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FEDERAL RESERVE BANK O F N EW YORK ["Circular No. 9132~1 L August 21, 1981 J DISCOUNT RATES To A ll Depository Institutions in the Second Federal Reserve District: Effective today, the directors of this Bank, w ith the approval of the Board of G overnors of th e F ed eral Reserve System, have established new borrow ing rates for extended credit to banks and th rift institutions under sustained liquidity pressures and for special circum stances. T he follow ing is quoted from the text of a statem en t issued by the Board of G overnors: The Federal Reserve Board today established a new borrowing rate for extended credit to banks and thrift institutions under sustained liquidity pressures. The new discount rate will be the basic rate of 14 percent for the first 60 days of borrowing, 15 percent for the next 90 days, and 16 percent thereafter. The basic discount rate of 14 percent and the 4 percent surcharge that applies to large, frequent borrowers of short-term adjustment credit were not affected by this action. The Board acted at this time in view of several applications received in recent weeks for borrowing under the extended credit program. This program was established and described in the revision of Regulation A, governing extensions of credit by the Federal Reserve Banks, following the passage of the Monetary Control Act of 1980. (The Board’s description of the program is attached.) The program is available to commercial banks and thrift institutions alike, including member institu tions of the Federal Home Loan Bank System. In this latter connection, in an exchange of letters between Chairman Pratt of the Federal Home Loan Bank Board and Chairman Volcker of the Federal Reserve Board, Chairman Pratt indicated that . . it is now desirable and prudent for the Federal Home Loan Bank System to encourage the Federal Reserve to supplement its own efforts in funding members’ liquidity needs.” In his response, Chairman Volcker said: “. . . we greatly appreciate your cooperation, and that of your staff, in developing practical approaches to our provision of extended credit to members of the Federal Home Loan Bank System.” (The exchange of letters is attached.) The Federal Reserve’s extended loan associations, savings banks, and Reserve noted that deposit growth in general has sustained a high level of credit program is designed to help commercial banks, savings and credit unions adjust to sustained liquidity pressures. The Federal the thrift industry has continued over this year and the industry in liquidity despite pressure on the earnings of individual institutions. In taking today’s action, the Board acted on requests from the boards of directors of the Federal Reserve Banks of New York, Philadelphia and Dallas. The discount rate is the interest rate that is charged for borrowings from the district Federal Reserve Banks. At the same time, the Board adjusted the rate for “extended credit for special circumstances” to conform with the rate structure for “other extended credit.” E nclosed is a copy of this B ank’s O perating C ircular No. 13, regarding discount rates. In addition, p rin ted on the follow ing pages is th e text of the attach m en ts referred to in the B oard’s statem ent. Q uestions regarding these changes m ay be d irected, at the H ead Office of this Bank, to C h e ster B. F eldberg, Vice P resident (T el. No. 212-791-6375), Stephen G. T hieke, A ssistant Vice P resident (T el. No. 212-791-6159), or R obert C. Plows, Special A ssistant, Loans and C redits F u n ctio n (T el. No. 212791-6152), or, a t our Buffalo Branch, to John T. K eane, Vice P resident an d B ranch M anager (T el. No. 716-849-5011). A nthony M. S olom on , President. F ed eral R eserve Board D escription of Program F o r O th er E xtended C red it Issued in C onnection W ith 1980 Revision of R egulation A Follow ing Passage of the M onetary C ontrol Act of 1980 “... W h e n conditions w arrant, extended credit is available to assist institutions (in clu d in g those w ith longer-term asset portfolios) th a t m ay be having difficulties adjusting to changing m oney m arket conditions. These advances m ay be extended over a longer period th an contem plated in the use of ad ju stm en t credit, particularly at tim es of deposit disinterm ediation. W hen serious liquidity strains affect a broad range of depository institutions, F ederal Reserve Banks will be p rep ared to address the problem s of those institutions being affected. Before extending credit, how ever, a Reserve Bank will be expected to consult w ith o th er official agencies responsible for supervising the affected institution to determ ine, am ong other things, w hy funds are not available from other sources. L oan agreem ents will be d raw n to establish the conditions u n d e r w hich credit is advanced and to ensure th a t the borrow er adopts an ap p ro p riate plan to restore a d e q u ate liquidity and repays the loan w ithin a reasonable period of tim e.” O © O E xchange of L etters B etw een C hairm en V olcker and P ra tt A ugust 19, 1981 T he Plonorable Paul A. Volcker C hairm an Board of Governors of th e F ederal Reserve System W ashington, D. C. 20551 D ear Paul: O ur recent discussions about the F ederal R eserve’s program for extended credit to depository institutions facing sustained liquidity pressures have been helpful and productive. Your staff has been very cooperative in w orking out practical aspects associated w ith lending to th e institutions supervised by the F ed eral H om e Loan Bank Board. As I have previously indicated, the F ed eral H om e Loan Bank Board believes it is now desirable and p ru d e n t for the F ed eral H om e Loan Bank System to encourage the F e d eral R eserve to supplem ent its ow n efforts in fu n d in g m em bers’ liquidity needs. W e are p rep ared to cooperate w ith you in inform ing thrifts of th e conditions under w hich they can obtain extended credit from th eir local F ederal Reserve Banks. It is m y u n d erstan d in g th a t the F ed eral Reserve adjustm ent credit program is also available to thrifts. T h e F ed eral H om e Loan Banks intend to m eet the needs of institutions w ith severe supervisory problem s, req u irin g th a t the lending be very closely coordinated w ith an orderly w orkout of th e situation. In addition, th e F ed eral H om e Loan Banks m ay continue in selected instances to lend to their m em bers w ho are engaged in expansion lending. W e are also p rep ared to m aintain th e present volum e of our lending to institutions borrow ing from the F ederal Reserve. In the case of institutions th at are experi encing liquidity pressures and are eligible for F ed eral Reserve lending, w e also an ticipate th a t some p a rt of their increased credit needs will be supplied by the F ederal H om e Loan Banks. Sincerely, R ichard T. P ra tt j August 20, 1981 T he H onorable R ichard T. P ra tt C hairm an F ed eral H om e L oan Bank Board 1700 G Street, N orthw est W ashington, D. C. 20552 D ear Dick: Thanks for your letter of A ugust 19. I un d erstan d the position of the F ed eral H om e L oan Bank B oard as expressed there, as do o th er m em bers of the Board. W e are delig h ted th a t arrangem ents w ith the F ed eral H om e Loan Bank System to facilitate a com plem entary lending program b y the F ed eral Reserve to th rift institutions u n d er sustained liquidity pressure have proceeded sm oothly. W e are, and have been, p rep ared to provide extended credit to depository institutions should q u ali fied institutions be unable to find reasonable alternative sources of credit. As you know , access to liquidity has not generally been a problem in the past. H ow ever, looking to th e future, w e fully realize thrifts m ay increasingly seek F e d e ra l R eserve credit. In th a t connection, w e greatly ap p reciate your cooperation, and th a t of your staff, in developing practical approaches to our provision of extended credit to m em bers of the F ed eral H om e Loan Bank System. Sincerely, Paul c FEDERAL RESERVE BANK OF NEW YORK [ Operating Circular No. 13 Revised effective August 21, 1981 ] DISCOUNT RATES To A ll Depository Institutions in the Second Federal Reserve District: 1. This Bank has made the following changes in its rate schedule, effective August 21, 1981: A rate of 14 percent per annum has been established on advances under section 10(b) of the Federal Reserve Act of extended credit (a) for institutions under sustained liquidity pressures, or (b) for special circumstances: a rate of 15 percent per annum has been established on such credit outstanding for more than 60, but not more than 150, days; and a rate of 16 percent per annum has been established on such credit outstanding for more than 150 days. 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. 13, Revised effective May 5, 1981. A nthony M. Solom on, President. [Enc. Cir. No. 9132] (OVER) Rate Schedule Effective August 21, 1981 Percent Per Annum Advances to and discounts for depository institutions: (a) Advances and discounts under sections 13, 13a, and 10(b) of the Federal Reserve Act, except as other wise provided in this schedule ............................... (b) Advances under section 10(b) of the Federal Reserve Act of extended credit (i) to institutions under sustained liquidity pressures, or (ii) for special circumstances, where such Federal Reserve credit has been outstanding (including extensions and renewals) for: Not more than 60 days ...................................... More than 60, but not more than 150, days ...................................................................... More than 150 days .............................................. 14* 14 15 16 Advances to individuals, partnerships, and corporations other than depository institutions: Advances under the 13th paragraph of section 13 of the Federal Reserve Act ................................................. 17 * Advances to. and discounts for. a depository institution having total deposits of $500 million or more will be subject to a surcharge of 4 percent in either of the following circumstances: (1) Any advance or discount which represents borrowing of adjustment credit by the depository institution in two or more consecutive reserve accounting weeks: or (2) Any advance or discount which represents borrowing of adjustment credit by the depository institution in more than four reserve accounting weeks within a calendar quarter of 13 reserve accounting weeks (current quarter, July 2-September 30, 1981).
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