee
Authority to effect transactions in
System Open Market Account
Domestic operations, 79-82, 85,
92, 99, 105, 114, 121, 128,
134, 141
Foreign currency operations, 79,
82-84, 98, 120
Review, 98

Index
Presidents and vice presidents of Federal Reserve Banks
Conference of Presidents and Conference of First Vice Presidents,
258, 259
List, 257
Salaries of presidents, 216
Prices, 12
Pricing of System services and developments in payments mechanism,
193-97, 226
Profit and loss, Federal Reserve Banks,
220
Publications
Bank holding company and merger
pamphlets, 182, 192
Consumer aids, 146
Examination manuals, 175, 176
Federal Reserve Regulatory Service,
192, 198
Regulations (See also Regulatory improvement and simplification)
B, Equal Credit Opportunity, 59,
145, 155, 190
D, Reserve Requirements of Depository Institutions, 59-63, 188
E, Electronic Fund Transfers, 63,
144, 151-54, 156, 190
G, Securities Credit by Persons Other
than Banks, Brokers, or Dealers,
64, 191
H, Membership of State Banking Institutions in the Federal Reserve
System, 192
J, Collection of Checks and Other
Items and Wire Transfers of
Funds, 188
K, International Banking Operations,
65, 189
L, Management Official Interlocks,
66
M, Consumer Leasing, 146
O, Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks, 67
Q, Interest on Deposits, 63, 67, 69
T, Credit by Brokers and Dealers, 64,
69, 191
U, Credit by Banks for the Purpose
of Purchasing or Carrying Margin
Stocks, 64, 191



283

Regulations—Continued
Y, Bank Holding Companies and
Change in Bank Control, 70-71,
182, 189, 192
Z, Truth in Lending, 71-72, 144, 146,
154, 190
Regulatory improvement and simplification, 64, 147-50, 185, 188-92
Repurchase agreements
Authority to purchase and to enter
into, 79-81
Bankers acceptances, 79-80, 208, 210,
212, 214
Federal agency securities, 79-81, 208,
210, 212, 214, 216
Regulation Q, amendment, 67
Retail, examination guidelines for,
176
U.S. government securities, 79-81,
208, 210, 212, 214, 216, 234
Reserve requirements, depository institutions
Changes, 59-63
Table, 227
Reserves and related items, 234-37
Retirement accounts, 158
Salaries

Board of Governors, 203
Federal Reserve Banks, 216
Schools (See Training)
Securities (See also specific types)
Credit transactions, 64, 69, 184-86
Mandatory convertible securities, 72,
73, 175
Special drawing rights, 208, 210, 212,
234, 236
State member banks (See also Member
banks)
Applications by, 184
Assets and liabilities, 233
Banking offices, changes in number,
238
Control of, changes, 179-80
Examination, 171-77
Executive officers, loans to, 67, 169,
183
Financial disclosures, 183
Legislation enacted relating to, 168
Mergers and consolidations, 178, 179,
182, 240-48
Number, 171, 233

284

Index

Stock index futures, 191
Stock market credit, 64, 69, 184-86
Supervision and regulation (See Banking
supervision and regulation by Federal Reserve System)
System Open Market Account
Audit, 197
Authority to effect transactions
Domestic operations, 79-82, 85, 92,
99, 105, 114, 121, 128, 134, 141
Foreign currency operations, 79,
82-84, 98, 120
Review, 98
Thrift Institutions Restructuring Act,
168
Training, 111-IS
Transfers of funds
Check collection, 188, 193
Electronic fund transfers, 63, 144,
151-54, 156, 190
Federal Reserve operations, volume,
226
Negotiable order of withdrawal accounts, 63, 69, 169




Transfers of funds—Continued
Pricing of System services and developments in payments mechanism,
193-97, 226
Truth in Lending
Act, 72, 145, 156, 157, 169
Regulation Z, 71-72, 144, 146, 154
U.S. balance of payments, review, 24-29
U.S. government securities
Authority to buy, to enter into repurchase agreements, and to lend,
79-81, 99, 134, 141
Bank holdings, by class of bank, 233
Collateral in stock lending and borrowing transactions, 69
Federal Reserve Banks
Authority to buy directly from U.S.
Treasury, 80-81
Earnings, 198-99, 218
Holdings, 198-99, 208, 210, 212,
216, 234, 236
Open market transactions, 214
Repurchase agreements, 208, 210,
212, 214, 216, 234, 236

FRB 1—11,500—0483 C


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102