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FEDERAL RESERVE BANK OF NEW YORK Circular No. 8446 November 1, 1978 TR EASU R Y AND FED ER AL RESERVE ACTIONS TO STRENGTHEN U.S. DOLLAR — Increases in Discount Rate and Reserve Requirements —Program of Intervention in Foreign Exchange Markets To All Member Banka, and Others Concerned, in the Second Federal Reserve District: Following is the text of a press statement announcing actions by the Treasury and the Federal Reserve to strengthen the dollar and thereby counter continuing domestic inflationary pressures: The Treasury Department and the Federal Reserve today announced measures to strengthen the dollar and thereby counter continuing domestic inflationary pressures. The Federal Reserve Board announced the following specific actions. -A pp roval of a one percentage point increase in the discount rate at the Federal Reserve Bank of New York from 8% to 914 percent, effective immediately. The discount rate is the rate that is charged member banks when they borrow from their district Federal Reserve Bank. -Establishm ent of a supplementary reserve requirement-in addition to present member bank reserve requirements-equal to 2 per cent of time deposits in denominations of $100,000 or more. -Increases in the Federal Reserve's reciprocal currency (swap) arrangements with the central banks of Germany Japan, and Switzerland by $7.6 billion to $15 billion, and activation of the swap arrangement with the Bank of Japan. Foreign currencies available under these expanded arrangsmente wdl be used along with foreign currencies available to the Treasury in a program of forceful exchange market intervention in coordination with foreign central banks to correct recent excessive exchange rate movements. The supplementary reserve requirement will apply to all outstanding large-denomination time depos'ts beginning Thurlday. November 2, with reserves maintained two weeks later. Existing reserve requirements on such deposits range from 1 per cent for longer-term deposits to 6 per cent on deposits maturing in less tha months. The supplementary requirement of 2 per cent will apply to all large-denomination time deposits regar of maturity, and will increase required reserves by about $3 billion. The reserve requirement action will help to moderate the recent relatively rapid expansion in bank credit It will also increase the incentive for member banks to borrow funds from abroad and thereby strengthen the dollar by improving the demand in Euro-markets for dollar-denominated assets. A swap arrangement is a renewable, short-term facility under which a central bank agrees to exchange its own currency for the currency of the other party up to a specified amount. In all reciprocal currency arrangements the Federal Reserve Bank of New York acts on behalf of the Federal Reserve System under the direction of t e Federal Open Market Committee. The Federal Reserve’s reciprocal currency arrangements with thecentral banks of Germany, Japan, and Switzerland are now as follows: German Federal Bank $6billion Bank of Japan $5billion Swiss National Bank $4billion Enclosed is a copy of our Operating Circular No. 13, reflecting the increases in this Bank's discount rates effective today. A new Supplement to Regulation D. “Reserves of Member Banks, of the Board of Governors of the Federal Reserve System, reflecting the new supplementary reserve requirement, will be sent to you shortly, together with related instructions. P a u l A. V o l c k e r , President. FED ER A L RESERVE BANK of N ew Y ork Operating Circular No. 18 1 Revised November 1, 1978 J DISCOUNT RATES T o A ll M em b er Banks, and Others Concerned, in the Second Federal R eserve D istrict: 1. This Bank has established the following new rates, effective November 1, 1978: A rate of 9 % percent per annum on advances to, and discounts for, member banks under sections 13 and 13a of the Federal Reserve Act, and on advances under section 10(b) of the Act if secured by mortgage loans on one-family to four-family resi dences. A rate of 10 percent per annum on advances to member banks under section 10(b) of the Federal Reserve Act, except as otherwise indicated herein. A rate of 10% percent per annum on advances to member banks for prolonged periods and in significant amounts under section 10(b) of the Federal Reserve Act, except advances secured by mortgage loans on one-family to four-family residences. A rate of 12^2 percent per annum on advances to individuals, partnerships, and corporations other than member banks under the last paragraph of section 13 of the Federal Reserve Act. Shown on the reverse side is the schedule of rates now in effect at this Bank on advances and discounts made under the Federal Reserve Act. 2. This circular supersedes our Operating Circular No. Revised October 16, 1978. 13, Paul A. V olcker, President. ( over ) Rate Schedule, Effective November 1, 1978 Percent Per Annum Advances to and discounts for m em ber banks: (a ) Advances and discounts under sections 13 and 13a of the Federal Reserve Act, and advances under section 10(b) o f the Act if secured by mortgage loans on one-family to four-family residences ......... (b ) Advances under section 10(b) of the Federal Reserve Act, except as otherwise provided in this schedule ........................................................................ (c ) Advances for prolonged periods and in significant amounts under section 10(b) of the Federal Reserve Act, except advances secured by mortgage loans on one-family to four-family residences......... 9 y2 10 10^4 Advances to individuals, partnerships, and corporations other than m em ber banks: Advances under last paragraph of section 13 of the Federal Reserve Act ................................. *............... 12y2
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