The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEDERAL RESERVE BANK OF RICHMOND MONTHLY REVIEW Regulation Q: An Instrument of Monetary Policy The Public Information Function -------------- . REGULATION Q: IBB ; an instrument of monetary policy* In recent months Regulation Q, the regulation which specifies maximum interest rates banks are permitted to pay on time and savings deposits, has become increasingly the subject of controversy. D e bate has centered around two major questions: (1 ) Is Regulation Q effective as an instrument of general monetary control? (2 ) A re the selective im pacts of Regulation Q desirable or undesirable ? This article will describe experience with Regulation Q through the years and then catalog the major points in the current debate about whether Regulation Q is an effective policy tool. one of many pieces of legislation passed during the 1930’s to protect the banking system by limiting competition and maintaining the solvency of indi vidual institutions. Banks were flooded with reserves in the late 1930’s as a result of huge inflows of gold and, in the 1940’s, as a result of the Federal Reserve’s policy of pegging the prices of U. S. Government bonds. During this period market interest rates remained substantially below the established Regulation Q ceilings, and for all practical purposes the ceilings were inoperative, either as a regulatory device or as an instrument of monetary policy. EXPERIENCE WITH REGULATION Q Regulation Q was not initially intended as an in strument of credit policy. The Banking A ct of 1933 amended the Federal Reserve Act to permit the Fed eral Reserve Board to regulate the rate of interest which member banks pay on time deposits and to prescribe different rates on deposits having different maturities, different conditions of withdrawal or re payment, or different locations. The rationale for the legislation and subsequent regulation grew out of the widespread bank failures of the 1920’s and 1930’s. It was believed that interest rate competi tion encouraged banks to move into high-risk assets in order to be able to cover ever-rising deposit costs and therefore weakened the internal soundness of the banking system. Thus, the amendment granting au thority to regulate interest rates on deposits was just * This article is adapted from remarks made by the author at a seminar on monetary policy held at the Federal Reserve Bank ol Richmond on February 23, 1970. 2 Period of A ccom m od ation T h e situation changed in the mid-1950’s. As Chart I shows, the ceilings, which had remained unchanged for almost 20 years, finally became binding in late 1955. The combina tion of strong loan demand and restrictive monetary policy drove market rates of interest up to and then beyond the Q ceilings. The growth of time and savings deposits at commercial banks promptly slowed. Depository institutions which were not sub ject to Regulation Q continued to experience rapid inflows of savings. In order “ to permit individual member banks greater flexibility to encourage the accumulation of savings” and to compete “ actively for time and savings balances by offering rates more nearly in line with other market rates,” the Board of Governors raised the Regulation Q ceilings ef fective January 1, 1957. Table I shows the Regula tion Q ceilings since the inception of the regulation. W ith this change, a period began which might be described as one of accommodation of Q ceilings to market interest rates. During the period from 1957 to 1966, the Board generally raised the maximum permissible rate when rising market rates of interest made time and savings deposits unattractive. The only notable exception was the period of high interest rates in 1959 and early 1960. From mid-1960 to m id-1966, the Board tended to keep the Q ceilings comfortably above market rates. The volume of time deposits grew at the rapid rate of about 14 per cent per year. The underlying rationale of the rate increases in this period was to permit banks to compete for time and savings deposits as yields on closely substitut able investments were irregularly rising. The ability to compete was viewed as having various desirable consequences. The early 1960’s was a period of dual concern—-about sluggish economic expansion on the one hand and about the balance of payments deficit on the other. In explaining all of the increases in the early 1960’s, the Board cited the higher per missible rates as a marginal factor which would benefit the external accounts as banks were allowed to compete more vigorously for foreign deposits. The higher ceilings were also regarded as desirable “ to provide an added incentive for accumulation of the savings necessary to finance . . . future economic growth. . . -” 1 Regulation Q took on new significance when negotiable certificates of deposit came into wide spread use in 1961. A t that time the large com mercial banks in New Y ork began to offer largedenomination certificates of deposit in order to retain the deposits of large corporate customers who were making strenuous efforts to economize on demand balances. A secondary market for C D ’s developed, and as the practice of issuing negotiable C D ’s spread throughout the country, the volume outstanding grew rapidly. The sensitivity of CD customers to interest rate differentials enhanced the potential of Regula tion Q as a policy instrument. So far as commercial banks were concerned the growing popularity of the CD and other time deposit instruments prompted the emergence of a new con cept of liquidity. Banks began to rely to a greater degree on their ability to attract money market funds. This led to liquidity management from the liability rather than the asset side of the balance sheet. 1 Annual Report of the Board of Governors of the Federal Reserve System, 1961, p. 103. became binding. Active Use of Q as a Policy Instrument T he policy of accommodation to market changes ended in 1966. In December 1965, the Q ceilings on time and savings deposits were raised substantially to a uniform Sy2 per cent on all maturities. ceilings inoperative by raising them to a level well above market rates. The aim of this larger-than-usual increase was to make the Q But the new ceilings quickly Interest rates rose sharply as Gov- Table I M AXIM UM INTEREST RATES PAYABLE ON TIME A ND SA V IN G S DEPOSITS (Per cent per annum ) Rates Ja n u a ry 1, 1963—Ju ly 19, 1966 Effectivei Date Type of Deposit 1/1 /3 6 Savin g s Deposits held for: 30 d a ys to 1 y e a r 1 y e a r or more ft 1 /1 /5 7 1 /1 /6 2 ft 2 2ft 3 3 3 4 1 2 2ft 2ft 1 2 ft 3 3 1 2 ft 3 ft 4 7 /1 7 /6 3 1 1 /2 4 /6 4 1 2 /6 /6 5 3 ft 4 4 4 4 4 1 4 4 4 4 4 ft 4 ft 4 ft 5 ft 5'/2 5 ft 5 ft O ther Time Deposits: 30-89 d a y s 90-179 d a y s 180 days-1 y e a r 1 y e a r or more Rates Beginning Ju ly 20, 1966 Effective Type of Deposit 7 /2 0 /6 6 Date 9 /2 6 /6 6 4 /1 9 /6 8 1 /2 4 /7 0 S a v in g s Deposits 4 4 4 4 ft O ther Time Deposits: M ultiple m aturity: 30-89 da ys 90 d a y s or more 4 5 4 5 4 5 4 ft 5 51/2 51/2 5 ft 5 5 5 5 5 5 5 5 ft 5% 5 ft 5 ft 5 ft 5 ft 5 ft 5 ft 5 ft 5 ft 5 ft 5 ft 5 ft 5% 6 6Va 6Va 614 6 ft 6% 7 7 ft Single m aturity: Less than $100,000: 30 days-1 y ea r 1 y ea r 2 y ea rs $100,000 or more: 30-59 days 60-89 d a ys 90-179 days 180 days-1 y e a r 1 y e a r or more ernment and agency borrowings became very heavy liquidity squeeze of the postwar period and the and as the economy expanded rapidly, leading to housing market was severely depressed. a substantial increase in borrowing of the private sector. This time, the Board of Governors did not The Board of Governors was very concerned about the mortgage market. It wanted to lower maximum raise the Q ceilings when they became restrictive. rates payable on those classes of commercial bank Banks generally had heavy loan commitments out time and savings deposits which competed most standing, and keeping the ceilings unchanged caused a severe squeeze, especially at those banks which had made commitments in anticipation of being able to acquire funds by issuing C D ’s at attractive rates. In failing to raise the rates, the Board aimed at two objectives. First, it hoped that a runoff of CD's would result in a slowdown in the rate of growth of bank credit and in particular that it would force banks to cut back their lending to business bor rowers, thereby removing some of the financing that was spurring the investment boom. Second, it hoped to reduce bank competition with the financial inter mediaries which specialized in mortgage lending. Savings and loan associations and mutual savings banks found themselves experiencing the severest vigorously with the liabilities emitted by the other thrift institutions. But it had only limited authority to set differential rates on different classes of time and savings deposits. Using the authority it had, the Board, on July 20, 1966, scaled bank rates on multiple maturity time deposits— all the way to 4 per cent in the case of those deposits having a ma turity of less than 90 days. On September 21, the President signed into law a bill which gave the Board wide latitude to set differential rates accord ing to numerous criteria, including size of deposit. Five days later the Board scaled back the maximum rate payable on single maturity time deposits of less than $100,000 to 5 per cent. These small rollbacks in the ceilings probably had only a marginal impact 4 on the thrift institutions and the housing market, but they served to demonstrate the Board’s concern that the incidence of monetary restraint was falling dis proportionately onto the housing industry. Banks confronted with heavy CD attrition, par ticularly the large money market banks, attempted to meet firm loan commitments and gain time in which to make orderly asset adjustments by tapping nondeposit sources of funds. U. S. banks borrowed large amounts in the Eurodollar market and sold in creasing amounts of short-term notes. For the bank ing system as a whole, this amounted to a conversion of deposit liabilities into nondeposit liabilities having no reserve requirements. Thus, the Eurodollar mar ket and the market for short-term notes provided not only a safety valve for individual banks, but also a means whereby banks collectively could reduce average required reserves at their own initiative. This only partly compensated, however, for the ex traordinarily high rates which banks had to pay in the Eurodollar market. Thus, they had strong in centive to ration credit aggressively, and the Board added to this incentive by plugging the loophole of short-term promissory notes effective September 1, 1966. These were defined as deposits subject to Regulations D and Q. The purpose was “ to prevent the future use of those instruments as a means of circumventing the regulations governing reserve re quirements and payments of interest on deposits.” 2 The charts show that since 1965, time deposit growth has fluctuated widely as interest rates have fluctuated above and below the Q ceilings. The sharp decline in time deposits in late 1966 was followed by an even sharper rise in the first three quarters of 1967 as market rates fell well below the ceiling rates. Growth moderated in late 1967 and early 1968 as rising market rates reduced the relative attractiveness of C D ’s. Growth spurted following the increase in the Q ceilings in April 1968 and remained rapid through the rest of the year. tended. The spurt was not in The Board raised maximum permissible rates only on large-denomination C D ’s having ma volume of C D ’s and thus in bank credit.” 3 Early in 1969 rising market rates made C D ’s unattractive, the Board did not raise the Q ceilings, and CD attrition became massive. Outstandings declined about $13 billion, or 44 per cent during the course of the year. A s in 1966, banks sought to compensate for the CD losses by turning in large volume to nondeposit sources of funds— Eurodollars, sale of assets under repurchase agreement, and sale of commercial paper by bank holding companies and affiliates. The Board looked upon this development with disfavor for several reasons. First, the regulatory power of the Board was being eroded as the liability structure of the banking system shifted from deposits subject to regulation to nondeposit liabilities not subject to regulation. Second, equity considerations were in volved. W hile some banks, mainly by virtue of size and structure, had ready access to nondeposit sources of funds, other banks had little access to such sources. Third, monetary restriction was being eroded as average reserve requirements were in effect being re duced by the shift of liabilities from deposit to non deposit status. Of course, this evasion of monetary restraint could have been offset, or more than offset, by further tightening through open market opera tions, but the Board chose instead to reclassify all these nondeposit sources of funds as deposits subject to reserve requirements, or Q ceilings, or both.4 In January 1970, despite concern that raising the Q ceilings might be interpreted as a relaxation of monetary policy, the Board of Governors raised the Q ceilings on most classes of time and savings de posits. It held the increases to “ moderate size so as not to foster sudden and large movements of funds into the banking system that could . . . lead to an upsurge in bank lending.” Sharp declines in market rates of interest in February made longer-term time deposits competive with market instruments. The volume of time and savings deposits outstanding has increased at about 15 per cent annual rate since early February. Effects of Regulation Q on Bank Credit W hat The intent of the new have been the effects of Regulation Q and the ebb graduated scale of ceiling rates was to set them at and flow of time deposits on the growth and com turities of 60 days or more. levels which would “ enable banks to resist further large reductions in such deposits, but not so high as to permit significant expansion in the outstanding 2 Annual Report of the Board of Governors of the Federal Reserve System, 1966, p. 91. Some types of promissory notes were speci fically excluded from the expanded deposit definition. These included Federal funds, interbank borrowings, transfer of assets under re purchase agreement, and bank notes issued for capital purposes with a maturity of more than two years and subordinated to claims of depositors. 3 Annual Report of the Board of Governors of the Federal Reserve System, 1968, p. 81. 4 Liabilities resulting from repurchase agreements entered into on or after July 25, 1969, became subject to Regulations D and Q beginning A ugust 28. O n October 16, Eurodollars acquired by member banks from foreign banks became subject to a 10 per cent marginal reserve requirement on amounts in excess of daily average outstandings during the four-week period ended M ay 28. O n October 28, the Board pro posed making commercial paper sold by a bank affiliate to raise funds for a bank to use in its banking business subject both to Regulation D and Regulation Q . The effective date of this change was post poned a number of times, and at the time of this writing commercial paper is not subject to either regulation. 5 position of bank credit? This is a difficult question to answer because so many other variables are in volved, such as the strength and composition of private loan demand, Treasury financing needs, the effects of other policy instruments, etc. But in gen eral, periods of rapid growth in time deposits have been associated with rapid growth of bank credit, and vice versa. Moreover, Regulation Q has affected the composition of bank credit as well as the total. A s a rule, banks have tended to invest the proceeds of time deposits in high yield assets, particularly taxexempt securities. A s may be seen from Chart II, the relationship between the rate of change of time deposits and the rate of change of other securities (mainly tax-exempts) has been very close. During periods of rapid time deposit growth banks have been the mainstay of the tax-exempt market, buying at such times as much as three-fourths or more of all new issues. On the other hand, during periods of declining time deposits, banks have sometimes be come net sellers. This shifting pattern of bank be havior has resulted in very large swings in interest rates on tax-exempt securities. T o the extent that state and local expenditures are affected by the shift ing fortunes of the tax-exempt market, Regulation Q can be said to have had a selective economic impact. Summary of Experience This historical review reveals that, rightly or wrongly, Regulation Q has become an instrument of policy. Obviously, the use of Q has had two dimensions. It has been both a general control and a selective control. A s a general control, the Board has looked upon Q as a means of influencing the total quantity of bank credit. For example, restraint has been attempted by encouraging or allowing market rates to rise above the Q ceilings. The resulting conversion of time to demand deposits has been tantamount to an increase in average re serve requirements. Moreover, Q has perhaps been regarded as a means of speeding the effect of re straint by quickly exerting pressure on the reserve positions of those big banks which rely heavily on C D ’s. Raising Q ceilings when they are restrictive has been thought of as a move toward less restraint. This argument was frequently cited as a reason for not raising O ceilings in 1969. The year 1966 serves as the best example of using Q as a selective control. Failure to raise rates on large-denomination C D ’s was looked upon as a way of forcing quick rationing of credit to business cus tomers. Reducing rates payable on consumer-type tion Q was used in such a way as to try to shift the composition of total credit flows. Regulation Q was used in essentially the same way in 1969. Ceilings on savings deposits and consumer-type time de posits were kept at the 1966 levels, and while ceilings on large-denomination C D ’s were higher, they became binding as market rates rose to new highs. The debate about the efficacy and the desirability of using Regulation Q as a policy instrument has be come more vigorous in recent months. Space is not available for a detailed examination of all the argu ments pro and con. W hat follows is a mere listing and a brief discussion of the major arguments. ARGUMENTS SUPPORTING REGULATION Q Regulation Q Is a Good Tool of General Mone tary Control T h e basic argum ent for Q as a general control probably rests on the degree to which Q influences the extent of financial intermediation in the economy. Other things equal, it is generally as sumed that increased intermediation is stimulative and vice versa. Since banks are the largest inter mediaries, any policy instrument which affects the extent of their intermediation has considerable leverage. Keeping ceiling rates high relative to market rates encourages the channeling of funds from savers to ultimate investors through an efficient in termediary with the result that funds are more readily available and at lower cost than would other wise be the case. Conversely, relatively low ceilings tend to force funds to flow from savers to ultimate investors via various routes which are less efficient and more costly. Given that banks want to compete for time and savings deposits, it is probably true that Regulation Q can be used both to stimulate and to restrain the economy. Whether it is the best available instru ment is, of course, another matter. T o answer this question one must compare Regulation Q with other instruments, including in the analysis the possible selective impacts of the various alternatives. The incidence effects cannot be ignored. Regulation Q Produces Desirable Allocative E f fects W h ile R egulation Q m ay be useful as a general control, most arguments in favor of Regula tion Q seem ultimately to boil down to the idea that Q produces desirable allocative effects, especially during periods of tight money when Q ceilings may reduce the pressure which would otherwise be ex erted on the mortgage market and the housing in deposits was viewed as a means of reducing the im dustry. pact of tight money on savings and loan associations, direct and indirect. the mortgage market, and housing. In short, Regula is simply that during inflationary periods Q ceilings 6 The linkages in this case are seen as both The straightforward argument reduce bank competition with those intermediaries which specialize in mortgage lending. The indirect argument is that use of Regulation Q results in a smaller run-up of interest rates and therefore a lesser effect on the mortgage market than would be the case if the same degree of restraint were achieved by use of other tools. This argument is implicit in Duesenberry’s article, “ Policy Effects on Thrift In stitutions,” which appeared in the 1969 Conference on Savings and Residential Financing. of time deposits choose to switch into some other asset (Treasury bills or whatever), demand deposits and the money supply will grow at a faster pace. The monetarist who excludes time deposits from his definition of money would conclude that monetary policy has eased, not tightened. This view, of course, regards as unimportant the behavior of total deposits and bank credit which would grow at a slower rate. But some who focus on total credit (bank plus nonbank) also say that the effect of a CD runoff is at best neutral and perhaps expansionary. Their argument is two-pronged. First, they say that bank lending power is not greatly reduced because of banker ingenuity in designing and issuing liabilities not subject to regulation. Second, such reduction of bank lending power as occurs does not curb spending because the financing of economic activity is merely diverted from the banks to the nonbank public. The August 1969 issue of the Morgan-Guaranty Survey puts the matter as fo llo w s: ARGUMENTS AGAINST REGULATION Q The arguments against Regulation Q have multi plied in recent months. In general they fall into two categories: (1 ) The effects of Regulation Q are either perverse or neutral. (2 ) The effects are dis criminatory and produce distortions in credit flows. Each category will be considered in turn. Regulation Q Produces Perverse or Neutral E f fects D ifferen t people arrive by different routes at the conclusion that the effects of Q may be the opposite of those intended. The conclusion is easily reached by those who attach preeminent importance to the narrowly defined money supply as an indica tor of the ease or tightness of policy. If the Federal Reserve injects reserves at a given rate and if holders . . . B usiness b o rro w e rs . . . o b v io u sly can be a ccom m od a ted b y lenders oth er than banks, and there is am ple reason to think that m an y o f the funds d isg org ed from bank ce rtifica te-of-d ep osit a c cou n ts flo w e d directly in to the com m ercia l paper m arket and thus w ere put at the disposal o f exa ctly th ose p eop le w h ose cred it u sage the authorities w ere seeking to curb. Chart II DEPOSITS AND BAN K CREDIT 7 These and similar forward recently as a failure of the economy 1969 as was generally arguments have been put possible explanation for the to slow down as quickly in expected. Regulation Q Is Discriminatory and Leads to Distortion of Credit Flows Perhaps most of the criticism of Regulation Q has centered on its being discriminatory and leading to distortions of credit flows. The idea is that rates payable on time and savings deposits are prices which should be allowed to fluctuate in accordance with changes in supply and demand conditions in the market. W hen the Federal Reserve sets a ceiling which becomes bind ing, it departs to some appreciable extent from its normal practice of using “ general controls” which create a climate within which the interaction of private decisions produces particular prices with their implications for reserve allocation. Presum ably, this allocation achieved by the free market is in accordance with the tastes and preferences of the public and therefore superior to the allocation achieved when particular prices are set outside the market. Numerous alleged distortions resulting from Q have been reported in the financial press. It is frequently heard, for example, that Regulation Q discriminates against those large banks which rely heavily on C D ’s as a source of funds. This dis crimination presumably forces credit to flow through other, less-well-developed channels, with loss of eco nomic efficiency. O f course, these large banks are the first to turn to nondeposit sources of funds, but as these sources are made subject to regulation, the argument comes to the fore again. In any case, op ponents of Regulation Q argue that it is time con suming, costly, and therefore inefficient for banks to be forced to invent new access routes to the money market. Banker ingenuity in turn forces the mone tary authorities to invest scarce legal and regulatory talent plugging loopholes. The end result is the use of scarce resources in unproductive lines of activity. has been a frequent casualty in recent years. Also, the effects of Q have spread beyond our own shores. In terms of volume, Eurodollars have been the largest nondeposit source of funds. Heavy bidding by the few U. S. banks with access to the Eurodollar market helped push Eurodollar rates to unusually high levels. These high rates led to reserve losses by several countries which requested changes in our regulations to limit the access of U. S. banks to the Eurodollar market. This sentiment was certainly one factor in the imposition of the marginal reserve requirement against Eurodollar borrowings. These are just a few of many examples of altered credit flows brought about by Regulation Q. Of course, one cannot object to altered credit flows per se. It is in the very nature of monetary policy, however conducted, to lead to alterations in credit flows, specifically, to dry up or expand that portion flowing through the commercial banking system. One objection to Q is that it tends arbitrarily to redirect flows without sufficient regard for private preferences. CONCLUSION This article has reviewed the experience with Regulation Q and has simply cataloged some of the arguments which have swirled around it recently. No analysis has been attempted here. A t the present time there appears to be a growing dissatisfaction within the Federal Reserve System with the use of Q for purposes of general monetary control. In a recent speech, Chairman Burns ex pressed the following sentiments: . . . I rega rd interest rate ceilin gs on deposits as on e device that is overd u e fo r serious re-exa m in a tion. A s a m atter o f person a l e co n o m ic ph ilosop h y, I w ou ld like to see an evolu tion aw ay fro m reliance upon interest rate ceilin gs as an ancillary device o f m on eta ry p olicy, at least as far as instrum ents o f the m on ey-m a rk et type are con cern ed . W h e n and as circu m sta n ces perm it, I believe an elem ent o f greater eco n o m ic rationality w o u ld be in trod u ced in to the financial system if interest rates on such instrum ents w ere perm itted to find their ow n level as a result o f m arket fo rce s .5 Jimmie R. Monhollon Second, the rechanneling of credit flows is said to work hardships on particular sectors. For example, as has already been explained, the tax-exempt market 5 Arthur F. Burns, Chairman, Board of Governors of the Federal R e serve System, “ The Federal Reserve and the Banking System ,” Speech before the 59th Annual M eeting of the Association of R e serve City Bankers, Boca Raton, Florida, April 6, 1970, p. 10-11. E d i t o r ’s N o t e : A fter this article ivent to press, the Board of Governors announced the suspension, ef fective June 24, of ceilings on interest rates payable by member banks on certificates of deposit and other single-maturity time deposits in denominations of $100,000 or more with maturities of 30 through 89 days. 8 W hat’s the Federal Reserve doing about inflation? Is the System responsible for high interest rates? Just zvhat is the role of the money supply f H ow are checks collected, and how does currency get into circulationf Based on the premise that broad under standing of its purposes and functions is a necessary condition for effective central banking in a free so ciety, the Federal Reserve Bank of Richmond at tempts to answer such questions through numerous public information activities. In order to meet the public’s demand for facts, figures, and explanations regarding the activities of the Federal Reserve, the Richmond Bank offers an assortment of informative material and activities. Pamphlets, films, tours, speeches, and seminars are used to acquaint the public with the System’s purposes, functions, and services. The two basic functions of the Federal R e serve are (1 ) acting as an overseer of the nation’s payment system; and (2 ) maintaining the broad money and credit conditions necessary to insure the efficient functioning of the nation’s economy. Much of the public information activity of the Richmond Reserve Bank is directed at promoting popular understanding of how the System’s operations are re lated to these ends. But in addition the Richmond Bank, like the other Reserve Banks, collects large amounts of economic and financial data which it undertakes to make available to bankers, teachers, economists, and others. The public information program at the Reserve Bank has many different facets with each depart ment contributing information pertaining to its par ticular function. Public information activities, how ever, are coordinated in large part by the Bank and Public Relations Department. It is this department which acts as a clearing house for outside requests, arranges the various meetings, conferences, and seminars held at the Bank, channels news directly to newspapers, radio, and television, and handles mailing lists for the distribution of publications and statistical releases. This article will describe in general terms some of the services, facilities, and data that the Richmond Bank makes available to the public. Since it does not offer a detailed explanation of each phase of the public information program, references to specific publications, films, types of tours, and departments will not be necessary. Publications, Movies, Currency and Coin Exhibits During 1969 the Richmond Bank distributed nearly 750,000 copies of publications throughout the United States and a number of foreign countries. Most of these booklets and pamphlets were written and pub lished at the Richmond Bank, but publications and releases of the Board of Governors and the other Reserve Banks are also distributed. There are four different “ publications lists” which offer the public a short synopsis of the material covered in each pam phlet and a convenient way of ordering items of interest. Special study pamphlets which are written in nontechnical language offer information on such topics as inflation, unemployment, counterfeit money, and Federal open market activities. pamphlets are school students. designed especially Some of the for secondary For instance, the most requested publication, entitled You and Your M oney, is a 14-page, cartoon styled booklet dealing with causes 9 of inflation and deflation and prescriptions for their cures. College students and professors would be more interested in a pamphlet like N otes on Central Banks which deals with the nature, characteristics, and functions of central banks throughout the world. Periodicals and special statistical releases are also available upon request. Business Forecasts, which is distributed annually in February, contains a reference file of representative business forecasts for the coming year. Fifth District Figures offers a compilation of data on resources, income, employment, and finance in the Fifth District and is distributed biennially in August. Articles covering Fifth District business and financial developments and topics of national and international significance are found each month in the M onthly Review. Several statistical releases dealing primarily with District banking data are also valuable sources of information to bankers, business men, and students. Much of the information in these releases is based on primary source material and is thus available only through the Richmond Bank. There are eight educational films available for showing to District schools, banks, civic and business groups, women’s clubs, and other interested organiza tions. The movies deal mostly with money and bank ing topics and are popular as visual supplements in secondary education. Last year, for instance, there were 2,255 bookings with a total attendance of nearly 69,000. The Bank has 94 prints of the films to help meet the tremendous demand. The four types of “ traveling” currency and coin exhibits, which are available only to District member banks, present an attractive way of informing the public about that always-enthralling topic— money. The coin display includes coins which were in cir culation during the Colonial period, the early days of independence, and the Civil W ar era. The cur rency exhibit also contains money of historical im portance. Currency issued by the Continental Con gress and during the Revolutionary period is included with examples from the Fifth District states of Maryland, North Carolina, South Carolina, and V ir ginia. Perhaps the most popular of the traveling money exhibits is the one dealing with counterfeit currency. It is a suitcase-type exhibit suitable for display on a counter top or table. The exhibit con which contains a suggested press release for the home town paper. This release notifies local residents of the time and place of the showing and gives a brief description of the particular display. Usually the exhibit is kept by the borrowing bank for a one week period, although this time can be extended for special occasions. Tours O ne of the best w ays the average citizen can become informed about the purposes and func tions of the Federal Reserve System is through a visit to one of the Reserve Banks. A t the Richmond Bank tours are given for groups as well as indi viduals. Last year the number of tours conducted at this Bank and the Baltimore and Charlotte Branches numbered 569, all conducted by carefully trained tour guides. These tours allowed 8,553 people to get a firsthand look at the facilities and operations of a part of the nation’s central banking system. Many of the tours include a showing of the film M oney on the M ove which is followed by a question and answer session conducted by a staff member. This type of tour is particularly informative and helpful for inquisitive students who have just studied the System in class. Tours vary in length and detail according to the needs of the visitors. Junior high school students, for instance, would not request or require as com prehensive a tour as would a group of college stu dents working toward advanced degrees or a group of management trainees from a commercial bank. But an effort is made to include in all tours certain facets of the Bank which have proved to be quite popular. For example, young men are especially enthusiastic about the P rotection D epartm ent’s elaborate security system, including its arsenal of weapons and private firing range. Another area of particular interest is the vault. Here the mammoth 63.5 ton vault door protects cash in excess of $1 billion and securities and bonds valued at $2.2 billion. The sight of large stacks of currency— frequently amounting to hundreds of thousands of dollars— usually draws “ ohs” and “ ahs” from everyone on the tour. The incenerator, which burns an average of $2 to $2.5 million in unfit currency daily, always attracts a great deal of attention and surprise. tains six counterfeit notes and six genuine notes of Requests for Information various denominations. The suitcase is equipped with receives thousands of telephone and written requests buttons which cause lights to flash— red for counter for information pertaining to banking and economic feit and green for genuine, thus allowing the amateur developments for the District and the nation. counterfeit detector to test his skills at telling the of the more general requests are handled directly by real from the fake. the Bank and Public Relations Department. The exhibits come complete with a “ fact sheet” 10 Each year the Bank Many Others, which require more detailed explanation or lengthy data, are routed to the Research Department, the Legal Department, or one of the operating depart ments. A trained team of Research economists is available to help supply detailed economic data. The Research Library, which is open to the public by ap pointment, supplies much of the source material needed by the research staff and answers requests for information from published sources. The Library contains 10,000 books on economics and finance and files of all major banking and economic journals. The Bank also maintains a Law Library which pro vides data for the staff of the Legal Department. It is this department which answers questions relating to interpretation of the System’s regulations and of laws pertaining to mergers, holding company forma tion and acquisition, and branch banking. Participation in Meetings O ne of the most ef fective methods of acquainting the public with the Federal Reserve is through the public speaking ac tivities of the Bank’s staff. Last year staff members participated in speech and panel presentations before a combined audience of more than 27,000 people. The audiences ranged from grade school students to graduate students, groups of professional economists, and bank executives. Participation in activities out side the Bank is not limited to speaking engagements, however, for the Bank sends representatives to national and state banking conventions, banking seminars, and other bank-related activities through out the Fifth District. In addition to these meetings the Bank is well represented in state and national banking schools on the advisory, faculty, and student levels. Such participation facilitates the interchange of ideas and information and enables the nation’s central bank to maintain close contact with the bank ing community and the public. Bank Seminars Each year this Bank invites District bankers to participate in its annual Opera tions and Policy Seminar which is held in two separate sessions usually scheduled in March and hand information on central banking. Specialists from various p olicy m aking areas of the Federal Reserve and representatives of the academic and banking communities speak on topics of current interest. Smaller special seminars are held more frequently at which well-known economists are invited to give papers before Federal Reserve staff and professors and graduate students from Fifth District universi ties. During the past three years six such seminars were held. These conferences allow the academic community to keep up to date on recent policy pro blems and objectives; in turn the staff of the Fed eral Reserve benefits from the latest thinking and research of the academic community. Bank Visitation Program O fficials of this Bank and the Charlotte and Baltimore Branches regularly visit commercial banks in the District to assist bankers with operating technicalities, thus enabling them to utilize System services more effectively. Customarily, each bank in the District, member and nonmember, is called upon at least once each year. Many of the larger out-of-town branches of District banks are also visited. In addition to the four staff members of the Bank and Public Relations Depart ment who regularly call on banks, officers from other departments are included in the visitation program . A total o f 1,303 visits were made last year to 753 banks and 488 branches. Occasionally special visits are made by repre sentatives of various departments of this Bank. The scope of these calls covers a wide variety of subjects stemming from problems in reserve management, preparation of functional cost data, proper use of the discount window, and other special situations. The program has proved to be one of the best ways of keeping District bankers currently informed of the ways and means the Fed can help them. Summary T he R ichm ond Bank’s inform ation system is by no means a one-way street. For while April. The first day of the two-day program includes dispensing information to bankers, teachers, econ a comprehensive tour of the Bank and discussions of omists, and businessmen, this Bank gains new in the relationship between the work of operating de sight into ways of improving both its operations partments of this Bank and those of commercial and policies. banks. with commercial bankers, members of the operating The second day’s session is devoted to an explanation and discussion of monetary policy. Through an exchange of information departments are able to learn new and different The close inspection of bank operations and the methods of assisting those they serve. thorough examination of the objectives and tools of conferences, seminars, and meetings also provide monetary policy reflect the dual roles of the System. policy makers in the System with the latest thinking In addition this Bank periodically offers a mone of the academic and business communities, thus tary policy seminar designed to give college and university professors an opportunity to get first The various facilitating the policy functions. Carla R. Gregory 11