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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