Full text of Federal Reserve Bulletin : November 1998

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VOLUME 84 I] NUMBER 11 U NOVEMBER

1998

FEDERAL RESERVE

BULLETIN

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, WASHINGTON, D.C.



Table of Contents
897 CREDIT RISK RATING AT LARGE
BANKS

U.S.

Large banks use internally developed credit rating systems to differentiate the riskiness of their
commercial loans. Internal ratings are an essential ingredient of effective credit risk management for such banks, whose commercial borrowers may number in the tens of thousands. This
article describes these rating systems, how their
design varies across institutions, and how they
are used in risk management. The article also
outlines conceptual and practical difficulties currently faced by banks in achieving accurate and
consistent ratings and describes ways in which
some institutions have attempted to deal with
these difficulties. This article is based on a detailed review of policy documents and internal
management reports from the fifty largest U.S.
bank holding companies and interviews by the
authors at a selection of these institutions.
922 INDUSTRIAL PRODUCTION AND CAPACITY
UTILIZATION FOR SEPTEMBER 1998
Industrial production, which had rebounded
1.6 percent in August after settlement of the
strikes at key General Motors plants, declined
0.3 percent in September, to 128.7 percent of its
1992 average. Capacity utilization fell 0.5 percentage point in September, to 81.1 percent,
1.0 percentage point below its 1967-97 average.
925 STATEMENTS TO THE CONGRESS
Edward M. Gramlich, member, Board of Governors, testifies on social security reform as past
chair of the 1994-96 Quadrennial Advisory
Council on Social Security and stresses the
importance of two goals: The first is to make
affordable the important social protections of
this program, and the second is to add new
national saving for retirement. Governor Gramlich further states that the social security and
pension changes that he has recommended
would mean that approximately the scheduled
level of benefits would be paid to all wage
classes of workers, of all ages, and that these



benefits would be financed, as they are not under
present law. (Testimony before the Senate Committee on Finance, September 9, 1998.)
926 Alan Greenspan, Chairman, Board of Governors, discusses the recent problems in the international financial system and testifies that participation in the international financial system,
with all its benefits, carries with it an obligation
to maintain a level of stability and a set of strong
and transparent institutions and rules if an economy is to participate safely and effectively in
markets that have become highly sensitive to
misallocation of capital and other policy errors.
Chairman Greenspan states further that the conditions that should be met before engaging in
international borrowing need to be promulgated
and better monitored by domestic regulatory
authorities. (Testimony before the House Committee on Banking and Financial Services, September 16, 1998.)
929 Edward W. Kelley, Jr., member, Board of Governors, discusses the Year 2000 issue and testifies
that the Federal Reserve has completed the renovation of its mission-critical systems and is nearing the conclusion of internal Year 2000 testing
efforts. Governor Kelley further states that the
Federal Reserve is committed to a rigorous program of industry testing and contingency planning and, through its supervisory initiatives, to
identifying those organizations that most need
to apply additional attention to Year 2000 readiness. (Testimony before the House Committee
on Banking and Financial Services, September 17, 1998.)
936 Chairman Greenspan testifies that, with few
signs that the financial crisis that started in Asia
last year has subsided, or is about to do so,
policymakers around the world have to be especially sensitive to the deepening signs of global
distress, which can impact their own economies.
Chairman Greenspan further states that improvements in transparency, in commercial and legal
structures, as well as in supervision cannot be
implemented quickly and that accordingly the
current crisis will have to be addressed with

ad hoc remedies. (Testimony before the Senate
Committee on the Budget, September 23, 1998.)
939 ANNOUNCEMENTS
Easing of the stance of monetary policy by the
Federal Open Market Committee.
Tentative schedule for meetings of the Federal
Open Market Committee.
Meeting of the Consumer Advisory Council.
Amendment to Regulation C.
Amendments to Regulation E, Regulation DD,
and Regulation M.
Issuance of a supervisory letter on internal credit
rating systems.
Issuance by the Basle Committee of a paper on
internal control systems.
Issuance by the Basle Committee of papers on
risk-management standards in banks.
Statement by Chairman Greenspan on the nomination of Edwin M. Truman as Assistant Secretary of the Treasury for International Affairs.
Changes in Board staff.
943 LEGAL DEVELOPMENTS
Various bank holding company, bank service
corporation, and bank merger orders; and pending cases.




Al FINANCIAL AND BUSINESS STATISTICS
These tables reflect data available as of
September 28, 1998.
A3 GUIDE TO TABULAR PRESENTATION
A4 Domestic Financial Statistics
A42 Domestic Nonfinancial Statistics
A50 International Statistics
A63 GUIDE TO STATISTICAL RELEASES AND
SPECIAL TABLES
A76 INDEX TO STATISTICAL TABLES
A78 BOARD OF GOVERNORS AND STAFF
A80 FEDERAL OPEN MARKET COMMITTEE AND
STAFF; ADVISORY COUNCILS
A82 FEDERAL RESERVE BOARD PUBLICATIONS
A84 MAPS OF THE FEDERAL RESERVE SYSTEM
A86 FEDERAL RESERVE BANKS, BRANCHES,
AND OFFICES

PUBLICATIONS COMMITTEE
Lynn S. Fox, Chairman f ' S. David Frost P Karen H. Johnson "~i Donald L. Kohn
,J J. Virgil Mattingly, Jr. i"J Michael J. Prell "1 Dolores S. Smith i ' Richard Spillenkothen

The Federal Reserve Bulletin is issued monthly under (he direction of the staff publications committee. This committee is responsible for opinions expressed
except in official statements and signed articles, ll is assisted by the Economic Editing Section headed by S. Ellen Dykes, the Multimedia Technologies Center
under the direction of Christine S. Griffith, and Publications Services supervised by Linda C. Kyles.




Credit Risk Rating at Large U.S. Banks
William F. Treacy, of the Board's Division of Banking
Supervision and Regulation, and Mark S. Carey, of
the Board's Division of Research and Statistics, prepared this article.
Internal credit ratings are becoming increasingly important in credit risk management at large U.S. banks.
Banks' internal ratings are somewhat like ratings
produced by Moody's, Standard & Poor's, and other
public rating agencies in that they summarize the risk
of loss due to failure by a given borrower to pay as
promised.1 However, banks' rating systems differ
significantly from those of the agencies (and from
each other) in architecture and operating design as
well as in the uses to which ratings are put. One
reason for these differences is that banks' ratings are
assigned by bank personnel and are usually not
revealed to outsiders.2
For large banks, whose commercial borrowers may
number in the tens of thousands, internal ratings are
an essential ingredient in effective credit risk management.3 Without the distillation of information that
ratings represent, any comparison of the risk posed
by such a large number of borrowers would be
extremely difficult because of the need to simulta1. For example, bonds rated Aaa on Moody's scale or AAA on
Standard & Poor's scale pose negligible risk of loss in the short to
medium term, whereas those rated Caa or CCC are quite risky.
2. For additional information about the internal rating systems of
large and smaller banks, see Thomas F. Brady, William B. English,
and William R. Nelson, "Recent Changes to the Federal Reserve's
Survey of Terms of Business Lending," Federal Reserve Bulletin,
vol. 84 (August 1998), pp. 604-15; see also William B. English and
William R. Nelson, "Bank Risk Rating of Business Loans" (Board of
Governors of the Federal Reserve System, April 1998).
For information about the rating systems of large banks and about
credit risk management practices in general, see Robert Morris Associates and First Manhattan Consulting Group, Winning the Credit
Cvcle Game: A Roadmap for Adding Shareholding Value Through
Credit Portfolio Management (1997).
For a survey of the academic literature on ratings and credit risk,
see Edward I. Aliman and Anthony Saunders, "Credit Risk Measurement: Developments over the Last 20 Years," Journal of Banking and
Finance, vol. 21 (December 1997), pp. 1721-42.
3. See the Federal Reserve's Supervision and Regulation Letter
SR 98-25, "Sound Credit Risk Management and the Use of Internal
Credit Risk Ratings at Large Banking Organizations" (September 21.
1998), which stresses the importance of risk rating systems for
large banks and describes elements of such systems that are "necessary to support sophisticated credit risk management" (p. 1).
SR Letters are available on the Federal Reserve Board's web site,
http://www.federalreserve.gov.



neously consider many risk factors for each of the
many borrowers. Most large banks use ratings in one
or more key areas of risk management that involve
credit, such as guiding the loan origination process,
portfolio monitoring and management reporting,
analysis of the adequacy of loan loss reserves or
capital, profitability and loan pricing analysis, and as
inputs to formal portfolio risk management models.
Banks typically produce ratings only for business and
institutional loans and counterparties, not for consumer loans or other assets.
In short, risk ratings are the primary summary
indicator of risk for banks' individual credit exposures. They both shape and reflect the nature of credit
decisions that banks make daily. Understanding how
rating systems are conceptualized, designed, operated, and used in risk management is thus essential to
understanding how banks perform their business
lending function and how they choose to control risk
exposures.4
The specifics of internal rating system architecture
and operation differ substantially across banks. The
number of grades and the risk associated with
each grade vary across institutions, as do decisions
about who assigns ratings and about the manner in
which rating assignments are reviewed. In general,
in designing rating systems, bank management must
weigh numerous considerations, including cost, efficiency of information gathering, consistency of ratings produced, staff incentives, the nature of the
bank's business, and the uses to be made of internal
ratings.
A central theme of this article is that, to a considerable extent, variations across banks are an example of
form following function. There does not appear to be
one "correct" rating system. Instead, "correctness"
depends on how the system is used. For example, a
bank that uses ratings mainly to identify deteriorating
or problem loans to ensure proper monitoring may
find that a rating scale with relatively few grades is
adequate. In contrast, if ratings are used in computing
4. Credit risk can arise from a loan already extended, loan commitments that have not yet been drawn, letters of credit, or obligations
under other contracts such as financial derivatives. This article follows
industry usage by referring to individual loans or commitments as
"facilities" and overall credit risk arising from such transactions as
"exposure."

898

Federal Reserve Bulletin :„ November 1998

internal profitability measures, a scale with a relatively large number of grades may be required to
achieve fine distinctions of credit risk.
As with the decision to extend credit, the rating
process almost always involves the exercise of human
judgment because the factors considered in assigning
a rating and the weight given each factor can differ
significantly across borrowers. Given the substantial
role of judgment, banks must pay careful attention
to the internal incentives they create and to internal
rating review and control systems to avoid introducing bias. The direction of such bias tends to be related
to the functions that ratings are asked to perform in
the bank's risk management process. For example, at
banks that use ratings in computing profitability measures, establishing pricing guidelines, or setting loan
size limits, the staff may be tempted to assign ratings
that are more favorable than warranted.
Many banks use statistical models as an element of
the rating process, but banks generally believe that
the limitations of statistical models are such that
properly managed judgmental rating systems deliver
more accurate estimates of risk. Especially for large
exposures, the benefits of such accuracy may outweigh the higher costs of judgmental systems. In
contrast, statistical credit scores are often the primary
basis for credit decisions for small lending exposures,
such as consumer credit.
Although form generally follows function in the
systems used to rate business loans, our impression is
that in some cases the two arc not closely aligned.
For example, because of the rapid pace of change in
the risk management practices of large banks, their
rating systems are increasingly being used for purposes for which they were not originally designed.
When a bank applies ratings in a new way, such as in
risk-sensitive analysis of business line profitability,
the existing ratings and rating system are often used
as-is. It may become clear only over time that the
new function has imposed new stresses on the rating
system and that changes in the system are needed.
Several conditions appear to magnify such stresses
on bank rating systems. The conceptual meaning of
ratings may be somewhat unclear, rating criteria may
be largely or wholly maintained as a matter of culture
rather than formal written policy, and corporate databases may not support analysis of the relationship
between grade assignments and historical loss experience. Such circumstances make ratings more difficult
to review and audit and also require loan review units
in effect to define, maintain, and fine-tune rating
standards in a dynamic fashion.
This article describes internal rating systems
at large U.S. banks, focusing on the relationship



between form and function, the stresses that are evident, and the current conceptual and practical barriers
to achieving accurate, consistent ratings. We hope to
promote understanding of this critical element of risk
management—among the industry, supervisors, academics, and other interested parties—and thereby
promote further enhancements to risk management.
This article is based on information from internal
reports and credit policy documents for the fifty
largest U.S. bank holding companies, from interviews
with senior bankers and others at more than fifteen
major holding companies and other relevant institutions, and from conversations with Federal Reserve
bank examiners. The institutions we interviewed
cover the spectrum of size and practice among the
fifty largest banks, but a disproportionate share of the
banks we interviewed have relatively advanced internal rating systems.3

/ / / / . M i C l i l l k C l l Hi o r l > . \ \ k I \ I I 1<\ \l.

!\\TI\<; M.s/7-.U.V
In choosing the architecture of its rating system, a
bank must decide which loss concepts to employ, the
number and meaning of grades on the rating scale
corresponding to each loss concept, and whether
to include "watch" and "regulatory" grades on such
scales. The choices made and the reasons for them
vary widely, but on the whole, the primary determinants of bank rating system architecture appear to be
the bank's mix of large and smaller borrowers and
the extent to which the bank uses quantitative systems for credit risk management and profitability
analysis. In principle, banks must also decide whether
to grade borrowers according to their current condition or their expected condition under stress.
Although the rating agencies employ the latter,
"through the cycle," philosophy, almost all banks
have chosen to grade to current condition (see
the box "Point-in-Time vs. Through-the-Cycle
Grading").

Less

( \i)!ti'/>!\

tint! llwir

IwpL'nn'iitiitieii

The credit risk of a loan or other exposure over a
given period involves both the probability of default
(PD) and the fraction of the loan's value that is likely
to be lost in the event of default (LIED). LIED is
always specific to a given facility because it depends
5. Internal rating systems are typically used throughout U.S. banking organizations. For brevity, we use the term "bank" to refer to
consolidated banking organizations, not just the chartered bank.

Credit Risk Rating at Large U.S. Banks

899

Point-in-Time vs. Through-the-Cycle Grading
A common way of implementing a long-horizon, throughthe-cycle rating philosophy involves estimating the borrower's condition at the worst point in an economic or industry
cycle and grading according to the risk posed at that point.
Although "downside" or "borrower stress" scenarios are
an element of many banks' underwriting decisions, every
bank we interviewed bases risk ratings on the borrower's
current condition. Rating the current condition is consistent
with the fact that rating criteria at banks do nol seem to be
updated to take account of the current phase of the business
cycle. Banks we interviewed do vary somewhat in the lime
period they have in mind when producing ratings, with
about 25 percent rating the borrower's risk over a one-year
period, 25 percent rating over a longer period such as the
life of the loan, and the remaining 50 percent having no
specific period in mind. How closely raters adhere to time
horizon guidelines at banks that have them is not clear.
In contrast to bank practice, both Moody's and S&P rate
through the cycle. They analyze the borrower's current
condition at least partly to obtain an anchor point for
determining the severity of the downside scenario. The
borrower's projected condition in the event the downside
scenario occurs is the primary determinant of the rating.
Only borrowers that are very weak at the time of the
analysis are rated primarily according to current condition.
Under this philosophy, the migration of borrowers' ratings
up and down the scale as the overall economic cycle
progresses will be muted: Ratings will change mainly for
those firms that experience good or bad shocks that affect
long-term condition or financial strategy and for those

on the structure of the facility. PD, however, is generally associated with the borrower, the presumption
being that a borrower will default on all obligations if
it defaults on any.6 The product of PD and LIED is
the expected loss (EL) on the exposure in a statistical
sense. It represents an estimate of the average percentage loss rate over time on a group of loans all
having the given expected loss. A positive expected
loss is not, however, a forecast that losses will in fact
occur on any individual loan.
The banks at which we conducted interviews fall
into two categories with regard to loss concept. About
60 percent have one-dimensional rating systems,
in which ratings are assigned to facilities. In such
systems, ratings approximate EL. The remaining

6. Admittedly, PD might differ across transactions wilh the same
borrower. For example, a borrower may attempt to force » favorable
restructuring of its term loan by halting payment on the loan while
continuing to honor the terms of a foreign exchange swap wilh the
same bank. However, for practical purposes, estimating a single
probability of any default by a borrower is usually suflicicnl.



whose original downside scenario was too optimistic. The
agencies' through-the-cycle philosophy probably accounts
for their considerable emphasis on a borrower's industry
and its position within the industry. For many firms, industry supply and demand cycles are as important or more
important than the overall business cycle in determining
cash flow.
In interviews, we did not discuss the reasons that banks
rate to current condition, but two possibilities are the greater
difficulty of the agency method and differences in the
investment horizon of banks relative to that of users of
agency ratings. Consistency of ratings across a wide variety
of credits may be easier to achieve when the basis is the
relatively easy-to-observe current condition. Also, greater
difficulty means through-the-cycle grading entails greater
expense, and for many middle-market credits the extra
expense might render such lending unprofitable for banks.
Regarding investment horizon, the rating agencies' philosophy may reflect the historical preponderance of longterm, buy-and-hold investors among users of ratings. Such
users are naturally most interested in estimates of long-term
credit risk. That banks should naturally have a short-term
orientation is not clear, especially as the maturity of bank
loan commitments has increased steadily over the past
decade or two. If it were not for the considerations of
feasibility and cost, as well as the fact that many banks use
ratings to guide the intensity of monitoring of borrowers,
the banks' choice of point-in-time grading would be more
debatable.

40 percent have two-dimensional systems, in which
the borrower's general creditworthiness (approximately PD) is appraised on one scale while the risk
posed by individual exposures (approximately EL) is
appraised on another; invariably the two scales have
the same number of rating categories.7
A number of banks would no doubt dispute our
characterization of their single-scale systems as measuring EL; in interviews, several maintained that
their ratings primarily reflect the borrower's PD.
However, collateral and loan structure play a role in
grading at such banks both in practical terms and in
the definitions of grades. Moreover, certain specialty
loans—such as cash-collateralized loans, those eligible for government guarantees, and asset-based
loans—can receive relatively low risk grades, a distinction reflecting the fact that the EL for such loans
7. The policy documents of banks we did not interview indicate
that they also have one- or two-dimensional rating systems, and our
impression is that the discussion of loss concepts above applies
equally well to these banks.

900

1.

Federal Reserve Bulletin l_ November 1998

Example of a iwo-dimensional risk raiinii system
using average l.IRD values
Assumed
average
loss on
loan* in
ibe event
of default
(UED)
(percent)

Borrower
scale:
borrower's
probability
Of default
(PD)
(percent)
ID

Grade

1—Virtually no risk ..
2—Low risk
3—Moderate risk
4—-Average risk
5—Acceptable risk . . .
6—Borderline risk . . .
7—OAEM1
8—Substandard
9—Doubtful

0
.1
.3
1,0
3.0
6.0
20.0
60.0
100

tt)

*

grade multiplied by a standard or average LIED
(table 1). In this way, a two-dimensional system can
promote precision and consistency in grading by
separately recording a rater's judgments about PD
and EL rather than mixing them together.
A few banks said they had plans to shift to a
system in which the borrower grade reflects PD but
the facility grade explicitly measures LIED. The rater
would assign a facility to one of several LIED categories on the basis of the likely recovery rates associated with various types of collateral, guarantees, or
other considerations associated with the facility's
structure. EL for a facility would be calculated by
multiplying the borrower's PD by the facility's
LIED.*

Facility
scale:
expected
loss
(EL)
on loans
(percent)
(1 x 2 l

0
1
30
i
t

.03
.09
.30
.90
1.N0
6.00
18.00
30.00

I. Other Assets Especially Mentioned.

is far less than for an "ordinary" loan to the same
borrower. Such single-grade systems might be most
accurately characterized as having an ambiguous or
mixed conceptual basis rather than as clearly measuring either PD or EL. Although an ambiguous basis
may pose no problems when ratings are used mainly
for administrative and reporting purposes and when
the nature of the bank's business is fairly stable over
time, a clear conceptual foundation becomes more
important as quantitative models of portfolio risk and
profitability are used more heavily and during periods
of rapid change.
In two-dimensional systems, one grade typically
reflects PD and the other EL. Banks with such systems usually first determine the borrower's grade (its
PD) and then set the facility grade equal to the
borrower grade unless the structure of the facility is
such that LIED is substantially better or worse than
"normal." Implicitly, grades on the facility scale
measure EL as the PD associated with the borrower
2.

Ruling Scales at Moody's and S&P
At the agencies, as at many banks, the loss concepts
(PD, LIED, and EL) embedded in the ratings are
somewhat ambiguous. Moody's states that "ratings
are intended to serve as indicators or forecasts of the
potential for credit loss because of failure to pay, a
delay in payment, or partial payment." Standard &
Poor's states that its ratings are an "opinion of the
general creditworthiness of an obligor, or . . . of an
obligor with respect to a particular. . . obligation . . .
8. Systems recording LIED ralher than EL as the second grade can
promote precision and consistency in grading. PD-EL systems typically impose limits on ihe degree to which differences in loan structure permit an EL grade to be moved up or down relative to the PD
grade. Such limits can be helpful in restraining raters' optimism but,
in the case of loans with a genuinely very low expected LIED, such
limits can materially limit the accuracy of risk measurement. Another
benefit of LIED ratings is the fact that raters' LIED judgments can be
evaluated over lime by comparing them to loss experience.

Mfxxiy's and Standard <fe Poor's hontl rating scales and average one-year default rates
Moody's
Category

Investment grade

Below investment grade ("junk")

Default

Grade

Average defaultrate(PD)
per year. 197(H»S
(percent)

Aaa
Ail. Aul, Aa2. Aa3
A. At, A2, A3
Baa, Baal. Baii2. Baai

.03
.03
.01
.13

Ba. Bal. Ba2, Ba3
B, Bl. B2, B3
Caa. Ca. C
D

Null,. Grades arc listed from less n sky (o more risky, from top to bottom and
from let! 10 righl.
n.a. Nol available.
Nol applicable.




Standard & Poor's

1.42
7.62
n.a.

Grade
AAA
AA+,:AA > AABBB+." BBB, BBBBB+, BB. BB-

m
.25

i.ir

ccc.ee, c
i?

SOURCL. Moody's Investors Service Specia Repon, Corporate Bond
Defaults ami Deiault Rates 1938-1995 (January 1996). Standard & Poor's
Crcdilweck Special Report. Corporate Defaults Level Off in 1994 (May 1

Credit Risk Rating at Large U.S. Banks

based on relevant risk factors." On balance, a close
reading of Moody's and Standard & Poor's detailed
descriptions of rating criteria and procedures suggests that the two agencies' ratings incorporate elements of PD and LIED but are not precisely EL
measures.9
Risk tends to increase nonlinearly on both bank
and agency scales. For example, on the agency scales,
default rates are low for the least risky grades but rise
rapidly as the grade worsens (table 2).

3.

Regulatory problem asset allegories

Category

Special Mention
(OAEM)' .

Admin istrative Grades

Among the fifty largest banks, all but two have
grades corresponding to the regulatory problem-asset
categories Other Assets Especially Mentioned
(OAEM), Substandard, Doubtful, and Loss (some
omit the Loss category).10 All other assets are collectively labeled "Pass" by regulators. The bank supervisory agencies do not specifically require that banks
maintain regulatory categories on an internal scale
but do require that recordkeeping be sufficient to
ensure that loans in the regulatory categories can be
quickly and clearly identified. The two banks that use
procedures not involving internal grades appear to do
so because the regulatory asset categories are not
consistent with the conceptual basis of their own

9. Moody's Investors Service. Global Credit Analysis (1FR Publishing, 1991), p. 73 (emphasis in ihe original); Standard & Poor's.
Corporate Ratings Criteria (1998). p. 3. Other rating agencies play
important roles in Ihe marketplace. We omit details of their scales and
practices only for brevity.
10. A few break Substandard into two categories, one for performing loans and Ihe other for nonperforming loans.



Regulatory definition

Has potential weaknesses that
deserve management's close
attention.

Recommended
specific
reserve
(percent)
No
recommendation

H left uncorrected, these potential
weaknesses may, at snme future
dale, result in the deterioration of
the repayment prospects for the
credit.
Substandard

All the banks we inten'iewed maintain some sort of
internal "watch" list as well as a means of identifying assets that fall into the "regulatory problem
asset" categories (table 3). Although watch and regulatory problem-asset designations typically identify
high-risk credits, they have administrative meanings
that are conceptually separate from risk per se. Special monitoring activity is usually undertaken for
watch and problem assets, such as formal quarterly
reviews of status and special reports that help senior
bank management monitor and react to important
developments in the portfolio. However, banks may
wish to trigger special monitoring for credits that are
not high-risk and thus may wish to separate administrative indicators from risk measures (an example
would be a low-risk loan for which an event that
might influence risk is expected, such as a change in
ownership of the borrower).

901

Inadequately protected by current
worth/paying capacity of obligor or
collateral. Well-defined weaknesses
jeopardize liquidation of the debt.
Distinct possibility that bank will
sustain some loss if deficiencies are
not corrected.

Doubtful

All weaknesses inherent in
substandard, AND collection/
liquidation in lull, on basis of
currently existing conditions, is
highly questionable or improbable.

50

Specific pending factors may
strengthen credit: treatment as loss
deferred until exact status can be
determined.
Loss ,

Uncollectible and of such little
value that continuance as bankable
asset is not warranted.

100

Credit may have recovery or
salvage value, but not
practical/desirable to deter writing
it off even though partial recovery
may be effected in future.
Nun;. Assets thai do not fall into one of these categories arc termed Pass by
Ihe federal banking regulators,
1 Other Assets Rspecially Mentioned.

grades." Moreover, banks and regulators may sometimes disagree about the riskiness of individual assets
that fall into the various regulatory grades.12
Watch credits are those that need special monitoring but do not fall in the regulatory problem-asset
grades. Only about half the banks we interviewed
include a watch grade on their internal rating scales.
Others add a watch flag to individual grades, such as
3W versus 3, or simply maintain a watch list seprately, perhaps by adding an identifying field to their
computer systems.
11 Although the definitions are standardized across banks, our
discussions and inspection of internal documents imply that banks
vary in their internal definition and use of OAEM. Among the regulatory categories, OAEM in particular can have an administrative
dimension as well as a risk dimension. Most loans identified as
OAEM pose a higher-than-usual degree of risk, but some loans may
be placed in this category for lack of adequate documentation in the
loan hie, which may occur even for loans not posing higher-than-usual
risk. In such cases, once the administrative problem is resolved, the
loan can be upgraded.
12. Examiners review problem loans and evaluate whether they
have been assigned to the proper regulatory problem-asset grades and
also review a sample of Pass credits. Examiners heretofore have
generally not attempted to validate or evaluate internal ratings of Pass
credits.

902

Federal Reserve Bulletin II November 1998

Niimlwr of Grack's on the Scale
The number of grades on internal scales varies considerably across banks. In addition, even where the
number of grades is identical on two different banks'
scales, the risk associated with the same grades (for
example, two Joans graded 4) is almost aiways different. Among the fifty largest banks, the number of
Pass grades varies from two to the low twenties. The
median is five Pass grades, including a watch grade
if any (chart 1). Among the ten largest banks, the
median number of Pass grades is six and the minimum is four. As noted, the vast majority of large
banks also include three or four regulatory problemasset grades on their internal scales.
Internal rating systems with larger numbers of
grades are more costly to operate because of the extra
work required to distinguish finer degrees of risk.
Banks making heavy use of ratings in analytical
activities are most likely to choose to bear these costs
because fine distinctions are especially valuable in
such activities (however, at least a moderate number
of Pass grades is useful even for internal reporting
purposes). Banks that increase their analytical use of
ratings may persist for a while with a relatively small
number of Pass grades because the costs of changing
rating systems can be large. Nonetheless, those banks
that have recently redesigned their rating systems
have all increased the number of grades. 1 '
The proportion of grades used to distinguish among
relatively low risk credits versus the proportion used
13. The average number of grades on internal stales appears [o
have increased somewhat during the pasi decade. See Gregory F.
Udell. Designing the Optimal Loan Keview Policy: An Analysis of
Loan Review in Midwestern Bonks (Prochnow Reports. Madison.
Wis.,
I.

1987), p. IX.
l i l t v l;iiccst L..S. h a n k s , ilistrihutcd hy n u m b e r
nf I'asS L-T.llk's
NumtHrr nf biinks

12

—

1 to 3

7

4

6

8 or more

Number of grades
Noi!

S h o w n a r e t h e f o r t y - s i x b a n k s f o r w h i c h t h i s m e a s u r e v\;is . i v a i l a h l e .




to distinguish among the riskier Pass credits tends to
differ with the business mix of the bank. Among
banks we interviewed, those that do a significant
share of their commercial business in the large corporate loan market tend to have more grades reflecting
investment-grade risks. The allocation of grades
between the investment-grade and be low-investmentgrade categories lends to be more even at banks
doing mostly middle-market business.14 The differences are not large: The median middle-market bank
has three internal grades corresponding to agency
grades of BBB-/Baa3 or better and three riskier
grades, whereas the median bank with a substantial
large-corporate business has four investment grades
and two junk grades. Such a difference in rating
system focus is sensible in that an ability to make fine
distinctions among low-risk borrowers is quite important in the highly competitive large-corporate lending
market. In the middle market, fewer borrowers are
perceived as posing AAA, AA, or even A levels of
risk, so such distinctions are less crucial.
However, a glance at table 2 reveals that a good
distinction among risk levels in the belowinvestment-grade range is important for all banks.
For example, the range of default rates spanned by
the agency grades BB+/Bal through B-/B3 is orders
of magnitude larger than the risk range for, say,
A+/A1 through BBB-/Baa3, and yet the median large
bank we interviewed uses only two or three grades to
span the below-investment-grade range, one of them
perhaps being a watch grade. More granularity—finer
distinctions of risk, especially among riskier assets—
can enhance a bank's ability to analyze its portfolio
risk posture and to construct accurate models of the
profitability of its broader business relationships with
borrowers.
Systems with many Pass categories are less useful
when loans or other exposures tend to be concentrated in one or two grades. Among large banks,
sixteen institutions, or 36 percent, assign half or more
of their rated loans to a single risk grade (chart 2).
Such systems appear to contribute little to the understanding and monitoring of risk posture.15

14. The lerm "large corporate" includes nonfinancial firms wilh
large annual sales volumes as well as large financial institutions,
national governments, and large nonprofit institutions. Certainly the
Fortune 500 firms fall into this category. Middle-market borrowers are
smaller, but the precise boundary between large and middle-market
and between middle-market and small business borrowers varies by
bank,
15. Such failure to distinguish degrees of risk was recently cited in
Federal Reserve examination guidance as a potentially significant
shortcoming in a large institution's credit risk management process.
Sec Supervision and Regulation Letter SR 98-18, "Lending Standards
for Commercial Loans" (June 23. l()98). For additional information

Credit Risk Rating at Large U.S. Banks

Filly largest Li.S. banks, distributed hy peree
of outstanding* placed in the pradc with the
most out
Number uf banks

—

12

—

9

Less 20-29 30-39 40-49 50-59 60-69 70-79 80 or
than 20
more
Percentage in single grade

903

assignment of a rating. Banks thus design the operational flow of the rating process in ways that are
aimed at promoting the accuracy and consistency of
ratings while not unduly restricting the exercise of
judgment. Balance between these opposing imperatives appears to be struck at each institution on the
basis of cost considerations, the nature of the bank's
commercial business lines, the bank's uses of ratings,
and the role of the rating system in maintaining the
bank's credit culture.
Key operating design issues in striking the balance
include the organizational division of responsibility
for grading (line staff or credit staff), the nature of
reviews of ratings to detect errors, the organizational
location of ultimate authority over grade assignments, the role of external ratings and statistical
models in the rating process, and the formality of the
process and specificity of formal rating definitions.

NOTL. Shown are Ihe fortv-h've banks for which this measure was relevant

The majority of the banks that we interviewed
(and, based on discussions with supervisory staff,
other banks as well) expressed at least some desire to
increase the number of grades on their scales and to
reduce the extent to which credits are concentrated in
one or two grades. Two kinds of plans were voiced:
Addition of a +/- modifier to all existing grades, and
a split of existing riskier grades into a larger number
of newly defined grades, leaving the low-risk grades
unchanged.16 The +/- modifier approach is favored
by many because grade definitions are modified
rather than completely reorganized. For example, the
basic meaning of a 5 stays the same, but it becomes
possible to distinguish between a strong and a weak 5
with grades of 5+ and 5 - . This approach limits the
disruption of staff understanding of each grade's
meaning (as noted below, such understanding is
largely cultural rather than being formally written).

THE OPERATING DESIGN OF RATING SYSTEMS
In essentially all cases, the human judgment exercised by experienced bank staff is central to the
about current bank lending practices, see William F. Treacy, "The
Significance of Recent Changes In Underwriting Standards: Evidence
from Ihe Loan Quality Assessment Project." Federal Reserve System
Supervisory Staff Report (June 1998); and US. Comptroller of the
Currency, 1998 Survey of Credit Uncle/writing Practices (National
Credit Committee, 1998).
16. At the time of the interviews, however, Ihe majority of the
banks voicing plans to increase ihe number of Iheir grades had no
active effort in progress. Many of those institutions actively moving lo
increase the number of their Pass grades do not now have conceniralions in a single category.



What Exposures Arc Ratal.'
At most banks, ratings are produced for all commercial or institutional loans (that is, not consumer
loans), and in some cases for large loans to households or individuals for which underwriting procedures are similar to those for commercial loans. Rated
assets thus include commercial and industrial loans
and other facilities, commercial lease financings,
commercial real estate loans, loans to foreign commercial and sovereign entities, loans and other facilities to financial institutions, and sometimes loans
made by "private banking" units. In general, ratings
are applied to those types of loans for which underwriting requires large elements of subjective analysis.

Overview of the Rating Process in Relation to
Credit Approval ami Review
Ratings are typically assigned (or reaffirmed) at the
time of each underwriting or credit approval action.
The analysis supporting the ratings is inseparable
from the analysis supporting the underwriting or
credit approval decision. In addition, the rating and
underwriting processes, while logically separate, are
intertwined. The rating assignment influences the
approval process in that underwriting limits and
approval requirements depend on the grade, while
approvers of a credit are expected to review and
confirm the grade. For example, an individual staff
member typically proposes a risk grade as part of the
pre-approval process for a new credit. The proposed
grade is then approved or modified at the same time

904

Federal Reserve Bulletin I I November 1998

that the transaction itself receives approval and must
meet the requirements embedded in the bank's credit
policies. In nearly all cases, approval requires assent
by individuals with requisite "signature authority"
rather than by a committee. The number and level of
signatures needed for approval typically depend on
the size and (proposed) risk rating of the transaction:
In general, less risky loans require fewer and perhaps
lower-level signatures. In addition, signature requirements may vary according to the line of business
involved and the type of credit being approved.17
After approval, the individual that assigned the
initial grade is generally responsible for monitoring
the loan and for changing the grade promptly as the
condition of the borrower changes. Exposures falling
into the regulatory grades are an exception at some
institutions, where monitoring and grading of such
loans becomes the responsibility of a separate unit,
such as a workout or loan review unit.
U/;
Ratings are initially assigned either by relationship
managers or the credit staff. Relationship managers
(RMs) are lending officers (line staff) responsible for
the marketing of banking services. They report to
lines of business that reflect the strategic orientation
of the bank.18 All institutions evaluate the performance of RMs—and thus set their compensation—on
the basis of the profitability of the relationships in
question, although the methods of assessing profitability and determining compensation vary. Even
when profitability measures are not risk-sensitive,
ratings assigned by an RM can affect his or her
compensation.19 Thus, in the absence of sufficient
controls, RMs may have incentives to assign ratings
in a manner inconsistent with the bank's interests.
The credit staff is responsible for approving loans
and the ratings assigned, especially in the case of
larger loans; for monitoring portfolio credit quality
and sometimes for regular review of individual exposures; and sometimes for directly assigning the
ratings of individual exposures. The credit staff is
17. If those asked to provide signatures believe that a loan should
be assigned a riskier internal rating than initially, additional signatures
may be required in accordance with policy requirements. Thus, disagreement over the rating can alter the approval requirements for the
loan in question.
18. Lines of business may be defined by the size of the business
customer (such as large corporate), by the customer's primary industry (such as health care), or by the type of product being provided
(such as commercial real estate loans).
19. For example, because loan policies often include size limits
that depend on ratings, approval of a large loan proposed by an RM
may be much more likely if it is assigned a relatively low risk rating.




genuinely independent of sales and marketing functions when the two have separate reporting structures
(that is, "chains of command") and when the performance assessment of the credit staff is linked to the
quality of the bank's credit exposure rather than to
loan volume or business line or customer profitability. Some banks apportion the credit staff across
specific line-of-business groups. Such arrangements
allow for closer working relationships but in some
cases lead to linkage of the credit staff's compensation or performance assessment with profitability of
the business line; in such cases, incentive conflicts
like those experienced by RMs can arise. At other
banks, RMs and independent credit staff produce
ratings as partners and are held jointly accountable.
Whether such partnerships are effective in restraining
incentive conflicts is not clear.
The primary responsibility for rating assignments
varies widely among the banks we interviewed. RMs
have the primary responsibility at about 40 percent of
the banks, although in such cases the credit staff may
review proposed ratings as part of the loan approval
process, especially for larger exposures.20 At 15 percent of interviewed banks the credit staff assigns all
initial ratings, whereas the credit staff and RMs rate
in partnership at another 20 percent or so. About
30 percent of interviewed banks divide the responsibility: The credit staff has sole responsibility for
rating large exposures, and RMs alone or in partnership with the credit staff rate middle-market loans. In
principle, both the credit staff and RMs use the same
rating definitions and basic criteria, but the different
natures of the two types of credit may lead to some
divergence of practice.
A bank's business mix appears to be a primary
determinant of whether RMs or the credit staff are
primarily responsible for ratings. Those banks we
interviewed that lend mainly in the middle market
usually give RMs primary responsibility for ratings.
Such banks emphasized informational efficiency,
cost, and accountability as key reasons for their
choice of organizational structure. Especially in the
case of loans to medium-size and smaller firms, the
RM was said to be in the best position to appraise the
condition of the borrower on an ongoing basis and
thus to ensure that ratings are updated in a timely
manner. Requiring that the credit staff be equally well
informed adds costs and may introduce lags into the
process by which ratings of such smaller credits are
updated.

20. At most banks. RMs have signature authority for relatively
small loans, and the credit staff might review the ratings of only a
fraction of small loans at origination.

Credit Risk Rating at Large U.S. Banks

The institutions at which an independent credit
staff assigns ratings tend to have a substantial presence in the large corporate market. Placing the rating
process primarily in the hands of the credit staff
offers greater assurance that grading will be purely on
the basis of risk, without coloration by possible ramifications for customer or business line profitability. In
addition, because the credit staff is small, relative to
the number of RMs and is focused entirely on risk
assessment, it is in a better position to achieve consistency in its ratings (that is, to assign similar grades to
similarly risky loans, regardless of their other characteristics). Moreover, the costs of having the credit
staff perform all analysis are small relative to the
revenues generated by large corporate loan transactions. In contrast, such costs can be large relative to
the transaction revenues for middle-market loans.
Our impression is that middle-market lending represents a much larger share of the business of banks
we did not interview. If the pattern described above
holds, the proportion of all large banks using RMcentered rating processes is probably higher than
among our interviewees. Unfortunately, policy documents for those we did not interview generally do not
reveal details of this aspect of the process.
Almost all the banks we interviewed are at least
experimenting with consumer-loan-style credit scoring models for small commercial loans. For exposures smaller than some cutoff value, such models are
either a tool in the rating process or are the sole basis
for the rating. If, however, models are the sole basis,
performing loans are usually assigned to a single
grade on the internal rating scale rather than making
grade assignments sensitive to the score value.

Mno-.1 N

905

Ju<.l<:

Although in principle the analysis of risk factors
may be done by a mechanical model, in practice the
rating process at almost all banks relies heavily on
j u d g m e n t . We suspect most banks are hesitant to
make models the centerpiece of their rating systems
for three reasons: (1) Different models would be
required for each asset class and perhaps for different geographic regions; (2) data to support estimation
of such models is currently rarely available; and
(3) the reliability of such models would become
apparent only over time, exposing the bank to
possibly substantial risks in the interim. Those few
banks m o v i n g toward heavy reliance on m o d e l s
appear to feel that models produce more consistent
ratings and that, in the long run, operating costs will
be reduced in that less labor will be required to
produce ratings.
As part of their judgmental evaluation, most of the
banks we interviewed either use statistical models of
borrower default probability as an input (about threefourths do so) or take into consideration any available
agency rating of the borrower (at least half, and
probably more, do so). Such use of external points of
comparison is c o m m o n for large corporate borrowers
because they are most likely to be externally rated
and because statistical default probability models are
more readily available for such borrowers. In addition, as described further below, many banks use
external ratings or models in calibrating their rating
systems and in identifying likely mistakes in grade
assignments.

l-'iicl'U;. Considered

How Do 7hey Arrive at RLIIIH^S?
Both assigners and reviewers of ratings follow the
same basic thought process in arriving at a rating for
a given exposure. The rater considers both the risk
posed by the borrower and aspects of the facility's
structure. In appraising the borrower, the rater gathers
information about its quantitative and qualitative
characteristics, compares them with the standards for
each grade, and then weights them in choosing a
borrower grade. T h e comparative process often is
as much one of looking across borrowers as one of
looking across characteristics of different grades:
That is, the rater may look for already-rated loans
with characteristics close to those of the loan being
rated and then set the rating to the grade already
assigned to such borrowers.



Bank personnel base their decisions to assign a particular rating on the criteria that define each grade,
which are articulated as standards for a number
of specific risk factors. For example, a criterion
for assignment of a grade " 3 " might be that the
borrower's leverage ratio must be smaller than some
value. Risk factors include the borrower's financial
condition, size, industry, and position within the
industry; the reliability of the borrower's financial
statements and the quality of its management; elements of transaction structure (for example, collateral); and miscellaneous other factors. The risk factors are generally the same as those considered in
deciding whether to extend a loan and are similar to
the factors considered by rating agencies. Banks vary
somewhat in the particular factors they consider and
in the weight they give each factor. What follows is a

906

Federal Reserve Bulletin • November 1998

description of the factors considered by a typical
bank among those we interviewed.21
Financial statement analysis is central to appraising the likely adequacy of future cash flow and thus
the ability of the borrower to service its debt. The
focus of analysis is on the borrower's debt service
capacity, taking account of its free cash flow, the
liquidity of its balance sheet, and the firm's access to
sources of finance other than the bank. Historical
(and to a lesser extent, projected) earnings, operating
cash flow, interest coverage, and leverage are typically analyzed, with exact definitions of financial
ratios used in the analysis varying across banks and,
in some cases, across borrowers or loan types. The
analysis yields an assessment of the difference
between current or projected performance and liquidity on the one hand and projected debt service obligations on the other. The larger the cushion, in general,
the more favorable the rating.
As a context for financial statement analysis, the
characteristics of the borrower's industry are often
considered (such as cyclically, general volatility, and
trends in cash flow and profitability). Indeed, the
financial analysis often includes a formal comparison
of the borrower's financial ratios to prevailing industry norms.22 Firms in declining industries are considered more risky, as are those in highly competitive
industries, whereas firms with diversified lines of
business are viewed as less risky. A related factor, the
borrower's position in its industry, is also an important factor in determining ratings. Those borrowers
with substantial market power or that are perceived to
be "market leaders" in other respects are considered
less risky because they are thought to be less vulnerable to competitive pressure.
One of the most important reasons that rating is
usually a judgmental process is that the details of
financial statement analysis vary with the borrower's
other characteristics. In contrast, statistical models of
default probability tend to analyze fixed sets of financial ratios and to apply fixed weights to each ratio in
arriving at a default probability, perhaps with some
variation In weights by industry. Subjective factors
play at most a minimal role. This relative inflexibility
21. We reviewed the written criteria for those banks among the
fifty largest that we did not interview. Our experience with interviewed banks indicates that conclusions should be drawn with care
from written documents alone. However, the description of risk factors herein is probably representative of the factors used by almost all
large banks.
22. Staff at the banks interviewed appeared to be well aware of the
potential pitfalls of such comparisons. Tor example, a borrower with a
five-year history of stable cash flow might still be considered rather
risky if the particular five-year period contained no recession and the
borrower's industry is highly cyclical.



of models leads most banks to regard their results
only as generally suggestive of an appropriate rating.
When internal ratings are produced primarily by
models, several models may be needed for different
borrowers or loan types and continual tuning of the
models is likely to be required.
Raters also appraise the quality of financial information provided by the borrower. For example, raters have much more confidence in financial statements that are audited by a major accounting firm
than in those that are compiled or unconsolidated or
that are audited but accompanied by important qualifications. When statement quality is poor or uncertain, financial analysis may produce a distorted view
of the borrower's condition, adding substantially to
risk.
A primary difference between banks and public
rating agencies is whether the financial analysis is
keyed to a downside (or "stress") scenario or to a
"base" (or "most likely") case. As noted previously,
banks assign ratings on the basis of the borrower's
current condition and most likely outlook, whereas
the rating agencies assign grades on the basis of a
downside scenario.
In another departure from practice at the rating
agencies, most banks formally consider both firm
size (sales revenue or total assets) and the book or
market dollar value of a firm's equity in assigning
ratings. Interviewees noted that small firms—
including many that would be considered middle
market—usually have limited access to external
finance and often have few or no assets that can be
sold in an emergency without disrupting operations.
In contrast, larger firms were characterized as having
more ready access to alternative financing, more saleable assets, and a more firmly established market
presence. For these reasons, many banks require that
small borrowers be assigned relatively risky grades
even if their financial characteristics might suggest a
more favorable rating.
Almost all internal rating systems cite the borrower's management as an important consideration in
assigning the risk grade. Such assessments are necessarily subjective and may reveal weaknesses in a
number of areas related to competence, experience,
integrity, or succession plans. Vulnerability of management to the retirement or departure of key individuals is usually considered. Some institutions (similar to the rating agencies) appear to give considerable
weight to the rater's appraisal of management's ability and willingness to manage the firm to achieve a
high level of financial performance throughout the
business cycle and to its attitude toward protecting
the interests of lenders.

Credit Risk Rating at Large U.S. Banks

The borrower's country of domicile or operations
is an important determinant of the rating in some
cases. Especially when transfer risk or political risk is
substantial, general practice seems to be that a borrower's grade may be no less risky than the grade
assigned to the borrower's country by a special unit
in the bank. Such country grades can be significantly
affected by the country risk grade assigned by regulators as part of an annual cycle.
Ratings may also be influenced by exposure to
event risks, such as litigation, environmental liability,
or changes in law or national policy.
A handful of considerations reflecting the structure
of the transaction being rated also enter into consideration because they can affect LIED. Adequate collateral can in many cases improve the rating, particularly if that collateral is in the form of cash or easily
marketed assets such as U.S. Treasury securities.23
Guarantees can generally enhance the rating as well,
but not beyond the rating that would be assigned to
the guarantor if it were the borrower. The term to
maturity of the loan is a factor in grade assignments
at only a few large banks. Similarly, few banks adjust
the risk grade on the basis of other elements of the
Joan structure, such as financial covenants.

Large banks' written definitions of ratings specify
risk factors to be used in assigning ratings, but usually the discussion is brief and broadly worded, and
gives virtually no guidance regarding the weight to
place on each factor.24 According to interviewees,
such brevity arises partly because some factors are
qualitative but also because the specifics of quantitative factors and the weights on factors can differ a
great deal across assets. Some noted that the number
23. Different rules are alien used in grading certain classes of
transactions, especially asset-based lending. At best, asset-based borrowers would be only marginally acceptable risks for banks in the
absence of the detailed liekl audits of collateral that asset-based
lenders demand. With such close monitoring, which typically includes
some degree of bank dominion over accounts receivable and inventory, the expected loss associated with a default is dramatically
reduced, and a more favorable rating can be assigned.
24. Written definitions are intended to address a broad range of
credit classes and borrower types. At a lew banks, a supplementary
grid of nonbinding quantitative standards or financial ratios is provided (for example, for leverage or debt service coverage), but guidance is generally sketchy as to how such ratios should be weighted
against each other or against more qualitative considerations. Interviewees indicated that even when reference grids are provided, the
ratios and standards are generally not binding. Similarly, some banks
provide supplemental descriptions of risk factors to be considered for
particular business lines or loan types, but such supplements often
closely resemble the core risk rating definitions.



907

of permutations is so great that attempting to write
them down would be counterproductive. Instead,
raters learn to exercise judgment in selecting and
weighting factors through training, mentoring, and
especially by experience. The actual meanings of
written rating definitions and the specifics of assigning ratings take the form of common, unwritten
knowledge embedded in the bank's credit culture.

Most banks require some sort of written justification
of the grade as part of the loan approval package, but
a few employ forms or grids on which the rater
identifies the relevant factors. Such forms or grids
may also suggest a structure for the rating analysis and serve to remind the rater to consider a broad
set of risk factors and to weight them appropriately. The stated motivation for such formalism is
better consistency across asset types and geographic
regions.

Reviews of ratings are threefold: Monitoring by those
who assign the initial rating of a transaction, regularly scheduled reviews of ratings for groups of exposures, and occasional reviews of a business unit's
rating assignments by a loan review unit. Monitoring
may not be continuous, but it is intended to keep the
rater well enough informed to recommend changes to
the internal risk grade in a timely fashion as needed.
All institutions interviewed emphasized that failure
to recommend changes to risk grades in a timely
fashion when warranted is viewed as a significant
performance failure for the relationship manager, the
credit staff, or both, and can be grounds for internally
imposed penalties.25
Most institutions also conduct annual or quarterly
reviews of each exposure, which may be in addition
to those that are part of the credit approval process at
the time facilities are renewed. The form of regular
reviews ranges from a periodic signoff by the relationship manager working alone to a committee
review involving both line and credit staff. Banks
with substantial large-corporate portfolios tend to
review all exposures in a given industry at the same
time, with reviews either by the credit specialist
for that industry or by a committee. Such industry
25. Updates to the risk grade usually require approvals similar to
those required to initiate or renew a transaction.

908

Federal Reserve Bulletin _; November 1998

reviews were said to be especially helpful in revealing inconsistently rated credits.
Ratings are also checked by banks' independent
loan review units, which usually have the final
authority to set grades. Such departments examine
each business unit's underwriting practices, and its
adherence to administrative and credit policies, on a
one- to three-year cycle. Not unlike bank examiners,
the loan review staff typically inspects only a sample
of loans in each line of business. Although the sampling procedures used by different institutions vary
somewhat, most institutions weight samples toward
loans perceived to be riskier (such as those in highrisk loan grades), with the primary focus on regulatory problem-asset categories. In general, however,
an attempt is made to review some loans made by
each lender in the unit being inspected.26
At a few banks, the loan review unit inspects
internal ratings assigned to Pass loans only to confirm
that such loans need not be placed in the watch or
regulatory grades. Thus, as a practical matter, the
loan review unit at these banks has little role in
maintaining the accuracy of assignments within the
Pass grades. In this regard, the loan review staff at
these banks follows the same pattern as bank examiners. These banks tend to make relatively little use of
Pass grade information in managing the bank.
Because operational rating definitions and procedures are embedded in bank culture rather than written down in detail, the loan review function at most
institutions is critical to maintaining the discipline
and consistency of the overall rating process. The
loan review unit, as the principal entity looking at
ratings across business lines and asset types, often
bears much of the burden of detecting discrepancies
in the operational meaning of ratings across lines.
Because the loan review unit at most institutions
has the final say about ratings, it can exert a major
influence on the culturally understood definition of
grades.27 Typically, when the loan review staff finds
grading errors, it not only makes corrections but
works with the relevant staff to find the reasons for
2 6 . l ; o r an a n a l y s i s of ihc b r o a d e r role of loan r e v i e w u n i l s . s e e

Udell. Designing the Optimal Loan Review Policy: and Gregory F.
Udell. "Loan Quality. Commercial Loan Review, and Loan Officer
Contracting," Journal of Hanking and Finance, vol. 3 (July 1989).
pp. 367-82.
27. Interviews and discussions with supervisory staff suggest, however, lhat the notion of "final say" is murkier than suggested by
written policy and slated practice. Important informal elements of
ruling processes, such as negotiation among various organizational
units, may lead to a consensus rating or understanding. Such negotiation would not compromise Ihc integrity of Ihe rating system so long
as loan review retains its independence and objeclivity. Such informal
understandings might make it more difficult, however, for an outsider
to understand (much less validate) the ratings being assigned.



the errors. Misunderstandings are thus corrected as
they become evident.28
Loan review units generally do not require that all
ratings produced by the line or credit staff be identical to the ratings that loan review judges to be
correct. At almost all banks we interviewed, loan
review units treat only two-grade discrepancies for
individual loans as warranting discussion. With a
typical large bank having four to six Pass categories,
such a policy permits large discrepancies for individual exposures, potentially spanning two or more
whole letter grades on the Standard & Poor's scale.
However, most institutions interviewed indicated that
a pattern of one-grade disagreements within a given
business unit—for example, a regional office of a
given line of business—can lead to a quick and
decisive response.
All interviewees emphasized that the number of
cases in which the loan review staff changes ratings is
usually relatively small, ranging from essentially
none to roughly 10 percent of the loans reviewed,
except in the wake of large cultural disruptions such
as mergers or major changes in the rating system. A
low percentage of discrepancies does not imply that
the loan review function is unimportant but rather
lhat, in well-functioning systems, the cultural meaning of ratings tends to remain stable and widely
understood. One element of a well-functioning system is the rater's expectation that the loan review
staff will be conducting inspections.
The interviews also indicated that differences of
opinion tend to become more common when the
number of ratings on the scale is greater, creating
more situations in which "reasonable people can
disagree." More direct linkage between the risk grade
assigned and the incentive compensation of relationship managers also tends to produce more disagreements. In both cases, resolution of disagreements
may consume more resources.
Loan review units usually have a role apart from
inspections in maintaining rating system integrity.
For example, when a relationship manager and the
credit staff are unable to agree on a rating for a new
loan, they will consult with the loan review unit on
how to resolve the dispute. In its consultative role,
the loan review staff guides the interpretations of
rating definitions and standards and, in novel situations, establishes and refines the definitions.
28. The loan review staff generally uses the same definitions of risk
grades, at ihe same level of detail, as relationship managers and the
independent credit staff. At a few banks, however, loan review also
relies on older policy documents that are far more detailed than
current policies. Thus, the older, more specific policies remain essentially in effect.

Credit Risk Rating at Large U.S. Banks

Because of its central role in maintaining the integrity of the rating system, the loan review unit must
have both substantial independence and staff members who are well versed in the bank's credit culture
and the meaning of ratings. All loan review units at
banks we interviewed report to the chief auditor or
chief credit officer of the bank, and many periodically
brief the board (or a committee thereof) on the results
of their reviews.
Loan review units may be less critical to the integrity of rating systems at banks that are primarily in
the business of making large corporate loans and at
which all exposures are rated by a relatively small,
highly independent credit staff. Although few banks
currently fit this description, they provide an interesting contrast. Such banks' credit units tend to conduct
the annual industry-focused reviews mentioned previously and thus are likely to detect rating discrepancies. Having such reviews conducted by broadly
based committees rather than only by industry specialists tends to restrain any drift in the meaning of
ratings as applied to different industries. In such
circumstances, the small credit staff is in a good
position to function as the "keeper of the flame" with
regard to the credit culture because it essentially
carries out the key rating oversight functions of traditional loan review units.

Rating Systems and Credit Culture
"Credit culture" refers to an implicit understanding
among bank personnel that certain standards of
underwriting and loan management must be maintained, even in the face of constant pressures to
increase revenues and bring in new business. Maintenance of a credit culture can be difficult, especially at
very large banks serving many customers over a wide
area. Of necessity, substantial authority must be delegated to mid-level and junior personnel, and undue
relaxation of standards may not appear in the form of
loan losses for some time.
At some of the banks we interviewed, senior managers indicated that the internal rating system is at
least partly designed to promote and maintain the
overall credit culture. At such banks, relationship
managers are held accountable for credit quality
partly by having them rate all credits, including large
exposures that might be more efficiently rated by the
credit staff. Strong review processes aim to identify
and discipline relationship managers who produce
inaccurate ratings. Such a setup provides strong
incentives for the individual most responsible for
negotiating with the borrower to assess risk properly



909

and to think hard about credit issues at each stage of
a credit relationship rather than relying entirely on
the credit staff. An emphasis on culture as a critical
consideration in designing the rating system was
most common among institutions that had suffered
serious problems with asset quality in the past ten or
fifteen years.
Tensions can arise when rating systems both maintain culture and support sophisticated modeling and
analysts. As noted, the latter applications introduce
pressures for architectures involving fine distinctions
of risk, and the frequency of legitimate disagreements
about ratings is likely to be higher when systems
have a large number of Pass grades. If not properly
handled by senior management and the loan review
unit, a rating system redesign that increases the number of grades may make cultural norms fuzzier and
the rating system less useful in maintaining the credit
culture.

Mergers and Expense Pressure
Some of our interviews involved banks that had
recently been involved in mergers, and the discussions clearly indicated that mergers can cause
upheaval in credit processes and systems, credit culture, and traditional sources of rating discipline. After
a rating system architecture is chosen for the combined institution, mechanical issues of converting the
predecessor banks' ratings to the new scale can be
challenging, especially when the predecessors' ratings of the same borrower suggest differing assessments of that borrower's risk. Cultural disruptions
arising from the merger are usually even more problematic than the mechanical issues because, as noted,
the operational definitions of ratings are a matter of
culture. Even if the architecture of one of the predecessors is used as-is, the staff of the other bank must
absorb and adjust to the new culture.
Merging institutions face a difficult choice between
moving very quicky to convert the ratings of all
assets to the new system, in which case stresses are
high, and converting the ratings over time, which
reduces the intensity of stress but also can reduce the
reliability of internal rating information during the
longer transition. In one version of the slower transition, which is especially common when a large bank
acquires a much smaller bank, all of the acquired
bank's performing loans are assigned to the riskiest
nonwatch Pass grade. Each loan is then reassigned as
appropriate at the time of its next review. Although
such a practice may be viewed as conservative, it
masks the true risk posture of the bank during the

910

Federal Reserve Bulletin • November 1998

Risk Rating Processes
Assignment of ratings

Use of ratings
Portfolio monitoring

Factors
considered
in rating
Financial analysis

Loan loss reserve analysis

Industry analysis
Quality of
financial data
External ratings
Analytical
tools/models
Film size/value
Management
Tenns of
facilily/LIED

•

Ratings criteria
Written/formal
elements
Subjective/
informal
elements
(cultural)
Rater's own
experience
and
judgment

Preliminary
rating
proposed
for loan
approval
process

Quantitative
Inss
characteristics

Loan/business line pricing
and profitability analysis
Internal capita) allocation
and return on capital
analysis
Assessing attractiveness
of customer relationship

Relationship
manager
and/or
credit staff

•

General
credit
quality
characteristics

Evaluation of rater
effectiveness
Administrative and monitoring requirements
Frequency of loan review

Other
considerations

Line/credit review'

Watch processes

Ongoing review by initial
rater

Quarterly process focused
on loans that exhibit
current or prospective
problems only

Review of adequacy of
underwriting and
monitoring from
random sample

Aimed at identifying
best path to improve
or exit credit at lowest
cost

Sample weighted toward
higher-risk loans

Periodic review of each
customer relationship
Aimed at reviewing
profitability/
desirability as well as
condition

Conducted by same
authorities to improve
loans, although others
may participate as well
(e.g., workout group)

Generally conducted by
same authorities that
approve loans

Loan review

Loan review judgment is
"final say"
Negative consequences
for initial rater if consistent disagreements

Review processes

transition period. Regardless of the speed of transition, loan review units are under substantial pressure
during and immediately after the transition.
Expense control has also been a focus of the banking industry in recent years. The emphasis on economy naturally puts pressure on the resources devoted
to operating and maintaining the rating system, and
especially to reviews. Although reviews can be curtailed or eliminated in the short run without apparent
damage to rating system integrity, inadequate review
activity may lead to biased and inconsistent ratings
over the longer term. Another possible expensereduction strategy is to rely more heavily on statistical models in assigning ratings, reducing the degree
of judgment and, thus, the amount of labor required
to produce each rating. The long-run success of such



a strategy depends on the adequacy of the models,
including their ability to incorporate subjective factors and their robustness over the business cycle. Our
impression is that, at present, such adequacy is
uncertain.

Summary Observations on Operaluvj, Design
The rating process has many interlinked elements,
as illustrated in diagram 1. At almost all large banks,
internal rating systems rely importantly on the judgment of staff operating with relatively little written
guidance. The operational definition of each grade
is largely an element of credit culture that is determined and communicated by informal means.

Credit Risk Rating at Large U.S. Banks

Review activities, especially those conducted by loan
review units, are crucial for maintaining the culture
in that the feedback they give is critical to common
understanding and discipline. The credit culture can
be disturbed or unbalanced by changes in the incentives faced by the staff; such changes typically arise
whenever the rating system is required to support
additional functions or uses. The systems of banks at
which all ratings are assigned by credit staff are
relatively immune to such shocks, but the important
role of middle-market loans in most banks' portfolios
often makes rating assignment by relationship managers cost-effective. In the latter case, the rating
system's resilience to shocks depends to a considerable extent on the loan review unit's ability to detect
and correct problems in a timely manner. Strong
support of loan review by senior management and
boards of directors appears to be quite important.
Points of external comparison, such as agency
ratings or results of statistical models of borrower
default probability, can be helpful in maintaining the
integrity of internal ratings. A few banks are moving
toward models as the primary basis for internal
ratings. Such an operating design largely removes the
problems of culture maintenance and conflicting
incentives that make management of judgmental
rating systems challenging. However, the ability of
models to produce sufficiently accurate ratings for
the broad range of assets on the typical large bank's
balance sheet remains in question.

) \77

\n\

R \ii\c

Credit risk ratings have played an important role in
capital markets for most of the twentieth century.
Ratings of publicly issued bonds were first produced
during the early 1900s by predecessors of the current
rating agencies Moody's and Standard & Poor's. In
the decades after 1920, other agencies, both domestic
and foreign, were formed and commenced publication of ratings. Today a variety of instruments are
rated, such as commercial paper, bank certificates of
deposit, commercial loans, and hybrid instruments.
Agency and bank rating systems differ substantially, mainly because rating agencies themselves
make no investments and thus are not a party to
transactions between borrowers and lenders. Their
revenue comes from the sale of publications and from
fees paid by issuers of debt. Such fees can be substantial: S&P's fee for rating a public corporate debt issue
ranges from $25,000 to more than $125,000, with the
usual fee being 0.0325 percent of the face amount
of the issue. Fees are a reflection of the substantial



911

resources the agencies typically devote to producing
each rating, especially the initial rating.
At banks, the costs of producing ratings must be
covered by revenues on credit products. Thus,
although a bank might expend resources at a rate
similar to that of the rating agencies when underwriting and rating very large loans, the expenditure of so
much labor for middle-market loans would make the
business unprofitable.
Agency ratings are used by a large number and
variety of parties for many different purposes. To
ensure wide usage (and thus their ability to collect
fees), the agencies strive to be deliberate, accurate,
and evenhanded. They also produce relatively fine
distinctions of risk on rating scales having architectures and meanings that are stable over time. Accuracy and evenhandedness are crucial to the rating
agency business—for example, an agency suspected
of producing the most favorable ratings for those that
pay the highest fees would soon be out of business:
Investors would cease paying attention to its ratings,
and issuers would thus have no incentive to pay.
Similarly, changing the rating scale can confuse
the public and at least temporarily degrade the value
of an agency's product. The agencies also have incentives to be relatively open about their process and to
produce written explanations of each rating assignment or change. Clarity helps investors use the ratings and helps assure issuers that the process is as
objective as possible.
At banks, ratings are kept private, and the costs
and benefits of rating systems are internal; hence,
pressures for accuracy, consistency, and fine distinctions of risk are mainly a function of the ways in
which ratings are used in managing the portfolio.
Moreover, the rating system can be tailored to fit the
requirements of the bank's primary lines of business
and can be restructured whenever the internal benefits of doing so exceed the costs.
Agencies and banks both consider similar risk factors, and both rely heavily on judgment and cultural
elements rather than on detailed and mechanical guidance and procedures. However, the agencies publish
supplementary descriptions of rating criteria that are
much more detailed than banks' internal guidance,
partly because agency ratings must be understood by
outsiders. In addition, the agencies track the financial
characteristics of borrowers receiving their ratings
and publish both default histories for each grade and
financial profiles of the "typical" borrower in each
grade, thus providing additional referents to outsiders
seeking to understand the meaning of their ratings.
Agencies have nothing comparable to a bank's
loan review unit. The rating culture at agencies is

912

Federal Reserve Bulletin

November 1998

maintained instead by a combination of market discipline and a committee system. Market discipline
arises because the agencies stand between investors
and issuers, with the former typically preferring conservative ratings and the latter preferring optimism.
Thus, the agencies quickly hear from investors or
issuers about any perceived tendency toward excessive optimism or pessimism. Although a single
agency analyst is primarily responsible for proposing
a rating, committees make the final determinations.
The membership of a committee changes from one
rating action to the next so that agency staff members participate in many rating decisions and a cultural understanding of the meaning of each grade is
maintained.

l r \ \ , \ ••' A l l ! \I,"!

••' T O M l \ W !•:/: !.' >>\

Consistent and accurate rating assignments and reliable quantitative estimates of the risk associated with
each internal grade are useful in a bank's efforts to
analyze risk posture, establish its appetite for risk,
and evaluate the effectiveness of its risk rating criteria. At most banks, however, the primary demands
for quantitative information about PD, LIED, and EL
have come from those involved in the loan loss
reserve process and from credit modeling groups
(those building and implementing quantitative models of portfolio risk, capital allocation, profitability,
and pricing). Internal ratings are key inputs into such
processes. Empirical analysis of loss characteristics
by grade appears to be an area where industry practice is developing rapidly.

I'ro'niaiis in i.wiliiauii'j, liu: Accitrwy and
i.onsiswncv oj Hillings
If internal ratings are to be accurate and consistent in
terms of the system's loss concepts (that is, PD,
LIED, or EL), different assets posing a similar level
of risk should receive the same grade. Such quantities
are not observable ex ante, however, and thus rating
systems rely on criteria that are thought to predict
loss. Accuracy and consistency require that rating
criteria be adjusted as necessary to ensure that exposures posing similar risk are grouped together (diagram 2 illustrates what is involved in the adjustment
process).
As a practical matter, alignment of the ex ante
rating criteria to achieve accuracy and consistency in
the economic meaning of each rating—that is, quan


titative loss characteristics—is a difficult task. Two
problems arise: How to ensure that criteria are calibrated so that different assets of the same general
type in the same grade have the same loss characteristics, and how to address diversity among asset
types. Within a narrowly defined asset class, such as
loans to large commercial firms in the same industry,
comparisons across firms are relatively manageable,
so the main problem is denning the boundaries of
rating categories and inferring the default or loss
rates for each category. That by itself is not easy, but
the problem becomes much more difficult when very
different types of assets must be compared. For example, how would a loan to a well-established commercial real estate developer, featuring a 70 percent
loan-to-value ratio, compare with a term loan to a
firm in a relatively stable manufacturing industry
with a current debt to equity ratio of 1:1 and an
interest coverage ratio of 3?
Because the rating criteria differ so greatly for
different asset classes, some information about the
relationship of borrower and asset characteristics to
historical loss experience would appear to be necessary. Especially with loss experience data covering
a fairly long period of time, say a couple of credit
cycles, it would be possible to make at least rough
inferences about relative risks across asset classes.
Unfortunately, to the best of our knowledge, few if
any banks have available the necessary data, especially for a variety of asset classes. At a minimum,
information on the performance of individual loans
and their rating histories is required. Because rating
criteria have changed over time at most large institutions, information about borrower and loan characteristics is also required, so that the risk implications of
different rating criteria can be assessed.
Historically, banks have retained performance data
by loan type (for example, data provided on Call
Reports) or by line of business in the aggregate, but
not by risk grade. Because of mergers, even at banks
that have tracked performance by grade, data may not
cover the whole of the current institution but rather
only one predecessor institution. Mergers often cause
upheaval not only in rating processes but also in data
systems and, in particular, contribute to the loss or
obsolescence of historical data.
Although data collection is costly, many large
banks have recognized its importance and have begun
projects to build databases of loan characteristics and
loss experience. However, the costs of extracting
from archival files historical data on the performance
of individual loans appear to be prohibitively high.
Thus, those banks that are collecting data indicated
that they are several years away from having data

Credit Risk Rating at Large U.S. Banks

913

Dktianim 2

l\ining the Rating Criteria
Criteria chosen
to obtain desired
characteristics

Factors, definitions,
and weighting

Quantitative loss
characteristics

Written/formal
elements
Subjective/informal
elements
Rater's experience
and judgment
Asset type

When available,
loss experience analyzed
to evaluate rating
effectiveness

"^L
^^w

Promote accuracy
and consistpncv

jf
.^^

Probability of
default (PD)
Loss in event of
default (LIED)
Expected loss (EL)
Distribution of loss
experience

Controls and validation processes
Incentives and training
Documentation and approval requirements
Validation processes, especially loan review

sufficient to support empirical analyses of their own
portfolios that are comparable to the studies being
done for publicly issued bonds.29
In the absence of data, our impression is that the
traditional means of tuning both rating criteria and
underwriting standards relies heavily on the judgment and experience of the senior credit staff with
long tenure at their institution. Over a period encompassing multiple credit cycles, these staff members
accumulate an individual and collective memory of

29. The situation is somewhat better with respect to loss in the
event of default (LIED) in that historical studies require information
only on the bad assets. Often their number is small enough that
gathering data from paper files is feasible, and thus many banks are
beginning lo accumulate LIED information from their own portfolio
experience. A few publicly available studies have also appeared.
Estimating PD and EL requires much more data in that information on
both performing and nonperforming assets are required. Studies with
LIED statistics include Lea V. Carty and Dana Lieberman. Special
Report: Defaulted Bank Loan Recoveries (Moody's Investors Service,
19%); Elliot Asarnow and David Edwards, "Measuring Loss on
Defaulted Bank Loans: A 24-Year Study," Journal of Commercial
Lending, vol. 77 (March 1995), pp. I 1-23; and Society of Actuaries,
1986-92 Credit Risk Loss Experience Study: Private Placement Bonds
(Society of Actuaries. S c h a u m b e r g . III., 1996).



the credit problems experienced by the institution and
of the implications for risk of various borrower and
loan characteristics. Such experience is likely sufficient to support meaningful tuning of rating systems
that have small numbers of Pass grades (each covering a broad band of risk) and that are used to rate
traditional banking assets. The precision with which
systems involving a large number of Pass grades can
be tuned by experience alone is not clear.

Mapping to Agcncv Grades as a Partial
Solution
Because little information is available internally,
many banks have estimated the quantitative loss characteristics of their ratings by using the extensive data
available on the loss performance of publicly issued
bonds. As noted, rating agencies and others frequently publish studies covering many years of bond
default and loss experience by grade, and publicly
available databases of bond issuer characteristics
make it possible to relate loss experience to potential

914

Federal Reserve Bulletin D November 1998

Mappings and the Problem of Different Architectures
Both banks and rating agencies assign ratings based on
criteria that are predictive of a borrower's probability of
default (PD) or a loan's expected loss (EL). However,
because no mechanical formula exists that converts criteria
into values of PD or EL for each grade, such values must be
obtained from historical loss experience. As noted, banks
rarely have databases of such experience, but the major
rating agencies do. A mapping of internal grades to agency
grades permits a bank to use statistics from the agencies'
bond default studies to assign values of PD to each of its
internal grades.
For simplicity, we focus here only on PD. Four problems
can cause a mapping to lead to a materially inaccurate
estimate of PD for internal grades:
(1) A bank's rating system may place loans with widely
varying levels of PD into the same grade and similar levels
of PD into different grades. In this case, grades bear little
relation to PD values and thus mapping will not provide
good estimates of PD.
(2) Default rates on publicly issued bonds may differ
systematically from loan default rates.
(3) The mapping exercise may simply associate the
wrong agency grades with internal grades.
(4) The implications of differences between banks'
point-in-time and agencies' through-the-cycle rating philosophies may not be taken into account.
Even when the first three problems do not apply, the
fourth, which is a characteristic of the most common mapping approach, can produce materially biased estimates of
PD for internal grades. Such bias can confuse attempts to
tune rating criteria and can seriously distort internal analysis of business line profitability, loan loss reserves, and
capital allocation.
Bias arises in the most common approach to mapping
because bank internal ratings change as the borrower's
condition changes, whereas the PD associated with each
internal grade is stable. In contrast, agency ratings tend to
stay the same, while default probabilities for each rating
vary with the economic cycle. Thus, mapping exercises
should take into account the current point of the economic
cycle and should draw default rates from the agencies'
historical studies for similar points in prior cycles.
The fourth problem is illustrated here with an example:
Suppose that a hypothetical large bank, BigBank, has an

rating criteria. Indeed, S&P occasionally publishes
tables of indicative or average financial ratio values
by grade (while noting that many other factors enter
into its rating decisions).
To use data on bond loss experience, a bank must
develop or assume some correspondence between
agency ratings and its own internal grades. Inter


I.

BigBank's Pass rating scale
Grade

True PD for rating system,
but precise values not
known to bank
(percent)

1—Virtually no risk
2—Low risk
3—Moderate risk
4—Average risk
5—Acceptable risk
6—Borderline risk

0
.10
.25
1.00
2.00
5.00

internal rating system with six Pass grades, and suppose it
has two hypothetical borrowers, OK Corp. and Less-OK
Corp. To focus on the point-in-time vs. through-the-cycle
issue, suppose we know that BigBank's rating criteria and
rating system will always group borrowers with similar
values of PD into the same grade, that the "true" PD for
each grade is as shown in table I, and that BigBank does
not know the values of PD associated with its grades.
Similarly, as shown in the top section of table II, the true
PD for OK Corp. is 1 percent in upturns and 2 percent in
downturns, whereas Less-OK Corp.'s true PD is 3 percent
during upturns and 6 percent in downturns. However,
because neither BigBank nor the rating agencies know
these true PD values, they rate on the basis of observable
borrower characteristics.
Having no data on its historical loss experience, BigBank maps its internal grades to agency grades simply by
identifying the agency ratings assigned to those borrowers
with such ratings in each internal grade. BigBank then uses
the corresponding long-term historical average one-year
default rate identified in agency default studies as an
estimate of the expected one-year default rate for all loans
in each internal grade.
II.

Borrowers used for mapping, and their characteristics
Borrower
Characteristic
OK Corp.

PD in upturns
PD in downturns

1 percent
2 percent

Less-OK Corp.
3 percent
6 percent

BigBank rating in upturns
4-Average risk
BigBank rating in downturns . . . 5-Acccptable risk

5-Acceptablc risk
6-Borderline risk

Agency ratings (stable through
cycle)

B+orBl

BBorBa

views suggest that the basis of such mappings is
threefold: (1) The internal grades assigned to borrowers who have also issued publicly rated bonds;
(2) analysis of the "typical" financial characteristics
of bank borrowers in each internal grade vis-a-vis the
characteristics of the firms with bonds in each agency
grade; and (3) subjective analysis.

Credit Risk Rating at Large U.S. Banks

915

Mappings and the Problem of Different Architectures—Continued
Because it rates on a point-in-time basis, BigBank does
not allow the PD values for each grade to vary through the
economic cycle; loans whose one-year PDs increase in
cyclical downturns are downgraded to a riskier internal
grade. As shown in the middle section of table II, BigBank
assigns ratings that are appropriate for varying risk: It rates
OK Corp. a 4 in upturns and a 5 in downturns, and it rates
Less-OK Corp. one grade worse—a 5 in upturns and a 6 in
downturns. The rating agencies are similarly accurate in
their assessment of risk (bottom section of table II), but
because they rate through the cycle (that is. according to the
borrower's condition when under stress), they rate OK
Corp. as BB/Ba and Less-OK Corp. as B/B in both upturns
and downturns.
Suppose that BigBank conducts its mapping exercise
during an upturn. As shown in the top section of table III, it
will assume that its grade 5 is equivalent to the agencies'
B grades because Less-OK Corp. is in relatively good shape
during upturns and achieves a point-in-time internal rating
of 5 even though its through-the-cycle agency grade is B.
BigBank should infer the PD for grade 5 from the average
default frequency of B-rated public bonds only in upturns,
which is the good-year average of 4 percent (table III); but
if it follows common practice it will use the overall average
default frequency of B-rated bonds, which is 5.5 percent.
Next, suppose BigBank conducts its mapping exercise
during a downturn. As shown in the bottom section of table
III, it will assume that its grade 5 is equivalent to BB/Ba
because OK Corp. will be rated 5 (Less-OK Corp. is downgraded to 6 during downturns). BigBank should infer the
PD for grade 5 from the bad-year average PD of BB/Ba
rated bonds (2 percent), but instead it uses the overall
average of 1 percent.
III.

BigBank mapping and PD estimation exercise based
on borrower ratings

Period of
mapping

Internal
grade

Equivalent
agency
grade

Average one-year PD
for bonds
Overall

Good year

Bad year

Uplurn

4
5
6

BB/Ba
B/B

1.00
5.50

.75
4.00

2.00
6.50

Downturn . . .

4
5
6

BB/Ba
B/B

1.00
5.50

.75
4.00

2.00
6.50

In this example, BigBank's and the agencies' rating
systems both do an excellent job of assigning ratings that
are consistent with the borrower's true PD, but mapping
without regard to the difference between point-in-time vs.
through-the-cycle rating causes BigBank to badly misestimate the PD. Using the most common mapping practices, BigBank might estimate the PD of its grade 5 at
1 percent to 5.5 percent, whereas the true PD of grade 5 is
2 percent. If the mapping is done simplistically, as in this
example, and during an upturn, BigBank likely overestimates the PD, whereas during a downturn it likely underestimates the true value. If BigBank had used average default
frequencies from the agencies' studies that were appropriate to the point in the cycle at which the mapping was
done, it might still have obtained inaccurate estimates, but
they would have been closer to the truth. BigBank might
still have been somewhat uncertain about whether to consider category 5 as equivalent to BB/Ba or B, but any
such equivalence can never be exact because BigBank's
scale and the agency scales have different conceptual
foundations.
We consider the numbers in the example to be fairly
realistic and thus the mis-mapping problem at most banks
to be potentially serious. The problem of mis-estimated
PDs is much more important at the higher-risk end of
rating scales. Precision is especially important at that end
because differences in reserve and capital allocations can
be large, whereas dollar differences in allocations across
different classes of low-risk assets are typically small. In
addition, default studies and other analyses tend to show
that variations in one-year default rates on investmentgrade assets tend to be driven by idiosyncratic factors
rather than the credit cycle.
Mapping processes are further complicated if, over time,
a borrower's agency rating is allowed to be the dominant
criterion in assigning an internal grade. In general, such a
practice would tend to reduce the likelihood that a loan
would be appropriately downgraded during a recession—
the borrower's agency rating would not change unless its
performance or prospects deteriorated more than anticipated in the agency's through-the-cycle risk analysis. This
procedure could effectively turn BigBank's ratings into
through-the-cycle rather than point-in-time, putting loss
estimates potentially out of line with management analyses
that assume point-in-time grading.

. . . Not applicable.

When mapping is done by comparing the internally assigned grades of publicly rated borrowers
with ratings assigned by agencies, the danger of
circularity arises. In most cases, agency grades are
a rating criterion, and even when agency grades are
not written into rating definitions, assigners of inter


nal ratings always know the agency grade for a given
borrower and have an idea of the borrower's likely
position on the internal scale. Obviously, if the
agency rating is the sole criterion used in assigning
internal grades to agency-rated borrowers, rated and
unrated borrowers within a given internal grade might

916

Federal Reserve Bulletin J November 1998

differ substantially in risk. In such circumstances the
mapping is circular because borrowers are assigned
to internal grades based on the agency rating, and the
agency rating corresponding to each internal grade
is inferred only from such rating assignments. The
banks we interviewed maintain that agency ratings
are used only as a starting point in their rating processes, not as the sole criterion.30

and the Problems Caused by
Inconsistent Architectures
Because major agencies rate borrowers with the
expectation that the rating will be stable through
normal economic and industry cycles, only those
borrowers that perform much worse than expected
during a cyclical downturn will be downgraded (will
"migrate" to riskier grades). In contrast, rating systems that focus on the borrower's current condition
(virtually all bank systems) are likely to feature much
more migration as cycles progress but, in principle,
should exhibit somewhat less cyclical variation in
default rates for each individual grade.
Though apparently subtle, this difference in architectures has important implications for mapping exercises and the inference of PD values for internal
grades. Both the point in the economic cycle at which
the mapping exercise is done and the exact nature of
the PD statistics drawn from the agencies' studies of
long-term default history can have a dramatic effect
on the mapping (see box "Mappings and the Problem
of Different Architectures"). Values of PD attributed
to internal grades can differ by several percentage
points depending on how the mapping is done. PDs
are most likely to be badly estimated for the higherrisk Pass grades, but precision is also especially
important for such grades in that allocated reserves
and capital are most sensitive to assumptions about
riskier assets.
Obtaining reasonably accurate mappings is mainly
a matter of paying attention to the stage of the cycle
at which the mapping is being done and of using
historical average PD values from either goodexperience or bad-experience years as appropriate.
However, interviews left us with the impression that
few banks carefully consider cyclical issues when
mapping their internal grades to agency grades.

30. Fven when circularity is avoided, heavy use of bond experience data in defining criteria for each grade might lead to exclusion of
criteria needed to capture the risk of unrated borrowers, such as
middle-market firms.



AN A<K;RL(,ME BANK RISK Pum IU:
Mapping between internal and agency grades facilitates a bank-'s quantitative loss analysis and the integration of publicly available information into rating
decisions. Such mappings also make possible an estimate of the risk profile of the internally rated portion
of bank loan portfolios on a standardized scale. Information about the risk profile of bank credit helps put
many rating system issues in perspective.
As part of the analysis leading to this article, we
reviewed internal reports showing distributions of
rated assets across internal grades for the fifty largest
consolidated domestic bank holding companies. In
addition, we obtained mappings of internal grades to
agency equivalents from twenty-six of them. The
mappings allow us to allocate internally rated balances to grades on a rating agency scale. To our
knowledge, this is the first time that such a characterization of the overall risk profile of a large portion of
the banking industry's commercial loan portfolio has
been possible.
The twenty-six banks accounted for more than
75 percent of aggregate banking industry assets at
year-end 1997. Rated loans outstanding at individual
large banks usually represent 50 percent to 60 percent
of their total loans.31
In general, we cannot judge whether the mappings
provided by banks are correct. Inaccuracy can arise
from errors or inconsistency in assigning the internal
ratings themselves, problems of cyclically or circularity in the mapping process, inconsistencies
between large corporate and middle market lines of
business, or other difficulties. In addition, mappings
at some institutions are more precise in form than at
other institutions in that they distinguish among
modified agency grades, such as BB and BB+. Still,
such mappings are an element of banks' day-to-day
operating procedures and analysis, which suggests
that the twenty-six banks have endeavored to make
them as accurate as possible within the constraints of
their rating systems. It thus appears that aggregation
and comparison of these mapped balances represents
a reasonable—albeit crude and broad—first approximation of the actual risks in banks' portfolios.
Chart 3 displays the aggregate weighted-average
distribution of internally rated outstanding loans at
year-end 1997 for the twenty-six consolidated bank
holding companies. About half of aggregate rated
loans pose below-investment-grade risks (were rated
the equivalent of BB+/Bal or riskier), and about
65 percent of outstandings were concentrated around
31. Total loans includes consumer loans, which are rarely raled.

Credit Risk Rating at Large U.S. Banks

3.

Percentage of aggregate internally rated outstanding*
placed in each agency rating category at banks
mapping to agency scale, year-end 1997

4.

917

Percentage of aggregate internally rated outslandings
below investment grade at banks mapping to agency
scale, by bank group, year-end 1997

Ptrccni

—

AAAAaa AAM

A

BBB/Bu BB/Bi

B

Gs

Agencyratingcategory
NOTE. The banks are Iwenly-six of Ihe fifly largest.

the boundary between investment and belowinvestment grades (rated BBB or BB).
Banks' loan loss experience during 1997 is consistent with the credit quality distribution shown in
chart 3. Using the 1997 default frequencies for each
grade drawn from S&P's latest annual study and an
assumption that the average LIED for loans is about
30 percent, an aggregate portfolio with the quality
distribution for the twenty-six banks would be
expected to have an annual credit loss rate of roughly
0.20 percent. Although this rate is roughly equal to
the actual loan loss experience of the banking industry's aggregate commercial loan portfolio during
1997 (0.21 percent), this simple exercise should
not be taken as proof that the distribution in chart 3
is representative; nonetheless, the results are
supportive.32
Chart 4 displays the percentages of internally rated
assets that are below investment grade as of yearend 1997 for twenty-six banks in three peer groupings: major loan syndication agents; smaller banks
(less than $25 billion in total assets at year-end
1997); and the remainder of the twenty-six, labeled
"regionals" (many other peer groupings are possible,
of course). The three peer groups display systematic
differences in risk posture. On average, the major
agents have 45 percent of rated assets in categories
corresponding to BB and riskier, compared with

32. Actual loss experience is measured as the average annualized
net charge-off rate for bank loans in the commercial and industrial,
commercial mortgage, and agricultural loan categories as reported
on the quarterly Report of Condition—or Call Report—filed by all
banks.



Major agents

Regional*

75

Smaller banks'

NOTI.. The banks are twenty-six of the h'l'iy largest.
1. Less than $25 billion in total assets. Regionals are those thai are not major
syndication agents or smaller banks.

about 60 percent for regionals and 75 percent for
smaller banks.33
USES OF INTERNAL RISK GRADES
Banks use internal ratings in two broad categories of
activity: analysis and reporting, and administration.
Analytic uses include reporting of risk postures to
senior management and the board of directors; loan
loss reserving; and economic capital allocation, profitability measurement, product pricing, and (indirectly) employee compensation. Administrative uses
include loan monitoring, regulatory compliance, and
credit culture maintenance. In addition, external entities such as investors or regulators may become more
significant users of internal ratings information. Different uses place different stresses on the rating system and may have different implications for the internal controls needed to maintain the system's integrity
(diagram 1 shows such uses).

Portfolio Reporting
Virtually all large banks report total asset balances
in each of the regulatory problem-asset grades to
33. That the fraction of loans posing below-investment-grade risks
is much larger at some institutions than at others does not imply a
priori that such institutions are operating in an unsafe or unsound
fashion. In general, provided a bank is aware of its risk posture, has
adequate processes to manage risk, is pricing loans to reflect the risk,
and has reserves and capital that are adequate to the risks, a portfolio
with a large fraction of below-investment-grade exposures can be
safe, sound, and profitable.

918

Federal Reserve Bulletin Zl November 1998

senior management and the board of directors. About
80 percent also internally report balances in each of
their Pass grades. In the latter case, such reports
appear to be used either by management or the credit
staff as a means of detecting changes in portfolio mix
and are only infrequently shown to boards of directors.34 Balances in the regulatory grades give a sense
of the share of bank assets that are troubled, whereas
a profile of balances in Pass grades can provide a
forward-looking sense of trends in the bank's risk
posture so long as Pass grade assignments meaningfully distinguish risks; internal reports are much less
informative when a large share of rated assets falls
into only one or two Pass grades.

Although many accounting and regulatory policies
influence the setting of loan loss reserves and provisions, balances in the regulatory grades are integral
to reserve analysis at all banks. Supervisors require
a specific reserve of at least 50 percent of Doubtful
loans plus 20 percent of Substandard loans; banks set
the amount of additional reserves for OAEM and
Pass loans according to their judgment, subject to
evaluation by examiners.35 Many banks develop reserve factors specific to each Pass category. According to accounting and regulatory standards, loan loss
reserves are to cover losses already "embedded in the
portfolio," and the generally accepted interpretation
is that reserves for Pass loans should cover expected
losses over a period of one year. Thus, if an institution can identify a reasonable estimate of expected
loss for each Pass grade, a reserve analysis sensitive
to balances in the different Pass grades provides a
good estimate of embedded losses.
A significant number of the banks we interviewed
do not differentiate among the Pass grades in performing reserve analysis. In such cases, a single
expected-loss (EL) weight is applied to balances in
all Pass grades. Such a simplification is least costly in
terms of accuracy of the reserve analysis when loan

34. At some banks, portfolio composition is reported as a weightedaverage risk grade. Such averages weighl ihe balances by the grade's
numeric designator. For example, assets in grade 4 are treated as being
twice as risky as assets in grade 2. This can produce misleading
averages because risk—whether PD or EL—tends to increase more
than linearly with grade (table 2). At those banks we interviewed that
used this measure, the staff seemed to understand that it does not
reflect portfolio risk—it can indicate only whether the mix has
changed.
35. Federal Financial Institutions Examination Council. Interagency Policy Statement on the Allowance for Loan and Lease Losses
(December 1993).



balances are concentrated in a single category or
when the composition of the Pass portfolio by risk
grade is very stable.

iiniihili!\

, \n<ih;ii\,

I ( (••!!t[~>t'l!\ll[!<

,iclinc\.

Hi

All banks we interviewed conduct internal profitability analyses (of different business lines, for example).
Some banks do not use internal ratings at all in such
analyses, whereas others include a rating-sensitive
expected-loss cost but no rating-sensitive capital cost.
The most sophisticated analyses involve both
expected-loss costs and costs of allocated capital that
vary by internal rating. The higher such costs, the
lower the measured profitability of a business unit or
individual transaction. The use of rating-sensitive
profitability analysis thus has significant implications for the design and operation of internal rating
systems.
To implement rating-sensitive profitability analysis, the bank must estimate expected losses for assets
in each grade as well as the amount of economic
capital to allocate (if it allocates capital). Economic
capital for the bank as a whole is that needed to
maintain the bank's solvency in the face of unexpectedly large losses. The process of estimating the additional economic capital needed as a result of booking
any given loan is complex, but as a practical matter,
the loan's internal rating is a primary (if not the sole)
day-to-day determinant of the capital allocations
imposed by risk-sensitive profitability models.36
The measured profitability of business units is
an important factor in management decisions about
which units should grow or shrink. When risksensitive profitability is appraised at the level of the
individual loan or relationship, unprofitable loans are
not made and unprofitable relationships are eventually dropped. At a growing number of banks,
employee compensation is formally tied to profitability measured by such systems.
36. Mechanically, one can think of economic capital for the credit
risk of a whole portfolio as that amount necessary to cover (for
example) 99.9 percent of the possible portfolio loss rates. Capital
required to support a given loan can be viewed as that increment to
total bank capital that will keep the bank insolvency probability
constant if the given loan is added to the portfolio. Conceptually, total
capital can be split into expected and unexpected loss portions. In an
accounting sense, the loan loss reserve might be viewed as covering
the expected loss and equity as covering the unexpected loss. For
more details, see ''Credit Risk Models and Major U.S. Banking
Institutions: Current State of the Art and Implications for Assessments
ol Capital Adequacy," Federal Reserve System Task Force on Internal
Credit Risk Models (Board of Governors of the Federal Reserve
System, May 1998).

Credit Risk Rating at Large U.S. Banks

919

Interviews indicated clearly that the introduction
of risk-sensitive profitability analysis puts significant new pressures on the risk grading system. Pressure to rate loans favorably arises because expected
losses and capital allocations are lower for lowerrisk loans. Some institutions found that many loans
were upgraded shortly after the introduction of
profitability analysis, although the overall degree
of the shift was small. One institution specifically
mentioned an upward bias of about one-half
grade relative to previous rating practice. Many
noted that the number of disagreements in which
relationship managers pressed for more favorable
ratings increased once such systems were put into
place.

Risk-sensitive profitability analysis also increases
the demand for internal data on loss experience and
for mappings to external referents because the analysis demands relatively precise quantification of the
risk characteristics of each grade. However, such
analysis can also make existing data and mappings
less useful, at least in the short run, because rating
pressures or changes in architecture may, to some
extent, change the effective meaning of grades.

In addition to pressure for more favorable ratings,
rating-sensitive profitability analysis also creates
pressure to increase the number of rating categories.
This pressure, which comes both from the business
line staff and the profitability analysis unit itself,
arises because some of the loans in any given grade
are less risky than other loans in that grade and thus
should bear smaller credit costs. Creation of more
grades allows for better recognition of such risk
differences. Institutions reported that the pressure to
increase the number of grades has become more
pronounced in recent years as competitive forces
have compressed loan spreads; in this setting, reducing expected loss factors by a few basis points, or
slightly reducing the amount of capital allocated to
the loan, may be the difference between a transaction
that meets internal profitability "hurdles" and one
that does not.

As noted, many banks include an internal watch
grade on their scales in addition to the regulatory
problem-asset grades (formally, the watch grade
would be counted among the Pass grades). Reassignment of a loan to watch or regulatory grades typically
triggers a process of quarterly (or even monthly)
reporting and formal reviews of the loan. At institutions where the main use of ratings is for monitoring
and regulatory reporting, RMs' incentives are often
the opposite of those introduced by rating-sensitive
profitability analysis: Their main interest is to avoid
getting caught assigning ratings that are not risky
enough. Getting caught can have negative career
implications, and thus RMs have an incentive to
assign credits to the riskiest Pass grade that is not
watch. For example, some banks are especially likely
to penalize RMs when a loan review reassigns a Pass
credit from one of the less risky grades into a regulatory grade. Penalties can be forthcoming even when a
loan is reassigned from a less risky Pass grade into
watch, but are likely to be less severe. Thus, in the
absence of carefully designed controls, the presence
of administrative grades in a rating system can reduce
the accuracy of non-administrative Pass grade assignments. This sort of bias is less likely at the largest
banks because the countervailing incentives of ratingsensitive profitability analysis are most likely to operate there.

These stresses place increased pressure on the loan
review unit to maintain discipline and enforce consistency, stability, and accuracy. Controlling rating
biases is always a challenge. As the number of grades
on the scale increases and the distinctions of risk
become finer, disagreements about ratings naturally
arise more frequently, and the control of biases
becomes even more difficult. The difficulty seems
likely to be greatest just after the number of grades is
increased because the loan review staff must enforce
(and if necessary, develop) new cultural definitions
for the grades. The latter task is somewhat easier at
banks that use external referents in assigning or
reviewing ratings, such as default probability models
and agency ratings of borrowers; such referents give
loan reviewers objective benchmarks to use in identifying problems and communicating with staff. Redesigns of the rating scale that split existing grades
into smaller compartments are also easier to implement because the existing cultural definitions can be
refined rather than replaced.



However, incentives associated with ratingsensitive profitability analysis can reduce the effectiveness of administrative management of problem
loans. The staff may delay assigning credits to watch
or regulatory grades because of the negative implications for measured profitability. Thus, there is a certain tension in the simultaneous use of rating systems
for administrative purposes and for profitability
analysis. Such tension can be overcome with proper
oversight, the implementation of which represents
another burden on loan review functions.

920

Federal Reserve Bulletin : November 1998

Pniciih'ii! I. sc.s of Internal Rulings hy L.xicriuii
Lntincs
Internal ratings are a potential source of information
for bank investors and regulators. For example, disclosure of the profile of a bank's loans across its,
internal rating categories might enhance the ability of
shareholders and analysts to assess bank risk.
Moreover, investors in securitizations of traditional
commercial loans might benefit from information
about the credit quality of the underlying assets.
Some banks are reportedly considering using internal
rating information in structuring such securitizations.
For example, when loans in the securitized pool
are paid off, the new loans replacing them may be
required to be drawn from a particular internal grade.
Obviously, to evaluate the attractiveness of the pool,
investors (or rating agencies) must be able to understand the loss characteristics of each internal grade
and must have confidence that such characteristics
will remain stable over time. Thus, external validation of rating systems becomes necessary if internal
ratings are to be used in securitizations. Such validation would appear to be quite difficult because each
bank's rating scale is different, and the meaning of
ratings is largely embedded in culture rather than in
writing. Moreover, most banks do not have sufficient
historical data on loss experience by internal grade to
support objective measurements.
Internal ratings might also be used in bank supervision and regulation. As a banking supervisor, the
Federal Reserve has long emphasized the importance of strong risk management practices at banks
and has slated its desire to orient its activities more
toward testing of risk management and control processes and somewhat away from testing of individual
transactions. This preference allows for less intrusion into the operation of the bank and minimizes
the restrictive effect of supervision on banking
innovation.
Information on a bank's risk profile by internal
grade and shifts in that profile over time could
become a useful supervisory tool. Supervisors could
use internal profile information as one consideration
in evaluating the asset quality and credit risk management of large banks, probably on balance reducing
the overall burden of supervision. For those institutions that map their internal ratings to external reference points, such as the S&P scale, supervisors could
use the mapping to put large institutions roughly on a
common scale (in a fashion similar to that shown in
chart 3). While bearing in mind that this technique is
very crude, analysis of risk profiles and of trends in
profiles could provide valuable insights into credit



conditions and standards in the industry as well as at
individual institutions. Continuing work by individual institutions to better understand the loss characteristics of loans in their own risk grades will be
important to refining and interpreting such comparisons over time.
Internal risk grades could also become an explicit
element in the evaluation of capital adequacy. The
current risk-based capital regime (based on the 1988
Basle Accord) provides for lower capital weights on
certain low-risk assets (for example, those that are
government-issued or guaranteed) but applies the
same capital requirement (that is, 8 percent) to essentially all loans to private borrowers regardless of the
underlying risk. Internal risk grades might become
one consideration in scaling capital requirements on
business loans more closely to the loss characteristics
of a bank's loan portfolio.
Greater supervisory reliance on internal credit risk
ratings would require that supervisors be confident of
the rigor and integrity of internal rating systems.
Heretofore, examiners have sought to validate assignments to internal grades only as they relate to the
regulatory problem-asset grades. If supervisors are to
rely more heavily on Pass grade information, some
degree of validation and testing would have to be
extended to those grades as well.
External use of internal ratings would introduce
new stresses on internal rating systems. In some
respects, the stresses would parallel those associated
with rating-sensitive profitability analysis. That is,
incentives would arise to grade optimistically and to
alter the rating system to produce more fine-grained
distinctions of risk. However, new incentive conflicts
would arise between outsiders on the one side and the
bank as a whole on the other. Such new conflicts
could overwhelm the checks and balances currently
provided by internal review functions. Even in the
absence of such incentive conflicts, external users
might demand a greater degree of accuracy or consistency in rating assignments than that required internally. For both reasons, external reviews and validation of the rating system might be necessary. In
addition, banks and external parties should both be
aware that the additional stress imposed by external
uses, if not properly controlled, could impair the
effectiveness of internal rating systems as a tool for
managing the bank's credit risk.37
37. In the early 1990s, ihe National Association of Insurance
Commissioners (NAIC) introduced a system of risk-based capital
requirements for insurance companies in which requirements vary
wiih the ratings of assets. Although such ratings are assigned by the
NAIC's Securities Valuation Office (SVO), the SVO does take into
account any ratings of assets published by major rating agencies. In

Credit Risk Rating at Large U.S. Banks

\is
A bank's decisions about its internal rating system
can have a material effect on its ability to manage
credit risk. But development of internal rating system
architectures and operating designs that are appropriate to the uses made of the ratings is an especially
complex task. The central role of human judgment in
the rating process and the variety of possible uses for
ratings mean that internal incentives can influence
rating decisions. Thus, careful design of controls and
internal review procedures is a crucial consideration
in aligning form with function.
No single internal rating system is best for all
banks. Banks' systems vary widely largely because
of differences in business mix and in the uses to
which ratings are put. Among variations in business
mix, the share of large-corporate loans in a bank's
portfolio has the largest implications for its internal
rating system. Banks with a substantial large corporate market presence are Jikely to benefit from a
rating system that achieves fine distinctions among
relatively low-risk credits, while other banks may
find significantly less value in such distinctions. In
addition, an independent credit staff is often solely
responsible for rating large loans. Such an arrangement can greatly reduce potential incentive conflicts,
but may involve per-loan costs that arc too large to be
economic for smaller loans, which are often rated by
relationship managers. Smaller loans also pose less
risk to bank earnings and capital, and thus grading
errors and biases may be more tolerable.
Among the various uses of internal ratings, profitability analysis and product pricing models have the
most significant implications for the rating system.
At banks where such analysis is in place, ratings can
have a material effect on the measured profitability of
transactions and relationships and can directly or
indirectly influence the compensation of bank staff.
Thus, careful attention to review and control procedures that limit biases in ratings is important to
the accuracy and consistency of internal ratings.
Profitability analysis also introduces pressures for
rating systems with more risk grades. Relationship
managers may press for such systems because of a
desire to subdivide grades that cover broad ranges
of risk, thereby allowing different expected loss and
capital charges for exposures at different ends of the
ranges. The groups that develop and maintain the
the wake of this and other developments in the insurance industry, the
rating agencies experienced substantial pressure from both issuers and
investors (insurance companies) to assign favorable ratings to some
assets, a new and difficult development for the agencies in that issuers
and investors had traditionally applied opposing pressures.



921

profitability analysis systems may also press for finegrained distinctions in order to support better balancing of risk and return. However, internal rating systems with many grades may make review and control
of grading both more difficult and more expensive
because reasonable people are more likely to differ in
their subjective judgments when differences between
grades are small rather than large.
Our interviews indicate that certain practices can
improve the quality of any internal rating system and
are especially helpful to rating systems that support
analytical functions such as profitability analysis and
portfolio management. First, a bank with appropriate
data describing its historical loss experience by internal grade and by different risk factors is better able to
assess the predictive power of its ratings criteria and
to estimate values of parameters needed for its analyses (such as grade-specific values of PD or EL).
Second, assigning or reviewing ratings with the aid
of agency ratings, statistical models of default probability, or other objective criteria helps limit the
magnitude of rating biases. However, care must be
used in mapping internal grades to external grades or
other indicators to ensure that the desired results are
achieved. Finally, internal ratings grounded in clear
loss concepts are helpful in grade assignment and
review because rating criteria can be clearly linked to
different aspects of risk. For example, a system that
has separate grades for default probability and loss in
event of default can incorporate different effects for a
wide variety of types of collateral. All three of these
practices are likely to be helpful in refining the subjective judgments that are central to almost all rating
systems.
By their nature, banks' credit cultures typically
adapt slowly to changes in conditions. The rapid pace
of change in risk management practice and the
trend toward risk-sensitive profitability analysis has
recently increased the stresses on credit cultures
in general and internal rating systems in particular.
Careful attention to the many considerations noted in
this article can help accelerate the process of adjustment and thus the easing of stresses.
The use of internal ratings by external entities such
as regulators and investors has the potential to introduce new stresses in which incentives conflicts that
pit banks' interests against those of the external entities compound existing internal tensions. Use of
internal ratings by entities outside the bank would
probably require some external validation of the
ratings and the systems that generate them. In our
view, such validation is probably feasible, but careful
development of a new body of practice will be
required.
1

922

Industrial Production and Capacity Utilization
for September 1998
Released for publication October 16
Industrial production, which had rebounded 1.6 percent in August after settlement of the strikes at key
General Motors parts plants, declined 0.3 percent in
September. The declines were widespread in durable
manufacturing, with larger drops in steel and motor
vehicles and parts. Excluding the output of motor
vehicles and parts, the index of industrial production

edged down 0.1 percent for a second month. At
128.7 percent of its 1992 average, industrial production in September was 2.4 percent higher than it was
in September 1997. Capacity utilization fell 0.5 percentage point in September, to 81.1 percent, 1.0 percentage point below its 1967-97 average.
For the third quarter, industrial output was unchanged after having risen at an annual rate of
1.7 percent in the second quarter. The deceleration

Industrial production and capacity utilization
Percent of capacity

Ratio scale, 1992= 100
Capacity utilization

industrial production
130
Manufacturing

Aa

A/'V

120

Total industry

-

85

-

80

110
Manufacturing
100

V
1990

1992

1994

1996

i

1998

1988

i

i

1990

i

i

1992

1

i

1

1

1994

1

1996

1

1

1998

Industrial production, market groups
Ratio scale, 1992 = 100

_

Consumer goods

135
Durable

—

Ratio scale, 1 9 9 2 = 100

/>

/

_

v

/—*-

_

Intermediate products

135

125

125

I 15

115

105

^7\{
i

r

Nondurable

-

/

1

105
Business supplies

95

1

1

Ratio scale, 1992 = 100

Ratio scale , 1992 = 100

175

Equipment

Materials

—\r

Business

-

160

145

145

130

130

_

Durable goods

-

115

115

100
_

;

Defense and space
I

I

1

1

1

1

1

100

Nondurable goods

85

85
i

i

i

1990
1992
1994
1996
1998
1990
1992
All series are seasonally adjusted. Latest series, September. Capacity is an index of potential industrial production.




— 175

160

_/-

95

1
1994

1996

1998

923

Industrial production and capacity utilization, September 1998
Industrial production, index, 1992= 100
Percentage chang
Category

1998
1998'
r

July'

Aug.'

Sept. i

June'

July

Aug.'

Total

127.5

127.0

129.0

128.7

-1.1

-.4

1.6

-1.1

-.4

1.7

June

Sept. P

Sept. 1997
to
Sept. 1998

-.3

2.4

Previous estimate

127.5

127.0

129.1

Major market groups
Products, totalConsumer goods ...
Business equipment
Construction supplies
Materials

121.2
115.3
150.7
126.5
137.5

120.5
114.4
149.1
127.6
137.5

122.6
116.6
154.3
128.5
139.4

122.0
116.1
153.4
127.6
139.3

-.8
-1.2
.2
_2
-1.5

-.6
-.8
-1.0
.9
.0

1.7
1.9
3.5
.7
1.4

-.4
-.4
-.6
-.7
.0

2.5
1.5
6.2
6.0
2.4

Major industry groups
Manufacturing
Durable
Nondurable
Mining
Utilities

130.0
147.6
112.0
106.1
118.6

129.5
146.3
112.2
106.4
117.6

131.9
152.1
111.6
105.5
118.3

131.3
151.1
111.3
105.0
120.2

-1.3
-1.7

-.4

1.8
4.0
-.6
—8
'.6

-.4
-.7
-.2
-.5
1.6

2.6
4.7
.1
-1.3
4.4

-.8
-2.1
2.7

MEMO

Capacity utilization, percent

Average.
1967-97

Total

Low,
1982

High,
1988-89

1997
Sept.

June'

July

Aug.'

80.6

81.6

82.1

71.1

85.4

82.7

81.2
81.2

80.6

81.7

81.1
80.5
82.4
87.5
87.3

69.0
70.4
66.2
80.3
75.9

85.7
84.2
88.9
88.0
92.6

81.6
79.7
85.7
90.1
90.8

79.7
77.8
84.0
89.4
92.8

79.1
76.9
84.3
89.5
92.0

80.3
78.7
84.1
88.7
92.4

Previous estimate
Manufacturing
Advanced processing
Primary processing ..
Mining
Utilities

NOTE. Data seasonally adjusted or calculated from seasonally adjusted
monthly data.
1. Change from preceding month.

was evident in manufacturing: The increase in the
production of durable goods dropped back 0.6 percentage point, to an annual rate of 1.9 percent, while
the output of nondurable manufacturing fell more
rapidly, declining at an annual rate of 3.5 percent in
the third quarter. In both quarters, double-digit gains
in output at utilities boosted overall growth; utility
output was low in the first quarter, when unusually
mild temperatures prevailed, but was high in the third
quarter, when temperatures nationwide were quite
hot. In contrast, mining, particularly metal mining
and oil and gas extraction, declined in both the second and third quarters.

MARKET GROUPS
The output of consumer goods declined 0.4 percent
in September. The production of automotive products, which had jumped nearly 33 percent in August,
eased 2.6 percent. The output of other durable goods,



1998
Sept. <•

Capacity,
percentage
change,
Sept. 1997
to
Sept. 1998

81.1

4.4

79.6
78.0
83.3
88.2
93.8

5.0
5.9
3.2
.8
1.0

2. Contains components in addition to those shown,
r Revised,
p Preliminary.

particularly household appliances, fell for a second
month. The production of nondurable consumer
goods edged down further in September after having
declined 0.6 percent in August. Sales of residential
electricity, which had boosted the index for consumer
nondurables earlier in the year, have continued to
advance in recent months; output levels for food and
tobacco, clothing, and chemical products have
declined this quarter.
The production of business equipment fell 0.6 percent in September largely because of drops in the
output of industrial and transit equipment. The production of trucks and construction equipment, which
had been very strong in August, eased in September.
Gains in the output of computers failed to offset
decreases in the production of other information processing and related equipment, such as photographic
equipment and telephone apparatus. The index for
other types of business equipment recouped more
than half of the August drop of 8 percent, which
came from a slash in the output of farm machinery.

924

Federal Reserve Bulletin • November 1998

The output of construction supplies fell 0.7 percent, after having risen 1.6 percent in the preceding
two months. Reflecting the active housing market,
this index has moved to 6.0 percent above its level of
last September. The production of materials, which
had risen 1.4 percent in August, was unchanged in
September. The indexes for durable and nondurable
goods materials declined 0.3 percent, while the output of energy materials rebounded 0.9 percent.

INDUSTRY GROUPS
Manufacturing output fell 0.4 percent in September
after the August jump of 1.8 percent, which came
from a rebound in the production of motor vehicles
and parts to above the pre-strike level. Excluding
motor vehicles and parts, factory output dropped
0.1 percent in August and 0.3 percent in September.
Other notable declines in durable manufacturing in
September were in the iron and steel and lumber
industries. The production of steel fell 4.4 percent
and stood more than 9 percent below the high in the
first quarter; the weakness in steel reflects an influx of
imports in recent months. Among other major durable manufacturing industries, the output of computers
and semiconductors rose more than 1 percentage
point. The production of nondurables declined
0.2 percentage point after having fallen 0.6 percent in
August. The output of chemicals and petroleum products fell, while the output of textile mill products
rose.
The factory operating rate fell 0.7 percentage point,
to 79.6 percent, and was 2.7 percentage points below
the level of late last year and 1.5 percent below its
1967-97 average. The declines in utilization were
quite widespread both among durable and nondurable
manufacturing industries and among primary- and
advanced-processing industries. The utilization rate
of electric utilities reached a high level that reflects
both higher levels of generation and slower growth




of capacity at electric utilities that face an uncertain
market.

REVISION OF INDUSTRIAL PRODUCTION AND
CAPACITY UTILIZATION
In late November, the Federal Reserve will publish
revisions to its measures of industrial production
(IP), capacity, capacity utilization, and industrial use
of electric power. The revisions will begin with 1992
and will incoiporate updated source data for more
recent years.
This regular updating of source data for IP will
include annual data from the Bureau of the Census's
1996 Annual Survey of Manufactures and from
selected editions of its 1997 Current Industrial
Reports. Annual data from the Department of the
Interior on metallic and nonmetallic minerals (except
fuels) for 1996 and 1997 will also be introduced. The
updating will also include revisions to the monthly
indicators for each industry (physical product data,
production-worker hours, or electric power usage)
and revised seasonal factors.
Capacity and capacity utilization will be revised to
incorporate preliminary data from the 1997 Survey of
Plant Capacity of the Bureau of the Census. The
statistics on the industrial use of electric power will
incorporate more complete reports received from
utilities for the past few years as well as data from the
7996 Annual Survey of Manufactures.
Once the revision is published, the revised data
will be available on the Board's web site, http://
www.federalreserve.gov/releases/gl7, and on diskettes from Publications Services (telephone 202-4523245). The revised data will also be available through
the Economic Bulletin Board of the Department of
Commerce; for information about the Bulletin Board,
call 202-482-1986. Further information on these revisions is available from the Board's Industrial Output
Section (telephone 202-452-3197).
•

925

Statements to the Congress
Statement by Edward M. Gramlich, Member, Board
of Governors of the Federal Reserve System, before
the Committee on Finance, U.S. Senate, September 9,
1998
I am pleased to appear before the committee to testify
on social security reform. I speak for myself, as past
chair of the 1994-96 Quadrennial Advisory Council
on Social Security, and not in my current status as a
member of the Federal Reserve Board.
Let me first engage in some retrospection. At the
time our Advisory Council released its report in early
1997, there was much publicity about the fact that we
couldn't agree on a single plan but had three separate
approaches. Since that time it strikes me that there
has been a coalescence around the middle-ground
approach I advocated. After our report, both the
Committee for Economic Development (CED) and
Senator Moynihan came out with plans that were
similar to my plan and adopted some of its features.
Earlier this year the National Commission on Retirement Policy (NCRP) came out with a similar plan,
again adopting some features of my plan. In political
terms the center seems to be holding—since our
report there has been increased interest in sensible
middle-ground approaches, and I would encourage
this committee to work in that direction.
In trying to reform social security, I have stressed
the importance of two goals. The first is to make
affordable the important social protections of this
program that have greatly reduced aged poverty and
the human costs of work disabilities. The second is to
add new national saving for retirement—both to help
individuals maintain their own standard of living in
retirement and to build up the nation's capital stock
in advance of the baby boom retirement crunch.

THE INDIVIDUAL ACCOUNTS PLAN
My compromise plan, called the Individual Accounts
(IA) Plan, achieves both goals. It preserves the important social protections of social security and still
achieves long-term financial balance in the system by
what might be called kind and gentle benefit cuts.
Most of the cuts would be felt by high-wage workers,
with disabled and low-wage workers being largely



protected from cuts. Unlike the other two plans proposed in the Advisory Council report, there would be
no reliance at all on the stock market to finance social
security benefits and no worsening of the finances of
the Health Insurance Trust Fund.
The IA plan includes some technical changes such
as including all state and local new hires in social
security and applying consistent income tax treatment to social security benefits. These changes go
some way to eliminating social security's actuarial
deficit.
Then, beginning in the twenty-first century, two
other measures would take effect. There would be a
slight increase in the normal retirement age for all
workers, in line with the expected growth in overall
life expectancy (also proposed by the CED, Senator
Moynihan, and the NCRP). There would also be a
slight change in the benefit formula to reduce the
growth of social security benefits for high-wage
workers (also proposed by the CED and NCRP).
Both of these changes would be phased in very
gradually to avoid actual benefit cuts for present
retirees and "notches" in the benefit schedule
(instances when younger workers with the same earnings records get lower real benefits than older workers). The result of all these changes would be a
modest reduction in the overall real growth of social
security benefits over time. When combined with the
rising number of retirees, the share of the nation's
output devoted to social security spending would be
approximately the same as at present, limiting this
part of the impending explosion in future entitlement
spending.
These benefit cuts alone would mean that highwage workers would not experience rising real benefits as their real wages grow, so I would supplement
these changes with another measure to raise overall
retirement (and national) saving. Workers would be
required to contribute an extra 1.6 percent of their
pay to newly created individual accounts. These
accounts would be owned by workers but centrally
managed. Workers would be able to allocate their
funds among five to ten broad mutual or index funds
covering stocks and bonds. Central management of
the funds would cut down the risk that funds would
be invested unwisely, would cut administrative costs,
and would mean that Wall Street firms would not find

926

Federal Reserve Bulletin • November 1998

these individual accounts a financial bonanza. The
funds would be converted to real annuities on retirement, to protect against inflation and the chance that
retirees would overspend in their early retirement
years.
Some have objected to these add-on individual
accounts because they seem like a new tax. First off,
I should point out that because the accounts will be
returned to the individual in the future (with investment earnings), they are very different from a tax.
Indeed, if people who already have significant pension saving beyond social security want to reduce
their private contributions and preserve their disposable income, there is nothing to stop them. Finally, as
a further sweetener it may be possible to let those
who can certify the existence of their own private
pensions opt out of these add-on accounts, and thus
save social security the administrative costs. Whatever is done, the basic idea is to raise national saving
for the people who do not have much pension saving
beyond social security, and this scheme seems wellsuited for that.

FEDERAL BUDGET SURPLUSES
A welcome new development since our council
issued its report is the arrival of surpluses in the
overall federal budget. Some observers have suggested using these surpluses in some way to build up
the individual accounts. One example is your own
bill, Mr. Chairman.
While the advent of these overall surpluses lessens
future interest payments and the overall growth
of entitlement spending, I see some problems with
"using" the surpluses for social security. A first
problem from a budget standpoint is that the surpluses already are being used in that way. The overall

Statement by Alan Greenspan, Chairman, Board of
Governors of the Federal Reserve System, before the
Committee on Banking and Financial Sendees, U.S.
House of Representatives, September 16, 1998
As I testified before this committee in the midst of
the Mexican financial crisis in early 1995, major
advances in technology have engendered a highly
efficient and increasingly sophisticated international
financial system. The system has fostered impressive
growth in world trade and in standards of living for
the vast majority of nations who have chosen to
participate in it.



surplus is more than accounted for by the Old Age,
Survivors, and Disability Insurance surplus, which is
already used to finance future social security benefits,
so there is double-counting in using these federal
surpluses again for retirement programs, whether to
finance individual accounts or to finance future social
security spending. The second problem is that use
of the surplus in such a way does not generate new
national saving, and I continue to think that should be
an important part of social security reform. Hence I
would not favor taking any additional steps to use the
surpluses to raise future retirement benefits.

CONCLUSION
The social security and pension changes that I have
recommended would mean that approximately the
presently scheduled level of benefits would be paid to
all wage classes of workers, of all ages. The difference between the outcome and present law is that
under this plan these benefits would be financed, as
they are not under present law. The changes would
eliminate social security's long-run financial deficit
while still holding together the important retirement
safety net provided by social security. They would
reduce the growth of entitlement spending. They
would significantly raise the return on invested contributions for younger workers. And, the changes
would move beyond the present pay-as-you-go
financing scheme, by providing new saving to build
up the nation's capital stock in advance of the baby
boom retirement crunch.
As the Congress debates social security reform,
I hope it will keep these goals in mind and consider
these types of changes in this very important program. Thank you very much.

But that same efficient financial system, as I also
pointed out in that earlier testimony, has the capability to rapidly transmit the consequences of errors of
judgment in private investments and public policies
to all corners of the world at historically unprecedented speed. Thus, problems that appeared first
in Thailand more than a year ago quickly spread to
other East Asian economies that are relatively new
participants in the international financial system, and
subsequently to Russia and to some degree to eastern
Europe and Latin America. Even long-time participants in the international financial community,
such as Australia, New Zealand, and Canada, have

Statements to the Congress

experienced the peripheral gusts of the financial
turmoil.
Japan, still trying to come to grips with the bursting of its equity and real estate bubbles of the late
1980s, has experienced further setbacks as its major
Asian customers have been forced to retrench. Reciprocally, its banking system problems and weakened
economy have exacerbated the difficulties of its Asian
neighbors.
The relative stability of China and India, countries
whose restrictions on international financial flows
have insulated them to some extent from the current
maelstrom, has led some to conclude that the relatively free flow of capital is detrimental to economic
growth and standards of living. Such conclusions, in
my judgment, are decidedly mistaken.
The most affected emerging East Asian economies,
despite the sharp contraction in their economic output
during the past year, have retraced, on average, only
one-sixth of their per capita growth over the past
ten years. Even currently, their average per capita
incomes are more than two and one-half times the
levels of India and China despite the unquestioned
gains both have made in recent years as they too have
moved partially to join the international financial
community.
Moreover, outside of Asia, several East European
countries have made significant progress toward the
adoption and implementation of market systems and
have increasingly integrated their financial systems
into the broader world context to the evident benefit
of their populations. Latin American nations, though
currently under pressure, have largely succeeded in
opening up their economies to international financial
flows, and more rapidly rising living standards have
been the result.
It is clear, nonetheless, that participation in the
international financial system with all its benefits
carries with it an obligation to maintain a level of
stability and a set of strong and transparent institutions and rules if an economy is to participate safely
and effectively in markets that have become highly
sensitive to misallocation of capital and other policy
errors.
When domestic financial systems fail for lack of
adequate institutional infrastructures, the solution is
not to turn back to a less turbulent, but also less
prosperous, past regime of capital controls but to
strengthen the domestic institutions that are the prerequisite for engaging in today's international financial system.
Blocking the exodus or repatriation of capital, as
some of the newer participants in the international
financial system appear inclined to do after they get



927

into trouble, is, of course, the equivalent of the economy receiving a subsidized injection of funds. If
liquidity is tight, the immediate effect of controls can
be relief from the strain of meeting obligations and
a temporary sense of well-being. This is an illusion,
however. The obvious consequence of confiscating
part, or all, of foreign investors' capital or income is
to ensure a sharp reduction in the availability of new
foreign investment in the future.
The presumption that controls can be imposed
temporarily, while an economy stabilizes, and then
removed, gives insufficient recognition to the imbalances in an economy that emerge when controls are
introduced. Removing controls subsequently creates
its own set of problems, which most governments,
inclined to impose controls in the first place, are
therefore loath to do. Indeed, controls are often
employed to avoid required—but frequently politically difficult—economic adjustments. There are
many examples in history of controls imposed
and removed but rarely without great difficulty and
cost.
To be sure, any economy can operate with its
borders closed to foreign investment. But the evidence is persuasive that an economy deprived of the
benefits of new technologies, and inhospitable to risk
capital, will be mired at a suboptimal standard of
living and slow growth rate associated with out-ofdate technologies.
It is often stipulated that while controls on direct
foreign investment and its associated technology
transfer are growth inhibiting, controls on short-term
inflows do not adversely affect economic welfare.
Arguably, however, the free flow of short-term capital facilitates the servicing of direct investments as
well as the financing of trade. Indeed, it is often
difficult to determine whether certain capital flows
are direct investments or short term in nature. Chile
is often cited as an example of the successful use
of controls on short-term capital inflows. But in
response to the most recent international financial
turmoil, Chile has chosen to lower its barriers in
order to encourage more inflows.
Those economies at the cutting edge of technology
clearly do not need foreign direct investment to sustain living standards and economic growth. The economy of the United States in the 1950s, for example,
needed little foreign investment and yet was far more
dominant in the world then than it is today.
That was a major change from our experiences of
the latter half of the nineteenth century, when the vast
amount of investment and technology from abroad
played a significant role in propelling the U.S. economy to world-class status.

928

Federal Reserve Bulletin • November 1998

Even today, though we lead the world in many of
the critical technologies, we still need to borrow a
substantial share of the mobile pool of world savings
to finance our level of domestic investment. Were we
unable to do so, our standard of living would surely
suffer. But the inflow of foreign capital would be
much reduced if there were uncertainties about
whether the capital could be freely repatriated.
While historically there could be considerable risk
in American investments—for example, some nineteenth century investments in American railroads
entailed large losses—the freedom of repatriation
and the sanctity of private contracts were, with rare
exceptions, secure.
Our experiences, and those of others, raise the
question of the sustainability of free international
capital flows when the conditions fostering and protecting them are impaired or absent.
Specifically, an economy whose private or public
sectors have become heavy net debtors in foreign
currency is at risk of default, especially when its
exchange rate unexpectedly moves adversely.
Clearly, should default become widespread among
a number of economies, the flow of international
capital to other economies perceived as potentially
in similar circumstances will slow and in certain
instances reverse. The withdrawal of the ongoing
benefits of free flowing capital, as recent history has
so amply demonstrated, can often be abrupt and
disruptive.
The key question is obviously how do privatesector entities and governments and, by extension,
economies as a whole allow themselves through currency mismatches to reach the edge of insolvency?
Indeed, where was the appropriate due diligence on
the part of foreign investors?
Investors will, on occasion, make misjudgments,
and borrowers will, at times, misread their capabilities to service debt. When market prices and interest
rates adjust promptly to evidence of such mistakes,
the consequences of the mistakes are generally contained and, thus, rarely cumulate to pose significant
systemic risk.
There was some evidence of that process working
in the latter part of the nineteenth century and early
twentieth century when international capital flows
were largely uninhibited. Losses, however, in an
environment in which gold standard rules were tight
and liquidity constrained were quickly reflected in
rapid increases in interest rates and the cost of capital
generally. This tended to delimit the misuse of capital
and its consequences. Imbalances were generally
aborted before they got out of hand. But after World
War I such tight restraints on economies were seen as



too inflexible to meet the economic policy goals of
the twentieth century.
From the 1930s through the 1960s and beyond,
capital controls in many countries, including most
industrial countries, inhibited international capital
flows and to some extent the associated financial
instability—presumably, however, at the cost of significant shortfalls in economic growth. There were
innumerable episodes, of course, in which individual
economies experienced severe exchange rate crises.
Contagion, however, was generally limited by the
existence of restrictions on capital movements that
were at least marginally effective.
In the 1970s and 1980s, recognition of the inefficiencies associated with controls, along with newer
technologies and the deregulation they fostered,
gradually restored the free flow of international
capital prevalent a century earlier. In the late twentieth century, however, fiat currency regimes have
replaced the rigid automaticity of the gold standard in
its heyday. More elastic currencies and markets, arguably, are now less sensitive to and, hence, slower to
contain the misallocation of capital. Market contagion across national borders has consequently been
more prevalent and faster in today's international
financial markets than appears to have been the case a
century ago under comparable circumstances.
As I pointed out before this committee almost a
year ago, a good part of the capital that flowed into
East Asia in recent years (largely in the 1990s) probably reflected the large surge in equity prices in most
industrial economies, especially in the United States.
The sharp rise induced a major portfolio adjustment
out of then-perceived fully priced investments in
western industry into the perceived bargain priced,
but rapidly growing, enterprises and economies of
Asia. The tendency to downplay the risks of lending
in emerging markets, reinforced by the propensity of
governments explicitly or implicitly to guarantee
such investments in a number of cases, doubtless led
to an excess of lending that would not have been
supported in an earlier age.
As I also pointed out in previous testimony, standards of due diligence on the part of both lenders and
borrowers turned somewhat lax in the face of all the
largess generated by abundant capital gains and all
the optimism about the prospects for growth in the
Asian region. The consequent emergence of heavy
losses and near insolvency of a number of borrowing banks and nonfinancial businesses engendered
a rush by foreign capital to the exits and induced
severe contractions in economies with which borrowers and policymakers were unprepared and unable to
cope.

Statements to the Congress

929

At that point the damage to confidence and the host
economies had already been done. Endeavors now
to block repatriation of foreign funds, while offering
temporary cash flow relief, have significant long-term
costs and clearly should be avoided if at all possible.
I recognize that if problems are allowed to fester
beyond the point of retrieval, no market-oriented
solution appears possible. Short-term patchwork solutions to achieve stability are presumed the only
feasible alternatives. When that point is reached, an
economy is seen as no longer having the capability of
interacting normally with the international financial
system and is inclined to withdraw behind a wall of
insulation.
It must be remembered, however, that the financial
disequilibria that caused the initial problems would
not have been addressed. Unless they are, those problems will re-emerge.
As I implied earlier with respect to the nineteenth
century American experience, there are certain conditions precedent to establishing a viable environment
for international capital investment, one not subject
to periodic systemic crises.
Some mechanism must be in place to enhance due
diligence on the part of lenders but especially of
borrowers individually and collectively. Losses of
lenders do on occasion evoke systemic risks, but it is
the failure of borrowers to maintain viable balance
sheets and an ability to service their debts that creates
the major risks to international stability. The banking
systems in many emerging East Asian economies
effectively collapsed in the aftermath of inappropriate
borrowing, and large unhedged exposures, in foreign
currencies.
Much will be required to bolster the fragile market
mechanisms of many, but certainly not all, economies
that have recently begun to participate in the international financial system. Doubtless at the head of the
list is reinforcing the capabilities of banking supervision in emerging market economies. Conditions
that should be met before engaging in international
borrowing need to be promulgated and better monitored by domestic regulatory authorities.
Market pricing and counterparty surveillance can
be expected to do most of the job of sustaining safety
and soundness. The experience of recent years in
East Asia, however, has clearly been less than reassuring. To be sure, lack of transparency and timely
data inhibited the more sophisticated risk evaluation
systems from signaling danger. But that lack itself

ought to have set off alarms. As one might readily
expect, today's risk-evaluation systems are being
improved as a consequence of recent failures.
Just as important, if not more so, unless weak
banking systems are deterred from engaging in the
type of near reckless major international borrowing
that some systems in East Asia engaged in during the
first part of the 1990s, the overall system will continue at risk. A better regime of bank supervision
among those economies with access to the international financial system needs to be fashioned.1 In
addition, the resolution of defaults and workout procedures require significant improvements in the legal
infrastructures in many nations seeking to participate
in the international financial system.2
None of these critical improvements can be implemented quickly. Transition support by the international financial community to those in difficulty will,
doubtless, be required. Such assistance has become
especially important because it is evident from the
recent unprecedented swings in currency exchange
rates for some of the emerging market economies that
the international financial system has become increasingly more sensitive than in the past to shortcomings
in domestic banks and other financial institutions.
The major advances in technologically sophisticated
financial products in recent years have imparted a
discipline on market participants not seen in nearly a
century.
Whatever international financial assistance is provided must be carefully shaped not to undermine that
discipline. As a consequence, any temporary financial assistance must be carefully tailored to be conditional and not encourage undue moral hazard.
It can be hoped that despite the severe trauma that
most of the newer participants in the international
financial system are currently experiencing, or perhaps because of it, improvements will emerge to the
benefit not only of the emerging market economies
but of the long-term participants in the system as
well.

Statement by Edward W. Kelley, Jr., Member, Board
of Governors of the Federal Reserve System, before

the Committee on Banking and Financial Services,
U.S. House of Representatives, September 17, 1998




1. Parenthetically, a century ago, banks were rarely subsidized and,
hence, were required by the market to hold far more capital then they
do now. In today's environment, bank supervision and deposit insurance have displaced the need for high capital-asset ratios in industrial
countries. Many of the new participants in the international financial
system have had neither elevated capital nor adequate supervision.
This shortfall is now generally recognized and is being addressed.
2. There are, of course, other reforms that I believe need to be
addressed. These were outlined in my earlier testimonies before this
committee.

930

Federal Reserve Bulletin • November 1998

Thank you for again inviting me to appear before this
committee to discuss the Year 2000 issue. This problem poses a major challenge to public policy: The
stakes are enormous, nothing less than the preservation of a safe and sound financial system that can
continue to operate in an orderly manner when the
clock rolls over at midnight on New Year's Eve and
the millennium arrives. The Year 2000 problem will
touch much more than just our financial systems and
could temporarily have adverse effects on the performance of the overall U.S. economy as well as the
economies of many, or all, nations if not corrected.
As I said last April in testimony before the Senate
Committee on Commerce, Science and Transportation, some of the more adverse scenarios are not
without a certain plausibility if this challenge were
being ignored. But it is not being ignored. While it is
impossible today to precisely forecast the impact of
this event, and the range of possibilities runs from
minimal to extremely serious, an enormous amount
of work is being done in anticipation of the rollover
of the millennium, and I am optimistic that this work
will pay off.
In that spirit, let me update you on what the Federal Reserve has done to address the Year 2000 issue.
Since I last testified here in November 1997, the
Federal Reserve has met the goals that we set for
ourselves. We have accomplished the following:
• Renovated our mission-critical applications and
nearly completed our internal testing
• Opened our mission-critical systems to customers for testing
• Progressed significantly in our contingency planning efforts
• Implemented a policy concerning changes to our
information systems
• Concluded our initial review of all banks subject
to our supervisory authority.
While these accomplishments are indicative of our
significant progress in addressing the Year 2000
issue, much work remains. In the testing area, we are
finalizing plans for concurrent testing of multiple
mission-critical applications by customers. We are
coordinating with the Clearing House for Interbank
Payment Systems (CHIPS) and the Society for
Worldwide Interbank Financial Telecommunications
(SWIFT) to provide a common test day for customers
of Fedwire and these two systems. We have a Systemwide project under way to enhance our contingency plans to address failures external to the Federal
Reserve. We are conducting a second round of supervisory reviews of banks subject to our supervisory



authority and also actively coordinating with various
domestic and international Year 2000 organizations.
This morning I would like to discuss these achievements and the important aspects of the job that remain
ahead of us.

FEDERAL RESERVE READINESS
The Federal Reserve has completed the renovation of
its mission-critical systems, and we are nearing the
conclusion of our internal Year 2000 testing efforts.
Internal testing includes both individual applications
and application interfaces, such as the exchange of
data between Fedwire and our Integrated Accounting
System. Testing is conducted through a combination
of two elements: one is future-dating our computer
systems to verify the readiness of our information
technology, and the other is testing critical futuredate processing within our business applications.
Communications network components are also being
tested and certified in special test lab environments at
the Federal Reserve Automation Services and the
Board of Governors. The Reserve Banks and the
Board have implemented test century date change
(CDC) local area networks to verify the readiness of
vendor-provided products and internal applications
that operate in network-based computing environments. With the exception of a few systems that will
be replaced by March 1999, we will complete the
testing activities and implement our mission-critical
applications in production by year-end 1998.
On June 29, 1998, we made our future-dated test
environment available to customers for Year 2000
testing; the crucial testing period will extend through
1999. Depository institutions that are Federal Reserve
customers, and thus rely on our payment applications
such as Fedwire, Fed ACH, and check-processing
systems, can test century rollover and leap year transactions six days a week. On six weekends this fall,
depository institutions will be able to test Year 2000
test dates with several applications simultaneously.
We are providing assistance to our customers who
test with us and have provided them, through a series
of CDC bulletins, with technical information and
guidelines concerning the testing activity.
By the end of August, almost 400 customers,
including the U.S. Treasury, had conducted CDC
testing with the Federal Reserve, and the number
scheduling tests is increasing rapidly. These tests
encompass ten of our mission-critical applications.
To ensure that the nation's larger banks are taking
advantage of this testing opportunity, we intend to
contact any that have not availed themselves of this

Statements to the Congress

service. Several foreign banking organizations have
begun to test large dollar payment systems with the
Federal Reserve and CHIPS. Most large foreign
banks will participate in the September 26, 1998,
coordinated test in which Fedwire, CHIPS, and
SWIFT are participating.
Like most information technology environments,
ours are composed primarily of vendor hardware and
software products. To assess the Year 2000 readiness
of these environments, as well as our building systems such as vault and climate control systems, we
have created an automated inventory of the vendor
products that we use and are tracking the Year 2000
compliance status of those products. Although the
Federal Reserve has made progress in independently
testing vendor products, we will continue these
efforts.
In previous testimony, I have noted the critical
dependence of banks on telecommunication services
and the need to ensure the readiness of telecommunication service providers. To foster a better understanding of the importance of information sharing by
the telecommunications industry, I wrote to Federal
Communications Commissioner Powell about this
issue. Commissioner Powell has been responsive and
has provided us and others with information regarding the FCC's oversight and plans. The Federal
Reserve is also participating in the Telecommunications Sector Group of the President's Council on
Year 2000 Conversion. In addition, the Federal
Reserve is monitoring telecommunication carriers to
assess whether those used by the Federal Reserve
will be Year 2000 compliant. We are pleased with the
responsiveness of the telecommunications industry:
Plans for industry testing are well under way, with
participation from the major service providers as well
as their suppliers.

CONTINGENCY PLANNING
As the nation's central bank, the Federal Reserve is
actively engaged in contingency planning for both
operational disruptions and systemic risks. An internal CDC Council consisting of senior managers is
coordinating contingency planning across the Federal
Reserve's various functions and is fostering a cohesive approach to internal readiness and interaction
with the financial community. In general, the banking
industry's focus has also progressed from the renovation of systems to business continuity and contingency planning. Contingency planning for the Federal Reserve includes payment systems, currency
availability and distribution, information processing.



931

the discount window, and the supervision function.
We will also play an important role in coordinating
with the financial community concerning issues such
as systemic risk and cross-border payments.

Operational Contingency
The Federal Reserve's plans for operational continuity build on existing contingency plans. As you know,
we have long maintained comprehensive contingency
plans that are routinely tested and have been implemented during natural disasters and other disruptions.
These plans cover our internal systems, as well as
the services we provide to depository institutions. In
June 1998. each of the Federal Reserve's business
offices completed assessments of the adequacy of
existing contingency scenarios to address CDC risks.
Federal Reserve CDC contingency workgroups are
identifying problems external to the Federal Reserve
that may arise when the date changes to 2000, such as
those affecting telecommunications providers, large
financial institutions, utility companies, other key
financial market participants, and difficulties abroad
that affect U.S. markets or institutions. The workgroups are developing corresponding recommendations to mitigate those problems. The Federal Reserve
plans to finalize contingency plans reflecting these
recommendations by November 30, 1998. We will
continue to refine our CDC contingency plans as
necessary throughout 1999. In the fourth quarter of
1998, we will focus our efforts on how to test our
contingency plans to ensure their operational effectiveness at the century rollover.

Change Management
As a part of our operational readiness planning, the
Federal Reserve is developing procedures to manage
the risks posed by changes to information systems in
1999 and the first quarter of 2000. After the scheduled completion of testing and implementation of our
critical applications, changes to Federal Reserve policies, rules, regulations, and services that generate
changes to critical information systems create the risk
that those systems may no longer be CDC compliant.
Consequently, we have established guidelines to significantly limit policy and operational changes, as
well as internal hardware and software changes,
during late 1999 and early 2000 in order to minimize
the risks and complexities of problem resolution
associated with the introduction of new processing
components.

932

Federal Reserve Bulletin • November 1998

By limiting changes to our systems, we will not
only provide a stable internal processing environment
entering the Year 2000 but we will also minimize
changes that our customers could be required to make
to their applications that interface with our software.
In addition, we intend to aggressively coordinate
with other institutions that typically generate policy
and operational changes in the financial industry. We
intend to publish our guidelines to assist other organizations facing similar issues, and I would urge that
the Congress, as well as other federal agencies, consider adoption of such change management policies
as we move into 1999.

Currency
As I noted earlier, cash availability and processing is
an issue we have considered in the contingency planning process. We have regularly met the public's
heightened demand for U.S. currency in peak seasons
or in extraordinary situations, such as natural disasters. We recently submitted our fiscal year 1999
currency printing order to the Department of the
Treasury's Bureau of Engraving and Printing, and we
increased the size of next year's print order because
of Year 2000 considerations. With this order, we will
substantially increase the amount of currency either
in circulation or in Federal Reserve vaults over current levels by late 1999. We believe this increase in
the level of currency should be ample to meet the
public's demand for extra cash during the period
surrounding the century rollover. This is a precautionary step on our part—we believe it is prudent to print
more currency than we think will be required than to
risk not printing enough. While we do not anticipate
any extraordinary demand for cash, we believe it is
important that the public have complete confidence
that sufficient supplies of currency will be available.
In effect, the Federal Reserve is accelerating the
timing of currency printing; we are planning for a
possible short-lived increased demand for cash and
will be able to reduce future print orders to lowerthan-normal levels.
As we monitor the public's demand for currency,
we can introduce other measures to further increase
cash levels. First, the recent currency order with the
Bureau of Printing and Engraving is for the federal
fiscal year 1999, so that there will be time to print
additional notes in the last three months of 1999.
Second, we can change the print order to increase
production of higher-denomination notes. Third, we
can increase staff in Reserve Bank cash operation
functions to improve the turnaround time required to



process cash deposits and move currency back into
circulation. Finally, as a last resort, we can hold off
the destruction of old or worn currency.

Liquidity
Another contingency planning issue for the Federal
Reserve is liquidity. Despite their best efforts, some
depository institutions could encounter problems in
the rollover in maintaining reliable computer systems, and these problems may or may not affect their
funding positions. To the extent necessary, the Federal Reserve is prepared to lend, in appropriate circumstances and with adequate collateral, to depository institutions when market sources of funding are
not reasonably available. The terms and conditions of
such lending may depend upon the circumstances
causing the liquidity shortfall.

FINANCIAL SECTOR INITIATIVES
The Federal Reserve and private industry have intensified cooperative efforts to address contingency planning. The Year 2000 Contingency Planning Working
Group of the New York Clearing House, the Securities Industry Association, and the Federal Reserve are
developing coordinated contingency plans for the
Year 2000 and will act as liaison with other industry
groups addressing contingency planning on behalf
of banks, securities firms, exchanges, clearance and
settlement organizations, regulators, and international
markets. Among other things, the Working Group is
considering plans for the establishment of Year 2000
communications centers throughout the country, and
perhaps internationally. Primarily, such centers would
facilitate the exchange of up-to-date information
on developing problems and issues among participants and enhance the development of consensus,
when necessary, to coordinate timely responses to
problems.
The Federal Reserve is assisting in the government's coordination of the Year 2000 effort within
the financial industry by participating in the Financial
Institutions Sector Group of the President's Council
on Year 2000 Conversion. A senior Board official
who chairs this Sector Group has been working with
representatives of government financial organizations, including the federal banking agencies, the
Department of the Treasury, the Securities and
Exchange Commission, and other agencies responsible for various financial intermediaries, to assess
the Year 2000 readiness of the financial industry and

Statements to the Congress

formulate strategies for
Year 2000 issues.

addressing

interagency

BANK SUPERVISION
I would now like to turn to our industry oversight
activities. The Federal Reserve met its goal, set in
May 1997, of conducting a Year 2000 supervisory
review of all banks subject to our supervisory authority by June 1998. This public commitment and visible effort did much to stimulate industry action on
the Year 2000 issue. We have also established ties
and are providing significant support to numerous
public and private groups, both domestic and international, that are addressing the Year 2000 readiness of
their respective constituencies.
As part of our outreach program, we continually
emphasize the critical significance of ensuring that
computer systems and applications are Year 2000
compliant and the complexity of the managerial and
technological challenges that the required effort presents for all enterprises. For entities such as financial
institutions that rely heavily on computers to provide
financial services to customers, achieving Year 2000
compliance in mission-critical systems is essential
for maintaining the quality and continuity of customer services.
While bank supervisors can provide guidance,
encouragement, and strong formal and informal
supervisory incentives to the banking industry to
address this challenge, it is important to recognize
that we cannot be ultimately responsible for ensuring
or guaranteeing the Year 2000 readiness and viability
of the banking organizations we supervise. Rather,
the boards of directors and senior management of
banks and other financial institutions must be responsible for ensuring that the institutions they manage
are able to provide high quality and continuous services from the first day in January of the Year 2000.
As we have emphasized continually during the past
sixteen months, this critical obligation must be
among the very highest of priorities for bank management and boards of directors.

Policy Guidance and Supervisory Reviews
The Federal Reserve continues to work closely with
the other banking agencies that comprise the Federal
Financial Institutions Examination Council (FFIEC)
to address the banking industry's Year 2000 readiness. A series of seven advisory statements has been
issued since I was last here in November 1997,



933

including statements on the nature of Year 2000
business risk, the importance of service provider
readiness, the means to address customer risk, the
need to respond to customer inquiries, the critical
importance of testing, the urgency of effective contingency planning, and the need to address the readiness of fiduciary activities. As a result of these
advisory statements, the extent of the industry's
Year 2000 efforts has significantly intensified. These
statements can be found in their entirety at
http://www.bog.frb.fed.us/Y2K.
Compliance with these statements is assessed during the conduct of supervisory reviews. Through
June 30, the Federal Reserve had conducted reviews
of approximately 1,600 organizations. Information
and data collected during these reviews have proved
to be reliable, consistent with our overall supervisory
experience, which is heavily dependent on an extensive on-site examination program. These reviews
have resulted in a significant focus of attention on the
subject matter within the industry and have identified
several issues warranting additional attention by the
supervisors, particularly the need for the supplemental guidance on testing and contingency planning. It
is critical that banks avail themselves of every opportunity to test mission-critical systems internally and
with their counterparties, and recurring testing may
be warranted as additional systems are renovated
to ensure that those systems already tested are not
adversely affected.
Based on the reviews completed by the Federal
Reserve, the vast majority of banking organizations
are making satisfactory progress in their Year 2000
planning and readiness efforts. About 4 percent are
rated "needs improvement" and fewer than 1 percent
are rated "unsatisfactory." In these cases, the Federal
Reserve has initiated intensive supervisory followup. Working closely with state banking departments,
the Federal Reserve is making a concerted effort
to focus additional attention on those particular banking organizations that are deemed deficient in their
Year 2000 planning and progress.
Deficient organizations have been informed of their
status through supervisory review comments, meetings with senior management or the board of directors, and deficiency notification letters calling for
submission of detailed plans and formal responses to
the deficiencies noted. Such organizations are then
subject to increased monitoring and supervisory
follow-up including more frequent reviews. Restrictions on expansionary activities by Year 2000 deficient organizations have also been put into place. As
a result of these letters, organizations once deemed
deficient have taken significant steps to enhance

934

Federal Reserve Bulletin Q November 1998

their Year 2000 programs and over half have been
upgraded to satisfactory.
The Federal Reserve has commenced Phase II
of its supervision program, which covers the nine
months from July 1998 through March 1999. During
this second phase, we will conduct another round of
supervisory reviews focused on Year 2000 testing
and contingency planning. In addition, we have committed to conducting another review of the information systems service providers and will distribute the
results to the serviced banks.

agencies are distributing the results of Year 2000
reviews of service providers and software vendors to
the serviced banks. The information in the reports
is not a certification of the readiness of the service
provider, and it is still incumbent on each bank to
work closely with its service providers to prepare for
the century date change. Service providers and software vendors serving the banking industry are keenly
aware of the industry's reliance on their products and
services, and most consider their Year 2000 readiness
to be their highest priority in order for them to remain
competitive in an aggressive industry.

Assessment of Review Results
Credit Quality
Based on these reviews and other interactions with
the industry, it appears that financial institution
progress in renovating mission-critical systems has
advanced notably since the Federal Reserve and the
other banking agencies escalated efforts to focus the
industry's attention on ensuring Year 2000 readiness.
Banking organizations are making substantial headway toward Year 2000 readiness and, with some
exceptions, are on track to meet FFIEC guidelines.
Specifically, the FFIEC guidelines call for the
completion of internal testing of mission-critical
systems by year-end 1998. Most large organizations
are nearing completion of the renovation of their
mission-critical systems and are vigorously testing
those that have been renovated. Smaller organizations are working closely with their service providers
in an effort to confirm that the efforts under way will
ensure the readiness and reliability of the services
and products on which they depend.

Information Systems Service Providers
The banking agencies are examining the Year 2000
readiness of certain information systems service providers and software vendors that provide services and
products to a large number of banking organizations.
These examinations are often conducted on an interagency basis. The Federal Reserve has participated
in reviews of sixteen national service providers and
twelve national software vendors. In addition, the
banking agencies are examining selected regional
service providers and software vendors.
These examinations assess the overall Year 2000
program management of the firms and confirm their
plans to support products for Year 2000 readiness. To
help banking organizations assess the Year 2000
readiness and dependability of their service providers
and to encourage examined service providers to cooperate fully with the industry's efforts, the banking



FFIEC guidelines call for banks to have a plan to
assess customers' Year 2000 readiness by June 30,
1998, and to complete an assessment of their customers' Year 2000 readiness by September 30, 1998, in
order to better understand the risks faced by the bank
if customers are unable to meet their obligations on
a timely basis. Even though our Phase I Year 2000
examinations were conducted before the June 30,
1998, milestone, our examiners noted that most organizations either had begun planning or had initiated
their customer assessment programs.
We have seen no signs that credit quality has
deteriorated as a result of Year 2000 readiness considerations, although it is still early. Results from a
Federal Reserve Senior Loan Officer Opinion Survey
on Bank Lending Practices (May 1998) indicated that
respondents generally include Year 2000 preparedness in their underwriting and loan review standards.
Another survey of Senior Loan Officers is to be
conducted in November in order to obtain a more
timely picture of any deterioration in credit quality
related to the Year 2000.
Efforts have also been made to prompt the nation's
largest banks that syndicate large loans to address the
Year 2000 readiness of their borrowers. Through the
Shared National Credit Program, banks that syndicate
credits of more than $20 million are asked to provide
the banking agencies with information pertaining to
the banks' efforts to assess the readiness of the borrowers. This initiative has helped large lenders understand that they need to consider their customers'
readiness in their risk-management programs.

Additional Outreach Initiatives
The Federal Reserve is participating in numerous
outreach initiatives with the banking industry, trade
associations, regulatory authorities, and other groups

Statements to the Congress

that are hosting conferences, seminars, and training
opportunities focusing on the Year 2000 and helping
participants understand better the issues that need to
be addressed. Partly in response to the requirements
of the Examination Parity and Year 2000 Readiness
for Financial Institutions Act, which calls for the
banking agencies to conduct seminars for bankers on
the Year 2000, the federal banking agencies have
been working with state banking departments as well
as national and local bankers' associations to develop
coordinated and comprehensive efforts at improving
the local and regional programs intended to focus
attention on the Year 2000. In the first six months
of 1998, the Federal Reserve has participated in more
than 230 outreach initiatives reaching more than
14,000 bankers. Another 100 outreach initiatives are
scheduled for the third quarter of 1998. In addition,
our public web site provides extensive information
on our Year 2000 supervision program and on other
resources available to the industry to help prepare for
the millennium.

INTERNATIONAL COORDINATION
International cooperation on Year 2000 has intensified over the past several months because of the
efforts of the public sector Joint Year 2000 Council
(Joint Council) and the private sector Global 2000
Coordinating Group (G-2000). As you recall from
your hearings on international issues in June, Ernest
Patrikas, then Chairman of the Joint Council and a
senior official of the Federal Reserve Bank of New
York, testified on the global efforts of the Joint Council to enhance international initiatives by financial
regulators. His successor as Chairman of the Joint
Council, Federal Reserve Governor Roger Ferguson,
is continuing those efforts and is working closely
with an external consultative committee composed of
representatives from international financial services
providers, international financial market associations,
financial rating agencies, and a number of other international industry associations. The Joint Council is
working to foster better awareness and understanding
of Year 2000 issues on the part of regulators around
the world; for example, the Joint Council is sponsoring a series of regional seminars for banking, insurance, and securities supervisors.
The G-2000 includes more than forty financial
institutions from more than twenty countries that are
addressing country assessments, testing, and contingency planning, as well as other issues. The group
has developed a standard framework for assessing
individual country preparations for the century date



935

change and also will address the Year 2000 readiness
of financial institutions, service providers, and the
countries' infrastructures. This framework is being
used to collect information and assess the readiness
of about twenty major countries by the end of this
year, with others scheduled for in-depth reviews in
1999.
The Basle Committee on Banking Supervision continues to be active on Year 2000 issues, both within
the Joint Council and separately, as part of its normal
supervisory activities. Year 2000 will be a major
issue to be discussed at the International Conference
of Bank Supervisors in October. The Basle Committee is also planning a follow-up survey on Year 2000
progress.

CLOSING REMARKS
Financial institutions have made significant progress
in renovating their systems to prepare for the
Year 2000, and much has been accomplished to
ensure the continuation of reliable services to the
banking public at the century rollover. We are committed to a rigorous program of industry testing and
contingency planning and, through our supervisory
initiatives, to identifying those organizations that
most need to apply additional attention to Year 2000
readiness. The Federal Reserve has renovated its
mission-critical applications, and we are nearing the
completion of our internal testing activities. To manage the risks posed by subsequent changes to these
systems, the Federal Reserve has instituted guidelines
to significantly limit policy, operational, hardware,
and software changes during late 1999 and early
2000. Going forward, we will continue our industry
and international coordination efforts, including participation in the President's Council on Year 2000
Conversion, the Joint Year 2000 Council, and trade
associations, to assist the industry in preparing for the
Year 2000.
In closing, I would like to thank the committee for
its extensive efforts to focus the industry's attention
on this significant matter. Awareness of the extent
and importance of this challenge is a critical first step
in meeting it, and the committee's participation has
been most helpful.
For your convenience, I have attached a summary
of the answers to the questions posed by the House
and Senate Banking Committees.1
1. The attachment to this statement is available from Publications
Services. Mail Stop 127. Board of Governors of the Federal Reserve
System, Washington, DC 20551, and on the Board's site on the World
Wide Web (http://www.federalreserve.govl.

936

Federal Reserve Bulletin • November 1998

Statement by Alan Greenspan, Board of Governors of
the Federal Reserve System, before the Committee on
the Budget, U.S. Senate, September 23, 1998
The crisis in emerging market economies that began
in Thailand a little more than a year ago spread to
other economies in East Asia and Russia and has
most recently been pressuring a number of economies in Latin America. There is little evidence to
suggest that the contagion has subsided.
Moreover, the declines in Asian export markets
only added to the difficulties in Japan, which was
struggling with a pre-existing set of corrosive banking problems. Those difficulties have contributed to
that economy's most protracted recession in the postwar era.
As I indicated several weeks ago to a university
audience, it is just not credible that the United States,
or for that matter Europe, can remain an oasis of
prosperity unaffected by a world that is experiencing
greatly increased stress.
With few signs that the financial crisis that started
in Asia last year has subsided, or is about to do so,
policymakers around the world have to be especially
sensitive to the deepening signs of global distress,
which can impact their own economies.
In emerging markets, after about six months of
relative stability, heightened perceptions of credit risk
erupted in mid-August, when Russia, which seemed
to have been making progress toward greater stability, fell into renewed crisis.
Russia is not large in the world's trade accounts or
critical to the stability of the international financial
system. Nevertheless, the severity of its crisis and the
authorities' inability to contain it reflected a significant jump of contagion out of East Asia, which, until
then, had been assumed to have gone into remission.
The shock drove yields on dollar-denominated debt
securities of emerging market economies sharply
higher across the globe, engulfing economies that
are as radically different as Korea, Brazil, Poland,
South Africa, and China. To be sure, some yields
have increased only 1 to 2 percentage points, while
others have risen 10 points or more. But all these
economies have experienced stress. The flight to
safety has significantly augmented the demand for
U.S. Treasury securities, whose yields have declined
in tandem with the increases in yields on most dollardenominated sovereign debt in international bond
markets.
In recent weeks, that shift internationally has also
been accompanied by a rising concern for risk in the
United States, presumably reflecting the fear that the
contagion would adversely affect our economy.



When I testified before the Congress in July, I
noted that some of the effects of the international
crisis had actually been positive for the U.S. financial
markets and economy, for example, by lowering
long-term interest rates paid by our households and
businesses. However, the most recent more virulent
phase of the crisis has infected our markets as well.
Concerns about business profits and a general pulling
back from risk-taking in the midst of great uncertainty around the globe have driven down stock prices
and pushed up rates on the bonds of lower-rated
borrowers. Flows of funds through financial markets
have been disrupted, at least temporarily. Issuance of
equity, and of bonds by lower-rated corporations, has
come virtually to a halt; even investment-grade companies have cut back substantially on their borrowing
in capital markets. Banks also are reportedly becoming more cautious and more expensive lenders to
many companies.
There is little evidence to date, however, that foreign problems or the tightening in financial conditions in domestic markets have produced any significant underlying weakness in the American economy
as a whole. Moreover, labor markets remain tight,
and hourly compensation has continued to grow more
rapidly. Nonetheless, the increases in overall costs
and the consumer price index have been held to
modest levels by reasonably good productivity
advances, lower oil prices, and foreign competition.
However, looking forward, the restraining effects
of recent developments on the U.S. economy are
likely to intensify. As I noted in congressional testimony last week, we can already see signs of the
erosion of production around the edges, especially in
manufacturing. Disappointing profits in a number of
industries and less rapid expansion of sales suggest
some stretching out of capital investment plans in the
months ahead. Lower equity prices and higher financing costs should damp household and business spending, and greater uncertainty and risk aversion may
also lead to more cautious spending behavior.
When I testified on monetary policy in July, I
explained that the Federal Open Market Committee
was concerned that high—indeed rising—demand for
labor could produce cost pressures on our economy
that would disrupt the ongoing expansion. I also
noted that a high real federal funds rate was a necessary offset to expansionary conditions elsewhere in
financial markets. By mid-August the Committee
believed that disruptions abroad and more cautious
behavior by investors at home meant that the risks to
the expansion had become evenly balanced. Since
then, deteriorating foreign economies and their spillover to domestic markets have increased the possibil-

Statements to the Congress

ity that the slowdown in the growth of the American
economy will be more than sufficient to hold inflation
in check.
As I have indicated in earlier presentations, the
dramatic advances in computer and telecommunications technologies over the past decade have fostered
a marked increase in the degree of sophistication of
financial products. A vast new array of debt, equity,
and hybrid instruments, as well as newly crafted
derivative products, have fostered an unbundling of
risks, which, in turn, has enabled investors to optimize (as they see it) their portfolios of financial
assets. This has engendered a set of market prices and
interest rates that have guided business organizations
increasingly toward producing those capital investments that offer the highest long-term rates of return,
that is, those investments that most closely align
themselves with the prospective value preferences
of consumers. This process has effectively directed
scarce savings into our most potentially valuable
productive capital assets. The result, especially in the
United States, where financial innovations are most
advanced, has been an evident acceleration in productivity and standards of living, and, because of the
financial sector's increased contribution to the process, a greater share of national income earned by it
over the past decade.
The new financial innovations, which have spread
at a quickened pace, have facilitated a rapid expansion of cross-border investment and trade, and almost
surely, as a consequence, a significant increase in
standards of living for those nations that have chosen
to participate in what can appropriately be called our
new international financial system. The system is
new in the sense that its dynamics appear somewhat
more accelerated relative to the international financial structure of, say, fifteen or twenty years ago.
Because of the newer technologies, market prices
have become more sensitively tuned to subtle
changes in preferences and, hence, react to those
changes far faster than in previous generations. The
system is productive of increased standards of living
and more sensitive to capital misuse. It is a system
more calibrated than before to not only reward innovation but also to discipline the mistakes of private
investment or public policy.
Thus, the crises that have emerged out of this new
financial structure, while sharing most of the characteristics of past episodes, nonetheless, appear different in important ways. It is not yet clear whether
recent crises are deeper than in the past or just
triggered more readily.
In early 1995,1 characterized the Mexican crisis as
the first crisis of this new international financial sys


937

tem. The crisis that started in East Asia more than a
year ago is its second.
Since the Mexican crisis, policymakers have been
engaged in an accelerated learning process of how
this new system works.
There are certain elements that are becoming
evident.
The sensitivity of market responses under the new
regime has been underscored by the startling declines
of exchange rates of some emerging market economies against the dollar, and most other major currencies, of 50 percent or more in response to what at first
appeared to be relatively modest financial difficulties.
Market discipline appears far more draconian and
less forgiving than twenty or thirty years ago.
Capital, which in an earlier period may have
flowed to a "merely adequate" profit environment,
because of a lack of information or opportunity, now
shifts predominantly to those ventures or economies
that appear to excel. This capital, in times of stress,
also flees more readily to securities and markets of
unquestioned quality and liquidity.
It has taken the long-standing participants in the
international financial community many decades to
build sophisticated financial and legal infrastructures
that buffer shocks. Those infrastructures discourage
speculative attacks against a well-entrenched currency because financial systems are robust and are
able to withstand vigorous policy responses to such
attacks. For the more recent participants in global
finance, their institutions, until recently, had not been
tested against the rigors of major league pitching, to
use a baseball analogy.
The situation in many emerging market economies is illustrative. Under stress, fixed exchange rate
arrangements have failed from time to time. Consequently, domestic currency interest rates, reflecting
devaluation probability premiums, are almost always
higher in emerging market economies with fixed
exchange rates than in the economy of the major
currency to which the emerging economy has chosen
to peg. That currency is often the dollar.
This phenomenon, and its risky exploitation, is one
important element in the current crisis and a symptom of what has gone wrong generally. What
appeared to be a successful locking of currencies
onto the dollar over a period of years in East Asia and
elsewhere led, perhaps inevitably, to large borrowings of cheaper dollars to lend at elevated domestic
interest rates, with the intermediary pocketing the
devaluation risk premium. When the amount of
unhedged dollar borrowings finally became excessive, as was almost inevitable, the exchange rate
broke. Incidentally, it also broke in Sweden in 1992,

938

Federal Reserve Bulletin • November 1998

when large borrowings of deutsche marks to lend in
krona at higher interest rates met the same fate. Such
episodes are not uncommon, suggesting that investors, even sophisticated ones, are prone to this type of
gambling.
This heightened sensitivity of exchange rates of
emerging economies under stress would be of less
concern if banks and other financial institutions in
those economies were strong and well capitalized.
Developed countries' banks are highly leveraged but
subject to sufficiently effective supervision so that,
in most countries, banking problems do not escalate
into international financial crises. Most banks in
emerging nations are also highly leveraged, but their
supervision often has not proved adequate to forestall
failures and a general financial crisis. The failure of
some banks is highly contagious to other banks and
businesses that deal with them.
This weakness in banking supervision in emerging
market economies was not a major problem for the
rest of the world before those economies' growing
participation in the international financial system over
the past decade or so. Exposure of an economy to
short-term capital inflows, before its financial system
is sufficiently sturdy to handle a large unanticipated
withdrawal, is a highly risky venture.
It, thus, seems clear that some set of standards for
participation in the new highly sensitive international
financial system is essential to its effective functioning. There are many ways to promulgate such standards without developing an inappropriately exclusive and restrictive club of participants.
One is far greater transparency in the way domestic
finance operates and is supervised. This is essential if
investors are to make more knowledgeable commitments and supervisors are to judge the soundness
of such commitments by their financial institutions.




A better understanding of financial regimes as yet
unseasoned in the vicissitudes of our international
financial system also will enable counterparties to
more appropriately evaluate the credit standing of
institutions investing in such financial systems. There
is no mechanism, however, to insulate investors from
making foolish decisions, but some of the ill-advised
investing of recent years can be avoided in the future
if investors, their supervisors, and counterparties, are
more appropriately forewarned.
To the extent that policymakers are unable to
anticipate or evaluate the types of complex risks that
the newer financial technologies are producing, the
answer, as it always has been, is less leverage, that is,
less debt, more equity, and, hence, a larger buffer
against adversity and contagion.
I must also stress the obvious necessity of sound
monetary and fiscal policies whose absence was
so often the cause of earlier international financial
crises. With increased emphasis on private international capital flows, especially interbank flows, private misjudgments within flawed economic structures have been the major contributors to recent
problems. But inappropriate macropolicies also have
been a factor for some emerging market economies in
the current crisis.
Improvements in transparency, commercial and legal structures, as well as supervision that I, and my
colleagues, have supported in recent months cannot
be implemented quickly. Such improvements and the
transition to a more effective and stable international
financial system will take time. The current crisis,
accordingly, will have to be addressed with ad hoc
remedies. It is essential, however, that those remedies
not conflict with a broader vision of how our new
international financial system will function as we
enter the next century.
•

939

Announcements
EASING OF THE STANCE OF MONETARY POLICY
BY THE FEDERAL OPEN MARKET COMMITTEE

MEETING OF THE CONSUMER ADVISORY
COUNCIL

The Federal Open Market Committee decided on
September 29, 1998, to ease the stance of monetary
policy slightly, expecting the federal funds rate to
decline VA percentage point to around 514 percent.
The action was taken to cushion the effects on
prospective economic growth in the United States of
increasing weakness in foreign economies and of less
accommodative financial conditions domestically.
The recent changes in the global economy and adjustments in U.S. financial markets mean that a slightly
lower federal funds rate should now be consistent
with keeping inflation low and sustaining economic
growth going forward.
The discount rate remains unchanged at 5 percent.

The Federal Reserve Board announced on September 17, 1998, that the Consumer Advisory Council
would meet on Thursday, October 22, in a meeting
open to the public. The Council's function is to
advise the Board on the exercise of its responsibilities
under the Consumer Credit Protection Act and on
other matters on which the Board seeks its advice.

TENTATIVE SCHEDULE FOR MEETINGS OF THE
FEDERAL OPEN MARKET COMMITTEE
The Federal Open Market Committee (FOMC) has
released the following schedule for its meetings in
1999: February 2-3; March 30; May 18; June 29-30;
August 24; October 5; November 16; and December 21. The schedule is tentative in light of the
Committee's practice of confirming the date for each
meeting at the preceding meeting. FOMC meetings
are held on Tuesdays unless otherwise noted.
The FOMC is composed of the seven members of
the Board of Governors and five of the twelve
Reserve Bank presidents. The president of the Federal Reserve Bank of New York is a permanent
member; the other presidents serve one-year terms on
a rotating basis.
The FOMC oversees open market operations,
which is the main tool used by the Federal Reserve to
influence money market conditions and the growth of
money and credit. In addition, the FOMC directs
operations undertaken by the Federal Reserve in foreign exchange markets.
The Federal Reserve Bank Presidents voting in
1999 will be the following: William J. McDonough,
New York; Edward G. Boehne, Philadelphia;
Michael H. Moskow, Chicago; Robert D. McTeer, Jr.,
Dallas; and Gary H. Stern, Minneapolis.



AMENDMENT TO REGULATION C
The Federal Reserve Board on September 25, 1998,
published a final rule amending Regulation C (Home
Mortgage Disclosure). The rule requires a lender
to report dates on the loan-application register using
four digits for the year, rather than two, to bring
reporting under the Home Mortgage Disclosure Act
into compliance with Year 2000 data system
standards.
Other amendments make several technical changes
to the regulation, including clarifying the coverage of
nondepository institutions and deleting the requirement to provide the name and address of the reporting institution's parent company on the transmittal
sheet.

AMENDMENTS TO REGULATION E,
REGULATION DD, AND REGULATION M
The Federal Reserve Board, on September 24, 1998,
published a final rule amending Regulation E (Electronic Fund Transfers), to revise the time periods for
investigating errors involving point-of-sale (POS)
debit cards, foreign transactions, and new accounts.
• For POS and foreign transactions, the rule
requires a financial institution to provisionally credit
an account within ten business days (rather than
twenty) and leaves in place the ninety-calendar-day
period to complete the investigation.
• For new accounts, the rule allows a financial
institution twenty business days to resolve an alleged

940

Federal Reserve Bulletin • November 1998

error before it must provisionally credit the consumer's account and up to ninety calendar days to complete the investigation.
The Board is also publishing final amendments to
Regulation DD (Truth in Savings) and Regulation M
(Consumer Leasing). The revisions to Regulation DD
implement minor changes to the Truth in Savings Act
concerning lobby signs and certain disclosures for
automatically renewable time accounts, such as certificates of deposit. The Regulation M revisions
clarify rules on lease payments, advertisements, and
rounding calculations.

ISSUANCE OF A SUPERVISORY LETTER ON
INTERNAL CREDIT RATING SYSTEMS
The Federal Reserve on September 21, 1998, issued a
supervisory letter that emphasizes the importance of
developing and implementing effective internal credit
rating systems and stresses the important role such
systems should play in credit risk management, especially at large banking organizations.
The letter instructs examiners to evaluate the adequacy of such systems as an element of the normal
supervisory process and tells examiners to consider
the results of that evaluation in assessing an institution's risk management, capital adequacy, and asset
quality. To assist examiners in their evaluation, the
letter describes sound practices in the design of riskrating systems and in the internal processes by which
banks assign and validate risk ratings. The letter also
addresses current and emerging practices in the application of risk ratings to several key areas of large
banks' overall risk-management processes.
Internal credit risk ratings are used by large banking institutions to identify gradations in credit risk
among their business loans. The supervisory letter
grows out of a Federal Reserve staff analysis of
internal credit risk rating systems and exposures at
large institutions. The long-term goal of this analysis
is to encourage broader adoption of sound practices
in the use of such ratings and to promote further
innovation and enhancements by the industry in this
area.

ISSUANCE BY THE BASLE COMMITTEE OF A
PAPER ON INTERNAL CONTROL SYSTEMS
As part of its ongoing work to improve riskmanagement standards in banks, the Basle Committee on Banking Supervision (Basle Committee)



issued a paper on September 22, 1998, entitled
Framework for Internal Control Systems of Banking
Organisations. In this paper, the Basle Committee
presents the first internationally accepted framework
for supervisors to use in evaluating the effectiveness
of the internal controls over all on- and off-balancesheet activities of banking organizations. The paper
describes elements that are essential to a sound internal control system, recommends principles that supervisors can apply in evaluating such systems, and
discusses the role of bank supervisors and external
auditors in this assessment process. It also comments
on the lessons learned from recent internal control
failures.
The internal control framework described in the
paper is designed for international banking organizations. The guidance is broadly consistent with the
document of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) entitled
Internal Control-Integrated Framework that is extensively used by larger U.S. banks. The paper is being
distributed to supervisory authorities around the
world, to banks, and to other interested parties.
The paper was previously issued as a proposal for
public comment in January 1998. Before this proposal, the Basle Committee's guidance had discussed
internal controls in specific areas of bank activities,
such as interest rate risk and trading and derivatives
activities.
The Basle Committee's press release and the
paper can be obtained from the Internet (http://
www.bis.org) or from the Basle Committee Secretariat at the Bank for International Settlements.

ISSUANCE BY THE BASLE COMMITTEE OF
PAPERS ON RISK-MANAGEMENT STANDARDS
IN BANKS
The Basle Committee on Banking Supervision (Basle
Committee) issued on September 22, 1998, two
papers entitled Enhancing Bank Transparency and
Operational Risk Management as part of its ongoing
work to improve risk-management standards in
banks.
The paper on bank transparency gives guidelines to
banks and bank supervisors on public disclosures in
bank financial reports. It recommends that banks
make meaningful disclosure in six broad areas: financial performance; financial position (including capital, solvency, and liquidity); risk-management strategies and practices; risk exposures (including credit
risk, market risk, liquidity risk, and operational, legal,
and other risks); accounting policies; and basic busi-

Announcements

ness, management, and corporate governance information. The Basle Committee strongly recommends
that banks address these categories in their financial
reports and in other disclosures to the public. Within
each broad area, significant detail in disclosures may
be required, depending in part on the institution's
activities.
The paper on operational risk management makes
public the results of recent interviews with major
banks in the Group of Ten countries on their management of operational risk. The purpose of these interviews was to assess the current state of the art of
operational risk management. The survey results indicate that, while senior management's awareness of
operational risk has been increasing, most banks are
only in the early stages of developing a framework
for measuring and monitoring operational risk. The
Basle Committee intends to continue monitoring
developments in this area.
The text of these reports can be obtained from the
Bank for Internationa] Settlements (BIS) web site on
the Internet (http://www.bis.org). They are also available from the Basle Committee's Secretariat at the
BIS and from the Basle Committee member bank
supervisory authorities and centra] banks.

STATEMENT BY CHAIRMAN GREENSPAN
ON THE NOMINATION OF EDWIN M. TRUMAN
AS ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL AFFAIRS
Chairman Greenspan, on behalf of the Federal
Reserve Board, on October 7, 1998, issued the following statement on the announcement of President




941

Clinton's intention to nominate Edwin M. Truman,
Staff Director, Division of International Finance, as
Assistant Secretary of the Treasury for International
Affairs:
Our valued associate and good friend Ted Truman has
been an integral fixture of the Federal Reserve for twentysix years. His influence has been both pervasive and beneficial and while we will miss him, we wish him well in his
new association and expect the continuing benefit of his
wisdom.

CHANGES IN BOARD STAFF
The Federal Reserve Board on October 7, 1998,
announced the appointments of Karen H. Johnson as
Director of the Division of International Finance and
Lewis S. Alexander and Peter Hooper as Deputy
Directors, all effective October 17, 1998.
Ms. Johnson joined the Board's staff in 1979, was
promoted to Assistant Director in 1985, and has been
Associate Director since 1997.
Mr. Alexander first joined the Board's staff in
1985, left to become the Chief Economist of the
Department of Commerce in 1993, rejoined the staff
in 1996, and was promoted to Associate Director in
1997.
Mr. Hooper joined the Board's staff in 1973, was
promoted to Assistant Director in 1984, and has been
Associate Director since 1997.
Effective October 17, 1998, Edwin M. Truman
became Senior Adviser. President Clinton has
announced his intention to nominate Mr. Truman as
Assistant Secretary of the Treasury for International
Affairs.
•

943

Legal Developments
FINAL RULE—AMENDMENT

TO REGULATION

C

The Board of Governors is amending 12 C.F.R. Part 203,
its Regulation C, which implements the Home Mortgage
Disclosure Act. The amendments: modify the Loan Application Register to prepare for Year 2000 data systems
conversion; delete the requirement to enter the reporting
institution's parent company on the Transmittal Sheet; and
make certain other technical changes to the regulation and
reporting forms.
Effective September 24, 1998, 12 C.F.R. Part 203 is
amended as follows, and the amendments apply to data
collected for calendar year 1998, to be reported by
March 1, 1999.
Part 203—Home
tion C)

Mortgage

Disclosure

(Regula-

1. The authority citation for Part 203 continues to read as
follows:
Authority: 12 U.S.C. 2801-2810.
2. Section 203.1 is amended by revising the last sentence
of paragraph (a) to read as follows:

Section 203.1—Authority, purpose, and scope.
(a) Authority. * * * The information-collection requirements have been approved by the U.S. Office of Management and Budget under 44 U.S.C. 3501 et seq. and
have been assigned OMB Numbers 1557-0159, 30640046, 1550-0021, and 7100-0247 for institutions reporting data to the Office of the Comptroller of the
Currency, the Federal Deposit Insurance Corporation,
the Office of Thrift Supervision, and the Federal Reserve System, respectively; numbers for the National
Credit Union Administration and the Department of
Housing and Urban Development are pending.

Section 203.3—Exempt Institutions.
(a) Exemption based on location, asset size, or number of
home purchase loans.
(1) A bank, savings association, or credit union is
exempt from the requirements of this regulation for
a given calendar year if on the preceding December 31:
(i) * * *
(ii) The institution's total assets were at or below
the asset threshold established by the Board.
The asset threshold was adjusted from
$10 million to $28 million as of December 31,
1996. For subsequent years, the Board will
adjust the threshold based on the year-to-year
change in the average of the Consumer Price
Index for Urban Wage Earners and Clerical
Workers, not seasonally adjusted, for each
twelve-month period ending in November,
with rounding to the nearest million. The Board
will publish any adjustment to the asset figure
in December in the staff commentary.
(2) A for-profit mortgage lending institution (other
than a bank, savings association, or credit union) is
exempt from the requirements of this regulation for
a given calendar year if:
(i) * * *
(ii) The institution's total assets combined with
those of any parent corporation were $10 million or less on the preceding December 31, and
the institution originated fewer than 100 home
purchase loans (including refinancings of home
purchase loans) in the preceding calendar year.

4. In Appendix A to part 203 under the heading Paperwork
Reduction Act Notice, the undesignated paragraph is
revised to read as follows:

Appendix A to Part 203—Form and Instructions for
Completion of HMDA Loan/Application Register
Paperwork Reduction Act Notice

3. Section 203.3 is amended as follows:
a. Paragraphs (a)(l) introductory text and (a)(2) introductory text are republished;
b. Paragraph (a)(l)(ii) is revised; and
c. Paragraph (a)(2)(ii) is revised.
The revisions read as follows:




This report is required by law (12 U.S.C. 2801-2810 and
12 C.F.R. Part 203). An agency may not conduct or sponsor, and an organization is not required to respond to, a
collection of information unless it displays a currently
valid OMB Control Number. The OMB Control Numbers
for this information collection are 1557-0159, 3064-0046,
1550-0021, and 7100-0247 for institutions reporting data

944

Federal Reserve Bulletin • November 1998

Form FR HMDA-LAR
OMB Nos. 1557-0159 (OCC), 3064-0046 (FDIC),
1550-0021 (OTS), and 7100-0247 (FRB);
NCUA and HUD numbers pending.

LOAN/APPLICATION REGISTER
TRANSMITTAL SHEET
You must complete this transmittal sheet (please type or print) and attach it to the Loan/Application
Register, required by the Home Mortgage Disclosure Act, that you submit to your supervisory agency.
Agency
Code

Reporter's Identification Number

I

Total line entries contained in
attached Loan/Application Register

Reporter's Tax Identification Number

I I I I I I I I LJ - LJ

I LI - I I I I I I I I

The Loan/Application Register that is attached covers activity during the year
pages.

and contains a total of

Enter the name and address of your institution. The disclosure statement that is produced by the Federal Financial Institutions
Examination Council will be mailed to the address you supply below:

Name of Institution

Address

City, State, ZIP

Enter the name, telephone number and facsimile number of a person who may be contacted about questions regarding
your register:

i

Name

)

i

Telephone Number

L

Facsimille Number

An officer of your institution must complete the following section.




I certify to the accuracy of the data contained in this register.

Name of Officer

Signature

Date

LOAN/APPLICATION REGISTER

Page

of

Form FR HMDA-LAR
Agency

Name of Reporting Institution

Reporter's Identification Number

City, Stale, ZIP

i

All columns (except Reasons for Denial) musi be completed for each entry. See the instructions for details.
Application or
Loan Information

Action Taken

Date
Application
Received
(mm/dd/ccyy)

Application or
Loan Number
Exampl B

D£

6

L,B|-

I

1 1
1

1

7,9

4 , 5 , 6

1 1

1

3 |9

9

1

1
1 1

1

1

1 1

1 1

1

1 1

1

1

1

1 1

i

1

1

4

3

1

1

1

1

1

1

1
1

1

1

1

1

1

1
1

1 1

Property Location

Type

Date
(mm/dd/ccyy)

FourDigit
MSA
Number

TwoDigit
State
Code

ThreeDigit
County
Code

Sa-Digil
Census
Tract

1

1

I




1

1

65

1

02/22/1999

8S40

51

059

4

LL

1

03/20/1999

1

1

1

125

3

04/30/1999

0450

01

015

0 , 0

2

1

1

1 , 1

1 1

1

9

1

1 1

1
1

1

1

1

1 1

1

!

1

1 1

1

1

1

1 1 i

1

1 1

1

I

I

i

i

I

Sex

Gross
Annual
Income
in
thousands

Type of
Purchaser
of Loan

A

CA

A

CA

5

3

8

1

4

24

7

0

5

4

2

1

55

0

Reasons
for
Dental
(Optional)

1

1 1

1

1

1

1

1

1
1

[

1

1

1
1

1

1

1

1 . 1

I
i

I

1

1 •
1

I .

I .

1 . 1

1
1

4 15

1

1 •

1

,'

1 •

1 •
I

i
I

i

0

•

1

I
I

1

1

1 1

1

1

1—J_!_

1
1 1

1

1

1

1

I

1

1

1

1

I

i

1

1 1
1

1 1

2

1 1

1

1

,

1 1

1 Dl/15/1999

I I
1

1
1

1

I

1

1

1
1 1

I

0|

1

1

1 |

1

1

I
1 1

2

I

1 1

1 1
1

1

I

1

1

1

1 1

6,5

1

1

1 1

1

1

1

1 1

1

1

1 1

1 1

I

(

1 1
1

1

1

1

1

-,9,8,7

1

1

1 1
1

1

i

Denied

1
1

1 1
1

1

A p p l i c a t lor

3f

0,1,2,3

i

Applicant Intormation
A - Applicant
C* = Co-Applicant

L o a n Ori ; i n a t e d

8,7,4

Example

Type

thousands

i

Rac e or
Nations Origin

Loan
Amount
Owner
Pur- Occupose pancy

i

Code

1

1

•

1
I

1

1 1

1

1

i

i

1

1 1

1
II

1
1

1 1
1

1 •L J
L_ 1 •
1

1 •

1

1

•

1

1

•

1

1 I 1

1

1 •

1

1

1 I 1

1

1 •

1

i

1

I"
s

946

Federal Reserve Bulletin • November 1998

to the Office of the Comptroller of the Currency, the
Federal Deposit Insurance Corporation, the Office of Thrift
Supervision, and the Federal Reserve System, respectively;
numbers for the National Credit Union Administration and
the Department of Housing and Urban Development are
pending. Send comments regarding this burden estimate or
any other aspect of this collection of information, including
suggestions for reducing the burden, to the respective
agencies and to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Washington,
D.C. 20503.

5. Appendix A to Part 203 is amended as follows:
a. Paragraph I.A.2. is revised;
b. Paragraphs V.A.2. and V.A.3. are revised;
c. In paragraph V.B.3.. the introductory text is revised;
and
d. Paragraph V.E.I, introductory text is republished and
paragraph V.E.1.4 is revised.
The revisions read as follows:
I. WHO MUST FILE A REPORT
A. Depository Institutions
-[

B. Action Taken

3. Date of action. For paper submissions only, enter
date by month, day, and year, using numerals in
form MM/DD/CCYY (for example, 02/22/1999).
institutions submitting data in electronic form,
proper format is CCYYMMDD.

the
the
For
the

E. Type of Purchaser
1. Enter the applicable code to indicate whether a
loan that your institution originated or purchased
was then sold to a secondary market entity within
the same calendar year:

4 — FAMC (Federal Agricultural Mortgage Corporation)
*

*

*

6. In Appendix A, the Loan/Application Register Transmittal Sheet is revised to read as follows:
(The Transmittal Sheet appears on p. 944.)

* * *

2. The asset threshold was adjusted from $10 million
to $28 million as of December 31, 1996. Any
adjustment to the asset threshold for depository
institutions will be published by the Board in
December in the staff commentary.

7. In Appendix A, the Loan/Application Register is revised to read as follows:
(The Loan/Application Register appears on p. 945.)
8. In Appendix A, the Loan/Application Register Code
Sheet is revised to read as follows:

V. INSTRUCTIONS FOR COMPLETION OF LOAN/
APPLICATION REGISTER
A. Application or Loan Information
j

* * *

2. Date application received. For paper submissions
only, enter the date the loan application was
received by your institution by month, day, and
year, using numerals in the form MM/DD/CCYY
(for example, 01/15/1999). For institutions submitting data in electronic form, the proper format
is CCYYMMDD. If your institution normally
records the date shown on the application form,
you may use that date instead. Enter " N A " for
loans purchased by your institution.
3. Type. Indicate the type of loan or application by
entering the applicable code from the following:
1 — Conventional (any loan other than FHA,
VA, FSA, or RHS loans)
2 — FHA-insured (Federal Housing Administration)
3 — VA-guaranteed (Veterans Administration)
4 — FSA/RHS-guaranteed (Farm Service Agency
or Rural Housing Service)




Loan/Application Register Code Sheet
Use the following codes to complete the Loan/Application
Register. The instructions to the HMDA-LAR explain the
proper use of each code.
Application or Loan Information
Type:
1 — Conventional (any loan other than FHA, VA, FSA,
or RHS loans)
2 — FHA-insured (Federal Housing Administration)
3 — VA-guaranteed (Veterans Administration)
4 — FSA/RHS-guaranteed (Farm Service Agency or
Rural Housing Service)
Purpose:
1 — Home purchase (one-to-four family)
2 — Home improvement (one-to-four family)
3 — Refinancing (home purchase or home improvement, one-to-four family)
4 — Multifamily dwelling (home purchase, home improvement, and refinancings)
Owner-Occupancy:
I — Owner-occupied as a principal dwelling

Legal Developments

2 — Not owner-occupied
3 — Not applicable
Action Taken:
1 — Loan originated
2 — Application approved but not accepted
3 — Application denied by financial institution
4 — Application withdrawn by applicant
5 — File closed for incompleteness
6 — Loan purchased by your institution
Applicant

Information:

Race or National Origin:
1 — American Indian or Alaskan Native
2 — Asian or Pacific Islander
3 — Black
4 — Hispanic
5 — White
6 — Other
7 — Information not provided by applicant in mail or
telephone application
8 — Not applicable
Sex:
1 —Male
2 — Female
3 — Information not provided by applicant in mail or
telephone application
4 — Not applicable

FINAL RULE — AMENDMENT TO REGULATION E
The Board of Governors is amending 12 C.F.R. Part 205,
its Regulation E (Electronic Fund Transfers). The amendment to the final rule is revising the time periods for
investigating alleged errors involving point-of-sale and
foreign-initiated transactions. The former rule extended the
statutory time periods for these transactions to allow financial institutions a longer period to investigate before they
must provisionally credit an account and a longer period to
complete an investigation. The final rule requires financial
institutions to provisionally credit an account within 10
business days (rather than 20) and leaves in place the 90
calendar day period to complete the investigation of an
alleged error.
At the same time, the Board is extending the time
periods to provisionally credit funds and investigate claims
involving new accounts. The rule applies to claims made
within 30 calendar days after an account is opened. The
rule allows 20 business days for resolving an alleged error
and up to 90 calendar days for completing the investigation.
Effective September 24, 1998, 12 C.F.R. Part 205 is
revised as follows, and compliance is optional until
April 1, 1999.
Part 205—Electronic Fund Transfers (Regulation E)
1. The authority citation for Part 205 continues to read as
follows:
Authority:

Type of Purchaser:
0 — Loan was not originated or was not sold in calendar year covered by register
1 — FNMA (Federal National Mortgage Association)
2 — GNMA (Government National Mortgage Association)
3 — FHLMC (Federal Home Loan Mortgage Corporation)
4 — FAMC (Federal Agricultural Mortgage Corporation)
5 — Commercial bank
6 — Savings bank or savings association
7 — Life insurance company
8 — Affiliate institution
9 — Other type of purchaser
Reasons for Denial (optional):
1 — Debt-to-income ratio
2 — Employment history
3 — Credit history
4 — Collateral
5 — Insufficient cash (down payment, closing costs)
6 — Unverifiable information
7 — Credit application incomplete
8 — Mortgage insurance denied
9 — Other



947

15U.S.C. 1693-1693r.

2. Section 205.11 is amended by revising paragraph (c)(3)
as follows:

Section 205.11—Procedures for resolving errors.
(c) * * *
(3) Extension of time periods. The time periods in
paragraphs (c)(l) and (c)(2) of this section are
extended as follows:
(i) The applicable time is 20 business days in
place of ten business days under paragraphs
(c)(l) and (c)(2) of this section if the notice of
error involves an electronic fund transfer to or
from the account within 30 days after the first
deposit to the account was made.
(ii) The applicable time is 90 days in place of 45
days under paragraph (c)(2) of this section, for
completing an investigation, if a notice of error
involves an electronic fund transfer that:
(A) Was not initiated within a state;
(B) Resulted from a point-of-sale debit card
transaction; or

948

Federal Reserve Bulletin • November 1998

(C) Occurred within 30 days after the first
deposit to the account was made.

3. In Appendix A to Part 205, in A-3 Model Forms for
Error Resolution Notice (Sections 205.7(b)(10) and
205.8(b)), the undesignated second and third paragraphs following paragraph (a)(3) are revised to read as
follows:

2. Section 213.4 is amended by revising paragraph (f)(8)
to read as follows:

Section 213.4—Content of disclosures.

Appendix A to Part 205—Model Disclosure Clauses
and Forms

(f) Payment calculation. * * *
(8) Lease payments. The lease payments with a description such as ' 'the number of payments in your
lease."

Model Forms for Error Resolution Notice (Sections
205.7(b)(10) and 205.8(b))

3. Section 213.7 is amended by
graph (d)(l)(ii) to read as follows:

revising

para-

(a) Initial and annual error resolution notice (Sections
205.7(b)(10) and205.8(b))

Section 213.7—Advertising.
We will determine whether an error occurred within ten
business days after we hear from you and will correct any
error promptly. If we need more time, however, we may
take up to 45 days to investigate your complaint or question. If we decide to do this, we will credit your account
within ten business days for the amount you think is in
error, so that you will have the use of the money during the
time it takes us to complete our investigation. If we ask
you to put your complaint or question in writing and we do
not receive it within 10 business days, we may not credit
your account.
We will tell you the results within three business days
after completing our investigation. If we decide that there
was no error, we will send you a written explanation. You
may ask for copies of the documents that we used in our
investigation.

FINAL RULE-—AMENDMENT

TO REGULATION

M

The Board of Governors is amending 12 C.F.R. Part 213,
its Regulation M, which implements the Consumer Leasing Act. The Act requires lessors to provide consumers
with uniform cost and other disclosures about consumer
lease transactions. The final rule adopts several technical
amendments to the regulation and commentary concerning
lease payments, advertisements, and the treatment of taxes.
Effective September 24, 1998, 12 C.F.R. Part 213 is
amended as follows, and compliance is optional until October 1, 1999.

(d) Advertising of terms that require additional disclosure.
(1) Triggering terms. * * *
(ii) A statement of any capitalized cost reduction
or other payment (or that no payment is required) prior to or at consummation or by
delivery, if delivery occurs after consummation.

4. Appendix A to part 213 is amended by revising Appendix A-l, Appendix A-2, and Appendix A-3 to read as
follows:
5. In Supplement I to Part 213—Official Staff Commentary to Regulation M, under Section 213.4—Content of
Disclosures, the following amendments are made:
a. A new paragraph 4(f)(7) Total of Base Periodic
Payments is added in numerical order.
b. The heading to paragraph 4(f)(8) and paragraph 1.
are revised.
c. Under paragraph 4(n) Fees and taxes, paragraph
l.ii. is revised.
d. Under Appendix A—Model Forms, paragraph 2.v.
is revised.
The addition and revisions read as follows:

Supplement I to Part 213—Official Staff
Commentary to Regulation M

Part 213—Consumer Leasing (Regulation M)
1. The authority citation for Part 213 is revised to read as
follows:
Authority:

15 U.S.C. 1604; 1667f.




Section 213.4—Content of Disclosures

Legal Developments

4(f)(7) Total of Base Periodic Payments
1. Accuracy of disclosure. If the periodic payment calculation under section 213.4(f) has been calculated correctly, the amount disclosed under section
213.4(f)(7)—the total of base periodic payments—is
correct for disclosure purposes even if that amount
differs from the base periodic payment disclosed under
section 213.4(f)(9) multiplied by the number of lease
payments disclosed under section 213.4(f)(8), when
the difference is due to rounding.

949

modifies the rules for indoor lobby signs, eliminates subsequent disclosure requirements for automatically renewable
time accounts with terms of one month or less, and repeals
the civil liability provisions as of September 30, 2001.
Effective September 24, 1998, 12 C.F.R. Part 230 is
amended as follows:

Part 230—Truth in Savings (Regulation DD)
1. The authority citation for Part 230 continues to read as
follows:
Authority: 12 U.S.C. 4301 et seq.

4(f)(8) Lease Payment
1. Lease Term. The lease term may be disclosed among the
segregated disclosures.

2. Section 230.5 is amended by removing paragraph (c)
and redesignating paragraph (d) as new paragraph (c).
3. Section 230.8 is amended by revising paragraph
(e)(2)(i) to read as follows:
Section 230.8—Advertising.

4(n) Fees and taxes.
1. Treatment of certain taxes. * * *
ii. Taxes that are part of the scheduled payments are
reflected in the disclosure under sections 213.4(c), (f),
and (n).

APPENDIX A—MODEL FORMS

2. Examples of acceptable changes. * * *
v. Deleting or blocking out inapplicable disclosures,
filling in "N/A" (not applicable) or " 0 , " crossing
out, leaving blanks, checking a box for applicable
items, or circling applicable items (this should facilitate use of multipurpose standard forms).

(e) Exemption for certain advertisements. * * *
(2) Indoor signs.
(i) Signs inside the premises of a depository institution (or the premises of a deposit broker) are
not subject to paragraphs (b), (c), (d) or (e)(l)
of this section.

4. Section 230.9 is amended by revising paragraph (b) to
read as follows:

Section 230.9—Enforcement and record retention.
* * * * *

(The Model Forms appear on pp. 950-955.)

(b) Civil liability. Section 271 of the Act contains the
provisions relating to civil liability for failure to comply with the requirements of the act and this part;
Section 271 is repealed effective September 30, 2001.

FINAL RULE—AMENDMENT TO REGULATION DD

Supplement I to Part 230—Official Staff
Interpretation

The Board of Governors is amending 12 C.F.R. Part 230,
its Regulation DD, which implements the Truth in Savings
Act. The final rule implements amendments to the Truth in
Savings Act enacted as part of the Economic Growth and
Regulatory Paperwork Reduction Act of 1996. The law




5. In Supplement I to Part 230, in Section 230.5 Subsequent disclosures, under paragraph (c), paragraph 1. is
removed.
6. In Supplement 1 to Part 230, in Section 230.8 Advertising, under paragraph (e)(2)(i), paragraph 2. is removed.

950

Federal Reserve Bulletin • November 1998

Appendix A-l Model Open-End or Finance Vehicle Lease Disclosures

Federal Consumer Leasing Act Disclosures
Date
Lessee(s)

Lessor(s)
Amount Due at
Lease Signing
or Delivery
(Itemized below)*

Monthly Payments

Other Charges (not part of your monthly
payment)

Your first monthly payment of $
is due on
. followed by
paymenls of $
due on
of each month. The total of your
monthly paymenls is $ _

Disposition fee (if you do
not purchase the vehicle)

Total

Total of Payments
(The amount you will have
paid by the end of the lease)

$

You will owe an additional
amount if the actual value of
the vehicle is less than the
residual value.

$_

* Itemizatfoa of Amount Due at Lease Signing or DeBrery
How the Amount Due at Lease Signing or Delivery will be paid:
Amount Due At Lease Signing or Delivery:
Capitalized cost reduction
First monthly payment
Refundable security deposit
Title fees
Registration fees

$

Total

Net trade-in allowance
Rebates and noncash credits
Amount to be paid in cash

$

Total

$

Your monthly payment is determined as shown below:
Gross capitalized cost. The agreed upon value of the vehicle ($.
_) and any items
you pay over the lease term (such as service contracts, insurance, and any outstanding prior credit
or lease balance)

S.

If you want an itemization of this amount, please check this box. LJ
Capitalized cost reduction. The amount of any net trade-in allowance, rebate, noncash credit, or cash you pay
that reduces the gross capitalized cost
Adjusted capitalized cost. The amount used in calculating your base monthly payment
Residual value. The value of the vehicle at the end of the lease used in calculating your base monthly payment
Depreciation and any amortized amounts. The amount charged for the vehicle's decline in value
through normal use and for other items paid over the lease term
Rent charge. The amount charged in addition to the depreciation and any amortized amounts
Total of base monthly payments. The depreciation and any amortized amounts plus the rent charge
Lease payments. The number of payments in your lease
Base monthly payment
Monthly sales/use tax
Total monthly payment
Rent and other charges. The total amount of rent and other charges imposed in connection with your lease $ .
Earl} TermlaatiM. Vnu may bate tn pay a substantial cfrtiy if you end liii* Irase earij. lne cba/ftajjaj be KB.t<t.w>crul
Iboattad drfjfcn. The iirtnnl chargtr will depart on whm Die l e w * tennlnutrd. Ilw wqtaer j f a W i h e lease, tbe'ptater
Uu> (harge'b hVlj tn he.
Excessive Wear and Use. You may be charged for excessive wear based on our standards for normal use (and for mileage in excess
of
miles per year at the rate of
per mile].
Purchase Option at End of Lease Term. [You have an option to purchase the vehicle at the end of the lease term for $
[and a purchase option fee of $
J.[ [You do not have an option to purchase the vehicle at the end of the lease term.]
Other Important Terms. See your lease documents for additional information on early termination, purchase options and maintenance
responsibilities, warranties, late and default charges, insurance, and any security interest, if applicable.




Legal Developments

Appendix A-1 Model Open-End or Finance Vehicle Lease Disclosures

951

Page 2 of 2

[The following provisions are the nonsegregated disclosures required under Regulation M.|

Year

Make

Model

Body Style

Vehicle ID #

Official Fees and Taxes. The total amount you will pay for official and license fees, registration, title, and taxes over the term of your lease, whether
included with your monthly payments or assessed otherwise: $
.
Insurance. The following types and amounts of insurance will be acquired in connection with this lease:

We (lessor) will provide the insurance coverage quoted above for a total premium cost of $

.

You (lessee) agree to provide insurance coverage in the amount and types indicated above.
End of T e r m Liability, (a) The residual value ($
) of the vehicle is based on a reasonable, good faith estimate of the value of the vehicle at the
end of the lease term. If the actual value of the vehicle at that time is greater than the residual value, you will have no further liability under this lease, except for
other charges already incurred [and are entitled to a credit or refund of any surplus.] If the actual value of the vehicle is less than the residual value, you will be
liable for any difference up to $
(3 times the monthly payment). For any difference in excess of that amount, you will be liable only if:
1. Excessive use or damage |as described in paragraph
] (representing more than normal wear and use| resulted in an unusually low value at the end of
the term.
2. The matter is not otherwise resolved and we win a lawsuit against you seeking a higher payment.
3. You voluntarily agree with us after the end of the lease term to make a higher payment.
Should we bring a lawsuit against you, we must prove that our original estimate of the value of the leased property at the end of the lease term was reasonable and
was made in good faith. For example, we might prove that the actual was less than the original estimated value, although the original estimate was reasonable,
because of an unanticipated decline in value for that type of vehicle. We must also pay your attorney's fees.
(b) If you disagree with the value we assign to the vehicle, you may obtain, at your own expense, from an independent third party agreeable to both of us. a
professional appraisal of the
value of the leased vehicle which could be realized at sale. The appraised value shall then be used as the actual value.
Standards for W e a r and Use. The following standards are applicable for determining unreasonable or excess wear and use of the leased vehicle;

Maintenance.
[You are responsible for the following maintenance and servicing of the leased vehicle:

[We are responsible for the following maintenance and servicing of the leased vehicle:
Warranties. The leased vehicle is subject to the following express warranties:

Early Termination and Default, (a) You may terminate this lease before the end of the lease term under the following conditions:

The charge for such early termination is:

(b) We may terminate this lease before the end of the lease term under the following conditions:

Upon such termination we shall be entitled to the following charge(s) for:
(c) To the extent these charges take into account the value of the vehicle at termination, if you disagree with the value we assign to the vehicle, you may obtain,
at your own expense, from an independent third party agreeable to both of us, a professional appraisal of the
value of the leased vehicle
which could be realized at sale. The appraised value shall then be used as the actual value.
Security Interest. We reserve a security interest of the following type in the property listed below to secure performance of your obligation under this lease:

Late P a y m e n t s . The charge for late payments
Option to Purchase Leased Property Prior tO the End of the Lease. [You have an option to purchase the leased vehicle prior to the end of the term.
The price will be [$
/fthe method of determining the price].] [You do not have an option to purchase the leased vehicle.]




952

Federal Reserve Bulletin O November 1998

Appendix A-2 Model Closed-End or Net Vehicle Lease Disclosures

Federal Consumer Leasing Act Disclosures
Date
Lessee(s)

Lessor(s)
Amount Due at
Lease Signing
or Delivery
(Itemized below)*

Other Charges (not part of your monthly
payment)

Monthly Payments
Your first monthly payment of $
is due on

, followed by

Disposition tee (if you do
not purchase the vehicle)

Total of Payments
(The amount you will have
paid by the end of the lease)

$

payments of $ .

due on
of each month. The total of your
the_
monthly payments is $

Total

| | S ' • Ilcini/.itinn «r Viwiunt One at Lease Signing or Delivery
Amount Due At Lease Signing or Delivery:
How the Amount Due at LIU.M' Signing ur Delivery will be paid:
Net trade-in allowance
Rebates and noncash credits
Amount to be paid in cash

Capitalized cost reduction
First monthly payment
Refundable security deposit
Title fees
Registration fees
Total

$

Total

$

Yaur nwartMy payment Is ^eterwtaed » steowabetow:
Gross capitalized cost. The agreed upon value of the vehicle ($ _
_) and any items
you pay over the lease term (such as service contracts, insurance, and any outstanding prior credit
or lease balance)
If you want an itemization of this amount, please check this box. D
Capitalized cost reduction. The amount of any net trade-in allowance, rebate, noncash credit, or cash you pay
that reduces the gross capitalized cost
Adjusted capitalized cost. The amount used in calculating your base monthly payment
Residual value. The value of the vehicle at the end of the lease used in calculating your base monthly payment
Depreciation and any amortized amounts. The amount charged for the vehicle's decline in value
through normal use and for other items paid over the lease term
Rent charge. The amount charged in addition to the depreciation and any amortized amounts
Total of base monthly payments. The depreciation and any amortized amounts plus the rent charge
Lease payments. The number of payments in your lease
Base monthly payment
Monthly sales/use tax
Total monthly payment

Excessive Wear and Use. You may be charged for excessive wear based on our standards for normal use [and for mileage in excess
of
miles per year at the rate of
per mile].
Purchase Option at End of Lease Term. [You have an option to purchase the vehicle at the end of the lease term for $
[and a purchase option fee of $
].| [You do not have an option to purchase the vehicle at the end of the lease term.]
Other Important Terms. See your lease documents for additional information on early termination, purchase options and maintenance
responsibilities, warranties, late and default charges, insurance, and any security interest, if applicable.




Legal Developments

Appendix A-2 Model Closed-End or Net Vehicle Lease Disclosures

953

Page 2 of 2

[The following provisions are the nonsegregated disclosures required under Regulation M.]

Year

Make

Model

4i A-'iS

Body Style

Vehicle ID #

Official Fees and Taxes* The total amount you will pay for official and license fees, registration, title, and taxes over the term of your lease, whether
included with your monthly payments or assessed otherwise: $
.
Insurance. The following types and amounts of insurance will be acquired in connection with this lease:

We (lessor) will provide the insurance coverage quoted above for a total premium cost of $

.

You (lessee) agree to provide insurance coverage in the amount and types indicated above.
Standards for W e a r and Use. The following standards are applicable for determining unreasonable or excess wear and use of the leased vehicle:

Maintenance.
[You are responsible for the following maintenance and servicing of the leased vehicle:

[We are responsible for the following maintenance and servicing of the leased vehicle:
Warranties. The leased vehicle is subject to the following express warranties:

Early Termination and Default, (a) You may terminate this lease before the end of the lease term under the following conditions:

The charge for such early termination is:

(b) We may terminate this lease before the end of the lease term under the following conditions:

Upon such termination we shall be entitled to the following charge(s) for:

(c) To the extent these charges take into account the value of the vehicle at termination, if you disagree with the value we assign to the vehicle, you may obtain,
at your own expense, from an independent third party agreeable to both of us, a professional appraisal of the
which could be realized at sale. The appraisal value shall then be used as the actual value.

value of the leased vehicle

Security Interest. We reserve a security interest of the following type in the property listed below to secure performance of your obligation under this lease:

Late P a y m e n t s . The charge for late payments is:
Option to Purchase Leased Property Prior to the E n d of the Lease. [You have an option to purchase the leased vehicle prior to the end of the term.
The price will be [$
/[the method of determining the price|.] [You do not have an option to purchase the leased vehicle.]




954

Federal Reserve Bulletin • November 1998

Appendix A-3 Model Furniture Lease Disclosures

Federal Consumer Leasing Act Disclosures

Date
Lessor(s)

Lessee(s)

Color

Item

Amount Due at Lease Signing
or Delivery
First monthly payment
S
Refundable security deposit $
Delivery/Installation fee
$
Total

Description of Leased Property
Stock #

Monthly Payments
Your first monthly payment of $
is due on
. followed by
payments of $
due on
of each month. The tolal of your
the
monthly payments is $

Mfg.

Other Charges (not part of
your monthly payment)
Pick-up fee

$

Quantity

Total of Payments
(The amount you
will have paid by
the end of the lease)

Total $ _

$.

Purchase Option at End of Lease Term. [You have an option to purchase the leased property at the end of the lease term for $
[and a purchase option fee of $
].] [You do not have an option to purchase the leased property at the end of the lease term/
Other Important Terms. See your lease documents for additional information on early termination, purchase options and maintenance
responsibilities, warranties, late and default charges, insurance, and any security interest, if applicable.
[The following provisions are the nonsegregaled disclosures required under Regulation M.]
Official Fees and Taxes. The total amount you will pay for official fees, and taxes over the term of your lease, whether included with your monthly
payments or assessed otherwise: $
.
Insurance. The following types and amounts of insurance will be acquired in connection with this lease:

We (lessor) will provide the insurance coverage quoted above for a total premium cost of S
You (lessee) agree to provide insurance coverage in the amount and types indicaied above.
Standards for Wear and Use. The following standards are applicable for determining unreasonable or excess wear and use of the leased property:

Maintenance.
[You are responsible for the following maintenance and servicing of the leased property:

[We are responsible for the following maintenance and servicing of the leased property:

Warranties. The leased property is subject to the following express warranties:
Early Termination and Default, (a) You may terminate this lease before the end of the lease term under the following conditions:

The charge for such early termination is: .
(b) We may terminate this lease before the end of the lease term under the following conditions: .
Upon such termination we shall be entitled to the following charge(s) for:




Legal Developments

Appendix A-3 Model Furniture Lease Disclosures

955

Page 2 of 2

Early Termination and Default, (continued)
(c) To the extent these charges take into account the value of the leased property at termination, if you disagree with the value we assign to the
property, you may obtain, at your own expense, from an independent third party agreeable to both of us, a professional appraisal of the
value of the property which could be realized at sale. The appraised value shall then be used as the actual value.
Security Interest. We reserve a security interest of the following type in the property listed below to secure performance of your obligations under this lease:

Late Payments. The charge for late payments is:

Purchase Option Prior to the End of the Lease Term.
[You have an option to purchase the leased property prior to the end of the term. The price will be [$
[You do not have an option to purchase the leased property.]




]/the method of determining the price].]

956

Federal Reserve Bulletin • November 1998

ORDERS ISSUED UNDER BANK HOLDING COMPANY
ACT

Orders Issued Under Section 3 of the Bank Holding
Company Act
First Mariner Bancorp
Baltimore, Maryland
Order Approving Acquisition of Control of a Bank
Holding Company
First Mariner Bancorp ("First Mariner"), a bank holding
company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12 U.S.C. § 1842)
to acquire control and up to 100 percent of the voting
shares of Glen Burnie Bancorp ("Glen Burnie"), and
thereby acquire control of The Bank of Glen Burnie
("Bank"), both of Glen Burnie, Maryland.1
Notice of the proposal, affording interested persons an
opportunity to submit comments, has been published
(63 Federal Register 11,446 (1998)). The time for filing
comments has expired, and the Board has considered the
proposal and all comments received in light of the factors
set forth in section 3 of the BHC Act.
First Mariner controls approximately $223 million in
deposits, representing less than 1 percent of total deposits
in commercial banking organizations in the state of Maryland ("state deposits"). 2 Glen Burnie controls approximately $192 million in deposits, also representing less than
1 percent of state deposits. On consummation of the
proposal, First Mariner would control approximately
$415 million in deposits.
Financial and Managerial Considerations
The BHC Act requires the Board to consider the financial
and managerial resources and future prospects of the companies and banks involved in the proposal. The management of Glen Burnie ("Commenter") has objected to the
proposal, contending that First Mariner does not have the
financial resources to acquire all the voting shares of Glen
Burnie, particularly in light of Glen Burnie's shareholders
rights plan.3 Commenter also contends that state law would
effectively limit First Mariner to acquiring approximately

1. First Mariner owns less than 1 percent of the voting shares of
Glen Burnie and has an agreement to acquire an additional
18.9 percent of the voting shares.
2. Deposit data are as of June 30, 1998.
3. Glen Burnie has adopted a shareholders rights plan that becomes
effective when a shareholder who has acquired or obtained the right to
acquire 10 percent or more of Glen Burnie's voting shares before the
adoption of the plan acquires 20 percent or more of its voting shares.
If this event occurs, each of the other shareholders receives the right to
purchase additional voting shares for one-half market value or to
receive additional voting shares in exchange for (heir rights under the
plan.



20 percent of the company's voting shares,4 and that First
Mariner's position as a minority shareholder would cause
dissension and disruption within the management of Glen
Burnie.5
The Board has carefully considered the comments in
light of all the facts of record, including supervisory reports of examination assessing the financial and managerial
strength of the institutions involved, accounting adjustments that Commenter alleges would be required in connection with the proposal, and confidential financial information provided by First Mariner regarding the source of
funding for purchasing the voting shares of Glen Burnie.
The Board notes that First Mariner and its subsidiary bank
are currently well capitalized. In addition, First Mariner
has committed that its purchase of any voting shares of
Glen Burnie in addition to the 18.9 percent of the shares
that it already has under contract to purchase will be
funded only with equity that qualifies as tier 1 capital, and
that First Mariner, Glen Burnie, and their subsidiary banks
will remain well capitalized after all share purchases.
First Mariner proposes to become the largest shareholder
in Glen Burnie, and its acquisition of a minority interest is
a first step in seeking to acquire all the shares of Glen
Burnie. First Mariner has committed, however, not to elect
its nominees to Glen Burnie's board of directors unless its
nominees would constitute a majority of the board.6 Ac-

4. Commenter represents that Glen Burnie has elected to be subject
to a provision in Maryland law that generally prohibits a shareholder
who owns 20 percent or more of a company's voting shares ("control
shares") from voting the control shares unless the right to vote the
control shares has been approved by two-thirds of the company's
disinterested shareholders. See Md. Code Ann., Corps. & Ass'ns
§ 3-702(a) (1997). The control shares provision also contains an
exception for the acquisition of shares as part of a merger or other
form of business combination. Commenter notes, however, that under
the exception, a shareholder who acquires 10 percent or more of the
voting snares of a company or any affiliate of the shareholder may not
merge or combine with the company for five years after the shareholder's ownership reaches the 10 percent level unless the company's
board of directors approves the merger or combination. See Md. Code
Ann., Corps. & Ass'ns §§ 3-602(a) and 3-603(c)-(e) (1997).
5. Commenter argues that the proposal is inconsistent with the
Board's precedent in NBC Co.. 60 Federal Reserve Bulletin 782
(1974) ("NBC Co."), in which the Board denied a bank holding
company's application to acquire less than 25 percent of the voting
shares of a bank because a single shareholder held more than
50 percent of the voting shares of the bank and vigorously opposed the
acquisition. The Board concluded that the proposal '"would only
perpetuate or aggravate dissension in Bank's management" without
the applicant having any opportunity to obtain control of the bank.
The Board also noted that the proposed acquisition could detract from
the overall financial condition of the applicant, which planned to rely
on the bank's dividends to service the applicant's acquisition debt.
6. Commenter questions whether First Mariner's representatives or
nominees may serve on the board of directors of Glen Burnie in light
of the Depository Institution Management Interlocks Act (12 U.S.C.
§ 3201 el seq.) ("Interlocks Act"). The Interlocks Act prohibits
director interlocks between two depository institutions in the same
metropolitan statistical area unless the institutions are affiliates for
purposes of the Interlocks Act. Under the proposal, First Mariner
would own at least 19 percent of Glen Burnie's voting shares but
would not have a director on Glen Burnie's board unless its nominees
constituted a majority of the board of directors. Accordingly, there
would not be a director interlock unless Glen Burnie was a subsid-

Legal Developments 957

cordingly, First Mariner will either control the board of
directors of Glen Burnie or not participate in the board of
directors of the company.7 These circumstances substantially reduce the possibility that dissension or disruption
within the board of directors will interfere with the operations of Glen Burnie.8
The Board recognizes that First Mariner may not succeed in acquiring control of Glen Burnie. The Board has
indicated that the acquisition of less than a controlling
interest in a bank or bank holding company is not a normal
acquisition for a bank holding company.9 Nonetheless, the
requirement in section 3(a)(3) of the BHC Act that the
Board's approval be obtained before a bank holding company acquires more than 5 percent of the voting shares of a
bank suggests that Congress contemplated the acquisition
by bank holding companies of between 5 and 25 percent of
the voting shares of a bank or a bank holding company.10
Nothing in section 3(c) of the BHC Act, moreover, requires
denial of an application solely because a bank holding

iary of First Mariner for purposes of the BHC Act. See 12 U.S.C.
§§ 1841(a)(2)(B) and 1841(d). In that event, the two organizations
would be affiliates under the Interlocks Act, and the interlock would
be permissible. See 12 U.S.C. § 3201(3)(A). If First Mariner proposes
to establish a director interlock under any other circumstances, that
interlock must conform with the Interlocks Act. Commenter also
contends that First Mariner would have violated the Interlocks Act if a
recent proxy contest challenging Glen Burnie's management by a
dissident shareholder that was supported by First Mariner had succeeded. Even assuming that the directors proposed to replace the
management nominees were covered by the Interlocks Act, the challenge sought to replace the entire board of directors and would not
have violated the Interlocks Act for the reasons discussed above. In
any event, no violation of the Interlocks Act occurred because no
representative or nominee of First Mariner was elected to Glen Burnie's board of directors.
7. Commenter argues that efforts by First Mariner to obtain confidential information concerning Glen Burnie's management and First
Mariner's alleged use of this information to support litigants against
Glen Burnie were improper and illustrate the antagonistic and damaging effect that First Mariner would have on Glen Burnie if the
proposal were approved by the Board. This matter was reviewed by a
court, which ordered the return of certain documents to Glen Burnie,
noted that the applicable law was not settled, and determined not to
impose any penalty or sanction on First Mariner.
8. Unlike NBC Co., the proposed investment in this case would not
impair the financial resources or capital position of First Mariner
because First Mariner would neither incur debt to consummate the
transaction nor depend on dividends from Glen Burnie to meet any
debt servicing requirements. Commenters also do not control a majority of the voting shares of Glen Burnie. Consequently, this proposal
more closely resembles the facts in a number of cases approved by the
Board involving acquisitions by bank holding companies of minority
positions in other institutions without the consent of the institutions'
management. See, e.g., Crescent Holding Company, 73 Federal
Reserve Bulletin 457 (1987) (acquisition of 37 percent of the voting
shares of a bank approved notwithstanding possible management
dissension); Hudson Financial Associates, 72 Federal Reserve Bulletin 150 (1986) (acquisition of up to 49.8 percent of the voting shares
of a bank holding company); City Holding Company, 71 Federal
Reserve Bulletin 575 (1985) (acquisition of up to 30 percent of the
voting shares of a bank holding company).
9. See, e.g.. North Fork Bancorporation, Inc., 81 Federal Reserve
Bulletin 734 (1995) ("North Fork"); State Street Boston Corporation,
67 Federal Reserve Bulletin 862, 863 (1981).
10. 12 U.S.C. § 1842(a)(3); 12 C.F.R. 225.1 l(c).



company may acquire less than a controlling interest in a
bank or bank holding company. On this basis, the Board
has on numerous occasions approved the acquisition by a
bank holding company of less than a controlling interest in
a bank.11
Commenter argues that the Board may not approve the
proposal because, in the view of Commenter, the proposal
is not permissible under applicable state law. Commenter
argues that Maryland law prohibits consummation of the
proposal unless Bank (the banking institution to be acquired) files a separate application for and receives approval to become an affiliate of First Mariner and its
subsidiary bank.12 The Board may not approve the acquisition of a bank by a bank holding company if the acquisition
is prohibited by state law.13 The Maryland Commissioner
of Financial Regulation reviewed the transaction in light of
the arguments raised by Commenter and approved the
proposal by finding that the proposal was permissible under Maryland law. The Commissioner's order concluded
that, when a bank holding company files the appropriate
application under Maryland law for a proposed acquisition,
a separate application from the Maryland banking institution to be acquired is not required.14 A state court in
Maryland has upheld the Commissioner's decision. Accordingly, based on all the facts of record, the Board has
determined that its approval of the proposal is not prohibited by state law.15
Based on these and other facts of record, the Board
concludes that considerations relating to the financial and
managerial resources and future prospects of First Mariner,
Glen Burnie, and their respective subsidiaries are consistent with approval of the proposal, as are the other supervisory factors that the Board must consider under section 3
of the BHC Act.16

11. See e.g.. North Fork (acquisition of up to 19.9 percent of the
voting shares of a bank holding company); Mansura Bancshares, Inc.,
79 Federal Reserve Bulletin 37 (1993) (acquisition of 9.7 percent of
the voting shares of a bank holding company); SunTrust Banks, Inc.,
76 Federal Reserve Bulletin 542 (1990) (acquisition of up to
24.9 percent of the voting shares of a bank): and First State Corporation, 76 Federal Reserve Bulletin 376 (1990) (acquisition of
24.9 percent of the voting shares of a bank).
12. See Md. Code Ann., Fin. Inst. § 5^103 (1997).
13. See Whitney National Bank in Jefferson Parish v. Bank of New
Orleans and Trust Company, 379 U.S. 41 I (1965).
14. See Order of the Commissioner dated May 4, 1998; Md. Code
Ann., Fin. Inst. § 5-904 (1997).
15. Glen Burnie may appeal the decision of the court. The Board
expects First Mariner to comply with all requirements of state law that
are found to be applicable to the actions taken by First Mariner.
16. Commenter maintains that First Mariner was required to obtain
the Board's approval under the BHC Act before First Mariner supported a proxy challenge by a dissident shareholder at a recent
meeting of Glen Burnie's shareholders. The Board notes that the
conduct identified by Commenter falls within the scope of a wellrecognized exception for proxy contests to the prior notice requirements of applicable law. See Board letter dated March 6, 1995, to
Murray A. Indick, Esq. The Board also notes that the director nominees supported by First Mariner were not elected at the meeting of
Glen Burnie's shareholders and that First Mariner has requested the
Board's prior approval under this proposal to control Glen Burnie in
the future.

958

Federal Reserve Bulletin • November 1998

Competitive

Considerations

The BHC Act prohibits the Board from approving an
application under section 3 of the BHC Act if the proposal
would result in a monopoly, or if the proposal would
substantially lessen competition in any relevant banking
market, and the Board has not found that the anticompetitive effects of the proposal are clearly outweighed in the
public interest by the probable effect of the proposal in
meeting the convenience and needs of the community to be
served.17
First Mariner and Glen Burnie compete directly in the
Baltimore, Maryland, banking market.18 On consummation
of the proposal, First Mariner would become the 11th
largest depository institution in the market and control
approximately $348 million of deposits in the market,
representing 1.5 percent of total deposits in depository
institutions in the market.19 The banking market would
remain moderately concentrated under the Department of
Justice Merger Guidelines, and the Herfindahl-Hirschman
Index ("HHI") would increase by 1 point to 1145.20 Numerous competitors would remain in the market. Based on
all the facts of record, the Board concludes that the consummation of the proposal would not have a significantly
adverse effect on competition or on the concentration of
banking resources in the Baltimore banking market or any
other relevant banking market.
Convenience and Needs and Other Considerations
The BHC Act requires the Board to consider the convenience and needs of the communities to be served in
connection with its review of the acquisition of a bank
holding company. The Community Reinvestment Act
(12 U.S.C. § 2901 etseq.) ("CRA") also requires the Board

17. 12 U.S.C. § 1842(c)(l)(B).
18. The Baltimore banking market consists of the Baltimore, Maryland, Ranally Marketing Area and the remainder of Harford County,
Maryland.
19. Market share data for all depository institutions, including First
Mariner and Glen Burnie, are as of June 30, 1997, and are based on
calculations in which the deposits of thrift institutions are included at
50 percent. The Board previously has indicated that thrift institutions
have become, or have the potential to become, significant competitors
of commercial banks. See Midwest Financial Group, 75 Federal
Reserve Bulletin 386 (1989); National City Corporation, 70 Federal
Reserve Bulletin 743 (1984). Thus, the Board has regularly included
thrift deposits in the calculation of market share on a 50-percent
weighted basis. See, e.g., First Hawaiian, Inc.. 11 Federal Reserve
Bulletin 52 (1991).
20. Under the revised Department of Justice Merger Guidelines,
49 Federal Register 26,823 (June 29, 1984), a market in which the
post-merger HHI is between 1000 and 1800 is considered to be
moderately concentrated. The Justice Department has informed the
Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive
effects) unless the post-merger HHI is at least 1800 and the merger or
acquisition increases the HHI by at least 200 points. The Justice
Department has stated that the higher than normal threshold for an
increase in the HHI when screening bank mergers and acquisitions for
anticompetitive effects implicitly recognizes the competitive eifect of
limited-purpose lenders and other nondepository financial entities.



to take into account, as part of its review of a proposal to
acquire a depository institution, the record of performance
of each relevant depository institution in helping to meet
the credit needs of the institution's entire community,
including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the institution.21 The Board has carefully reviewed the convenience
and needs factor and the CRA performance records of the
banks involved in light of Commenter's contention that the
proposal would not provide any significant benefit to the
communities to be served.
As provided in the CRA, the Board has evaluated the
convenience and needs factor in light of examinations of
the CRA performance records of the relevant institutions
conducted by the appropriate federal financial supervisory
agency. An institution's most recent CRA performance
evaluation is a particularly important consideration in the
applications process because it represents a detailed on-site
evaluation of the institution's overall record of performance under the CRA by its appropriate federal supervisor.22 First Mariner's subsidiary bank, First Mariner Bank,
Baltimore, Maryland, received a "satisfactory" rating from
its appropriate federal supervisor, the Federal Deposit Insurance Corporation ("FDIC"), at the bank's most recent
examination for CRA performance, as of June 1996. Bank
also received a "satisfactory" rating from the FDIC at is
most recent examination for CRA performance, as of September 1995.
Based on all the facts of record, the Board concludes that
the convenience and needs factor, including the CRA performance records of the subsidiary banks of First Mariner
and Glen Burnie, are consistent with approval.
Conclusion
Based on the foregoing and all other facts of record, the
Board has determined that the application should be, and
hereby is, approved.23 The Board's approval is specifically

21.12 U.S.C. § 2903.
22. The Statement of the Federal Financial Supervisory Agencies
Regarding the Community Reinvestment Act provides that a CRA
examination is an important and often controlling factor in the consideration of an institution's CRA record and that reports of these
examinations will be given great weight in the applications process.
54 Federal Register 13,742 and 13,745 (1989); see also Interagency
Questions and Answers Regarding Community Reinvestment,
62 Federal Register 52,105 and 52,121 (1997).
23. Commenter requests that the Board hold a public hearing to give
Comenter the opportunity to question First Mariner and to obtain
additional information about Commenter's alleged violations of law
in connection with the proxy contest discussed above. Section 3(b) of
the BHC Act does not require the Board to hold a public hearing on an
application unless the primary supervisor of the bank to be acquired
makes a timely written recommendation of denial. The Board has not
received such a recommendation.
Under its rules, the Board also may, in its discretion, hold a public
meeting or hearing on an application to acquire a bank if a meeting or
hearing is necessary or appropriate to clarify factual issues related to
the application and to provide an opportunity for testimony, if appropriate. 12 C.F.R. 225.16(e). The Board has carefully considered Commenter's request in light of all the facts of record. In the Board's view,

Legal Developments

conditioned on compliance by First Mariner with all the
commitments made in connection with this application and
on its compliance with all the requirements of Maryland
law that are found to be applicable to the actions taken by
First Mariner to acquire an interest in Glen Burnie or Bank.
The commitments relied on by the Board in reaching this
determination are deemed to be conditions imposed in
writing by the Board in connection with its findings and
decision, and, as such, may be enforced in proceedings
under applicable law.
The proposed acquisition of Glen Burnie shall not be
consummated before the fifteenth calendar day following
the effective date of this order, and not later than three
months after the effective date of this order, unless such
period is extended for good cause by the Board or by the
Federal Reserve Bank of Richmond, acting pursuant to
delegated authority.
By order of the Board of Governors, effective September 28, 1998.
Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and
Governors Kelley, Meyer, Ferguson, and Gramlich.
ROBERT DEV. FRIERSON
Associate Secretary of the Board
First National Bank Group,
Edinburg, Texas

Inc.

Order Approving Application to Acquire Control of a
Bank
First National Bank Group, Inc. ("First National'"), a bank
holding company within the meaning of the Bank Holding
Company Act ("BHC Act"), has requested the Board's
approval under section 3 of the BHC Act (12 U.S.C.
§ 1842) to acquire up to 51 percent of the voting shares of
Nueces National Bank, Corpus Christi, Texas ("Nueces
Bank").'
Notice of the proposal, affording interested persons an
opportunity to submit comments, has been published
(63 Federal Register 37,883 (1998)). The time for filing
comments has expired, and the Board has considered the

Commenter has had ample opportunity to submit its views, and has
submitted substantial written comments, including information regarding the proxy contest, that have been carefully considered by the
Board in acting on the application. Commenter's request fails to
demonstrate why its written comments do not adequately present its
evidence, allegations and views, and. assuming the facts are as Commenter asserts, no material issue is raised by the comments concerning First Mariner's participation in the recent proxy contest for the
reasons stated above. Accordingly, Commenter's request is hereby
denied.
1. First National owns 4.85 percent of the voting shares of Nueces
Bank and has contracted to purchase additional shares amounting to
approximately 46 percent of the bank's outstanding voting shares.
First National has indicated that it has no present intention of owning
more than 51 percent of Nueces Bank's voting shares.



959

proposal and all comments received in light of the factors
set forth in section 3 of the BHC Act.
First National, with total consolidated assets of approximately $310 million, owns First National Bank, Edinburg,
Texas. First National is the 66th largest banking organization in Texas, controlling deposits of approximately
$294 million, representing less than 1 percent of total
deposits in depository institutions in the state ("state deposits"). 2 Nueces Bank is the 521st largest banking organization in Texas, controlling deposits of approximately
$33 million, representing less than 1 percent of state deposits. On consummation of the proposal, First National would
become the 58th largest banking organization in Texas,
controlling deposits of approximately $327 million, representing less than 1 percent of state deposits.
Competitive Considerations
Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly, or that may
substantially lessen competition in any relevant banking
market, if the anticompetitive effects of the proposal are
not clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and
needs of the community to be served.3 First National and
Nueces Bank compete directly in the Corpus Christi, Texas,
banking market.4 After consummation of the proposal,
First National would become the 16th largest depository
institution in the market, controlling deposits of approximately $34.1 million, representing 1.4 percent of total
deposits in depository institutions in the market ("market
deposits"). 5 Concentration in the Corpus Christi banking
market, as measured by the Herfindahl-Hirschman Index
("HHI"), would not increase, and the market would remain moderately concentrated.6 In addition, 23 other com-

2. Asset data are as of December 31, 1997, and deposit data are as
of June 30, 1997. In this context, depository institutions include
commercial banks, savings banks, and savings associations.
3. 12 U.S.C. § 1842(c)(l).
4. The Corpus Christi banking market comprises Nueces and
San Patricio Counties, the area encompassing Alice and Orange Grove
in Jim Wells County, and the community of San Diego in Duval
County, all in Texas.
5. Market share data for Nueces Bank are as of June 30, 1997. First
National Bank entered the market by establishing a de novo branch in
February 1998. The branch currently controls less than $1 million of
market deposits.
In this context, depository institutions include commercial banks,
savings banks, and savings associations. Market concentration calculations include deposits of thrift institutions at 50 percent. The Board
previously has indicated that thrift institutions have become, or have
the potential to become, significant competitors of commercial banks.
See Midwest Financial Group, 75 Federal Reserve Bulletin 386
(1989); National City Corporation, 70 Federal Reserve Bulletin 743
(1984). Thus, the Board has regularly included thrift deposits in the
calculation of market share on a 50-percent weighted basis. See, e.g.,
First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).
6. The HHI in the Corpus Christi banking market would remain
unchanged at 1585 as a result of the proposal. Under the revised
Department of Justice Guidelines (49 Federal Register 26,823
(June 29, 1984)), a market in which the post-merger HHI is between
1000 and 1800 is considered moderately concentrated. The Depart-

960

Federal Reserve Bulletin • November 1998

petitors would remain in the banking market after consummation. Based on these and the other facts of record, the
Board concludes that consummation of the proposal would
not have a significantly adverse effect on competition or on
the concentration of banking resources in the Corpus
Christi banking market or any other relevant banking
market.
Financial, Managerial, and Other Supervisory Factors
The Board also has carefully considered the financial and
managerial resources and future prospects of First National, First National Bank, and Nueces Bank in light of all
the facts of record, including the terms of the proposed
acquisition, supervisory reports of examination assessing
the financial and managerial resources of the organizations,
and financial information provided by First National. Based
on all the facts of record, the Board concludes that the
financial and managerial resources and future prospects of
First National, First National Bank, and Nueces Bank are
consistent with approval, as are the other supervisory factors the Board must consider under section 3 of the BHC
Act.
Convenience and Needs Considerations
The Board also has carefully considered the effect of the
proposal on the convenience and needs of the communities
to be served in light of all the facts of record, including
comments received regarding the effect the proposal would
have on the communities to be served by First National.
Some commenters commended Nueces Bank for serving
well the Corpus Christi community, especially Hispanic
consumers, small businesses, and low-income persons.
Commenters also expressed concern that an institution
based outside of Coipus Christi would not be able to meet
the needs of the local community and that the local identity
and orientation of Nueces Bank would be lost if the transaction were to be consummated. Several of these commenters expressed further concern that the transaction would
harm the local Hispanic community if Nueces Bank, Corpus Christi's only minority-owned bank, would not remain
a minority-owned institution.7

ment of Justice has informed the Board that a bank merger or
acquisition generally will not be challenged (in the absence of other
factors indicating anticompetitive effects) unless the post-merger HHI
is at least 1800 and the merger increases the HHI by more than 200
points. The Department of Justice has stated that the higher than
normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive etfect of limitedpurpose lenders and other non-depository financial entities.
7. Several commenters objected to the partial nature of First National's tender offer and either expressed concern regarding the proposal's
consequences on the remaining shareholders in Nueces Bank or
requested that the Board require First National to tender for all the
shares of Nueces Bank. These matters are addressed by specific laws
other than the BHC Act. The Federal and state securities laws establish rules that govern the manner in which a tender offer for securities
must be made, and state law and the National Bank Act establish the
rights of owners of a minority interest in a bank. Moreover, the Board



The Board has long held that consideration of the convenience and needs factor includes a review of the records of
performance of the relevant depository institutions under
the Community Reinvestment Act (12 U.S.C. § 2901
et seq.) ("CRA"). 8 As provided in the CRA, the Board
evaluates the record of performance of an institution in
light of examinations by the appropriate federal supervisor
of the institution's CRA performance record. An institution's most recent CRA performance evaluation is a particularly important consideration in the applications process
because it represents a detailed on-site evaluation of the
institution's overall record of performance under the CRA
by its appropriate federal supervisor.9
First National Bank received an overall rating of "outstanding" from its appropriate federal supervisor, the
Office of the Comptroller of the Currency ("OCC"), at its
most recent evaluation for CRA performance, as of December 19, 1996 ("1996 Examination"). Nueces Bank received a "satisfactory" CRA performance rating from the
OCC at its most recent evaluation for CRA performance,
as of April 1, 1997.
The 1996 Examination concluded that First National
Bank was responsive to its community's credit needs,
including the credit needs of low- and moderate-income
individuals and areas. Examiners found that the bank had
"more than reasonable" loan-to-deposit ratios in light of
the economic and financial condition of, and lending opportunities available in, the bank's assessment area. Examiners also determined that the bank extended a substantial
majority of its loans within its assessment area and that the
bank's credit was well distributed to borrowers of different
income levels and businesses of different sizes.10
In weighing the concerns expressed by commenters, the
Board also has considered First National's statement that it
intends to maintain Nueces Bank as a separately chartered
national bank serving the Corpus Christi community. First
National also indicated that it does not propose to make
any changes in the senior management of Nueces Bank as
a result of the proposal. In addition, First National asserted
that it does not plan to discontinue, or materially change
the terms of, any banking services currently being offered
or provided by Nueces Bank, including the bank's policies
and procedures designed to meet the credit needs of the
local community. First National stated, moreover, that it is

and the courts have generally found that these matters are not among
the factors the Board is entitled to consider under the BHC Act. See
Western Bancshares, Inc. v. Board of Governors, 480 F.2d 749
(10th Cir. 1973).
8. See, e.g., Bane One Corporation, 83 Federal Reserve Bulletin
602(1997).
9. The Statement of the Federal Financial Supervisory Agencies
Regarding the Community Reinvestment Act provides that a CRA
examination is an important and often controlling factor in the consideration of an institution's CRA record and that reports of these
examinations will be given great weight in the applications process.
54 Federal Register 13,742 and 13,745 (1989).
10. The 1996 Examination further noted that First National Bank
made extensive use of innovative, flexible lending practices and
participated in special assistance programs to serve the credit needs of
its assessment area.

Legal Developments

well-equipped to address the banking needs of Corpus
Christi's Hispanic community and noted that its service
area includes 12 predominately Hispanic communities in
southern Texas, that a substantial majority of its employees
are Hispanic, and that its employees own a substantial
majority of First National Bank.
The Board has carefully considered all the facts of
record, including comments received on the proposal and
responses to the comments, in reviewing the convenience
and needs factor under the BHC Act. Based on a review of
the entire record, and for the reasons discussed above, the
Board concludes that considerations relating to convenience and needs, including the CRA performance records
of First National Bank and Nueces Bank, are consistent
with approval of the proposal.
Conclusion
Based on the foregoing and all the facts of record, the
Board has determined that the application should be, and
hereby is, approved. The Board's approval of the proposal
is specifically conditioned on compliance by First National
with all the commitments made in connection with the
proposal. The commitments and conditions relied on by the
Board in reaching this decision shall be deemed to be
conditions imposed in writing by the Board in connection
with its findings and decision and, as such, may be enforced in proceedings under applicable law.
This transaction shall not be consummated before the
fifteenth calendar day following the effective date of this
order, or later than three months after the effective date of
this order, unless such period is extended for good cause by
the Board or the Federal Reserve Bank of Dallas, acting
pursuant to delegated authority.
By order of the Board of Governors, effective September 8, 1998.
Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and
Governors Meyer, Ferguson, and Gramlich. Absent and not voting:
Governor Kelley.
ROBERT DEV. FRIERSON
Associate Secretary of the Board

961

to merge with First Chicago NBD Corporation ("First
Chicago"). The resulting bank holding company would be
named Bank One Corporation ("New Bank One") and
have its headquarters in Chicago, Illinois. New Bank One
would acquire control of First Chicago's subsidiary banks,
including its lead bank subsidiary, First National Bank of
Chicago, Chicago, Illinois ("First Chicago Bank"), 1 and
retain control of Bane One's subsidiary banks. Bane One
also has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and
section 225.24 of the Board's Regulation Y (12C.F.R.
225.24) for New Bank One to acquire the domestic nonbanking subsidiaries of First Chicago.2 In addition, Bane
One has filed notices under section 4(c)(13) of the BHC
Act (12 U.S.C. § 1843(c)(13)), sections 25 and 25A of the
Federal Reserve Act (12 U.S.C. § 601 et seq., § 611
et seq.), and the Board's Regulation K (12 C.F.R. 211) for
New Bank One to acquire the Edge Act corporations and
foreign operations of First Chicago.3
Bane One, with total consolidated assets of approximately $116.9 billion, is the eighth largest commercial
banking organization in the United States, controlling approximately 2.5 percent of total banking assets of insured
commercial banks in the United States ("total banking
assets"). 4 Bane One operates subsidiary banks in Arizona,
Colorado, Illinois, Indiana, Kentucky, Louisiana, Ohio,
Oklahoma, Texas, Utah, West Virginia, and Wisconsin.
Bane One also engages in a broad range of permissible
nonbanking activities nationwide.
First Chicago, with total consolidated assets of approximately $114.8 billion, is the ninth largest commercial
banking organization in the United States, controlling approximately 2.3 percent of total banking assets. First Chicago operates subsidiary banks in Indiana, Illinois, Michigan, and Florida.5 First Chicago also engages nationwide
in numerous permissible nonbanking activities.
The proposal would create a combined organization that,
after accounting for proposed divestitures, would be the
fifth largest commercial banking organization in the United
States. New Bank One would have total consolidated assets of approximately $231.7 billion, representing approximately 4.8 percent of total banking assets, and would have
a significant presence in the Midwest.

Orders Issued Under Sections 3 and 4 of the Bank
Holding Company Act
Bane One Corporation
Columbus, Ohio
First Chicago NBD Corporation
Chicago, Illinois
Order Approving Merger of Bank Holding Companies
Bane One Corporation ("Bane One"), a bank holding
company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12 U.S.C. § 1842)



1. Bane One also seeks approval to acquire NBD Bank, Detroit,
Michigan; American National Bank and Trust Company of Chicago,
Chicago, Illinois; NBD Bank, N.A., Indianapolis, Indiana; NBD Bank,
Elkhart, Indiana; and NBD Bank, Venice, Florida.
2. The nonbanking activities of First Chicago, for which Bane One
has sought Board approval under section 4 of the BHC Act, and the
subsidiaries engaged in such activities are listed in Appendix A.
3. Bane One and First Chicago also have requested the Board's
approval to hold and to exercise options to acquire up to 19.9 percent
of each other's voting shares, if certain events occur. The options
would expire on consummation of the proposal.
4. All banking data, including rankings, are as of March 31, 1998.
5. First Chicago also operates FCC National Bank, Wilmington,
Delaware, which is a credit card bank.

962

Federal Reserve Bulletin D November 1998

Factors Governing Board Review of the Transaction
Under the BHC Act, the Board must consider a number of
specific factors when reviewing the merger of bank holding companies or the acquisition of banks. These factors
are the competitive effects of the proposal in the relevant
geographic markets; the financial and managerial resources
and future prospects of the companies and banks involved
in the transaction; the convenience and needs of the community to be served, including the records of performance
under the Community Reinvestment Act (12 U.S.C. § 2901
et seq.) ("CRA") of the insured depository institutions
involved in the transaction; and the availability of information needed to determine and enforce compliance with the
BHC Act.6 In cases involving interstate bank acquisitions,
the Board also must consider the concentration of deposits
in the nation and certain individual states, as well as
compliance with other provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle-Neal Act"). 7
Public Comment on the Proposal
To give interested members of the public an opportunity to
submit comments to the Board on the statutory factors that
it is charged with reviewing, the Board published notice of
the proposal and provided a period of time for public
comment.8 The Board extended the initial period for public
comment by 30 days to accommodate public interest. The
extended public comment period provided interested persons more than 70 days to submit written comments on the
proposal.
Because of public interest in the proposal—particularly
in the Midwest, where the combined organization would be
a significant competitor—the Board also held a public
meeting in Chicago, Illinois, on August 13, 1998. The
public meeting gave interested persons an opportunity to
present oral testimony on the various factors the Board is
charged with reviewing under the BHC Act. More than
85 people appeared and testified at the public meeting, and
many of the commenters who testified also submitted written comments.
In total, approximately 330 organizations and individuals submitted comments on the proposal, through oral
testimony, written comments, or both. Commenters included federal, state, and local government officials; community groups and nonprofit organizations; small business
owners; union representatives; customers of Bane One and
First Chicago; and other interested organizations and indi-

6. In cases involving a foreign bank, the Board also must consider
whether the foreign bank is subject to comprehensive supervision or
regulation on a consolidated basis by appropriate authorities in the
foreign bank's home country.
7. Pub. L. No. 103-328, 108 Stat. 2338 (1994).
8. Notice of the proposal was published in the Federal Register
(63 Federal Register 32,661 and 40,527 (1998)) and in local newspapers in accordance with the Board's Rules of Procedure. See 12 C.F.R.
262.3(b). Notice of the proposal also was listed on the Board's
Internet Home Page.



viduals from Colorado, Delaware, Illinois, Indiana, Louisiana, Michigan, Ohio, Texas, and other states.
Commenters filed information and expressed views supporting and opposing the proposed merger. Commenters
supporting the proposal commended Bane One and First
Chicago for their commitment to the communities in which
they do business and their leadership role in various community activities and civic organizations. These commenters praised the records of the two banking organizations in
providing affordable home mortgage loans, particularly in
low- and moderate-income ("LMI") communities and in
communities with predominantly minority populations
("minority communities"); making investments, grants,
and loans supporting neighborhood housing and community development projects; and making charitable contributions. These commenters also noted favorably the small
business lending activities of Bane One and First Chicago
and complimented the banking organizations for providing
financial, educational, and technical assistance to small
businesses and to nonprofit groups that support small businesses. Many commenters also praised First Chicago's
community reinvestment record and pledges in Detroit and
Chicago, noting that First Chicago had increased the availability of loans and investments to support community
development and affordable housing activities and had
fostered a good partnership with the community groups in
those two cities. In general, the commenters supporting the
proposal expected that the merger of Bane One and First
Chicago would create a company with greater financial,
operational, and managerial resources that would benefit
the communities that New Bank One would serve.
Commenters opposed to the merger proposal expressed
concerns about the performance records of Bane One and
First Chicago under the CRA, particularly with respect to
their records of lending to small businesses and minorities,
to LMI communities, and in rural areas. The commenters
questioned the fair lending record of the two banking
organizations and expressed concerns about disparities in
the denial rates of credit applications at both institutions.
Commenters also criticized Bane One's decision not to
make community reinvestment pledges nationwide or in
specific communities.
Several commenters opposed to the proposal believed
that the merger would reduce competition for banking
services substantially, particularly in Indianapolis and other
communities in Indiana, or would result in the loss of local
control of lending and investment decisions. Commenters
also expressed concern about branch closings, the level of
lending to small businesses and first-time home buyers, job
losses, fees for banking services, and the potential for
dislocations or other adverse effects from the integration of
the two bank holding companies.
In evaluating the statutory factors under the BHC Act,
the Board carefully considered the information and views
presented by all commenters, including the testimony presented at the public meeting and the information submitted
in writing. The Board also considered all the information
presented in the application, notices, and supplemental
filings by Bane One and First Chicago, as well as various

Legal Developments

reports filed by the relevant companies, publicly available
information, and other reports. In addition, the Board reviewed confidential supervisory information, including examination reports regarding the bank holding companies
and the depository institutions involved, and information
provided by the other federal banking agencies and the
Department of Justice ("DOJ")- After a careful review of
all the facts of record, and for the reasons discussed in this
order, the Board has concluded that the statutory factors it
is required to consider under the BHC Act and other
relevant banking statutes are consistent with approval of
the proposal, subject to the conditions noted in this order.
Interstate Analysis
Section 3(d) of the BHC Act, as amended by section 101 of
the Riegle-Neal Act, allows the Board to approve an
application by a bank holding company to acquire control
of a bank located in a state other than the home state of
such bank holding company if certain conditions are met.
For purposes of the BHC Act, the home state of Bane One
is Ohio,4 and Bane One proposes to acquire banks in
Florida, Indiana, Illinois, and Michigan.10
Section 3(d) of the BHC Act provides that the Board
may not approve a proposal if, after consummation, the
applicant would control more than 10 percent of the total
deposits of insured depository institutions in the United
States." In addition, the Board may not approve a proposal
if, on consummation, the applicant would control 30 percent or more of the total deposits of insured depository
institutions in any state in which both the applicant and the
organization to be acquired operate an insured depository
institution, or such higher or lower percentage established
by state law.12
On consummation of the proposal. New Bank One
would control approximately 3.9 percent of total deposits
of insured depository institutions in the United States. New
Bank One would control less than 30 percent, or the
appropriate percentage established by applicable state law,
of total deposits held by insured depository institutions in
the states in which Bane One and First Chicago both
operate an insured depository institution, including in Indiana and Illinois.13 All other conditions for an interstate
acquisition enumerated in section 3(d) of the BHC Act are

9. A bank holding company's home state is that state in which the
operations of the bank holding company's banking subsidiaries were
principally conducted on July 1, 1966. or the date on which the
company became a bank holding company, whichever is later.
12U.S.C. § 1841(o)(4)(C).
10. For purposes of the Riegle-Neal Act, the Board considers a
bank to be located in the states in which the bank is chartered,
headquartered, or operates a branch.
11.12 U.S.C. § 1842(d)(2)(A). For this purpose, insured depository
institutions include all insured banks, savings banks, and savings
associations.
12. 12 U.S.C. § 1842(d)(2)(B)-(D).
13. Indiana and Illinois both impose a 30-percent deposit cap. See
205 III. Comp. Stat. Ann. § 103/3.09(a); Ind. Code Ann. § 28-2-1729(a). On consummation of the proposal, New Bank One would
control approximately 21.3 percent of total deposits in insured deposi


963

met in this case. 14 In view of the facts of record, the Board
is permitted to approve the proposal under section 3(d) of
the BHC Act.
Competitive Factors
Section 3 of the BHC Act prohibits the Board from approving an application if the proposal would result in a monopoly, or would substantially lessen competition in any relevant banking market, unless the Board finds that the
anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the
proposal in meeting the convenience and needs of the
community to be served.15
The proposed merger of Bane One and First Chicago
would combine two banking organizations that are among
the largest providers of banking services in a number of
banking markets in Illinois, Indiana, Michigan, Ohio, and
Wisconsin. Accordingly, the Board has analyzed carefully
the effect of the transaction on competition in the relevant
banking markets and, in so doing, has carefully considered
the public comments submitted on the competitive effects
of the proposed transaction.
A number of commenters maintained that the proposed
merger of Bane One and First Chicago would have significantly adverse effects on competition, especially in Illinois
and Indiana, where subsidiary banks of Bane One and First
Chicago compete. These commenters expressed concern
that New Bank One would dominate banking markets in
Illinois and Indiana and, therefore, would be able to engage
in tying and other anticompetitive practices.16
Bane One and First Chicago each control a subsidiary
bank in the following 16 local banking markets: Aurora,
Chicago, Elgin and Rockford, in Illinois; Louisville, Kentucky; Milwaukee and Madison, in Wisconsin; and GaryHammond, Marion, Elkhart-Niles-South Bend, Bloomington, Corydon, Indianapolis, Lafayette, Lawrence County,
and Rensselaer, in Indiana.17 The Board has reviewed

tory institutions in Indiana and 14 percent of total deposits in insured
depository institutions in Illinois.
14. Bane One is adequately capitalized and adequately managed, as
denned by applicable law. 12 U.S.C. § 1842(d)(l)(A). In addition,
First Chicago's subsidiary banks have been in existence and have
continuously operated for at least the period of time required by
applicable state laws. See 12 U.S.C. § 1842(d)(l)(B). The Board also
contacted the relevant state banking commissioners about, and considered Bane One's compliance with, applicable state community reinvestment laws. See 12 U.S.C. § 1842(d)(3).
15. 12 U.S.C. § 1842(c)(l).
16. Many of these commenters expressed concerns about large bank
mergers in general, which the commenters believed reduce competition for banking services and, thereby, result in higher fees for
banking services; decreased consumer convenience and choice, particularly in urban and LMI communities; higher interest rates on loans
and reduced rates on deposits; and reduced levels of small business
and home mortgage lending.
17. The geographic scope of each of these local banking markets is
set forth in Appendix B. One commenter questioned whether the
Chicago. Illinois, banking market should be more broadly denned to
include the Aurora and Elgin, Illinois, banking markets and the
Gary-Hammond. Indiana, banking market or, alternatively, more nar-

964

Federal Reserve Bulletin • November 1998

carefully the competitive effects of the proposal in each of
these banking markets in light of all the facts of record,
including the characteristics of the markets and the projected increase in the concentration of total deposits in
depository institutions in these markets ("market deposits"), 18 as measured by the Herfindahl-Hirschman Index
("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines"). 19
A. Banking Markets Without Divestitures
Consummation of the proposal, without divestitures, would
be consistent with the DOJ Guidelines and prior Board
precedent in ten banking markets: Chicago, Aurora, Elgin,
and Rockford, in Illinois; Elkhart-Niles-South Bend, GaryHammond, and Marion, in Indiana; Louisville, Kentucky;
and Milwaukee and Madison, in Wisconsin. After consummation of the proposal, all of these banking markets would
remain unconcentrated or moderately concentrated, as measured by the HHI. Moreover, in eight of these ten markets,
consummation of the proposal would increase market con-

rowly defined to reflect distinctions in Chicago's local neighborhoods
and suburban communities. The commenter, however, did not present
any facts to support its alternative suggestions for the definition of the
Chicago banking market. Another commenter expressed concern
about the geographic scope of the Indianapolis banking market, again
without presenting any facts to support an alternative definition. In
determining the geographic scope of local banking markets, the Board
considers a number of factors, including population density, worker
commuting patterns (as indicated by census data), shopping patterns,
the availability and geographic reach of various modes of advertising,
the presence of shopping, employment, health care and other necessities, the availability of transportation systems and routes, branch
banking patterns, deposit and loan activity, and other indicia of
economic integration and the transmission of competitive forces
among depository institutions that affect the pricing and availability of
banking products and services. See Crestar Bank, 81 Federal Reserve
Bulletin 200, 201 n.5 (1995); Pennbancorp, 69 Federal Reserve
Bulletin 548 (1983); 5/. Joseph Valley Bank, 68 Federal Reserve
Bulletin 673 (1982). The Board has considered the comments in light
of all the facts of record and concludes that the Chicago and Indianapolis banking markets as defined in Appendix B are the appropriate
banking markets in which to analyze the competitive effects of the
proposal.
18. Market share data are based on calculations that, except as noted
below, include the deposits of thrift institutions at 50 percent. The
Board previously has indicated that thrift institutions have become, or
have the potential to become, significant competitors of commercial
banks. See, e.g., Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board has regularly included thrift deposits
in the calculation of market share on a 50-percent weighted basis. See,
e.g., First Hawaiian, Inc., 11 Federal Reserve Bulletin 52 (1991).
19. Under the DOJ Guidelines, 49 Federal Register 26,823 (1984).
a market is considered unconcentrated if the post-merger HHI is less
than 1000, moderately concentrated if the post-merger HHI is between
1000 and 1800, and highly concentrated if the post-merger HHI is
more than 1800. The DOJ has informed the Board that a bank merger
or acquisition generally will not be challenged (in the absence of other
facts indicating anti-competitive effects) unless the post-merger HHI
is at least 1800 and the merger increases the HHI by more than
200 points. The DOJ has stated that the higher than normal HHI
thresholds for screening bank mergers for anti-competitive effects
implicitly recognize the competitive effect of limited-purpose lenders
and other non-depository financial institutions.



centration, as measured by the HHI, by less than half of the
200-point threshold in the DOJ Guidelines.20 Numerous
competitors would remain in each of the ten markets after
consummation of the proposal.
B. Banking Markets With Proposed Divestitures
Consummation of the proposal would exceed DOJ Guidelines in the remaining six banking markets in which Bane
One and First Chicago compete, all in Indiana. To mitigate
the anticompetitive effects of the proposal in these six
Indiana banking markets, Bane One has committed to
divest 39 branches, which account for approximately
$1.47 billion in deposits and represent approximately
18.1 percent of the total deposits controlled in Indiana by
First Chicago.21 After accounting for the proposed divestitures, consummation of the proposal would be consistent
with the DOJ Guidelines and prior Board precedents in
four of the Indiana banking markets: Bloomington, Corydon, Lawrence County, and Rensselaer. These markets are
discussed in Appendix D. Numerous competitors would
remain in each market after consummation of the proposal.22
Indianapolis. Consummation of the proposal in the Indianapolis banking market would exceed the DOJ Guidelines
after accounting for the proposed divestitures. Bane One is
the largest depository institution in the Indianapolis banking market, controlling $3.5 billion in deposits, representing approximately 21.4 percent of market deposits. First
Chicago is the third largest depository institution in the
market, controlling $3 billion in deposits, representing
19.9 percent of market deposits.
Bane One proposes to divest 25 branches with deposits
of approximately $890 million in the Indianapolis banking
market to a banking organization that does not currently
have a presence in the market. On consummation of the
proposal and after divestitures, New Bank One would

20. In the two banking markets in this category in which the
increase in the HHI resulting from the proposal would exceed
200 points, which are the Gary-Hammond, and the Marion, Indiana
banking markets, both markets would remain moderately concentrated
following consummation of the proposal, with post-merger HHIs of
less than 1800. See Appendix C.
21. With respect to each market in which Bane One has committed
to divest offices to mitigate the anticompetitive effects of the proposal,
Bane One has committed to execute sales agreements for the proposed
divestitures with a purchaser determined by the Board to be competitively suitable prior to consummation of the proposal, and to complete
the divestitures within 180 days of consummation. Bane One also has
committed that, in the event it is unsuccessful in completing any
divestiture within 180 days of consummation, it will transfer the
unsold branch(es) to an independent trustee that is acceptable to the
Board and will instruct the trustee to sell the branches promptly to one
or more alternative purchasers acceptable to the Board. See BankAmerica Corporation, 78 Federal Reserve Bulletin 338 (1992); United
New Mexico Financial Corporation, 11 Federal Reserve Bulletin 484
(1991).
22. Commenters expressed concerns about the number of branches
that would be divested by Bane One and expressed the view that the
amount of divestitures initially proposed by Bane One was too small
and did not include all affected markets.

Legal Developments

remain the largest depository institution in the market,
controlling $5.8 billion in deposits, representing approximately 35.6 percent of market deposits.
In considering the competitive effects of the proposal,
the Board has evaluated the competition provided by savings associations in the Indianapolis banking market and
has concluded that the deposits controlled by three of the
eleven savings associations that compete in the market
should be weighted at 100 percent.23 In this light, the
post-merger HHI would increase by 441 points to 1881.24
The Board believes that several factors mitigate the
potential adverse effects that may result from the proposal
in the Indianapolis banking market.25 The market has characteristics that make it attractive for entry. Indianapolis is
the largest banking market in Indiana and the 35th largest
Metropolitan Statistical Area ("MSA") in the United
States. 26 The population of the Indianapolis MSA increased by approximately 9 percent from 1990 to 1997,
more than almost all other MSAs in Indiana and more than
the national average. Other measures indicate economic
growth in the banking market. Since 1990, the number of
jobs in the MSA has increased by 106,000, or approximately 15 percent. Per capita income in Indianapolis,
which is greater than any other MSA in Indiana, has
increased on average 6.7 percent over the last ten years,
which is more than the national average.
Recent entries by depository institutions appear to confirm that the Indianapolis banking market is attractive for
entry by depository institutions. Since 1996, five depository institutions have entered the Indianapolis banking
market de novo. In addition, since June 1997, depository
institutions that currently compete in the Indianapolis banking market with Bane One and First Chicago have opened
or announced plans to open 29 new branches in the banking market.
The proposed divestiture of approximately 5.8 percent of
market deposits to an out-of-market commercial banking

23. The Board previously has indicated that, when analyzing the
competitive effects of a proposal, it may consider the competitiveness
of savings associations at a level greater than 50 percent of the savings
association's deposits if appropriate. See, e.g., Banknorth Groups,
Inc., 73 Federal Reserve Bulletin 703 (1989). In the Indianapolis
banking market, each of the three savings associations maintain over
7 percent of their assets in commercial loans, compared to the national
average for thrifts of 1.7 percent. The Board included two of these
thrifts at a 100-percent weight in another recent case. See National
City Corporation, 84 Federal Reserve Bulletin 281(1998).
24. Bane One"s nationwide mortgage escrow deposits were not
included in the calculations of concentration; $290 million of escrow
deposits are being transferred to Homeside Lending, Jacksonville.
Florida, as part of Bane One's agreement to sell its mortgage servicing
operations to Homeside Lending. Deposit data also have been adjusted to account for three recent unrelated branch sales by Bane One
in the Indianapolis banking market.
25. The number and strength of factors necessary to mitigate the
competitive effects of a proposal depend on the level of market
concentration and size of the increase in market concentration. First
Union Corporation, 84 Federal Reserve Bulletin 489 (1998);
NationsBank Corporation, 84 Federal Reserve Bulletin 129 (1998).
26. The Indianapolis MSA is a slightly larger geographic area than
the Indianapolis banking market.



965

organization would create another market entrant, and the
number of depository institutions competing in the market
would remain unchanged. The purchaser of the divested
branches also would immediately become the fourth largest competitor in the market and would have sufficient
assets and offices immediately to be an effective competitor
to New Bank One.
In addition, after consummation of the proposal, 42 bank
and savings association competitors would remain in the
market, including at least four large multistate banking
organizations, other than New Bank One. These large
multistate bank holding companies would control at least
31.3 percent of market deposits and operate 163 branches
in the Indianapolis banking market.27
Lafayette. Consummation of the proposal in the Lafayette banking market also would exceed the DOJ Guidelines
after accounting for the proposed divestitures. In the Lafayette banking market, Bane One is the largest depository
institution in the market, controlling deposits of
$510.8 million, representing 32 percent of market deposits.
First Chicago is the second largest depository institution in
the market, controlling deposits of $408.8 million, representing 25.6 percent of market deposits. Bane One will
divest seven branches with deposits of approximately
$286 million in the Lafayette banking market to an out-ofmarket competitor. On consummation of the proposal, and
after accounting for the proposed divestitures, Bane One
would remain the largest depository institution in the market, controlling deposits of $633.6 million, representing
39.7 percent of market deposits. The HHI would increase
by 217 points to 2306.
Several factors mitigate the potential adverse effects that
may result from the proposal. After the proposed sale of
the branches to an out-of-market competitor, eleven competitors would remain in the market. The acquiror of the
divested branches would become the second largest depository institution in the market, controlling 17.9 percent of
market deposits and, therefore, an effective competitor to
New Bank One. In addition, another competitor in the
market would control more than 16 percent of market
deposits. Since 1996, one banking organization has entered
the market de novo, indicating that the Lafayette banking
market is attractive for entry.
C. View of Other Agencies and Conclusion
The DOJ has conducted a detailed review of the proposal
and advised the Board that, in light of the proposed divestitures, consummation of the proposal would not likely have
27. One commenter expressed concerns about the method by which
the Board determines the appropriate levels of divestitures and the
Board's use of mitigating factors. The commenter presented an alternative approach to assessing the competitive effects of the merger
proposal, which the commenter has presented to the Board in other
merger proposals. For the reasons previously stated by the Board, the
Board concludes that its current approach provides a more complete
economic analysis of the competitive effects in a local banking market
than the approach suggested by the commenter. See NationsBank
Corporation, 84 Federal Reserve Bulletin 129 (1998).

966

Federal Reserve Bulletin • November 1998

a significantly adverse effect on competition in any relevant banking market. The Office of the Comptroller of the
Currency ("OCC") and the Federal Deposit Insurance
Corporation ("FDIC") also have been afforded an opportunity to comment and have not objected to consummation of
the proposal.
After carefully reviewing all the facts of record, including public comments on the competitive effects of the
proposal, and for the reasons discussed in this order and
appendices, the Board concludes that consummation of the
proposal would not be likely to result in a significantly
adverse effect on competition or on the concentration of
banking resources in any of the 16 banking markets in
which Bane One and First Chicago both compete, or in any
other relevant banking market. Accordingly, based on all
the facts of record and subject to completion of the proposed divestitures, the Board has determined that competitive factors are consistent with approval of the proposal.
Financial, Managerial, and Other Supervisory Factors
The Board has carefully considered the financial and managerial resources and future prospects of Bane One, First
Chicago, and their respective subsidiary banks, and other
supervisory factors in light of all the facts of record. In
considering the financial and managerial factors, the Board
has reviewed relevant reports of examination and other
information prepared by the supervising Reserve Banks
and other federal financial supervisory agencies. The Board
also has reviewed information on the programs that Bane
One and First Chicago have implemented to prepare their
systems for the Year 2000, including confidential examination and supervisory information assessing the efforts of
the two banking organizations to ensure Year 2000 readiness, both before and after the proposed transaction. As
part of this review, the Board has considered concerns
expressed by commenters about the financial and managerial resources of the bank holding companies and banks
involved in the proposal.28 Commenters also expressed
concerns about the process by which the two organizations
would integrate their operations.29
In evaluating financial factors in expansion proposals by
bank holding companies, the Board consistently has considered capital adequacy to be an especially important
factor.30 The Board notes that Bane One and First Chicago
and their subsidiary banks are well capitalized and would

28. Commenters questioned whether New Bank One, in light of its
asset size and geographic scope of operations, would present special
risks to the federal deposit insurance funds or the financial system in
general. Commenters also expressed concerns about merger-related
costs and its effects on the new bank holding company and about the
Year 2000 readiness of New Bank One.
29. Several commenters alleged that Bane One has had difficulty
implementing smaller acquisitions and questioned whether the organization had adequate managerial and financial resources to undertake a
transaction of this size.
30. See, e.g., NalionsBank Corporation, 84 Federal Reserve Bulletin 858 (Order dated August 17, 1998); Chemical Banking Corporation, 82 Federal Reserve Bulletin 230 (1996).



remain so on consummation of the proposal. Both institutions have reported strong earnings. The Board has considered that the proposed merger is structured as a stock-forstock transaction and would not increase the debt service
requirements of the combined company.
The Board also has considered the managerial resources
of the entities involved and the proposed combined organization. Bane One. First Chicago, and their subsidiary depository institutions currently are well managed, with appropriate risk management processes in place. Senior
management of New Bank One would draw from the
senior executives of Bane One and First Chicago, based on
the individual management strengths of each company.31
Senior executives of the two companies also would form a
transition team to manage and plan the integration of the
bank holding companies and their subsidiaries. Bane One
and First Chicago have past experience with merger transactions and have indicated that they are devoting significant resources to address all aspects of the merger process.
In addition, the Board has considered other aspects of
the financial condition and managerial resources of the two
organizations, including the Board's extensive supervisory
experience with Bane One and First Chicago, plans for
integration of the two companies, plans for achieving Year
2000 readiness, and records of compliance with relevant
banking laws. Based on all the facts of record, including a
careful review of the comments received, the Board concludes that considerations relating to the financial and
managerial resources and future prospects of Bane One,
First Chicago, and their respective subsidiaries are consistent with approval of the proposal, as are the other supervisory factors that the Board must consider under section 3
oftheBHC Act.32

31. A number of commenters expressed concerns about hiring and
employment practices at Bane One and alleged that there is a lack of
ethnic diversity on the boards of directors and among the executives
and lending officers of the two banking organizations. Several of these
commenters also noted that Bane One settled a claim with the Department of Labor concerning alleged discriminatory employment practices, and the commenters expressed concern that New Bank One
could face similar employment problems. Other commenters expressed concerns about certain employment discrimination claims
pending against Bane One. The Board notes that the racial and gender
composition of the management of a banking organization are not
factors that the Board is permitted to consider under the BHC Act.
The Board also notes that the Equal Employment Opportunity Commission has jurisdiction to determine whether banking organizations
such as Bane One and First Chicago are in compliance with federal
equal employment opportunity statutes. See 41 C.F.R. 60-1.7(a) and
60-1.40.
Two commenters alleged that senior executives of Bane One engaged in fraudulent activities that violated the federal securities laws.
Bane One denied these claims, many of which are the subject of
pending litigation. The Securities and Exchange Commission
("SEC") has statutory jurisdiction to investigate and remedy violations of federal securities laws, and the Board is not authorized under
the BHC Act to adjudicate disputes that arise under federal securities
laws. A copy of the comments has been provided to the SEC.
32. Several commenters alleged that the lack of minority representation in the management of Bane One and First Chicago has made the
banking organizations unresponsive to the banking and credit needs of

Legal Developments

Convenience and Needs Considerations
The BHC Act requires the Board to consider the convenience and needs of the communities to be served in
connection with its review of proposals to acquire a bank.
The CRA requires the federal financial supervisory agencies to encourage financial institutions to help meet the
credit needs of local communities in which they operate,
consistent with their safe and sound operation, and requires
the appropriate federal supervisory authority, in evaluating
bank expansion proposals, to take into account an institution's record under the CRA of meeting the credit needs of
its entire community, including LMI neighborhoods. The
Board has carefully considered the convenience and needs
factor and the CRA performance records of the subsidiary
depository institutions of Bane One and First Chicago in
light of all the facts of record, including public comments
on the proposal.
A. Summary of Public Comments Regarding the
Convenience and Needs Factor
As noted above, the Board provided an extended public
comment period and convened a public meeting in Chicago to aid in the collection of information on the aspects
of the proposed merger that the Board is required to
consider under the BHC Act and other relevant statutes. As
noted above, approximately 330 interested persons submitted written comments or testified at the public meeting on
all aspects of the proposal and, in particular, the effect of
the proposal on the convenience and needs of the affected
communities and the CRA performance records of the
depository institutions involved.
Approximately 180 commenters either expressed support for the proposal or commented favorably on the CRArelated activities of Bane One and First Chicago.33 Many
commenters commended Bane One and First Chicago for

LMI and minority communities. The Board also considered these
comments in reviewing the convenience and needs factor.
33. The commenters included:
(1) members of the U.S. House of Representatives and the U.S.
Senate;
(2) several mayors, including the mayors of Louisville, Kentucky;
Columbus, Ohio; Baton Rouge, Louisiana; Milwaukee, Wisconsin; Ft. Wayne, Indiana; and Ogden, Utah;
(3) a number of community groups, including the Woodstock Institute, Chicago, Illinois; Detroit Alliance for Fair Banking, Detroit, Michigan; and Chicago Rehab Network, Chicago, Illinois;
(4) state and local government agencies, including the Wisconsin
Housing and Economic Development Authority, Madison, Wisconsin; Colorado Housing and Finance Authority, Denver, Colorado; and the Wilmington Housing Authority, Wilmington,
Delaware;
(5) groups supporting the development and growth of small businesses, including the Five Points Business Association, Denver,
Colorado; and the Illinois State Microenterprise Initiative, Chicago. Illinois; and
(6) representatives of other community, civic, and nonprofit organizations based in Arizona, Illinois, Indiana, Kentucky, Louisiana, Michigan. Nebraska, Ohio, Oklahoma, Tennessee, Texas,
Utah, and Wisconsin.



967

providing affordable home mortgages and home improvement loans, offering financial and technical support to
small businesses, sponsoring and supporting a variety of
community development activities and affordable housing
initiatives, and participating in a number of programs designed to assist and benefit LMI communities and individuals. The commenters praised officers and employees of
Bane One and First Chicago for the service and expertise
that the staff members of the two banking organizations
provide to civic and community groups as board members
and volunteers. Commenters also related favorable experiences with specific programs and services offered by Bane
One and First Chicago.
A number of state and local government agencies commented favorably on their experiences with Bane One and
First Chicago. The Wisconsin Housing and Economic Development Authority ("WHEDA"), for example, commended Bane One's record of providing credit and financial assistance to LMI home buyers, farmers, and small
businesses in Wisconsin. The Mayor of Milwaukee, Wisconsin, commended Bane One's leadership role in the
formation and continued success of New Opportunities for
Homeownership in Milwaukee ("NOHIM"), which helps
individuals purchase and renovate affordable homes in
Milwaukee. The Metropolitan Housing Authority of Columbus, Ohio, commended Bane One's financial and technical contributions to the city's housing redevelopment
program. The Economic Development Coordinator of
Rockford, Illinois, also complimented Bane One for its
participation in various small business loan programs sponsored by the city and commended Bane One for supporting
the Northern Illinois Minority Companies Association.
In addition, a number of community groups and private
developers commended Bane One and First Chicago for
providing loans, grants, and technical assistance for affordable housing projects for low-income, elderly, and disabled
individuals. Several community groups also commended
the records of Bane One and First Chicago for making
affordable home mortgages and other housing-related
loans. Other community organizations praised both banking organizations for their contributions to educating firsttime home buyers.
Several private organizations supported the proposal
based on the records of Bane One and First Chicago of
supporting small businesses and micro-enterprises, particularly small businesses owned by women and minorities,
both directly and through nonprofit financial intermediaries. In addition, comments from owners of small businesses stated that Bane One had offered credit and technical assistance when other financial institutions were
unwilling to do so.
Approximately 150 commenters opposed the proposal or
requested that the Board approve the merger subject to
conditions suggested by the commenter.34 These comment-

34. The commenters included:
(1) several members of the U.S. House of Representatives and the
U.S. Senate;

968

Federal Reserve Bulletin • November 1998

ers either expressed general concerns regarding the effects
of large merger proposals on the convenience and needs of
the communities to be served or expressed specific concerns about the CRA performance records of Bane One
and First Chicago.35
A number of the commenters opposed to the merger
proposal contended that Bane One and First Chicago have
inadequate records of performance under the CRA, particularly in serving the banking and credit needs of LMI and
minority individuals and of census tracts with predominantly LMI and minority populations.36 Some commenters
questioned First Chicago's and Bane One's compliance
with the Equal Credit Opportunity Act (15 U.S.C. § 1691
et seq.) and the Fair Housing Act (42 U.S.C. § 3601 et seq.)
(collectively, "fair lending laws") and criticized the lending and credit referral practices of Bane One's banking and
nonbanking subsidiaries, including Bane One Mortgage
Corporation ("BOMC") and Bane One Financial Services
("BOFS"). 37 A number of commenters also criticized the
lending records of Bane One and First Chicago, as reported
under the Home Mortgage Disclosure Act (12 U.S.C.
Several commenters criticized the branch closing records
of First Chicago and Bane One and expressed concerns
about the plans of New Bank One to close certain branches. 38 Particular concern was expressed that branch closings

(2) several state and local government officials, including the
mayors of Gary. Indiana, and Lorain, Ohio; members of the
city council of Denver, Colorado; city aldermen and other
elected officials from Chicago, Illinois; and state senators and
representatives from Colorado, Illinois, Louisiana, and Texas;
(3) Association of Community Organizations for Reform Now,
Washington, D.C. ("ACORN"), and regional offices of
ACORN in Chicago, Illinois; Denver, Colorado; Detroit,
Michigan; Houston and Dallas, Texas; Milwaukee, Wisconsin; and New Orleans, Louisiana;
(4) Inner City Press/Community on the Move, Bronx, New York;
(5) Delaware Community Reinvestment Action Council, Inc.,
Wilmington, Delaware;
(6) Coalition for Reinvestment in Lorain County, Lorain, Ohio;
(7) Rural Opportunities, Inc., Alliance, Ohio;
(8) Wisconsin Rural Development Center, Inc., Mt. Horeb, Wisconsin;
(9) Central Illinois Organizing Project, Springfield, Illinois; and
(10) representatives of other community and nonprofit organizations based in Arizona, Illinois, Indiana, Michigan, Louisiana,
Ohio, Texas, Utah, Virginia, Washington, D.C, and Wisconsin.
35. Some commenters claimed that large multistate banking organizations engage in less small business lending, relative to their size and
total lending activities, than small banks. Commenters also contended
that multistate bank holding companies charge higher fees for and
reduce the availability of banking services by closing branches.
36. Several commenters also expressed concern about Bane One's
record of serving rural communities. Other commenters expressed
concern about the organizations' records of serving Native-American
populations.
37. Some commenters expressed concern about Bane One's settlement of certain allegations regarding fair lending law violations
brought by the Department of Housing and Urban Development and
the Arizona Attorney General.
38. Commenters criticized Bane One as being unresponsive to
community concerns in closing branches in Alliance and Lorain, in
Ohio, and in Woodruff Place and in other communities in Indianapo


would reduce the availability of banking services to individuals in LMI and minority neighborhoods and elderly
individuals.
A number of commenters expressed concern about New
Bank One's CRA plans and Bane One's refusal to enter
into community reinvestment agreements similar to the
agreements entered into by First Chicago in Detroit and
Chicago. Some commenters contended that Bane One has
not cooperated with community groups or has negotiated
with community groups in bad faith. Several commenters
who commended First Chicago's CRA performance because it made specific CRA agreements contended that the
Board should require Bane One to enter into similar agreements covering the communities in which Bane One currently operates and should monitor and enforce New Bank
One's compliance with commitments made by First Chicago.
Some commenters also expressed concern that the
merger would result in the loss of local control over
lending decisions, decreased levels of service, and higher
banking and credit-related fees. Other commenters were
concerned that the relocation of Bane One's headquarters
from Columbus, Ohio, to Chicago, Illinois, would adversely affect Bane One's commitment to meeting the
convenience and needs of Columbus and other Ohio communities. In addition, commenters contended that the proposal would adversely affect local communities through
job losses and reduced levels of charitable contributions.39
B. CRA Performance Examinations
As provided in the CRA, the Board has evaluated the
convenience and needs factor in light of evaluations by the
appropriate federal supervisors of the CRA performance
records of the relevant institutions. An institution's most
recent CRA performance evaluation is a particularly important consideration in the applications process because it
represents a detailed on-site evaluation of the institution's
overall record of performance under the CRA by the appropriate federal financial supervisory agency.
All of Bane One's subsidiary banks received "outstanding" or "satisfactory" ratings in the most recent examinations of their CRA performance.40 In particular, Bane

Us. Commenters also expressed concern about reports that Bane One
and First Chicago independently have plans to close or consolidate a
number of their branches by the year 2000.
39. Several commenters opposed the proposal based on unfavorable
experiences with Bane One in particular loan transactions or business
dealings. The Board has reviewed these comments in light of all the
facts of record, including information provided by Bane One. The
Board has provided copies of these comments to the appropriate
federal supervisor of the subsidiary.
40. Some commenters contended that the CRA performance examinations of Bane One's subsidiary banks are outdated and should be
discounted by the Board. The Board notes that four of Bane One's
subsidiary banks were examined in 1997: Bank One, Colorado, N.A.,
Denver, Colorado ("Bank One Colorado"); Bank One, Texas, N.A.,
Dallas. Texas ("Bank One Texas"); Bank One, Utah. N.A., Salt Lake
City, Utah ("Bank One Utah"); and Bank One, West Virginia, N.A.,
Huntington, West Virginia ("Bank One West Virginia"). Each of the

Legal Developments

One's lead bank, Bank One, Columbus, N.A., Columbus,
Ohio ("Bank One Columbus") received an "outstanding"
performance rating from the OCC, as of February 1995. In
addition, Bank One, Springfield, Springfield, Illinois
("Bank One Springfield"); Bank One, Indianapolis, N.A.,
Indianapolis, Indiana ("Bank One Indianapolis"); and
Bank One Colorado all received "outstanding" ratings
from their appropriate federal supervisors, as of December
1994, February 1995, and March 1997, respectively.41
All of First Chicago's subsidiary banks also received
"outstanding" or "satisfactory" ratings at the most recent
examinations of their CRA performance. For example,
First Chicago's lead subsidiary bank, First Chicago Bank,
received a "satisfactory" rating at its most recent examination from the OCC, as of November 1997. NBD Bank,
Detroit, Michigan ("NBD Michigan"), received an "outstanding" rating from the Federal Reserve, as of May
1996; NBD Bank, N.A., Indianapolis, Indiana ("NBD Indiana"), received an "outstanding" rating from the OCC, as
of October 1995; and NBD Bank, Elkhart, Indiana, received an "outstanding" rating from the FDIC, as of July
1998.
C. CRA Policies and Programs
Bane One and First Chicago have indicated that the CRA
policies and programs of New Bank One would draw on
the best parts of the CRA policies and programs currently
in place at the two institutions and that New Bank One
would seek to expand the combined customer base served
by the two banking organizations. Bane One has stated, for
example, that it expects to expand the products and services offered to small businesses in the communities currently served by First Chicago and, in particular, that it
expects New Bank One to introduce a variety of small
business financing programs, including loan programs subsidized and guaranteed by the Small Business Administration ("SBA") to markets where First Chicago currently
operates.
Bane One has committed that New Bank One will continue to offer products to assist in meeting the credit needs
of LMI home buyers and would continue to participate in
programs that offer financial and technical assistance to
first-time home buyers. Bane One also has stated that New

banks received an "outstanding" or "satisfactory" CRA performance
rating. In addition, the Board has carefully reviewed information in
the record about the CRA performance of Bane One's subsidiary
banks since their last performance examinations.
41. After their most recent CRA performance examinations, Bank
One Columbus, Bank One Springfield, and Bank One Indianapolis
were merged with other Bane One banks in their home states of Ohio,
Illinois, and Indiana and were renamed, respectively, Bank One, N.A.,
Columbus, Ohio ("Bank One Ohio"): Bank One Illinois, N.A.,
Springfield, Illinois ("Bank One Illinois"); and Bank One Indiana,
N.A., Indianapolis, Indiana ("Bank One Indiana"). All the banks that
were merged into Bank One Ohio, Bank One Illinois, and Bank One
Indiana had "outstanding" or "satisfactory" CRA performance ratings.



969

Bank One will pursue opportunities to finance affordable
rental housing through construction, temporary, and equity
financing in all the banking markets where the combined
organization operates. New Bank One also will use innovative financing for low-income, multifamily housing
projects and provide philanthropic grants to communitybased organizations that support housing for individuals
with special needs. In addition, New Bank One will participate in government-sponsored programs that finance affordable housing projects.
Bane One also has stated that New Bank One will offer
basic banking accounts at affordable prices. New Bank One
will, for example, cash government benefit checks for
accountholders at no charge and will encourage recipients
of government benefits to open accounts and to use directdeposit services. Bane One currently offers a no-fee banking account for individuals who have government benefits
checks deposited directly into their accounts. New Bank
One also will support efforts to educate LMI consumers
about affordable banking services.
New Bank One will continue to employ CRA officers to
assist in effectively addressing community needs. Bane
One also has stated that New Bank One also will support
"outreach" programs that complement traditional mortgage and consumer lending. In addition, New Bank One
would support educational initiatives that teach principles
of financial management.
Bane One has noted that the community reinvestment
strategies of Bane One and First Chicago currently emphasize the particular needs and opportunities in each community in which each banking organization operates. Bane
One has stated that New Bank One will continue to focus
locally in conducting community development and in other
activities designed to assist in meeting the needs of the
communities it serves.
Bane One also has emphasized that the decision to locate
the corporate headquarters of New Bank One in Chicago
would not reduce the CRA-related activities conducted in
Ohio, where Bane One's corporate headquarters currently
are located. Bane One notes that lending and retail banking
service delivery decisions are not made at corporate holding company levels and will be unaffected by the location
of the corporate headquarters.
Bane One and First Chicago have well-established CRA
policies and programs that serve the credit and banking
needs of their communities. The Board expects that New
Bank One will implement policies and programs that help
to address the credit and banking needs of local communities, including LMI neighborhoods.

D. Bane One's CRA Performance Record

Overview. Bane One recently initiated a comprehensive
reorganization effort, entitled Project One, that standardized its product offerings, services, and marketing programs. Bane One maintains that Project One enhances its
ability to meet the needs of all the communities that it

970

Federal Reserve Bulletin • November 1998

serves.42 Bane One also has stated that CRA officers of its
subsidiary banks will continue to be responsible for understanding the needs of individual communities and developing appropriate community development strategies.
Bane One has been an active small business lender and,
in 1996, Bane One made approximately $5 billion in small
business loans. In 1997, Bane One's small business lending increased to approximately $7.5 billion. Bane One
represents that, in both years, 80 percent of these small
business loans were in amounts of less than $100,000, and
that more than 25 percent of its small business loans were
made in LM1 communities. The growth in Bane One's
small business lending is due, in part, to Bane One's
business outreach program. In 1997, Bane One's lending
officers contacted more than 6,500 small businesses each
month. Through its Women Entrepreneurs Initiative, Bane
One contacted more than 8,000 businesses owned by
women in 1997.
In addition to its direct lending to small businesses, Bane
One has made investments in and provided financial support to a variety of programs and nonprofit financial intermediaries that assist small and emerging companies. From
1996 through June 1998, Bane One has made loans and
investments totaling approximately $10 million to small
business funds in seven states.
Bane One offers mortgage loans primarily through
BOMC. 43 BOMC offers a range of affordable housing
products, participates in a number of down-payment assistance programs, and offers certain loans that feature flexible underwriting and lower closing costs for real property
renovation. Bane One's Consumer Lending Division
("CLD") makes home equity and consumer installment
loans. Bane One reports that, in 1997, its CLD made more
than 131,000 home equity loans, totaling $4.8 billion, and
almost 12 percent of the loans were to LMI borrowers.
Bane One also has an "Outreach Program" to serve LMI
individuals. Under the program, Bane One representatives
visit community and neighborhood centers at scheduled
times to offer affordable credit and banking products, in-

42. Several commenters expressed concern about the ability of Bane
One to address the specific needs of local communities in light of this
initiative. Bane One has stated that its centralized structure allows it to
accumulate its experience with a product or service in a wide variety
of circumstances in order to make the product or service more
accessible to all communities served. Bane One also has represented
that certain lending decisions and charitable contributions and other
aspects of Bane One's CRA program will continue to be conducted at
the local level.
43. A number of commenters expressed concern that mortgage
lending would not represent a significant line of business for the New
Bank One. Bane One stated at the public meeting that New Bank One
would continue to originate mortgage loans. Bane One also noted that
it recently formed a partnership with the Federal National Mortgage
Association ("Fannie Mae") and other lenders to originate 35,000
affordable mortgages to low-income and minority home buyers over
the next five years. The Board notes that the CRA does not require an
institution to offer any specific credit products but allows an institution
to help serve the credit needs of the institution's community by
providing credit of the types consistent with the institution's overall
business strategy and expertise.



eluding low-cost basic account services and secured credit
cards.
Bane One Capital Funding Corporation ("Capital Funding Corp.") has funded numerous multifamily housing
projects. Bane One reports that, in 1996 and 1997, Capital
Funding Corp. provided more than $40 million in financing
to affordable multifamily housing developments.44 Capital
Funding Corp.'s financial support resulted in more than
1,600 new affordable housing units.
Bane One Community Development Corporation
("Bane One CDC") also makes investments and loans for
a variety of housing, community development, and small
business development projects. The loan and investment
commitments made by Bane One CDC totalled approximately $280 million for almost 200 projects.
Lending Record in General. CRA performance examinations of Bane One's subsidiary banks conducted by the
appropriate federal supervisory agencies generally found
that each bank offered a full range of consumer, housingrelated, and small business loans, including loan products
with flexible credit terms and underwriting guidelines.
Examiners found that the banks effectively identified the
credit needs of their service communities and affirmatively
solicited loan applications from all segments of their communities, including LM1 neighborhoods.
The examinations generally indicated that the banks'
lending activities reached LMI individuals and that the
loans made by Bane One's subsidiary banks were reasonably distributed throughout the local communities they
served, including LMI communities. Examiners also found
that the banks participated in lending programs designed to
make credit available for affordable housing and small
businesses. In addition, all of Bane One's banks offered
community development lending, investment, and technical assistance.45
Ohio. According to the CRA performance examinations,
Bane One's subsidiary banks in Ohio, which were consolidated to form Bank One Ohio, developed programs to
identify the credit needs of their delineated communities
and responded to those needs through a wide variety of
credit products and banking services. The banks also gener44. Capital Funding Corp., for example, invested $1.5 million in a
40-unit housing project that provides housing for LMI senior citizens
in Milwaukee, Wisconsin. In addition, Bane One provided construction financing for the housing project.
45. A few commenters expressed particular concern regarding the
CRA performance record of Bane One's subsidiary credit card bank,
First USA Bank, Wilmington. Delaware ("First USA"). First USA
was not acquired by Bane One until May 1997. First USA received a
"satisfactory" rating in its last CRA performance examination in
August 1996, before its acquisition by Bane One. Bane One has
implemented several CRA-related programs and investments at First
USA since its acquisition, including purchasing a $10.5 million portfolio of mortgage loans to LMI borrowers; exploring various partnership opportunities with the Wilmington Housing Authority; and making $600,000 in investments to certain loan pools that provide
financing for community and housing development. In addition, in
July 1998, First USA and its Bane One affiliates were selected by one
of Delaware's largest social services organizations to provide equity
financing for the rehabilitation of two buildings that will provide
affordable housing for mentally disabled individuals.

Legal Developments

ally had a significant volume of consumer, home-related,
and small business loans in all segments of their communities. For example, the CRA performance examination states
that, in 1994, Bank One Columbus had more than 3,700
small business credit relationships and made small business loans totaling more than $243 million in the Columbus area. Since the most recent CRA examinations, Bane
One's banks originated more than 1,950 small business
loans in the Cleveland, Ohio, MSA, totaling $165 million,
and more than 16 percent of the loans were made in LMI
communities.
The record also indicates that Bane One and its affiliates
originated more than 12,000 small business loans, totaling
over $1.1 billion, throughout Ohio in 1996. Approximately
22 percent of these loans were made in LMI census tracts.
In addition, the SBA's district offices in Cleveland and
Columbus designated Bank One Ohio as the number one
SBA lender in 1997. In the Cleveland SBA district, Bank
One Ohio made 140 SBA loans, totaling $15.4 million, and
in the Columbus SBA district, the bank made 224 SBA
loans, totaling $34.6 million.
The CRA performance examinations indicate that Bane
One's subsidiary banks in Ohio, in conjunction with
BOMC, generally offered a range of loans for affordable
housing and home improvements. For example. Bank One
Columbus introduced an affordable mortgage product with
lower payments and flexible debt-to-income limits and, in
1994, Bank One Columbus originated 182 affordable mortgages, totaling $8.9 million, in its assessment area. Bank
One Columbus outperformed competitors in originations
of home improvement loans, particularly in LMI and minority census tracts, according to its CRA performance
examination. Examiners also noted that Bank One, Akron,
N.A., Akron, Ohio, established an "Own a Home" Loan
program to provide affordable mortgage and home-related
loan financing. In 1994, the bank originated more than
350 "Own a Home" Loans, totaling more than $15 million.
Examiners noted that Bank One Columbus played an
active role in making loans that were insured, guaranteed,
or subsidized under programs by local, state, and federal
governmental agencies for families, small businesses, and
small farms. In 1994, Bank One Columbus participated in
government-sponsored loans totaling more than $24 million. The bank originated $1.2 million in loans through the
Ohio Agricultural Linked Deposit program, a program that
offers loans of less than $100,000 to full-time farmers. The
bank also participated in a similar state program for small
businesses, originating 16 loans totaling approximately
$2.3 million in 1994. Examiners noted that Bank One,
Cleveland. N.A., Cleveland, Ohio, participated in several
government loan programs, including a home buyer downpayment assistance program with the City of Cleveland
that originated 59 mortgage loans, totaling $127,000,
through the first nine months of 1994.
Bane One's Capital Funding Corp. also financed a number of multifamily housing projects in Ohio in 1996 and
1997. In the Dayton-Springfield, Ohio, MSA, for example,
Capital Funding Corp. originated more than $8.9 million
for housing projects in 1996 and 1997 that provided more



971

than 350 housing units. In the Columbus, Ohio, MSA,
Capital Funding Corp. originated more than $3.9 million
for housing projects in the same two years that provided
more than 210 housing units.
The record also shows that Bank One Ohio has entered
into partnerships with a number of community-based organizations. Bane One reports that, in 1996 and 1997, Bank
One Ohio invested approximately $4.2 million in
community-based, CRA-related initiatives.
Indiana. Examiners concluded that Bank One's subsidiary banks in Indiana, which were consolidated to form
Bank One Indiana, generally offered loan products to meet
the important credit needs of the communities they served.
For example, Bank One Indianapolis, in conjunction with
BOMC, offered several affordable home mortgage and
home improvement loan programs. The CRA performance
examination indicates that the bank made 435 loans, totaling $22.4 million, under these affordable home lending
programs in 1994. Since the most recent CRA examinations, Bank One Indiana and its affiliates originated approximately 150 mortgage and more than 740 home improvement loans to LMI families in 1997.
Bane One's subsidiary banks in Indiana generally have
been active small business lenders. During 1994, Bank
One Indianapolis made more than 620 small business
loans, totaling $25.8 million. In Indiana, Bane One developed the Bane One Business Line of Credit ("BOBLOC"),
a low-cost credit line for small businesses generally seeking less than $250,000. By the end of 1994, Bank One
Indianapolis had made $3.3 million in loans under the
BOBLOC program. In 1995, Bank One Marion, N.A.,
Marion, Indiana, originated 11 loans under the BOBLOC
program, totaling $1.3 million. Bane One and its subsidiaries also have invested more than $200,000 in and provided
a $1.8 million line of credit to the Indiana Community
Business Credit Corporation, which provides financing to
small businesses in Indiana.
Examiners commended Bank One Indianapolis for participating in governmentally insured, guaranteed, and subsidized loan programs. Examiners noted that Bank One
Indianapolis was the second largest provider of SBA loans
in Indiana and within the Indianapolis MSA. According to
the CRA performance examination, Bank One Indianapolis
made more than 20 SBA loans totaling $5.3 million in
1994. The bank also made seven loans, totaling $235,000,
under a small business loan program established by the
Indiana Development Finance Authority in 1994. Since the
most recent CRA examinations, Bane One's subsidiaries in
Indiana made more than 150 government-sponsored small
business loans in 1996 and 1997, totaling more than
$14 million.
Since the CRA examinations, Bank One Indiana also has
actively engaged in extending credit to LMI consumers
and in LMI neighborhoods. During 1997, for example, the
bank and its affiliates originated more than 12,000 consumer loans, totaling more than $100 million, to consumers residing in LMI census tracts in the Indianapolis banking market.
Illinois. The record indicates that Bank One Illinois,

972

Federal Reserve Bulletin • November 1998

which was formed through the consolidation of Bane One's
subsidiary banks in Illinois, offers a variety of credit products to serve all its communities, including LMI communities. For example, in 1997, Bank One Illinois originated
more than 2,000 consumer loans, totaling more than
$15 million, in LMI census tracts. Examiners also noted
that Bane One's banks in Illinois have demonstrated a
willingness to meet the credit needs of the communities
they serve. The CRA performance examinations of Bane
One's subsidiary banks in Illinois generally indicated that
these depository institutions originated loans consistent with
the credit needs of their delineated service communities.
Bane One states that Bank One Illinois, in conjunction
with BOMC, offers more than 55 different home purchase
mortgage products, including affordable mortgage products. Bane One's subsidiary banks in Illinois also generally
have been active in pursuing opportunities to finance affordable housing needs in their service communities. The
CRA performance examination of Bank One Peoria, Peoria, Illinois, noted that, in 1993 and 1994, the bank made
51 mortgages, totaling $1.74 million, under its Affordable
Housing Program, which offers financial assistance to firsttime and LMI home buyers. Similarly, Bank One, Chicago,
N.A., Chicago, Illinois, originated $2.1 million in affordable home purchase loans in 1994 and 1995.
Bank One Illinois and its affiliates have participated in
government-sponsored small business loan programs since
the last CRA examinations of Bane One's banks in Illinois.
Bane One reports that, in 1996 and 1997. Bank One Illinois
and its affiliates originated 49 government-sponsored small
business loans, totaling more than $5 million.
In 1997, Bank One Illinois made $37.6 million in small
business loans in Chicago. The bank also originated a
significant volume of small business loans in MSAs outside Chicago. In 1997, Bank One Illinois made 333 small
business loans in Springfield, totaling $28 million, and
241 small business loans in Champaign-Urbana, totaling
$11.4 million.
Colorado. Examiners commended Bank One Colorado
for its efforts to address the credit needs of its service
communities through residential mortgage, home rehabilitation, home improvement, consumer, small business, and
farm loans. Examiners highlighted, for example, the bank's
small business lending efforts, noting that Bank One Colorado originated $248 million in small business loans in
1996. Examiners also commended the bank's small business lending in LMI communities. In 1996, 37 percent of
its small business loans were made in LMI areas, which
compares favorably to the 32 percent of the population that
lives in LMI census tracts. According to the CRA performance examination, Bank One Colorado also won an
award from the SBA for its strong commitment to lending,
service, and outreach to minority-owned small businesses.
Since the examination, Bank One Colorado has originated
45 loans, totaling $2.3 million, under the SBA "FastTrack" program for loans of less than $100,000. Bank One
Colorado was one of only 18 banks nationwide that originally offered FastTrack as a pilot program.
Examiners found that Bank One Colorado had agricul


tural loans totaling $96 million on its books as of December 31, 1996. Examiners also stated that Bank One Colorado had more agricultural loans on its books than any
other local competitor.
According to the CRA performance examination, Bank
One Colorado's mortgage, consumer, and small business
loan originations were well distributed throughout the
bank's communities. Examiners stated, for example, that
the bank was the leading home improvement lender in its
communities, originating 11.9 percent of all home improvement loans, and that Bank One Colorado ranked
second in home improvement lending to LMI individuals,
originating 10.2 percent of all home improvement loans to
LMI individuals.
Examiners also commended Bank One Colorado for
providing technical assistance to individuals and small
businesses. The bank, for example, participated in a partnership with the Urban League and Fannie Mae to provide
home buyer seminars and one-on-one counseling to prospective home buyers in Denver. The bank also participated in numerous conferences for small businesses and
sponsored many community events to promote and advertise its products and services.
Louisiana. Examiners noted that the volume of mortgage, home improvement, small business and small farm
lending conducted by Bank One, Louisiana, N.A., Baton
Rouge, Louisiana ("Bank One Louisiana"), demonstrated
responsiveness to the credit needs of the bank's communities. The bank solicited credit applications and extended
credit throughout its service area, including LMI communities. The bank, moreover, had marketing programs that
focused on minority and LMI communities.
Examiners commended Bank One Louisiana for introducing innovative products and employing flexible underwriting standards to increase the availability of credit. In
1994, for example, Bank One Louisiana developed the
Foundations Affordable Housing Program ("Foundations"), which offers 95 percent financing of home purchases and home refinancings to individuals on their completion of a home buyer training class. From January 1994
through June 1996, Bank One Louisiana originated over
$12 million in Foundations loans.
From June 30, 1995 to June 30, 1996, Bank One Louisiana originated more than 5,600 small business loans totaling $141 million and approximately 400 small farm loans
totaling $10 million. The bank also has introduced a
"BusinessLine" product to help provide working capital to
small businesses. In addition, the bank provides technical
and educational programs to small businesses and businesses owned by minorities and women throughout its
communities.46

46. Some commenters expressed concern that the lending record of
Bank One Louisiana had deteriorated since Bane One acquired the
depository institution from Premier Bancorp in 1995. Bane One
represents that since the bank's acquisition. Bank One Louisiana has
increased the number of loans made to LMI and minority individuals.
In 1996. for example. Bank One Louisiana made more purchase
money mortgage loans to LMI African Americans than Premier's

Legal Developments

Texas. According to the performance examination conducted by the OCC, Bank One Texas effectively made its
credit services available to all segments of its community.
Bank One Texas made a significant number of mortgage,
home improvement, consumer, credit card, and small business loans in 1996 and 1997, and examiners generally
noted that the geographic distribution of the bank's loans
throughout its service communities was good. Examiners
noted, for example, that 36 percent of the businesses in the
service area were in LMI census tracts and that 34 percent
of the small business loans were made by Bank One Texas
to businesses in LMI census tracts.
Bane One represents that the efforts of Bank One Texas
to extend credit to all segments of its service communities
has continued since the examination. In 1997, for example,
Bank One Texas originated more than 18,000 consumer
loans, totaling $131 million, in LMI communities in the
Houston MSA.
In 1996 and the first quarter of 1997, Bank One Texas
and BOMC made more than 5,300 home purchase mortgage loans totaling $303 million. The bank and BOMC
offered home mortgage products with flexible underwriting
criteria, including loan-to-value ratios exceeding 95 percent, higher debt-to-income ratios, and non-traditional
credit histories. In addition. Bank One Texas offered financial education to first-time home buyers. The bank also
originated more than 10,800 home improvement loans
totaling approximately $198 million.
In 1996 and the first quarter of 1997, Bank One Texas
made 107 community development loans totaling $72 million. Of this total, 71 loans were for affordable housing
projects and 36 loans to promote the development of small
businesses. In addition, Bane One states Bank One Texas
has established partnerships with over 50 communitybased organizations to serve the needs of LMI communities.
Wisconsin. Examiners generally concluded that Bane
One's subsidiary banks in Wisconsin, which were merged
after the date of their examinations to form Bank One,
Wisconsin, N.A., Milwaukee. Wisconsin ("Bank One Wisconsin"), offered various credit products to address the
credit needs of the communities served. Bank One, Milwaukee, N.A., Milwaukee, Wisconsin ("Bank One Milwaukee"), for example, introduced the "American Dream"
mortgage program, which features flexible underwriting
guidelines and low down payment requirements. From its
introduction in 1993 to the end of 1994, the bank originated 92 "American Dream" loans totaling $5 million. The
CRA performance examination also noted that Bank One
Milwaukee participated in a program to offer low-interest
loans for the purpose of making homes more energy efficient. The bank originated more than 60 of these home
improvement loans in 1994, totaling $192,000.

subsidiary bank made in 1995. In addition, the number of consumer
and small business loans made by Bank One Louisiana and its
affiliates in LMI census tracts increased in 1997, compared with 1996
data.



973

Examiners noted that Bank One Milwaukee developed a
marketing program designed to reach all segments of the
communities it serves, including LMI areas. As part of the
program, the bank's consumer lending division conducted
a mailing to residents of LMI communities in the bank's
service area, which resulted in 305 new loans. Since the
most recent CRA examinations, Bank One Wisconsin
made more than 4,000 consumer loans in 1997, totaling
more than $33 million, to residents in LMI census tracts.
Examiners generally commended Bank One's subsidiary
banks in Wisconsin for being active small business lenders.
The record indicates that, since the CRA examinations.
Bane One's subsidiary banks have continued to make
small business loans. In 1996, Bank One Wisconsin extended more than 1.700 loans to small businesses in the
Milwaukee MSA, and more than 170 of the loans were
made to small businesses in LMI census tracts. In 1997,
Bank One Wisconsin made more than 240 small business
loans in LMI census tracts.
Bank One's banks in Wisconsin also have used government and other credit enhancement programs to assist
small businesses. The CRA performance examination
noted that Bank One Milwaukee participated in Milwaukee's Capital Access Program to address the credit needs
of higher-risk businesses. Under the program, the bank
originated 17 loans in 1993 and 1994. totaling more than
$320,000. Similarly, according to its CRA performance
examination. Bank One Green Bay, Green Bay. Wisconsin,
also was an active participant in several government guaranteed and sponsored loans.
Bank One Milwaukee participated in numerous local
community development and redevelopment projects and
programs. In 1994, the bank made a $1.4 million loan for
the rehabilitation of commercial office space in downtown
Milwaukee. The bank also lent $232,000 to the Northwest
Side Community Development Corporation to purchase
and renovate a building to house an alternative high school
that trains students for jobs with industrial firms. In addition, Bane One states that Bank One Wisconsin has provided philanthropic support to 41 organizations serving the
needs of LMI individuals and communities.
Bane One's subsidiaries in Wisconsin have been actively
engaged in meeting the affordable housing needs of LMI
communities. In Milwaukee, Bane One's subsidiaries are
active participants in NOHIM, a public-private partnership
with the city of Milwaukee that assists LMI families in
purchasing homes. Bank One Wisconsin and Bane One
CDC also have developed a joint venture with WHEDA in
which WHEDA will originate and Bane One CDC will
fund permanent, fixed-rate loans of up to $2.5 million for
low-income housing tax credit projects throughout Wisconsin. The funds primarily will be used in rural Wisconsin,
and Bane One represents that, of the nine projects under
consideration, seven are located in rural counties.
Since their CRA examinations, Bane One's subsidiaries
have attempted to meet the credit needs of rural communities and small farms. In 1996 and 1997, for example, Bank
One Wisconsin and its affiliates originated nine Farm Service Administration loans, totaling $972,000, according to

974

Federal Reserve Bulletin • November 1998

Bane One. In addition, Bane One notes that Bank One
Wisconsin originated 81 SB A loans in 1996 and 1997, and
that 22 percent of the businesses receiving the loans were
in rural counties. During the Board's public meeting, a
representative of WHEDA noted that Bank One Wisconsin
made 133 agricultural production loan guarantees, totaling
$1.7 million, and two beginning farmer loans, totaling
$288,000.47
E. First Chicago's CRA Performance Record
Overview. First Chicago oversees and manages its community development programs through its Community Affairs/
CRA Coordinating Council ("CRA Council"). First
Chicago represents that the CRA Council combines
corporate-level oversight with local-level decision making
to assure efficient deployment of First Chicago's resources
to support its communities.
First Chicago provides a range of affordable home mortgage and small business lending products in the communities it serves. The banking organization participates in
numerous flexible financing programs for affordable housing, including state-based and neighborhood initiatives. In
addition. First Chicago supports a variety of microenterprise programs and participates in various small business credit enhancement programs.
First Chicago also has a strong record of participating in
community development projects. In 1997, for example,
First Chicago originated 64 loans, totaling $30 million, for
affordable housing projects and made 48 loans, totaling
more than $57 million, for economic development purposes. Examples of its community development initiatives
include providing pre-development and construction financing and $3.5 million for mortgage financing for a
re-development project in a LMI community in downtown
Detroit; providing construction financing for a singlefamily subdivision containing 170 lots in Flint, Michigan;
and rehabilitating two low-income housing projects in Chicago containing 380 units.
Lending Record in General. Examiners generally determined that loan originations by First Chicago's subsidiary
banks were reasonably distributed throughout their communities, including LMI communities. The banks generally met the identified credit needs of their communities
through a variety of loan products, including affordable
mortgage financing and small business lending.
Examiners also generally commended First Chicago subsidiary banks for using innovative and flexible loan products to serve their communities. First Chicago's subsidiary
banks initiated the "Community Pride" loan program under which low-income borrowers can obtain loans in
amounts as small as $500 for purposes such as home
improvements. Through the first three quarters of 1997,

47. WHEDA also noted that many of the loans made by Bank One
Wisconsin in conjunction with WHEDA are not reported in the bank's
HMDA data and that the HMDA data for Bank One Wisconsin,
accordingly, understate the bank's lending.



First Chicago Bank originated more than 1,200 "Community Pride" loans, totaling $25 million.
In addition, First Chicago's subsidiary banks were generally found to be active participants in government lending
programs for housing and small business. The banks offered loans through programs sponsored by the Federal
Housing Administration, the Veterans Administration, the
SBA, and various state agencies.
Illinois. OCC examiners found that First Chicago Bank
extended various types of credit to the communities it
serves, including LMI areas. Examiners determined that
the bank had a good distribution of housing and consumer
loans in census tracts with different average income levels
and had a good distribution of small business loans to
borrowers of different income levels. In particular, examiners commended the bank's level of consumer loans to LMI
borrowers, noting that the bank made 46 percent of its
consumer loans in 1996 and the first three quarters of 1997
to LMI consumers, which compared favorably to the
37 percent of LMI individuals that resided in the bank's
service areas.
First Chicago Bank has a strong record of lending to
very small businesses, which examiners characterized as
businesses with revenues less than $1 million. The bank
made more than 2,000 loans to very small businesses in
1996 and the first three quarters of 1997. These loans
represented approximately half the business loans made by
First Chicago Bank during this period. The bank supplemented its direct lending efforts by supporting financial
intermediaries, such as the ACCION Microlending Program, that lend to very small businesses.
Examiners noted that First Chicago Bank demonstrated
leadership in its use of innovative and complex products to
support community development lending. In 1996 and the
first three months of 1997, the bank made more than
100 loans, totaling approximately $88 million, for affordable housing and economic development purposes. One
innovative project noted by examiners was the bank's
participation in developing a shopping center that provided
a grocery store owned by a national chain to an area that
lacked such a facility. First Chicago Bank provided construction financing for and established a branch in the
shopping center.
The bank has initiated efforts to extend mortgage loans
to LMI families through down-payment assistance and
other programs to help home buyers pay closing costs.
First Chicago Bank also has made more than $1.7 million
in affordable home purchase loans in Chicago through the
New Beginnings program, under which a local developer
builds affordably priced homes on lots owned by the City
of Chicago. In addition, the record developed since the
CRA examination indicates that First Chicago Bank made
more than $109 million in mortgage loans in LMI areas of
Chicago in 1997, an increase of more than 40 percent from
the amount of these loans made in 1996.
In Chicago, First Chicago has entered into two separate
agreements with community groups under which the banking organization has agreed to provide over $8 billion in
home mortgage, home improvement, and small business

Legal Developments

loans and other forms of financial assistance to LMI and
minority neighborhoods. Goals set under the agreements
included the origination of $120 million in home mortgage
loans and $130 million in home improvement loans to LMI
and minority communities over the next ten years. First
Chicago also has stated that it would open four new
branches in LMI communities in the Chicago area. In
addition, First Chicago has agreed to continue to support
homeownership education and counseling programs, particularly in LMI areas. The agreements provide for monitoring by and regular meetings with community groups.
Indiana. OCC examiners determined that NBD Indiana
addressed a significant portion of the identified credit needs
of the communities it serves through its credit products,
including its affordable mortgages and small business
loans. The bank was an active small business lender and, in
the first nine months of 1995, it made more than 2,500
small business loans, totaling $184 million. Twenty-eight
percent of the loans were made to businesses in LMI
communities, which examiners noted correlated favorably
to the fact that 28 percent of the population in the bank's
communities resided in LMI census tracts.
NBD Indiana originated a significant amount of home
purchase and home improvement loans. In 1994, the bank
made more than 2,000 home purchase loans, totaling approximately $214 million, and more than 1,600 home
improvement loans, totaling approximately $6 million.
NBD Indiana offered a number of products to promote
affordable housing, including low-down-payment mortgages and a specialized rehabilitation loan to help consumers, particularly in urban areas, to purchase and rehabilitate
owner-occupied dwellings. In Indianapolis, the bank also
supplemented its direct home mortgage lending by investing $2 million in an Indianapolis Neighborhood Housing
Partnership mortgage pool to assist LMI home buyers.
Examiners found that NBD Indiana marketed its credit
and credit-related products to all portions of the communities it served. The bank's CRA officers called on local
community groups and other organizations that promote
revitalization of the bank's communities. NBD Indiana
also participated in a variety of seminars to promote awareness of credit and financial products, including programs
for first-time home buyers and small businesses.
Michigan. The CRA performance examination of NBD
Michigan concluded that the bank was responsive to the
credit needs of the communities it served and that the bank
had introduced a number of new products or modified
several existing products to better serve those needs. These
products included an acquisition/rehabilitation program for
inner city homes that was initiated in the third quarter of
1994. Since the program was introduced, the bank has
made 38 acquisition/rehabilitation loans, totaling more than
$1.8 million.
NBD Michigan actively marketed its credit products and
services in all its communities, including LMI areas. In
July 1995, for example, the bank sent a mailing for preapproved $1,000 personal loans to approximately 4,500
individuals earning less than $25,000 per year. The bank
also sent materials promoting the bank's mortgage hotline




975

and the benefits of home ownership to 4,800 renters living
in the Detroit Empowerment Zone. CRA representatives
from the bank also participated in a 30-minute weekly
radio show on a radio station with a predominantly minority audience.
Examiners noted that, in February 1995, NBD Michigan
entered into a three-year strategic plan with the Alliance
for Fair Banking to originate $678 million in loans and
investments to revitalize Detroit. Under the plan, in 1995,
the bank made 146 home mortgages in LMI census tracts,
totaling $6.8 million, and made 311 business loans, totaling $35.9 million, to businesses with annual sales of less
than $1 million. In total, NBD Michigan originated
$232 million in consumer and business loans in the city of
Detroit in 1995, which was 13 percent more than the plan's
goal.
Since the last CRA examination, First Chicago renewed
its CRA agreement in Detroit in 1998. Under the new
agreement, NBD Michigan proposes to make loans and
investments totaling $3 billion over three years to support
LMI, minority, and inner-city communities. The agreement
specifies that the bank will make approximately $2.2 billion in loans to businesses in Detroit and will assist in
developing at least one major downtown project valued at
$50 million or more. The agreement also provides for
grants to community development organizations. NBD
Michigan also has stated that it would train additional staff
to process SBA loan applications and that it would continue a second-review process for small business and residential mortgage loan applications. New Bank One intends
to honor the CRA agreements entered into by First Chicago and its subsidiary banks in Detroit and Chicago.
F. HMDA Data and Fair Lending
The Board also has carefully considered the lending
records of Bane One and First Chicago in light of comments regarding HMDA data reported by subsidiaries of
the organizations. In particular, commenters alleged that
HMDA data from Bane One's banking and nonbanking
subsidiaries evidence discrimination against minority credit
applicants in violation of the fair lending laws.
Bane One and First Chicago deny allegations of illegal
credit practices and have provided HMDA data and other
information evidencing efforts by Bane One and First
Chicago to serve minority and LMI communities.48 Bane
One also has stated that New Bank One will continue to
market a variety of products with flexible terms to all
segments of its service communities, and pursue opportuni-

48. Examples provided by Bane One include the fact that Bank One
Ohio and BOMC originated 171 mortgage loans in the Cincinnati,
Ohio, MSA in 1996, and that more than 13 percent of such loans were
made to African Americans, who constitute 12.5 percent of the
population of the Cincinnati MSA. Bane One also represents that
more than 8 percent of the home purchase mortgage loans made in
Springfield, Illinois, in 1997 were to African-American borrowers,
and that African Americans constituted approximately 8 percent of the
population of the Springfield banking market. Bane One has provided
similar statistics for other areas.

976

Federal Reserve Bulletin D November 1998

ties to expand the customer base served by the banking
organization through partnerships with community-based
organizations.
The Board has carefully considered the 1995, 1996, and
1997 HMDA data reported by Bane One and First Chicago. The data generally show that Bane One and First
Chicago have assisted in meeting the housing-related credit
needs of minority and LMI borrowers and borrowers in
LMI census tracts. The data also generally do not indicate
that the banking organizations are excluding any geographic areas or population segments on a prohibited basis.
The data also reflect certain disparities in the rates of
loan applications, originations, and denials among members of different racial groups and persons at different
income levels, both generally and in certain states and local
areas. The Board is concerned when an institution's record
indicates such disparities in lending, and believes that all
banks are obligated to ensure that their lending practices
are based on criteria that assure not only safe and sound
banking, but also equal access to credit by creditworthy
applicants regardless of their race or income level. The
Board recognizes, however, that HMDA data alone provide
an incomplete measure of an institution's lending in its
community because the data cover only a few categories of
housing-related lending. HMDA data, moreover, provide
only limited information about the covered loans.49 HMDA
data, therefore, have limitations that make the data an
inadequate basis, absent other information, for concluding
that an institution has not adequately assisted in meeting its
communities' credit needs or has engaged in illegal discrimination in making lending decisions.
Because of the limitations of HMDA data, the Board has
carefully considered the data in light of other information,
including examination reports that provide an on-site evaluation of the compliance by the subsidiary banks of First
Chicago and Bane One with the fair lending laws and the
overall lending and community development activities of
the banks. Examiners found no evidence of prohibited
discrimination or illegal credit practices at the subsidiary
banks of Bane One. At Bank One Indianapolis, for example, examiners conducted a comprehensive review of the
bank's home improvement loan portfolio to test for racial
discrimination. The review, which included a review of all
African-American applicants for home-improvement loans
who were denied credit between June 1 and December 31,
1994, found that white and African-American applicants
were treated equally and provided with the same level of
assistance in the applications process. Examiners also
tested for discrimination in direct consumer loans at Bank
One Texas and found no violation of anti-discrimination

49. The data, for example, do not account for the possibility thai an
institution's outreach efforts may attract a larger proportion of marginally qualified applicants than other institutions attract and do not
provide a basis for an independent assessment of whether an applicant
who was denied credit was. in fact, creditworthy. Credit history
problems and excessive debt levels relative to income (reasons most
frequently cited for a credit denial) are not available from HMDA
data.



laws. The examinations of First Chicago's subsidiary banks
also found no illegal discrimination in the credit programs
at the banks. For example, in the CRA examination of First
Chicago Bank, OCC examiners did not detect any illegal
discrimination on the basis of gender in a review of the
bank's indirect automobile loan program. OCC examiners'
review of the home improvement loan files of NBD Indiana revealed no fair lending law violations or illegal practices.
The Board notes that examiners reviewed the fair lending policies, procedures, and training maintained by the
depository institutions of Bane One and First Chicago and
found them to be appropriate for monitoring compliance
with fair lending laws. The Board also has considered the
HMDA data in light of the overall lending records of Bane
One and First Chicago, which show that their subsidiary
depository institutions assist in meeting the credit needs of
their entire communities, including LMI neighborhoods.
Several commenters questioned Bane One's credit referral practices, alleging that minority applicants are referred
from Bane One's other subsidiaries to BOFS, which
charges higher interest rates on its loans.50 In addition,
commenters alleged that there are disparities in the denial
rates of credit applications, based on race or other prohibited factors, at BOMC and at other nonbanking subsidiaries
of Bane One.
The Board carefully considered substantially similar allegations in a previous case involving Bane One.51 Based
on all the facts of record in that case, including certain
preliminary information developed in the course of the
Board's supervision of Bane One. the Board decided to
conduct an examination of BOMC to ensure its compliance
with fair lending laws. During 1997, examiners from the
Federal Reserve System conducted an on-site examination
of BOMC, which included a thorough review of BOMC's
loan and application files in several markets and investigations of certain complaints filed by minority loan applicants against BOMC.
The Federal Reserve System's examination found no
evidence of lending discrimination or unlawful and illegal
credit practices at BOMC. In connection with the examination, the Federal Reserve System offered several recommendations to BOMC to improve its fair lending oversight
and systems, including improvements to its systems and
procedures for loan documentation and HMDA data collection. Those recommendations have been or are being implemented, and the Federal Reserve System will continue
to monitor measures taken by Bane One to ensure fair
lending compliance at BOMC.

50. Commenters also alleged that creditworthy applicants are not
referred from BOFS to other Bane One subsidiaries that may offer
lower-cost credit options.
51. See Bane One Corporation, 83 Federal Reserve Bulletin 520
(1997).

Legal Developments

G. Branch Closures
A number of commenters expressed concerns about branch
closures by Bane One and First Chicago. Commenters
alleged that a disproportionate number of Bane One's
branches were closed in LMI and minority communities
and that the closings have adversely affected these local
communities.52 Commenters also alleged that Bane One's
branches in LMI communities offered inadequate services
when compared with Bane One's branches in other areas.
In addition, commenters expressed concern that the proposed merger would result in additional branch closings,
particularly in LMI neighborhoods.53
Bane One has indicated that branches may be closed as a
result of the proposed merger. Bane One represents, however, that the analysis required to determine branch closings has not been completed and that no final decisions
regarding branch closures have been made. Bane One
states that it is reviewing branches of the two organizations
that are within close geographic proximity as likely, but not
automatic, candidates for closure.54 On this basis. Bane
One states that approximately 120 of the 650 branches in
Illinois, Indiana, and Wisconsin are under review. Of the
branches under review, 24 branches, out of a total of
approximately 120 branches in these states, are in LMI
census tracts. The Board has carefully considered the public comments about past and potential branch closures in
light of all the facts of record, including information provided by Bane One.
The Board also has carefully considered the record of
Bane One and First Chicago in opening and closing
branches and the branch closing policy of Bane One. As
part of its Project One reorganization, Bane One instituted
a new corporate branch closing policy in January 1997,
which will be adopted as the branch closing policy for the
subsidiary banks of New Bank One. When a branch is
identified for closing, the policy requires that the business
case analysis include a discussion of how the closing
would affect banking access for LMI consumers. If a
decision is made to close a branch, based on that analysis
and other information, a retention plan must be developed
that contains a strategy for serving customers of the com-

52. Bane One's response to these comments noted that, as of July 1,
1997, approximately 26 percent of its branches were in LMI census
tracts and that the percentage of branches in LMI census tracts
remained unchanged as of March 31, 1998.
53. Several commenters also expressed concerns that the proposal
would result in increased fees for banking products and services. Bane
One and First Chicago offer a full range of banking products and
services, including low-fee bank accounts, and New Bank One intends
to continue to offer affordable basic checking and savings accounts.
Moreover, although the Board has recognized that banks help to serve
the banking needs of communities by making basic services available
at nominal or no charge, the CRA does not require an institution to
limit the fees charged for its services or provide any specific types of
credit products.
54. Bane One has stated that, in evaluating its branch network, New
Bank One will consider other relevant factors, including the volume of
activity, trends in deposit share and profitability, viability of physical
facilities, competition in the market, and traffic patterns.



977

munity affected by the closing, with particular attention to
serving LMI consumers. The bank's CRA personnel participate in the process and review branch closing plans with
community leaders to consider whether the retention plan
responds to the concerns expressed by the community in
light of all the facts of circumstances.
Bane One represents that its new branch closing policy
was submitted to the OCC for review and that suggestions
made by the OCC with respect to the policy were incorporated. Examiners from the OCC also have considered the
effect of branch closings under the policy on the communities served by Bane One's subsidiary banks. The OCC's
CRA performance examination of Bank One Texas, conducted after the implementation of the new branch closing
policy, concluded that the bank had a satisfactory record of
opening and closing branches and provided reasonable
access to services for all segments of the bank's communities. The most recent CRA performance examinations of
Bane One's banks, including Bank One Texas and Bank
One West Virginia, generally noted no materially adverse
effects on LMI neighborhoods from branch closings.
Examiners also concluded that the branch and ATM
networks and alternative delivery systems of Bane One's
subsidiary banks reasonably served the credit needs of all
segments of their communities, including LMI areas. Examiners generally determined that hours of operation and
services offered through branch networks were reasonable
and that variations in hours and services did not adversely
affect LMI communities. In some cases, examiners noted
that Bane One's banks offered bilingual services that would
enhance access to services for certain minority communities. In addition, examiners reviewed the record of branch
closings of First Chicago's subsidiary banks and generally
concluded that the banks had good records of opening and
closing branches.
The Board also has considered that federal banking law
provides a specific mechanism for addressing branch closings. Federal law requires an insured depository institution
to provide notice to the public and to the appropriate
federal regulatory agency before closing a branch.55 The
law does not authorize federal regulators to prevent the
closing of any branch. Any branch closings resulting from
the proposed transaction will be considered by the appropriate federal supervisor at the next CRA examination of
the relevant subsidiary bank.
The Board expects that Bane One's branch closing policy would be used by New Bank One for any branch
closings that result from the proposal. To permit the Board
to assess the effectiveness of the branch closing policy of
New Bank One, the Board conditions its action on this

55. Section 42 of the Federal Deposit Insurance Act (12 U.S.C.
§ 1831r-l), as implemented by the Joint Policy Statement Regarding
Branch Closings (58 Federal Register 49.083 (1993)), requires that a
bank provide the public with at least 30 days notice and the appropriate federal supervisory agency with at least 90 days notice before the
date of the proposed branch closing. The bank also is required to
provide reasons and other supporting data for the closure, consistent
with the institution's written policy for branch closings.

978

Federal Reserve Bulletin • November 1998

proposal on the requirement that New Bank One report to
the Federal Reserve System, on a semi-annual basis during
the two-year period after consummation, all branch closings, including consolidations, that occur as a result of this
proposal. For branches closed in LMI census tracts, New
Bank One should indicate the proximity of the closed
branch to the nearest branch of New Bank One and the
steps that New Bank One took to mitigate the impact of the
branch closure.56
H. Conclusion on Convenience and Needs Factor
The Board recognizes that the proposed merger would
create a large banking organization that will have a significant presence in the Midwest and in other parts of the
country. Accordingly, the Board has carefully reviewed the
proposal and its effects on the convenience and needs of all
the communities to be served by New Bank One.
In conducting its review, the Board has carefully considered all the comments on the convenience and needs factor.
A significant number of commenters have expressed support for the proposal based on the records of Bane One and
First Chicago in helping to serve the banking and, in
particular, the lending needs of their entire communities,
including LMI areas. Other commenters have expressed
reservations about whether Bane One and First Chicago
have been, and New Bank One would be, responsive to the
banking and credit needs of all their communities.57 The
Board has carefully considered these concerns and weighed
them against the overall CRA records of Bane One and
First Chicago, reports of examinations of CRA performance,
and information provided by the two banking organizations,
including Bane One's responses to the comments.
As discussed in this order, the record in this case demonstrates that Bane One and First Chicago have established
records of helping to meet the convenience and needs of
the communities that each currently serves. Bane One has

56. Several commenters expressed concern that the merger would
result in the loss of jobs. The effect of a proposed transaction on
employment in a community is not among the factors included in the
BHC Act, and the federal banking agencies, courts, and Congress
consistently have interpreted the convenience and needs factor to
relate to the effect of a proposal on the availability and quality of
banking services in the community. See, e.g., Wells Fargo & Company, 82 Federal Reserve Bulletin 445, 457 (1996).
57. A number of commenters criticized Bane One for not entering
into agreements with community-based organizations that would provide separate monetary goals for CRA performance for a particular
geographic area. The Board recognizes that communications by depository institutions with community groups provide a valuable method
of assessing and determining how best to meet the credit needs of a
community. Neither the CRA nor the CRA regulations of the federal
supervisory agencies, however, require depository institutions to enter
into agreements with any organization. The Board, therefore, has
viewed such agreements and their enforceability as private contractual
matters between the parties and has focused on the existing record of
performance by the applicant and the programs that the applicant has
in place to serve the credit needs of its communities. The Board also
notes that New Bank One will have a responsibility to help serve the
credit needs of its entire community, including LMI neighborhoods,
with or without private CRA agreements.



indicated that New Bank One will draw on the CRA
policies and programs of both organizations. The Board
expects that New Bank One will demonstrate the same
commitment to helping to serve the banking needs of its
communities, including LMI neighborhoods, that Bane
One and First Chicago have demonstrated to date. Based
on a review of the entire record, the Board concludes that
convenience and needs considerations, including the CRA
records of performance of both organizations' subsidiary
depository institutions, are consistent with approval of the
proposal.
Nonbanking Activities
Bane One also has filed a notice under section 4(c)(8) of
the BHC Act to acquire First Chicago's nonbanking companies and thereby to engage in a number of nonbanking
activities, including underwriting and dealing to a limited
extent in all types of equity and debt securities ("bankineligible securities"). The nonbanking activities for which
Bane One has requested approval are described in Appendix A.
A. Activities Approved by Regulation
The Board has determined by regulation that extending
credit and servicing loans, activities related to extending
credit, engaging in leasing personal or real property, performing trust company functions, providing financial and
investment advisory services, providing agency transactional services for customer investments, engaging in investment transactions as principal, engaging in certain insurance agency and underwriting activities, engaging in
community development activities, and providing data processing services are all closely related to banking for
purposes of the BHC Act.58 Bane One has committed that,
after consummation of the proposal, New Bank One would
conduct these nonbanking activities in accordance with the
limitations set forth in Regulation Y and the Board's orders
and interpretations.
B. Underwriting and Dealing in Bank-Ineligible
Securities
First Chicago currently is engaged in underwriting and
dealing in bank-ineligible securities, to a limited extent,
through First Chicago Capital Markets, Inc., Chicago, Illinois ("FCCM"). Bane One also currently is engaged in
underwriting and dealing in bank ineligible securities, to a
limited extent, through Bane One Capital Corporation,
Columbus, Ohio ("BOCC"). FCCM and BOCC are, and
would continue to be, broker-dealers registered with the
SEC, and members of the National Association of Securities Dealers, Inc. ("NASD"). Accordingly, both entities
would remain subject to the recordkeeping and reporting

58. See 12 C.F.R. 225.28(b)(l), (2), (3), (5). (6), (7), (8), ( l l ) ( i ) ,
(12), and (14).

Legal Developments

obligations, fiduciary standards, and other requirements of
the Securities Exchange Act of 1934 (15 U.S.C. § 78a
et seq.), the SEC, and the NASD.
The Board has determined that, subject to the framework
of prudential limitations established in previous decisions
to address the potential for conflicts of interests, unsound
banking practices, or other adverse effects, underwriting
and dealing in bank-ineligible securities is so closely related to banking as to be a proper incident thereto within
the meaning of section 4(c)(8) of the BHC Act.59 The
Board also has determined that underwriting and dealing in
bank-ineligible securities is consistent with section 20 of
the Glass-Steagall Act (12 U.S.C. § 377), provided that the
company engaged in the activities derives no more than
25 percent of its gross revenues from underwriting and
dealing in bank-ineligible securities over a two-year
period.60
Bane One has committed that, after consummation of the
transaction, FCCM and BOCC each would conduct their
bank-ineligible securities underwriting and dealing activities subject to the 25-percent revenue limitation and the
prudential limitations previously established by the Board.
This order is conditioned on compliance by New Bank One
with the revenue restriction and Operating Standards established for section 20 subsidiaries.61
C. Proper Incident to Banking
In order to approve Bane One's notice to engage in nonbanking activities, the Board must determine that the acquisition of the nonbanking subsidiaries of First Chicago and
the performance of those activities by New Bank One is a
proper incident to banking. That is, the Board must determine that the proposed transaction "can reasonably be

59. See J.P. Morgan & Co. Incorporated, et al, 75 Federal Reserve
Bulletin 192 (1989), aff'd sub nom. Securities Industry Ass'n v. Board
of Governors of the Federal Resene System, 900 F.2d 360 (D.C. Cir.
1990) ("J.P. Morgan"); Citicorp, et al, 73 Federal Reserve Bulletin
473 (1987), aff'd sub nom. Securities Industry Ass'n v. Board of
Governors of the Federal Reserve System, 839 F.2d 47 (2d Cir.), cert,
den., 486 U.S. 1059 (1988) ("Citicorp"); as modified by Review of
Restrictions on Director, Officer and Employee Interlocks, CrossMarketing Activities, and the Purchase and Sale of Financial Assets
Between a Section 20 Subsidiary and an Affiliated Bank or Thrift,
61 Federal Register 57,679 (1996), Amendments to Restrictions in the
Board's Section 20 Orders, 62 Federal Register 45,295 (1997); and
Clarification to the Board's Section 20 Orders, 63 Federal Register
14,803 (1998) (collectively, "Section 20 Orders").
60. See Section 20 Orders. Compliance with the revenue limitation
shall be calculated in accordance with the method stated in the Section 20 Orders, as modified by the Order Approving Modifications to
the Section 20 Orders, 75 Federal Reserve Bulletin 751 (1989), and
10 Percent Revenue Limit on Bank-Ineligible Activities of Subsidiaries
of Bank Holding Companies Engaged in Underwriting and Dealing in
Securities, 61 Federal Register 48,953 (1996); and Revenue Limit on
Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies
Engaged in Underwriting and Dealing in Securities, 61 Federal
Register 68,750 (1996) (collectively. "Modification Orders").
61. 12 C.F.R 225.200. As long as FCCM and BOCC operate as
separate corporate entities, both companies will be independently
subject to the 25-percent revenue limitation on underwriting and
dealing in bank-ineligible securities. See Citicorp at 486 n. 45.



979

expected to produce benefits to the public . . . that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts
of interests, or unsound banking practices." 63
As part of its evaluation of these factors, the Board
considers the financial condition and managerial resources
of Bane One and its subsidiaries, including the companies
to be acquired, and the effect of the proposed transaction
on those resources. For the reasons noted above, and based
on all the facts of record, the Board has concluded that
financial and managerial considerations are consistent with
approval of the notice.
The Board also has reviewed the capitalization of New
Bank One, FCCM, and BOCC in light of the standards set
forth in the Section 20 Orders. The Board finds the capitalization of each to be consistent with approval of the proposal and the Section 20 Orders. The Board's determination is based on all the facts of record, including the
projections of the volume of bank-ineligible securities underwriting and dealing activities to be conducted by FCCM
and BOCC. The Board also has considered that Bane One
and First Chicago have established policies and procedures
to ensure compliance with this order and the Section 20
Orders, including computer, audit, and accounting systems,
internal risk management controls, and the necessary operational and managerial infrastructure.
The Board also has considered the competitive effects of
the proposed acquisition by Bane One of the nonbanking
subsidiaries of First Chicago in light of all the facts of
record, including the public comments received.61 Many of
the markets in which the nonbanking subsidiaries of Bane
One and First Chicago compete are national or regional
and are unconcentrated.64 The Board concludes that consummation of this proposal would have a de minimis effect
on the markets for servicing residential mortgages, commercial mortgage banking, corporate and commercial leasing, securities brokerage and related services, securities
underwriting and dealing, data processing, credit-card issuing, and credit-card processing.65 The Board notes that

62. 12 U.S.C. § 1843(c)(8).
63. A number of commenters expressed concern that Bane One's
acquisition of First Chicago's credit-card lending and servicing businesses would have an adverse effect on competition in the credit-card
lending and servicing market.
64. The Board previously has determined that the market for residential mortgage origination is local. NBD Bancorp, Inc., 71 Federal
Reserve Bulletin 258, 261 (1985); First National City Corp.. 60
Federal Reserve Bulletin 50. 51 (1974). The Board has reviewed the
26 banking markets where Bane One and First Chicago have reported
mortgage originations under the HMDA. These data show that, in
every market except the Marion, Indiana, banking market, consummation of the proposal would not exceed DOJ Guidelines and prior
Board precedent. Complete data are not available in the Marion
banking market because most of the lending institutions in the Marion
banking market do not report their residential mortgage loans under
the HMDA. A significant number of competitors would remain in the
Marion banking market and in each of the other banking markets after
this transaction. In addition, there are low barriers to entry in the
mortgage origination business.
65. The Board previously has determined that the markets for credit
card issuers and credit card processors are national and are not

980

Federal Reserve Bulletin • November 1998

numerous competitors would remain in each of these markets. Based on all the facts of record, the Board concludes
that it is unlikely that significantly adverse competitive
effects would result from the nonbanking acquisitions proposed in this transaction.66
Bane One has indicated that by combining the resources
and operations of Bane One and First Chicago, New Bank
One would be able to provide better products and services
more efficiently through an enhanced delivery system to
the current and future customers of Bane One and First
Chicago. New Bank One would draw on the product
strengths of each of its predecessor bank holding companies and offer a greater range of products in a larger
number of locations than Bane One or First Chicago could
offer separately. Bane One states that New Bank One
would achieve greater operational efficiencies through expense reductions, greater economies of scale, and elimination of redundant systems and technologies. These efficiencies would strengthen New Bank One's ability to compete
more effectively in the markets in which it operates. In
addition, as the Board has previously noted, there are

concentrated. See Bane One Corporation, 83 Federal Reserve Bulletin
602 (1997). Based on data provided by the 100 largest bank credit
card issuers, Bane One is the third largest credit card issuer, controlling approximately 11.1 percent of outstanding credit card balances.
First Chicago is the sixth largest credit card issuer, controlling approximately 4.7 percent of outstanding credit card balances. On consummation of this proposal, Bane One would become the second largest
issuer of credit cards, controlling approximately 15.8 percent
of outstanding credit card balances. The HHI would increase by
104 points to less than 1000.
Based on data provided by the top 25 credit card processors, Bane
One is the seventh largest credit card processor, handling approximately 10 percent of the total credit and debit transactions processed.
First Chicago is not one of the top 25 credit card processors, and it
processed less than 1 percent of the total transactions processed by the
largest credit card processor. On consummation of this proposal, Bane
One would remain the seventh largest credit card processor, and the
HHI would increase by 3 points to 1483.
66. As a result of the proposal. New Bank One would be a member
of four regional ATM networks. One commenter expressed concern
that combinations of large banking organizations that are significant
members of separate regional ATM networks may lead to the merger
of the ATM networks and. thereby, result in a reduction in competition
for ATM network services. Under section 4 of the BHC Act, a bank
holding company is required to obtain the Board's approval before
acquiring more than 5 percent of the voting shares of any company
engaged in activities that are closely related to banking, including a
company formed by the merger of two or more ATM networks. In the
event that a merger of regional ATM networks controlled by bank
holding companies is proposed at some time in the future, the Board
would have the opportunity to address the issues raised by the commenter in the context of the specific facts presented at that time.
The commenter also expressed concern that financial institutions
that operate very large numbers of ATMs may decide to perform their
own ATM transactions processing, rather than relying on an ATM
network or third parties for such processing, and that financial institutions that engage in significant levels of credit card lending may seek
to establish a separate brand identity for the credit cards that they
issue. Commenter has presented no evidence to demonstrate that, if
such actions were to occur, they would result in a violation of the
antitrust laws, and the Board notes that the events discussed by the
commenter could, in fact, increase competition for ATM transaction
processing or credit card lending by creating a new competitor for
such services.



public benefits to be derived from permitting capital markets to operate so that bank holding companies can make
potentially profitable investments in nonbanking companies and from permitting banking organizations to allocate
their resources in the manner they consider to be most
efficient when such investments and actions are consistent,
as in this case, with the relevant considerations under the
BHC Act.67
The Board also believes that the conduct of the proposed
nonbanking activities within the framework established by
this order, prior orders, and Regulation Y is not likely to
result in adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of
interests, or unsound banking practices, that would outweigh the public benefits of the proposal, such as increased
customer convenience and gains in efficiency. Accordingly,
based on all the facts of record, the Board has determined
that the balance of public interest factors that the Board
must consider under the proper incident to banking standard of section 4(c)(8) of the BHC Act is favorable and
consistent with approval of Bane One's notice.
Bane One also has provided notice, in accordance with
section 4(c)(13) of the BHC Act and section 211.5(c) of the
Board's Regulation K (12 C.F.R. 211.5(c)), to acquire First
Chicago's foreign nonbanking operations. In addition,
Bane One has provided notice under sections 25 and 25A
of the Federal Reserve Act and section 211.5(c) of Regulation K to acquire First Chicago NBD Bank. Canada,
Toronto, Canada, a foreign bank held directly by First
Chicago Bank; and First Chicago International, New York,
New York, and First Chicago International Finance Corporation, Chicago, Illinois, both of which are organized under
section 25A of the Federal Reserve Act. The Board concludes that all the factors required to be considered under
the Federal Reserve Act, the BHC Act, and the Board's
Regulation K in connection with the foregoing notices are
consistent with approval of the proposal.
Requests for Additional Public Meetings
A number of commenters requested that the Board hold
additional public meetings or hearings on the proposal in
areas that may be affected by the merger, including communities in Colorado, Indiana, Michigan, Ohio, Louisiana,
Texas, Wisconsin, and major cities throughout the country.
The Board has carefully considered these requests in light
of the BHC Act, its Rules of Procedure, and the substantial
record developed in this case.68
As explained above, the Board held a public meeting on
the proposal in Chicago to clarify issues related to the
67. See, e.g.. Bane One Corporation, 84 Federal Reserve Bulletin
553 (1998); First Union Corporation, 84 Federal Reserve Bulletin
489 (1998).
68. Section 3(b) of the BHC Act does not require that the Board
hold a public hearing on an application unless the appropriate supervisory authority for the bank to be acquired makes a timely written
recommendation of denial of the application. 12 U.S.C. § 1842(b). In
this case, the Board has not received such a recommendation from any
state or federal supervisory authority.

Legal Developments

application and notice and to provide an opportunity for
members of the public to testify.69 The Board considered
Chicago to be an appropriate location for the public meeting because New Bank One would be headquartered there
and because Chicago was a reasonably central location in
the region of the country in which the new bank holding
company would have its most significant geographic presence. More than 85 interested persons appeared and provided oral testimony at the public meeting, including
elected representatives and members of community groups
from cities and towns throughout the Midwest and from a
number of other states, including Colorado, Delaware,
Texas, Virginia, and Louisiana. In addition, the public
comment period provided more than 70 days for interested
persons to submit written comments on the proposal, and
the Board received and considered written comments from
more than 245 interested persons who did not testify at the
public meeting.
In the Board's view, all interested persons have had
ample opportunity to submit their views either in writing or
orally at the public meeting in Chicago. Numerous commenters have, in fact, submitted substantial materials that
have been carefully considered by the Board in acting on
the proposal. Commenters requesting additional public
meetings have failed to show why their written comments
do not adequately present their views, evidence, and allegations. They also have not shown why the public meeting in
Chicago and the 70-day comment period did not provide
an adequate opportunity for all interested parties to present
their views and voice their concerns. Moreover, the Board
has carefully considered the lending records of Bane One
and First Chicago separately in many of the states where
commenters requested public meetings, particularly Colorado, Indiana, Louisiana, Ohio, Michigan, Texas and Wisconsin. For these reasons, and based on all the facts of
record, the Board has determined that additional public
meetings or hearings are not required and are not necessary
or warranted to clarify the factual record on the proposal.
Accordingly, the requests for additional public meetings or
hearings on the proposal are hereby denied.

981

Approval of the application and notice is specifically
conditioned on compliance by Bane One with all the
commitments made in connection with the proposal and
with the conditions stated or referred to in this order,
including Bane One's divestiture commitments. The
Board's determination in the nonbanking activities also is
subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c)
(12 C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require such modification or termination of the
activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance
with, and to prevent evasion of, the provisions of the BHC
Act and the Board's regulations and orders thereunder. For
purposes of this transaction, the commitments and conditions referred to above shall be deemed to be conditions
imposed in writing by the Board in connection with its
findings and decision and, as such, may be enforced in
proceedings under applicable law. Underwriting and dealing in any manner other than as approved in this order and
the Section 20 Orders (as modified by the Modification
Orders) is not within the scope of the Board's approval and
is not authorized for New Bank One.
The acquisition of First Chicago's subsidiary banks shall
not be consummated before the fifteenth calendar day
following the effective date of this order, and the proposal
shall not be consummated later than three months after the
eifective date of this order, unless such period is extended
for good cause by the Board or by the Federal Reserve
Bank of Chicago, acting pursuant to delegated authority.
By order of the Board of Governors, eifective September 14, 1998.
Voting for this action: Chairman Greenspan and Governors Kelley,
Meyer, Ferguson, and Gramlich. Absent and not voting: Vice Chair
Rivlin.
ROBERT DEV. FRIERSON

Associate Secretary of the Board

Conclusion
Based on the foregoing, and in light of all the facts of
record, the Board has determined that the application and
notices should be, and hereby are, approved. In reaching
this conclusion, the Board has carefully considered all oral
testimony and the written comments regarding this proposal in light of the factors it is required to consider under
the BHC Act and other applicable statutes and concludes
that the comments do not warrant delay or denial of the
proposal.70

69. See 12 C.F.R. 262.3(e) and 262.25(d).
70. A number of commenters requested that the Board delay action
on the proposal or extend the comment period until:
(i) New CRA or other examinations of Bane One or First
Chicago or their subsidiaries were completed;



(ii) Bane One made a nationwide CRA pledge or entered into
CRA agreements with local community groups;
(iii) Bane One provided further information about its CRA
plans or responded to specific allegations or concerns; or
(iv) Pending lawsuits against Bane One were resolved.
The Board believes that the record in this case does not warrant
postponement of the Board's consideration of the proposal. The Board
has accumulated a significant record in this case, including reports of
examination, supervisory information, public reports and information,
and considerable public comment. For the reasons discussed above,
the Board believes that commenters have had ample opportunity to
submit their views and, in fact, have provided substantial written
submissions and oral testimony that have been considered carefully by
the Board in acting on the proposal. Based on a review of all the facts
of record, the Board concludes that the record in this case is sufficient
to warrant Board consideration and action on the proposal at this time,
and further delay of consideration of the proposal, another extension
of the comment period, or denial of the proposal on the grounds
discussed above or on the basis of informational insufficiency is not
warranted.

982

Federal Reserve Bulletin • November 1998

Appendix A
Nonbanking Activities of First Chicago1
(1) Extending credit and servicing loans in accordance
with section 225.28(b)(l) of Regulation Y (12 C.F.R.
225.28(b)(l)), through First Chicago Capital Corporation, ANB Mezzanine Corporation, First Chicago Investment Corporation, First Chicago Leasing Corporation, First Chicago Properties, Inc., and First
Chicago Realty Services Corporation, all of Chicago,
Illinois; First Card Services, Inc., Uniondale, New
York; First Chicago NBD Mortgage Company, Troy,
Michigan; and FCC National Bank, Wilmington, Delaware.
(2) Activities related to extending credit in accordance
with section 225.28(b)(2) of Regulation Y (12 C.F.R.
225.28(b)(2)), through First Chicago Realty Services
Corporation and First Chicago Properties, Inc., both
of Chicago, Illinois; First Chicago NBD Real Estate
Services, Inc., Indianapolis, Indiana; and FCC
National Bank, Wilmington, Delaware.
(3) Engaging in leasing personal or real property in accordance with section 225.28(b)(3) of Regulation Y
(12 C.F.R. 225.28(b)(3)), through First Chicago Lease
Holdings, Inc., First Chicago Leasing Corporation,
and Palo Verde Leasing Corporation, all of Chicago,
Illinois; and FNW Capital, Inc., Mt. Prospect, Illinois.
(4) Performing trust company functions in accordance
with section 225.28(b)(5) of Regulation Y (12 C.F.R.
225.28(b)(5)), through First Chicago Trust Company
of New York, New York, New York.
(5) Providing financial and investment advisory services
in accordance with section 225.28(b)(6) of Regulation Y (12 C.F.R. 225.28(b)(6)), through First Chicago Capital Markets, Inc., Chicago, Illinois
("FCCM").
(6) Providing agency transactional services for customer
investments in accordance with section 225.28(b)(7)
of Regulation Y (12 C.F.R. 225.28(b)(7)), through
FCCM.
(7) Engaging in investment transactions as principal in
accordance with section 225.28(b)(8) of Regulation Y
(12 C.F.R. 225.28(b)(8)), through FCCM and First
Chicago Hedging Services Corporation, Chicago, Illinois.
(8) Engaging in insurance agency and underwriting activities in accordance with section 225.28(b)(ll)(i) of
Regulation Y (12 C.F.R. 225.28(b)(l l)(i)), through
First Chicago NBD Insurance Company and NBD
Insurance Agency, Inc., both of Troy, Michigan;
Charter Oak Insurance Agency of Michigan, Inc.,
Lathrup Village, Michigan; and NBD Insurance Services, Inc., Birmingham, Michigan.

1. Subsidiaries also include organizations controlled by such subsidiaries.



(9) Engaging in community development activities in
accordance with section 225.28(b)(12) of Regulation Y (12 C.F.R. 225.28(b)(12)), through NBD Community Development Corporation, Detroit, Michigan;
NBD Neighborhood Revitalization Corporation, Indianapolis, Indiana; and First Chicago Leasing Corporation, Chicago, Illinois.
(10) Providing data processing services in accordance with
section 225.28(b)(14) of Regulation Y (12 C.F.R.
225.28(b)(14)), through NBD Services Corporation,
Troy, Michigan; and Cash Station, Inc., Chicago,
Illinois.
Appendix B
Banking Market Definitions
A. Illinois Banking Markets
(1) The Aurora banking market is approximated by the
southern three tiers of townships in Kane County;
Piano, Bristol, Oswego, Fox, and Kendall townships
in Kendall County; and Sandwich township in
DeKalb County, all in Illinois.
(2) The Chicago banking market is approximated by
Cook, Du Page, and Lake Counties, all in Illinois.
(3) The Elgin banking market is approximated by
Marengo, Seneca, Nunda, Riley, Coral, Grafton, and
Algonquin townships in McHenry County; and the
northern two tiers of townships in Kane County, all in
Illinois.
(4) The Rockford banking market is approximated by
Winnebago and Boone Counties; and Byron, Marion,
Scott, and Monroe townships in Ogle County, all in
Illinois.
B. Indiana Banking Markets
(1) The Bloomington banking market is approximated by
Monroe County, Indiana.
(2) The Corydon banking market is approximated by
Crawford County and Harrison County, both in Indiana, excluding Morgan, Jackson, and Franklin townships.
(3) The Elkhart-Niles-South Bend banking market is approximated by Elkhart County; St. Joseph County,
excluding Olive and Warren townships; Scott, Jefferson, Van Buren, and Turkey Creek townships in
Kosciusko County, all in Indiana; Cass County, Michigan; and Oronoko, Berrien, Buchanan, Niles, and
Bertrand townships in Berrien County, Michigan.
(4) The Gary-Hammond banking market is approximated
by Lake County; Porter County, except for Pine township; and New Durham, Clinton, Cass, Dewey and
Prairie townships in La Porte County, all in Indiana.
(5) The Indianapolis banking market is approximated by
Boone, Hamilton, Hancock, Hendricks, Johnson,
Marion, Morgan, and Shelby Counties, and Green
township in Madison County, all in Indiana.

Legal Developments

(6) The Lafayette banking market is approximated by
Tippecanoe County and Carroll County, both in Indiana, except for Burlington township.
(7) The Lawrence County banking market is approximated by Lawrence County, Indiana.
(8) The Marion banking market is approximated by Grant
County; Jackson township in Wells County; Washington township in Blackford County; and Jackson township in Miami County, all in Indiana.
(9) The Rensselaer banking market is approximated by
Jasper County, Indiana.
C. Kentucky Banking Market
(1) The Louisville banking market is approximated by
Jefferson, Oldham, and Bullitt Counties, all in Kentucky; Clark and Floyd Counties, Indiana; and Morgan, Jackson and Franklin townships in Harrison
County, in Indiana.
D. Wisconsin Banking Markets
(1) The Milwaukee banking market is approximated by
the Milwaukee Ranally Metro Area, and portions of
Jefferson, Racine, Walworth, and Washington Counties, all in Wisconsin.
(2) The Madison banking market is approximated by
Dane County, excluding the eastern tier of townships;
plus Dekorra, Lowville, Otsego, Fountain Prairie,
Columbus, Hampden, Leeds, Arlington, Lodi, and
West Point townships in Columbia County, all in
Wisconsin.

Appendix C
Banking Markets With No Divestitures
A. Illinois Banking Markets
(1) Aurora—Bane One is the 18th largest depository
institution in the market, controlling deposits of
$18 million, representing less than 1 percent of total
market deposits. First Chicago is the third largest
depository institution in the market, controlling deposits of $184.1 million, representing 6.6 percent of
total market deposits. On consummation of the proposal, Bane One would become the third largest of
22 depository institutions in the market, controlling
deposits of $202.1 million, representing 7.3 percent of
total market deposits. The HHI would increase by
9 points to 1324.
(2) Chicago—Bane One is the 16th largest depository
institution in the market, controlling deposits of
$1.2 billion, representing less than 1 percent of total
market deposits. First Chicago is the largest depository institution in the market, controlling deposits of
$25.2 billion, representing 18.8 percent of total market deposits. On consummation of the proposal, Bane
One would become the largest of 228 depository



983

institutions in the market, controlling deposits of
$26.4 billion, representing 19.6 percent of total market deposits. The HHI would increase by 33 points to
882.
(3) Elgin—Bane One is the 16th largest depository institution in the market, controlling deposits of
$58.3 million, representing 2.2 percent of total market
deposits. First Chicago is the largest depository
institution in the market, controlling deposits of
$422.7 million, representing 15.6 percent of total
market deposits. On consummation of the proposal,
Bane One would become the largest of 31 depository
institutions in the market, controlling deposits of
$481 million, representing 17.8 percent of total market deposits. The HHI would increase by 68 points to
772.
(4) Rockford—Bane One is the third largest depository
institution in the market, controlling deposits of
$545.2 million, representing 14.6 percent of total
market deposits. First Chicago is the 20th largest
depository institution in the market, controlling deposits of $19 million, representing less than 1 percent
of total market deposits. On consummation of the
proposal, Bane One would become the second largest
of 23 depository institutions in the market, controlling
deposits of $564.2 million, representing 15.1 percent
of total market deposits. The HHI would increase by
15 points to 1340.
B. Indiana Banking Markets
(1) Elkhart-Niles-South Bend—Bane One is the 16th
largest depository institution in the market, controlling deposits of $26.8 million, representing less than
1 percent of total market deposits. First Chicago is
the third largest depository institution in the market,
controlling deposits of $606 million, representing
12.2 percent of total market deposits. On consummation of the proposal, Bane One would become the
third largest of 22 depository institutions in the market, controlling deposits of $632.8 million, representing 12.8 percent of total market deposits. The HHI
would increase by 13 points to 1339.
(2) Gary-Hammond—Bane One is the fifth largest depository institution in the market, controlling deposits of
$508.3 million, representing 8.1 percent of total market deposits. First Chicago is the largest depository
institution in the market, controlling deposits of
$1.6 billion, representing 26 percent of total market
deposits. On consummation of the proposal, Bane
One would become the largest of 24 depository
institutions in the market, controlling deposits of
$2.1 billion, representing 34.1 percent of total market
deposits. The HHI would increase by 421 points to
1634.
(3) Marion—Bane One is the third largest depository
institution in the market, controlling deposits of
$94.8 million, representing 14.8 percent of total market deposits. First Chicago is the largest depository

984

Federal Reserve Bulletin • November 1998

institution in the market, controlling deposits of
$115.2 million, representing 18 percent of total market deposits. On consummation of the proposal, Bane
One would become the largest of ten depository
institutions in the market, controlling deposits of
$210 million, representing 32.8 percent of total market deposits. The HHI would increase by 533 points
to 1712.
C. Kentucky Banking Market
Louisville—Bane One is the third largest depository institution in the market, controlling deposits of $2.3 billion,
representing 15.9 percent of total market deposits. First
Chicago is the seventh largest depository institution in the
market, controlling deposits of $413.5 million, representing 2.9 percent of total market deposits. On consummation
of the proposal, Bane One would remain the third largest of
30 depository institutions in the market, controlling deposits of $2.7 billion, representing 18.8 percent of total market
deposits. The HHI would increase by 89 points to 1716.
D. Wisconsin Banking Market
(1) Milwaukee—Bane One is the third largest depository
institution in the market, controlling deposits of
$2 billion, representing 9.9 percent of total market
deposits. First Chicago is the 33rd largest depository
institution in the market, controlling deposits of
$54.8 million, representing less than 1 percent of total
market deposits. On consummation of the proposal,
Bane One would remain the third largest of 54 depository institutions in the market, controlling deposits of
$2 billion, representing 10.2 percent of total market
deposits. The HH1 would increase by 5 points to
1499.
(2) Madison—Bane One is the fourth largest depository
institution in the market, controlling deposits of
$253.4 million, representing 5.3 percent to total market deposits.1 First Chicago is the 34th largest depository institution in the market, controlling $4.7 million
in deposits, representing less than 1 percent of total
market deposits. On consummation of the proposal,
Bane One would remain the fourth largest of
34 depository institutions in the market, controlling
deposits of $258.1 million, representing 5.4 percent of
market deposits. The HHI would increase by 1 point
to 1185.

1. Deposit data for this market are as of December 31, 1997. and
reflect First Chicago's entry into the market after June 30, 1997.



Appendix D
Banking Markets with Divestitures—All in Indiana
(Other than Indianapolis and Lafayette)
(1) Bloomington—Bane One is the largest depository
institution in the market, controlling deposits of
$336.4 million, representing 31.6 percent of market
deposits. First Chicago is the sixth largest depository
institution in the market, controlling deposits of
$68.6 million, representing 6.4 percent of total market
deposits. Bane One proposes to divest two branches
controlling deposits of approximately $31.4 million.
On consummation of the proposal, and after giving
effect to the divestitures, Bane One would remain the
largest of ten depository institutions in the market,
controlling deposits of $373.6 million, representing
35.1 percent of market deposits. The HHI would
increase by 200 points to 2270.
(2) Corydon—In the Corydon, Indiana banking market,
Bane One is the third largest depository institution in
the market, controlling deposits of $61.5 million,
representing 19.4 percent of market deposits. First
Chicago is the second largest depository institution in
the market, controlling deposits of $84.3 million,
representing 26.6 percent of total market deposits.
Bane One proposes to divest two branches controlling
deposits of approximately $39.3 million. On consummation of the proposal, and after giving effect to the
divestitures, Bane One would become the largest of
seven depository institutions in the market, controlling deposits of $106.5 million, representing
33.6 percent of total market deposits. The HHI would
increase by 199 points to 2495.
(3) Lawrence County—Bane One is the largest depository institution in the market, controlling deposits of
$109.6 million, representing 29.9 percent of total
market deposits. First Chicago is the second largest
depository institution in the market, controlling deposits of $81.7 million, representing 22.3 percent of
total market deposits. Bane One proposes to divest
two branches controlling deposits of approximately
$56.4 million. On consummation of the proposal, and
after giving effect to the divestitures, Bane One would
remain the largest of seven depository institution in
the market, controlling deposits of $134.8 million,
representing 36.7 percent of total market deposits.
The HHI would increase by 199 points to 2051.
(4) Rensselaer—Bane One is the largest depository institution in the market, controlling deposits of
$111.6 million, representing 30.6 percent of total
market deposits. First Chicago is the sixth largest
depository institution in the market, controlling deposits of $28 million, representing 7.7 percent of total
market deposits. Bane One proposes to divest one
branch controlling approximately $28 million. On
consummation of the proposal, and after giving effect
to the divestitures, Bane One would remain the largest of seven depository institutions in the market.

Legal Developments

controlling deposits of $111.6 million, representing
30.6 percent of total market deposits. The HHI would
remain unchanged at 2056.

Travelers Group Inc.
New York, New York
Citicorp
New York, New York
Order Approving Formation of a Bank Holding
Company and Notice to Engage in Nonbanking
Activities
Travelers Group Inc. ("Travelers"), a holding company for
securities, insurance and other financial services firms, has
requested the Board's approval under section 3 of the Bank
Holding Company Act of 1956 (12 U.S.C. § 1842) ("BHC
Act") to become a bank holding company by acquiring all
the voting shares of Citicorp, a bank holding company
within the meaning of the BHC Act, and all of Citicorp's
subsidiary banks, including its lead subsidiary bank, Citibank, N.A., New York, New York ("Citibank"). 1 Travelers also has requested the Board's approval under section
4(c)(8) of the BHC Act and section 225.24 of the Board's
Regulation Y (12 C.F.R. 225.24) to acquire various domestic nonbank subsidiaries and investments of Citicorp, including Citibank, Federal Savings Bank, San Francisco,
California, and Citicorp Securities Inc., New York, New
York, and to retain certain nonbanking subsidiaries of
Travelers, including Travelers Bank & Trust, fsb, Newark,
Delaware, and Salomon Smith Barney Inc., New York,
New York. Travelers proposes to own and operate these
companies and to conduct the proposed activities in accordance with the requirements of the BHC Act, Regulation Y
and relevant Board orders governing these activities and
subsidiaries. In addition, Travelers has filed applications
and notices under section 4(c)(13) of the BHC Act
(12 U.S.C. § 1843(c)(13)) and the Board's Regulation K
(12 C.F.R. 211) to acquire the foreign operations of Citicorp and to retain certain foreign investments and continue
certain foreign activities of Travelers.2 Finally. Travelers
has requested an exemption from the quantitative requirements of section 23A of the FRA to permit Citicorp to
transfer its existing mortgage subsidiary, Citicorp Mort-

1. Travelers proposes to acquire Citicorp through a merger with a
newly formed direct subsidiary of Travelers. The other domestic
subsidiary banks of Citicorp that Travelers proposes to acquire are
Citibank (New York State), Pittsford. New York; Citibank Delaware,
New Castle. Delaware: Citibank (Nevada), N.A., Las Vegas, Nevada;
Citibank (South Dakota), N.A., Sioux Falls, South Dakota; and Universal Bank, N.A., Columbus, Georgia.
2. Travelers also proposes to acquire Citicorp's export trading
company, pursuant to section 4(c)(14) of the BHC Act, and the
agreement and Edge corporations of Citicorp, pursuant to sections
25 and 25A, respectively, of the Federal Reserve Act ("FRA") (12
U.S.C. §§ 601 etseq., 611 etseq.).



985

gage, Inc. ("CMI"), to Citibank to facilitate financing for
CMI's business using liquidity available to Citibank.3
Travelers, with total consolidated assets of approximately $420 billion, is a diversified financial services firm
engaged in a variety of securities, insurance, lending, financial advisory, and other financial activities in the United
States and overseas.4 More than 70 percent of Travelers" s
total assets and more than 60 percent of its total revenues
are associated with activities that are permissible for bank
holding companies under the BHC Act, including securities underwriting, dealing, brokerage, and advisory activities; mortgage lending and consumer finance activities;
consumer advisory activities; and credit-related insurance
activities.5
Travelers also engages domestically and internationally
in a number of nonbanking activities that are not permissible for bank holding companies, which Travelers proposes
to conform to the requirements of the BHC Act or divest.
These activities include underwriting property and casualty, life and commercial insurance and annuities; general
insurance agency activities; investing in more than 5 percent of the voting shares of commercial companies; controlling and distributing shares of open-end investment
companies registered under the Investment Company Act
of 1940 ("mutual funds"); real estate management and
investing activities; proprietary trading in physical commodities; oil and gas exploration and investments; and
certain other impermissible activities and investments.
Travelers has committed to conform all impermissible
activities to the requirements of the BHC Act by restructuring the activity or subsidiary, by terminating the activity, or
by selling or divesting the subsidiary, as necessary, within
the period provided in the BHC Act for new bank holding
companies to conform impermissible investments and activities.
In addition, Travelers controls several domestic subsidiaries that cannot be affiliated with a bank under section 20
of the Glass-Steagall Act (12 U.S.C. § 377). These companies engage in securities underwriting and dealing activities, distributing shares of open-end mutual funds, and
controlling open-end mutual funds. Travelers has committed to conform the activities of these companies to the
requirements of the Glass-Steagall Act and the Board's
orders and interpretations thereunder, including the limitations on the amount of revenue derived from securities
underwriting and dealing activities, on consummation of
the proposed transaction in accordance with the requirements of this order.
Citicorp, with total consolidated assets of approximately
$331 billion, is the third largest commercial banking orga3. Travelers also has requested an exemption under section 23A of
the FRA for a subsidiary of Citibank to purchase the stock of Travelers's Canadian consumer finance subsidiary.
4. Asset data for Travelers and Citicorp are as of June 30, 1998,
unless otherwise noted.
5. These percentages do not account for a number of activities and
investments that might be restructured or conformed to the requirements of the BHC Act without divestiture or complete termination of
the activity.

986

Federal Reserve Bulletin • November 1998

nization in the United States and the 22d largest commercial banking organization in the world.6 Citicorp's subsidiary banks and savings associations operate in California,
Connecticut, Delaware, Florida, Georgia, Illinois, Maryland, Nevada, New Jersey, New York, South Dakota,
Texas, Utah, Virginia, Washington, D.C., Guam, Puerto
Rico, and U.S. Virgin Islands. Citicorp operates approximately 1100 branches and offices in the United States and
almost 100 foreign countries, and engages in a number of
permissible nonbanking activities.
The proposed transaction would create the largest commercial banking organization in the United States and the
world, initially with total consolidated assets of approximately $751 billion. Traveler's subsidiary depository institutions operate in Delaware. Travelers has indicated that
after the proposed acquisition the combined organization
would operate under the name Citigroup Inc.
Public Comment on the Proposal
To give interested members of the public an opportunity to
submit comments to the Board on the statutory factors that
it is charged with reviewing, the Board published notice of
the proposal and provided a period for public comment.7
The Board extended the initial public comment period to
accommodate the broad public interest in the proposal. The
extended public comment period provided interested persons 48 days to submit written comments on the proposal.
Because of the public interest in the proposal, the Board
also held a public meeting on June 25 and 26, 1998, in
New York, New York, which gave interested persons an
opportunity to present oral and written testimony on the
various factors that the Board is charged with reviewing
under the BHC Act. Approximately 115 people testified at
the public meeting; many of the commenters who testified
also submitted written comments.
In total, more than 425 organizations and individuals
submitted comments on the proposal, either through oral
testimony or written comments.8 Commenters included

6. The ranking data for Citicorp and Travelers are based on data as
of December 31, 1997, and reflect the proposed merger of
NationsBank Corporation, Charlotte, North Carolina, with BankAmerica Corporation. San Francisco, California, which the Board
approved. See NationsBank Corporation, 84 Federal Reserve Bulletin
858(1998).
7. Notice of the proposal was published in the Federal Register
(63 Federal Register 17,874 (1998)) and in local newspapers in
accordance with the Board's Rules of Procedure. See 12 C.F.R.
262.3(b).
8. A number of commenters requested that the Board extend the
public comment period on the proposal for up to an additional 45 days
after the public meeting or until after certain requested documents
were publicly released. As noted above, the Board held a public
meeting on June 25 and 26 and extended the initial 30-day comment
period to 48 days. During this comment period, a substantial number
of commenters provided timely information and views to the Board.
The Board believes that the extended comment period and the public
meeting in this case provided the public with a reasonable period of
time to submit comments on all aspects of the proposal that are



federal, state and local government officials, community
and nonprofit organizations, small business owners, customers of Citicorp, several trade associations, and otherinterested organizations and individuals from more than
20 states (including California, Connecticut, Florida, Illinois, and New York) and Guam, Puerto Rico, U.S. Virgin
Islands, and Washington, D.C.
A substantial number of commenters supported the proposal. These commenters supported Travelers and Citicorp
for their commitment to local communities and their leadership in community revitalization, social welfare or educational activities. In addition, these commenters commended
Travelers's and Citicorp's records of providing investments, grants and loans in support of economic or community development projects and other community needs and
making charitable contributions in local communities.
Many commenters also commended the organizations for
providing educational seminars or technical assistance to
small businesses and nonprofit organizations. A number of
these commenters also praised Travelers's and Citicorp's
$115 billion, ten-year community pledge ("Citigroup community pledge") and expected that this pledge would increase community and economic development funding and
the availability of homeowners insurance in underserved
urban areas.
A significant number of other commenters contended
that the proposal would violate the BHC Act and the
Glass-Steagall Act and urged the Board not to consider the
proposal unless and until Congress amends the law to
allow unlimited combinations of insurance, banking and
securities businesses. A number of commenters also expressed concern about the performance records of Citicorp
and Travelers under the Community Reinvestment Act
("CRA") (12U.S.C. § 2901 et seq.\ particularly with respect to Citicorp's record of lending to minority and lowto moderate-income ("LMI") residents, to small businesses and in LMI communities and communities with
predominately minority populations ("minority communities"). Many commenters also expressed concern that Citicorp has disproportionately closed branches and downgraded branch services in LMI and minority communities,
particularly in New York. Commenters in California expressed concern about Citicorp's record of lending to LMI
individuals and minorities, particularly Hispanics, and its
banking service fees. Some commenters contended that
Travelers's marketing and sales practices for its subprime
mortgage loans, personal loans and insurance products
adversely affect consumers. These commenters also believed that the proposal would provide incentives for Citigroup to "steer" LMI and minority consumers to its
subprime lenders. In addition, many commenters criticized
the Citigroup community pledge, contending that the initiative is not enforceable, lacks specific lending or investment
commitments for particular products or geographic areas,
and relates primarily to consumer credit and to insurance

relevant to the factors that the Board must consider, and that a further
extension of this period is not warranted.

Legal Developments

products that are not relevant for purposes of the CRA.
Commenters also discussed other potential adverse efFects
of the proposal, including undue concentration of financial
resources, conflicts of interest from the proposed operation
of impermissible activities and cross-marketing activities,
and concerns regarding the use of confidential customer
information.
Impermissible Activities and Investments
The Board is required to review this proposal under the
provisions of the BHC Act and the Glass-Steagall Act. In
light of the size, scope and type of activities currently
conducted by Travelers, the Board has considered, as a
threshold matter, whether the proposal by Travelers to
become a bank holding company and to conform its existing activities and investments to the requirements of the
BHC Act is consistent with the nonbanking limitations in
the BHC Act and the purposes of the BHC Act. As part of
this consideration, the Board has carefully weighed the
views of commenters and the arguments presented by
Travelers.9 The Board has paid particular attention to the
terms of the relevant sections of the BHC Act as those
sections currently apply and to relevant legislative history
and Board precedent. On the basis of this review, the
Board concludes that Travelers" s proposal to acquire Citicorp is permissible under the express terms of the BHC
Act, is contemplated by and consistent with the legislative
history and the purposes of that Act, and is consistent with
the Board's longstanding precedent and practice.
Section 4 of the BHC Act governs the investments that
may be held by bank holding companies and the activities
that may be conducted by bank holding companies and
their nonbank subsidiaries. In enacting section 4, Congress
contemplated that companies that engage in and control
subsidiaries that engage in impermissible activities and that
hold impermissible investments would seek to become
bank holding companies.10 Consequently, section 4 by its
express terms delays the applicability of the nonbanking
prohibitions of that section to the existing investments and
activities of any company that becomes a bank holding
company to give that new bank holding company a period
of time to conform existing investments and activities to
the requirements of the BHC Act.'' For any company that

9. Many commenters contended that the proposal exceeds the scope
and legislative intent of section 4(a)(2) of the BHC Act. Some
commenters argued that section 4(a)(2) is not available to new bank
holding companies that are voluntarily formed, and that the Board
does not have the discretion to permit a bank holding company to
engage in insurance activities beyond the limited exceptions in the
BHC Act. Other commenters argued that section 4(a)(2) is available
only to allow new bank holding companies that control a small
amount of impermissible assets a limited time period for an orderly
disposition of those assets.
10. See, e.g., H.R. Rep. No. 84-609, at 24 (1955) (owning nonbanking shares and engaging in impermissible nonbanking businesses only
"become unlawful" two years from the date of enactment or "after a
company becomes a bank holding company, whichever is later").
11. Several commenters contended that the delay in applying the
nonbanking restrictions in section 4 was intended to apply only to



987

becomes a bank holding company, section 4 provides an
automatic two-year delay in applying the nonbanking prohibitions to existing investments and activities, beginning
from the date the company becomes a bank holding company.12 The two-year period is provided to bank holding
companies as a matter of right and does not require the
approval of the Board. Section 4(a)(2) specifically authorizes the Board, on request, to grant up to three one-year
extensions of this two-year conformance period, if the
Board finds that the extension "would not be detrimental to
the public interest."13
In granting a new bank holding company a period to
conform its existing investments and activities to the requirements of the BHC Act, the Act does not distinguish
among different types of activities.14 In fact, when the BHC
Act was enacted in 1956 and it was amended to cover
one-bank holding companies in 1970, the legislative history indicates that companies that controlled banks conducted a variety of impermissible activities, including insurance underwriting activities and various types of
manufacturing activities. Nonetheless, the BHC Act provided the same conformance period for all types of nonconforming activities and investments.
The Board has consistently interpreted section 4(a)(2) as
giving a new banking holding company at least a two-year
period to conform to the BHC Act the nonbanking investments held and activities conducted by the company as of
the date it became a bank holding company.15 Several of
these cases involved companies with a significant portion
of nonconforming assets and activities, including manufac-

companies that became bank holding companies as a result of enactment of the BHC Act in 1956 or amendments to the Act in 1970. The
terms of the BHC Act and the varying lengths of conformance periods
provided for new bank holding companies and companies covered in
1956 and 1970 make clear that the reading suggested by these commenters is incorrect. See footnote 12.
12. Sections 4(a)(l) and (2) provide, in pertinent part:
[e]xcept as otherwise provided in this . . . [Act], no bank holding
company shall —
(1) After May 9, 1956, acquire direct or indirect ownership or
control of any voting shares of any company which is not
bank,
(2) Or after two years from the date as of which it becomes a bank
holding company, . . . retain direct or indirect ownership or
control of any voting shares of any company which is not a
bank or bank holding company or engage in any activities
other than:
(A) those of banking or of managing or controlling banks and
other subsidiaries authorized under [the BHC Act] . . ., and
(B) those permitted under [section 4fc)(8) of the BHC Act]
12 U.S.C. §§ 1843(a)(l) and (2) (emphasis added).
13. 12 U.S.C. § 1843(a)(2). See also 12 C.F.R. 225.22(f).
14. Some commenters have contended that the Board should not, in
any event, allow affiliations between a banking organization and a
company, such as Travelers, with a significant amount of insurance
activities or other nonconforming activities.
15. 12 C.F.R. 225.22(f). See Atico Financial Corporation, 73 Federal Reserve Bulletin 111 (1987) ("Atico Financial"'); Neworld Bancorp, Inc., 73 Federal Reserve Bulletin 357 (1987); Korea First Bank,
70 Federal Reserve Bulletin 43 (1984); Banco Commerciale Italiana,
68 Federal Reserve Bulletin 423 (1982); Walter Heller International
Corp., 59 Federal Reserve Bulletin 463 (1973) ("Walter Heller").

988

Federal Reserve Bulletin • November 1998

turing activities.16 In this case, the nonconforming activities currently conducted by Travelers represent approximately 25 percent of its total assets and less than
40 percent of its total revenues prior to the proposed
transaction, and would represent less than 15 percent of the
combined company's total assets and less than 20 percent
of its revenues on a pro forma basis. Thus, it is not
necessary for Travelers to change the nature of its business
or to divest the very banks it is seeking to acquire in this
application in order to conform to the requirements of the
BHC Act. In this light, the Board does not believe that this
proposal represents an attempt to evade the prohibitions of
the BHC Act on the conduct of insurance or other impermissible activities by a bank holding company.
Several commenters have argued that Travelers should
not be permitted to merge with Citicorp unless and until
Travelers submits a detailed plan for divesting its insurance subsidiaries and conforming its other activities to the
requirements of the BHC Act. In its application, Travelers
has submitted substantial detail about the scope of its
nonconforming activities and the steps available to Travelers to conform those activities and investments to the
requirements of the BHC Act.
Travelers has specifically committed to conform all its
current activities and investments to the requirements of
the BHC Act within two years of the date of consummation
of this proposal (or such extended period as the Board, in
its discretion, may grant), including by modifying activities
to meet the requirements of the Act, divesting impermissible investments, terminating various activities, and divesting subsidiaries as necessary. Travelers also has recognized
that all its activities and investments after consummation
of this proposal would be subject to the constraints in
section 4 of the BHC Act. The Board concludes that, in
light of the various alternatives available to Travelers to
meet the requirements of the BHC Act, Travelers has
provided sufficient detail to allow the Board to act on this
proposal.
For the reasons above, the Board finds that the BHC Act
does not require denial of this proposal based on the type,
scope or amount of nonbanking activities currently conducted by Travelers. The Board's action on this case is
subject to the condition that Travelers and Citigroup take
all actions necessary to conform the activities and investments of Travelers and all its subsidiaries to the requirements of the BHC Act in a manner acceptable to the Board,
including by divestiture as necessary, within two years of
the date of consummation of the proposed acquisition of

16. In 1973, in Walter Heller, the Board permitted Walter Heller
International Corp. ("Heller") to become a bank holding company
subject to the divestiture of its interests in manufacturing activities,
which comprised approximately 12 percent of Heller's total income.
In 1987. the Board approved the application of Atico Financial
Corporation ("Atico"), a unitary savings and loan holding company,
to acquire a bank and become a bank holding company subject to the
requirement that the company divest its thrift subsidiary or convert the
thrift to a bank insured by the Federal Deposit Insurance Corporation
("FDIC"). The thrift to be divested represented 44 percent of Atico's
total deposits after consummation. See Atico Financial.



Citicorp.17 In addition, the Board's action on this proposal
is subject to the condition that all investments and activities of Travelers and Citigroup after consummation of the
proposed acquisition of Citicorp conform to the requirements of the BHC Act and the Board's regulations and
orders thereunder. During the section 4(a)(2) conformance
period, Citigroup may not expand its investments and
activities by acquiring direct or indirect control of, or all or
substantially all the assets of, a company engaged in any
activity, whether or not conducted by Travelers or one of
its subsidiaries before becoming a bank holding company,
unless otherwise authorized by the BHC Act.18
Factors Governing Board Review of Transaction
The BHC Act specifically enumerates the factors that the
Board must consider when reviewing the formation of a
bank holding company and the acquisition of bank holding
companies or banks. As the Board explained in testimony
before Congress, the Board must consider the proposed
transaction that is presented and determine whether the
proposal and the particular companies involved meet the
statutory factors of the BHC Act. The Board is not granted
authority under the BHC Act to disapprove a proposal that
meets these statutory factors and complies with other relevant law.19 The Board, for example, cannot deny the pro-

17. If before expiration of this two-year period Citigroup requests
the Board to extend the conformance period, the Board would consider all the facts and circumstances existing at that time in accordance with its policies on divestitures, including consideration of
Citigroup's good faith efforts to divest or otherwise conform its
impermissible investments and activities. See Statement of Policy
Concerning Divestitures by Bank Holding Companies, February 15,
1977.
18. As an integral part of their insurance business, the Travelers
insurance underwriting subsidiaries invest insurance premiums they
collect in a variety of investments. A small amount of this investment
activity, both in terms of the number of investments and the amount of
premiums invested, involves ownership of more than 5 percent of the
voting shares of various companies. This investment activity is subject
to limitations on liquidity, diversification and amount under applicable
state insurance laws. As noted above, Travelers must conform its
ownership of its insurance underwriting subsidiaries to the requirements of section 4 of the BHC Act prior to the conclusion of the
conformance period provided in the Act. Congress contemplated that,
during this conformance period, a new bank holding company would
continue fully to operate nonconforming subsidiaries to be able to
obtain full value upon the sale of the subsidiary. Consequently, under
section 4(a)(2), the Travelers insurance underwriting subsidiaries may
continue their current investment activity and retain their current
nonconforming investments subject to the requirement of section 4(a)(2) that these investments and activities be conformed to the
requirements of section 4(c) of the BHC Act prior to the end of the
conformance period. This is also subject to the conditions that
the investment activity involving the acquisition of more than
5 percent of the shares of a company remain a small portion of the
insurance underwriting subsidiaries' equity investment portfolios, not
result in the subsidiaries acquiring control (for purposes of the BHC
Act) of any company engaged in impermissible nonbanking activities,
and not involve the acquisition of the voting shares of a bank or bank
holding company.
19. Statement of Laurence H. Meyer, Member of the Board, before
the House of Representatives Committee on Banking and Financial
Services. April 29, 1998.

Legal Developments

posal simply because Travelers and Citicorp are large
organizations, if the proposal meets the statutory factors
under the BHC Act and is consistent with other relevant
law.
The factors that the Board must consider under the BHC
Act in determining whether a company may become a
bank holding company are the financial and managerial
resources and future prospects of the companies and banks
involved in the transaction; the competitive effects of the
proposal in the relevant geographic markets; the convenience and needs of the communities to be served, including the records of performance under the CRA of the
insured depository institutions involved in the transaction;
and the availability of information needed to determine and
enforce compliance with the BHC Act.20 In addition, the
Board must consider whether performance by the applicant
and its nondepository institution subsidiaries of the proposed nonbanking activities can reasonably be expected to
produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of
interests, or unsound banking practices.
Financial, Managerial and Supervisory Factors
The proposed combination of Travelers and Citicorp would
create the largest financial services firm in the United
States and the world, in terms of total assets. The companies view their proposed merger as a strategic alliance
through which each company would continue to operate its
separate businesses and would benefit from the other's
strengths. Travelers and Citicorp believe that Citigroup
would be financially stronger and more diversified than
either organization separately, and that the formation of
Citigroup would foster stronger domestic capital markets.
The Board has carefully considered the financial and
managerial resources and future prospects of the companies and banks involved in the proposal, the effect the
proposed transaction would have on those resources and
other supervisory factors in light of all the facts of record,
including public comments. A number of commenters expressed concerns about the financial and managerial resources of Travelers, Citicorp and the combined organization.21 In addition, commenters questioned whether the

20. In cases involving interstate bank acquisitions, the Board also
must consider the concentration of deposits in the nation and certain
individual states, as well as the compliance with the other provisions
of the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994. Pub. L. No. 103-328, 108 Stat. 2338 (1994). In cases
involving a foreign bank, the Board also must consider whether the
foreign bank is subject to comprehensive supervision or regulation on
a consolidated basis by appropriate authorities in the foreign bank's
home country.
21. The Board received comments criticizing the adequacy of the
management of Travelers or Citicorp based on the manner in which
their subsidiaries handled loan or financial service transactions in
individual cases. The Board also has considered these comments in
reviewing the convenience and needs factor in this case.



989

Board could adequately supervise the combined organization. Some commenters also questioned whether the activities of Citigroup, particularly its insurance activities, would
present special risks to the federal deposit insurance funds
or the financial system in general.22
In considering financial and managerial factors, the
Board has reviewed the consolidated financial position of
Travelers and Citicorp, the financial position of each of
their principal subsidiaries and the financial position of the
pro forma organization. The Board also has considered
confidential examination and other supervisory information assessing the financial and managerial strength of
Citicorp and the insured depository institution subsidiaries
of Travelers and Citicorp.23 In addition, the Board has
reviewed public and confidential supervisory reports and
information regarding the activities and financial position
of the regulated subsidiaries of Travelers. The Board has
also consulted with the relevant state and federal supervisors of the principal subsidiaries of Travelers and with the
federal supervisory agencies of the insured depository institutions controlled by Citicorp. In addition, the Board has
reviewed information submitted by both Travelers and
Citicorp regarding the programs that the companies have
implemented to prepare their systems for the Year 2000
and confidential examination and supervisory information
assessing Citicorp's efforts to ensure Year 2000 readiness.
The Board has consistently considered capital adequacy
to be an especially important aspect in analyzing financial
factors.24 Citicorp and all the subsidiaries of Citicorp and
Travelers that are subject to regulatory capital requirements currently exceed the relevant requirements. In addition, Citicorp and all of the subsidiary depository institu-

22. Several commenters urged the Board to establish higher capital
levels for Citigroup to protect against the risks of Travelers's insurance and commodities activities and Citigroup's international exposures.
23. Some commenters referred to lawsuits or administrative actions
involving Travelers or its subsidiaries. Several commenters noted that
Travelers's subsidiary, Salomon Smith Barney Inc., had been the
subject of several class action lawsuits and administrative actions or
complaints related to its securities activities. These lawsuits, actions
and complaints were resolved or settled, and Travelers has stated that
Salomon Smith Barney Inc. has instituted policies and procedures and
taken other actions to correct the deficiencies alleged in the lawsuits,
actions, or complaints.
In addition, several commenters asserted that Salomon Smith Barney Inc. and a number of other securities firms currently are under
investigation for alleged improprieties in connection with their municipal bond activities. A commenter also noted that Travelers's consumer finance subsidiary. Commercial Credit Company, is a defendant
with other consumer finance companies in pending judicial proceedings, including lawsuits alleging that these companies have engaged in
improper lending and credit insurance practices. Some commenters
also noted that several complaints alleging violations of fair lending
laws by certain consumer finance and insurance subsidiaries of Travelers have been filed with the U.S. Department of Housing and Urban
Development ("HUD"). There have been no adjudications of wrongdoing by Travelers or any of its subsidiaries in any of these matters,
and each matter is before a forum that can provide adequate redress if
the allegations of wrongdoing can be sustained.
24. See Chemical Banking Corporation, 82 Federal Reserve Bulletin 230 (1996).

990

Federal Reserve Bulletin • November 1998

tions of Citicorp and Travelers currently are well
capitalized under applicable federal guidelines. Citigroup
also would be well capitalized on a pro forma basis on
consummation of the transaction. The proposed transaction
is structured as a stock-for-stock combination and would
not increase the debt service requirements of the combined
company. In addition, both companies have reported positive earnings in recent periods. The Board also has reviewed the potential effect on Citigroup of actions that
would be required to conform its activities to the requirements of the BHC Act, and concluded that, while the
actions include potential divestitures that may be material,
they should not raise concerns regarding capital adequacy.
The senior management of Citigroup would be drawn
from the senior management of Travelers and Citicorp.25
Citicorp and its depository institutions are well managed,
and the Board has extensive experience with the senior
management of the organization. While the Board has not
had direct experience with the management of Travelers,
the company's senior management has extensive experience in the operations of Travelers's different business
lines, and the Board has considered information from other
functional supervisors regarding their experience with
management of various Travelers subsidiaries. Further,
Travelers and Citicorp currently have appropriate riskmanagement processes in place, and Citigroup is expected
to have in place a risk-management structure sufficient to
monitor and manage the risks of a diverse organization,
including the insurance risks that would exist during the
section 4(a)(2) conformance period. Both companies have
comprehensive programs designed to ensure compliance
with relevant laws and regulations, including those pertaining -to consumer protections. These programs would be
retained after consummation and adapted to create a comprehensive compliance program for Citigroup.

25. Several commenters alleged that the current management of
Travelers and Citicorp, and the proposed management of Citigroup,
would not include a sufficient number of minorities. The racial and
gender composition of management and the breadth of an organization's internal policies on employment discrimination are not factors
the Board is permitted to consider under the BHC Act. The Board
notes that the Equal Employment Opportunity Commission has jurisdiction to determine whether companies like Travelers or banking
organizations like Citicorp are in compliance with federal equal
employment opportunity statutes under the regulations of the Department of Labor. See 41 C.F.R. 60-1.7(a) and 60-1.40.
A commenter also alleged that certain management officials of
Salomon Smith Barney Inc. engaged in sexual harassment in the
workplace. Travelers denied the allegation and explained the policies
and procedures it has implemented to avoid any such conduct. Several
commenters also noted that Salomon Smith Barney Inc. was a defendant in a judicial proceeding regarding alleged employment discrimination and sexual harassment and the securities industry's system of
settling employment disputes through mandatory industry arbitration.
The court in this proceeding recently approved a proposed settlement,
which included the establishment of a more independent arbitration
process, a comprehensive diversity training program, and an audit and
reporting system.
There has been no finding by an appropriate authority or court that
either Travelers or Citicorp is in violation of applicable employment
laws. The Board expects all banking organizations to comply with
applicable federal, state and local laws.



The Board has extensive experience supervising Citicorp, which is a complex worldwide financial institution.
Building on this experience, the Board has developed a
supervisory plan that, in the Board's view, would permit
the Board to monitor and supervise the combined organization effectively on a consolidated basis. The plan involves,
among other things, continuous holding company supervision, including both on- and off-site reviews, of the combined organization's material risks on a consolidated basis
and across business lines; access to and analyses of the
combined organization's internal reports for monitoring
and controlling risks on a consolidated basis; and frequent
contact with the combined organization's senior management and risk management personnel. The processes implementing the plan would be coordinated with those of the
functional regulators for a number of Citigroup's subsidiaries, including regulated securities and insurance activities.
The Board expects that management of Citigroup will
cooperate fully with this supervisory plan to ensure that the
Board has complete access to information on the combined
organization's operations, risks, risk management, financial condition, and efforts to ensure Year 2000 compliance.
In addition to furnishing copies of certain reports filed with
primary insurance and securities regulators, it is the
Board's expectation that Citigroup will cooperate fully in
providing specialized financial data requested by the Board
for the supervision of financial conglomerates.
For these reasons, and based on all the facts of record,
including review of the comments, the Board has concluded that considerations relating to the financial and
managerial resources and future prospects of Travelers,
Citicorp, their respective subsidiaries, and Citigroup and
other supervisory factors are consistent with approval of
the proposal under the BHC Act.
Competitive Aspects Under Section 3 of the BHC Act
Section 3 of the BHC Act prohibits the Board from approving a proposal to acquire a bank that would result in a
monopoly or that would substantially lessen competition in
any relevant banking market, if the anticompetitive effects
of the proposal are not clearly outweighed in the public
interest by the probable effect of the proposal in meeting
the convenience and needs of the community to be
served.26
The proposal involves the acquisition of banks by Travelers, which does not own a commercial bank. Travelers
owns a savings association, a limited-purpose credit card
bank and a variety of nonbanking companies. Based on all
the facts of record, the Board has determined that consummation of the proposal by Travelers to acquire the subsidiary banks of Citicorp would not likely result in a significantly adverse effect on competition or on the
concentration of banking resources in any relevant banking
market. Accordingly, the Board has determined that competitive factors under section 3 of the BHC Act are consis-

26. 12U.S.C. § 1842(c)(l).

Legal Developments

tent with approval of the proposal. The competitive effects
of the proposed nonbanking activities are discussed below.
Convenience and Needs Factor
In acting on the proposal, the Board also must consider the
convenience and needs of the communities to be served
and take into account the records of the relevant depository
institutions under the CRA. The CRA requires the federal
financial supervisory agencies to encourage financial institutions to help meet the credit needs of local communities
in which they operate, consistent with their safe and sound
operation, and requires the appropriate federal financial
supervisory agency to take into account an institution's
record of meeting the credit needs of its entire community,
including LMI neighborhoods, in evaluating bank expansion proposals. The Board has carefully considered the
convenience and needs factor and the CRA performance
records of the subsidiary depository institutions of Citicorp
and Travelers in light of all the facts of record, including
public comments on the proposal.
A. Summary of Public Comments on Convenience and
Needs Factor
The Board provided an extended period for public comment on the proposal and convened a public meeting in
New York to collect information on the statutory factors
the Board is required to consider, including the effect of the
proposal on the convenience and needs of the affected
communities and the CRA performance records of the
insured depository institutions involved. As noted above,
more than 425 interested members of the public either
submitted written remarks or testified at the public meeting.
More than 320 commenters supported the proposal or
commented favorably on the CRA-related activities or
other community-related activities of Citicorp or Travelers.
Commenters who expressed support for Citicorp represented a wide variety of entities, including public and
private community development and social welfare organizations, educational and artistic nonprofit organizations,
religious organizations, and educational entities.27 A number of these organizations commended Citicorp for providing their organizations with charitable gifts, loans, equity
products developed by Citicorp, and tax credit investments.28 A number of state and local government officials

27. Several commenters argued that the Board should give less
weight to comments supporting the proposal if the commenter received financial assistance from Travelers or Citicorp. The Board
notes that the number of comments is discussed in this order only to
indicate the degree of public interest in the proposal, and is not a
numerical weighing by the Board of the favorable or unfavorable
comments. The Board has carefully considered the substance of oral
and written submissions in light of the entire record in this case and
the factors the Board is required to consider under the BHC Act.
28. These commenters included:
(1) Two members of the U.S. House of Representatives from
Florida;



991

commented favorably on their experiences with Citicorp
and praised Citicorp for helping their communities as a
significant employer, a leader in community development
and a generous benefactor. Some affordable housing and
economic development organizations commended Citicorp
as a corporate leader that helped mobilize community
action on their behalf or created useful products and services, such as tax credits, to assist them. Numerous commenters also noted that Citicorp provided community organizations with grants for their general operational needs
and fund raising efforts, technical assistance for their organizational staff, and training or counseling for their constituent communities. In addition, several minority or women
business owners commended Citicorp for providing small
business loans, technical assistance and educational programs.
Commenters who expressed support for Travelers included organizations involved in microeconomic development, job training, social welfare, medical research, and
education, and certain local government agencies. These
commenters reported that Travelers has assisted them by
providing grants, in-kind donations of equipment and office
space, and advisory services. Citicorp and Travelers also
were commended for permitting their officers and employees to volunteer or serve on the organizations' boards of
directors.
Several small business owners also supported the proposal for Citigroup to cross-market loan, insurance and
investment products. These commenters believed that allowing "one-stop shopping" for all types of financial
products would increase convenience and efficiencies, particularly for small businesses.
In addition, a number of commenters praised the Citigroup community pledge and asserted that the lending,
investment and financial-education components of the
pledge would help LMI communities and the economy
generally. Several commenters also believed that the urban
insurance components of the Citigroup community pledge
would increase the availability of homeowners insurance in
several urban areas.
More than 105 commenters either opposed the proposal,
requested that the Board approve the merger subject to

(2) Local government officials, including the governors of Florida,
Nevada and Guam, state senators and representatives from
New York, Florida and Guam, and the mayor of Las Vegas;
(3) Greater Rochester Housing Partnership;
(4) New York City Housing Partnership;
(5) Greater Harlem Housing Development Corporation;
(6) Local Initiatives Support Corporation (New York);
(7) Low Income Housing Fund (New York);
(8) American Red Cross (New York Chapter);
(9) Florida Community Loan Fund;
(10) Habitat for Humanity of Broward, Inc. (Florida);
(11) Resources for Community Development (California);
(12) Lenders for Community Development (California); and
(13) Community development organizations, nonprofit organizations and small businesses in Alabama, Connecticut, Delaware, Maryland, Massachusetts, Nevada, New Jersey, Pennsylvania, Rhode Island, South Dakota, Virginia, Washington,
D.C., Guam. Puerto Rico, and U.S. Virgin Islands.

992

Federal Reserve Bulletin • November 1998

conditions suggested by the commenter, requested delay of
Board action or expressed concerns about the CRA performance record of Citicorp or the record of Travelers with
regard to Travelers's lending and insurance related activities.29
A number of commenters contended that Citicorp has an
inadequate record of mortgage lending to LMI and minority individuals and communities, particularly in New York
and California. Commenters alleged that Citicorp makes
few direct mortgage loans in LMI or minority communities, relying instead on intermediaries to make such loans,
and that Citicorp does not offer sufficient mortgage loans
for multifamily housing. Citicorp's policies on branch location, outreach efforts and customer service were alleged to
discourage minority families from applying for loans, and
to result in directing capital away from LMI and minority
communities throughout its assessment area. Commenters
also maintained that Citibank has an inadequate record of
small business lending in LMI and minority communities
and that the proposed transaction would result in fewer
loans to small businesses. A number of commenters criticized the lending record of Citicorp evidenced in data
submitted by the banking organizations under the Home
Mortgage Disclosure Act (12U.S.C. §2801 et seq.)
("HMDA"). 30
In addition, a number of commenters maintained that
Citicorp has abandoned LMI communities, particularly
those in New York, and has disproportionately closed
branches and downgraded branches to Automated Teller
Machines ("ATMs") or video branches without on-site
personnel in those communities. Commenters also contended that the merger would result in fewer community
investments and development activities in the future, particularly in minority communities.
Some commenters questioned the compliance of certain
Travelers subsidiaries with fair lending laws, criticized the
lending practices of Travelers's subprime lending subsidiaries, and asserted that Travelers has failed to meet the

29. These commenters included:
(1) Several members of the U.S. House of Representatives, including members from California and New Jersey;
(2) Independent Bankers Association of America;
(3) Consumers Union;
(4) Citicorp-Travelers Watch (a consortium of ten community
advocacy organizations in New York City);
(5) Inner City Press/Community on the Move;
(6) Association of Community Organizations for Reform Now;
(7) Greater Rochester Community Reinvestment Coalition;
(8) New Jersey Citizens Action;
(9) California Reinvestment Committee;
(10) The Greenlining Institute;
(11) The National Organization for Women; and
(12) community groups, nonprofit organizations, bank associations,
banks, and individuals in Arizona, California, Connecticut,
Delaware, Florida, Georgia, Indiana, Iowa, Kansas, Maryland.
Massachusetts, Minnesota, Missouri, New Hampshire, New
Jersey, New York, South Carolina. South Dakota, Texas, Wisconsin, and Washington. D.C.
30. Commenters also asserted that Citicorp and Travelers have
discriminated in conducting business with minority vendors or providing equity capital for businesses owned by women and minorities.



convenience and needs of LMI communities through the
interrelated activities of its insurance and lending subsidiaries. Several commenters alleged that these subsidiaries
market higher-cost loans and overpriced, misleading term
life insurance products to LMI and minority consumers.
Commenters opposing the proposal also maintained that
Travelers excludes LMI and minority communities from
conventional homeowners insurance coverage through its
marketing efforts and underwriting policies. Furthermore,
commenters alleged that the requirements for, and terms
of, Travelers's insurance policies have a disparate and
discriminatory impact on LMI and minority communities.
A number of commenters also criticized the Citigroup
community pledge. Many of those commenters asked the
Board to disregard the pledge because it was too small and
failed to delineate specific amounts of lending and investment programs for particular state or local markets. The
pledge also was criticized by commenters as focusing
primarily on consumer lending that would not help increase home mortgage and small business loans in LMI or
minority communities. Some commenters contended that
the Citigroup community pledge would harm LMI and
minority communities if it were implemented through the
marketing of expensive or unsuitable consumer credit,
insurance and investment products.
Numerous commenters also argued that the merger
would result in a two-tiered structure through which Citigroup would market higher-cost loan and insurance products to LMI and minority communities, while marketing
competitively priced loan and insurance products to more
affluent communities. Several commenters also expressed
concern that the merger might undermine the CRA by
encouraging a shift of banking assets and operations to
nonbanking affiliates that are not subject to the CRA.31
B. CRA Performance Records
In its consideration of the convenience and needs of the
communities to be served by Citigroup, the Board has
reviewed in detail the CRA performance records of Citicorp and Travelers, including their mortgage and small
business lending records, community development and investment programs and initiatives to increase lending in
LMI areas in states served by their subsidiary insured
depository institutions.32 Travelers proposes to continue
Citicorp's current CRA organization, policies and programs, including its proprietary affordable home-related

31. Several commenters also opposed the proposal based on unfavorable experiences with Citicorp or Travelers in particular credit,
transactional account or business dealings. The Board has reviewed
these comments in light of all the facts of record, including information provided by Citicorp and Travelers, and the Board has provided
copies of these comments to the appropriate federal or state supervisor.
32. Some commenters asserted that lending to small businesses
declines as a result of large bank mergers. The Board has considered
these comments in light of Citicorp's record of lending performance,
including its record of assisting in meeting the credit needs of small
businesses.

Legal Developments

lending products, participation in national and local government guaranteed or subsidized loan programs, and community and economic development activities.
C. CRA Performance Examinations
As provided in the CRA, the Board has evaluated the
convenience and needs factor in light of examinations of
the CRA performance records of the relevant institutions
conducted by the appropriate federal supervisory agency.
An institution's most recent CRA performance evaluation
is a particularly important consideration in the applications
process because it represents a detailed on-site evaluation
of the institution's overall record of performance under the
CRA by its appropriate federal financial supervisory agency.33
Citicorp's lead subsidiary bank, Citibank, which primarily serves the metropolitan New York City area, received a
"satisfactory" CRA performance rating from the Office of
the Comptroller of the Currency ("OCC") at its most
recent examination for CRA performance, as of October
1996.34 Citibank accounts for approximately 68 percent of
Citicorp's total domestic deposits. Citibank New York
State, Pittsford, New York ("Citibank NYS"), received a
"satisfactory" rating from the FDIC and the New York
State Banking Department ("NYSBD") at its most recent
examination for CRA performance, as of March 1998.35 In
addition. Citibank, Federal Savings Bank, San Francisco,
California ("Citibank FSB"), received an "outstanding"
CRA performance rating from the Office of Thrift Supervision ("OTS"), as of March 1997.36 The OTS based its
overall "outstanding" CRA performance rating of Citibank FSB on assessments of the institution's performance
in five markets. Citibank FSB received an "outstanding"
rating in three of these areas, California, Florida and Illinois, and a "satisfactory" rating in Connecticut and the
Washington-Baltimore area.37

33. The Statement of the Federal Financial Supervisory Agencies
Regarding the Community Reinvestment Act provides that a CRA
examination is an important and often controlling factor in the consideration of an institution's CRA record and that reports of these
examinations will be given great weight in the applications process.
54 Federal Register 13.742 and 13,745 (1989); see also 62 Federal
Register 52,150(1997).
34. The examination included evaluation of Citibank's CRA performance in its assessment areas in Guam, Puerto Rico and U.S. Virgin
Islands.
35. Citibank NYS has branches in the Buffalo and Rochester metropolitan areas.
36. Citibank FSB has branches in California, Connecticut, Florida,
Illinois, Maryland, New Jersey, Virginia, and Washington, D.C. Citibank FSB also recently opened a branch in Texas, which primarily
serves Citicorp employees at a service center facility.
37. Citibank (Nevada), N.A., Las Vegas, Nevada, received a "satisfactory" rating from the OCC. as of May 1997; Citibank Delaware,
New Castle, Delaware, a limited-purpose bank, received a CRA rating
of "outstanding" from the FDIC, as of November 1996; Citibank
South Dakota, N.A. Sioux Falls. South Dakota ("Citibank SD"), a
limited-purpose bank, received an "outstanding" rating from the
OCC, as of June 1997; Universal Bank, N.A.. Columbus, Georgia, a
limited-purpose bank, received a "satisfactory" rating from the OCC,



993

Travelers's subsidiary depository institutions, The Travelers Bank and The Travelers Bank USA, both in Newark,
Delaware, each received a "satisfactory" CRA performance rating from the FDIC, as of March 1997. The
Travelers Bank was converted to Travelers Bank and Trust,
fsb ("Travelers FSB") on November 24, 1997. and has not
been examined for CRA performance under its new charter.
Examiners did not note any evidence of discrimination
or other illegal credit practices during any of the most
recent CRA performance examinations. In addition, examiners did not identify any practices intended to discourage
applications for the types of credit offered by Citicorp's or
Travelers's depository institution subsidiaries.38
D. Citicorp's CRA Performance Record
Overview. Citicorp has various programs and policies for
ascertaining the credit needs of the community and implementing programs to help address those needs. Citicorp has
recently implemented a number of changes to these programs and policies to improve its lending performance and
to address weaknesses in its earlier efforts.
For example, Citicorp originated or purchased more than
30,000 HMDA-reported loans in 1997, totaling $5.9 billion, including approximately 4,400 loans totaling
$514 million in LMI communities.39 This amount of lending represented a 44-percent increase over 1996 in the
number, and an 86-percent increase in the total dollar
amount, of home mortgage loans in LMI communities.
Citicorp reported that in 1997 it extended $146 million in
loans to LMI borrowers or in LMI communities through 70
national and local affordable housing mortgage programs,
which offer a variety of low down payment options, higherthan-normal qualifying ratios and other flexible underwriting standards.
Some categories of Citicorp's home mortgage lending to
LMI and minority borrowers and communities in 1996 and
1997 were below the percentages for the aggregate in
several of Citicorp's CRA assessment areas.-10 In 1997,
Citicorp implemented a number of changes in its marketing and underwriting divisions, marketing efforts and home
mortgage loan products and programs to increase its lending to LMI and minority residents and communities nationwide. Citicorp reported that in 1998 these changes inas of August 1996; and Universal Financial Corporation. Salt Lake
City, Utah, an industrial loan company, received a "satisfactory"
rating from the FDIC, as of January 1996.
38. Several commenters alleged that Travelers and Citicorp should
purchase more goods and services from businesses owned by women
and minorities. Although the Board fully supports programs designed
to stimulate and create economic opportunities for all members of
society, the Board concludes that consideration of vendor purchase
contracts of Travelers and Citicorp is beyond the scope of the CRA
and other relevant federal banking statutes.
39. The lending data in this order include data for CMI, the New
York assessment areas of Citibank and Citibank NYS. and all the
assessment areas of Citibank FSB, unless otherwise indicated.
40. The aggregate represents the cumulative lending for all financial
institutions that have reported HMDA data in a given market.

994

Federal Reserve Bulletin • November 1998

creased the percentage of home mortgage lending to LM1
and minority borrowers and in LMI and predominantly
minority census tracts in most of the assessment areas of
Citibank, Citibank FSB and Citibank NYS.
Citicorp created two specialized units to serve LMI
customers: the Homeownership Development Unit, which
develops products and recommends credit policy changes
to serve the needs of LMI customers, and the Community
Lending Underwriting Team, which underwrites affordable
mortgages for LMI customers. Citicorp also expanded the
mortgage sales force in its assessment areas to include
specialized teams of Community Mortgage Consultants for
the specific purpose of originating loans to LMI borrowers
and in LMI communities. In addition, Citicorp hired additional employees nationally to focus on developing business with real estate brokerage companies owned by minorities and brokers who serve LMI and ethnically diverse
communities. Citicorp hired additional employees in California and New York to focus on building business relationships with companies owned by minorities and companies with a high concentration of ethnically diverse
employees and to offer mortgages to the employees of such
companies. Citicorp also increased its marketing to LMI
and minority communities and households.
Significantly, Citicorp introduced new or expanded products and programs designed to increase credit opportunities
for LMI borrowers. Citicoip, for example, reintroduced the
CitiAffordable Purchase Assistance Program, which provides for a minimum down payment of $500, flexible
qualifying ratios, and an unsecured installment loan for
down payment and closing-cost assistance. Citicorp also
expanded the availability of its CitiAffordable Mortgage
Program to cooperatives. This product provides for a minimum down payment of 2 percent from the borrower's own
funds and a maximum loan-to-value ratio of 97 percent. In
1997 and the first quarter of 1998, Citibank originated
loans totaling more than $35 million through these products and programs.
In 1996 and 1997, Citicorp also increased access to
credit for LMI borrowers by expanding its home improvement credit products to offer more flexible underwriting
standards and to require no application, appraisal or annual
fees. Citicorp, for example, adjusted its underwriting criteria to allow loan-to-value ratios of 100 percent for loans up
to $25,000. In 1997, Citicorp also introduced an unsecured
home improvement loan product for LMI borrowers financing amounts as low as $500. Citicorp conducted a
pre-approved, direct-mail marketing of this product primarily to LMI residents, which resulted in $12 million in
loans.
In 1997, Citicorp originated more than 12,000 small
business loans, totaling $1.2 billion, which included more
than 2,300 loans, totaling more than $260 million in LMI
census tracts and representing 22 percent of the total dollar
amount of Citicorp's small business loans.41 This level of

41. Some commenters fljaintained that Citibank has a minimum
loan amount of $100,000 JBv small business loans, which excludes



lending represents an increase over 1996 of 20 percent in
the number, and 23 percent in the total dollar amount, of
small business loans in LMI census tracts. To expand
financing opportunities for businesses that generally would
not qualify for conventional loans, Citicorp offers a variety
of Small Business Administration ("SBA") loan programs,
which offer loans of $2,500 up to $10 million. Citibank is
one of only two banks in New York offering the SBA's
FASTRACK program authority, under which Citibank may
originate loans up to $100,000 with a 50-percent SBA
guarantee through a streamlined application process. In
1997. the SBA extended the FASTRACK program to Citibank in California, Connecticut, Florida, Illinois, and New
Jersey. Citicorp also developed the SBA Capital Access
program, which provides loans of up to $250,000 to businesses owned by minorities or women, high-tech firms,
and high-growth importers and exporters. This program
was offered in Citicorp's California and Florida markets as
a pilot program. In 1997, Citibank FSB was named SBA
Lender of the Year. In addition, Citicorp extends loans of
up to $50,000 through its Character Lending Program
("character loans") to creditworthy entrepreneurs who cannot qualify for SBA loans. Since 1993, Citicorp has made
loans totaling approximately $33 million under this program in New York. California and Nevada.
Citicorp also is an active participant in community and
economic development projects and programs. Citicorp
reported that in 1997 it increased its new community
development lending originations to $230 million, an increase of 59 percent over 1996. Citibank and the Citicorp
Foundation also made grants totaling $26 million to support affordable housing, revitalization of LMI communities
and nonprofit community service providers.42
As noted above, the appropriate federal supervisory
agencies conducted CRA performance examinations of
Citibank in 1996. Citibank FSB in 1997 and Citibank NYS
in 1998 ("Citibank Examinations"). Examiners concluded
that the geographic distribution of the institutions' lending
throughout their communities, including LMI communities, was adequate. Examiners also reported that the delineations of the institutions' communities were reasonable
and did not arbitrarily exclude LMI census tracts.
Examiners found that the institutions provided an array
of credit products designed to assist in meeting the credit
needs in their assessment areas, including innovative and
flexible products to meet the credit needs of LMI communities. These products included the proprietary CitiAffordable Mortgage program, CitiAffordable Purchase Assistance program and home improvement loan products.
Examiners also noted that Citicorp participates in a number
of government-subsidized loan programs that provide lowdown payment financing, below-market interest rates

most small businesses in LMI census tracts and businesses owned by
minorities. Citicorp reported that in 1997 it extended approximately
10,000 loans that were in amounts of less than $100,000.
42. Some commenters maintained that Citigroup's CRA investment
in the inner-cities was threatened by Citicorp's Asian lending and its
compensation packages to management.

Legal Developments

and/or closing-cost assistance to LMI borrowers, including
the Enhanced Fannie Neighbors with the Community
Home Buyers Program and the Fannie 97 Affordable Mortgage Program through the Federal National Mortgage Association ("FNMA") and the Affordable Gold Program
through the Federal Home Loan Mortgage Corporation
("FHLMC"). In 1997, Citicorp originated loans totaling
$89 million under these programs. 43
The Citibank Examinations concluded that the institutions were involved in community and economic development activities. Citicorp provided loans for the acquisition,
construction, rehabilitation, and permanent financing of
affordable multifamily rental, owner-occupied and specialneeds housing. In addition, Citicorp provided funding for
projects that support small businesses and promote job
creation in LMI neighborhoods, including participation in
lending consortia in partnership with nonprofit organizations or government agencies. Citicorp also made community development investments, including investments in
community development financial institutions, intermediary loan funds, low-income housing tax credits, and securities backed by mortgage loans to LMI borrowers or on
properties in LMI areas.
In addition, the Citibank Examinations noted no evidence of discrimination or other illegal credit practices.44
Examiners found that the institutions had implemented
various programs to promote and ensure compliance with
fair lending laws and regulations, including compliance
department audits, multilevel review processes for any
proposed loan denials for applicants with incomes below
specified thresholds, annual self-assessments, and annual
"mystery shopper" testing. Examiners also reported that
the institutions conducted ongoing fair lending law training
for their employees.
Citibank. Citibank is the lead bank among Citicorp's
depository institution subsidiaries, and holds approximately
68 percent of Citicorp's total domestic deposits. The 1996
OCC examination of Citibank reported that the bank extended a wide variety of loan products that helped to
address housing-related, consumer and small business
credit needs of its New York City assessment area.45 Examiners found that Citibank had sound marketing and advertising programs in place to inform all segments of its
community of the credit services offered by the bank. In
addition, examiners found a reasonable penetration of lend-

43. All discussion of lending activities noted in the Citicorp Examinations are for the assessment periods covered by the examinations,
unless otherwise indicated. Those periods are as follows: Citibank
(September 10, 1994. through October 4, 1996); Citibank NYS (January 1996 through December 1997); and Citibank FSB (January 1995
through December 1996).
44. The 1998 FDIC examination of Citibank NYS and the 1997
OTS examination of Citibank FSB reported no substantive violations
of the fair lending laws and regulations.
45. Citibank's New York assessment area is comprised of the entire
New York, New York, Metropolitan Statistical Area ("MSA"), except
for Putnam County, and the Nassau/Suffolk MSA.



995

ing in all segments of Citibank's delineated community,
including LMI areas.46
Examiners noted that Citibank offered proprietary home
lending products that provided lower down payment requirements, closing-cost assistance and flexible underwriting criteria, and also offered flexible, low-interest home
mortgage loans under loan programs sponsored by the
State of New York Mortgage Agency ("SONYMA"). Citibank originated 105 SONYMA loans totaling $10 million.
OCC examiners also reported that in 1996 Citibank introduced several new initiatives to increase home ownership
opportunities for first-time home buyers and LMI families
in New York. Citibank, for example, began offering mortgages guaranteed by the Federal Home Administration
("FHA") in 1995. In addition, Citibank began participating
in the New York City Housing Partnership New Home
Program ("NYC New Home Program"), through which it
made mortgage loans available to home buyers in two
multi-family housing projects in Queens. In addition, Citibank introduced a new product called Neighbor Works
Affordable Rehabilitation Mortgage Program ("Neighbor
Works Mortgage Program") in partnership with Neighborhood Housing Services of New York ("NHS"), FNMA
and FHLMC. This loan product combined a low down
payment for home purchase and rehabilitation mortgages
with NHS's education and technical assistance programs.
In 1997, Citibank originated approximately $5 million of
loans under the NYC New Home Program and the Neighbor Works Mortgage Program.
Examiners found that Citibank offered a variety of specially designed credit products for small businesses and
was an active small business lender, including through
participation with SB A loan programs. Examiners reported
that 18 percent of Citibank's small business loans in its
New York assessment area were made to businesses in
LMI census tracts. Examiners also reported that 40 percent
of Citibank's small business loans were for amounts of less
than $25,000, and 89 percent were in for amounts of less
than $100,000.
Examiners reported that Citibank began several initiatives in 1995 and 1996 to help meet the credit needs of
small businesses in New York. Examiners noted that in
1995 Citibank began to take a more active role in SB A
loan programs and introduced the SBA's FASTRACK program. From October 1995 to October 1996, Citibank originated 162 SBA loans totaling $18 million. In addition,
Citibank assigned 54 small business representatives to its
branches and streamlined its approval process for small
business loans. Citibank also lowered its minimum amount
for lease financing to small businesses for commercial
equipment to $2500. In 1997, Citibank made more than

46. Examiners found that the geographic distribution of Citibank's
consumer and small business loans was strong, but that Citibank's
percentage of home mortgage lending in the LMI census tracts of its
New York assessment area was below the percentage of the aggregate
in such census tracts. They also found that Citibank's percentage of
home mortgage lending to LMI borrowers in New York was comparable with the percentage for the aggregate.

996

Federal Reserve Bulletin • November 1998

1000 small business loans, totaling $104 million in LM1
census tracts in its New York assessment area and representing 19 percent of the total dollar amount of its small
business loans. This level of lending represented a
22-percent increase over 1996 in the total dollar amount of
small business loans in LMI census tracts in Citibank's
New York assessment area.
In addition, examiners found that Citibank played a
leadership role in activities that promoted affordable housing, economic development and community services. Examiners reported that Citibank maintained a high level of
participation, including investments in community development projects and programs in its delineated areas. In
addition, examiners noted that Citibank worked with community development groups, intermediaries and government organizations engaged in providing community development financing for large affordable housing projects,
participated in equity funding pools for small businesses
and provided loans to nonprofit providers of health and
social services.
Examiners also reported that Citibank originated
$93 million in community development loans in its New
York assessment area, including $49 million in affordable
housing loans and construction financing for affordable
housing, which provided more lhan 2,400 affordable housing units in LMI communities or targeted for LMI individuals.47 The 1996 OCC examination described Citibank as
one of the lead banks in the Neighborhood Entrepreneur
Program, which accelerated the redevelopment and sale of
properties owned by New York City and distressed city
blocks. Through this program, Citibank provided a
$9.6 million loan to renovate 114 rental units in the Bronx
and a $13.6 million loan to construct 169 units in central
Harlem.48
Examiners also reported that Citibank originated
$26 million in loans for 400 units of affordable housing in
New York City in connection with New York City Housing
Partnership programs. In addition, examiners noted that
Citibank had provided $3.5 million in funding for the loan
pool of the New York Business Development Corporation,
which provided financial assistance to existing and new
small- and medium-size businesses in New York.
Citibank NYS. Citibank NYS is a state-chartered bank
that operates primarily in Upstate New York. The 1998
FDIC examination of Citibank NYS concluded that the
bank's level of home mortgage and small business loans
reflected good responsiveness to the credit needs of its
assessment areas. The 1998 NYSBD examination of Citibank NYS concluded that the geographic distribution of
the bank's loans reflected good penetration throughout its
assessment area and among customers of different income
levels.

47. Some commenters criticized Citicorp for not making any direct
multifamily housing loans in New York City or San Francisco. Citicorp stated that it helps to meet the need for multifamily housing as an
active construction lender for multi-family housing projects.
48. Citibank reported that it has provided a total of $63 million in
construction financing for this program.



FDIC examiners found that the bank's percentage of its
home purchase mortgage lending to LMI individuals and
in LMI communities was close to or exceeded the percentage for the aggregate in 1995 and 1996. In addition, they
found that the bank's percentage of mortgage refinancing
and home improvement lending to LMI individuals and in
LMI communities generally was comparable to or less than
the percentage for the aggregate during this time period.49
FDIC examiners noted that, in 1997, Citibank NYS's management began taking steps to improve its performance in
these areas, including by increasing its advertising in LMI
communities to reach more potential borrowers for refinancing and home improvement loans.
FDIC and NYSBD examiners found that the bank offered various flexible lending products with low down
payment options that are attractive to first-time home buyers, including loans guaranteed by the FHA, the Veterans
Administration and SONYMA. In 1996 and 1997, Citibank
NYS originated loans totaling $7.9 million under these
programs. NYSBD examiners noted that, in 1997, Citibank
re-introduced the CitiAffordable Purchase Assistance Program and originated loans totaling $2.1 million under this
program. Examiners also reported that, in 1996 and 1997,
Citibank NYS originated loans totaling $3.4 million under
the FNMA Enhanced Fannie Neighbors with the Community Homebuyers Program, the FNMA Fannie 97 Affordable Mortgage Program and the FHLMC Affordable Gold
Program.
Examiners concluded that Citibank NYS's small business lending reflected a good dispersion throughout census
tracts of all income levels, particularly LMI census tracts.
Examiners noted that Citibank NYS's small business lending had increased 32 percent since 1996.50 Examiners also
reported that, in 1996 and 1997, more than 30 percent of
the total dollar amount, and more than 70 percent of the
number, of the bank's small business loans were for
amounts of less than $100,000. During 1996 and 1997, the
bank extended SBA loans totaling $9.6 million in its assessment area and, in 1997, extended character loans totaling $780,000.
The 1998 FDIC and NYSBD examinations also found
that Citibank NYS was an active participant in community
development projects and initiatives to construct or rehabilitate affordable housing, promote economic development
and support community services. Examiners reported that
Citibank NYS participated in lending initiatives totaling
$9.2 million during 1996, 1997 and the first quarter of
1998, of which $2.5 million was for affordable housing and

49. NYSBD examiners reported that the total number of Citibank
NYS's residential real estate loans originated in LMI areas, as a
percentage of total loans, was less than the percentage for the aggregate in 1996 and increased in 1997. In addition, examiners noted that
Citibank's percentage of home purchase mortgage loans extended to
LMI borrowers in 1996 was well below the percentage for the
aggregate, but that the bank's percentage of such loans to LMI
borrowers increased significantly in 1997.
50. Although the percentage of these small business loans by
number in LMI areas declined between 1996 and 1997, the percentage
of such loans by dollar amount increased.

Legal Developments

economic development programs, including the Greater
Rochester Housing Partnership and NHS of Rochester
("GRHP"). In 1997, Citibank NYS extended two lines of
credit totaling $1.5 million to GRHP for construction of
affordable single-family and multifamily housing. NYSBD
examiners also noted that Citibank NYS made community
development investments totaling $5.6 million during 1996
and 1997, including low-income housing tax credits and
investments in securities backed by mortgage loans to LMI
borrowers or on properties in LMI areas.
Citibank FSB. The 1997 OTS examination found that
Citibank FSB provided an array of credit products designed to meet many different community needs and continued to develop loan programs to meet the needs of LMI
individuals. Examiners found that, although the percentage
of home purchase mortgage lending of Citibank FSB and
its affiliates in LMI census tracts in 1995 and 1996 was low
in comparison to the percentage for the aggregate, their
percentage of home improvement and multifamily home
loans in LMI census tracts was comparable with or exceeded aggregate results. OTS examiners concluded that
the levels of small business lending and amounts of consumer lending in LMI areas by Citibank FSB and its
affiliates demonstrated a commendable commitment to
meeting community credit needs.
The 1997 OTS examination report concluded that Citibank FSB affirmatively solicited credit applications from
all segments of its delineated community and had an effective marketing program to inform residents, including those
in LMI communities, of the institution's available credit
products. Examiners noted that Citibank FSB offered various home mortgage products with flexible underwriting
criteria in each of its assessment areas to help serve the
needs of LMI residents, including its proprietary CitiAffordable Mortgage Program, the FNMA Community Home
Buyers Program and the FHLMC Affordable Gold Program. Examiners also reported that Citibank FSB participated in various government subsidized mortgage lending
programs sponsored by local and state government agencies. According to examiners, Citibank FSB continued to
expand its community development activities during 1995
and 1996.

997

originated more than 240 mortgage loans in 1995 and 1996
under its CitiAffordable Mortgage Program, FNMA's Community Home Buyers Program and FHLMC's Affordable
Gold Program. Examiners also reported that Citibank FSB
and its affiliates made small business loans totaling more
than $75 million in LMI census tracts in California. According to examiners, Citibank FSB made 117 SBA loans
totaling $28 million in California. In 1997, Citibank FSB
made small business loans totaling more than $41 million
in LMI census tracts, which represented a 5 percent increase in the total dollar amount of such loans over 1996.
Examiners also noted that Citibank FSB had met community development needs in its California assessment
areas in 1995 and 1996 through funding of, and construction financing for, affordable housing projects, participating in lending consortia and marketing community and
economic development investments. Examiners noted, for
example, that Citibank FSB extended more than $15 million in reduced-interest-rate loans for the acquisition and/or
rehabilitation of multifamily properties in LMI census
tracts in California and more than $25 million in marketrate loans secured by multifamily and commercial properties in such areas. Citibank FSB extended $15.8 million in
loans to community organizations in California to provide
permanent financing for multifamily affordable housing
and special-needs housing projects, which assisted in providing 381 units of housing for low-income families and
individuals. In addition, the Federal Home Loan Bank of
San Francisco ("FHLB") advanced more than $2.5 million
to Citibank FSB, under the FHLB's Affordable Housing
Program, to support the development of nine multifamily
housing projects that provided more than 450 units of
housing to low-income families in San Francisco, Los
Angeles and San Diego. Examiners also reported that
Citibank FSB made community development investments
of approximately $3 million and grants of approximately
$1 million to community development organizations.

Examiners also reported that Citibank FSB was an active
small business lender and participant in SB A loan programs. In 1995 and 1996, Citibank FSB originated
249 SBA loans totaling more than $48 million. In 1995,
Citibank FSB introduced the Capital Access Program in its
California and Florida markets as a pilot program.
(1) California. Examiners determined that Citibank FSB
demonstrated flexibility in developing products and participating in various programs to meet the credit needs of its
California assessment areas.51 Citibank FSB, for example,

(2) Florida. Examiners reported that Citibank FSB originated more than 140 mortgage loans in 1995 and 1996
under its Citi Affordable Mortgage program and FNMA's
Community Home Buyer Program. Examiners also noted
that during this time period Citibank FSB participated in a
number of state and local government programs to provide
below-market interest rate mortgage loans to qualifying
LMI families. Citibank FSB funded, for example, more
than 100 loans totaling more than $5 million under the
Florida Housing Finance Agency Homeowner Mortgage
Revenue Bond Program and the Dade County Housing
Finance Authority Bond Program, which provided belowmarket interest rate mortgages to eligible first-time home
buyers. In 1997, Citibank FSB provided additional funding
of $4.3 million under these programs.

51. Citibank FSB's California assessment area is comprised of the
Los Angeles-Long Beach MSA, the Orange County MSA, the Ventura MSA. the San Francisco MSA. the Oakland MSA, and the San
Jose MSA. Examiners noted that Citibank FSB did not offer insured,
guaranteed or subsidized government loan programs for housing in
California because of the high cost of housing.

In addition, examiners reported that Citibank FSB and
its affiliates made more than 380 small business loans in
1996, totaling more than $60 million in LMI census tracts
in Florida. Examiners noted that Citibank FSB funded
96 SBA Capita] Access Program loans in 1995 and 1996,
totaling more than $10 million. Examiners also reported
that Citibank FSB's funding of community development




998

Federal Reserve Bulletin • November 1998

and redevelopment projects during this time period included loans of more than $17 million through
government-assisted programs for affordable housing and
small business development, approximately $3 million in
community development loans through lending consortia,
$2 million in community development investments, and
grants of $400,000 to community development organizations.
(3) Illinois. Examiners reported that Citibank FSB originated more than 844 mortgage loans in 1995 and 1996
under its CitiAffordable Mortgage program, FNMA's Community Home Buyer Program and FHLMC's Affordable
Gold Program. Examiners also reported that Citibank FSB
and its affiliates made more than 240 small business loans
in 1996, totaling more than $50 million in LMI census
tracts in Illinois. In addition, OTS examiners noted that in
1995 and 1996 Citibank FSB originated SBA loans totaling
more than $9.5 million. Citibank FSB's level of community development funding during this same time period
was commended by examiners. Citibank FSB's funding of
community development and redevelopment projects included loans of approximately $100 million for the acquisition or rehabilitation of multifamily properties in LMI
census tracts (generally to small investors and owneroccupants), $6 million in community development loans
through lending consortia, loans of more than $6.5 million
directly to developers of affordable housing, more than
$700,000 in grants to community development organizations, and more than $2.6 million in community development investments.
(4) Other Areas. In the Washington-Baltimore area, OTS
examiners reported that Citibank FSB provided a number
of credit products designed to meet community credit
needs, including specific credit programs to meet the needs
of LMI individuals. Examiners also stated that Citibank
demonstrated an acceptable level of lending in LMI communities and to LMI individuals, but noted that this type of
lending needed additional attention. Examiners reported
that Citibank FSB originated 524 mortgage loans under its
CitiAffordable Mortgage Program. Citibank and its affiliates also extended small business loans totaling approximately $15.9 million, including approximately $1.3 million loans in LMI census tracts in average amounts of
$88,000. According to examiners, Citibank's small business lending performance demonstrated a commendable
commitment to serving the credit needs of the community.
Examiners also found that Citibank FSB met community
development needs through a variety of programs, including loans of $3 million to community development organizations for the acquisition or rehabilitation of multifamily
properties in LMI communities; a $2.4 million commitment to local intermediary lenders to make loans for affordable housing development and small business formations;
and a $1 million investment in tax credits that provided
equity to affordable housing projects.
In the state of Connecticut, OTS examiners reported that
Citibank FSB demonstrated a reasonable penetration of
LMI communities with its credit products and a record of
serving the credit needs of LMI applicants. Examiners



noted that, although Citibank FSB's home mortgage lending was not strong in LMI communities, the institution's
growing level of small business lending and substantial
amounts of consumer lending in LMI communities demonstrated a firm commitment to meeting community credit
needs. Examiners reported that Citibank FSB originated
40 home purchase and improvement loans in LMI communities in Connecticut during 1995 and 1996, totaling approximately $6.7 million, and originated 22 home loans
under the CitiAffordable Mortgage Program, FNMA's
Community Home Buyer Program and FHLMC's Affordable Gold Program. Citibank FSB also extended 220 small
business loans totaling approximately $10.7 million, including 67 small business loans in LMI census tracts
totaling approximately $4.7 million. In addition, examiners
found that Citibank FSB met community development
needs through a variety of programs, including providing a
$1.35 million commitment to local, intermediary lenders to
fund loans for affordable housing development and small
business formation and investing $2 million through the
National Equity Fund for tax credits that provided equity to
affordable housing projects.
HMDA Data. The Board also has carefully considered
the lending record of Citicorp in light of comments about
the HMDA data reported by its subsidiaries.52 The Board
reviewed HMDA data for 1995, 1996 and 1997, and the
data generally showed that Citicorp has assisted in meeting
the housing-elated credit needs of minority and LMI borrowers and borrowers in LMI areas. 53 The data showed,
moreover, that from 1996 to 1997 Citicorp increased its
number of housing-related loan originations to LMI borrowers by 47 percent, to borrowers in LMI areas by
47 percent, to African Americans by 42 percent, and to
Hispanics by 55 percent.54
The data also reflect certain disparities in application,
denial and origination rates among members of different
racial groups and persons of different income levels. In
addition, data for 1997 also indicate that some categories
of Citicorp's housing-related lending were below the percentage for the aggregate. In 1997, for example, the percentage of Citicorp's home mortgage originations in LMI
census tracts was below the percentage for the aggregate in
several of its assessment areas, including in New York,
New Jersey, California, Connecticut, Florida, and Washington, D.C. 55 Citicorp also originated a lower percentage of

52. Some commenters expressed concern that in certain cities,
including Baltimore, Chicago, Miami and Washington, D.C, HMDA
data indicate that Citicorp does not meet the community credit needs
of LMI and minority communities.
53. Citibank FSB did not incorporate New Jersey into its assessment
area until 1997. Therefore, the Board only considered Citicorp's 1997
data for HMDA loans in the New Jersey assessment area.
54. These percentages include HMDA lending data for CMI, the
New York assessment areas of Citibank and Citibank NYS, and all the
assessment areas of Citibank FSB.
55. This assessment area data are for the Citicorp depository institution subsidiary that operates branches in the particular state and CMI
on a combined basis. The Connecticut and New Jersey data also
include the HMDA originations of Citibank.

Legal Developments

its housing-related loans in predominantly minority census
tracts and to African-American and Hispanic applicants in
several of its assessment areas than did the aggregate.
Citicorp has reported that in 1998 it has increased the
percentage of HMDA lending in LMI and predominantly
minority census tracts and to LMI and minority households
in most of the assessment areas of Citibank, Citibank FSB
and Citibank NYS.
The Board is concerned when the record of an institution
indicates such disparities in lending, and believes that all
banks are obligated to ensure that their lending practices
are based on criteria that ensure not only safe and sound
lending but also equal access to credit by creditworthy
applicants regardless of their race or income level. The
Board recognizes, however, that HMDA data alone provide
an incomplete measure of an institution's lending in its
community because these data cover only a few categories
of housing-related lending. HMDA data, moreover, provide only limited information about the covered loans.56
HMDA data, therefore, have limitations that make them an
inadequate basis, absent other information, for concluding
that an institution has not assisted adequately in meeting its
communities' credit needs or has engaged in illegal lending discrimination.
In light of the limitations of HMDA data, the Board has
carefully reviewed other information, particularly examination reports that provide an on-site evaluation of compliance with the fair lending laws by the subsidiaries of
Citicoip and Travelers. As noted above, OCC, OTS and
FDIC examiners found no evidence of prohibited discrimination or other illegal credit practices at the subsidiary
banks of Citicorp or Travelers. Moreover, examiners reviewed the institutions' policies and procedures for compliance with fair lending laws and regulations, conducted
comparative file analyses for racial discrimination, and did
not find any substantive violations of the fair lending laws.
The record also indicates that Citicorp has taken a number of affirmative steps to ensure compliance with the fair
lending laws. To ensure consistent application of its underwriting criteria, for example. Citibank manages a multilevel review process for loan applicants with less than the
area median income. Moreover, Citicorp monitors its fair
lending performance with a five-step program that includes
an independent compliance review, fair lending selfassessments conducted by management, "mystery shopper" tests done by an independent firm to assess processing
and service delivery, comparative file analyses to ensure
comparable treatment for minorities, and corporate audits."

56. The data, for example, do not account for the possibility that an
institution's outreach efforts may attract a larger proportion of marginally qualified applicants than other institutions attract and do not
provide a basis for an independent assessment of whether an applicant
who was denied credit was, in fact, creditworthy. Credit history
problems and excessive debt levels relative to income (reasons most
frequently cited for a credit denial) are not available from HMDA
data.
57. Commenters alleged that Citibank FSB, an owner of a foreclosed building, used a discriminatory bidding process to sell the



999

The Board also notes that Citicorp has made projections
to the NYSBD that Citibank NYS, Citibank and CMI
(collectively, "Citibank lenders") would increase their
HMDA-reportable lending in certain predominantly minority census tracts in New York in 1998, 1999 and 2000.
Specifically, Citicorp projects that the Citibank lenders'
percentage of HMDA-repoited lending in the predominantly minority census tracts in the cities of Buffalo and
Rochester, Erie and Niagara Counties combined and Monroe County in each of these years would equal or exceed
the percentage they achieved in these respective areas for
the first half of 1998. Citicorp also projects that the percentage of the Citibank lenders' HMDA-reported lending in
predominantly minority census tracts in their downstate
New York assessment areas during these years would
equal or exceed the adjusted aggregate's percentage of
such lending in those markets.58 The Citibank lenders will
make confidential reports to the NYSBD on their progress
in this respect.
The Board encourages the depository institutions involved in the proposal to continue to improve their record
of lending in LMI and minority communities and to LMI
and minority borrowers, and expects Citicorp to address
any weaknesses in its CRA record that were noted in the
most recent CRA performance examinations. In addition,
the Board encourages Citicorp to meet the lending projections made to the NYSBD.
Branch Network and Services. Travelers has represented
that no branch closures are expected to result from this
transaction. A number of commenters contended that Citicorp has. in the past, disproportionately closed branches
and down-graded branch services in LMI communities,
particularly in its New York City assessment area.59 Citicorp began restructuring its NYC branch network in 1995.
This restructuring was reviewed by the OCC in Citibank's
1996 CRA examination. OCC examiners found that there
had been a 28-percent decline in the number of full-service
branches, but no closures in LMI census tracts. Examiners
noted that four branches were converted to stand-alone
ATM Citicard Banking Centers ("CBCs") in LMI census
tracts. The decline in branches was balanced, according to
OCC examiners, by a 124-percent increase in CBCs, expanded branch hours and significant price reductions for
automated products and services. OCC examiners concluded that the branch closings and consolidations that
occurred had "not negatively impacted the New York
community." Moreover, OCC and NYSBD examiners

building and changed the selection criteria so that it excluded a
qualified minority bidder. Citicorp denied the allegation and stated
that it fairly and sufficiently considered the minority bidder in accordance with relevant requirements.
58. The adjusted aggregate's percentage excludes independent mortgage bankers. The areas affected include Nassau and Suffolk Counties
combined. Westchester and Rockland Counties combined, and the
counties of Queens, Kings, Bronx. New York, and Richmond.
59. In addition, a representative of Yonkers asserted that Citibank
has no branches in Yonkers and that Citibank's one ATM facility fails
to meet the community's needs.

1000

Federal Reserve Bulletin • November 1998

found that Citibank services were readily accessible to all
segments of its communities.60
OCC examiners also found that Citibanks management
had followed the bank's internal branch policy, which
provided guidelines for closing, converting and relocating
branches. This policy requires an extensive analysis of the
impact on the community. According to the examiners,
management contacted legislative and community leaders
to inform them and, in the process, ascertained specific
community needs which were immediately addressed.
In 1998, the NYSBD analyzed the current branch network of, and record of opening and closing branches for,
Citibank and Citibank NYS. The NYSBD concluded that
LMI areas were not disproportionately affected by branch
closings relative to middle- and upper-income areas. The
NYSBD added that a comparison of the branch distribution
for Citibank and Citibank NYS revealed that the total
percentage of branches that are in or adjacent to LMI
communities compares favorably with other banks
throughout New York State. In the 1998 examination,
NYSBD examiners found that Citibank NYS's record of
opening and closing branches had not adversely affected
the accessibility of its banking services, particularly for
LMI individuals or in LMI geographies.
The Board has considered that federal banking law provides a specific mechanism for addressing branch closings.
Federal law requires an insured depository institution to
provide notice to the public and to the appropriate regulatory agency before closing any branch.61 The requirement
applies any time a branch is closed, whether in connection
with an acquisition or at any time after completion of an
acquisition. This requirement for public notice cannot be
limited by any commitment to the Board or to any community organization. The law does not authorize federal regulators to prevent the closing of any branch.
Several commenters maintained that Citicorp had one of
the highest fee structures, particularly in New York, and
that these fees discouraged LMI individuals from using
Citicorp banking services.62 For LMI customers in New

60. Since the 1996 Citibank examination, Citibank closed two
branches, one in a financial district and one at the John F. Kennedy
Airport where another Citibank branch remains. Citibank also converted three branches and closed three CBC sites. Citicorp indicated
that none of these CBC site conversions or closures were in LMI
census tracts. During the same time period, Citibank also relocated
two branches and one CBC. A branch and a CBC in Manhattan were
moved across the street from their original sites, and one branch in the
Bronx was moved several blocks to a modernized facility in a lowincome census tract.
61. Section 42 of the Federal Deposit Insurance Act (12 U.S.C.
§ 1831r-l), as implemented by the Joint Policy Statement Regarding
Branch Closings (58 Federal Register 49,083 (1993)), requires that a
bank provide the public with at least 30 days notice and the primary
federal supervisor with at least 90 days notice before the date of the
proposed branch closing. The bank also is required to provide reasons
and other supporting data for the closure, consistent with the institution's written branch closing policy.
62. Some commenters asserted that Citibank's New York State
electronic benefits transfer ("EBT") program for government benefits
does not meet the convenience and needs of low-income communities
because it does not provide direct deposit services or actual bank



York, Citibank offers Basic Checking, which provides customers up to eight debit transactions for a $3.00 monthly
service charge, eight free checks per month and free Citibank bill payment services. Citibank also eliminated the
fees for many services including PC Banking and bill
payment. For LMI consumers in California, Citibank FSB
offers Basic Checking, which features a $6.50 monthly
service charge for six checks and two non-Citibank ATM
transactions per month, unlimited Citibank ATM transactions, and free personal computer and phone banking,
automatic payment to a third party and bill payment services.63
E. Travelers's Convenience and Needs Record
CRA Performance Record. The 1997 FDIC examinations
found that Travelers's two subsidiary depository institutions satisfactorily addressed the needs of their communities through numerous qualified investments that focused
on community development organizations and through investments of funds in a local federal credit union. FDIC
examiners noted that these institutions were unable to
engage in traditional community development lending because of charter restrictions under Delaware state law, but
that they extended credit cards and/or second-lien mortgages for debt consolidation purposes to LMI families and
LMI individuals in their assessment area. Examiners
counted these loans as community development loans and
found that the institutions' overall CRA efforts were adequate in light of the legal limitations on the institutions and
the community development opportunities in their assessment area.
On November 24, 1997, the OTS approved the conversion of The Travelers Bank to a federal savings association.64 Since the approval order, the OTS has not conducted
a CRA examination of Travelers FSB. The OTS imposed
certain conditions on its approval. Specifically, Travelers
FSB was required to develop a compliance plan covering
high loan-to-value ratio loans and high-cost mortgages that
would monitor sales practices of the representatives of its
affiliate, Primerica Financial Services Home Mortgages,
accounts for recipients to deposit funds, to write checks or to save
money. The U.S. Treasury Department recently announced that banks
that offer EBT will be required to offer four free monthly withdrawals
and that recipients must be given the option of withdrawing their
benefits at a teller window or ATM.
63. A number of commenters expressed concerns about Citicorp's
fees for banking services. In particular, some commenters alleged that
by increasing its minimum balance requirement for free checking to
$6,000 ($10,000 in California) in various accounts and emphasizing
computer banking, Citicorp has demonstrated a lack of commitment to
LMI consumers. As discussed above, Citicorp offers a full range of
banking products and services, including low-fee checking accounts
with a certain number of free ATM transactions. Moreover, although
the Board has recognized that banks help serve the banking needs of
their communities by making basic services available at nominal or no
charge, neither the CRA nor the primary federal supervisors of the
banks involved in this case require an institution to limit the fees
charged for its services or to provide any specific types of banking
products.
64. See OTS Order No. 97-120 (November 24, 1997).

Legal Developments

Inc., to ensure that applicants for these loans and mortgages are apprised of all financing options reasonably
available to them through Travelers FSB and the costs and
risks associated with each option; to provide compliance
training to agents, underwriters and other personnel; to
ensure that due consideration is given to a mortgage customer's ability to repay; and to ensure that senior Travelers
FSB management exercises appropriate caution in approving these loans and addressing the thrift's ability to maintain customer and public confidence in its lending operations. As part of this application, Travelers has committed
to comply with these and all other conditions in the OTS
order.
Travelers made an initial pledge to the OTS to make
home equity loans totaling at least $430 million to LMI
borrowers from 1998 through 2000. The OTS also required
that Travelers FSB semiannually analyze and report to the
OTS its progress in fulfilling the lending commitment to
LMI borrowers and stated the OTS's expectation that the
lending commitment would be increased as the business
plans of Travelers FSB develop. The Board expects Travelers FSB to meet its commitments in this area.
Travelers's Insurance Activities. Several commenters
criticized various aspects of the insurance underwriting and
sales activities of Travelers.65 In reviewing these comments, the Board has considered, as explained above, that
Travelers must conform these activities to the requirements
of section 4 of the BHC Act within a specified period of
time. The Board also has considered that these sales practices are governed by various state insurance laws and
reviewed by state insurance authorities. In addition, the
Board has considered the managerial record and resources
of Travelers and its record of compliance with applicable
state insurance laws.
The Board notes that Travelers has made a number of
efforts to improve the availability of property insurance in
urban areas and to increase the number of minority insurance agents selling policies for the company, including
establishing the Urban Availability of Insurance Program
in 1994. This program also promotes education for LMI
home buyers about topics such as insurance coverage and
strategies available to reduce premiums and the relationship between home maintenance and insurance affordability. In addition, since 1994, Travelers Property Casualty
Corporation ("Travelers P&C") has written 5,300 policies
for homeowners insurance to owners of homes that were
built or renovated by Habitat for Humanity with the help of
the homeowners.66

65. Commenters specifically alleged that Travelers does not have
agent offices in urban areas, that Travelers has been accused of
"redlining" automobile insurance in a report, and that Travelers
operates its insurance business with a two-tiered marketing strategy
that involves marketing whole life insurance to affluent communities
and term life insurance to LMI consumers.
66. Some commenters asserted that Travelers P&C discriminates in
its provision of homeowners insurance. The Fair Housing Council of
Greater Washington and National Fair Housing Alliance filed complaints with HUD in 1997, alleging that Travelers and other insurance
companies systematically violated the Fair Housing Act in Milwau


1001

Travelers's Nonbank Subsidiaries. Certain commenters
alleged that Travelers's subsidiaries, Commercial Credit
Company ("Commercial Credit") and Primerica Financial
Services ("PFS"), focus their marketing on minority and
LMI communities and provide customers with high-priced,
inappropriate products.67 These commenters alleged that
minority and LMI customers may be illegally "steered"
toward these affiliates on a prohibited basis, including
based on the race of customer.68
PFS representatives sell Travelers's lending, insurance
and investment products to the public. According to Travelers, the PFS representatives obtain information from a
customer through a financial needs analysis, inform the
customer of available products and assist the customer in
completing the relevant application. Applications on secured home improvement loans and unsecured personal
loans are then sent to Travelers FSB and Commercial
Credit, respectively, which conduct the entire credit evaluation of the application and decide whether to issue or
underwrite the loan product.69 The PFS representatives are
not permitted to indicate interest rates or assess the likelihood of approval for the client—only Travelers FSB and
Commercial Credit can determine loan qualification and
approval.

kee, Richmond, Toledo, and Washington, D.C. These complaints
include allegations that Travelers's underwriting policies limit replacement cost coverage in its home insurance policies to homes worth at
least $250,000 and not older than 45 years, which adversely affects
LMI and minority communities. Travelers P&C has denied the allegations of discrimination in these complaints. According to Travelers,
Travelers P&C does not maintain underwriting criteria such as a
maximum home age and minimum home value that would have an
illegal discriminatory affect on minority homeowners. Travelers P&C
currently is participating in HUD's conciliation process for both
complaints. There has been no adjudication of wrongdoing by Travelers P&C in any of these matters, and each matter currently is pending
before a forum that can provide the plaintiffs adequate redress if their
allegations can be sustained.
67. A complaint was filed with HUD in 1997, alleging that Commercial Credit violated fair lending and consumer disclosure laws
because it made a loan to an African-American couple with a high
interest rate, high closing costs, high insurance premiums, and improper disclosure. This dispute is currently before HUD, the federal
agency with statutory authority to adjudicate the matter. There has
been no adjudication of wrongdoing by Commercial Credit in this
matter, which currently is pending before a forum that can provide the
complainants with adequate redress if their allegations can be sustained.
68. One commenter also alleged, without providing any supporting
facts, that Travelers's subsidiaries violate the Equal Credit Opportunity Act by not sending adverse action notices to potential borrowers.
69. Some commenters alleged that Travelers engaged in HMDA
record-keeping violations. They alleged that the NYSBD found in
1997 that Travelers's subsidiary, Commercial Credit Company, engaged in HMDA violations by failing to record the race of HMDA
applicants. Since that time, the NYSBD has examined Commercial
Credit and found no violations in its HMDA data collection procedures. According to Travelers, the policy of its subsidiaries. Commercial Credit, PFS and Travelers FSB, is to gather HMDA data for all
in-person loan applications taken by PFS representatives. This procedure is in accordance with the HMDA regulations, which require the
race of an applicant to be reported if part of the application process is
conducted in person. See 12 C.F.R. 203, Supplement 1; 203.4(a)(7).

1002

Federal Reserve Bulletin • November 1998

The record of the application, including relevant reports
of examination, indicates that Travelers's depository institution subsidiaries are not in violation of substantive provisions of the antidiscrimination laws. Moreover, Travelers
has implemented a training program for employees and
representatives of PFS, Commercial Credit and Travelers
FSB on fair lending and consumer protection laws that
regulate the sale of financial products.70 Travelers has
made a commitment to the OTS and the Board to provide
compliance training to the PFS representatives, underwriters and other appropriate personnel in the loan approval
process on regulatory matters and consumer protection
issues associated with high loan-to-value ratio loans and
high-cost mortgages.
The PFS representatives are required to provide numerous disclosures to customers so that customers can choose
among lending, insurance and investment products. Travelers represents that the disclosure documents provided by
the PFS representatives comply with federal and state
requirements and provide the customers with the estimated
costs at loan settlement, a description of the business
relationship between the lender and the PFS representative,
and an explanation of the lender's account servicing policies. Specific disclosures also are provided during the
marketing of certain securities products, such as mutual
funds and variable annuities, to notify customers of the
costs and tax consequences of redeeming, buying and
transferring their financial investments to other products.71

commitment by Travelers FSB to extend $430 million to
LMI borrowers during the next three years for home equity
loans.73
The CRA requires the Board, in considering Travelers's
application to acquire Citicorp and Citicorp's subsidiaries,
to review carefully the actual record of past performance of
the insured depository institutions controlled by Citicorp
and Travelers in helping to meet the credit needs of all
their communities. 74 Consistent with this mandate, the
Board previously has held that, to gain approval of a
proposal to acquire an insured depository institution, an
applicant must demonstrate a satisfactory record of performance under the CRA without reliance on plans or commitments for future action.75
The Board has considered the Citigroup community
pledge in this light as an indication of the intent of Citicorp
and Travelers to maintain and strengthen their current
commitment to serving the banking convenience and needs
of their communities. 76 The Board notes, moreover, that
the future activities of Citigroup, including any lending and
community development activities in which Citigroup
might engage under the announced community pledge, will
be reviewed by the appropriate federal supervisors of those
institutions in future performance examinations as the
pledge is implemented, and that Citigroup's CRA performance record will be considered by the Board in future
applications by Citigroup to acquire a depository institution.

F. Citigroup Community Pledge

G. Conclusion on Convenience and Needs
Considerations

In connection with the proposal, Travelers and Citicorp
have announced a ten-year, $ 115 billion community
pledge.72 The Citigroup community pledge includes the

70. Travelers began a general training program in 1995. when it
introduced PFS University to inform Travelers FSB and Commercial
Credit employees and PFS representatives that their actions are subject to numerous fair lending and consumer protection laws and
regulations. PFS University also provides the PFS representatives
with general product knowledge about the products that they sell and
conducts insurance licensing renewal and continuing education
courses.
7). As noted above, the OTS conditioned its approval of a thrift
charter for Travelers on the development by Travelers FSB of a plan
to monitor sales practices of the PFS representatives to ensure that all
customers, particularly those who have applied for high loan-to-value
ratio loans and for higher-cost mortgages, are informed of the financing options reasonably available to them through Travelers FSB.
72. The Citigroup community pledge includes the following major
elements:
(1) $30 billion in small business loans;
(2) $20 billion in affordable mortgages;
(3) $59 billion in consumer credit, which includes student loans,
credit card loans and other consumer loans; and
(4) $6 billion in community development loans and investments.
In addition, the pledge includes an insurance-related initiative in
which Travelers will add two cities to its Urban Availability Insurance
Program, which is designed to enhance agent diversity, insurance
education and insurance aifordability for LMI homeowners and small
businesses. Travelers also plans to offer price discounts on insurance
premiums to Citibank's LMI mortgage customers, subject to approval
by relevant state insurance departments.



The Board recognizes that this proposal represents a significant expansion of the size of the resulting institution and
of the types of activities that the resulting institution would
conduct. Accordingly, an important component of the
Board's review of the proposal is the consideration of the
effects of the proposal on the convenience and needs of all
communities served by Travelers and Citicorp.77

73. As indicated above, commenters criticized the Citigroup community pledge and various features of the pledge.
74. As noted above, a number of commenters contended that the
Board should not consider the plan in its review of the proposal.
75. See Totalbank Corporation of Florida, 81 Federal Reserve
Bulletin 876 (1995); First Interstate Bank Systems of Montana, Inc.,
11 Federal Reserve Bulletin 1007 (1991).
76. A number of commenters criticized Travelers and Citicorp for
not negotiating agreements with community-based organizations and
stated that Citigroup should be required to negotiate CRA agreements
with the political leaders and organizations in areas affected by the
proposal. The Board previously has noted that, although communications by depository institutions with community groups provide a
valuable method of assessing and determining how an institution may
best address the credit needs of the community, neither the CRA nor
the CRA regulations of the federal financial supervisory agencies
require depository institutions to enter into agreements with any
organization. See Fifth Third Bancorp, 80 Federal Reserve Bulletin
838 (1994).
77. A commenter alleged that Citicorp has a record of treating
employees poorly and other commenters expressed concern that the
merger might result in job losses or adversely affect minority employ-

Legal Developments

Commenters have expressed concern about Citicorp's
CRA performance and Citigroup's ability to meet the convenience and needs of LMI and minority customers. Commenters also expressed a general concern that Citigroup
might not meet the credit needs of LMI and minority
communities because LMI and minority customers may be
"steered" to Travelers affiliates that would offer products
with less favorable terms.
The Board has weighed these concerns and the other
concerns raised by commenters in light of all the facts of
record, including the overall CRA records of Citicorp and
Travelers, reports of examination of CRA performance,
reports from other banking regulators, information provided by Citicorp and Travelers, and information from
other commenters about the records of Citicorp and Travelers in meeting the credit needs of their communities. As
discussed in this order, all the facts of record demonstrate
that Citicorp's and Travelers's depository institution subsidiaries have a record of complying with the antidiscrimination and consumer protection laws, and with applicable
laws that prohibit the selective targeting of groups and the
provision of misleading information during the sale of
lending, insurance and securities products to customers.
The Board expects that Citigroup will comply with the
regulations and laws that affect these activities, as would
be required of any other financial services organization. As
noted in this order, the Board also encourages the depository institutions involved in this proposal to continue to
improve their record of lending to LMI and minority
communities and to LMI and minority individuals.
Based on a review of the entire record, the Board concludes that convenience and needs considerations, including the CRA records of performance of both organizations'
subsidiary depository institutions, are consistent with approval of the proposal under section 3 of the BHC Act.
Nonbanking Activities
Travelers also has requested Board approval under section 4(c)(8) of the BHC Act to engage in, and control
subsidiaries that are engaged in, activities the Board has
found to be closely related to banking, including operating
savings associations; engaging in consumer lending, mortgage banking and other lending activities; engaging in
credit card and data processing activities; providing financial and investment advisory services; underwriting and
dealing, to a limited extent, in equity and debt securities;
providing administrative service to open-end investment
companies ("mutual funds"); and acting as a commodity
pool operator.
Travelers has committed that it will conduct these activities in accordance with the limitations set forth in Regula-

ees. The effect of a proposed transaction on employment in a community is not among the factors included in the BHC Act. The convenience and needs factor has been consistently interpreted by the
federal banking agencies and the courts to relate to the effect of a
proposal on the availability and quality of banking services in the
community.



1003

tion Y and the Board's orders and interpretations relating
to each of the activities. As a condition of the Board's
action in this case, Citigroup must comply with the limitations in Regulation Y and the Board's orders and interpretations relating to each of the proposed nonbanking activities.
A. Underwriting and Dealing in Bank-Ineligible
Securities
Travelers has applied to acquire Citicorp Securities Inc.
("CSI") and to retain Salomon Smith Barney Inc. ("SSB")
and The Robinson-Humphrey Company, LLC ("Robinson"). These companies are engaged in a variety of securities activities, such as underwriting and dealing in U.S.
government securities, underwriting and dealing in corporate debt and equity securities, acting as a securities broker,
and providing financial and investment advice to institutional and retail customers. Each securities company currently is. and after consummation of the proposal will
continue to be, registered with the Securities and Exchange
Commission ("SEC") as a broker-dealer under the Securities Exchange Act of 1934 (15 U.S.C. § lUetseq.)
("1934
Act") and as a member of the National Association of
Securities Dealers, Inc. ("NASD"). Accordingly, each securities company is and will be subject to the recordkeeping and reporting obligations, fiduciary standards and other
requirements of the 1934 Act, the SEC and the NASD.
As noted above, the Board has determined by regulation
that underwriting and dealing in U.S. government securities, acting as a securities broker, and providing financial
and investment advice are activities that are closely related
to banking and permissible for bank holding companies to
conduct. In addition, the Board has determined that, subject to the framework of prudential limitations established
in previous decisions to address the potential for conflicts
of interests, unsound banking practices or other adverse
effects, the activities of underwriting and dealing in bankineligible securities are so closely related to banking as to
be proper incidents thereto within the meaning of section 4(c)(8) of the BHC Act.78 The Board also has determined that underwriting and dealing in bank-ineligible
securities in the United States is consistent with section
20 of the Glass-Steagall Act (12 U.S.C. § 377), provided
that the company engaged in the activity derives no more

78. See J.P. Morgan & Co. Incorporated, et ah, 75 Federal Reserve
Bulletin 192 (1989), aff'd sub nom. Securities Indus. Ass'n v. Board of
Governors of the Federal Reserve System, 900 F.2d 360 (D.C. Cir.
1990); Citicorp, et al, 73 Federal Reserve Bulletin 473 (1987), aff'd
sub nom. Securities Indus. Ass'n v. Board of Governors of the Federal
Reserve System, 839 F.2d 47 (2d Cir.), cert, denied, 486 U.S. 1059
(1988); as modified by Review of Restrictions on Director, Officer and
Employee Interlocks, Cross-Marketing Activities, and the Purchase
and Sale of Financial Assets Between a Section 20 Subsidiary and an
Affiliated Bank or Thrift, 61 Federal Register 57.679 (1996); Amendments to Restrictions in the Board's Section 20 Orders, 62 Federal
Register 45,295 (1997); and Clarification to the Board's Section 20
Orders, 63 Federal Register 14,803 (1998) (collectively, "Section 20
Orders").

1004

Federal Reserve Bulletin • November 1998

than 25 percent of its gross revenues from underwriting
and dealing in bank-ineligible securities.79
Travelers has committed that each of its proposed securities subsidiaries will conduct its underwriting and dealing
activities using the methods and procedures and subject to
the Board's operating standards established for section 20
subsidiaries ("Operating Standards"). 80 Travelers also has
committed that each company will conduct its domestic
bank-ineligible securities underwriting and dealing activities subject to the Board's revenue restriction.81 As a
condition of the Board's action in this case, Travelers and
each of its subsidiaries engaged in bank-ineligible securities underwriting and dealing activities is required to conduct its bank-ineligible securities activities subject to the
revenue restrictions and the Operating Standards."2 In addition, as a condition of the Board's action in this case.

79. Two of Travelers's insurance underwriting subsidiaries issue
variable rate annuities and variable life insurance, which are securities
for purposes of the federal securities laws. The revenue derived by
each of these companies from this activity represents less than
25 percent of each company's total revenues. As noted above, Citigroup must divest or otherwise conform the activities of these companies to the requirements of section 4 of the BHC Act within the period
provided by that section. During the period these companies are held
by Citigroup, the securities activities of these companies also must
meet the requirements of the Glass-Steagall Act, including remaining
in compliance with the Board's revenue test.
80. 12 C.F.R. 225.200.
81. Compliance with the revenue limitation shall be calculated in
accordance with the method stated in the Section 20 Orders, as
modified by the Order Approving Modifications to the Section 20
Orders, 75 Federal Resen'e Bulletin 751 (1989); JO Percent Revenue
Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding
Companies Engaged in Underwriting and Dealing in Securities,
61 Federal Register 48,953 (1996); and Revenue Limit on BankIneligible Activities of Subsidiaries of Bank Holding Company Engaged in underwriting and Dealing in Securities, 61 Federal Register
68,750 (1996) (collectively, "Modification Orders"). Travelers has
requested that SSB and Robinson each be permitted to calculate
compliance with the revenue limitation on an annualized basis during
the first year after consummation of the proposed acquisition. Under
this method, each company would ensure that its revenues from
bank-ineligible securities during the first year of affiliation with Citigroup would not exceed 25 percent of the company's total annual
revenues. After the first year, each company would compute compliance with the revenue limit on the standard rolling quarterly average.
This method of calculating compliance is consistent with previous
Board decisions. See Dauphin Deposit Corporation, 77 Federal Resen-e Bulletin 672 (1991). The annualized test recognizes that the
measure of the amount of business conducted by a company is most
appropriately calculated over a period of time that is sufficient in
length to measure flows of business and not to permit manipulation.
An annualized test that begins on the date of the original affiliation
also recognizes that the Glass-Steagall Act limitations do not apply to
a company prior to the time it becomes affiliated with a bank and,
therefore, that business conducted by a securities company during the
period prior to its affiliation with a bank should not be included in
determining whether the securities company meets the requirements
of the Glass-Steagall Act after its affiliation with the bank.
82. 12 C.F.R. 225.200. The securities companies may provide
services that are necessary incidents to the proposed underwriting and
dealing activities. Unless a domestic securities company receives
specific approval under section 4(c)(8) of the BHC Act to conduct the
activities independently, any revenues from the incidental activities
must be treated as ineligible revenues subject to the Board's revenue
limitation.



Travelers and its subsidiaries must terminate or conform
their mutual fund distribution activities to the provisions of
the Glass-Steagall Act and the Board's orders thereunder
on consummation of the proposal.
"Engaged principally" test under section 20 of the
Glass-Steagall Act. Section 20 of the Glass-Steagall Act
provides that "no member bank shall be affiliated . . . with
any corporation, association, business trust, or other similar organization engaged principally in the issue, flotation,
underwriting, public sale, or distribution at wholesale or
retail or through syndicate participation of stocks, bonds,
debentures, notes, or other securities." 83 It is well established that section 20 of the Glass-Steagall Act does not
prohibit the affiliation of a member bank with a securities
firm that engages in some bank-ineligible securities activities so long as the company does not engage principally in
bank-ineligible securities activities."4 In 1996, the Board
determined that a securities firm is not engaged principally
in bank-ineligible securities activities if the firm derives
less than 25 percent of its total revenues from bankineligible securities activities.85
All but one of Travelers's domestic subsidiaries engaged
in securities activities that are proposed to be retained by
Citigroup currently derive less than 25 percent of their total
revenue from bank-ineligible securities activities. As explained above, Travelers has committed that all the domestic companies engaged in securities activities that will be
controlled by Citigroup will conform to the Board's revenue test on consummation of the transaction and will
remain in compliance with the revenue test, and the
Board's action is expressly conditioned on these commitments.
Several commenters asserted that approval of the notice
and application in this case would violate the GlassSteagall Act because approval would allow the affiliation
of a member bank with one of the largest securities firms in
the United States. These commenters argued that the
Board's revenue test is not an adequate or appropriate
measure of compliance with section 20 of the GlassSteagall Act. The commenters contended that section 20
prohibits affiliations based solely on the absolute size of the
securities firm or on the relative standing of the securities
firm among all securities firms, and that the largest securities firms in the United States must be considered to be
engaged principally in bank-ineligible securities underwriting and dealing activities.86 They argued that the Glass-

83. 12U.S.C. §377.
84. See Citicorp, J.P. Morgan & Co., and Bankers Trust New York
Corp., 73 Federal Resen'e Bulletin 473 (1987), aff'd sub nom..
Securities Indus. Ass'n v. Board of Governors of the Federal Reserve
System, 839 F.2d 47 (2d Cir.), cert, denied, 486 U.S. 1059 (1988)
(hereinafter "SIA v. Board").
85. 61 Federal Register 68.750 (1996).
86. Several commenters also alleged that Travelers has proposed to
calculate compliance by its securities subsidiaries with the 25-percent
revenue test on a consolidated basis, rather than on a separatesubsidiary basis, and contended that this approach would violate the
Glass-Steagall Act and the Board's orders. While Travelers originally
requested authority to calculate compliance with the revenue test by

Legal Developments

Steagall Act was enacted precisely to prevent the affiliation
of companies such as SSB and Citibank, which are among
the largest securities firms and member banks in the United
States. In addition, some commenters argued that section 20 includes a qualitative element that requires a careful evaluation of the quality of assets and other measures of
risk to commercial banks from a proposed affiliation with a
securities firm.
As noted above, in 1996, the Board reviewed the revenue test that it applies for purposes of determining compliance with section 20. As part of its consideration, the
Board sought public comment on the level of activity that
would cause a company to be "engaged principally" in
bank-ineligible securities activities for purposes of section 20, and the Board carefully considered all the comments received. Several commenters on this application
have reiterated the same issues as they originally presented
in 1996.
For the reasons more fully explained in its 1996 order,
which the Board expressly incorporates herein, the Board
determined that a company would not be engaged principally in bank-ineligible securities activities for purposes of
section 20 of the Glass-Steagall Act if the company derived less than 25 percent of its total revenues from such
activities.87 As explained in its 1996 order, the Board
reasoned, based on its experience in supervising the manner in which securities activities are conducted and the
relative importance of various types of securities activities
to the overall business of a securities firm, that a company
would not be "engaged principally" in bank-ineligible
securities activities if more than 75 percent of the total
revenues of the company were derived from other activities. The Board also considered that differences in the fee
structure for various types of bank-eligible and bankineligible securities activities, and changes in the marketplace that affected those fee structures since the Board
initially established the revenue limit, indicate that a company would not be "engaged principally" in bankineligible securities activities if its revenues from those
activities did not exceed 25 percent of the firm's total
revenues.
With regard to the claim raised by commenters that the
revenue limit established by the Board would negate the
basic purposes of the Glass-Steagall Act, the Board also
carefully considered changes in the marketplace and
changes in the types of activities conducted by securities
firms today as compared with the time when that Act was
enacted. The Board noted that the Glass-Steagall Act was
intended to prevent banks from affiliating with securities
firms "of the 1920s and 1930s" and that securities firms in
consolidating revenues of SSB and Robinson, Travelers has amended
its proposal to provide that it would calculate compliance with the
revenue test for each of its securities companies separately in accordance with Board precedent. The Board's action in this case is
conditioned on the requirement that each domestic affiliate engaged in
bank-ineligible securities activities comply with the requirements of
the Glass-Steagall Act and the Board's revenue test on an individual
basis in accordance with the Board's Section 20 Orders.
87. 61 Federal Register 68,750 (1996).



1005

that period commonly derived more than 25 percent of
their revenue from underwriting and dealing in bankineligible securities. In contrast, securities firms today often engage in a much different and broader range of activities than securities firms operating at the time the GlassSteagall Act was enacted. Today, for example, securities
firms engage in a significant amount of securities activities
that are permissible for banks to conduct directly, such as
underwriting and dealing in U.S. government securities,
while historical data suggest that securities firms of the
1920s and 1930s did not.
The Board also considered the argument made by commenters that the absolute size or market prominence of a
securities firm causes a firm to be "engaged principally" in
bank-ineligible securities activities for purposes of section
20. The Board noted that the court has specifically considered and rejected the argument that the market share controlled by a securities firm reflects whether a firm is "engaged principally" in securities activities.88 Moreover, the
term "engaged principally" itself recognizes that the absolute size of a securities company is not relevant; instead,
the adverb "principally" can only be defined by reference
to the relative amount of ineligible securities activities
conducted by a firm as a proportion of the company's
overall business.89 Consequently, the Board rejects the
argument made by commenters that the absolute size of a
securities firm or its market position, without reference to
the relative amount of bank-ineligible securities activities
conducted by the firm, is a proper measure of compliance
with section 20 of the Glass-Steagall Act.90
In this case, SSB is among the largest securities firms in
asset size in the United States. It engages in a wide variety
of activities with respect to both bank-eligible and bankineligible securities and is one of the largest securities
brokerage companies in the United States. However, for
the reasons discussed above, the Board believes that the
88. See SIA v. Board, at 67-8.
89. Commenters argue that the court in SIA v. Board indicated, by
reference to a specific large securities firm, that size or prominence in
the industry alone is sufficient to find a company to be "engaged
principally" in bank-ineligible securities activities. The Board believes that commenters have misconstrued the court's holding in that
case. In SIA v. Board, the court considered a specific example to
illustrate its conclusion that the term "principally" as used in section 20 does not mean "chief" or "first" activity. At the same time, as
noted above, the court specifically considered and rejected a market
share test as a measure of compliance with section 20. Instead, the
court explained that section 20 was intended to address "the perceived
risk to bank solvency from their over-involvement in securities activity." SIA v. Board, at 68 (emphasis added). Thus, the court did not
hold, as commenters contend, that the size alone of the securities
company or the relative position of the securities firm among competing securities firms indicates a violation of section 20. The court, in
fact, rejected these arguments in favor of a test based on the relative
amount of ineligible securities business conducted by the securities
firms.
90. The Board also notes that the court in SIA v. Board considered
and rejected the argument that a different measure of "engaged
principally" should be used for different companies. The court found
that "section 20 must be read to set down at some point a hard and fast
limit on the amount of bank-ineligible securities activity . . . and it
cannot be drawn differently in each case." SIA v. Board, at 68-9.

1006

Federal Reserve Bulletin • November 1998

relevant measure for purposes of compliance with section
20 of the Glass-Steagall Act is the amount of the ineligible
securities underwriting and dealing activities that SSB
would conduct after consummation of this proposal.91 In
this regard, SSB currently derives less than 25 percent of
its total revenues from bank-ineligible securities activities,
and, after its affiliation with member banks controlled by
Citicorp, neither SSB nor any other affiliate engaged in
securities activities may derive more than 25 percent of its
total revenues from bank-ineligible securities activities.
Dealing activities under the BHC Act. As part of their
current securities dealing activities, SSB and Robinson
(collectively, SSB") maintain five principal lines of business in the United States:
(1) Market-making activities in which SSB holds itself
out as willing to buy and sell equity securities of
approximately 1200 companies;
(2) Block trading activities involving voting securities of
publicly traded companies;
(3) Market-making activities involving preferred securities that could be considered voting shares under the
BHC Act;
(4) Market-making activities in convertible bonds and
convertible preferred securities where the position is
hedged by purchasing and selling the underlying security; and
(5) Buying and selling listed and over-the-counter equity
options and entering into equity swap transactions
with its customers. The activities aid the liquidity of
the markets and are conducted by SSB regardless of
the prospects for appreciation in the stock, and not
with a view toward profiting from arbitrage in the
price of the stock.
SSB does not acquire securities for investment purposes as
part of any of these dealing lines of business. In a small
number of cases, SSB acquires more than 5 percent of a

91. The Board also considered the question raised by commenters
about whether the risks associated with the assets or activities of a
securities firm must be considered in determining whether a company
is "engaged principally" in bank-ineligible securities activities. As
explained more fully in its 1996 decision, section 20 does not allow
the Board to find that a securities firm may derive 100 percent of its
revenues from bank-ineligible securities activities if the Board finds
that the risk associated with those activities are minimal, nor does
section 20 allow the Board to prohibit an affiliation where the securities activities of a particular company are highly risky, but would not
amount to a substantial activity for the company. However, the level
of risk from an affiliation is a factor that may be considered under the
BHC Act, and, as explained below, the Board has considered the risks
in this case in analyzing the financial and managerial factors under the
standards in the BHC Act. In addition, the Board has conducted a
preliminary due diligence of the policies, procedures and controls of
SSB and Robinson to ensure that they would have the necessary
policies and procedures to comply with the requirements of this order
and the Board's Section 20 Orders, including computer, audit and
accounting systems, internal risk management controls, and the necessary operational and managerial infrastructure. This order is conditioned on completion of a successful examination of the securities
activities, policies and procedures of SSB and Robinson to be conducted after consummation.



class of voting securities in the ordinary course of conducting these businesses. In each case, SSB divests these shares
within a brief period after their acquisition. Travelers has
requested authority to continue to acquire more than
5 percent of a class of voting securities pursuant to section 4(a)(2) of the BHC Act as part of the ordinary course
of conducting these dealing activities.
As discussed above, section 4(a)(2) permits a new bank
holding company to continue to engage in those activities
in which it was engaged at the time it became a bank
holding company. SSB has historically engaged in acquiring more than 5 percent of a class of voting securities as
part of its dealing activities, and the market currently
expects SSB to acquire securities without limit. Under
section 4(a)(2), SSB must conform its conduct of these
activities to the requirements of section 4 of the BHC Act
before conclusion of the conformance period. Moreover,
during the conformance period, the portion of SSB's dealing activities that involve the acquisition of more than
5 percent of the shares of a company may not be expanded
in size or scope, and SSB may not acquire securities for
investment purposes pursuant to section 4(a)(2). The Board
also expects that, in its dealing activities, SSB would
maintain its current practice of being neutral to market
movements.
In order to ensure that SSB does not engage in investment or arbitrage activities during the section 4(a)(2) conformance period, voting shares acquired in connection
with:
(i) the market-making, block trading or preferred securities businesses must be reduced to less than
5 percent of the voting securities of any individual
issuer within 30 days of exceeding the 5 percent
limit;
(ii) the convertible debt trading business must be reduced to less than 5 percent within five days after
conversion of a convertible security; and
(iii) the equity derivatives business must be reduced to
less than 5 percent within 30 days after the expiration
of a cash-settled derivative or within five days after
the expiration of a physically-settled derivative.
In addition, SSB may not, as part of its dealing activities,
acquire more than 25 percent of any class of voting securities of, or otherwise control, any company at any time.
Moreover, the Board has relied on Travelers's commitments that SSB would clearly identify positions in securities held pursuant to section 4(a)(2) and that the securities
held pursuant to section 4(a)(2) would not be voted by SSB
or any representative or agent of SSB. Further, SSB may
not acquire more than 5 percent of a class of voting
securities of a bank or bank holding company without prior
Board approval.
B. Mutual Fund Activities
The Board previously has determined that providing administrative services to mutual funds is closely related to
banking within the meaning of section 4(c)(8) of the BHC

Legal Developments

Act.92 Travelers proposes to provide investment advisory,
brokerage, administrative, and other services that previously have been approved by the Board, and Travelers has
committed that the proposed activities will be conducted in
compliance with Regulation Y and subject to the prudential and other limitations established by the Board.93
Travelers has committed that, before consummation of
this transaction, subsidiaries of Travelers engaged in the
distribution of shares of mutual funds will terminate these
securities distribution activities and all such activities will
be the responsibility of distributors unaffiliated with Citigroup. The independent distributor also would be responsible for supervising sales as the principal underwriter for
purposes of the federal securities laws. 94
Travelers also proposes to have certain director and
officer interlocks with the funds. In particular, Travelers
proposes that up to 25 percent of the directors of a mutual
fund would be employees, officers or directors of Travelers
or one of its subsidiaries. Travelers proposes that one of
these directors may serve as chairman of the board of the
fund. In addition, Travelers seeks to have up to three
directors, officers or employees of Travelers or its subsidiaries serve as senior officers of the fund and have other
Travelers personnel serve as junior-level officers of the
fund.95 None of these interlocks would involve an officer,
director or employee of any depository institution controlled by Citigroup.
The Board previously has authorized a bank holding
company and its nonbank subsidiaries to have such limited
director and officer interlocks with mutual funds that the
bank holding company advises and administers.96 As in
previous cases, the funds in this case would be controlled
by their independent directors and the independent direc-

92. See, e.g., Bankers Trust New York Corporation, 83 Federal
Reserve Bulletin 780 (1997) {"BTNY"); Commerzbank AG, 83 Federal Reserve Bulletin 679 (1997).
93. See, e.g., BTNY. The administrative services that Travelers
would provide to mutual funds through its subsidiaries include those
listed in BTNY and Societe Generate, 84 Federal Reserve Bulletin 680
(1998). Such activities include computing the fund's financial data,
maintaining and preserving the records of the fund, providing office
facilities and clerical support for the fund, and preparing and filing tax
returns for the funds. The Board previously has determined that the
Glass-Steagall Act does not prohibit a bank holding company from
providing advisory and administrative services to a mutual fund. See
12 C.F.R. 225.125.
94. An independent distributor would enter into any sales agreements with brokers or other financial intermediaries to sell shares of
mutual funds. The independent distributor also would have legal
responsibility under the rules of the NASD for the form and use of all
advertising and sales literature and also would be responsible for filing
these materials with the NASD or the SEC.
95. Senior officers include the president, secretary, treasurer, and
vice presidents with policy-making functions. Junior officers include
assistant secretaries, assistant treasurers or assistant vice-presidents of
the funds. Junior officers are fund employees who have no authority or
responsibility to make policy.
96. See, e.g., Societe Generate, 84 Federal Reserve Bulletin 680
(1998); Lloyds TSB Group pic, 84 Federal Resen>e Bulletin 116
(1998): BankAmerica Corporation, 83 Federal Resene Bulletin 913
(1997); The Governor and Company of the Bank of Ireland, 82
Federal Reserve Bulletin 1129 (1996).



1007

tors would be responsible for the selection and review of
the investment adviser, the underwriter and the other major
service contractors of the fund.97 Based on the foregoing
and subject to the condition that Travelers immediately
terminate or divest its securities distribution activities, the
Board concludes in this case that the mutual fund activities
proposed by Travelers and described in this order are
permissible under section 4(c)(8) of the BHC Act and
under the Glass-Steagall Act.
C. Commodity Pool Operator and Private Investment
Vehicles
Travelers has applied to act as a commodity pool operator
("CPO") for private investment vehicles, including private
limited partnerships organized as commodity pools that
invest in assets in which a bank holding company is
permitted to invest ("CPO Partnerships"). In addition,
Travelers has proposed to establish private investment
vehicles that would invest in assets, such as precious
metals or securities, in which a bank holding company is
permitted to invest for its own account.
The Board previously has determined by order that acting as a CPO for and controlling a private limited partnership that invests solely in investments that a bank holding
company is permitted to make directly are activities that
are closely related to banking and, therefore, permissible
for bank holding companies.98 Travelers has committed
that all the investments of CPO Partnerships would be
permissible for a bank holding company to make directly,
and that Travelers will conduct its CPO activities and
relationships with CPO Partnerships in accordance with the
commitments relied on by the Board in Dresdner.
The Board also has authorized bank holding companies
to control private investment vehicles, such as limited
partnerships, that make investments that a bank holding
company may make for its own account.99 Travelers currently controls private investment vehicles that have investments that would be impermissible for a bank holding
company. Travelers has committed to conform, within two
years of the acquisition of Citicorp, all activities and investments of these private investment vehicles to those permissible for bank holding companies under section 4 of the
BHC Act and Regulation Y. Following consummation of
the acquisition of Citicorp, Travelers must conduct all
activities related to private investment vehicles in accordance with the Board's regulations and orders governing
those activities.

97. Under the 1940 Act, at least 40 percent of the board of directors
of a mutual fund must be individuals who are not affiliated with the
mutual fund, investment adviser or any other major contractor to the
fund. The 1940 Act and related regulatory provisions require that
independent directors annually review and approve the mutual fund's
investment advisory contract and any plan of distribution or related
agreement.
98. See Dresdner Bank AG, 84 Federal Reserve Bulletin 361 (1998)
("Dresdner'); The Bessemer Group, Inc., 82 Federal Reserve Bulletin 569 (1996) ("Bessemer").
99. 12 C.F.R. 225.28(b)(6)(i); BTNY; Bessemer.

1008

Federal Reserve Bulletin • November 1998

D. Proper Incident Considerations
To approve the proposal under section 4(c)(8) of the BHC
Act, the Board must determine that the proposal by Citigroup to engage in nonbanking activities under section 4(c)(8), including through the acquisition of the nonbanking subsidiaries engaged in activities thai are permissible for bank holding companies under that section, can
reasonably be expected to produce benefits to the public,
such as greater convenience, increased competition or
gains in efficiency, that outweigh possible adverse effects,
such as undue concentration of resources, decreased or
unfair competition, conflicts of interests, or unsound banking practices.
Public Benefits. Travelers maintains that the acquisition
of Citicorp would result in significant public benefits. On
consummation of the transaction, customers of the combined organization would have access to a wide variety of
financial products and services. Customers would be able
to obtain banking products (such as deposit accounts) and
investment products (such as mutual funds) from the same
organization. Customers of Citigroup would also likely
benefit from Citigroup's enhanced ability to offer access to
the financial products and services through single points of
access, such as an automated teller machine, home banking, a physical branch location, or a single sales representative.
At the public meeting, a number of commenters indicated that so-called "one-stop shopping" for financial services is convenient and efficient, especially for small business owners. A number of commenters also indicated that
their individual communities or businesses would particularly benefit from Citigroup having the ability to offer a
broader array of products and services. In addition, commenters noted that Citigroup would have a larger geographic service area than Citicorp and, therefore, more
people, businesses and community groups would obtain
access to the expanded product mix.
Commenters at the public meeting contended that the
acquisition presented an opportunity for greater community involvement in the areas where Citigroup would do
business. They expected that the combined organization
would develop a strong community outreach program and
would be able to draw on the expertise of various subsidiaries, such as SSB, to develop innovative products designed
to meet special needs of various communities.
The Board also has considered that the combined organization would be a bank holding company engaged in a
wide variety of nonbanking activities. Diversity of business activities should enhance Citigroup's ability to withstand cycles that affect individual types of businesses and
events that affect a single industry or company. Since
Citigroup would generate revenue from a wide spectrum of
financial products and services, its capital strength should
be enhanced.
Travelers expects that its affiliation with Citicorp would
increase the ability of the combined organization to develop new and innovative financial products and to deliver
these products to customers in more ways.



Travelers anticipates that the proposal also would foster
stronger domestic capital markets and increased competition through its ability to combine lending, securities underwriting, corporate finance, and risk management capabilities and expertise. In addition, there are public benefits
from permitting capital markets to operate so that bank
holding companies can make potentially profitable investments in nonbanking companies and from permitting banking organizations to allocate their resources in the manner
they consider to be most efficient when such investments
and actions are consistent, as in this case, with the relevant
considerations under the BHC Act.
For these reasons, the Board concludes that the proposal
is likely to result in significant public benefits.
Possible Adverse Effects. Section 4(c)(8) of the BHC Act
requires that the Board weigh likely public benefits against
possible adverse effects of a proposal to conduct activities
that are closely related to banking. As part of its analysis of
this factor, the Board has carefully considered the public
comments that the Board has received and information
provided by Travelers and Citicorp on the measures the
combined organization proposes to take to address the
potential for certain adverse effects. The Board also has
considered public and confidential supervisory information
received in its contacts with other federal and state supervisors of companies operated by Travelers and Citicorp, as
well as the Board's experience in supervising Citicorp and
other banking organizations.
Commenters expressed concern that the proposal might
result in a number of potential adverse effects. In particular,
some commenters asserted that allowing the combined
organization to cross-market bank, insurance and securities
products would provide the organization with an unfair
competitive advantage over other bank holding companies
and independent insurance companies, and argued that the
cross-marketing activities indicated that Travelers has no
present intention to conform its impermissible insurance
and other activities to the requirements of section 4 of the
BHC Act. Commenters also expressed concern that the
combined organization would share confidential customer
information, particularly information regarding the health
of the customer, among its insurance and depository institution affiliates to the detriment of customers seeking to
establish or maintain credit and other banking relationships
and customers seeking to obtain insurance.
Some commenters also contended that, because of the
size and prominence of Travelers and Citicorp within their
respective industries, the proposal would result in an undue
concentration of resources and in an organization that is
both "too big to fail" and "too big to supervise." Several
commenters expressed concern regarding the risks from
insurance underwriting activities, particularly property and
casualty insurance underwriting, and the potential that such
risks may spread to an affiliated depository institution that
is federally insured. In addition, several commenters contended that Travelers engages in predatory and highpressured sales practices that would be increased if the
transaction were approved, and that both companies fail to
market and sell low-cost products in LMI communities.

Legal Developments

(1) Competitive effects. As part of its analysis of the net
public benefits of the proposal, the Board has considered
the potential effects on competition in nonbanking services
from the proposed combination of Travelers and Citicorp.
The nonbank subsidiaries of Citicorp compete with Travelers in a number of geographic and product markets. For
virtually all these markets, the Board has determined that
the relevant geographic market is regional or national in
scope. In particular, nonbank subsidiaries of Travelers and
Citicorp compete in underwriting and dealing activities
involving U.S. government, municipal government, assetbacked, and corporate debt and equity securities; investment advisory activities, including providing advice on
mergers, acquisitions, and corporate finance; securities brokerage activities; asset management activities; brokerage
of shares of mutual funds and related advisory activities;
credit card operations; mortgage origination and servicing
activities; consumer finance activities; syndicated lending
activities; foreign exchange activities; financial data processing activities; trust services; and certain types of insurance underwriting and brokerage activities.
The record indicates that there are numerous, active
competitors providing each of these products and services,
and that the markets for these products and services are
unconcentrated. Travelers and Citicorp offer complementary products with few significant overlaps in competition.
In any product market in which one party to this merger
has a significant presence, the other party has a relatively
small market share. For these reasons, and based on all the
facts of record, the Board concludes that consummation of
the proposal would have a de minimis effect on competition
in any relevant market.
(2) Unfair competition. As used in the BHC Act, unfair
competition "was intended to refer to unfair or unethical
business conduct (as defined by common law or under state
or federal law), not disparities or advantages based on the
structure and operations of the banking industry."100 In
evaluating this potentially adverse effect, the legislative
history of the BHC Act indicates that Congress intended
the Board to consider whether a proposal would result in
practices such as the facilitation of commercial espionage,
price discrimination or inducement of a breach of contract.
There is no evidence in the record that the proposal would
result in these types of effects.
The Board also has considered whether the proposal
would allow Citigroup to engage in unfair competition
because it would, for some period, continue to engage in
insurance and other activities that are not permissible generally for bank holding companies, and because Citigroup
proposes to cross-market some of these products and services with products and services that may be provided by
bank holding companies. The Board does not believe that
the nonconforming investments and activities of Citigroup
would cause Citigroup to be engaged in unfair competition.
As explained above, section 4 of the BHC Act by its terms

100. BankAmerica Corporation, 69 Federal Reserve Bulletin 105
(1983), quoting H.R. Rep. No. 91-1747, 91st Cong., 2nd Sess. (1970).



1009

delays the applicability of the prohibitions in section 4 to
the existing activities and investments of Citigroup. Consequently, retention of those investments and conduct of
those activities cannot be considered to be improper or to
confer an advantage that Congress believed to be unfair
during the conformance period.
Moreover, as explained in more detail below, the Board
does not believe that the proposal to cross-market various
products and services would result in an unfair competitive
advantage, as that term is intended to be construed under
the BHC Act. Cross-marketing activities are not prohibited
by the BHC Act or other law. In addition, cross-marketing
activities are commonly conducted by other bank holding
companies with grandfathered insurance affiliates and with
affiliates engaged in permissible activities, as well as between bank holding companies and unaffiliated companies
that sell a variety of products impermissible for bank
holding companies to provide directly.
(3) Cross-marketing activities and related effects. Travelers asserts that significant public benefits would result from
its ability, after consummation of this proposal, to market
to its customers various combinations of banking, insurance and securities products. As noted above, some commenters, particularly small business owners, agreed that
this type of cross-marketing would provide significant advantages to customers, including increased convenience
and efficiencies. Others expressed concerns that allowing
Citigroup to cross-market insurance products that bank
holding companies generally are not permitted to originate
or sell along with banking and securities products would
provide Citigroup with an unfair competitive advantage,
impair the ability of Citigroup to conform to the requirements of the BHC Act, and result in improper sharing of
confidential customer information.101
As an initial matter, the Board notes that the BHC Act
does not specifically prohibit a bank holding company or
any subsidiary of a bank holding company from marketing
products of an affiliate, and the Board generally has not
imposed such restrictions on companies held for divestiture
under section 4(a)(2).102 Cross-marketing is a common
101. Several commenters also speculated that cross-marketing
would encourage improper sales practices, particularly in LMI areas
and involving LMI individuals. The sales practices related to insurance products and securities are governed by various state and federal
insurance and securities laws and are enforced by designated functional supervisors. The examinations of various Citicorp affiliates does
not indicate any pattern or practice of improper sales practices.
Moreover, as explained in detail above, the record indicates that both
Travelers and Citicorp market their products and services broadly,
including in LMI areas and to LMI individuals. While Citigroup
argues that the proposed cross-marketing activities would allow it to
provide its products and services to a broader range of customers,
Citigroup has recognized the continuing obligation of its depository
institutions to help meet the credit needs of all areas, including LMI
areas.
102. Several commenters pointed out that the Board has prohibited
foreign banks that sought special rights to retain insurance operations
in the United States from cross-marketing insurance products through
offices of the foreign bank in the United States or sharing customer
information among such insurance and bank operations in the United
States. These cases involving foreign banks present a situation differ-

1010

Federal Reserve Bulletin • November 1998

activity among bank holding company affiliates. For example, a number of bank holding companies with special
grandfather rights under section 4 of the BHC Act to
underwrite and/or sell insurance engage in cross-marketing
insurance, banking and securities products of affiliates. In
addition, the record indicates that a number of bank holding companies have arrangements with unaffiliated insurance and securities firms to cross-market the same types of
packages of banking, insurance and securities products and
services as proposed by Citigroup. There is no evidence in
the record to indicate that these practices have led to
abuses or adverse effects.103
The BHC Act, however, requires that Citigroup conform
its activities and investment to the requirements of sec-

ent from this case. In this case, section 4(a)(2) of the BHC Act allows
Travelers to retain its insurance affiliates for a specified period as a
matter of right without any exercise of discretion by the Board and
without any finding on the public benefits or adverse effects that may
result from retaining these affiliates. The foreign banks in the cases
cited by commenters sought a special exception under section 4(c)(9)
of the BHC Act that included the right to expand their impermissible
insurance activities in the United States. Section 4(c)(9) authorizes the
Board to permit certain qualifying foreign banking organizations to
conduct impermissible activities in the United States when, in the
Board's judgment and subject to any conditions imposed, the authorization "would not be substantially at variance with the purposes of
the [BHC] Act and would be in the public interest." 12 U.S.C.
§ 1843(c)(9) (emphasis added). Thus, under section 4(c)(9), the Board
may grant the exception only if the Board finds that the exception is in
the public interest and consistent with the purposes of the BHC Act.
To meet this test, the Board approved proposals by foreign banking
organizations involving impermissible insurance activities that (unlike
this case) could be expanded within the United States, subject to
conditions restricting cross-marketing activities during a divestiture
period to avoid potential anticompetitive effects on domestic banking
organizations that cannot engage in such activities. See, e.g.. Letter
from Jennifer J. Johnson to Michael Bradfield, November 21, 1990
(approval of a four-year, section 4(c)(9) exemption to NMB Postbank
Groep N.V. and Natinale-Nederlanden N.V., to conform impermissible
insurance activities); Letters from Ms. Johnson to Mr. Bradfield,
December 16, 1997, and March 16, 1998 (ING Group exception to
acquire Banque Bruxelles Lambert).
103. The Board has limited or prohibited cross-marketing and
customer data sharing activities in several cases where the Board was
required to ascertain the public benefits of a proposal as part of the
Board's discretion to allow a new activity under section 4(c)(8). For
example, when the Board initially authorized bank holding companies
to acquire savings associations and to affiliate with securities firms,
the Board restricted the cross-marketing activities of these new affiliates in an effort to limit the potential that bank holding companies
would evade (through savings association affiliates) interstate branching restrictions, and to limit the potential for adverse effects, such as
the perception of tying, from the affiliation of a bank with a securities
affiliate. The Board subsequently removed cross-marketing restrictions on both of these activities after gaining experience with the
manner in which the underlying activities were conducted. In the
notice amending the "firewalls" applicable to securities affiliates, for
example, the Board noted that, "even assuming that the crossmarketing restriction helps to create competitive equality between
Section 20 subsidiaries and other firms . . . the Board does not believe
that keeping customers ignorant of business opportunities is an effective or appropriate way to maintain competitive equality." 61 Federal
Register 57,679 (1996). As noted above, the insurance subsidiaries of
Travelers may be held for a limited period pursuant to section 4(a)(2)
of the BHC Act and are not subject to section 4(c)(8) during the
conformance period.



tion 4 within a specified period of time, as explained
above. Travelers has committed that Citigroup will conform all the activities and investments conducted by Citigroup and its subsidiaries to the requirements of the BHC
Act within the conformance period provided in section 4,
including through divestiture of various subsidiaries as
necessary, and the Board's action in this case is expressly
conditioned on Citigroup's compliance with those requirements to the satisfaction of the Board. Those requirements
must be met on a timely basis, regardless of any crossmarketing activities conducted by Citigroup and its
affiliates.
Travelers has recognized that Citigroup's crossmarketing activities may not be used to impair or inhibit its
compliance with the requirements of section 4 of the BHC
Act, and has committed to take steps to assure that it will
be able to meet the requirements of the BHC Act. In
particular, Travelers has committed that each insurance
underwriting subsidiary will remain independently organized and operated in order to facilitate divestitures as
necessary. In addition, Travelers has committed that all
cross-marketing activities that Citigroup will conduct will
be on terms consistent with substantially similar programs
conducted by or involving unaffiliated third parties. Moreover, any Citigroup subsidiary that currently is not engaged
in cross-marketing activities may begin to sell or broker
products only in accordance with Board precedent designed to assure that the marketing activities do not cause
the subsidiary to become engaged in impermissible activities. 104 Travelers also argues that allowing cross-marketing
would enhance the value of its insurance affiliates, thereby
making it easier to divest these companies, and would
significantly increase customer convenience through "onestop shopping" during the conformance period.
In order to limit the potential for adverse effects from its
proposed cross-marketing activities and to assure that Citigroup will comply with the requirements of section 4 of the
BHC Act, Travelers also has committed that:
(1) Any cross-marketing activities will comply with the
antitying restrictions applicable to banks and their
affiliates;
(2) Insurance products will be offered by Citigroup affiliates on the same terms and conditions as they are
offered for sale through third-party providers to
similarly-situated customers;
(3) The terms of any cross-marketing agreement between
a depository institution controlled by Citigroup and
any other affiliate will be on market terms and other-

104. For example, Board precedent permits employees of bank
holding companies to sell insurance as an agent, as long as the
employees are acting on behalf of a third-party agent that is permitted
to sell insurance, the third party is responsible for licensing and
paying the employee for insurance sales, and the bank holding company is not paid insurance commissions or does not become engaged
in insurance activities for purposes of state insurance laws. See Letter
from J. Virgil Mattingly, Jr.. to Caroline L. Powell, Esq.. May 15.
1998 (incorporating by reference Letter, from J. Virgil Mattingly, Jr.,
to Caroline W. Lewis, Esq., April 10, 1997, and Letter from J. Virgil
Mattingly, Jr., to Russell J. Bruemmer, Esq.. December 6, 1995).

Legal Developments

wise consistent with the limitations of sections 23A
and 23B of the FRA, which govern transactions between depository institutions and their affiliates;105
(4) Customers of Citigroup will be provided an opportunity, in writing, to "opt-out" of cross-marketing activities by electing not to allow the sharing of customer information among Citigroup affiliates in
different lines of business for marketing purposes;106
(5) Customer data bases will be maintained in a manner
that allows their separation in the event of divestiture
and the preservation of confidentiality of customer
information; and
(6) Citigroup will establish training, audit and compliance programs to prepare, monitor and maintain compliance with these commitments and the provisions of
law governing sales, transactions with affiliates, and
privacy.
In addition to these commitments, the Board has taken into
account that, in connection with its cross-marketing activities, Citigroup and its affiliates must abide by a number of
federal and state laws that impose important disclosure
requirements.107 For example, the sale of annuities and
other securities, when done on the premises of a depository
institution or by a section 20 affiliate to a retail customer,
must comply with the Interagency Policy Statement on
Retail Sales of Investment Products. That Statement requires disclosure that annuities and securities are not FDIC
insured and are subject to investment risk.
In evaluating the potential that cross-marketing activities
may result in adverse effects, the Board also has considered
that the market for the products and services that Citigroup
proposes to cross-market is highly competitive. Neither
Travelers nor Citicorp separately, nor Citigroup on a pro
forma basis, would have a dominant market share in any of
the products they intend to cross-market, including annuities, life insurance, property and casualty insurance, mutual funds, credit cards, deposit products, mortgage loans,
or consumer loans. The markets for each of these products
are unconcentrated and numerous competitors would continue to exist in each product market after consummation
of the proposal. The competition in these markets coupled
with the various rules that govern disclosure and the sale of
securities, insurance and banking products limit the poten-

105. Travelers has indicated that many of the agreements that it
currently has with third parties and among its affiliates for the crossmarketing of products and services are not exclusive contracts that
prevent the marketer from also selling the products of other companies or insurers. If the contract has an exclusivity arrangement, the
contract is typically of short duration (one year or less) and/or includes a right by the marketer to terminate the arrangement on
relatively short notice (between 30 days and 180 days).
106. The separate lines of business identified by Citigroup are
insurance and annuities, credit cards, retail banking, and securities.
107. Among the federal laws imposing disclosure requirements that
would govern products proposed to be sold by Citigroup are the Truth
in Lending Act, the Truth in Savings Act, the Real Estate Settlement
Procedures Act, the federal securities laws, and various regulations
and orders issued under those laws.



1011

tial for voluntary or involuntary tying of products and
services.108
Several commenters contended that Travelers's proposal
to cross-market products would result in the sharing among
affiliates of confidential customer information in a manner
that could result in conflicts of interests leading to customers being pressured to buy products that they do not want
or need.109 In addition, several commenters expressed concern that medical or health information received by Travelers's insurance companies would be shared with and used
inappropriately by lending affiliates.
The Board notes that the disclosure of confidential customer information is governed by a variety of federal and
state laws, including the Fair Credit Reporting Act, which
prohibits any company from disclosing certain types of
confidential customer information obtained in the course of
extending credit to a customer.110 Travelers has committed
that Citigroup will comply with the requirements of all
applicable laws.
To address the concerns about the use of customer
information for cross-marketing purposes, Travelers has
committed to implement a "Global Privacy Promise" to
provide customers the right to prevent Citigroup from
sharing customer information with others, including affiliates in other lines of business, for cross-marketing purposes.111 A written disclosure will be given to each customer
when the customer initially purchases a Citigroup product,
and the disclosure will be supplemented at least annually to
provide customers an opportunity to remove their names
from marketing lists. Existing customers also will receive
annual disclosures under the "Global Privacy Promise"
regarding this "opt-out" system. Travelers has stated that
its notices to customers providing this opportunity to "optout" will be communicated clearly to each customer before
entering into an account relationship.
Under this system, Citigroup will cross-market its products and services only to customers of an affiliate who wish
their names to remain on the Citigroup's marketing lists.
Moreover, customers who elect to "opt-out" of crossmarketing will not appear on marketing lists provided by
Citigroup's affiliates to third parties or to affiliates in other
lines of business.
In addition, Travelers stated that a customer's medical or
health information will not be shared for any marketing
purposes. Travelers has indicated its intention and practice
108. See Commerce Bancshares, Inc., 69 Federal Reserve Bulletin
447 (1983).
109. Other commenters contended that the ability of affiliates to
share confidential customer information would increase convenience
for customers, particularly small business customers who find it
burdensome to provide significant amounts of customer information
to multiple financial services providers.
110. See 15 U.S.C. § 1681a(d)(2)(A). In addition, a number of states
have adopted statutes and regulations on the use and communication
of customer information among affiliates.
111. Some commenters urged the Board to require that Citigroup
disclose to each customer its intent to use customer information for
cross-marketing purposes and provide customers with an affirmative
right to "opt-in" before customer information may be shared with
affiliates or third parties.

1012

Federal Reserve Bulletin • November 1998

of keeping confidential all customer health and medical
information, and has indicated that it will share such information only with the customer's consent or under very
limited circumstances." 2
Travelers has committed that Citigroup will implement
training, audit and compliance programs in each Citigroup
subsidiary to ensure full implementation of this system for
assuring customers an opportunity to restrict the sharing of
customer information for cross-marketing purposes. In addition, Citigroup will institute training, audit and compliance programs to assure compliance with all federal and
state laws governing the use of confidential customer information.
The Board concludes, on the basis of the full record, that
the cross-marketing and customer-data-sharing arrangements proposed in this case are not likely, within the
framework outlined in this order, to result in any significantly adverse effects." 3
(4) Undue concentration of resources and related effects.
The Board also has considered whether the proposal may
result in an undue concentration of resources. This factor
reflects Congressional concern that "concentration of economic resources in a single entity beyond a certain point
[is] harmful regardless of the proven existence of any
anticompetitive effects of such concentration."" 4 Thus,
consideration of whether a proposal would result in an
undue concentration of resources is a somewhat different
inquiry than whether a proposal would have an adverse
effect on competition.
Under this factor, the Board has in previous cases considered whether the absolute size of the institution or the
institution's relative size in a specific market would result
in an adverse effect on market structure. The Board has
stated that the possibility of undue concentration is mitigated by the presence of a large number of competitors in
the market.

112. Health and medical information would be shared only for
limited purposes, including for insurance underwriting and reinsuring
policies; reporting, investigating, or preventing insurance fraud: processing insurance claims or defending a lawsuit related to such claims;
providing information to the customer's physician; participating in
research projects (but only on an anonymous basis or as otherwise
authorized by the customer); or providing information at the customer's direction or as required by law.
113. In particular, some commenters expressed concerns that customer confusion and inconvenience would result from the required
divestitures if Citigroup markets a combination of financial products
and services under a common brand name (or "wrapper"), without
identifying the particular entities that issued or "manufactured" the
products or provided the services. The sale of multiple products and
services under a single brand name is not a prohibited practice and is,
in fact, conducted by unaffiliated companies today. Many mutual
funds include, as a feature of ownership in a single brand-named fund,
a transaction-type account that is, in fact, provided by an unaffiliated
depository institution. The record does not support a finding that
cross-marketing would confuse or has confused customers in a way
that would impair any required divestiture.
114. Alabama Ass'n of Ins. Agents v. Board of Governors of the
Federal Reserve System, 533 F.d 224, 251 (5th Cir. 1976), modified
558 F.d 729 (5th Cir. 1977), cert, denied, 435 U.S. 904 (1978).



The record in this case indicates that the combined
organization would control only a small portion of the total
assets of companies competing in the markets in which
Citigroup would compete. For example, the combined domestic assets of Citigroup, on a pro forma basis, would
represent less than 5.5 percent of the total domestic assets
of commercial banks and insurance companies for 1997,
and less than 3 percent of the total domestic assets of
financial companies engaged in the broader lines of business proposed to be conducted by Citigroup.
In addition, there are a significant number of small,
medium and large competitors in each of the markets in
which Citigroup would compete, including companies that
provide the same range of products and services that Citigroup proposes to provide. There is no evidence in the
record that the size or breadth of Citicorp's activities
would allow it to distort or dominate any relevant market.
As explained in detail above, the Board has extensive
experience supervising Citicorp and, building on that experience, has developed a comprehensive, risk-based supervision plan to permit the Board to monitor the combined
organization on a consolidated basis. This plan includes
coordination and cooperation with other supervisory agencies, such as the SEC and state insurance supervisors, to
assist the Board in understanding Citigroup's business and
the risk profiles of those businesses.
In addition, the Board notes that Travelers controls only
a small savings association and a limited-purpose bank.
Consequently, the proposal would not increase significantly the amount of deposits insured by the FDIC that
would be controlled by a single organization. The Federal
Deposit Insurance Act also prohibits the FDIC from providing assistance to shareholders of depository institutions
and, therefore, limits the potential that federal deposit
insurance would be used to protect Citigroup or its nondepository institution affiliates.
(5) Other potential effects. As part of its review of the
factors under section 4(c)(8) of the BHC Act, the Board
has considered the financial and managerial resources of
Citigroup and its proposed subsidiaries and the effect the
transaction is likely to have on those resources. For the
reasons explained in detail above, the Board finds that the
financial and managerial resources of these companies
weigh in favor of approval of this proposal.
The Board also has reviewed the capitalization of Citigroup, SSB, Robinson, and CS1 in accordance with the
standards set forth in the Section 20 Orders and finds the
capitalization of each to be consistent with approval. The
Board also finds that, under the framework established in
this and prior cases for conducting limited securities underwriting and dealing activities, including the operating standards adopted by the Board, the conduct of limited securities underwriting and dealing activities through SSB.
Robinson and CSI is not likely to result in any significantly
adverse effects. The Board's action in this case is conditioned on compliance by Citigroup and its domestic subsidiaries, including SSB, Robinson and CSI. with the prudential limitations established in the Section 20 Orders, as
revised. As noted above, the Board also has conducted a

Legal Developments

preliminary due diligence of the policies, procedures and
controls of SSB and Robinson to ensure that they would
have the necessary policies and procedures to comply with
the requirements of this order and the Board's Section 20
Orders, including computer, audit and accounting systems,
internal risk management controls, and the necessary operational and managerial infrastructure. This order is conditioned on completion of a successful examination of the
securities activities, policies and procedures of SSB and
Robinson to be conducted subsequent to consummation.
Conclusion Under Proper Incident Test. Under section 4(c)(8) of the BHC Act, the Board is required to
determine whether the public benefits reasonably expected
from the nonbanking aspects of a proposal outweigh possible adverse effects. The record indicates that significant
public benefits are likely to result from consummation of
the nonbanking portion of this proposal. For example,
Citigroup would be able to offer its customers a broader
array of products and services, and customers would benefit from the convenience and efficiencies of "one-stop
shopping" for financial products and services. On consummation of this proposal, Citigroup would be a well capitalized banking organization that would be able to compete
effectively with banking organizations worldwide. As a
result of the transaction, the combined organization could
use its broader resources and expertise to develop and
implement innovative products and services and to offer
existing products and services more efficiently.
The potential for adverse effects from the nonbanking
portion of this proposal are limited and are significantly
mitigated by the commitments for safeguarding confidential customer information, the framework for proposed
cross-marketing activities, the prudential and other limitations imposed by the Board's orders and regulations governing various nonbanking activities, and the fact that the
transaction would not result in a substantial adverse effect
on competition.
Accordingly, based on all the facts of record, the Board
has determined that the balance of public benefits that it
must consider under the proper incident to banking standard of section 4(c)(8) of the BHC Act is favorable and
consistent with approval of the proposal. The Board's
approval of the proposed nonbanking activities is conditioned on Citigroup's compliance with the limitations set
forth in Regulation Y and the Board's orders, including its
Section 20 Orders as revised, the Board's interpretations
relating to each of the nonbanking activities, and the conditions described in this order.
Section 23A Exemption Request
In connection with this proposal, Travelers and Citicorp
have requested an exemption from the quantitative requirements of section 23A of the FRA" 5 in order to transfer the
stock of CM1, a U.S. subsidiary of Citicorp engaged in
mortgage banking, to Citibank and for Citibank to pur-

115. 12U.S.C. § 371c.



1013

chase the stock of Commercial Credit Corporation CCC
Limited ("CCC"), a Canadian subsidiary of Travelers
engaged in consumer finance.
Section 23A limits the amount of "covered transactions," which include loans and purchases of assets between a bank and any single affiliate, to 10 percent of the
bank's capital stock and surplus and limits the aggregate of
all covered transactions between a bank and all of its
affiliates to 20 percent of the bank's capital stock and
surplus. The transfer of CMI to, and the purchase of CCC
by, Citibank are covered transactions for purposes of section 23A. Section 23A specifically authorizes the Board to
exempt "at its discretion . . . transactions or relationships
from the requirements of this section if it finds such exemptions to be in the public interest and consistent with the
purposes of this section". 116
The Board has approved similar transactions in connection with one-time transfers of assets or companies that are
part of a corporate reorganization and that are structured to
ensure the quality of the transferred assets.117 Travelers
maintains that the transfer of CMI from the bank holding
company would "facilitate financing for CMI's mortgage
business" and that "Citibank has ample sources of liquidity with which to provide funding to CMI." Citibank
maintains that allowing CMI access to Citibank's funding
sources would result in benefits to CMI's customers. Travelers proposes to transfer the shares of CMI to Citibank
and has committed that Citigroup will make quarterly
capital contributions to Citibank to compensate Citibank
for any loans in CMI's portfolio that become classified as
low-quality assets within two years of the transfer.118
Travelers proposes to reorganize its Canadian operations
in accordance with Canadian law by making CCC, a relatively new company engaged in consumer finance activities in Canada, an indirect subsidiary of Citibank. Citibank
proposes to purchase the shares of CCC from Citigroup for
an amount that approximates the book value of CCC's
assets (minus any low-quality assets) at the time of the
transfer. CCC's low-quality assets would be donated to
Citibank. In addition, Citigroup has committed to make
quarterly capital contributions to Citibank to compensate it
for any assets that become low-quality assets within two
years of the date of the transfer.
The transfer of CMI and the purchase of CCC are
one-time corporate reorganizations that appear to be on
terms at least as favorable to Citibank as terms that would
be offered to third parties. The assets of CMI have been
subject to examination and supervision under policies of
the federal banking agencies. CCC is a newly formed
subsidiary with few assets. Citigroup has committed to
ensure the quality of the assets transferred with quarterly

116. 12U.S.C. §371c(e)(2).
117. See Letter from James McAfee to Timothy C. Roach, Esq..
April 19. 1988: Letter from William W. Wiles to Timothy McGirmis,
August 6. 1987.
118. For purposes of compliance with this commitment, "lowquality assets" has the same meaning as in section 23A(b)(10).
12U.S.C. §371c(b)(10).

1014

Federal Reserve Bulletin • November 1998

Travelers has requested authority under the BHC Act and
Regulation K to retain a number of foreign subsidiaries,
joint ventures and portfolio investments and to continue to
engage in certain activities abroad after consummation of
the proposal. Travelers also has requested authority to
retain the foreign subsidiaries, joint ventures and portfolio
investments of Citicorp.

stated that portfolio investments to be made in the future
would comply with these provisions. Certain of Travelers's
portfolio investments in foreign companies, however, do
not appear to comply with restrictions in Regulation K on a
foreign company's direct or indirect activities in the United
States.121 In these circumstances, the Board authorizes
Citigroup to retain the following investments:
(1) Under section 4(c)(13) of the BHC Act and section
211.5(c) of Regulation K, all existing portfolio
investments that fully comply with Regulation K
limits; and
(2) Under section 4(a)(2) of the BHC Act and only for
the conformance period, any existing portfolio investments that do not comply with Regulation K
limits for any reason. 122

A. Foreign Equity Underwriting and Dealing Activities

C. Westpac Investment

Travelers seeks authority under section 211.5(d)( 14) of
Regulation K for several subsidiaries and joint ventures to
engage in equity underwriting and/or dealing activities
abroad. 119 After reviewing the controls Travelers has
adopted for these activities and finding them to be consistent with approval, the Board approves this request. Travelers also has requested that certain of its subsidiaries abroad
be permitted to exceed the equity underwriting and dealing
limits set out in this section. In support of this request,
Travelers states that many of these foreign subsidiaries
currently underwrite and/or deal in excess of these limits
and that, without authority to continue to take positions in
excess of these limits, these companies effectively would
have to curtail substantially their business in foreign markets.
The Board agrees that requiring Travelers's foreign securities subsidiaries to be in compliance with the limits in
section 211.5(d)(14) of Regulation K on consummation
would cause a disruption of their business and an undue
hardship. Based on all the facts of record, the Board has
determined to grant Travelers a period of six months under
section 4(c)(13) of the BHC Act to provide Travelers the
opportunity to conform and, if necessary, to restructure its
foreign equity operations to meet the applicable Regulation K limits.

Travelers has an investment in 6.3 percent of the shares of
Westpac Banking Corporation, Sydney, Australia ("Westpac"), which directly and indirectly engages in permissible
banking and nonbanking activities in the United States.
Travelers has requested that the Board exercise its discretion under section 211.602 of Regulation K to allow it to
retain this investment.123 The Board has stated that it
would allow a U.S. banking organization to hold an investment in a foreign company that engages in business in the
United States as long as certain criteria are satisfied. The
Board has determined that Travelers's investment in Westpac meets these criteria and that this investment may be
retained under section 211.602 of Regulation K.

contributions as necessary. On this basis, and subject to
these commitments, the transactions appear to be in the
public interest and consistent with the purposes of section 23A, and the Board hereby grants the requested
exemptions.
Investments and Activities Abroad

D. Other Subsidiaries and Joint Ventures
Travelers has requested authority to retain a number of
other subsidiaries and joint ventures that engage in activities permissible under Regulation K.124 The Board approves this request. To the extent that any activities or
investments of an existing subsidiary or joint venture of
Travelers otherwise do not comply with the requirements
of Regulation K, such entity may be retained under section 4(a)(2) of the BHC Act and must be conformed to the
requirements of Regulation K within the conformance
period.125

B. Portfolio Investments
Travelers has requested authority under section 4(c)(13) of
the BHC Act and sections 211.5(c) and 211.5(b)(l)(iii) of
Regulation K to retain portfolio investments in a number of
foreign companies and to acquire indirectly the portfolio
investments of Citicorp. Travelers has stated that, to its
knowledge and after substantial due diligence, the portfolio
investments held by it—and by it and Citicorp together—
comply with the individual and aggregate limits on portfolio investments in Regulation K.120 Travelers also has

119. 12C.F.R. 211.5(d)(14).
120. See 12 C.F.R. 211.5(b)(l)(iii)(A) and (B).



121. See 12 C.F.R. 211.5(b)(4)(i)(B).
122. Travelers also has requested authority under section 4(a)(2) of
the BHC Act to make new portfolio investments tor its own account
for investment purposes, which would not comply with the Regulation K limits. The Board denies this request.
123. See 12 C.F.R. 211.602.
124. The Board also has no objection to Travelers's proposed
acquisition of Citicorp's export trading company. Edge corporation
and agreement corporation.
125. Travelers's recent investment in The Nikko Securities Company, Ltd, Tokyo, Japan ("Nikko"), appears to conform to the requirements of Regulation K relating to joint ventures. Nikko has operations
in the United States, which also must conform to the requirements of
Regulation K within two years.

Legal Developments

Requests for Additional Public Meetings
Some commenters requested that the Board hold additional
public meetings or hearings on the proposal in other areas
that might be affected by the merger, including California,
Florida, Illinois, and Washington, D.C. The Board has
carefully considered these requests in light of the BHC
Act, its Rules of Procedure, and the substantial record
developed in this case. 126
As explained above, the Board held a two-day public
meeting on the proposal in New York to clarify issues
related to the applications and notices and to provide an
opportunity for members of the public to testify. l27 Approximately 115 interested persons appeared and provided oral
testimony at the public meeting, including individuals and
representatives of organizations and businesses from Connecticut, Delaware, Florida, New Jersey, New York, and
Washington, D.C. In addition, the Board has received and
considered written comments from more than 310 interested persons who did not attend the public meeting, including from each of the locations where additional public
meetings were requested, and from more than 17 other
states.
In the Board's view, all interested persons have had
ample opportunity to submit their views either in writing or
orally at the two-day public meeting in New York. Numerous commenters have, in fact, submitted substantial materials that have been carefully considered by the Board in
acting on the proposal. Commenters requesting additional
public meetings or hearings have failed to show why their
written comments do not adequately present their views,
evidence and allegations, and why the public meeting in
New York did not provide an adequate opportunity to
present oral testimony. Moreover, the Board has carefully
considered the lending records of Citicorp and Travelers
separately in the locations where commenters requested
public meetings. For these reasons, and based on all the
facts of record, the Board has determined that additional
public meetings or hearings are not required and are not
necessary or warranted to clarify the factual record on the
proposal. Accordingly, the requests for additional public
meetings or hearings on the proposal are denied.
Conclusion
In evaluating this proposal under existing law, the Board
has carefully considered the information and views presented by all commenters, including the information and

126. Section 3(b) of the BHC Act does not require thai the Board
hold a public hearing on an application unless the appropriate supervisory authority for the bank to be acquired makes a timely written
recommendation of denial of the application. See 12 U.S.C. § 1842(b).
In this case, the Board has not received such a recommendation from
any state or federal supervisory authority. Section 4 of the BHC Act
and the Board's rules thereunder provide for a hearing on a notice to
acquire a savings association, such as Citibank FSB, if there are
disputed issues of material fact that cannot be resolved in some other
manner. See 12 U.S.C. § 1843(c)(8); 12 C.F.R. 225.25(a)(2).
127. See 12 C.F.R. 262.3(e) and 262.25(d).



1015

testimony provided at the public meeting and the views
and information submitted in writing.128 The Board also
has considered all the information presented in the applications and notices and in supplemental filings by Travelers
as well as various reports filed by the relevant companies
and publicly available information and other reports. In
addition, the Board has reviewed confidential supervisory
information, including examination reports regarding the
companies and depository institutions involved, and information provided by the other federal banking agencies, the
Department of Justice and the NYSBD.
For the reasons discussed in this order, and after a
careful review of all the facts of record, the Board has
concluded that, subject to the conditions noted in this
order, including the termination, conformance or divestiture of certain activities that are not now permissible for
bank holding companies in a manner acceptable to the
Board, the proposed transaction is permissible under the
BHC Act, the Glass-Steagall Act and other relevant statutes, as currently enacted, and that the statutory factors the
Board is required to consider under the BHC Act and other
relevant banking statutes are consistent with approval of
the proposal. In reaching its conclusion, the Board has
considered all the issues raised in public comments filed in
connection with the proposal in light of the factors that the
Board is required to consider under the BHC Act and other
applicable statutes and concludes that the comments do not
warrant a delay or denial of the proposal.129

128. A number of commenters requested that the Board delay action
until pending lawsuits, investigations or administrative actions against
Travelers and Citicorp are resolved. As noted above, these matters are
in the proper forums to provide appropriate remedies and redress, if
the allegations of wrongdoing can be sustained. Therefore, the requests for delay do not warrant postponement of the Board's consideration of the proposal. The Board has accumulated a significant record
in this case, including reports of examination, supervisory information, public reports and information, and considerable public comment. In the Board's view, for the reasons discussed above, commenters have had ample opportunity to submit their views and. in fact,
have provided substantial written submissions and oral testimony that
have been considered carefully by the Board in acting on the proposal.
Based on a review of all the facts of record, the Board concludes that
the record in this case is sufficient to warrant Board consideration and
action on the proposal at this time, and that further delay of consideration of the proposal or denial of the proposal on the grounds discussed above or on the basis of informational insufficiency is not
warranted.
129. Some commenters have asked that the Board's Chairman, its
General Counsel and members of the General Counsel's staff recuse
themselves from consideration of the applications and notices or,
alternatively, that the applications and notices be dismissed, because
of discussions that occurred between these individuals and representatives of Travelers and Citicorp before the applications and notices
were filed. The commenters claimed that Travelers sought and received prior approval of certain aspects of the applications and notices
in these discussions, thereby depriving the commenters and others of
an opportunity to comment meaningfully on all aspects of the proposal. The Board has carefully considered this request and concludes
that neither dismissal nor recusal are warranted. The Board finds no
factual basis for commenters' claims that any aspect of the applications or notices was pre-approved. Moreover, all matters discussed in
the preliling meetings that could be material to the Board's decision
on the applications and notices were later made part of the public

1016

Federal Reserve Bulletin • November 1998

Based on the foregoing and all other facts of record, the
Board has determined that the applications and notices
should be, and hereby are, approved. The Board's approval
is specifically conditioned on compliance by Citigroup
with all the commitments made in connection with these
applications and notices, and all the terms and conditions
discussed in this order and the above-noted Board regulations and orders. The Board's approval of the nonbanking
aspects of the proposal also is subject to all the terms and
conditions set forth in Regulation Y, including those in
sections 225.7 and 225.25(c) of Regulation Y (12 C.F.R.
225.7 and 225.25(c)), and the Board's authority to require
such modification or termination of the activities of a bank
holding company or any of its subsidiaries as the Board
finds necessary to ensure compliance with, and to prevent
evasion of, the provisions of the BHC Act and the Board's
regulations and orders issued thereunder. These commit-

record. Finally, the Board finds that the prefiling discussions were
proper both as a matter of Board policy and as a matter of administrative law. See Action for Children's Television v. FCC, 564 F.2d 458,
474 n.28, and 477 (D.C. Cir. 1977).

ments and conditions are deemed to be conditions imposed
in writing by the Board in connection with its findings and
decision, and, as such, may be enforced in proceedings
under applicable law. Underwriting and dealing in any
manner other than as approved in this order and the Section 20 Orders, as modified by the Modification Orders, is
not within the scope of the Board's approval and is not
authorized for Citigroup.
The acquisition of Citicorp's subsidiary banks may not
be consummated before the fifteenth calendar day after the
effective date of this order, and the proposal may not be
consummated later than three months after the effective
date of this order, unless such period is extended for good
cause by the Board or by the Federal Reserve Bank of
New York, acting pursuant to delegated authority.
By order of the Board of Governors, effective September 23, 1998.
Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and
Governors Kelley, Meyer, and Gramlich. Abstaining from this action:
Governor Ferguson.
ROBERT DEV. FRIERSON
Associate Secretary of the Board

APPLICATIONS APPROVED UNDER BANK HOLDING COMPANY ACT

By the Secretary of the Board
Recent applications have been approved by the Secretary of the Board as listed below. Copies are available upon request to
the Freedom of Information Office, Office of the Secretary, Board of Governors of the Federal Reserve System,
Washington, D.C. 20551.
Section 3
Applicant(s)

Bank(s)

Effective Date

Norwest Corporation,
Minneapolis, Minnesota
DRH Mortgage, LLC,
Corona, California
Norwest Corporation,
Minneapolis, Minnesota
RSNB Bancorp,
Rock Springs, Wyoming
South Alabama Bancorporation, Inc.,
Mobile, Alabama

DR Horton, Inc.-Los Angeles,
Los Angeles, California

September 29, 1998

First National Bank of Missouri City,
Missouri City, Texas
Rock Springs National Bank,
Rock Springs, Wyoming
Commercial National Bank of Demopolis,
Demopolis, Alabama

September 10, 1998




September 3, 1998
September 21, 1998

Legal Developments

1017

By Federal Reserve Banks
Recent applications have been approved by the Federal Reserve Banks as listed below. Copies are available upon request to
the Reserve Banks.

Section 3
Applicant(s)

Bank(s)

Reserve Bank

Effective Date

Associated Banc-Corp,
Green Bay, Wisconsin
The Bane Corporation,
Birmingham, Alabama

Associated Bank Illinois, N.A.,
Rockford, Illinois
First Citizens Bancorp, Inc.,
Monroeville, Alabama
First Citizens Bank of Monroe County,
Monroeville, Alabama
City National Corporation,
Sylacauga, Alabama
City National Bank of Sylacauga,
Sylacauga, Alabama
Commercial Bancshares of Roanoke,
Inc.
Roanoke, Alabama
Commercial Bank of Roanoke,
Roanoke, Alabama
Warrior Capital Corporation,
Birmingham, Alabama
The Bank,
Birmingham, Alabama
First Hawaiian, Inc.,
Honolulu, Hawaii
First Hawaiian Bank,
Honolulu, Hawaii
Pacific One Bank,
Portland, Oregon
Bodcaw Bank,
Stamps, Arkansas
Detroit Commerce Bank,
Detroit, Michigan
Mesa Bank,
Mesa, Arizona

Chicago

September 15, 1998

Atlanta

September 23, 1998

Atlanta

September 23, 1998

San Francisco

September 17, 1998

St. Louis

September 3, 1998

Chicago

August 28, 1998

Chicago

August 28. 1998

Fidelity Bankshares, Inc.,
Garden City, Kansas

Kansas City

September 21, 1998

The Wheatland Bank,
Davenport, Washington
The First National Bank of Eagle Lake,
Eagle Lake, Texas

San Francisco

September 2, 1998

Dallas

September 16, 1998

The Bane Corporation,
Birmingham, Alabama

Banque Nationale de Paris,
Paris, France

Bodcaw Bancshares, Inc.,
Stamps, Arkansas
Capitol Bancorp Ltd.,
Lansing, Michigan
Capitol Bancorp Ltd.,
Lansing, Michigan
Sun Community Bancorp Limited,
Phoenix, Arizona
Commerce Bancshares, Inc.,
Kansas City. Missouri
CBI-Kansas, Inc.,
Kansas City, Missouri
Community Financial Group, Inc.,
Davenport, Washington
Eagle Lake Bancshares, Inc.,
Eagle Lake, Texas
FINABEL Corporation,
Dover, Delaware




1018

Federal Reserve Bulletin • November 1998

Section 3—Continued
Applicant(s)

Bank(s)

Reserve Bank

Effective Date

Eggemeyer Advisory Corp.,
Rancho Santa Fe, California
Castle Creek Capital, L.L.C.,
Rancho Santa Fe, California
Castle Creek Capital Partners
Fund-I, L.P.,
Rancho Santa Fe, California
Equitable Financial Corporation,
Fort Lauderdale, Florida
First Belmond Bancorporation,
Belmond, Iowa
First Bancorp,
San Juan, Puerto Rico
First Hawaiian, Inc.,
Honolulu, Hawaii

Continental National Bancshares, Inc.,
El Paso, Texas
Continental National Bank,
El Paso, Texas

San Francisco

September 14, 1998

Equitable Bank,
Fort Lauderdale, Florida
Community Bank of Oelwein,
Oelwein, Iowa
FirstBank Puerto Rico,
San Juan, Puerto Rico
BancWest Corporation,
San Francisco, California
Bank of the West,
San Francisco, California
First National Bank of Manatee,
Bradenton, Florida
First Alpine, Inc.,
Alpine, Texas
Empire Bank Corp.,
Homerville, Georgia
Empire Banking Co.,
Homerville, Georgia
The Bank of Holland,
Holland, Michigan
Keene Bancorp, Inc.,
Keene, Texas

Atlanta

August 31, 1998

Chicago

September 1, 1998

New York

September 14, 1998

San Francisco

September 17, 1998

Atlanta

September 11, 1998

Dallas

September 16, 1998

Atlanta

September 16, 1998

Chicago

September 11, 1998

Dallas

August 18, 1998

Cleveland

August 27, 1998

St. Louis

September 15, 1998

St. Louis

September 23, 1998

Chicago

September 14, 1998

Dallas

September 2, 1998

First National Bancshares, Inc.,
Bradenton, Florida
First Pecos Bancshares, Inc.,
Midland, Texas
FLAG Financial Corporation,
LaGrange, Georgia

Holland Financial Corporation,
Holland, Michigan
Keene Bancorp, Inc. 401(k)
Employee Stock Ownership Plan
& Trust,
Keene, Texas
Killbuck Bancshares,
Killbuck, Ohio
National City Bancshares, Inc.,
Evansville, Indiana

National Commerce Bancorporation,
Memphis, Tennessee

NCB Holdings, Inc.,
Chicago, Illinois
Northwest Bancorporation, Inc.,
Houston, Texas




The Commercial & Savings Bank
Company,
Danville, Ohio
Commonwealth Commercial Corp.,
Crittenden, Kentucky
Bank of Crittenden,
Crittenden, Kentucky
First Community Bancorp, Inc.,
Cartersville, Georgia
First Community Bank and Trust,
Cartersville, Georgia
New Century Bank,
Chicago, Illinois
Redstone Bancorporation, Inc.,
Houston, Texas
Redstone Bank, N.A.,
Houston, Texas

Legal Developments

1019

Section 3—Continued
Applicant(s)

Bank(s)

Reserve Bank

Effective Date

Popular, Inc.,
Hato Rey, Puerto Rico
Popular International Bank,
Inc.
Hato Rey, Puerto Rico
Popular North America, Inc.,
Mt. Laurel, New Jersey

Gore Bronson Bancorp., Inc.,
Prospect Heights, Illinois
The Bronson-Gore Bank,
Prospect Heights, Illinois
The Irving Bank,
Chicago, Illinois
Water Tower Bank,
Chicago, Illinois
First State Bank of Southern California,
Santa Fe Springs, California

New York

September 17, 1998

New York

September 17, 1998

Frederica Bank & Trust,
St. Simons, Georgia
Redstone Bank, N.A.,
Houston, Texas
Community Bankshares of Maryland,
Inc.,
Bowie, Maryland
Bryan Bancorp, Inc.,
Richmond Hill, Georgia
Bryan Bank and Trust,
Richmond Hill, Georgia
Virginia Heartland Bank,
Fredericksburg, Virginia

Atlanta

September 8, 1998

Dallas

September 2, 1998

Richmond

September 3, 1998

Atlanta

September 23, 1998

Richmond

September 22, 1998

Continental National Bancshares, Inc.
El Paso, Texas
Continental National Bank,
El Paso, Texas
Hometown Bancshares, Inc.,
Houston, Texas
Clear Lake National Bank,
Houston, Texas
The Bank of Monroe,
Union, West Virginia
Iowa State Bank,
Oelwein, Iowa
Roseville 1st Community Bancorp,
Roseville, California
Roseville 1st National Bank,
Roseville, California

Dallas

September 11, 1998

Dallas

August 19, 1998

Richmond

September 9, 1998

Chicago

September 16, 1998

San Francisco

September 17, 1998

Popular, Inc.
Hato Rey, Puerto Rico
Popular International Bank. Inc.,
Hato Rey, Puerto Rico
Popular North America, Inc.,
Mt. Laurel, New Jersey
Premier Bancshares, Inc.,
Atlanta, Georgia
Redstone Bancorporation, Inc.,
Houston, Texas
Sandy Spring Bancorp, Inc.,
Olney, Maryland
The Savannah Bancorp,
Inc.
Savannah, Georgia
Second National Financial
Corporation,
Culpeper, Virginia
State National Bancshares, Inc.,
Lubbock, Texas

Sterling Bancshares, Inc.,
Houston, Texas
Sterling Bancorporation, Inc.,
Wilmington, Delaware
Union Bankshares, Inc.,
Union, West Virginia
WFC, Inc.,
Waukon, Iowa
Western Sierra Bancorp,
Cameron Park, California




1020

Federal Reserve Bulletin U November 1998

Section 4
Applicant(s)

Nonbanking Activity/Company

Reserve Bank

Effective Date

Acadiana BancShares, Inc.,
Lafayette, Louisiana
Androscoggin Bancorp, MHC,
Lewiston, Maine
Androscoggin Bancorp. Inc..
Lewiston, Maine
Banque Nationale de Paris,
Paris, France
Community West Bancshares,
Goleta, California
Financial Investors of the South,
Inc.,
Birmingham, Alabama
First Lansing Bancorp, Inc.,
Lansing, Illinois
First National Corporation,
Orangeburg, South Carolina

Cadence Holdings, L.L.C.,
Lafayette, Louisiana
Financial Institutions Service Corp.,
Lewiston, Maine

Atlanta

September 21, 1998

Boston

September 10, 1998

FHL Lease Holding Company,
Honolulu, Hawaii
Palomar Savings and Loan Association,
Escondido, California
Alabama Lenders Institute,
Decatur, Alabama

San Francisco

September 17, 1998

San Francisco

September 14, 1998

Atlanta

September 17, 1998

Support Services L.L.C.,
Lansing, Illinois
NewSouth Financial Services
Corporation,
Orangeburg, South Carolina
Superior Mortgage Corporation,
Florence, South Carolina
Extra Value Network,
Atlanta, Georgia

Chicago

September 1, 1998

Richmond

September 22, 1998

Atlanta

September 9, 1998

Midwest Card Services, Inc.,
Brookings, South Dakota
E.B.C. Financial Services, Inc.,
Homerville, Georgia
To engage de novo in the nonbanking
activity of making Small Business
Administration loans
Support Services L.L.C.,
Lansing, Illinois
Commercial Bancshares Services, Inc.,
Birmingham, Alabama
Mercier Insurance Agency, L.P.,
Spring Valley, Illinois
Bryan Insurance Associates,
Spring Valley, Illinois
FundsXpress, Inc.,
Austin, Texas
Fed One Bancorp,
Wheeling, West Virginia
First Finance Co. of Thomaston, Inc.,
Thomaston, Georgia
Wintrust Asset Management Company,
National Association,
Lake Forest, Illinois

Minneapolis

September 11, 1998

Atlanta

September 16, 1998

Minneapolis

September 17, 1998

Chicago

September 1, 1998

Atlanta

September 18, 1998

Chicago

September 10, 1998

St. Louis

August 26, 1998

Richmond

September 3, 1998

Atlanta

September 16, 1998

Chicago

August 28, 1998

Firstrust Corporation,
New Orleans, Louisiana
Automated Technology Machines,
Inc.,
Metairie, Louisiana
Fishback Financial Corporation,
Brookings, South Dakota
FLAG Financial Corporation,
LaGrange, Georgia
Franklin Bancorp, Inc.,
Minneapolis, Minnesota
Mercantile Bancorp, Inc.,
Hammond, Indiana
Sequatchie Valley Bancshares, Inc.,
Dunlap, Tennessee
UnionBancorp,
Ottawa, Illinois

Union Planters Corporation,
Mempis, Tennessee
United Bankshares, Inc.,
Charleston, West Virginia
Upson Bankshares, Inc.,
Thomaston, Georgia
Wintrust Financial Corporation,
Lake Forest, Illinois




Legal Developments

1021

Sections 3 and 4
Applicant(s)

Nonbanking Activity/Company

Reserve Bank

Effective Date

Maryland Permanent Capital
Corporation,
Owings Mills, Maryland
Summit Bancorp,
Princeton, New Jersey

Maryland Permanent Bank & Trust Co.,
Owings Mills, Maryland

Richmond

September 18, 1998

NSS Bancorp, Inc.,
Norwalk, Connecticut
NSS Bank,
Norwalk, Connecticut
The Family Bank, f.s.b.,
Eden Prairie, Minnesota
Voyager Mortgage Corporation,
Eden Prairie, Minnesota

New York

September 2, 1998

Minneapolis

September 17, 1998

Voyager Financial Services
Corporation,
Eden Prairie, Minnesota

APPLICATIONS APPROVED UNDER BANK MERGER ACT

By Federal Reserve Banks
Recent applications have been approved by the Federal Reserve Banks as listed below. Copies are available upon request to
the Reserve Banks.
Applicant(s)

Bank(s)

Reserve Bank

Effective Date

The Bank of Monroe,
Union, West Virginia
The Commercial & Savings Bank
Company,
Danville, Ohio
The Eaton Bank,
Eaton, Colorado
FCNB Bank,
Frederick, Maryland
Fifth Third Bank of Southern Ohio,
Hillsboro, Ohio
Laurel Bank,
Johnstown, Pennsylvania

Monroe Interim Bank,
Union, West Virginia
Killbuck Savings Bank,
Killbuck, Ohio

Richmond

September 9, 1998

Cleveland

August 27, 1998

Farmers Bank,
Fort Collins, Colorado
Capital Bank, National Association,
Rockville, Maryland
Bank One, N.A.,
Columbus, Ohio
The Peoples National Bank of Rural
Valley,
Rural Valley, Pennsylvania
Virginia Heartland Bank,
Fredericksburg, Virginia

Kansas City

September 16, 1998

Richmond

September 15, 1998

Cleveland

August 27, 1998

Philadelphia

September 22, 1998

Richmond

September 22, 1998

Virginia Heartland Interim Bank,
Fredericksburg, Virginia

PENDING CASES INVOLVING THE BOARD OF GOVERNORS

This list of pending cases does not include suits against the
Federal Reserve Banks in which the Board of Governors is not
named a party.

the District of Columbia Circuit affirming the Board's order
dated January 31, 1997, imposing civil money penalties and
an order of prohibition for violations of the Bank Holding
Company Act.

Wasserman v. Board of Governors, No. 98-CIV-6017
(S.D.N.Y., filed August 24, 1998). Complaint alleging
wrongful failure to investigate activities of a bank. On
September 14, 1998, the Board filed its motion to dismiss
the complaint.

Inner City Press/Community on the Move v. Board of Governors, No. 98-CIV-4608 (DLC) (S.D.N.Y., filed June 30,
1998). Freedom of Information Act case. On July 1, 1998,
the court denied plaintiff's motion for a temporary restraining order extending the public comment period on the
application by Travelers Group Inc. to acquire Citicorp. On
August 13, 1998, the Board filed its motion to dismiss or for
summary judgment.

Pharaon v. Board of Governors, No. 98-103 (U.S. Supreme
Court, filed July 15, 1998). Petition for writ of certiorari
seeking review of the decision of the Court of Appeals for



1022

Federal Reserve Bulletin • November 1998

Clarkson v. Greenspan, No. 98-5349 (D.C. Cir., filed July 29,
1998). Appeal of district court order granting Board's motion for summary judgment in a Freedom of Information
Act case. On September 14, 1998, the Board filed a motion
for summary affirmance of the district court dismissal.
Board of Governors v. Carmsco, No. 98 Civ. 3474 (LAK)
(S.D.N.Y., filed May 15, 1998). Action to freeze assets of
individual pending administrative adjudication of civil
money penalty assessment by the Board. On May 26, 1998,
the court issued a preliminary injunction restraining the
transfer or disposition of the individual's assets and appointing the Federal Reserve Bank of New York as receiver for
those assets.
Board of Governors v. Pharaon, No. 98-6101 (2d Cir., filed
May 4, 1998). Appeal of partial denial of Board's motion
for summary judgment in action to freeze assets of individual pending administrative adjudication of civil money penalty assessment by the Board. On May 22, 1998, the appellee filed a cross-appeal from the partial final judgment.
Research Triangle Institute v. Board of Governors, No. 971719 (U.S. Supreme Court, filed April 28, 1998). Petition
for writ of certiorari to review dismissal by the United
States Court of Appeals for the Fourth Circuit of a contract
claim against the Board. The Board filed its opposition to
the writ on June 30, 1998.
Fenili v. Davidson, No. C-98-01568-CW (N.D. California,
filed April 17, 1998). Tort and constitutional claim arising
out of return of a check. On June 5, 1998, the Board filed its
motion to dismiss. Wilkins v. Warren, No. 98-1320 (4th
Cir., filed March 2, 1998). Appeal of District Court dismissal of action involving customer dispute with a bank. On
June 10, 1998, the court of appeals dismissed the appeal.
Logan v. Greenspan, No. l:98CV00049 (D.D.C., filed January 9, 1998). Employment discrimination complaint.
Goldman v. Department of the Treasury, No. 1-97-CV-3798
(N.D. Ga., filed December 23, 1997). Declaratory judgment
action challenging Federal Reserve notes as lawful money.
On March 2, 1998, the Board filed a motion to dismiss the
action.
Kerr v. Department of the Treasury, No. CV-S-97-01877DWH (S.D. Nev., filed December 22, 1997). Challenge to
income taxation and Federal Reserve notes. On September 3, 1998, a motion to dismiss was filed on behalf of all
federal defendants.
Allen v. Indiana Western Mortgage Corp., No. 97-7744 RJK
(CD. CaL, filed November 12, 1997). Customer dispute
with a bank. On March 23, 1998, the district court dismissed the action.
Patrick v. United States, No. 97-75564 (E.D. Mich., filed
November 7, 1997). Action for damages arising out of tax
dispute. On August 20, 1998, the district court dismissed
the action as to all defendants.
Patrick v. United States, No. 97-75017 (E.D. Mich., filed
September 30, 1997). Action for damages arising out of tax
dispute. On August 20, 1998, the district court dismissed
the action as to all defendants.
Artis v. Greenspan, No. 97-5235 (D.C. Cir., filed September 19, 1997). Appeal of district court order dismissing
employment discrimination class action.




Towe v. Board of Governors, No. 97-71143 (9th Cir., filed
September 15, 1997). Petition for review of a Board order
dated August 18, 1997, prohibiting Edward Towe and
Thomas E. Towe from further participation in the banking
industry. In re: Subpoena Duces Tecum Served on the Office
of the Comptroller of the Currency, No. 97-5229 (D.C. Cir.,
filed September 12, 1997). Appeal of district court order
denying motion to compel production of pre-decisional
supervisory documents and testimony sought in connection
with an action by Bank of New England Corporation's
trustee in bankruptcy against the Federal Deposit Insurance
Corporation. On June 26, 1998, the court of appeals reversed and remanded the case to the district court. On
August 10, 1998, the Board filed a petition for rehearing
and suggestion for rehearing en bane.
Bettersworth v. Board of Governors, No. 97-CA-624 (W.D.
Tex., filed August 21, 1997). Privacy Act case.
Greeff v. Board of Governors, No. 97-1976 (4th Cir., filed
June 17, 1997). Petition for review of a Board order dated
May 19, 1997, approving the application by Allied Irish
Banks, pic, Dublin, Ireland, and First Maryland Bancorp,
Baltimore, Maryland, to acquire Dauphin Deposit Corporation, Harrisburg, Pennsylvania, and thereby acquire Dauphin's banking and nonbanking subsidiaries. On August 14,
1998, the court of appeals denied the petition.

FINAL ENFORCEMENT DECISION
BOARD OF GOVERNORS

ISSUED BY THE

In the Matter of a Notice to Prohibit Further
Participation Against
Elena Espiritu
Former Employee
Bank of America, N.T. & S.A.
San Francisco, California
Docket Nos. AA-EC-98-04 and AA-EC-98-05
Final Decision
This is an administrative proceeding pursuant to the Federal Deposit Insurance Act ("FDI Act'") in which the
Office of the Comptroller of the Currency of the United
States of America ("OCC") seeks to prohibit the Respondent, Elena Espiritu ("Espiritu"), from further participation in the affairs of any financial institution because of her
conduct as an employee of Bank of America, N.T. & S.A.,
San Francisco, California (the "Bank"). Under the FDI
Act, the OCC may initiate a prohibition proceeding against
a former employee of a national bank, but the Board must
make the final determination whether to issue an order of
prohibition.
Upon review of the administrative record, the Board
issues this Final Decision adopting the Recommended Decision ("Recommended Decision") of Administrative Law
Judge Walter Alprin (the "ALJ"), and orders the issuance
of the attached Order of Prohibition.

Legal Developments

I. Statement of the Case
A. Statutory and Regulatory Framework
Under the FDI Act and the Board's regulations, the ALJ is
responsible for conducting proceedings on a notice of
charges. 12 U.S.C. § 1818(e)(4). The ALJ issues a recommended decision that is referred to the deciding agency
together with any exceptions to those recommendations
filed by the parties. The Board makes the final findings of
fact, conclusions of law, and determination whether to
issue an order of prohibition in the case of prohibition
orders sought by the OCC. Id; 12 C.F.R. 263.40.
The FDI Act sets forth the substantive basis upon which
a federal banking agency may issue against a bank official
or employee an order of prohibition from further participation in banking. In order to issue such an order, the Board
must make each of three findings:
(1) that the respondent engaged in identified misconduct,
including an unsafe or unsound practice or a breach of
fiduciary duty;
(2) that the conduct had a specified effect, including
financial loss to the institution or gain to the respondent;
and
(3) that the respondent's conduct involved either personal dishonesty or a willful or continuing disregard for
the safety or soundness of the institution. 12 U.S.C.
§ 1818(e)(l)(A)-(C).
An enforcement proceeding is initiated by the filing of a
notice of charges which is served on the respondent. Under
the OCC's and the Board's regulations, the respondent
must file an answer within 20 days of service of the notice.
12 C.F.R. 19.19(a) and 263.19(a). Failure to file an answer
constitutes a waiver of the respondent's right to contest the
allegations in the notice, and a final order may be entered
unless good cause is shown for failure to file a timely
answer. 12 C.F.R. 19.19(c)(l) and 263.19(c)(l).

1023

less, Espiritu failed to file an answer to the Notice. Following Enforcement Counsel's motion for entry of a default
order, the ALJ issued an Order to Show Cause to determine
whether good cause existed for Espiritu's default. Again,
the return receipt card indicated receipt of this Order, and
again Espiritu failed to respond. Accordingly, the ALJ
issued a recommended decision recommending entry of an
order of prohibition against Espiritu, along with an order
requiring restitution of the Bank's loss. On June 16, 1998,
the OCC issued a final order requiring Espiritu to repay the
Bank's loss.
II. Discussion
Because Espiritu's default prevents her from contesting the
allegations in the Notice, the Board may take those allegations as established.1 According to the Notice, Espiritu
knowingly deposited worthless checks into her account at
the Bank. She then wrote a check on her account at the
Bank and obtained a Bank cashier's check in exchange,
knowing that her account at the Bank lacked sufficient
funds to cover the check. As a result of these actions, the
Bank lost over $1900.
These actions meet all of the requirements of an order of
prohibition. Espiritu's action in causing the Bank to disburse funds on an account in which insufficient funds
existed was both an unsafe or unsound banking practice
and a breach of the fiduciary duty of loyalty owed by all
bank employees to place the interests of their institution
above their own personal interests. The action caused both
a loss to the Bank and a gain to the respondent. Finally,
Espiritu's action evidenced personal dishonesty in that she
was aware that the checks she had deposited at the Bank
were worthless and that her account at the Bank lacked
sufficient funds to cover the check she drew upon it.
In sum, all elements necessary for the issuance of a
prohibition order are presented in this case.
Conclusion

B. Procedural

History

On January 29, 1998, the OCC initiated a Notice of Removal and Notice of Charges (the "Notice") against Espiritu. The Notice alleged that Espiritu engaged in an
unsafe and unsound banking practice while employed at
the Bank. Specifically, the Notice alleged that Espiritu
deposited into her account at the Bank two checks totaling
$5200 drawn on a closed account at another institution.
She then wrote a check on her Bank account for $2816 for
the purchase of a cashier's check in that amount, receiving
the benefit of that cashier's check. After offsetting amounts
in her account and her final paycheck, the Bank's loss from
Espiritu's actions was $1905.29.
The Notice was served by certified mail, return receipt
requested, to Espiritu's last known address in accordance
with applicable regulations. 12 C.F.R. 19.11(c)(2). The
return receipt indicated receipt by "Q. Espiritu." The Notice expressly warned that failure to file an answer within
20 days of service would constitute a waiver of the right to
contest the allegations contained in the Notice. Nonethe


For these reasons, the Board orders the issuance of the
attached Order of Prohibition.
By Order of the Board of Governors, this 8th day of
September, 1998.
BOARD O F GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
JENNIFER J. JOHNSON

Secretary of the Board

1. Service of a notice by certified mail, return receipt requested, to
the respondent's last known address is adequate under the OCC's and
the Board's rules. 12 C.F.R. 19.11(c)(2)(iv) & 263.1 l(c)(2)(iv); In the
Matter of Paul E. Lokey, 1991 WL 536895 (Board order of prohibition upon default where service was made by registered mail and
received by agent for respondent); In the Matter ofAgha Hasan Abedi
and Swaleh Naqvi, 80 Federal Reserve Bulletin 74 (1994) (Board
order of prohibition upon default where service was made by international registered mail, return receipt requested); In the Matter of
Kemal Shoaib, Final Decision and Order dated March 3, 1992 (same).

1024 Federal Reserve Bulletin • November 1998

Order of Prohibition
WHEREAS, pursuant to section 8(e) of the Federal
Deposit Insurance Act, as amended, (the "Act") (12 U.S.C.
§ 1818(e)), the Board of Governors of the Federal Reserve
System ("the Board") is of the opinion, for the reasons set
forth in the accompanying Final Decision, that a final
Order of Prohibition should issue against ELENA
ESPIRITU ("Espiritu");
NOW. THEREFORE, IT IS HEREBY ORDERED, pursuant to section 8(e) of the Federal Deposit Insurance Act,
as amended, (12 U.S.C. § 1818(e)), that:
1. In the absence of prior written approval by the Board,
and by any other Federal financial institution regulatory agency where necessary pursuant to section 8(e)(7)(B) of the Act (12 U.S.C. § 1818(e)(7)(B)),
Espiritu is hereby prohibited:
(a) from participating in the conduct of the affairs of
any bank holding company, any insured depository
institution or any other institution specified in subsection 8(e)(7)(A) of the Act (12 U.S.C.
§ 1818(e)(7)(A));
(b) from soliciting, procuring, transferring, attempting
to transfer, voting or attempting to vote any proxy,
consent, or authorization with respect to any voting
rights in any institution described in subsection
8(e)(7)(A) of the Act (12 U.S.C. § 1818(e)(7)(A));
(c) from violating any voting agreement previously
approved by the appropriate Federal banking
agency; or
(d) from voting for a director, or from serving or
acting as an institution-affiliated party as defined in




section 3(u) of the Act, (12 U.S.C. § 1813(u)), such
as an officer, director, or employee.
2. This Order, and each provision hereof, is and shall
remain fully effective and enforceable until expressly
stayed, modified, terminated or suspended in writing
by the Board.
This Order shall become effective at the expiration of
thirty days after service is made.
By Order of the Board of Governors, this 8th day of
September, 1998.
BOARD O F GOVERNORS O F THE
FEDERAL RESERVE SYSTEM

JENNIFER J. JOHNSON

Secretary of the Board

WRITTEN AGREEMENTS APPROVED BY FEDERAL
RESERVE BANKS

ShoreBank, Cleveland
Cleveland, Ohio
The Federal Reserve Board announced on September 18,
1998, the execution of a Written Agreement by and between the Shorebank, Cleveland, Cleveland, Ohio, the
Federal Reserve Bank of Cleveland, and the Ohio Division
of Financial Institutions.

Al

Financial and Business Statistics
A3

DOMESTIC FINANCIAL STATISTICS

Money Stock and Bank Credit
A4
A5
A6

Reserves, money stock, liquid assets, and debt
measures
Reserves of depository institutions and Reserve Bank
credit
Reserves and borrowings—Depository
institutions

Policy Instruments
A7
A8
A9

Federal Finance—Continued

GUIDE TO TABULAR PRESENTATION

Federal Reserve Bank interest rates
Reserve requirements of depository institutions
Federal Reserve open market transactions

Federal Reserve Banks
A10 Condition and Federal Reserve note statements
Al 1 Maturity distribution of loan and security
holding

A27 Gross public debt of U.S. Treasury—
Types and ownership
A28 U.S. government securities
dealers—Transactions
A29 U.S. government securities dealers—
Positions and financing
A30 Federal and federally sponsored credit
agencies—Debt outstanding

Securities Markets and Corporate Finance
A31 New security issues—Tax-exempt state and local
governments and corporations
A32 Open-end investment companies—Net sales
and assets
A32 Corporate profits and their distribution
A32 Domestic finance companies—Assets and
liabilities
A33 Domestic finance companies—Owned and managed
receivables

Real Estate
Monetary and Credit Aggregates
A12 Aggregate reserves of depository institutions
and monetary base
A13 Money stock, liquid assets, and debt measures

Commercial Banking Institutions—
Assets and Liabilities
A15
A16
A17
A19
A20

All commercial banks in the United States
Domestically chartered commercial banks
Large domestically chartered commercial banks
Small domestically chartered commercial banks
Foreign-related institutions

A34 Mortgage markets—New homes
A35 Mortgage debt outstanding

Consumer Credit
A36 Total outstanding
A36 Terms

Flow of Funds
A37
A39
A40
A41

Funds raised in U.S. credit markets
Summary of financial transactions
Summary of credit market debt outstanding
Summary of financial assets and liabilities

Financial Markets
A22 Commercial paper and bankers dollar
acceptances outstanding
A22 Prime rate charged by banks on short-term
business loans
A23 Interest rates—Money and capital markets
A24 Stock market—Selected statistics

Federal Finance
A25 Federal fiscal and financing operations
A26 U.S. budget receipts and outlays
A27 Federal debt subject to statutory limitation



DOMESTIC N ONFINANCIAL STATISTICS
Selected
A42
A42
A43
A44
A46
A47
A48
A49

Measures

Nonfinancial business activity
Labor force, employment, and unemployment
Output, capacity, and capacity utilization
Industrial production—Indexes and gross value
Housing and construction
Consumer and producer prices
Gross domestic product and income
Personal income and saving

A2

Federal Reserve Bulletin • November 1998

INTERNATIONAL STATISTICS
Summary

Statistics

A50
A51
A51
A51

U.S. international transactions
U.S. foreign trade
U.S. reserve assets
Foreign official assets held at Federal Reserve
Banks
A52 Selected U.S. liabilities to foreign official
institutions

Reported by Banks in the United States
A52
A53
A55
A56

Liabilities to, and claims on, foreigners
Liabilities to foreigners
Banks' own claims on foreigners
Banks' own and domestic customers' claims on
foreigners
A56 Banks' own claims on unaffiliated foreigners
A57 Claims on foreign countries—Combined
domestic offices and foreign branches

Reported by Nonbanking Business
Enterprises in the United States
A58 Liabilities to unaffiliated foreigners
A59 Claims on unaffiliated foreigners




Securities Holdings and Transactions
A60 Foreign transactions in securities
A61 Marketable U.S. Treasury bonds and
notes—Foreign transactions

Interest and Exchange Rates
A61 Discount rates of foreign central banks
A61 Foreign short-term interest rates
A62 Foreign exchange rates
A63 GUIDE TO STATISTICAL RELEASES AND
SPECIAL TABLES
SPECIAL TABLES
A64 Assets and liabilities of commercial banks,
June 30, 1998
A66 Terms of lending at commercial banks,
November 1998
A72 Assets and liabilities of U.S. branches and agencies
of foreign banks, June 30, 1998
A76 INDEX TO STATISTICAL TABLES

A3

Guide to Tabular Presentation
SYMBOLS AND ABBREVIATIONS
c
e
n.a.
P
r
*
0
ATS
BIF
CD
CMO
CRA
FFB
FHA
FHLBB
FHLMC
FmHA
FNMA
FSLIC
G-7

Corrected
Estimated
Not available
Preliminary
Revised (Notation appears on column heading
when about half of the figures in that column
are changed.)
Amounts insignificant in terms of the last decimal
place shown in the table (for example, less than
500,000 when the smallest unit given is millions)
Calculated to be zero
Cell not applicable
Automatic transfer service
Bank insurance fund
Certificate of deposit
Collateralized mortgage obligation
Community Reinvestment Act of 1977
Federal Financing Bank
Federal Housing Administration
Federal Home Loan Bank Board
Federal Home Loan Mortgage Corporation
Farmers Home Administration
Federal National Mortgage Association
Federal Savings and Loan Insurance Corporation
Group of Seven

G-10
GNMA
GDP
HUD
IMF
IO
IPCs
IRA
MMDA
MSA
NOW
OCD
OPEC
OTS
PMI
PO
REIT
REMIC
RP
RTC
SCO
SDR
SIC
VA

Group of Ten
Government National Mortgage Association
Gross domestic product
Department of Housing and Urban
Development
International Monetary Fund
Interest only
Individuals, partnerships, and corporations
Individual retirement account
Money market deposit account
Metropolitan statistical area
Negotiable order of withdrawal
Other checkable deposit
Organization of Petroleum Exporting Countries
Office of Thrift Supervision
Private mortgage insurance
Principal only
Real estate investment trust
Real estate mortgage investment conduit
Repurchase agreement
Resolution Trust Corporation
Securitized credit obligation
Special drawing right
Standard Industrial Classification
Department of Veterans Affairs

GENERAL INFORMATION
In many of the tables, components do not sum to totals because of
rounding.
Minus signs are used to indicate (1) a decrease, (2) a negative
figure, or (3) an outflow.
"U.S. government securities" may include guaranteed issues
of U.S. government agencies (the flow of funds figures also




include not fully guaranteed issues) as well as direct obligations of the Treasury.
"State and local government" also includes municipalities,
special districts, and other political subdivisions.

A4 Domestic Financial Statistics D November 1998
1.10

RESERVES, MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES
Percent annual rate of change, seasonally adjusted'
1997
Monetary or credit aggregate

03

Q4

-3.0
-3.7
-4.7
6.2

-2.7
-5.6

July

Aug.

-15.5
5.0

4.9
.9
4.6
8.9

Q2'

Apr.

May

-3.8
-2.5
-4.3
4.1

-2.3
-3.1
-3.1
3.3

-9.6
-4.7
-11.7
4.7

-5.3
-18.1

7.9

-1.9
-1.8
- 7
6.9

.3
5.7r
8.3'
7.3'
4.6'

.9
7.0'
10.0
9.2
6.0'

3.0
8.0
11.0
12.9'
6.2'

.2
7.5
10.0
7.8
6.1

-.4
9.7
10.6
5.5
6.1

-3.3
3.0
6.8
3.6
5.6

-3.6
5.3
6.2
6.7
5.7

-3.2
4.7
1.0

-3.6
8.3
12.1
n.a.
n.a.

7.7'
16.9'

9.3'
19.5'

9.8'
20.3'

10.1
17.7

13.2
13.3

5.2
18.4

8.4
8.6

75
-9.8

12.4
23.3

9.6
8.1
17.2

16.3
4.5
9.9

13.6
1.5
19.5'

14.3
-1.0
18.0

26.2
4

-4.1

.4
-4.4
15.4

10.9
-1.2
16.6

-31.3

14.9
5.4
14.9

1.0
-5.2
10.0

1.4
-3.1
5.4

7.6
-.4
14.4

11.6
-5.6

10.2
-9.8
11.0

16.3
-3.2
-20.5

3.6
-1.1
13.9

8.2
-5.0
-9.6

2.7
-12.4
-9.7

Money market mutual funds
18 Retail
19 Institution-only

16.7'
19.7

15.1'
22.0

19 3'
18.9

21.7
36.5

18.7
51.7

20.1
38.7

20.8
28.7

5.5
-5.3

33.1
36.5

Repurchase agreements and Eurodollars
20 Repurchase agreements10
21 Eurodollars10

14.0'
18.6

39.5'
24.3

34.1'
7.5

14 5
-17.8

.0
-3.6

7.9
12.6

-32.6
-8.0

17.9
9.9

33.9
13.3

.0
6.2'

.4
7.9'

.0
8.3'

-1.4
8.5

-1.8
8.6

-.9
7.8

-.9
8.4

n.a.
n.a.

1
2
3
4

Reserves of depository institutions2
Total
Required
Nonborrowed
Monetary base3

5
6
7
8

Concepts of money, liquid assets, and debt
Ml
M2
M3
L

9 Debt

Nontransaction components
10 InM2 5
11 In M3 only6
Time and savings deposits
Commercial banks
Savings, including MMDAs
Small time7
Large time8'9
Thrift institutions
15 Savings, including MMDAs
16 Small time7
17 Large time8
12
13
14

Debt components*
22 Federal
23 Nonfederal

1. Unless otherwise noted, rates of change are calculated from average amounts outstanding during preceding month or quarter.
2. Figures incorporate adjustments for discontinuities, or "breaks," associated with
regulatory changes in reserve requirements. (See also table 1.20.)
3. The seasonally adjusted, break-adjusted monetary base consists of (1) seasonally
adjusted, break-adjusted total reserves (line 1), plus (2) the seasonally adjusted currency
component of the money stock, plus (3) (for all quarterly reporters on the "Report of
Transaction Accounts, Other Deposits and Vault Cash" and for all weekly reporters whose
vault cash exceeds their required reserves) the seasonally adjusted, break-adjusted difference
between current vault cash and the amount applied to satisfy current reserve requirements.
4. Composition of the money stock measures and debt is as follows:
Ml (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of
depository institutions, (2) travelers checks of nonbank issuers, (3) demand deposits at all
commercial banks other than those owed to depository institutions, the U.S. government, and
foreign banks and official institutions, leas cash items in the process of collection and Federal
Reserve float, and (4) other checkable deposits (OCDs), consisting of negotiable order of
withdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions,
credit union share draft accounts, and demand deposits at thrift institutions. Seasonally
adjusted Ml is computed by summing currency, travelers checks, demand deposits, and
OCDs, each seasonally adjusted separalely.
M2: Ml plus (1) savings (including MMDAs). (2) small-denomination time deposits (time
deposits—including retail RPs—in amounts of less than $100,000), and (3) balances in retail
money market mutual funds (money funds with minimum initial investments of less than
$50,000). Excludes individual retirement accounts (IRAs) and Keogh balances at depository
institutions and money market funds. Seasonally adjusted M2 is calculated by summing
savings deposits, small-denomination time deposits, and retail money fund balances, each
seasonally adjusted separately, and adding this result to seasonally adjusted Ml.
M3; M2 plus (1) large-denomination time deposits (in amounts of $100,000 or more), (2)
balances in institutional money funds (money funds with minimum initial investments of
$50,000 or more), (3) RP liabilities (overnight and term) issued by all depository institutions,
and (4) Eurodollars (overnight and term) held by U.S. residents at foreign branches of U.S.
banks worldwide and at all banking offices in the United Kingdom and Canada. Excludes




-7.9

6.2

amounts held by depository institutions, the U.S. government, money market funds, and
foreign banks and official institutions. Seasonally adjusted M3 is calculated by summing large
time deposits, institutional money fund balances, RP liabilities, and Eurodollars, each
seasonally adjusted separately, and adding this result to seasonally adjusted M2.
L: M3 plus the nonbank public holdings of U.S. savings bonds, short-term Treasury
securities, commercial paper, and bankers acceptances, net of money market fund holdings of
these assets. Seasonally adjusted L is computed by summing U.S. savings bonds, short-term
Treasury securities, commercial paper, and bankers acceptances, each seasonally adjusted
separately, and then adding this result to M3.
Debt: The debt aggregate is the outstanding credit market debt of the domestic nonftnancial
sectors—the federal sector (U.S. government, not including government-sponsored enterprises or federally related mortgage pools) and the nonfederal sectors (state and local
governments, households and nonprofit organizations, nonftnancial corporate and nonfarm
noncorporate businesses, and farms). Nonfederal debt consists of mortgages, tax-exempt and
corporate bonds, consumer credit, bank loans, commercial paper, and other loans. The data,
which are derived from the Federal Reserve Board's Row of funds accounts, are breakadjusted (that is, discontinuities in the data have been smoothed into the series) and
month-averaged (that is, the data have been derived by averaging adjacent monlh-end levels).
5. Sum of (1) savings deposits (including MMDAs). (2) small lime deposits, and (3) retail
money fund balances, each seasonally adjusted separalely.
6. Sum of (1) large time deposits, (2) institutional money fund balances. (3) RP liabilities
(overnight and term) issued by depository institutions, and (4) Eurodollars (overnight and
term) of U.S. addressees, each seasonally adjusted separately.
7. Small time deposits—including retail RPs—are those issued in amounts of less than
$100,000. AH IRA and Keogh account balances at commercial banks and thrift institutions
are subtracted from small time deposits.
8. Large time deposits are those issued in amounts of $100,000 or more, excluding those
booked at international banking facilities.
9. Large time deposits at commercial banks less those held by money market funds,
depository institutions, the U.S. government, and foreign banks and official institutions.
10. Includes both overnight and term.

Money Stock and Bank Credit A5
1.11

RESERVES OF DEPOSITORY INSTITUTIONS AND RESERVE BANK CREDIT'
Millions of dollars
Average of
daily figures

Average of daily figures for week ending on date indicated

July 15

July

July 22

July 29

Aug. 5

Aug. 12

Aug. 19

Aug. 26

SUPPLYING RESERVE RINDS

1 Reserve Bank credit outstanding
U.S. government securities2
2
Bought outright—System account
3
Held under repurchase agreements
Federal agency obligations
4
Bought outright
5
Held under repurchase agreements
6
Acceptances
Loans to depository institutions
7
Adjustment credit
8
Seasonal credit
9
Extended credit
10 Float
11 Other Federal Reserve assets
12 Gold stock
13 Special drawing rights certificate account
14 Treasury currency outstanding

480,045

479,603

481,257

481,517

476,864

479,086

480,661

481,970

479,828

480,993

441,368
4.853

440.572
4,662

441,902
3,072

441,798
5,105

440.121
2.593

439,960
4,928

441,092
4,636

441,906
2,592

441,783
1,949

442 278
2,812

549

526
838
0

469

526

526

3.013
0

1,121
0

526
840
0

526

736
0

674
0

1,275
0

479
3,135
0

451
2,932
0

451
3,638
0

160
0
779
31,522

55
215
0
377
32,358

27
247
0
414
32.113

1
195
0
391
32,381

150
223
0
421
31.989

12
243
0
31
32,712

58
238
0
73

45
256
0

32,763

2
243
0
644
32,970

343
32,069

4
254
0
421
31,135

11,048
9,200
25,825

11,047
9,200
25,855r

11,045
9,200
25,888

11,047
9,200
25,854'

11,046
9,200
25,856'

11,047
9,200
25,858'

11,046
9,200
25,860

11,045
9,200
25,874

11,044
9,200
25.888

11,044
9,200
25,902

481,524
211

485,999'

487,890
120

486,581'
194

485,654'
188

485,660'
181

486,903
140

488,206
138

8,159
132

487,775
93

5,430

5,130
167
6,979
347
16,922
9,836

5,171
163
6,861
292

5,115
174
6,733
252
17,025
10,049

5,234
161
6,976
292
16,824
10,236

4,839

16,792
10,617

5,450
164
6,860
354
16,846
7,996

4,905
167
7,168
373
17,077
9,581

Aug. 12

Aug. 19

Aug. 26

ABSORBING RESERVE FUNDS
15 Currency in circulation
16 Treasury cash holdings
Deposits, other than reserve balances, with
Federal Reserve Banks
17 Treasury
18 Foreign
19 Service-related balances and adjustments . . .
20 Other
21 Other Federal Reserve liabilities and capital . .
22 Reserve balances with Federal Reserve Banks4

10,401
165
6.809
332
16,888
9,790

170

6,918'
277
16,832
9,891'

16.837
11,519

5.155
169

6,966
264
16,752
7,819

177
6,990
330

Wednesday figures

End-of-month figures
July 15

July

July 22

July 29

Aug. 5

SUPPLYING RESERVE FUNDS

1 Reserve Bank credit outstanding
U.S. government securities
2
Bought outright—System account*
3
Held under repurchase agreements
Federal agency obligations
4
Bought outright
5
Held under repurchase agreements
6
Acceptances
Loans to depository institutions
7
Adjustment credit
8
Seasonal credit
9
Extended credit
10 Float
11 Other Federal Reserve assets
12 Gold stock
13 Special drawing rights certificate account
14 Treasury currency outstanding

478,560

488,228

442.059

441,355
9,272

451
3,148
0

451
4,964
0

1,565
32,506

2
246
0
1,152
33,784

0
261
0
220
30,435

1
259
0
271
31,656

11,047
9,200
25,858'

11,046
9,200
25,860

11,045
9,200
25,874

11,042

9,200
25,888

11,046
9,200
25.902

486,964'
141

488,470
138

489,417
138

488,912
93

489,033
94

5,184
158
6,733
262
16,754
14,324

5,045
168
6,976
346
16,503
7.985

5,138
163
6,990
336
16,737
17,001

4,372
160
6,860

4,331

378

365
16,899
16.322

482,030'

487,879

487,207

476.479

484,416

479,525

439,773
18,681

440.612
7,266

442,135
7,942

440.887
9.492

436,103
4,661

441,354
8,411

441,908
530

442,278
5,755

526
1,865
0

526
760
0

451
3,566
0

526
2,425
0

526
1.956
0

526
1,110
0

526
1,955
0

451
6,135
0

773
189
0
1,416
33,743

2
239
0

3
204
0
642
33,027

4
239
0
724
32,267

249
0

299
237
0

-267'
32.893

66
226
0
975
32,518

-518
33,282

11.047
9,200
25,851'

9,200
25,860'

11,046
9,200
25,916

11,047
9,200
25,854'

11.046
9,200
25,856'

483,865
204

486,038'
141

488,577
94

487,103'
189

486,481'
178

6,704
162
6,871
332
17,420
13,881

5,309
180
6,861
279
16,589
16,796

11,046

ABSORBING RESERVE FUNDS

15 Currency in circulation
16 Treasury cash holdings
Deposits, other than reserve balances, with
Federal Reserve Banks
17 Treasury
18 Foreign
19 Service-related balances and adjustments . .
20
Other
21 Other Federal Reserve liabilities and capital .
22 Reserve balances with Federal Reserve Banks4

18,140
201

4,648
161

7,018

6,976'
264
16.830

296
17,073
16.269

13,078'

1. Amounts of cash held as reserves are shown in table 1.12, line 2.
2. Includes securities loaned—fully guaranteed by U.S. government securities pledged
with Federal Reserve Banks—and excludes securities sold and scheduled to be bought back
under matched sale-purchase transactions.




4,426

195
6.966
247
16,513
7,576

16,560
7,355

162
7,168

3. Includes compensation that adjusts for the effects of inflation on the principal of
inflation-indexed securities.
4. Excludes required clearing balances and adjustments to compensate for float.

A6
1.12

Domestic Financial Statistics • November 1998
RESERVES AND BORROWINGS

Depository Institutions'

Millions of dollars
Prorated monthlv averages of biweekly averages
Reserve classification

1
2
3
4
5
6
7
8
9
10

Reserve balances with Reserve Banks2
Total vault cash
Applied vault cash4
Surplus vault cashs
Total reserves6
Required reserves
Excess reserve balances at Reserve Banks7
Total borrowings at Reserve Banks8
Seasonal borrowing*
Extended credit9

1995

1996

1997

1998

Dec.

Dec.

Dec.

Feb.

Mar.

Apr

May

June

July

Aug.

20,440
42,281
37,460
4,821
57,900
56,622
1,278
257
40
0

13,395
44,525
37,848
6,678
51,243
49.819
1,424
155
68
0

10,673
44,707
37,206
7,500
47,880
46,1%
1,683
324
79
0

9,394
43,167
35,580
7,587
44,974
43.450
1,524
58
12
0

10.140
41.598
35.370
6,228
45,509
44,193
1,316
41
22
0

11,053
41.215
35,423
5,792
46,475
45.131
1,345
72
41
0

9.646
41,482
35.159
6,323
44,805
43.655
1.150
153
94
0

9,668
42,6.35
35,427
7,208
45,095
43,475
1,620
251
159
0

9,646'
42.034
34,954
7.080
44,600'
43.235
1,365'
258
215
0

9,683
42.120
15,024
7,096
44,706
43,190
1,516
271
242
0

Biweeklv averages of dally figures for two week periods ending on dates indicated
1998

1
2
3
4
5
6
7
8
9
10

Reserve balances with Reserve Banks~
Total vault cash3
Applied vault cash
Surplus vault cash5
Total reserves'1
Required reserves
Excess reserve balances at Reserve Banks7
Total borrowings at Reserve Banks8
Seasonal borrowings
Extended credit9

May 6

May 20

June 3

June 17

July 1

July 15

Jul> 29

Aug. 12'

Aug. 26

Sepc. 9

9,841
41,712
35,727
5,985
45,568
44,339
1.230
81
61
0

9,365
41,545
35,066
6 479
44,430
43,409
1,022
165
85
0

9,898
41,277
34.969
6.307
44,867
43.597
1.270
178
123
0

9,140
43,592
35,867
7,725
45,206
43,676
1.530
236
145
0

9,969
41,919
35,060
6,859
45,029
43,232
1,797
285
184
0

10,225
42,101
35,102
6.999
45,327
43,999
1,328
198
196
0

8.933
41.983
34.770
7.213
43.703
42.341
1,162
314
233
0

10,428
41,983
35,157
6,826
45,585
44,147
1,437
271
241
0

8,799
42,354
35,024
7,329
43,823
42,392
1,431
280
255
0

10,370
41,792
34,702
7.090
45,072
43,127
1,945
247
209
0

1. Data in this table also appear in the Board's H.3 (502) weekly statistical release. For
ordering address, see inside front cover. Data are not break-adjusted or seasonally adjusted.
2. Excludes required clearing balances and adjustments to compensate for float and
includes other off-balance-sheet "as-of" adjustments.
3. Total "lagged" vault cash held by depository institutions subject to reserve
requirements. Dates refer to the maintenance periods during which the vault cash may be used
to satisfy reserve requirements. The maintenance period for weekly reporters ends sixteen
days after the lagged computation period during which ihe vault cash is held. Before Nov. 25,
1992, the maintenance period ended thirty days after the lagged computation period.
4. All vault cash held during the lagged computation period by "bound" institutions (that
is. those whose required reserves exceed their vault cash) plus the amounl of vault cash
applied during the maintenance period by "nonbound" institutions (that is, those whose vault
cash exceeds their required reserves) to satisfy current reserve requirements.




5. Total vault cash (line 2) less applied vaull cash (line 3).
6. Reserve balances with Federal Reserve Banks (line 1) plus applied vault cash
(line 3).
7. Total reserves (line 5) less required reserves (line 6)
8. Also includes adjustment credit.
9. Consists of borrowing at the discount window under the terms and conditions established for the extended credit program to help depositors institutions deal with sustained
liquidity pressures. Because there is not the same need to repay such borrowing promptly as
with traditional short-term adjustment credit, the money market effect of extended credit is
similar to that of minborrowed reserves

Policy Instruments A7
1.14

FEDERAL RESERVE BANK INTEREST RATES
Percent per year
Current and previous levels
Adjustmenl credit1

Federal Reserve
Bank

On
10/16/98

Seasonal credit*
On
10/16/98

Effective date

Boston
New York
Philadelphia . . .
Cleveland
Richmond
Atlanta

10/15/98
10/15/98
10/15/98
10/16/98
10/16/98
10/15/98

Chicago
St. Louis
Minneapolis . .
Kansas City . .
Dallas
San Francisco.

10/15/98
10/15/98
10/15/98
10/15/98
10/16/98
10/15/98

Effective date

Extended credit

Previous rate

On
10/16/98

Effective date

5.00

5.00

5..15

Range of rates for adjustment credit in recent years4

Effective date

Range (or
level)—All
F.R. Banks

In effect Dec. 31, 1977
1978—Jan.

6

F.R. Bank
of
N.Y.
6

9
20
Mav 11
12
July i
10
Aug. 21
Sept. 22
Oct. 16
20
Nov 1
3

6-6.5
6.5
6.5-7
7
7-7.25
7 25
7.75
8
8-8.5
8.5
8.5-9.5
9.5

6.5
6.5

1979—July 20
Aug. 17
20
Sept. 19
21
Oct. 8
10

10
10-10.5
10.5
10.5-11
11
11-12
12

10
10.5
10.5
11
II
12
12

1980 Feb. 15
19
May 29
30
June 13
16
July 28
29
Sept. 26
Nov. 17
Dec. 5
8
1981—May 5
8

12-13
13
12-13
12
11-12
11
10-11
10
11
12
12-13
13

13-14
14

7
7
7.25
7.25
7.75
8
8.5
8.5
9.5
9.5

13
13
13
12
11
II
10
10
11
12
13
13
14
14

Effective date

Range (or
level)—All
F.R. Banks

1981—Nov. 2
6
Dec. 4

13-14
13
12

1982—July 20
23
Aug. 2
3
16
27
30
Oct. 12
1?
Nov. 22
26
Dec 14
15
17

11.5-12
11 5
11-11.5

1984—Apr.

9
13
Nov. 21
26
Dec 24

11

10.5
10-10.5
10
9.5-10
9.5
9-9.5
9
8.5-9
8.5-9
8.5
8.5-9
9

8.5-9
8.5
8

F.R. Bank
of
N.Y.
13
13

11.5
11.5
II
II
10.5
10
10
9.5
9.5
9
9
9
8.5
8.5
9
9
8.5
8.5
8

7.5-8
7.5

7.5
7.5

1986—Mar. 7
10
Apr. 21
23
July 11
Aug. 21
22

7-7.5
7
6.5-7
6.5
6
5.5-6
5.5

6.5
6.5
6
5.5
5.5

1987—Sept. 4
11

5.5-6




F.R. Bank
of
N.Y.

1988—Aug. 9
11

6-6.5
6.5

6.5
6.5

1989—Feb. 24
27

6.5-7
7

7

1990—Dec. 19

6.5

1991—Feb.

1
4
Apr. 30
May 2
Sept 13
17
Nov. 6
7
Dec. 20
24

1992—July

6-6.5
6
5.5-6
55
5-5 5
5
4 5-5
4.5
3.5-4.5
3.5

2
7

3-3.5

1994—May 17
18
Aug. 16
18
Nov. 15
17

3-3.5

3

3.5

3.5-4

7
6.5
6
6

5.5
5.5
5
5
45
4.5
3.5
3.5
3
3
3.5
3.5
4

4-4 75
4.75

4
4.75
4.75

I
9

4.75-5.25
5.25

5.25
5.25

1996—Jan. 31
Feb. 5

5.00-5.25
5.00

5.00
5.00

1998—Oct. 15
Oct. 16

4.75-5.00
4.75

4.75
4.75

4.75

4.75

4

7
7

6
6

1995—Feb.

In effect Oct. 16, 1998
1. Available on a short-term basis to help depository institutions meet temporary needs for
funds that cannot be met through reasonable alternative sources. The highest rate established
for loans to depository institutions may be charged on adjustment credit loans of unusual size
that result from a major operating problem at the borrowers facility.
2. Available to help relatively small depository institutions meet regular seasonal needs for
funds that arise from a clear pattern of intrayearly movements m their deposits and loans and
that cannot be met through special industry lenders. The discount rate on seasonal credit takes
into account rates charged by market sources of funds and ordinarily is reestablished on the
first business day of each iwo-week reserve maintenance period; however, it is never less than
the discount rate applicable to adjustment credit.
3 May be made available lo depository institutions when similar assistance is not
reasonably available from olner sources, including special industry lenders. Such credit may
be provided when exceptional circum.-itances (including sustained deposit drains, impaired
access to money market funds, or sudden deterioration in loan repayment performance) or
practices involve only a particular institution, or to meet the needs of institutions experiencing
difficulties adjusting to changing market conditions over a longer period (particularly ai times
of deposit disintermediation). The discount rate applicable to adjustment credit ordinarily is
charged on extended-credit loans outstanding less than thirty days; however, at ihe discretion

Range (or
level)--All
F.R. Banks

12

1985—May 20
24

6

Effective date

of the Federal Reserve Bank, this time period may be shortened. Beyond this initial period, a
flexible rate somewhat above rates charged on market sources of funds is charged. The rate
ordinarily is reestablished on the first business day of each two-week reserve maintenance
period, but it is never less than ihe discount rale applicable lo adjustment credit plus 50 basis
points.
4. For earlier data, see the following publications of the Board of Governors: Banking and
Monetary Statistics, 1914-1941, and 1941-1970; and the Annual Statistical Digest, 19701979.
In 1980 and 1981, the Federal Reserve applied a surcharge to short-term adjustment-credit
borrowings by institutions with deposits of $500 million or more that had borrowed in
successive weeks or in more than four weeks in a calendar quarter. A 3 percent surcharge was
in effect from Mar 17, 1980, through May 7, 1980. A surcharge of 2 percent was reimposcd
on Nov. 17, [980; the surcharge was subsequently raised to 3 percent on Dec. 5, 1980, and io
4 percent on May 5, 1981. The surcharge was reduced to 3 percent effective Sept. 22, 1981,
and to 2 percent effective Oct. 12. 1981. As of Oct. 1, 1981, the formula for applying Ihe
surcharge was changed from a calendar quarter to a moving thirteen-week period. The
surcharge was eliminated on Nov. 17, 1981.

A8 Domestic Financial Statistics • November 1998
1.15 RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS'
Requirement
Type of deposit
Percentage of
deposits
Net iransaciion accounts
1 $0 million-$47.8 million3
2 More than $47.8 million4

Effective date

3
10

1/1/98
1/1/98

3 Nonpersonal time deposits5

0

12/27/90

Eurocurrency liabilities6

0

12/27/90

4

\. Required reserves musi be held in the form of deposits with Federal Reserve Banks
or vault cash. Nonmember institutions may maintain reserve balances with a Federal
Reserve Bank indirectly, on a pass-through basis, with certain approved instituiions. For
previous reserve requirements, see earlier editions of the Annual Report or the Federal
Reserve Bulletin. Under the Monetary Control Act of 1980, depository institutions
include commercial banks, mutual savings banks, savings and loan associations, credit
unions, agencies and branches of foreign banks, and Edge Act corporations.
2. Transaction accounts include all deposits against which the account holder is permitted
to make withdrawals by negotiable or transferable instruments, payment orders of withdrawal, or telephone or preauthorized transfers for the purpose of making payments to ihird
persons or others, However, accounts subject to the rules that permit no more lh;in six
preauthorized, automatic, or other transfers per month (of which no more than three may be
by check, draft, debit card, or similar order payable directly to third parties) are savings
deposits, not transaction accounts.
3. The Monetary Control Act of 1980 requires that the amount of transaction accounts
against which the 3 percent reserve requirement applies be modified annually by 80 percent of
the percentage change in transaction accounts held by all depository institutions, determined
as of June 30 of each year Effective with the reserve maintenance period beginning January 1,
1998, for depository instituiions that report weekly, and with the period beginning January 15,
1998, for institutions that report quarterly, the amount was decreased from $49.3 million to
$47.8 million.
Under the Garn-St Germain Depository Institutions Act of 1982, the Board adjusts the
amount of reservable liabilities subject to a zero percent reserve requirement each year for the




succeeding calendar year by 80 percent of the percentage increase in the total reservable
liabilities of all depository institutions, measured on an annual basis as of June 30. No
corresponding adjustment is made in the event of a decrease. The exemption applies only to
accounts that would be subject to a 3 percent reserve requirement. Effective with the reserve
maintenance period beginning January I, 1998, for depository institutions that report weekly,
and with [he period beginning January 15, 1998, for institutions that report quarterly, the
exemption was raised from $4.4 million 10 $4.7 million.
4. The reserve requirement was reduced from 12 percent to 10 percent on
Apr. 2, 1992, for institutions that report weekly, and on Apr. 16, 1992, for institutions that
report quarterly.
5. For institutions that report weekly, the reserve requirement on nonpersonal time deposits
with an original maturity of less than 1 '/2 years was reduced from 3 percent to 1 '/> percent for
the maintenance period that began Dec. 13, 1990, and to zero for the maintenance period that
began Dec. 27, 1990. For institutions that report quarterly, the reserve requirement on
nonpersonal time deposits with an original maturity of less than 1 l/z years was reduced from 3
percent to zero on Jan. 17, 1991.
The reserve requirement on nonpersonal time deposits with an original maturity of 1 [*!
years or more has been zero since Oct. 6, 1983.
6. The reserve requirement on Eurocurrency liabilities was reduced from 3 percent to zero
in the same manner and on the same dates as the reserve requirement on nonpersonal time
deposits with an original maturity of less than I ]A years (see note 5).

Policy Instruments A9
1.17 FEDERAL RESERVE OPEN MARKET TRANSACTIONS1
Millions of dollars

Type of transaction
and maturity
Apr.

May

July

US. TREASURY SECURITIES"

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
24
25

Outright transactions (excluding matched
transactions}
Treasury bills
Gross purchases
Gross sates
Exchanges
For new bills
Redemptions
Others within one year
Gross purchases
Gross sales
Maturity shifts
Exchanges
Redemptions
One to five years
Gross purchases
Gross sales
Maturity shifts
Exchanges
Five to ten years
Gross purchases
Gross sales
Maturity shifts
Exchanges
More than ten years
Gross purchases
Gross sales
Maturity shifts
Exchanges .
All maturities
Gross purchases
Gross sales .. .
Redemptions .

Matched transactions
26 Gross purchases
27 Gross sales
Repurchase agreements
28 Gross purchases
29 Gross sales
30 Net change in U.S. Treasury securities

10,932
0
405,296
405,296
900

9,901
0
426,928
426,928
0

9,147
0
436.257
435.907
0

0
0
41,371'
41,371'
2,000

0
0
35,495
35,495
0

0
0
34,025
34,025
0

3,550
0
46,802
46,802
0

0
0
35,190
35,190
0

0
0
32,830
32.830
0

0
0
40,312
40.312
0

390
0
43,574
-35.407
1,776

524
0
30,512
-41,394
2.015

5,549
0
41,716
-27,499
1,996

0
0
3,447
-400
478

0
0
6,098
-6,128
0

1,501
0
1.964
-5,736
0

1,369
0
4,369
-2,601

0
0
6.951
-4.990
0

0
0
1,520
-5,084
0

0
0
2,638
-2.242
1.311

5,366
0
-34.646
26,387

3,898
0
-25,022
31,459

19,680
0
-37,987
20,274

0
0
-3,447
0

0
0
-3,213
3,383

2,262
0
-1,964
5,736

2,993
0
-4,369
2,201

0
0
-6,620
2,270

0
0
-1,520
5,084

0
0
-2,638
1,842

1,432
0
-3,093
7,220

1,116
0
-5,469
6,666

3,849
0
-1,954
5,215

0
0
0
400

0
0
-2.884
1,420

283
0
0
0

495
0
0
0

0
0
-331
2.720

0
0
0
0

0
0
0
0

2,529
0
-2.253
1.800

1.655
0
-20
3,270

5,897
0
-1,775
2,360

0
0
0
0

0
0
0
1,325

74'
0
0
0

0
0
0
400

0
0
0
0

0
0
0
0

0
0
0
400

20,649
U
2,676

17,094
0
2,015

44,122
0
1,996

0
0
2,478

0
0
0

4.789
0
0

8,407
0
286

0
0
0

0
0
0

0
0
1.311

2,197,736
2,202,030

3.092,399
3.094,769

3.577,954
3,580.274

332.581
332.795

326.813
326,235

364.307
364,537

354,756
354,741

367.934
368.281

369,358
370,569

373.285
371.142

331.694
328,497

457,568
450,359

810,485
809,268

45,544
65,932

33,428
30.583

40,211
37,010

59,548
50,663

7.722
20,456

57,098
41,414

52,116
63,531

16.875

19.919

41,022

-23,079

3,423

7.760

0
0
1,003

0
0
409

0
0
1,540

36,851
36,776

75,354
74.842

160,409
159,369

-10,584

-13,081

FEDERAL AGENCY OBLIGATIONS

Outright transactions
31 Gross purchases
32 Gross sales
33 Redemptions
Repurchase agreements
34 Gross purchases
35 Gross sales
36 Net change in federal agency obligations
37 Total net change in System Open Market Account.

9,615
8,776

0
0
74

17,685
18,342

13,547
13,042

0
0
25
1,575
3,300

14,548
12,913

11,236
12,341

-928

103

-500

-1,384

829

-707

431

-1,725

1,610

-1,105

15,948

20,021

40,522

-24,463

4,252

7,053

17,452

-14,806

16,083

-11,689

1. Sales, redemptions, and negative figures reduce holdings of the System Open Market
Account; all other figures increase such holdings.




12,488
13,872

0
0
50

2. Transactions exclude changes in compensation for the effects of inflation on the principal
of inflation-indexed securities.

A10
1.18

Domestic Financial Statistics • November 1998
FEDERAL RESERVE BANKS

Condition and Federal Reserve Note Statements'

Millions of dollars

Account
July 29

Aug. 5

Wednesday

End of month

1998

1998

Aug. 12

Aug. 19

Aug. 26

June 30

July 31

Aug. 31

Consolidaled condition statement
ASSETS

2 Special drawing rights certificate account
3 Coin
Loans
4 To depository institutions
5 Other
6 Acceptances held under repurchase agreements
Federal agency obligations
7 Bought outright

11,047
9,200
413

11.046
9,200
412

11,045
9.200
413

11.042
9,200
410

11.046
9,200
414

11.047
9.200
392

11,046
9.200
435

11,046
9,200
423

251
0
0

536
0
0

248
0
0

261
0
0

260
0
0

963
0
0

241
0
0

293
0
0

526
1 110

526
1,95';

451
6,135

451
3,148

451
4,964

526
1,865

526
760

451
3.566

449,765

442,438

448,033

444,045

450,627

458,454

447,878

450,077

10 Bought outright3
11 Bills
12 Notes
1^
Bonds
14 Held under repurchase agreements

441,354
200,149
178,886
62 118
8.411

441,908
199,653
178,887
63,367
530

442,278
200,023
178,888
63,367
5,755

442,059
199,803
177,116
65,140
1,986

441,355
198,075
177,305
65,975
9,272

439,773
197,264
180,594
61.915
18,681

440,612
199,407
178,887
62,318
7,266

442,135
197,334
178,826
65,975
7,942

15 Total loans and securities

451,651

445,454

454,866

447,904

456,301

461,807

449,404

454,386

6,253
1 '88

8,382
1,289

7,379
1,292

7,056
1 294

6.535
1 294

10,126
1,290

4,677
1,289

2,465
1,293

17,366
14,659

17,289
13,963

17,297
15,201

17,305
11,915

17,313
13.068

17,366
15.126

17,282
14,378

17.601
13,671

511,878

507,035

516,694

506,126

515,172

526,355

507,711

510,087

461.660

463,161

464,095

463,527

463.639

458.610

460,754

463.179

27,222

19,860

29,579

19,683

28,491

42,287

25,312

27,520

21,618
5,184
158
262

14,302
5,045
168
346

23,943
5,138
163
336

14,773
4,372
160
378

23,632
4,311
162
365

23,651
18.140
201
296

20,239
4,648
161
264

20,321
6,704
162
332

6,242
4,796

7,511
4,633

6,282
4,700

6,356
4,525

6,143
4,849

8.385
4.850

4,816
4,818

1,968
4,750

499,920

495,165

504,656

494,091

503,122

514,132

495,699

497,417

5,819
5,220
919

5,841
5.220
809

5,846
5,220
971

5.853
5.220
962

5.864
5.220
965

5,791
5,220
I 212

5.822
5.220
970

511,878

507,035

516,694

506,126

515 172

526,355

507,711

510,087

592,993

593,333

587,542

587,438

573,577

600.373

595,603

573.571

16 Items in process of collection
Other assets
18 Denominated in foreign currencies
19 Allother 4
20 Total assets
LIABILITIES
21 Federal Reserve notes
22 Total deposits
24 U.S. Treasury—General account
26 Other
28 Other liabilities and accrued dividends5
29 Total liabilities
CAPITAL ACCOUNTS

30 Capital paid in
31 Surplus

5.866
5,220
1 583

MEMO

34 Marketable U.S. Treasury securities held in custody for
foreign and international accounts

Federal Reserve note statemen
570,576
108,916
461,660

571,137
107,977
463,161

572,144
108,049
464,095

572,949
109,422
463,527

574,623
110.983
463.639

567,155
108,545
458,610

570,428
109,674
460,754

574,813
111,635
463.179

41 U.S. Treasury and agency securities

11,047
9,200
0
441.413

11,046
9.200
0
442,914

11,045
9,200
0
443,850

11,042
9,200
0
443,285

11,046
9,200
0
443,394

11,047
9,200
0
438,363

11.046
9,200
0
440,508

11,046
9,200
0
442,932

42 Total collateral

461,660

463,161

464,095

463,527

463,639

458,610

460,754

463,179

35 Federal Reserve notes outstanding (issued to Banks)
36
LESS- Held by Federal Reserve Banks
37
Federal Reserve notes, net
Collateral held against notes, net
39 Special drawing rights certificate account

1. Some of the data in this table also appear in the Board's H.4.1 (503) weekly statistical
release. For ordering address, see inside front cover,
2. Includes securities loaned—fully guaranteed by US. Treasury securities pledged with
Federal Reserve Banks—and includes compensation that adjusts for the effects of inflation on
the principal of inflation-indexed securities. Excludes securities sold and scheduled to be
bought back under matched sale-purchase transactions.




3, Valued monthly at market exchange rates.
4, Includes special investment account at the Federal Reserve Bank of Chicago in Treasury
bills maturing within ninety days.
5, Includes exchange-translation account reflecting the monthly revaluation ai market
exchange rates of foreign exchange commitments.

Federal Reserve Banks
1.19

FEDERAL RESERVE BANKS

All

Maturity Distribution of Loan and Security Holding

Millions of dollars
End of month

Wednesday

1998

Type of holding and maturity
June 30

July 31

260

963

241

235
25

859
104

107
134

176
117

444,045

450,627

458,634

447,878

442,135

18,500
93,717
137,335
100,306
40,972
53.214

li»,836
92,084
143,190
100,306
41.275
53.935

27,389
93,433
145,693
98.145
43,016
50,778

13,538
98,052
145,377
96,711
43,018
51,181

15,104
92,231
145,997
101,535
41,276
53,935

6,586

3,599

5,415

2.391

1,286

4,017

6,135
48
114
104
185

3,148
48
114
104
185
n.a.

5.012
n.a.
125
93
185
n.a.

1,865
98
104
99
200
25

810
48
114
104
185
25

3,614
5
120
93
185
n.a.

July 29

Aug. 5

Aug. 12

Aug. 19

1 Total loans

251

536

248

261

2 Within fifteen days'

229
22

359
177

55
193

237
24

449,765

442,438

448,033

17,348
97,971
142,449
97.797
43,018
51,181

17,753
89,281
143,445
96,711
43.018
52,231

23.237
89,266
143,570
96,711
43,018
52,231

1,635

2,481

1.160
48
114
104
185
25

2.005
48
114
104
185
25

3. Sixteen days to ninety days
4 Total US. Treasury securities'
5
6
7
8
9
10
11

Within fifteen days'
Sixteen days to ninety days . . . .
Ninety-one days to one year
One year to five years
Five years to ten years
More than ten years
Total federal agency obligations

12
13
14
15
16
17

Within fifteen days'
Sixteen days to ninety days
Ninety-one days to one year
One year to five years
Five years to ten years
More than ten years

1. Holdings under repurchase agreements are classified as maturing within fifteen days in
accordance with maximum maturity of the agreements.




Aug. 31

2. Includes compensation that adjusts for the effects of inflation on the principal of
inflation-indexed securities.

A12
1.20

Domestic Financial Statistics • November 1998
AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND MONETARY BASE1
Billions of dollars, averages of daily figures
1998
1994
Dec.

1995
Dec.

1996
Dec.

1997
Dec.
Jan.

Feb.

Apr.

May

June

July

Aug.

45.96
45.89
45.89
44.61
487.20

45.59
45.44
45.44
44.44
489 10

45.39
45.14
45.14
43.77
491.63

44.81
44.56
44.56
43.45
493.67r

45.00
44.73
44.73
43.48
497.31

Mar.

Seasonally adjusted

ADJUSTED FOR
CHANGES IN RESERVE REQUIREMENTS 2

1 Total reserves
2 Nonborrowed reserves4
3 Nonborrowed reserves plus extended credit5
5 Monetary base6

59.41
59.20
59.20
58 24
418.12

56.40
56.14
56.14
55 12
434.17

50.08
49.93
49.93
48.66
452.38

46.67
46.35
46.35
44 99
480.15

46.50
46.29
46.29
44.72
482.84

45.72
45.66
45.66
44.20
484 23

46.05
46.01
46.01
44 73
485.86

Not seasonally adjusted
6 Total reserves

7

8 Nonborrowed reserves plus extended credit5
9 Required reserves8

61.13
60.92
60.92
59.96
422 51

58.02
57.76
57.76
56.74
439 01

51.52
51.37
51.37
50.10
456 72

47.97
47.65
47.65
46.29
485 11

47.49
47.28
47.28
45.71
484.41

44.99
44.94
44.94
43.47
481 35

45.55
45.50
45.50
44.23
484 00

46.53
46.45
46.45
45.18
487.36

44.87
44.71
44.71
43.72
488.28

45.17
44.92
44.92
43.55
491.18

44.69
44.43
44.43
43.32
495.32'

44.81
44.54
44.54
43.29
497.49

61 34
61.13
61.13
60.17
427.25
1 17
.21

57 90
57.64
57.64
56.62
444.45
1 28
.26

51 24
47.88
51.09
47.56
51.09
47.56
49.82
46.20
463.49 491.92
1 4">
1 68
.16
.32

47.50
47.29
47.29
45.71
491.61
1 78
.21

44.97
44.92
44.92
43.45
488.41
1 52
.06

45 51
45.47
45.47
44.19
490.96
1 32
.04

46.48
46.40
46.40
45.13
494.11
1 35
.07

44.81
44.65
44.65
43.66
494.95
1.15
.15

45.10
44.84
44.84
43.48
497.93
1.62
.25

44.60
44.34
44.34
43.24
502.17'
1 37'
.26

44.71
44.44
44.44
43.19
504.39
1 52
.27

NOT ADJUSTED FOR
CHANGES IN RESERVE REQUIREMENTS'"

12
13
14
15

Nonborrowed reserves
Nonborrowed reserves plus extended credit5
Required reserves
Monetary base12

17 Borrowings from the Federal Reserve

]. Latest monthly and biweekly figures are available from the Board's H.3 (502) weekly
statistical release. Historical data starting in 1959 and estimates of the effect on required
reserves of changes in reserve requirements are available from the Money and Reserves
Projections Section, Division of Monetary Affairs, Board of Governors of the Federal Reserve
System, Washington, DC 20551.
1. Figures reflect adjustments for discontinuities, or "breaks," associated with regulatory
changes in reserve requirements. (See also table 1.10.)
3. Seasonally adjusted, break-adjusted total reserves equal seasonally adjusted, breakadjusted required reserves (line 4) plus excess reserves {line 16).
4. Seasonally adjusted, break-adjusted nonborrowed reserves equal seasonally adjusted,
break-adjusted total reserves (line 1) less total borrowings of depository institutions from the
Federal Reserve (line 17).
5. Extended credit consists of borrowing at the discount window under the terms and
conditions established for the extended credit program to help depository institutions deal
with sustained liquidity pressures. Because there is not the same need to repay such
borrowing promptly as with traditional short-term adjustment credit, the money market effect
of extended credit is similar to that of nonborrowed reserves.
6. The seasonally adjusted, break-adjusted monetary base consists of (1) seasonally
adjusted, break-adjusted total reserves (line 1), plus (2) the seasonally adjusted currency
component of the money stock, plus (3) {for all quarterly reporters on the "Report of
Transaction Accounts, Other Deposits and Vault Cash" and for all those weekly reporters
whose vault cash exceeds their required reserves) the seasonally adjusted, break-adjusted
difference between current vault cash and the amount applied to satisfy curreni reserve
requirements.
7. Break-adjusted total reserves equal break-adjusted required reserves (line 9) plus excess
reserves (line 16).




8. To adjust required reserves for discontinuities that are due to regulatory changes in
reserve requirements, a multiplicative procedure is used to estimate what required reserves
would have been in past periods had current reserve requirements been in effect. Breakadjusted required reserves include required reserves against transactions deposits and nonpersonal time and savings deposits (but not reservable nondeposit liabilities).
9. The break-adjusted monetary base equals (1) break-adjusted lotal reserves (line 6), plus
(2) the (unadjusted) currency component of the money stock, plus (3) (for all quarterly
reporters on the 'Report of Transaction Accounts, Other Deposits and Vault Cash" and for all
those weekly reporters whose vault cash exceeds their required reserves) the break-adjusted
difference between current vault cash and the amount applied to satisfy current reserve
requirements.
10. Reflects actual reserve requirements, including those on nondeposit liabilities, with no
adjustments to eliminate Ihe effects of discontinuities associated with regulatory changes in
reserve requirements.
11. Reserve balances with Federal Reserve Banks plus vault cash used to satisfy reserve
requirements.
12. The monetary base, not break-adjusted and not seasonally adjusted, consists of (1) total
reserves (line 11), plus (2) required clearing balances and adjustments to compensate for float
at Federal Reserve Banks, plus (3) the currency component of the money stock, plus (4) (for
all quarterly reporters on the "Report of Transaction Accounts, Other Deposits and Vault
Cash" and for all those weekly reporters whose vault cash exceeds their required reserves) the
difference between current vault cash and the amount applied to satisfy current reserve
requirements. Since the introduction of contemporaneous reserve requirements in February
1984, currency and vault cash figures have been measured over the computation periods
ending on Mondays.
13. Unadjusted total reserves (line 11) less unadjusted required reserves (line 14).

Monetary and Credit Aggregates A13
1.21

MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES1
Billions of dollars, averages of daily figures
I998r
1997
Dec.
May

July

Aug.

Seasonally adjusted
Measures'
1 Ml
2 M2

1,150.7
3,503.0
4,333.6
5,315.8
12,999.5'

1,128.7
3,651.2
4,595.6
5,702.3
13,697.6'

354.3
8.5
384.0
403.9

372.4
8.9
391.0
356.4

8.6
403.6

2,352.3
830.6

Commercial banks
12 Savings deposits, including MMDAs ..
13 Small time deposits9
14 Large time deposits10' "

1,076.0
4,046.4'
5,376.8'
6,611.3'
15,167.8'

1,077.7
4,177.6
5,610.8
6,883.9
15.554.6

1,074.5
4.196.1
5.639.7
6,922.5
15,628.3

1,071.6
4,212.7
5,644.5
6,917.9
15,708.7

1,068.4
4,242.0
5,701.6

435.5
8.0
387.9
246.3

438.2
7.8
383.1
245.4

441.2
7.7
377.9
244.7

443.7
7.8
373.8

275.9

425.5
8.2
397.1
245.2

2,522.6
944.4

2,743.2
1,105.0

2,970.4'
1,330.4'

3,099.9
1,433.3

3,121.6
1,443.6

3,141.2
1,431.8

3,173.7
1.459.6

752.6
503.2
298.7

775.0
575.8
345.4

904.8
594.5
413.2

1,020.9
625.7
487.5

1,078.6
624.1
528.6

1,088.4
623.5
535.9

1,103.6
623.6
521.9

1,117.3
626.4
528.4

Thrift institutions
15 Savings deposits, including MMDAs . .
16 Small lime deposits9
17 Large time deposits10

397.3
314.2
64.7

359.7
357.2
74.2

366.9
354.3
78.0

376.6
343.9
85 4

395.2
339.2
86.5

396.4
338.9
87.5

399.1
337.5
86.8

400.0
334.0
86.1

Money market mutual funds
18 Retail
19 Institution-only

385.0
203.1

454.9
253.9

522.8
310.3

603.2'
376.2

662.8
422.0

674.3
432.1

677.4
430.2

696.1
443.3

194.2
109.2

236.1'
145.3

261.4
134.7

254.3
133.8

258.1
134.9

265.4
136.4

3,780.6
10,644.7r

3,798.4
11,369.4'

3,778.6
11,775.9

3,775.7
11,852.6

3,772.9
11,935.8

n.a.
n.a.

1,068.3
4,156.9
5,588.8
6,860.7
15,521.7

1,073.8
4,191.2
5,629.7
6,904.6
15,594.6

1,072.5
4,213.3
5,636.6
6,903.4
15,660.5

1.067.1
4,246.5
5,702.8

436.1
7.9
380.1
244.2

438.3
8.0
382.5
245.0

442.6

444.3

7.9
413.0
247.7

8.2
378.7
243.0

373.8
240.8

3M1
4 L
5 Debt
6
7
8
9

Ml components
Currency3
Travelers checks"
Demand deposits5
Other checkable deposits6

Nonlransaclton components
10 In M27
11 In M3 only8

Repurchase agreements and Eurodollars
20 Repurchase agreements12
21 Eurodollars12
Debt components
22 Federal debt
23 Nonfederal debt

3,492.4
9,507.0'

3,638.9
10,058.7'

1.082.8
3,826.1
4,931.1
6,083.6
14,425.2'
394.9

243.1

Not seasonally adjusted

24
25
26
27
28

Measures
Ml
M2
M3
L
Debt . .

29
30
31
32

Ml components
Currency
Travelers checks4
Demand deposits5
Other checkable deposits6 ..

1.174.4
3.523.4
4,353.2
5,344.6
13,002.0'

1,152.4
3,672.0
4,615.2
5,732.8
13,699.1'

1,104.9
3,845.4
4.948.9
6,111.6

14,425.5'

1,097.6
4,065.3'
5,394.0'
6.636.8'
15,167.4'

357.5
8.1
400.3
408.6

8.5
407.2
360.5

397.9
8.3
419.9
278.8

2,349.0
829.7

2,519.6
943.2

2.740.5
1,103.5

2,967.8'
1,328.6'

3,088.6
1,431.9

3,117.5
1,438.5

3.140.7
1,423.4

3,179.4
1,456.4

751.7
501.5
298.9

774.1
573.8
345.8

903.3
592.7
413.6

1,019.0
624.1
488.0'

1,077.1
624.7
529.9

1,091.6
623.9
534.9

1,106.1
624.3
521.0

1,119.6
626.5
528.5

396.8

359.2
355.9
74.3

366.4
353.2
78.1

375.9
343.0
85.4

394.7
339.5

397.6

313.2
64.8

86.7

339.1
87.3

400.0
337.8
86.7

400.9
334.0
86.2

Money market mutual funds
41 Retail
42 Institution-only

385.9
204.6

456.4
255.8

524.8
312.7

605.8'
378.9

652.6
414.1

665.2
424.5

672.6
425.3

698.4
441.1

Repurchase agreements and Eurodollars
43 Repurchase agreements12
44 Eurodollars12

179.6
81.8

178.0
89.4

188.8
110.3

229.4'
146.9

265.5
135.7

259.4
132.3

258.5
132.0

265.9
134.8

3,499.0
9.503.1'

3,645.9
10,053.1'

3,787.9
10.637.6'

3,805.8
11,361.6'

3.765.7
11,756.0

3,755.2
11,839.4

3,740.8
11.919.8

Nontransactwn components
33 In M27
34 In M3 only8
Commercial banks
35 Savings deposits, including MMDAs ..
36 Small lime deposits9
37 Large time deposits10 ''
Thrift institutions
38 Savings deposits, including MMDAs . ,
39 Small time deposits9
40 Large time deposits10

Debt components
45 Federal debt . . . .
46 Nonfederal debt
Footnotes appear on following page.




376.2

429.0

A14

Domestic Financial Statistics • November 1998

NOTES TO TABLE 1.21
1. Latesi monthly and weekly figures are available from the Board's H.6 (508) weekly
statistical release. Historical data starting in 1959 are available from the Money and Reserves
Projections Section, Division of Monetary Affairs, Board of Governors of the Federal Reserve
System. Washington, DC 20551.
2. Composition of the money stock measures and debt is as follows:
Ml: (I) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of
depository institutions. (2) travelers checks of nonbank issuers. (3) demand deposits at all
commercial hanks other than those owed to depository institutions, the U.S. government, and
foreign banks and official institutions, less cash items in the process of collection and Federal
Reserve float, and (4) other checkable deposits (OCDs), consisting of negotiable order of
withdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions.
credit union share draft accounts, and demand deposits at thrift institutions. Seasonally
adjusted Ml is computed by summing currency, travelers checks, demand deposits, and
OCDs, each seasonally adjusted separately.
M2: Ml plus (1) savings deposits (including MMDAs), (2) small-denomination time
deposits (time deposits—including retail RPs—in amounts of less than $100,000), and (3)
balances in retail money market mutual funds (money funds with minimum initial investments of less than $50,000). Excludes individual retirement accounts (IRAs) and Keogh
balances at depository institutions and money market funds. Seasonally adjusted M2 is
calculated by summing savings deposits, small-denomination time deposits, and retail money
fund balances, each seasonally adjusted separately, and adding this result to seasonally
adjusted Ml.
M3: M2 plus (I) large-denomination lime deposits fin amounts of $100,000 or more)
issued by all depository institutions. (2) balances in institutional money funds (money funds
with minimum initial investments of $50,000 or more), (3) RP liabilities (overnight and term)
issued by all depository institutions, and (4) Eurodollars (overnight and term) held by U.S.
residents at foreign branches of U.S. banks worldwide and at all banking offices in the United
Kingdom and Canada. Excludes amounts held by depository institutions, the U.S. government, money market funds, and foreign banks and official institutions. Seasonally adjusted
M3 is calculated by summing large time deposits, institutional money fund balances, RP
liabilities, and Eurodollars, each seasonally adjusted separately, and adding this result to
seasonally adjusted M2.
L M3 plus the nonbank public holdings of U.S. savings bonds, short-term Treasury
securities, commercial paper, and bankers acceptances, net of money market fund holdings of




these assets. Seasonally adjusied L is computed by summing U.S. savings bonds, short-term
Treasury securities, commercial paper, and bankers acceptances, each seasonally adjusted
separately, and then adding this result to M3.
Debt: The debt aggregate is the outstanding credit market debt of the domestic nonfinancial
sectors—the federal sector (U.S. government, not including government-sponsored enterprises or federally related mortgage pools) and the nonfederal sectors (state and local
governments, households and nonprofit organizations, nonfinancial corporate and nonfarm
noncorporate businesses, and farms). Nonfederal debt consists of mortgages, tax-exempt and
corporate bonds, consumer credit, bank loans, commercial paper, and other loans. The data,
which are derived from the Federal Reserve Board's flow of funds accounts, are breakaiijusied (that is. discontinuities in the data have been smoothed into the series) and
month-averaged (that is, the data have been derived by averaging adjacent month-end levels).
3. Currency outside the US. Treasury, Federal Reserve Banks, and vaults of depository
institutions.
4. Outstanding amount of U.S. dollar-denominated travelers checks of nonbank issuers.
Travelers checks issued by depository institutions are included in demand deposits
5. Demand deposits at commercial banks and foreign-related institutions other than those
owed to depository institutions, the U.S. government, and foreign banks and official institutions, less cash items in the process of collection and Federal Reserve float.
6. Consists of NOW and ATS account balances at all depository institutions, credit union
share draft account balances, and demand deposits at thrift institutions.
7. Sum of (1) savings deposits (including MMDAs), (2) small time deposits, and (3) retail
money fund balances.
8. Sum of (1) large time deposits, (2) institutional money fund balances, (3) RP liabilities
(overnight and term) issued by depository institutions, and (4) Eurodollars (overnight and
term) of U.S. addressees.
9. Small time deposits—including retail RPs—are those issued in amounts of less than
$100,000. All IRAs and Keogh accounts at commercial banks and thrift institutions are
subtracted from small time deposits.
10. Large time deposits are those issued in amounts of $100,000 or more, excluding those
booked at international banking facilities.
11. Large time deposits at commercial banks less those held by money market funds,
depository institutions, (he U.S. government, and foreign banks and official institutions.
12. Includes both overnight and term.

Commercial Banking Institutions—Assets and Liabilities A15
1.26

COMMERCIAL BANKS IN THE UNITED STATES
A. All commercial banks

Assets and Liabilities'

Billions of dollars
Monthly averages
Account

1997
Aug.

Wednesday figures

1998'
Feb.

Mar

Apr.

May

1998
June

July

Aug

Aug. 5

Aug. 12

Aug. 19

Aug. 26

Seasonally adjusted

1
2
3
4
5
b
7
8
9
10
11
12
13
14
15

Assets
Bank credit
Securities in bank credit
U.S. government secunties
Other securities
Loans and leases in bank credit : ..
Commercial and industrial
Real estate
Revolving home equity ..
Other
Consumer
Security1
Other loans and leases
Interbank loans
Cash assets4
Other assets^

16 Total assets 6
17
18
19
20
21
22
23
24
25
26

Liabilities
Deposits
Transaction
Nontransaction
Large time
Other
Borrowings
From banks in the US
From others
Net due to related foreign offices
Other liabilities

27 Total liabilities
28 Residual (assets less liabilities)7

3,981.8'
1,032.3'
714.9
317.4'
2,949.5
828.4'
1,204.8'
94.3
1,110.5'
518.2
94.6
303.5
191.0
261.8
290.91

4.185.0
1,112.8
770.4
342.4
3,072.2
870.7
1,251.7
98.1
1,153.6
502.1
118.1
329.6
200.5
264.5
301.2

4,222.9
1.129.6
782.0
347.6
3.093.2
872.7
1.264.6
98.3
1.166.3
502.1
116.9
337.0
218.1
275.9
295.8

4,220.3
1.109.8
766.1
343.6
3.110.5
870.4
1,273.1
98.4
1,174.7
505.5
115.8
345.7
214.6
268.8
308.8

4.248 7
1,125.7
773.3
352.4
3,123.0
878.6
1.274.9
97.9
1.176.9
505.9
120.9
342.8
202.2
250.7
313.4

4,260.0
1,119.9
756.6
36.1.2
3,140.1
888.4
1,274.0
97.7
1,176.3
502 7
127.7
347.2
217.3
250.8
313.3

4,278.1
1,127.9
759.5
368.5
3,150.1
893.9
1,275.4
97.4
1,178.0
496.7
131.1
353.0
213.6
243.7
310.9

4,338.3
1,153.3
769.7
383.6
3,185.0
901.5
1,285.0
97.4
1.187.6
494.3
138.4
365.9
208.1
251.9
312.0

4,302.2
1.140.0
771.8
368.2
3,162.2
895.2
1,283.9
97.3
1.186.6
493.3
132.0
357.8
211.9
242.1
307.0

4,318.6
1.142.6
761.6
380.9
3.176.0
898.0
1,288.9
97.2
1,191.6
492.6
135.3
361.2
211.1
264.8
311.0

4,327.1
1.147.6
765.4
382.2
3,179.5
901.6
1.279.9
97.4
1,182.5
494.3
140.9
362.8
195.7
243.6
313.2

4.365.0
1,167.4
773.9
393.5
3,197.6
904.6
1,284.1
97.4
1,186.7
496.2
142.1
370.6
212.9
264.3
309.2

4,669.0'

4,8943

4^)55.7

4555.0

4,957.4

4,983.9

4,988^

5,053.4

5,006.0

5,0484

5,022Ji

5,0943

3,033.4
699.3
2.334.0
604.0
1,730.0
756.5
291.6'
464.8
207.3
285.4'

3,159.2
688.9
2,470.4
660.8
1.809.6
827.3
292.0
535.4
226.9
303.5

3 198.8
698.3
2,500.5
677.3
1,823.1
856.9
306.8
550.1
205.4
296.1

3,211.9
696.6
2.515.3
674.5
1,840.7
8707
305.9
564.8
179.8
295.2

3,205.5
687.5
2.518.0
674.9
1.843.1
861.8
282.2
579.6
174.4
299.1

3,223.0
682.8
2,540.2
685.1
1.855.1
857.3
287.6
569.7
170.6
308.2

3,197.1
667.0
2,530.1
667.4
1,862.8
856.8
289.3
567.5
186.1
317.9

3,228.8
667.6
2,561.3
679.2
1.882.1
861.6
293.9
567.7
201.1
325.4

3,232.6
660.3
2,572.3
681.6
1,890.8
851.1
291.4
559.8
184.5
319.9

3.225.1
666.7
2,558.4
675.8
1,882.5
864.3
296.3
568.0
196.7
327.3

3.212.3
664.7
2,547.6
675.1
1,872.5
844.8
285.2
559.6
207.1
323.1

3.236.5
689.4
2,547.1
679.0
1,868.2
867.4
296.7
570.7
215.9
326.2

4,282.6'

4,516.9

4^57.2

4357.6

4340.7

4359.1

4358.0

4,617.0

4388.1

4,6133

43873

4,646.0

386.4'

377.4

398.6

397.4

416.7

424.8

430.8

436.5

417.9

435.1

435.4

448.5

Not seasonally adjusted

29
30
31
32
3.3
34
35
36
37
38
39
40
41
42
43

Assets
Bank credit
Securities in bank credit
U.S. government securities
Other securities
Loans and leases in bank credit- . . .
Commercial and industrial
Real estate
Revolving home equity
Other
Consumer
Security1
Other loans and leases
Interbank loans
Cash assets4
Other assets*

44 Total assets 6
45
46
47
48
49
50
51
52
53
54

Liabilities
Deposits
Transaction
Nontransaction
Large lime
Other
Borrowings
From banks in the U.S
From others
Net due to related foreign offices
Other liabilities

55 Total liabilities
56 Residual (assets less liabilities)7

3,972.4'
1,025.8'
711.5
314.3'
2,946.6
823.1'
94.4
1,113.5'
519.9
91.6
304.1
185.2
249.1
293.ff

4,182.6
1,116.4
769.2
347.2
3.066.1
870.6
1.246.4
97.7
1,148.7
501.7
119.6
327.9
203.4
264.7
302.3

4,213.9
1,131.4
785.3
346.1
3,082.4
876.2
1.258.0
97.2
1,160.8
495.6
117.8
334.8
217.8
264.4
295.6

4,225.4
1,120.9
774.5
346.5
3,104.4
878.0
1,266.6
97.5
1,169.1
500.5
117.3
342.1
217.3
264.1
307.2

4,243.6
1,130.4
777.9
352.5
3,113.3
884.1
1.268.6
97.6
1,171.0
5O0.6
120.5
339.5
197.8
246.3
312.8

4.261.4
1,122.9
759.1
363.8
3,138.6
891.2
1,271.6
97.4
1,174.2
499.9
127.7
348.2
214.0
245.8
311.7

4,272.1
1,122.3
755.6
366.7
3,149.8
893.5
1,277.6
97.5
1,180.1
494.7
129.0
355.0
207.2
239.3
312.1

4.324.8
1,144.8
764.9
379.9
3.180.1
895.5
1,288.6
97.5
1,191.1
495.9
133.9
366.2
201.0
239.6
314.0

4.301.6
1.137.1
767.8
369.1
3,164.5
893.5
1,287.0
97.3
1,189.7
492.7
130.7
360.6
209.0
237.2
310.9

4,306.7
1,135.0
757.0
377.9
3,171.7
893.0
1,293.9
97.3
1,196.6
493.1
131.4
360.3
203.0
244.7
312.9

4,3140
1,138.0
761.5
376.4
3,176.0
896.7
1,283.1
97.4
1,185.7
496.3
136.0
363.9
190.9
231.6
314.2

4.335.8
1,152.4
766.6
385.7
3,183.4
894.9
1,286.9
97.6
1,189.3
499.1
134.6
367.9
197.4
238.8
309.1

4,642.7'

4,8963

4,934,7

4^56.8

4,943.1

4,975.4

4,973.2

5,022.2

5.O01J

5,010.0

4,993.4

5,023.9

3,022.8
685.6
2,337.2
602.9
1,734.3
750.1
2S8.2
461.9
206.5
285.5'

3,146.4
682.1
2.464.3
659.7
1,804.6
827.9
292.9
535.0
225.5
304.6

3,189.5
685.9
2,503.6
674.8
1.828.8
848.6
304.3
544.3
203.9
296.3

3,211.3
701.7
2,509.6
669.0
1.840.6
870.1
305.0
565.1
179.0
294.4

3,189.0
675.6
2,513.4
675.2
1,838.2
867.3
283.4
583.9
183.0
298.6

3,215.0
677.8
2,537.2
682.8
1.854.4
867.1
290.6
576.5
176.5
307.4

3,189.6
662.1
2,527.5
664.1
1,863.4
861.4
289.6
571.8
188.2
317.2

3,218.6
654.1
2,564.5
678.2
1,886.3
854.6
289.9
564.7
201.6
325.4

3,238.5
661.7
2,576.8
679.4
1,897.3
847.6
288.4
559.1
178.5
319.5

3,211.1
648.6
2,562.5
673.4
1,889 0
853.5
290.3
563.2
196.7
327.5

3.201.4
651.2
2.550.2
673.8
1,8764
842.7
283.7
558.9
206.3
322.9

3,195.3
649.7
2,545.6
680.4
1,865.2
855.2
290.9
564.4
222.0
326.5

4,265.0'

J3044

4338.4

4354.8

4337.9

4366.0

4356.4

4.600.3

4384,0

4388.8

43733

4399.0

377.7'

391.8

396.3

402.0

405.2

409.4

416.9

421.9

417.3

421.2

420.2

424.9

90.7

88.3

87.8

83.8

85.8

92.7

92.7

95.7

91.5

96.1

92.8

97.6

92.2

89.9

89.4

84.4

84.9

90.7

90.5

96.4

92.4

98.3

93.2

98.0

\2VI.9

MEMO

57 Revaluation gains on off-balance-sheet
items*
58 Revaluation losses on off-balancesheet items*
Footnotes appear on p. A21.




A16

Domestic Financial Statistics • November 1998

1.26 COMMERCIAL BANKS IN THE UNITED STATES
B. Domestically chartered commercial banks

Assets and Liabilities'—Continued

Billions of dollars
Monthly averages
1997

Account

Aug

Wednesday figures
1998

1998'
Feb

Mar.

Apr

May

June

July

Aug.

Aug. 5

Aug. 12

Aug. 19

Aug. 26

Seasonally adjusted

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Assets
Bank credit
Securities in bank credit
U.S. government securities
Olhcr securities
Loans and leases in bank credit2
Commercial and industrial
Real estate
Revolving home equity
Other
Consumer
Security1
Other loans and leases
Interbank loans
Cash assets4
Other assets5

- .

16 Total assets6
17
18
19
20
21
22
23
24
25
26

Liabilities
Deposits
Transaction
Nontransaction
Large time
Other
Borrowings
From hanks in the US
From others
Net due to related foreign offices
Other liabilities

27 Total liabilities
2 8 R e s i d u a l (assets less liabilities)''

....

1447 0
856.9
613.0
223.9
2.590.2
606.4'
I.I76.21
94.3
1,081.9'
518.2
51.2
238.3
172.6
227.8
246.4

3.613.4
915.3
684.8
230.5
2,698.1
648.8
1,224.6
98.1
1,126.5
502.1
62.9
259.6
174.5
231.4
259.8

3,656.7
929.5
693.2
236.3
2,727.2
653.0
1,238.7
98.3
1,140.4
502.1
67.8
265.6
195.1
241.3
259.3

3.663.4
915.6
676.9
238.7
2,747.8
657.3
1,248.2
98.4
1.149.8
505.5
63.6
273.2
192.0
213.2
272.7

3.685.7
928.6
684.2
244.5
2,757.0
666.8
1.250.5
97.9
1,152.6
505.9
61.8
272.0
180.4
215.9
279.3

3,693.9
920.8
669.3
251.6
2.771.1
675.5
1.249.9
97.7
1.152.1
502.7
67.5
277.5
193.4
215.5
279.1

3,706.0
928.1
669.3
258.8
2,778.0
677.8
1,251.6
97.4
1,154.1
496.7
696
282.1
191.6
208.5
276.7

3 748.5
942.6
676.8
265.8
2,805.9
684.4
1,261.3
97.4
1.163.9
494.3
73.3
292.6
185.6
217.9
276.3

17143
925.6
671.0
254.6
2.788.7
680.9
1.259.8
97.3
1.162.6
49V1
67.5
287.2
192.5
208.2
272.9

.1.732.5
931.1
667.8
265.3
2,799.4
682.3
1,265.0
97.2
1,167.8
492.6
69.8
289.7
189.2
229.7
277.0

3.746.0
944.5
678.4
266.1
2,801.5
684.3
1,256.2
97.4
1,158.9
494.1
76.1
290.5
176.3
209.8
276.3

1,771.2
955.0
681.6
273.5
2.816.2
687.1
1,260.6
97.4
1,163.2
496.2
76.9
295.4
186.0
230.9
273.2

4,037.5

4,222.6

4.295.7

4,-104.0

4,304.0

4,324.7

4,325.6

4,371.6

4,331.0

4,371.7

4,351.8

4,404.7

2,771.1
688.2
2,082.9
353.7
1,729.2
611.6'
260.0
153.6'
75.4
185.7'

2,871.4
677.1
2.194.0
387.4
1,806.7
682.9
268.6
414.3
87.9
206.4

2.907.5
686.4
2,221.2
400.8
1,820.4
704.1
279.8
424.3
82.8
207.1

2,917.9
684.4
2,233.5
394 5
1,839 0
704.7
279.2
425.4
77 4
210.1

2,910.2
676.0
2,234.2
391.7
1,842.6
698.4
259.8
438.6
73.3
211.8

2,920.3
671.7
2.248.6
393.2
1,855.5
690.2
258.0
432.2
73.4
218.1

2,899.9
653 6
2,246,2
384,5
1,861.7
686.9
262.5
424.5
79.3
224.9

2,922.6
655.8
2,266.8
384.0
1,882.8
691.6
269.8
421.8
92.8
226.8

2,925.3
648.3
2,276.9
386.4
1,890.5
675.2
267.6
407.6
79.8
222.3

2,923.4
655.6
2,267.8
385.1
1,882.7
691.9
273.2
418.7
92.8
226.3

2,909.2
653.3
2,255.9
382.5
1,873.4
680.4
261.8
418.6
95.9
223.5

2,928,5
677.9
2,250.7
381.3
1,869.4
705.2
275.4
429.8
101.5
229.9

3,645.7r

3,848.6

3,901.5

3,910.0

3,893.6

3,902.0

3,891.0

3,933.8

3,902.6

3,934.3

3,909.0

3,965.1

391.8'

374.0

394.3

394.0

410.3

422.7

434.6

437.8

428.5

437.4

442.8

439.6

Not seasonally adjusted

29
30
31
32
33
34
35
36
37
38
39
40
41
42
43

Assets
Bank credit
Securities in bank credit
U.S government securities
Other securities
Loans and leases in bank credit3
Commercial and industrial
Real estate
Revolving home equity
Other
Consumer
Securiiy*
Other loans and leases
Interbank loans
Cash assets4
Other assets'

....

44 Total assets^
45
46
47
48
49
50
51
52
53
54

Liabilities
Deposits
Transaction
Nontransaction
I arge lime
Other
Borrowings
....
From banks in the U.S
From others
Net due to related foreign offices
Other liabilities

55 Total liabilities
56 Residual (assets less liabilities)7

....

3.435.4
846.5
628.7
217.9
2,588.8
602.1'
1.179.4'
94.4
1.085.O1
519.9
48.9
238.7
166.8
215.0
247.5

3.611.4
921.8
684.5
237 3
2,689.6
647.6
1,219.1
97.7
1,121.4
501.7
64.2
257.0
177.5
232.1
259.5

1,647.5
932.8
695.8
237.0
2,714.7
655.9
1,232.1
97.2
1.114.8
495.6
67.9
263.2
194.6
2.11.0
259.2

3.668.2
924.8
6867
238.1
2.743 4
6648
1.241 9
975
1.14J.4
500.5
65.7
270.5
194.7
230.2
273.0

3,6789
929.4
688.2
241.2
2.749.5
672.9
1,244.1
97.6
1,146.7
500.6
61.9
269.8
176.0
211.9
278.3

3,692.3
920.6
671.6
249.0
2,771.7
678.3
1,247.6
97.4
1,150.2
499.9
67.6
278.3
190.1
209.5
278.4

3,697.2
919.7
665.8
253.9
2,777.5
677.7
1,253.9
97.5
1.156.4
494.7
68.0
283.1
185.2
204.2
278.3

3,732.6
929.8
671.2
258.7
2,802.7
679.5
1,265.0
97.5
1.167.5
495.9
69.6
292.7
178.6
205.6
277.4

3.709.2
918.1
667.5
250.7
2,791.1
679.7
1,263.3
97.3
1.166.0
492.7
66.3
289.0
189.6
203.3
276.0

3.717.4
920.5
662.6
257.9
2,796.9
678.0
1,270.2
97.3
1,172.9
493.1
67.1
288.6
181.1
209.8
278.1

3,727.5
928.9
672.4
256.5
2,798.5
679.7
1,259.6
97.4
1,162,1
496.3
71.8
291.3
171.5
197.7
276.5

3.742.9
937.2
673.9
263.3
2,805.7
679.3
1,261.5
976
1,165.9
499.1
70.8
293.0
170.6
205.3
272.2

4,007.9

4,224.1

4,275.7

4,309.2

4,288.0

4,313.0

4,307.7

4,337.0

4,320.9

4,329.3

4,316.1

4,334.1

2,761.7
674.5
2,087.2
355.4
1.731.8
607.2
256.6
350.6
77.9
185.7'

2,860.8
670.8
2,190.0
187.7
1,802.3
6835
269.5
414.0
85.1
206.4

2.897.1
674.1
2.223.0
396.2
1.826 8
695.8
277.3
418.5
82.1
207.1

2.919.0
689.9
2.229.1
390 1
1,838,8
704.1
278.4
425.7
78.0
210.1

2,891.0
664.4
2,226.6
389 9
1,8367
703.9
261.0
443.0
80.9
211.8

2,910.6
666.7
2.243.9
390 8
1.853J
699.9
261.0
439.0
80.1
218.1

2,894.2
648.6
2.245.5
38.1.4
1.862.1
691.5
262.7
428.7
84.9
224.9

2,913.7
642.4
2.271.3
386.4
1,884.9
684.7
265.9
418.8
96.7
226.8

2,933.2
649.9
2.283.3
387.2
1,896.0
671.6
264.7
406.9
83.7
222.1

2,911.9
637.6
2,274.3
386.6
1.887.7
681.1
267.2
411.9
95.3
226.3

2,900.2
639.9
2,260.3
385.3
1,875.1
678.2
260.3
417.9
100.1
223.5

2,886.6
618.4
2,248.2
384.4
1,863.9
693.0
269.6
423.4
106.6
229.9

3,632.5'

3,835.9

3,882.1

3,911.1

3,887.6

3,908.7

3,895.4

3,921.8

3,910.7

3,914.6

3,901.9

3,916.1

375.4'

388.2

393.6

398.1

400.3

404.3

412.3

415.2

410.2

4147

414.1

418.0

45.1

47.0

47.2

43.9

45.6

50.5

51.0

51.9

47.5

51.7

50.3

54.2

46.5
256.3

49.2
294.5

49.6
300.7

45.1
295.6

46.1
298.0

50.1
291.2

50 4
294.4

54.2
301.9

498
298.0

54.8
297.7

52.0
301.0

558
303.5

MEMO

57 Revaluation gains on off-balance-sheet
items*
58 Revaluation losses on off-balance
sheet items8
59 Mortgage-backed securities''
Footnotes appear on p. A21,




Commercial Banking Institutions—Assets and Liabilities A17
1.26

COMMERCIAL BANKS IN THE UNITED STATES
C. Large domestically chartered commercial banks

Assets and Liabilities'—Continued

Billions of dollars
Monthly averages
Account

1998'

1997
Aug.

Wednesday figures

Feb.

Mar.

Apr.

May

1998
June

July

Aug.

Aug. 5

Aug 12

Aug. 19

Aug. 26

2,238.5
508.4
348.2
18.5
329.7
160.2
76.2
84.0
22.6
61.4
1,730.1
486.5
1.2
486.7
678.6
67.7
610.9
291.0
60.9

2,259.7
517.1
346.3
19.7
326.7
170.7
84.1
86.6
22.5
64.1
1.742.6
487.5
1.2
487 8
683.9
67.6
616.3
292.2
63.3

2,264.9
525.0
353.7
21.2
332.5
171.3
82.5
88.8
22.5
66.3
1.739.9
488.1
1.3
488.4
672.6
67.6
604.9
292.5
69.9

2,289.8
537.3
359.2
23.7
335.5
178.1
89.1
89.0
22.6
66.4
1,752.5
490.4
1.3
490.8
675.4
67.6
607.7
294.4
70.7

42.6
18.3
IL:
9.8

43.9
19.5
11.1

50.8
19.1
11.4
9.8

51.4
19.3
11.2
9.8

Seasonal! adjusted
A.s.sels

1 Bank credit
2
Securities in bank credit
3
U.S. government securities
4
Trading account
5
Investment account
6
Other securities
7
Trading account
8
Investment account
9
State and local government
10
Other
11
Loans and leases in bank credit12
Commercial and industrial
13
Bankers acceptances
14
Other
15
Real estate
16
Revolving home equity
17
Other
18
Consumer
19
Security1
20
Federal funds sold to and
repurchase agreements
with broker-dealers
21
Other
22
State and local government
23
Agricultural
24
Federal funds sold to and
repurchase agreements
with others
25
All other loans
26
Lease-financing receivables
27 Interbank loans
28
Federal funds sold to and
repurchase agreements with
commercial banks
29
Other
30 Cash assets4
31 Other assets5

2,079.2
460.4
318.9
21.3
297.6
141.5
70.2
71.3
22.2
49.0
1,618.8
431.2
1.5
429.7
658.3
66.5
591.8
308.5
46.7

2,190.0
512.0
365.7
28.0
337.8
146.3
67.5
78.7
22.7
56.0
1.678.0
463.9
1.3
462.7
670.1
68.9
601.2
295.6
57.2

2,227.6
523.9
374.0
27.5
346.6
149.9
70.9
79.0
22.8
56.2
1,703.7
467.8
1.3
466.5
681.7
69.1
612.7
297.0
61.7

2,228.0
511.2
360.9
^3 7
337.2
150.3
69.4
80.9
23.0
58.0
1.716.8
470.6
1.2
469.4
686.1
69.4
616.7
301.2
57.3

2,240.9
520.1
364.4
24.5
339.9
155.7
74.4
81.4
22.8
58.6
1.720.8
AVI
1.3
476.4
685.8
68.8
617.1
300.8
55.9

2,239.0
512.1
350.4
24.3
326.1
161.7
78.5
83.2
22.2
60.9
1,726.9
484.2
1.2
483.0
679.1)
68.3
610.7
297.4
61.3

2,238.8
513.9
347.8
20.2
327.6
166.1
81.1
85.0
22.4
62.6
1,724.8
485.0
1.3
4JJ3.7
675.1
67.8
607.3
292.0
63.4

2,269.2
524.7
353.8
21.1
332.7
170.9

30.3
16.4
12.1
9.4

41.2
16.0
11.4
9.7

43.8
17.9
11.2
9.8

19.8
17.6
11.2
9.9

37.6
18.3
11.3
9.9

42 8
IS.6
11 2

47.9
19.0
11 2

95

44.8
18.6
II.1
9.8

6.5
69.2
76.9
121.6

6.2
78.4
85.5
119.3

7.2
79.8
87.4
132.5

7.2
82.7
90.5
127.8

5.6
81.0
92.7
115.5

5.5
847
93.6
124.9

8.7
84.8
95.0
120.4

89.9
97.9
112.5

8.7
86.5
96.8
120.7

88.5
97 6
116.7

9.2
88.5
97.9
105.3

10.8
91.5
98.3
111.1

76.8
44.8
158.5
183.7

70.5
48.8
165.3
196.9

82.2
50.3
174.9
197.4

76.1
51.7
165.8
209.1

65.1
50.3
148.3
214.1

74.5
50.4
147.0
2113

(,7.7
52.7
141.6
208.8

60.4
52.1
148.9
208.4

68.6
52.1
140.6
206.6

63.8
52.9
159.1
207.4

53.8
51.5
141.6
208.8

59.2
52.0
159.2
205.1

32 Total assets"

235.7

2,634.4

2,695.1

2,693.2

2,681.1

2,684.7

2.672.2

2,702.2

2,669.4

2,706.0

2,683.9

2,72X6

1,542.5
391.2
1,149.3
195.4
953.9
462.7
184.8
277.9
70.8
159.1

1,598.0
384.7
1,213.3
216.9
996.4
528.5
198.3
330.2
81.8
177.5

1.626.6
391.4
1,235.1
229.7
1,005.5
548.0
210.3
337.7
78.7
176.7

1.629.3
390.8
1,238.5
222.0
1.016.5
546.4
209.6
336.7
73.9
179.5

1.613.4
382.8
1,230.6
217.3
1,013.3
537.6
189.6
348.0
69.4
181.4

1.610.1
3766
1.233.5
218.7
I.0I4.H
528.1
187.2
341.1
69.5
187.8

1.586.3
161.7
1.224.6
212.4
1.012.2
522.0
188.9
333.2
75.6
193.9

1.593.9
363.2
1,230.7
211.2
1.019.5
527.2
195.9
311 2
89.1
196.0

1,602.5
159.3
1.243.2
2147
1,028.5
510.7
193.8
116.9
76.1
191.8

1.596.7
363.1
1.233.6
213.0
1.020.7
527.2
199.6
327.6
89.6
195.6

1.583.1
361.7
1,221.4
209.5
1.012.0
515.5
187.0
128.5
92.0
193.0

1,593.0
375.7
1.217.3
207.7
1.009.6
541-7
201.8
339.8
97.4
199.1

2,235.1

2J85.7

2,430.0

2,429.1

2,401.8

2,395.8

2.377.9

2,406.1

2381.0

2,409.1

2J83.6

2,431.2

270.7

248.7

265.1

264.1

279.3

289.0

294.3

296.0

288.4

296.9

300.3

297.4

33
34
35
36
37
18
39
40
41
42

Liabilities
Deposits
Transaction
Nontransaction
Large time
Other
Borrowings
From banks in the U S
From others
Net due to related foreign offices
Other liabilities

43 Total liabilities
44 Residual (assets less liabilities)7
Footnotes appear on p. A21




S3.

87.7
22.6
65.1
1.744.5
488.4
1.3
487.2
677 7
67.7
610.0
292.8
66.9

9.S

9.7

9.7

8.9

A18
1.26

Domestic Financial Statistics • November 1998
COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'—Continued
C. Large domestically chartered commercial banks—Continued
Wednesd, y figures

Monthly averages
Account

1997
Aug.

1998

1998'
Feb.

Mar.

May

Apr

June

July

Aug.

Aug. 5

Aug. 12

Aug. 19

Aug. 26

Not seasons lly adjusted
Assets
45 Bank credit
46
Securities in bank credit
47
U.S. government securities
48
Trading account
49
Investment account
50
Mortgage-backed securities .
51
Other
52
One year or less
53
One to five years
54
More than five years
55
Other securities
56
Trading account
57
Investment account
58
State and local government . .
59
Other
60
Loans and leases in bank credit- .
61
Commercial and industrial
62
Bankers acceptances
63
Other
64
Real estate
65
Revolving home equity
....
66
Other
67
Commercial
68
Consumer
69
Security'
70
Federal funds sold to and
repurchase agreements
with broker-dealers . . . .
7!
Other
72
Stale and local government
73
Agricultural
74
Federal funds sold to and
repurchase agreements
with others
75
All other loans
76
Lease-financing receivables
77 Interbank loans
78
Federal funds sold to and
repurchase agreements
with commercial banks
79
Other
80 Cash assets4
81 Other assets5
82 Total assets'
83
84
85
86
87
88
89
90
91
92

Liabilities
Deposits
Transaction
Nontransaction
Large time
Other
Borrowings
From banks in the US
From nenbanks in the U.S
Ncl due to related foreign offices
Other liabilities

93 Total liabilities
94 Residual (assets less liabilities)7

2,068.1
451 1
315.5
21.3
294.2
192 0
101.0
27.8
51.1
22.0
135.7
64.8
70.9
22.2
48.7
1,616.9
428.3
1.5
426.8
661.2
66.8
365.1
226.1
310.1
44.4

2.196.5
520.6
367.5
28.4
339.1
224.1
113.5
29.7
52.3
31.5
153.1
74.2
78.8
22.7
56.1
1,675.9
463.1
1.2
461.9
668.4
68.5
366.5
230.2
295.2
58.6

2,222.0
525.8
375.4
28.3
347.1
228.8
116.8
30.4
52.2
34.2
150.4
71.4
79.0
22.7
56.3
1,696.2
469.7
1.2
468.5
677.5
68.1
376.0
230.2
292.5
61.8

2,227.1
514.9
365.6
23.9
341.7
222 5
117.8
31.7
51.6
34.5
149.3
69.0
80.3
22.9
57.3
1.712.2
475 7

2,227.1
516.7
365.1
23.7
341.4
222.3
117.7
30.2
50.2
37.3
151.6
70.9
80.7
22.7
58.0
1,710.4
481.1

1.2

1.2

1.2

474 5
680.2
68.4
377.1
231.5
297.1
59.4

480.1
678.0
68.3
374.6
231.9
296.8
56.0

28.6
15.8
12.2
9.7

42.5
16.1
11.4
9.3

44.0
17.8
11.2
9.4

41.7
17.7
11.1
9.5

6.5

6.2
76.9
86.8
118.3

7.2

68.7
75.9
118.8

78.9
88.0
128.2

74.6
44.2
147.9
183.7

69.7
48.6
166.2
196.9

2.4S1.0

2.253.7
513.0
149.0
20.9
328.1
221.8
1049
27.7
46.8
30.4
164.0
76.8
87.2
22.7
64.6
1,740.7
485.1
1.3
483.8
681.0
68.0
377.9
231.3
294.4
63.2

2,236.0
502.8
346.3
19.2
327.1
219.9
107.2
28.0
48.4
30.9
156.5
72.7
83.7
22.5
61.2
1,733.2
486.4
1.2
485.2
682.4
67.9
381.8
232.8
291.2
59.7

2,244.4
505.0
341.5
19.4
322.1
218.7
103.4
27.6
45.4
30.4
163.4
77.3
86.1
22.5
63.6
1,739.4
484.5
1.2
483.3
688.3
67.8
387.7
232.7
292.8
60.6

2.247.7
511.2
349.2
22.0
327.3
221.7
105.6
28.5
47.3
29.8
162.0
73.9
88.1
22.6
65.6
1.736.5
485.0
1.3
483.8
675 7
67.9
374.5
23V3
294.4
65.5

2.260.5
519.7
351.5
22.0
329.5
224.2
105.3
27.5
46.9
30.9
168.2
79.9
88.3
22.7
65.6
1 740.9
484.5

484.1
676.1
68 0
374.2
230.7
296.2
61.4

2,231.8
506.9
345.6
19.6
325.9
215.2
109.4
29.1
498
30.5
161.3
77.0
84.3
22.3
62.1
1,724.9
485.1
1.2
483.8
677.4
68.0
375.5
230.7
291.7
61.8

37.6
184
11.2
9.7

42.4
19.0
11.2
10.0

43.8
18.1
11.1
10.1

45.0
18.3
11.3
10.1

42.4
17.4
11.2
10.2

42.5
18.2

47.2
18.3
11.4
10.1

45.6
18.9
11.3
10.2

7.2
81.7
90.3
128.5

5.6
79.8
92.0
114.8

5.5
84.9
93.2
125.3

8.7
84.5
94.5
119.4

9.7
89.2
96.7
110.0

8.7

8.9

87.4
95.9
118.4

964

112.2

9.2
88.4
96.7
105.1

10.8
88.5
97.0
105.7

166.1
197.4

77.3
51.2
163.4
209.1

64.8
50.0
144.3
214.1

74.9
50.5
141.9
211.3

67.0
52.4
138.0
208.8

58.6
514
138.9
208.4

66.9
51.5
136.4
206.6

60.7
51.5
143.0
207.4

54.3
50.8
132.0
208.8

54.3
514
139.4
205.1

2,640.9

2,676.7

2,690.9

2,662.9

2,673.6

2,660.5

2,67.«

2,660.2

2,669.8

2,656.5

2,673.7

1.539 3
383.9
1,155.5
197 1
958.3
455.3
180.7
274.6
733
159.1

1,590.5
381.6
1,208.9
217.3
991.6
530.8
20O.0
330.8
79.0
177.5

1,614.5
382.2
1,232.3
225.1
1.007.2
543.0
209.0
334.0
78.0
176.7

1.622.1
392.8
1,229.3
217.8
1,011.6
547.6
209.1
338.5
74.5
179.5

1,593.6
373.3
1.220.3

1,586 3
359.5
1,226.8
211 \
1,015.5
526.5
188.9
337.6
81.2
193.9

1,591.5
354.0
1,237.5
213.6
1.023.9
518.9
191.3
327.6
92.9
196.0

1.609.9
359.4
1,250.5
215.5
1,035.0
507.7
190.9
316.9
80.0
191.8

1,591.9
350.7
1,241.2
214.4
1.026.8
515.4
192.9
322.5
92.1
195.6

1,582.1
353.5
1,228.6
212.2
1,016.3
511.6
184.5
327.1
96.2
193.0

1.568.6
349.0

352.7
77.1
181.4

1.603.8
373.2
1.230.6
216.3
1.014.3
537.6
189.6
348.0
76.2
187.8

1227.0

2377.8

2A112

2,423.7

2J95.0

2.405.4

1J88.0

2J99.4

2J89.4

2J95.0

2J82.8

2,397.4

253.9

263.2

264.5

267.2

267.9

268.2

272.6

274.4

270.8

274.8

273.7

276.3

45.1

47.0

47.2

43.9

45.6

50.5

51.0

51.9

47.5

51.7

50.3

54.2

46.5
210.0
143.4

49.2
243.5
165.3

49.6
248.6
169.9

45.3
242.3
165.3

46.3
243.0
164.7

50.1
235.1
156.8

50.4
237.6
156.9

54.2
244.2
160.2

49 8
241.6
157.9

54.8
241.1
156.2

52.0
244.1
160.4

55.8
246.8
163.2

o6.7

78.1

78.8

77.0

78.3

78.2

80.7

84.0

83.7

85.0

83.7

83.5

2.2
34.0

3 3

2.9
35.2

3.0
35.5

2.8
360

3.2
36.1

3.5
35.3

3.1
35.6

2.9
35.5

3.0
35.6

2.9
35.6

3.2
35.5

788
494

215.5
I.0O1.8
542.9
190.1

2.232.6
508.8
350.1
23.4
326.7
213.8
111.6
30.2
47.0
34.3
158.7
75.7
82.9
224

6a6

1,723.8
485.3

111

10.1

86.7

1.3

483.1
677 4
67.9
376.1
233.4
296.7
64.6

1,219.6

210.8
1.008.8
527.3
194.9
332.4
102.5
199.1

MEMO

95 Revaluation gains on off-balancesheet items*
96 Revaluation losses on off-balancesheet items*
97 Mortgage-backed securities4
98
Pass-through securities
99
CMOs, RF.MICS, and other
mortgage-backed securities ..
100 Nel unrealized gains (losses) on
available-for-sale securities 10 . .
101 Offshore credit to U.S. residents' . ..
Footnotes appear on p. A21.




36.2

Commercial Banking Institutions—Assets and Liabilities A19
1.26

COMMERCIAL BANKS IN THE UNITED STATES
D. Small domestically chartered commercial banks

Assets and Liabilities'—Continued

Billions of dollars
Monthly averages
Account

1997
Aug.

Wednesd y figures

1998'
Feb.

Mar

Apr.

May

1998
June

July

Aug.

Aug. 5

Aug. 12

Aug. 19

Aug. 26

1,481.4
417.7
322.4
95.3
1,063.7
196.8
585.2
29.8
555.5
201.8
6.2
73.7
74.9
71.7
68.1

Seasonally adjusted

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Assets
Bank credit
Securities in bank credit
US. government securities
Other securities
Loans and leases in bank credit- . . . .
Commercial and industrial . . . .
Real estate
Revolving home equity
Other
Consumer
Security1
Other loans and leases
Interbank loans
Cash assets4
Other assets5

16 Total assets 6
17
18
19
20
21
22
23
24
25
26

Liabilities
Deposils
Transaction
Nontransaction
Large time
Other
Borrowings
From banks in the US
From others
Net due to related foreign offices
Other liabilities

27 Total liabilities
2 8 Residual (assets less liabilities)7

....

1,367.8
396.4
314.1
82.3
971.4
175.1
517.8
27.8
490.0
209.7

1,444.8
408.5
319.8
88.7
1,036.3
189.1
564.7
29.1
535.5
205.1

70.2
62.6
66.4
61.9

1,435.4
404.4
316.0
88.4
1,031.0
186.7
562.0
29.0
533.0
204.3
6.2
71.7
64.1
67.4
63.6

13883

1,600.6

1.273.4
2926
980.7
170.4
810.3
154.5
70.3
84.2

1.429.1
405.6
319.2
86.4
1,023.5
185.2
556.9
29.2
527.7
205.1

64.2
51.1
69.3
62.8

1,423.5
403.3
319.1
84.3
1,020.1
184.9
554.5
29.3
525.3
206.6
5.7
68.5
55.2
66.1
63.0

1331.8
1.228.6
295.0
933.5
158.3
775.3
150.9
75.2
75.7

4.5

6.1

1,467.3
414.1
321.5
92.6
1,053.2
192.8
576.5
29.6
546.8
204.7
6.2
72.9
71.1
66.9
67.9

1.479.3
417.9
323.0
94.9
1,061.5
I960
583.6
29.7
553.9
201.5
6.4
74.0
73.1
69.0
67.9

1 475.9
417.2
322.8
94.4
1,058.6
194.4
581.3
29.6
551.6
202.3
6.6
74.1
71.8
67.6
66.2

1.472.8
416.0
321.5
94.6
1.056.8
194.8
581.2
29.6
551.5
200.5

71.4
64.9
67.7
65.1

1.454.9
408.7
318.8
89.9
1,046.2
191.2
570.9
29.4
541.4
205.3
6.2
72.6
68.5
68.5
67.8

72.5
70.6
69.6

1,481.1
419.5
324.7
94.9
1.061.6
196.2
583.6
29.7
553.9
201.8
6.3
73.7
71.0
68.2
67,5

1,610.8

1,622.8

1,640.0

1,6534

1,669.4

1,661.6

1,665.7

1,667.9

1,676.1

1.288.5
293.6
995.0
172.5
822.5
158.3
69.6
88.7
3.5
30.6

1.296.8
293.2
1,003.6
174.4
829.2
160.7
70.2
90.6
3.8
30.4

1.310.2
295.1
1,015.1
174.5
840.6
161.9
70.8
91.1
3.9
30.3

1.313.5
291.9
1,021.6
172.1
849.5
164.9
73.6
91.3
3.7
31.0

1.328.8
292.6
1,036.1
172.8
863.3
164.5
73.9
90.6
3.7
30.7

1,322.8
289.1
1,033.7
171.7
862.0
164.5
73.8
90.7
3.7
30.5

1.3266
292.5
1,034.1
172.1
8620
164.7
73.6
91.1
3.3
30.6

1.326.1
291.6
1.034.5
173.0
861.4
164.8
74.8
90.1
3.9
30.5

1,335.5
302,1
1.033.4
173,6
859.S
163.5
73.6
89.9
4,1
30,9

5.9

6.4
739

4.6

6.1

266

290

1.281.0
294.9
986.0
171.1
814.9
156.1
69.5
86.6
4.1
30.3

1,410.6

1,462.9

1,471.5

1480.9

1491.8

1306.2

1313.1

1327.7

1321.6

13252

13253

1333.9

121 1

125.3

129.1

129.9

131.0

133.7

140.3

141.8

140.1

1405

142.5

142.2

Not seasonally adjusted

29
30
31
32
33
34
35
36
37
38
39
40
41
42
43

Assets
Bank credit
Securities in bank credit
U.S. government securities
Other securities
Loans and leases in bank credit- . . . .
Commercial and industrial
Real estate
Revolving home equity . . .
Other
Consumer
Security3
Other loans and leases
Interbank loans
Cash assets45
Other assets

44 Total assets 6
45
46
47
48
49
50
51
52
53
54

Liabilities
Deposits
Transaction
Nontransaction
Large time
Other
Borrowings
From banks in the U.S
From otliers
Net due to related foreign offices
Other liabilities

....

55 Total liabilities
5 6 Residual (assets less liabilities)7

MEMO
57 Mortgage-backed securities^
Footnotes appear on p. A21.




....

1,367.3
395.4
313.2
82.2
971.9
173.7
518.2
27 7
490.6
209.8
4.5
65.7
47.9
67.0
63.8

1,414.9
401.2
317.0
84.2
1.013.7
184.5
550.7
29 2
521.5
206.4
5.7
66.3
59.2
65.9
62.6

1,425.5
407.0
320.4
86.6
1.018.5
186.2
554.6
29.1
525.5
203.2
6.1
68.4
66.4
64.9
61.8

1,441.1
409.9
321.1
88.8
1.031.1
189.1
561.7
29.2
532.5
203.4
6.2
70.7
66.2
66.8
63.9

1,451.8
412.7
323.1
89.6
1.039.2
191.7
566.3
29.3
537.0
203.9
5.9
71.4
61.2
67.6
64.2

1,459.7
411.9
321.5
90.3
1.047.8
193.0
571.5
29.4
542.1
203.7
6.2
73.5
64.7
67.6
67.1

1,465.4
412.8
.320.2
92.6
1.052.6
192.6
576.5
29.5
547.0
203.0
62
74.2
65.8
66.3
69.5

1,478.8
416.8
322.2
94.7
1.062.0
194.4
584.0
29.5
554.5
201.6
6.4
75.6
68,6
66.7
69.0

1,473.3
415.4
321.2
94.2
1.057.9
193.3
580.9
29.4
551.4
201.5
6.6
75.7
71.2
66.8
69.3

1,473.0
415.5
321.1
94.4
1,057.5
193.5
581.9
294
552.5
2O0.3
6.4
75.4
68.9
66.7
70.7

1,479.7
417.7
323.1
94.5
1,062.1
194.7
583.9
29.5
554.3
201.9
6.3
75,4
66.3
65.7
67.7

1.482.4
4176
322.5
95.1
1,064.8
194.9
586.0
29.6
556.4
202.4
6.2
75.3
64.9
65.9
67.1

1326.9

1383.2

1399.0

1,6183

1,625.1

1,639.4

1,6472

1,6633

1,660.8

1,659.5

1,6593

1,6603

1,222.4
2906
931.7
158.3
773.5
151.9
75.9
76.0
4.6
26.6

1,270.4
289 3
981.1
170.4
810.7
152.7
69.6
83.1

1,296.9
207.1
999.7
172.5
827.2
156.5
69.3
87.2
3.5
30.6

1,297.3
291.1
1.006.2
174.4
831.8
161.1
70.9
90.2
3.8
30.4

1,306.8
293 5
1.013.3
174.5
838.8
162.3
71.4
91.0

1,322.2
288.4
1.033.8
172.8
861.0
165.8
74.6
91.1
3.7
30.7

1,318.0
289.3
1,028.7
173.6
855.1
165.7
74.7
91.0

3.9

4.1

30.5

1,320.0
286.9
1.033.1
172.1
860.9
165.7
74.3
914
3.3
30.6

1,318.1
286.4
1,031.8
173.0
858.8
166.6
75.9
90.8

30.3

1,307.9
289 1
1.018.7
172.1
846.6
164.9
73.8
91.2
3.7
31.0

1,323.3
290.5
1.032.8
171.7
861.1
163.9
73.8
90.1

29.0

1,282.6
291 9
990.7
171.1
819.6
152.9
68.4
845
41
30.3

30.5

30.9

1,4053

1,458.2

1,469.9

1,487.4

1.492.6

1303J

13073

1322.4

1321.4

1319.6

13192

1318.6

121.5

125.0

129.1

130.9

132.5

136.1

139.7

140.9

139.4

139.9

140.4

141.7

46.3

51.1

52.1

53.3

55.0

56.1

56.8

57.8

56.4

56.6

56.9

56.8

6.1

3.9

3.7

A20
1.26

Domestic Financial Statistics • November 1998
COMMERCIAL BANKS IN THE UNITED STATES
E. Foreign-related institutions

Assets and Liabilities1—Continued

Billions of dollars
Wednesd! y figures

Monthly averages

Aug.

1998

1998'

1997

Account

Feb.

Mar.

Apr.

May

June

July

Aug.

Aug. 5

Aug. 12

Aug 19

Aug. 26

Seasonally adjusted

1
2
3
4
5
6
7
8
9
10
11
12

Assets
Bank credit
Securities m bank credit
U.S. government securities
Other securities
Loans and leases in bank credit2 . ..
Commercial and industrial
Real estate
Security'
...
Other loans and leases
Interbank loans
Cash assets4
Other assets5

13 Total assets'
14
15
16
17
18
19
20
21

Liabilities
Deposits
Transaction
Nontransaction
Borrowings
From banks in the U S
From others
Net due to related foreign offices
Other liabilities

22 Total liabilities
23 Residual (assets less liabilities)

7

534.8'
175.5'
81.9
93.6'
359.4'
222.0
28.7
43 5
65.2
18.4
34.1
44.5'

571.5
197.5
85.6
111.9
374.1
221.9
27.1
55.2
69.9
25.9
33.1
41.3

566.1
200.1
88.8
111.3
366.0
219.6
25.9
49.1
71.3
23.1
34.5
36.4

556.9
194.1
89.2
105.0
362.8
213.1
25.0
52 2
72.5
22.6
35.6
36.2

563.0
197.0
89.1
107.9
366.0
211.8
24.4
59.1
70.8
21.8
34.8
34.1

566.0
199.0
87.4
111.7
367.0
213.0
24.2
60.2
69.7
23.9
35.3
34.1

572.0
199.9
90.2
109.7
372.2
216.1
23.9
61.5
70.7
22.0
35.2
34.2

589.8
210.7
92.9
117.8
379 1
217.1
23.7
65.1
73.2
22.5
34.0
35.8

587.9
214.4
100.8
113.6
373.5
214.3
24.0
64.5
70.7
19.4
33.8
34.1

586.1
209.5
93.8
115.6
376.6
215.7
23.8
65.5
71.5
21.9
35.0
34.0

581.1
203.1
87.0
116.1
378.0
217.3
23.7
64.8
72.3
19.4
33.8
36.9

593.7
212.4
92.3
120.1
381,3
217.4
23.5
65.2
75.1
26.8
33.5
36.0

6315'

671.7

660.0

651.0

653.4

659.2

663.2

6S1.8

675.0

676.8

671.0

689.8

262,3
11.1
251.2
142.9
31.6
111.3
131.9
99.7

287.9
11.5
276.3
144.4
23.4
121.0
139.0
97.1

291.2
12.0
279.3
152.8
27.0
125.8
122.6
89.1

294.0
12.3
281.8
166.0
26.6
139.4
102.5
85.1

295.3
11.5
283.7
163.4
22.4
141.0
101.2
87.3

302.6
11.1
291.6
167.1
29.6
137.5
97.2
90.1

297.2
1.3.4
283.9
169.9
26.8
143.1
106.8
93.0

306.2
11.8
294.4
169.9
24.0
145.9
108.3
98.7

307.3
11.9
295.4
175.9
23.8
152.2
104.7
97.6

301.7
11.1
290.6
172.4
23.1
149,3
103.9
101.0

303.0
11.3
291.7
164.5
23.4
141.1
111.2
99.6

308.0
11.5
296.5
162.2
21.3
140.9
114.4
96.3

636.9

6683

655.7

647.6

647.1

657.1

667.0

683.2

6855

679.0

6783

680.9

-3.8

-1.3

-10.5

-2.3

-7.4

8.9

-54'

3.3

4.3

3.4

6.4

2.1

Not seasonally adjusted
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39

Assets
Bank credit
Securities in bank credit
U.S. government securities
Trading account
Investment account
Other securities
Trading account
Investment account
Loans and leases in bank credit2 .. .
Commercial and industrial
Real estate
Security'
Other loans and leases
Interbank loans
Cash assets4
Other assets5

40 Total assets6
41
42
43
44
45
46
47
48

Liabilities
Deposits
Transaction
Nontransaction
Borrowings
From banks in the U S
From others
Net due to related foreign offices
Other liabilities

....

49 Total liabilities
50 Residual (assets less liabilities)7

38.4r
357.8
221.1
28.5
42.7
65.5'
18.4
34.1
45.5'

571.1
194.6
84.7
13.9
70.8
109.9
68.2
41.6
376.5
221.0
27.3
55.3
70.9
25.9
32.6
42.8

566.3
198.6
89.5
17.5
72.1
109.1
65.8
43.3
367.7
220.3
25.9
49.9
71.6
23.1
33.4
36.4

557.2
196.1
87.8
18.5
69.3
108.3
64.8
43.6
361.0
213.1
24.7
51.6
71.6
22.6
33.9
34.2

564.7
201.0
89.7
20.8
68.9
111.3
66.6
44.7
363.7
211.2
24.3
58.6
69.7
21.8
34.4
34.5

569.1
202.2
87.4
18.9
68.5
114.8
70.2
44.6
366.9
212.9
24.0
60.1
70.0
23.9
36.3
33.4

574.9
202.6
89.8
24.9
64.9
112.8
70.1
42.7
372.3
215.8
23.6
60.9
71.9
22.0
35.1
33.8

592,3
214.9
93.7
30.7
63.1
121.2
75.2
46.0
377.3
216.0
23.6
64.3
73.5
22.5
34.1
36.6

592.4
218.9
100.3
34.7
65.6
118.6
72.1
46.5
373.4
213.7
23.7
64.4
71.6
19.4
34.0
34.9

589.3
214.5
94.4
28.5
65.9
120.1
73.2
46.8
374.8
215.0
23.7
64.3
71.8
21.9
34.9
34.8

586.5
209.1
89.2
25.8
63.3
119.9
74.1
45.8
377.5
217.0
23.6
64,3
72.6
19.4
34.0
37.7

592.9
215.1
92.7
32.7
60.0
122.4
77.0
45.4
377.8
215.5
23.4
63.9
75.0
26.8
33.5
36.9

634.8

672.2

659.0

647.6

655.2

6624

6655

685.2

6804

680.6

677.4

689.9

261.1
11.1
250.0
142.9
31.6
111.3
128.7
99.8

285.6
11.3
274.3
144.4
23.4
121.0
140,3
98.2

292.5
11.9
280.6
152.8
27.0
125.8
121.7
89.3

292.3
11.8
280.5
166.0
26.6
139.4
101.0
84.3

298.0
11.2
286.8
163.4
22.4
141.0
102.1
86.8

304.4
11.1
293.3
167.1
29.6
137.5
96.5
89.3

295.4
13.5
282.0
169.9
26.8
143.1
103.3
92.3

304.9
11.8
293.2
169.9
24.0
145.9
105.0
98.7

305.4
11.8
293.5
175.9
23 8
152.2
94.8
97.2

299.2
11.0
288.2
172.4
23 1
149,1
101.3
101.2

301.1
11.3
289.8
164.5
23.4
141.1
106.2
99.5

308.7
11.4
297.3
162.2
21.3
140.9
115.5
96.5

6325

6685

6563

643.7

6503

6573

660.9

6785

6733

674.1

6713

682.9

2.3

3.7

2.7

3.9

4.9

5.1

4.6

6.7

7.1

6.5

6.0

6.9

45.7

41.3

40.6

39.9

40.2

42.2

41.7

43.8

44.0

44.4

42.5

43.5

45.7

40.6

39.8

39.0

38.6

40.6

40.2

42.2

42.5

43.4

41.1

42.2

537.0'
179.3'
82.8
17.4
65.4
96.5'

ssff

MEMO

51 Revaluation gains on off-balance-sheet
items8
52 Revaluation losses on off-balancesheet items'*
Footnotes appear on p. A21.




Commercial Banking Institutions—Assets and Liabilities A21

NOTES TO TABLE 1.26
NOTE. Tables 1.26, 1.27, and 1.28 have been revised to reflect changes in the Board's H.8
statistical release, "Assets and Liabilities of Commercial Banks in the United States." Table
1.27, "Assets and Liabilities of Large Weekly Reporting Commercial Banks," and table 1.28,
"Large Weekly Reporting U.S. Branches and Agencies of Foreign Banks." are no longer
being published in the Bulletin. Instead, abbreviated balance sheets for both large and small
domestically chartered banks have been included in table 1.26, parts C and D. Data are both
merger-adjusted and break-adjusted. In addition, data from large weekly reporting U.S.
branches and agencies of foreign banks have been replaced by balance sheet estimates of all
foreign-related institutions and are included in table 1.26, part E. These data are breakadjusted.
The not-seasonally-adjusted data for all tables now contain additional balance sheet items,
which were available as of October 2, 1996.
I. Covers the following types of institutions in the fifty states and the District of
Columbia: domestically chartered commercial banks that submit a weekly report of condition
(large domestic); other domestically chartered commercial banks (small domestic); branches
and agencies of foreign banks, and Edge Act and agreement corporations (foreign-related
institutions). Excludes International Banking Facilities. Data are Wednesday values or pro
rata averages of Wednesday values. Large domestic banks constitute a universe; data for
small domestic banks and foreign-related institutions are estimates based on weekly samples
and on quarter-end condition reports. Data are adjusted for breaks caused by ^classifications
of assets and liabilities.
The data for large and small domestic banks presented on pp. A17-19 are adjusted to
remove the estimated effects of mergers between these two groups. The adjustment for
mergers changes past levels to make them comparable with current levels. Estimated
quantities of balance sheet items acquired in mergers are removed from past data for the bank




group that contained the acquired bank and put into past data for the group containing the
acquiring bank. Balance sheet data for acquired banks are obtained from Call Reports, and a
ratio procedure is used to adjust past levels.
2. Excludes federal funds sold to, reverse RPs with, and loans made to commercial banks
in the United States, all of which are included in "Interbank loans."
3. Consists of reverse RPs with brokers and dealers and loans to purchase and carry
securities.
4. Includes vault cash, cash items in process of collection, balances due from depository
institutions, and balances due from Federal Reserve Banks.
5. Excludes the due-from posilion with related foreign offices, which is included in "Net
due to related foreign offices."
6. Excludes unearned income, reserves for losses on loans and leases, and reserves for
transfer risk. Loans are reported gross of these items.
7. This balancing item is not intended as a measure of equity capital for use in capital
adequacy analysis. On a seasonally adjusted basis this item reflects any differences in the
seasonal patterns estimated for total assets and total liabilities.
8. Fair value of derivative contracts (interest rate, foreign exchangerate,other commodity and
equity contracts) in a gain/loss position, as determined under FASB Interpretation No. 39.
9. Includes mortgage-backed securities issued by U.S. government agencies, U.S.
government-sponsored enterprises, and private entities.
10. Difference between fair value and historical cost for securities classified as availablefor-sale under FASB Statement No. 115. Data are reported net of tax effects. Data shown are
restated to include an estimate of these tax effects.
11. Mainly commercial and industrial loans but also includes an unknown amount of credit
extended to other than nonfinancial businesses.

A22
1.32

Domestic Financial Statistics • November 1998
COMMERCIAL PAPER AND BANKERS DOLLAR ACCEPTANCES OUTSTANDING
Millions of dollars, end of period
Year ending December
1993
Dec.

1994
Dec.

1997
Dec.

1996
Dec.

1995
Dec.

Apr.

May

June

July

Commercial paper (seasonally adjusted unless noted otherwise)
1 All issuers

555,075

595,382

674,904

775,371

966,699

1,004,662

1,049,222

1,041,681

1,053,995

1,091,554

1,102,307

Financial companies'
2
Dealer-placed paper2, total
3
Directly placed paper3, total

218,947
180,389

223,038
207,701

275,815
210,829

361,147
229,662

513,307
252,536

520,940
268,001

550,670
282,083

558,817
275,415

569,065
274.469

597,193
276,476

616,382
266,022

164,643

188,260

184.563

200,857

216,469

207,449

210,460

217,885

219,904

4 Nonfinancial companies4

Bankers dollar acceptances (not seasonally adjusted)5
5 Total
6
7
8
9
10

32,348

29,835

12,421
10,707
1,714

11,783
10,462
1,321

725
19,202

410
17,642

10,217
7,293
14,838

10,062
6,355
13,417

By holder
Accepting banks
Own bills
Bills bought from other banks .
Federal Reserve Banks6
Foreign correspondents
Others

By basis
11 Imports into United States
12 Exports from United States
13 All other

25,754

29,242

1. Institutions engaged primarily in commercial, savings, and mortgage banking; sales,
personal, and mortgage financing; factoring, finance leasing, and other business lending;
insurance underwriting; and other investment activities.
2. Includes all financial-company paper sold by dealers in the open market.
3. As reported by financial companies that place their paper directly with investors.
4. Includes public utilities and firms engaged primarily in such activities as communications, construction, manufacturing, mining, wholesale and retail trade, transportation, and
services.

1.33

PRIME RATE CHARGED BY BANKS

5. Data on bankers dollar acceptances are gathered from approximately 100 institutions.
The reporting group is revised every January. Beginning January 1995, data for Bankers
dollar acceptances are reported annually in September.
6. In 1977 the Federal Reserve discontinued operations in bankers dollar acceptances for
its own account.

Short-Term Business Loans1

Percent per year

Date of change

Rate

1995—Jan. 1
Feb. 1
Julv 7
Dec. 20

8.50
9.00
8.75
8.50

1996—Feb.

1

8.25

1997—Mar. 26

8.50

1998—Sept. 30
Oct. 16

8.25
8.00

Period

Average
rate

1995
1996
1997

8.83
8.27
8.44

1995—Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec

8.50
9.00
9.00
9.00
9.00
9.00
8.80
8.75
8.75
8.75
8.75
8.65

Period
1996—Jan
Feb
Mar.
Apr
May
June
Julv
Aug
Sept
Oct
Nov
Dec

Average
rate
8.50
8.25
8.25
8.25
8.25
8.25
8.25
8.25
8.25
8.25
8.25
8.25

Period
1997—Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec

8.25
8.25
8.30
8.50
8.50
8.50
8.50
8.50
8.50
8.50
8.50
8.50

1998—Jan
Feb
Mar
Apr

8.50
8.50
8.50
8.50
8.50
8.50
8.50
8.50
8.50

June
July
Aug
Sept

!. The prime rate is one of several base rates that banks use to price short-term business
loans. The table shows the date on which a new rate came to be the predominant one quoted
by a majority of the twenty-five largest banks by asset size, based on the most recent Call




Average
rate

Report. Data in this table also appear in the Board's H.15 (519) weekly and G.13 (415)
monthly statistical releases. For ordering address, see inside front cover.

Financial Markets A23
1.35

INTEREST RATES

Money and Capital Markets

Percent per year; figures are averages of business day data unless otherwise noted
1998
Item

1995

1996

1998, week enc ing

1997
May

June

July

Aug.

July 31

Aug. 7

Aug. 14

Aug. 21

Aug. 28

MONEY MARKET INSTRUMENTS

1 Federal funds1' "
2 Discount window borrowing24

5.83
5.21

5.30
5.02

5.46
5.00

5.49
5.00

5.56
5.00

5.54
5.00

5.55
5.00

5.54
5.00

5.61
5.00

5.50
5.00

5.59
5.00

5.48
5.00

3
4
5

Commercial paper' ' '
Nonfinancial
1-month
2-month
3-month

n.a.
n.a.
n.a.

n.a.
n.a.
n.a.

5.57
5.57
5.56

5.49
5.49
5.48

5.51
5.50
5.48

5.51
5.50
5.48

5.50
5.50
5.48

5.52
5.50
5.50

5.51
5.51
5.49

5.50
5.49
5.48

5.50
5.50
5.47

5.50
5.49
5.47

6
7
8

Financial
1-month
2-month
3-month

n.a.
n.a.
n.a.

n.a.
n.a.
n.a.

5.59
5.59
5.60

5.50
5.50
5.50

5.53
5.52
5.50

5.52
5.51
5.50

5.51
5.51
5.50

5.54
5.51
5.51

5.52
5.51
5.51

5.51
5.51
5.50

5.51
5.51
5.50

5.50
5.50
5.49

5.93
5.93
5.93

5.43
5.41
5.42

5.54
5.58
5.62

n.a.
n.a.

n.a.
n.a.

n.a.
n.a.

n.a.
n.a.

n.a.
n.a.

n.a.
n.a.

n.a.
n.a.

n.a.
n.a.

n.a.
n.a.

5.81
5.78
5.68

5.31
5.29
5.21

5.44
5.48
5.48

n.a.
n.a.
n.a.

n.a.
n.a.
n.a.

n.a.
n.a.
n.a.

n.a.
n.a.
n.a.

n.a.
n.a.
n.a.

n.a.
n.a.
n.a.

n.a.
n.a.
n.a.

n.a.
n.a.
n.a.

n.a.
n.a.
n.a.

5.81
5.80

5.31
5.31

5.54
5.57

5.48
5.44

5.50
5.47

5.50
5.46

5.49
5.46

5.49
5.46

5.50
5.46

5 49
5.47

5.49
5.48

5.49
5.45

5.87
5.92
5.98

5.35
5.39
5.47

5.54
5.62
5.73

5.56
5.59
5.67

5.57
5.60
5.65

5.57
5.59
5.65

5.56
5.58
5.61

5.57
5.60
5.65

5.56
5.59
5.64

5.56
5.58
5.61

5.56
5.58
5.61

5.56
5.57
5.58

5.93

5.38

5.61

5.57

5.57

5.57

5.56

5.56

5.57

5.56

5.56

5.55

5.49
5.56
5.60

5.01
5.08
5.22

5.06
5.18
5.32

5.00
5.14
5.16

4.98
5.12
5.13

4.96
5.03
5.08

4.90
4.95
4.94

4.95
5.01
5.09

4.93
5.00
5.04

4.89
4.94
4.97

4.92
4.97
4.97

4.89
4.91
4.85

5.51
5.59
5.69

5.02
5.09
5.23

5.07
5.18
5.36

5.03
5.15
5.15

4.99
5.12
5.13

4.96
5.03
5.10

4.94
4.97
5.00

4.92
5.02
n.a.

4.98
5.03
n.a.

4.94
4.94
n.a.

4.91
4.95
5.00

4.92
4.94
n.a.

5.94
6.15
6.25
6.38
6.50
6.57
6.95
6.88

5.52
5.84
5.99
6.18
6.34
6.44
6.83
6.71

5.63
5.99
6.10
6.22
6.33
6.35
6.69
6.61

5.44
5.59
5.61
5.63
5.72
5.65
6.01
5.93

5.41
5.52
5.52
5.52
5.56
5.50
5.80
5.70

5.36
5.46
5.47
5.46
5.52
5.46
5.78
5.68

5.21
5.27
5.24
5.27
5.36
5.34
5.66
5.54

5.37
5.48
5.48
5.51
5.56
5.50
5.83
5.73

5.31
5.40
5.39
5.43
5.48
5.43
5.74
5.66

5.21
5.34
5.31
5 36
5 43
5.40
5.70
5.60

5.24
5.32
5.29
5.32
5.39
5.39
5.68
5.53

5.10
5.09
5.05
5.07
5.19
5.20
5.57
5.42

6.93

6.80

6.67

5.99

5.78

5.76

5.64

5.81

5.72

5.68

5.65

5.54

5.80
6.10
5.95

5.52
5.79
5.76

5.32
5.50
5.52

5.04
5.25
5.20

4.97
5.12
5.12

5.00
5.15
5.14

n.a.
n.a.
5.10

5.03
5.15
5.16

5.03
5.17
5.16

5.01
5.17
5.11

5.08
5.11
5.09

4.92
5.13
5.03

7.83

7.66

7.54

6.98

6.83

6.84

6.83

6.89

6.84

6.82

6.82

6.84

7.59
7.72
7.83
8.20
7.86

7.37
7.55
7.69
8.05
7.77

7.27
7.48
7.54
7.87
7.71

6.69
6.91
7.03
7.30
7.16

6.53
6.78
6.88
7.13
6.98

6.55
6.78
6.89
7.15
6.93

6.52
6.77
6.89
7.14
7.02

6.60
6.82
6.93
7.20
7.04

6.54
6.78
6.89
7.15
6.98

6.52
6.77
6.88
7.14
7.05

6.52
6.77
6.88
7.14
6.97

6.52
6.78
6.91
7.15
7.08

2.56

2.19

1.77

1.45

1.45

1.39

1.48

1.43

1.49

1.49

1.47

1.48

Commercial

9
10
11

paper

{historical)^'^'b'~!

1-month
3-month
6-month
Finance paper, directly placed (historical)""

12
13
14
15
16

'

1-month
3-month
6-month
Bankers acceptances''
3-month
6-month
11

17
18
19

Certificates of deposit, secondary market"*
1-month
3-month
6-month

20 Eurodollar deposits, 3-month''1'

24
25
26

US Treasury bills
Secondary market "
3-month
6-inonth
1 -year
Auction average"1'3-12
3-month
6-month
1-year

27
28
29
30
31
32
33
34

Constant maturities*^"
1-year
2-year
3-year
5-year
7-year
10-year
20-year
30-year

21
22
23

U.S. TREASURY NOTES AND BONDS

Composite
35 More than 10 years (long-term)
STATE AND LOCAL NOTES AND BONDS

Moody's series*4
36 Aaa
37 Baa
38 Bond Buyer series15
CORPORATE BONDS

39 Seasoned issues, all industries"1
40
41
42
43
44

Rating group
Aaa
Aa
A
Baa
A-rated, recently offered utility bonds'7
MEMO

Dividend-price mtio*&
45 Common stocks

1. The daily effective federal funds rate is a weighted average of rates on trades through
New York brokers.
2. Weekly figures are averages of seven calendar days ending on Wednesday of the
current week; monthly figures include each calendar day in the month.
3. Annual/zed using a 360-day year for bank interest.
4. Rate for the Federal Reserve Bank of New York.
5. Quoted on a discount basis.
6. An average of offering rates on commercial paper for firms whose bond rating is AA or
the equivalent.
7. Series ended August 29, 1997.
8. An average of offering rates on paper directly placed by finance companies.
9. Representative closing yields for acceptances of the highest-rated money center banks.
10. An average of dealer offering rates on nationally traded certificates of deposit.
11. Bid rates for Eurodollar deposits collected around 9:30 a.m. Eastern time. Data are for
indication purposes only.
Digitized for
12. FRASER
Auction date for daily data; weekly and monthly averages computed on an issue-date
basis.
http://fraser.stlouisfed.org/

Federal Reserve Bank of St. Louis

13. Yields on actively traded issues adjusted to constant maturities. Source: U.S. Department of the Treasury.
14. General obligation bonds based on Thursday figures; Moody's Investors Service.
15. State and local government general obligation bonds maturing in twenty years are used
in compiling this index. The twenty-bond index has a rating roughly equivalent to Moodys'
Al rating. Based on Thursday figures.
16. Daily figures from Moody's Investors Service. Based on yields to maturity on selected
long-term bonds.
17. Compilation of the Federal Reserve. This series is an estimate of the yield on recently
offered, A-rated utility bonds with a thirty-year maturity and five years of call protection.
Weekly data are based on Friday quotations.
18. Standard & Poor's corporate series. Common stock ratio is based on the 500 stocks in
the price index.
NOTE. Some of the data in this table also appear in the Board's H.15 (519) weekly and
G.I3 (415) monthly statistical releases. For ordering address, see inside front cover.

A24
1.36

Domestic Financial Statistics • November 1998
STOCK MARKET

Selected Statistics
1997

Indicator

1995

1996

1998

1997
Dec

Jan.

Feb.

Mar.

Apr.

May

June

July

Aug.

Prices and trading volume (averages of daily figures)1
Common stock prices lindrxei)
1 New York Stock Exchange
(Dec. 31, l%5 = 50)
2
Industrial
3
Transportation
4
Utility
5
Finance

291.18
367.40
270.14
110.64
238.48

357.98
453.57
327.30
126.36
303.94

456.99
574.97
415.08
143.87
424.84

504.66
623.57
461.04
165.74
490.30

504.13
624.61
458.49
146.25
479.81

532.15
660.91
485.73
170.96
508.97

560.70
693.13
508.06
191.67
539.47

578.05
711.89
523.73
207.32
563.07

574.46
712.39
505.02
198.25
551.28

569.76
731.01
492.98
188.26
548.57

586.39
718.54
503.89
189.95
579.67

539.16
665.66
441.36
186.24
511.22

6 Standard & Poor's Corporation
(1941-43 = 10)2

541.72

670.49

873.43

962.37

963.36

1,023.74

1,076.83

1,112.20

1,108.42

1,108.39

1,156.58

1,074.62

7 American Stock Exchange
(Aug. 31, 1973 = 50)'

498.13

570.86

628.34

667.89

665.72

685.73

722.37

742.33

735.02

704.59

724.83

655.67

345,729
20,387

409,740
22,567

523,254
n.a.

541,134
27.624

632,895
28,199

610,958
26,808

619,366
28,943

647,110
29,544

569,239
27,004

605,576
25,447

639.744
26,473

712,710
32,721

Volume of trading (thousands of shares)
8 New York Stock Exchange .
9 American Stock Exchange

Customer financing (millions of dollars, end-of-period balances)
10 Margin credit at broker-dealers4

76,680

97,400

126.090

126,090

127,790

135,590

140,340

140,240

143,600

147,700

154,370

147,800

Free credit balances at broken'
11 Margin accounts6
12 Cash accounts

16.250
34.340

22.540
40.430

31.410
52.160

31,410
52,160

29,480
48,620

27,450
48,640

27,430
51.340

28,160
51,050

26,200
47,770

29,840
51,205

31,820
53,780

38.480
53,930

Margin requirements (percent of market value and effective date)7

13 Margin stocks
14 Convertible bonds
15 Short sales

Mar. 11. 1968

June 8, 1968

May 6, 1970

Dec. 6, 1971

Nov. 24, 1972

70
50
70

80
60
80

65
50
65

55
50
55

65
50
65

1. Daily data on prices are available upon request to the Board of Governors. For ordering
address, see inside front cover.
2. In July 1976 a financial group, composed of banks and insurance companies, was added
to the group of stocks on which the index is based. The index is now based on 400 industrial
stocks (formerly 425). 20 transportation (formerly 15 rail), 40 public utility (formerly 60), and
40 financial,
3. On July 5, 1983. the American Stock Exchange rebused its index, effectively cutting
previous readings in half,
4. Since July 1983, under the revised Regulation T, margin credit a! broker-dealers has
included credit extended against stocks, convertible bonds, stocks acquired through the
exercise of subscription rights, corporate bonds, and government securities. Separate reporting of data for margin stocks, convertible bonds, and subscription issues was discontinued in
April 1984.
5. Free credit balances are amounts in accounts with no unfulfilled commitments to
brokers and are subject to withdrawal by customers on demand.




Jan. 3, 1974
50
50
50

6. Series initiated in June 1984.
7. Margin requirements, stated in regulations adopted by the Board of Governors pursuant
to the Securities Exchange Act of 1934, limit the amount of credit that can be used to
purchase and carry "margin securities" (as defined in the regulations) when such credit is
collateralized by securities. Margin requirements on securities are the difference between the
market value (100 percent) and the maximum loan value of collateral as prescribed by the
Board. Regulation T was adopted effective Oct. 15, 1934; Regulation U, effective May I,
1936; Regulation G, effective Mar. 11, 1968; and Regulation X, effective Nov. 1, 1971.
On Jan. 1, 1977, the Board of Governors for the first time established in Regulation T the
initial margin required for writing options on securities, setting it at 30 percent of the current
market value of the stock underlying the option. On Sept. 30, 1985, the Board changed the
required initial margin, allowing it to be the same as the option maintenance margin required
by the appropriate exchange or self-regulatory organization: such maintenance margin rules
must be approved by the Securities and Exchange Commission.

Federal Finance A25
1.38

FEDERAL FISCAL AND FINANCING OPERATIONS
Millions of dollars
Calendar year
Type of account or operation
July

Apr.
U.S. budget'
1 Receipts, total
2 On-budget
3
Off-budget
4 Outlays, total
5
On-budget
6
Off-budget
7 Surplus or deficit ( - ) , total
8
On-budget
9
Off-budget
Source of financing (total)
10 Borrowing from the public
11 Operating cash (decrease, or increase (—)). .
12 Other 2
MEMO
13 Treasury operating balance (level, end of
period)
14
15

Federal Reserve Banks
Tax and loan accounts

1.351,830
1,000,751
351,079
1,515,729
1,227,065
288,664
-163,899
-226,314
62,415

1,453,062
1,085,570
367,492
1,560,512
1,259,608
300,904
-107,450
-174,038
66.588

1,579,292
1.187,302
391,990
1,601,235
1,290,609
310,626
-21,943
-103,307
81,364

117.930
80.647
37,283
131,743
101.967
29,775
-13,813
-21,320
7,508

261.002
216.988
44.014
136.400
108.569
27.830
124.603
108.419
16.184

95,278
61.790
33,488
134,057
102.381
31,676
-38.779
-40.591
1.812

187,860
144,973
42,887
136,754
125,606
11.148
51,106
19,367
31,739

119,723
87.820
31,903
143,807
115,714
28,094
-24,084
-27,894
3,809

111,741
79,135
32,606
122,907
92,555
30,352
-11,166
-13,420
2,254

171,288
-2,007
-5,382

129,712
-6,276
-15,986

38,171
604
-16,832

20,137
-11,352
5.028

-60,587
-60,398
-3,618

-8,597
51,899
-4,523

-12,618
-36,144
-2,344

-16,370
36,210
4,244

33.989
-362
-22,461

37,949
8,620
29,329

44,225
7,700
36,525

43,621
7,692
35,930

27.632
5.490
22,141

88,030
28,014
60,016

36,131
5,693
30,438

72,275
18,140
54,135

36,065
4,648
31,417

36,427
6,704
29,722

1. Since 1990. off-budget items have been the social security trust funds (federal old-age
survivors insurance and federal disability insurance) and the U.S. Postal Service.
2. Includes special drawing rights (SDRs); reserve position on the U.S. quota in the
International Monetary Fund (IMF): loans to the IMF; other cash and monetary assets;
accrued interest payable to the public; allocations of SDRs; deposit funds; miscellaneous
liability (including checks outstanding) and asset accounts; seigniorage; increment on gold;




net gain or loss for U.S. currency valuation adjustment; net gain or loss for IMF loanvaluation adjustment; and profit on sale of gold.
SOURCE. Monthly totals: U.S. Department of the Treasury, Monthly Treasury Statement of
Receipts and Outlays of the U.S. Government; fiscal year totals: U.S. Office of Management
and Budget. Budget of the U.S. Government.

A26
1.39

Domestic Financial Statistics • November 1998
U.S. BUDGET RECEIPTS AND OUTLAYS'
Millions of dollars
Fiscal year

Calendar year
1997

Source or type
1996
H2

1 AH sources
2 Individual income taxes, net
3
Withheld
4
Nonwiihheld
5
Refunds
Corporation income taxes
6
Gross receipts
7
Refunds
8 Social insurance taxes and contributions, net .
9
Employment taxes and contributions'
10 Unemployment insurance
11 Other net receipts3
12
13
14
15

Excise taxes
Customs deposits
Estate and gift taxes
Miscellaneous receipts4 .

16 AH types
17 National defense
18 International affairs
19 General science, space, and technology.
20 Energy

21 Natural resources and environment
22 Agriculture
23
24
25
26

. ..

Commerce and housing credit
Transportation
Community and regional development .
Education, training, employment, and
social services

HI

July

Aug.

1,453,062

1,579,292

707,552

845,527

773,812

922,632

187,860

119,723

111,741

656.417
533.080
212.168
88.897

•737,466
580,207
250,753
93,560

323.884
279,988
5.1,491
9,604

400.436
292.252
191,050
82,926

354,072
306,865
58,069
10,869

447,514
316,309
219,136
87,989

81,587
48,501
35,135

58,969
57,486
4.001
2.520

55,300
51.881

1 S9.0S5
17,231
509,414
476,361
28,584
4,469

204,493
22,198
539,371
506,751
28,202
4,418

95.364
10.053
240,326
227,777
10,302
2,245

106,451
9,635
288.251
268.357
17.709
2.184

104,659
10,135
260,795
247,794
10,724
2,280

109,353
14,220
312,713
293,520
17,080
2,112

41.098
1.313
55,468
54,807
292
369

5,808

2,952
1,484
45,806
41,973
3,502

385

331

54,014
18,670
17,189
25,534

56,924
17,928
19,845
25,465

27,016
9,294
8,835
12,889

28.084
8.619
10.477
12,866

31,132
9,679
10,262
13.348

29.922
8,546
12,971
15,837

5,370
1,568
1,775
2,307

6,127
1,777
1,825
3,135

3,181
1,732
1,718
2,535

1,560,512

1,601,235

800,177

797,418

824,370

815,886

136,754

143,807

122,907

265,748
13,496
16.709
2.844
21,614
9,159

270,473
15,228
17,174
1,483
21,369
9,032

139,402
8,532
8,260
695
10,307
11.037

132.698
5,740
8,938
803
9,628
1,465

140.873
9,420
10,040
411
11,106
10,590

129,351
4,610
9,426
957
10,051
2,387

22,329
347

25,865
815
1.711
122
2.217
176

18,502
443
1,581
-113
1,855
1,656

-10,472
39,565
10,685

-14,624
40,767
11,005

-5,899
21,512
5.498

-7.575
16.847
5.678

-3,526
20,414
5,749

-2,483
16,196
4,863

-20
3,127

-1,223
3,327
917

-1,423
3,218
770

2,060

1,657
661
1,964
140

914

1,736

43,817
41,130
2,301

4,944

1,525

52,001

53,008

25.080

26,851

25,928

4,237

3,645

27 Health
28 Social security and Medicare
29 Income security

119,378
523,901
225,989

123,843
555,273
230,886

61,595
269,412
107,631

61.809
278,863
124,034

63,552
283,109
106,353

65,053
286,305
125,196

11,602
51,569
14,554

11,033
51,109
21,198

10,704
44,240
14,281

30
31
32
33
34

36,985
17,548
11,892
241.090
-37,620

39,313
20,197
12,768
244,013
-49,973

21,109
9,583
6,546
122,573
-25.142

17,697
10,670
6,623
122,655
-24,235

22,077
10,212
7,302
122,620
-22,795

19,615
11,287
6,139
122,345
-21,340

3,355
2,241
2,080
19,407
-3,408

4,958
2,256
308
20,791
-5,416

1,749
2.012
579

Veterans benefits and services
Administration of justice
General government
Net interest5
Undistributed offsetting receipts6

1. Functional details do not sum to total outlays for calendar year data because revisions to
monthly totals have not been distributed among functions. Fiscal year total for receipts and
outlays do not correspond to calendar year data because revisions from the Budget have not
been fully distributed across months.
2 Old-age, disability, and hospital insurance, and railroad retirement aeeounts.
3. Federal employee retirement contributions and civil service retirement and
disability fund.




21,366
-3,221

4. Deposits of earnings by Federal Reserve Banks and other miscellaneous receipts.
5. Includes interest received by trust funds.
6. Rents and royalties for the outer continental shelf, US. government contributions for
employee retirement, and certain asset sales.
SOURCE. Fiscal year totals: U.S. Office of Management and Budget, Budget of ihr US.
Government, Fiscal Year 1999; monthly and half-year totals: US Department of the Treasury. Monthly Treasury Statement of Receipts and Outlaws of the U.S. Government

Federal Finance A27
1.40

FEDERAL DEBT SUBJECT TO STATUTORY LIMITATION
Billions of dollars, end of month
1996
June 30

Sept. 30

Dec. 31

Mar. 31

June 30

Sept. 30

Dec. 31

Mar. 31

June 30

1 Federal debt outstanding . . . .

5,197

5,260

5,357

5,415

5,410

5,446

5,536

5^73

5,578

2 Public debt securities
3
Held by public
4
Held by agencies

5,161
3,739
1.422

5,225
3,778
1,447

5,323
3,826
1,497

5,381
3,874
1.507

5,376
3,805
1,572

5,413
3,815
1,599

5.502
3,847
1.656

5,542
3,872
1,670

5,548
3,790
1.758

36

35
27

34
27
8

34
26

34
26
7

33
26
7

34
27
7

31
26

8

5

30
26
4

5 Agency securities
6
Held by public
7
Held by agencies
8 Debt subject to statutory limit
9 Public debt securities
10 Other debt1

5,073

5,137

5,237

5,294

5,290

5,328

5,417

5,457

5,460

5,073
0

5,137
0

5,237
0

5,294
0

5,290
0

5,328
0

5,416
0

5,456
0

5,460
0

5,500

5,500

MEMO
11 Statutory debt limit

1. Consists of guaranteed debt of U.S. Treasury and other federal agencies, specified
participation certificates, notes to international lending organizations, and District of Columbia stadium bonds.

1.41

GROSS PUBLIC DEBT OF U.S. TREASURY

5,500

5,950

SOURCE. U.S. Department of the Treasury, Monthly Statement of the Public Debt of the
United States and Treasury Bulletin.

Types and Ownership

Billions of dollars, end of period

Type and holder

1 Total gross public debt
2
3
4
5
6
7
8
9
10
11
12
13
14
15

By type
Interest-bearing
Marketable
Bills
Notes
Bonds
Inflation-indexed notes and bonds1
Nonmarketable
State and local government series
Foreign issues3
Government
Public
Savings bonds and notes
Government account series4
Non-interest-bearing

1994

1995
Q3

Q4

Ql

Q2

4,800.2

4,988.7

5,323.2

5,502.4

5,413.2

5,502.4

5,542.4

5,547.9

4,769.2
3,126.0
733.8
1,867.0
510.3

4,964.4
3,307.2

5,317.2
3,459.7
777.4
2,112.3
555.0

5,494.9
3.456.8
715.4
2.106.1
587.3
33.0
2,038.1
124.1
36.2
36.2
.0
181.2

5,407.5
701.9

5,494.9
3,456.8
715.4

5,540.2
3,369.5
641.1

2,122.2
576.2
24.4

2,106.1
587.3
33.0

5,535.3
3,467.1
720.1
2,091.9
598.7
41.5

2,038.1
124.1

7.5

1,967.9
111.9
34.9
34.9
.0
182.7
1,608.5
5.6

760.7
2.010.3

1,643.1
132.6
42.5
42.5
.0
177.8
1.259.8
31.0

521.2
n.a.
1.657.2
104.5
40.8
40.8
.0
181.9
1.299.6
24.3

1,257.1
374.1
3,168.0
290.4
67.6
240.1
224.5
541.0

1,304.5
391.0
3,294.9
278.7
71.5
241.5
228.8
469.6

1,497.2
410.9
3,411.2
261.8
91.6
214.1
258.5
482.5

1,655.7
451.9
3,393.4
269.8
88.9
224.9
265.0
493.0

180.5
150.7
688.7
784.6

185.0
162.7
862.2
794.9

187.0
169.6
1,135.6
610.5

186.5
168.4
1,278.0
418.8

n.a.

1,857.5
101.3
37.4
47.4
.0
182.4
1,505.9
6.0

1,666.7

3,439.6

2,068.2

2,064.6

598.7
50.1
2,170.7
155.0
36.0
36.0
.0
180.7
1,769.1

36.2

139.1
35.4

36.2
.0
181.2
1,666.7
7.5

181.2
1,681.5
7.2

1.598.5
436.5
3,388.9
261.8
75.8
222.7
266.5
486.6

1,655.7
451.9
3,393.4
269.8
88.9
224.9
265.0
493.0

1.670.4
400.0
3,430.7
275.0
84.8
225.5
268.1
494.6

1,757.6
458.4
3,330.6
275.0
82.9
228.0
267.2
441.0

186.2
168.6
1,266.0
454.5

186.5
168.4
1.278.0
418.8

186.3
165.8
1,288.0
442.5

186.0
165.0
1,247.4
438.0

36.4
.0

1.1

5

16
17
18
19
20
21
22
23
24
25
26
27

By holder
U.S. Treasury and other federal agencies and trust funds
Federal Reserve Banks
Private investors
Commercial banks
Money market funds
Insurance companies
Other companies
State and local treasuries67
Individuals
Savings bonds
Other securities
Foreign and international
Other miscellaneous investors7'9

1. The U.S. Treasury first issued inflation-indexed securities during the first quarter of
1997.
2. Includes (not shown separately) securities issued to the Rural Electrification Administration, depository bonds, retirement plan bonds, and individual retirement bonds.
3. Nonmarketable series denominated in dollars, and series denominated in foreign currency held by foreigners.
4. Held almost entirely by U.S. Treasury and other federal agencies and trust funds.
5. Data for Federal Reserve Banks and U.S. government agencies and trust funds are actual
holdings; data for other groups are Treasury estimates.
6. Includes state and local pension funds.




7. In March 1996. in a redefinition of series, fully defeased debt backed by nonmarketable
federal securities was removed from "Other miscellaneous investors" and added to "State and
local treasuries." The data shown here have been revised accordingly.
8. Consists of investments of foreign balances and international accounts in the United
States.
9. Includes savings and loan associations, nonprofit institutions, credit unions, mutual
savings banks, corporate pension trust funds, dealers and brokers, certain U.S. Treasury
deposit accounts, and federally sponsored agencies.
SOURCE. U.S. Treasury Department, data by type of security, Monthly Statement of the
Public Debt of the United States; data by holder, Treasury Bulletin.

A28
1.42

Domestic Financial Statistics • November 1998
U.S. GOVERNMENT SECURITIES DEALERS

Transactions'

Millions of dollars, daily averages
1998, week ending
May

June

July

31,384

30,868

25,889

115,270
75,845

111,622
78,005

82,094
59,741

July 1

July 8

July 15

100,451
69,451

66.195
52.599
2.753

74,522
59,598

July 22

July 29

Aug. 5

Aug. 12

26,696

25,439

26,401

26.841

76,811
61,994

90,646
59,517

115,476
64,454

120,628
72,437
761

Aug. 19

OUTRIGHT TRANSACTIONS 2

By type of security
1 U.S. Treasury bills
Coupon securities, by maturity
2
Five years or less
3
More than five years
4 Inflation-indexed
Federal agency
5 Discount notes
Coupon securities, by maturity
6
One year or less
7
More than one year, but less than
or equal to five years
8
More than five years
9 Mortgage-backed

673

651

1,205

1,163

35,571

37,154

35,439

40,923

1,290

1,746

1,325

1,101
2,922
4,632
59,199

1.321

786

638

301

34,584

33,072

33,516

37,020

1,657
3,311
2,932
82,411

1,068

1,431
2,355
2,073
51.617

777

2,449
3.613
65,684

39,706
1.430

4,748
2,455
67,380

37,479
1,302
4,505
2,468
95,734

33,499
116,569
58.072

157.479
93.119

585

968

37,638

34,649

1,195

1,093
4,049
5,026
59,351

2,948
3,046
63,047

2,676
2,903
62,597

3,196
3,330
71,310

2,892
2,700
61,434

124,671
2,034
20,318

122,408
2,250
20,149

92,782
1,904
19,316

105,406
2,323
15,853

78,696
1,655
17,603

87,603
1,940
25,068

92,253
1,718
13.601

98,869
1,927
20,851

113,694
2,511
20,538

121,193
2,752
26,766

112,826
2,377
19,705

155,714
3,559
20,044

98,501
40,407
42,279

98,737
43,176
51,161

76,148
40,451
42,118

95,156
47,256
43,346

68,819
45,543
48,081

72,381
40,544
57,343

74,036
37,114
31,340

77,371
37,447
30,766

92,938
42,489
46,843

99,474
43,003
68,967

90,663
42,450
43,342

129,351
41,257
39,307

2.337
13,900

2,666
16,057

1,764
11,813

1,713
13,521

1,177
8,315

1,673
12.348

1,675
12,701

1,918
11,539

3,023
15,079

5,031
12,194

3,780
13,845

7,777
23,221

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

2,110
6,263

1,627
4,943

1,856
5.124

1,643
3,384

1,706
4,581

2,032
4,664

1,571
5,493

2,362
6,251

1,701
6,005

2,468
9,382

0

0

0

0

1,230
5,613
0

109

0

0

0

1,272
4.488
0

0

0

0

0

0

0

0

0

0

0

0

0
0
0
768

0

0
0
0
0
0
933
623
1. Transactions are market purchases and sales of securities as reported to the Federal
Reserve Bank of New York by the U.S. government securities dealers on its published list of
primary dealers. Monthly averages are based on the number of trading days in the month.
Transactions are assumed to be evenly distributed among the trading days of the report week.
Immediate, forward, and futures transactions are reported at principal value, which does not
include accrued interest; options transactions are reported at the face value of the underlying
securities.
Dealers report cumulative transactions for each week ending Wednesday.
2. Outright transactions include immediate and forward transactions. Immediate delivery
refers to purchases or sales of securities (other than mortgage-backed federal agency securities) for which delivery is scheduled in five business days or less and "when-issued"
securities that settle on the issue date of offering. Transactions for immediate delivery of mortgagebacked agency securities include purchases and sales for which delivery is scheduled in thirty business
days or less. Stripped securities are reported at market value by maturity of coupon or corpus.

0

By type of counterparty
With interdealer broker
U.S. Treasury
Federal agency
Mortgage-backed
With other
13 US. Treasury
14 Federal agency
15 Mortgage-backed
10
11
12

2,614
2,078
44,941

FUTURES TRANSACTIONS'

16
17
18
19
20
21
22
23
24

By type of deliverable security
U.S. Treasury bills
Coupon securities, by maturity
Five years or less
More than five years
Inflation-indexed
Federal agency
Discount notes
Coupon securities, by maturity
One year or less
More than one year, but less than
or equal to five years
More than five years
Mortgage-backed

65

OPTIONS TRANSACTIONS 4

By type of underlying security
25 U.S. Treasury bills
Coupon securities, by maturity
26
Five years or less
27
More than five years
28 Inflation-indexed
Federal agency
29 Discount notes
Coupon securities, by maturity
30 One year or less
31
More than one year, but less than
or equal to five years
32
More than five years
33 Mortgage-backed




0
0
0
0
535

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
697
n.a.
0
1,110
987
386
541
487
633
519
Forward transactions are agreements made in the over-the-counter market that specify
delayed delivery. Forward contracts for U.S. Treasury securities and federal agency debt
securities are included when the time to delivery is more than five business days. Forward
contracts for mortgage-backed agency securities are included when the time to delivery is
more than thirty business days.
3. Futures transactions are standardized agreements arranged on an exchange. All futures
transactions are included regardless of time to delivery.
4. Options transactions are purchases or sales of put and call options, whether arranged on
an organized exchange or in the over-the-counter market, and include options on futures
contracts on U.S. Treasury and federal agency securities.
NOTE, "n.a." indicates that data are not published because of insufficient activity.
Major changes in the report form filed by primary dealers induced a break in the dealer data
series as of the week ending January 28, 1998.

Federal Finance
1.43

U.S. GOVERNMENT SECURITIES DEALERS

A29

Positions and Financing1

Millions of dollars
1998
May

1998. week ending

June

July

July 1

July 8

July 15

July 22

July 29

Aug. 5

Aug. 12

Aug. 19

Positions2
NET OUTRIGHT POSITIONS3
By type of security
1 U.S. Treasury bills
Coupon securities, by maturity
2
Five years or less
Federal agency
5 Discount notes
Coupon securities, by maturity
More than one year, but less than
or equal to five years
8
More than five years
9 Mortgage-backed

7,500

2,012

1,766

-2,948

-181

140

3,642

3,491

4,030

2,786

6,322

-25,842
-24,468
1,968

-22,489
-11,405
1,306

-16,440
-17,653
2,671

-26,044
-11,061
1,486

-17,377
- 16,843
2,710

-20.895
-22.511
3,005

-14,861
-16,402
2,597

-9,716
-16,303
2,525

-21,834
-15,890
2,725

-26,511
-13,915
2 603

-29,451
-12,806
2,187

16,837

16,758

19.296

16,069

21,408

19,700

18.019

18,857

18,105

18,803

14,783

2.715

2,098

2,782

1.766

2,030

3.647

2,869

2,718

2,809

2,692

2,278

7.646
11,182
56,867

7,043
10,934
69,961

7,435
10,759
64,705

7.646
11.334
64,683

8,045
11,575
69,649

8,432
11,349
72,690

7,487
10,528
62,253

5,928
9.990
55.226

6,793
9,054
61,216

7,717
8,831
71.517

6,232
10,414
63,422

7

NET FUTURES POSITIONS 4

By type of deliverable security
10 U.S. Treasury bills
'.
Coupon securities, by maturity
11
Five years or less
13 Inflation-indexed
Federal agency
(4 Discount notes
Coupon securities, by maturity
15 One year or less
16 More than one year, but less than
or equal to five years
17 More than five years
18 Mortgage-backed

-433

139

596

431

414

423

734

774

809

878

1,172

2,910
-21,492
0

-1,530
-32.350
0

-4,346
-26,100
0

-3,198
-27,233
0

-4,351
-24,358
0

-4,376
-20,469
0

-4,853
-28,337
0

-4,385
-29,599
0

-2,889
-31,268
0

-4.360
-33.884
0

-4,629
-33,411
0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

0
0
0

NET OPTIONS POSITIONS

By type of deliverable security
19 U.S. Treasury bills
Coupon securities, by maturity
20
Five years or less
21
More than five years

0

0

0

0

0

0

0

0

0

0

0

825
7
n.a.

-2,063
-343
0

-1,050
-3,065
0

-2,798
6
0

-1,529
-1,642
0

-1,453
-2,103
0

-986
-4,210
0

-119
-4,648
0

-577
-3,397
0

-645
-3,409
0

-627
-3,859
0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

n.a.
n.a.
660

n.a.
n.a.
1,750

n.a.
n.a.
2,332

n.a.
n.a.
1,983

n.a.
n.a.
1,494

n.a.
n.a.
2,421

n.a.
n.a.
2,517

n.a.
n.a.
2,730

n.a.
n.a.
3,092

n.a.
n.a.
1,696

n.a.
n.a.
2,229

Federal agency
Coupon securities, by maturity
One year or less
More than one year, but less than
or equal to five years
26
More than five years
27 Mortgage-backed

24
25

Financing11
Reverse repurchase agreements
28 Overnjgh! and continuing
29 Term

368.407
793,992

341,684
824,391

320,143
895,133

347,093
831,951

329,735
850.019

321.018
872,093

308,181
905,486

316,740
943,636

323.805
959,264

327,992
1.002,726

337,894
702.978

Securities borrowed
30 Overnight and continuing
31 Term

216.006
100,113

221,331
98,054

218,172
95.894

221,635
96,362

223.880
95,109

221,461
94,119

216,800
96,114

211,719
97,840

212,332
97,037

218.696
95.627

221,834
95,116

3.131

3,043
0

3,140
0

3,102

3.603

3,292

2,925

2,856

2,748

2,617

2,983

761,206
710,585

740.876
744,206

720,678
799,633

710,472
749,363

717,112
753,798

722,568
774,758

729,819
806,390

717,262
854,386

711,604
856,968

729,503
886,939

747,609
606,000

Securities loaned
36 Overnight and continuing
37 Term

10,871
2,734

11,164
3,625

10,999
3,623

12,444
4,476

10,108
4,709

10,267
4,182

11,340
2,820

11,677
2,695

12,389
3,497

12,904
4,100

13.197
3,773

Securities pledged
38 Overnight and continuing
39 Term

49,489
4,961

56,175
5,471

54,477
6.425

59,904
5.888

55,420
6.674

55,608
6,590

54,728
6,420

52,932
6,255

49,034
5,851

47,835
5.853

49,230
4,867

Collmeralized loans
40 Total

11.607

11,177

16,787

11,392

14.328

13.528

18,245

20,453

21,562

24.137

21,570

Securities received as pledge
32 Overnight and continuing
33 Term

o

Repurchase agreements
35 Term

1. Data for positions and financing are obtained from reports submitted to the Federal
Reserve Bank of New York by the U.S. government securities dealers on its published list of
pnmary dealers. Weekly figures are close-of-business Wednesday data. Positions for calendar
days of the report week are assumed to be constant. Monthly averages are based on the
number of calendar days in the month.
2. Securities positions are reported at market value.
7>. Net outright positions include immediate and forward positions. Net immediate positions include securities purchased or sold (other than mortgage-backed agency securities) that
have been delivered or are scheduled to be delivered in five business days or less and
"when-issued" securities that settle on the issue date of offering. Net immediate positions for
mortgage-backed agency securities include securities purchased or sold that have been
delivered or are scheduled to be delivered in thirty business days or less.
Forward positions reflect agreements made in the over-the-counter market that specify
delayed delivery. Forward contracts for U.S. Treasury securities and federal agency debt




securities are included when the time to delivery is more than five business days Forward
contracts for mortgage-backed agency securities are included when the time to delivery is
more than thirty business days.
4. Futures positions reflect standardized agreements arranged on an exchange. All futures
positions are included regardless of time to delivery.
5. Overnight financing refers to agreements made on one business day that mature on the
next business day; continuing contracts are agreements that remain in effect for more than one
business day but have no specific maturity and can be terminated without advance notice by
either party; term agreements have a fixed maturity of more than one business day. Financing
data are reported in terms of actual funds paid or received, including accrued interest.
NOTE, "n.a." indicates that data are not published because of insufficient activity.
Major changes in the report form filed by primary dealers induced a break in the dealer data
series as of the week ending January 28, 1998.

A30
1.44

Domestic Financial Statistics • November 1998
FEDERAL AND FEDERALLY SPONSORED CREDIT AGENCIES

Debt Outstanding

Millions of dollars, end of period
1998
Agency

t Federal and federally sponsored agencies
2 Federal agencies
3
Defense Department1
4
Export-Import Bank2'3
5
Federal Housing Administration4
6
Government National Mortgage Association certificates of
participation5
7
Postal Service6
8
Tennessee Valley Authority
9
United States Railway Association6

925,823

1,022,609

1,038,348

1,059,043

1,048,661

1,044,575

1,061,253

37,347
6

27,792
6
552
102

27,101
6
549
79

27,227
6
549
97

27,104
6

2,050
97

29,380
6
1,447
84

26.995
6
542

26,817
6
1,295
144

n.a.
5,765
29,429
n.a.

27,853
n.a.

n.a.
n.a.
27,786
n.a.

n.a.
n.a.
27,095
n.a.

27,221
n.a.

994,817
313,919
169,200
369,774
63,517
37,717
8,170
1,261
29,996

1,011,247
312.017
184,100
373,574
61,177
39,570
8,170
1.261
29.996

1.031.816
317,967
193,300
381,093

49,090

47^41

8,073
27,536
n.a.

29,996

896,443
263,404
156,980
331,270
60,053
44,763
8,170
1,261
29,996

MEMO
19 Federal Financing Bank debt13

103,817

78,681

58,172

3,449
8,073

1,431
n.a.

3,200
n.a.

2,044
5,765
n.a.
3,200
n.a.

33,719
17,392
37,984

21,015
17.144
29,513

18,325
16,702
21,714

299,174

57,379
47,529
8,170
1,261

1. Consists of mortgages assumed by the Defense Department between 1957 and 1963
under family housing and homeowners assistance programs.
2. Includes participation certificates reclassified as debt beginning Oct. 1, 1976.
3. On-budget since Sept. 30, 1976.
4. Consists of debentures issued in payment of Federal Housing Administration insurance
claims. Once issued, these securities may be sold privately on the securities market.
5. Certificates of participation issued before fiscal year 1969 by the Government National
Mortgage Association acting as trustee for the Farmers Home Administration, the Department
of Health, Education, and Welfare, the Department of Housing and Urban Development, the
Small Business Administration, and the Veterans Administration.
6. Off-budget.
7. Includes outstanding noncontingent liabilities: notes, bonds, and debentures. Includes
Federal Agricultural Mortgage Corporation, therefore details do not sum to total. Some data
are estimated.
8. Excludes borrowing by the Farm Credit Financial Assistance Corporation, which is
shown on line 17.
9. Before late 1982. the association obtained financing through the Federal Financing Bank
(FFB). Borrowing excludes that obtained from the FFB, which is shown on line 22.




May

844,611

807,264
243.194
119,961

Other lending**
25 Farmers Home Administration
26 Rural Electrification Administration
27 Other

Apr.

39,186
6
3,455
116

699 742
205,817
93,279
257,230
53,175
50,335
8,170
1,261
29,996

20
21
22
23
24

Mar.

738,928

10 Federally sponsored agencies7
11 Federal Home Loan Banks
12 Federal Home Loan Mortgage Corporation
13 Federal National Mortgage Association
14 Farm Credit Banks8
15 Student Loan Marketing Association9
16 Financing Corporation10
17 Farm Credit Financial Assistance Corporation"
18 Resolution Funding Corporation12

Lending to federal and federally sponsored agencies
Export-Import Bank
Postal Service6
Student Loan Marketing Association
Tennessee Valley Authority
United States Railway Association6

Feb.

n.a.
n.a.

13,530
14,898
20,110

542
102

n.a.
n.a.
27,098
n.a.

n.a.
n.a.
26.989
n.a.

1,021,557
323,208

1,034,436

36,310
8,170
1,261
29,996

395,977
62,799
36,256
8,170
1,261
29,996

1,017,580
322,155
204,751
399,489
63,744
35,952
8,170
1,261
29,996

45,487

44,893

44,223

136,892

549

542

62,327

200,800

328,514
200,314

406,162
64,717
33,231
8,170
1,261

29,996

1,295

n.a.
n.a.
n.a.
13.160
14.852
18,780

26,811
n.a.

n.a.
n.a.

13,030
14,315
17.593

12,380
14,203
17,768

11,955
14,207
17,519

13,530

14.819
107.248

10. The Financing Corporation, established in August 1987 to recapitalize the Federal
Savings and Loan Insurance Corporation, undertook its first borrowing in October 1987.
11. The Farm Credit Financial Assistance Corporation, established in January 1988 to
provide assistance to the Farm Credit System, undertook its first borrowing in July 1988.
12. The Resolution Funding Corporation, established by the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, undertook its first borrowing in October 1989.
13. The FFB, which began operations in 1974, is authorized to purchase or sell obligations
issued, sold, or guaranteed by other federal agencies. Because FFB incurs debt solely for the
purpose of lending to other agencies, its debt is not included in the main portion of the table to
avoid double counting.
14. Includes FFB purchases of agency assets and guaranteed loans; the latter are loans
guaranteed by numerous agencies, with the amounts guaranteed by any one agency generally
being small. The Farmers Home Administration entry consists exclusively of agency assets,
whereas the Rural Electrification Administration entry consists of both agency assets and
guaranteed loans.

Securities Markets and Corporate Finance A31
1.45 NEW SECURITY ISSUES

Tax-Exempt State and Local Governments

Millions of dollars

Type of issue or issuer,
or use

1 All issues, new and refunding1

Apr.

May

July

Aug.

145,657

171,222

214,694

16,770

21,306

27,859

20,271

22,862

29,665

22,599

20,344

By type of issue
2 General obligation
3 Revenue

56,980
88,677

60.409
110,813

69,934
134,989

5,608
11,162

9,893
11,413

9,597
18,261

8,154
12,117

4,827
18,035

10,135
19,530

6,515
16,084

5.812
14.532

B\ t\pe of issuer
4 State
5 Special district or statutory authority
6 Municipality, county, or township . .

14.665
93,500
37,492

13,651
113,228
44,343

18,237
134,919
70,558

1.268
11.794
3,708

2,420
14,228
4,658

2.375
19,629
5,859

3.548
12,504
4,219

1,146
16,865
4,851

2,809
18,099
7,220

1,972
16,244
5,673

1.48.1
14.233
4,628

10230

112,298

135,519

9,695

12,538

15,134

12,616

15,281

19,341

15,895

11,258

23,964
11,890
9,618
19,566
6.581
30,771

26,851
12.324
9,791
24,583

31,860
13,951
12,219
27.794
6,667
35.095

2,338
1,521
598
1.540
448
3,251

3.525
1.760

4,297
771
1,866
3,104
1,236
3.860

4,080
1,089
749
n.a.
678
3,255

2,819
1,043
5,971
n.a.
576
2,482

4,911
2,962
2,368
n.a.
563
5,279

2.733
3,677
795
n.a.
1.002
4,674

2,435
1.982
1,179
n.a.
709
2.764

7 Issues for new capital
8
9
10
11
12
13

By use of proceeds
Education
Transportation
Utilities and conservation
Social welfare
Industrial aid
Other purposes

6,287
32,462

NEW SECURITY ISSUES

581
3,082

SOURCE. Securities Data Company beginning January 1990; Investment Dealer
Digest before then

1. Par amounts of long-term issues based on date of sale.
2. Includes school districts.

1.46

687
2,903

U.S. Corporations

Millions of dollars
1997
Type of issue, offering,
or issuer

1 All issues'

By type of offering
3 Public, domestic
4 Private placement, domestic
5 So)d abroad
By industry- group
6 Nonfinancial
2

1995

673,571

1996

n.a.

1998'

1997
Apr.

May

June

July

115,694

83,646

84,449

36,277

n.a

97,323

71,929

70313

19,833

n.a.

Dec.'

Jan.

Feb.

Mar.

n.a.

71,592

81,214

75,961

73,798

64,996

572,998

548,922

641,069

63,573

408,707
87,492
76,799

465,489
n.a.
83,433

537,880
n.a.
103,188

54,443
7.600
1.530

55,647
7,600
10,551

50,453
7,600
6.943

81,778
7.6O0
7,946

55,452
7,600
8,878

56.965
7.600
5,748

78,280
7,600
7.363

54,266
7,600
6.267

156,763
416,235

119,765
429,157

130,116
510,953

15,296
48,276

28,639
45.159

19,733
45,263

24,901
72,422

24,585
47,345

20,456
49.857

24,444
69,705

24,821
43,313

105,323

122,006

117,880

8,490

7,667

11,182

19,271

12,470

14,700

17,111

9,772

By type of offering
9 Public
10 Private placement

73,223
32,100

122,006
n.a.

117,880
n.a.

8,490
n.a.

7,667
n.a.

11,182
n.a.

19,271
n.a.

12,470
n.a.

14,700
n.a.

17,111
n.a.

9,772
n.a.

B\ industry group
11 Nonfinancial
12 Financial

52,707
20,516

80,460
41,546

60,386
57,494

3,039
5,451

1,761
5,906

5,737
5,445

10,756
8,515

5,551
6,919

9,271
5,429

10.248
6,863

6.390
3,382

8 Stocks

1. Figures represent gross proceeds of issues maturing in more than one year; they are the
principal amount or number of units calculated by multiplying by the offering price. Figures
exclude secondary offerings, employee stock plans, investmeni companies other than closedend, intracorporate transactions, and Yankee bonds. Stock data include ownership securities
issued by limited partnerships.




2- Monthly data cover only public offerings.
3. Monthly data are not available,
SOURCE, Beginning July 1993, Securities Data Company and the Board of Governors of
the Federal Reserve System.

A32
1.47

Domestic Financial Statistics • November 1998
Net Sales and Assets1

OPEN-END INVESTMENT COMPANIES
Millions of dollars

1998
Item

1996

1997

934.595

Jan.

Feb.

119,488

114,219

June

July'

Aug.

128,828

113,593

122,288

134,801

111,908

81.688
32.532

97.248
31,100

97.087
31.741

84,421
29,172

97,899
24,389

107.368
27,433

118,168
-6,261

3,459,354

3,675,392

3,843,971

3,909,9.12

3,882,061

3,986,952

3,957,093

3,477,373

183,648
3,275.706

180.415
3 494 977

174,058
3,669,913

170.045
3,739,887

171,425
3,710.636

199,135
1,787,817

195,966
3,761,127

195,042
3,282,331

918,728
272.172

92,621
26,867

4 Assets4

2,624,463

3,409,315

5 Cash'
6 Other

138,559
2,485,904

174,154
3,235,161

4. Market value at end of period, less current liabilities.
5. Includes all US. Treasury securities and other short-term debt securities.
SOURCE. Investment Company Institute. Data based on reports of membership, which
comprises substantially all open-end investment companies registered with the Securities and
Exchange Commission. Data reflect underwntmgs of newly formed companies after their
initial offering of securities.

1. Data include stock, hybrid, and bond mutual funds and exclude money market mutual
funds.
2. Excludes reinvestment of net income dividends and capital gains distributions and share
issue of conversions from one fund to another in the same group.
3. Excludes sales and redemptions resulting from transfers of shares into or out of money
market mutual funds within the same fund family.

1.48

May

Apr.

128,348

1,190,900

702.711
231,885

2 Redemptions of own shares
3 Net sales3

Mar.

CORPORATE PROFITS AND THEIR DISTRIBUTION
Billions of dollars; quarterly data at seasonally adjusted annual rates
1997

1996
Account

1995

1996

1998

1997
Q3

Q4

Ql

Q2

Q2

Q4

Ql

Q2'

1 Profits with inventory valuation and
capital consumption adjustment
2 Profits before taxes
3 Profits-tax liability
4 Profits after taxes
5 Dividends
6 Undistributed profits

672.4
635.6
211.0
424.6
205 3
219.3

750.4
680.2
226.1
454.1
261.9
192.3

817.9
734.4
246.1
488.3
275.1
2112

755.4
681.9
227.7
454.2
269.1
185.1

762.0
685.7
224.2
461.5
273.6
187.9

794.3
712.4
238.8
473.6
274.1
199.5

815.5
729.8
241.9
487.8
274.7
213.2

840.9
758.9
254.2
504.7
275.1
229.5

820.8
736.4
249.3
487.1
276.4
210.6

829.2
719.1
239.9
479.2
277.3
201.8

820.6
723.5
241.6
481.8
278.1
203.7

7 Inventory valuation
8 Capital consumption adjustment

-22.6
59.4

-1.2
71.4

6.9
76.6

1.2
72.3

3.0
73.3

8.1
73.8

10.3
75.5

4.8
77.2

4.3
80.1

25.3
84.9

7.8
89.4

SOURCE. U.S. Department of Commerce, Survey of Current Business.

1.51

DOMESTIC FINANCE COMPANIES

Assets and Liabilities'

Billions of dollars, end of period; not seasonally adjusted
1997

1996
Q4

1998

Ql

02

03

Q4

01'

02

648.0
249.4
315 2
83.4

651.6
255.1
311.7
84.8

660.5
254.5
319.5
86.4

663.3
256.8
318.5
87.9

667.2
251.7
325.9
89.6

676.0
251.3
334.9
89.9

ASSETS
1 Accounts receivable, gross2
2 Consumer
3
Business
4
Real estate
5 LESS; Reserves for unearned income

607.0
233.0
301.6
72.4

637.1
244.9
309.5
82.7

663.3
256.8
318.5
87.9

637.1
244.9
309.5
82.7

60.7
12 8

55.6
13 1

52.7
P 0

55.6
13 1

51.3
12 8

57.2
13 3

54.6
12 7

52.7
13 0

52.1
13 1

53.2
13 2

7 Accounts receivable, net
8 All other

533.5
250.9

568.3
290.0

597.6
312.4

568.3
290.0

583.9
289.6

581.2
306.8

593.1
289.1

597.6
312.4

601.9
329.7

609.6
340.1

9 Total assets

784.4

858.3

910.0

858.3

87.3.4

887.9

882.3

910.0

931.6

949.7

15.3

19.7
177 6

24.1
201 5

19.7
177 6

18.4
185 3

18.8
193 7

20.4
189 6

24.1

22.0
7] i 7

22,3

51.1
300.0
163.6
85.9

60.3
332.5
174.7
935

64.7
328.8
189.6
101.3

60.3
332.5
174.7
93.5

61.0
324.6
189.2
94.9

60.0
345.3
171.4
98.7

61.6
322.8
190.1
97.9

64.7
328.8
189.6
101.3

64.6
338.2
193.1
102.1

60.0
348.7
188.9
103.9

784.4

858.3

910.0

858.3

873.4

887.9

882.3

910.0

931.6

949.7

LIABILITIES AND CAPITAL

10 Bank loans

12
13
14
15

Debt
Owed to parent
Not elsewhere classified
All other liabilities
Capital, surplus, and undivided profits

16 Total liabilities and capital

1. Includes finance company subsidiaries of bank holding companies but not of retailers
and banks. Data are amounts carried on the balance sheets of finance companies: securitized
pools are not shown, as they are not on the books.




2. Before deduction for unearned income and losses.

Securities Market and Corporate Finance A33
1.52

DOMESTIC FINANCE COMPANIES

Owned and Managed Receivables1

Billions of dollars, amounts outstanding

Type of credit
Feb.

Apr.

July

May

Seasonally adjusted
761.9r

1 Total
2
3
4

Consumer
Real estate
Business

283.1'
72.4
326.8'

307.7'
111.9
342.4'

327.7'
121.1
361.0'

820.2'

819.0'

825.3'

327.7'
123.7
368.8'

328.7'
121,6
368.7'

328.9'
121.9
374.5'

840.6
330.2'
124.2
378.6'

332.5'
120.9'
377 9'

336.7
125.2
378.7

Not seasonally adjusted
5 Total
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36

Consumer
Motor vehicles loans
Motor vehicle leases
Revolving2
Other3
Securitized assets
Motor vehicle loans
Motor vehicle leases
Revolving
Other
Real estate
One- to four-family
Other
Securitized reaf estate assets4
One- to four-family
Other
Business
Motor vehicles
Retail loans
Wholesale loans5
Leases
Equipment
Loans
Leases
Other business receivables6
Securitized assets
Motor vehicles
Retail loans
Wholesale loans
Leases
Equipment
Loans
Leases
Other business receivables

689.5

769.7

818.1

819.6

819.7

825.3

832.2

836.0'

835.2

285.8
81.1
80.8
28.5
42.6

310.6
86.7
92.5
32.5
33.2

330.9
87.0
96.8
38.6
34.4

324.8
84.7
94.7
36.9
34.1

325.4
86.8
95.2
36.6
33.0

326.7
90.6
95.9
30.4
33.4

329.4
89.6
95.9
30.5
33.5

335.4'
89.9'
97.0'
29.9'
34.4

338.5
91.7
97.3
29.6
35.0

34.8
3.5
n.a.
14.7
72.4
n.a.
n.a.

36.8
8.7
00
20.1
111.9
52.1
30.5

44.3
10.8
0.0
19.0
121.1
59.0
28.9

45.3
10.6
0.0
18.5
123.7
62.2
29.0

45.0
10.5
00
18.2
121.6
61.5
28.1

42.8
10.4
5.3
18.1
121.9
62.4
28.1

45.7
10.8
5.3
18.1
124.2
65.2
28.1

49.3
10.9
5.3
18.6
120.9'
62.3'
27.5

50.2
10.8
5.3
18.5
125.2
65.9
28.5

n.a.
n.a.
331.2
66.5
21.8
36.6
80

28.9
0.4
347.2
67.1
25.1
33.0
9.0
9.0
9.0
9.0
9.0

33.0
0.2
366.1
63.5
25.6
27.7
10.2
10.2
10.2
10.2
10.2

12.1
0.2
371.1
64.8
26 4
28.2
10.2
204.7
49.9
154.8
55.6

31.8
0.2
372.7
67.8
27 3
30.2
10.2
206.5
50.8
155.7
51.6

31.2
0.2
376.7
68.2
28.3
29.5
10.4
207.8
51.2
156.7
54.0

30.7
0.2
378.6
69.1
29.3
29.5
10.4
209.3
51.3
158.0
54.3

30.9
0.1
379.7'
68.4
29.2
28.2
11.0
212.8'
52.7'
160.2'
53.7

30.6
0.1
371.5
61.1
29.2
21.0
10.9
212.8
51.6
161.2
54.5

9.0
9.0
9.0
9.0
9.0
9.0
9.0
9.0

10.2
10.2
10.2
10.2
10.2
10.2
10.2
10.2

31.2
2.2
29.0
0.0
10.8
4.3

32.1
2.0
30.0
0.0
10.5
4.2
6.3
4.2

31.6
1.9
29.6
0.0
10.3
4.1
6.2
4.7

31.0
1.9
29.2
0.0
10.2
4.0
6.2
4.7

29.1'
2.3
26.7'
0.0
10.5
4.1
6.4
5.3

26.3
2.2
24.1
0.0
11.5

8.0
8.0
8.0
8.0
8.0
8.0
8.0
8.0
8.0

8.0
8.0
8.0

NOTE This table has been revised to incorporate several changes resulting from the
benchmarking of finance company receivables to the June 1996 Survey of Finance Companies. In that benchmark survey, and in the monthly surveys that have followed, more detailed
breakdowns have been obtained for some components. In addition, previously unavailable
daia on securitized real estate loans are now included in this table. The new information has
resulted in some reel ass ification of receivables among the three major categories (consumer,
real estate, and business) and in discontinuities in some component series between May and
June 1996.
Includes finance company subsidiaries of bank holding companies but not of retailers and
banks. Data in this table also appear in the Board's G.20 (422) monthly statistical release. For
ordering address, see inside front cover.
I. Owned receivables are those carried on the balance sheet of the institution. Managed
receivables are outstanding balances of pools upon which securities have been issued; these
balances are no longer carried on the balance sheets of the loan originator. Data are shown




6.5
4.0

5.1
6.4
5.4

before deductions for unearned income and losses. Components may not sum to totals
because of rounding.
2. Excludes revolving credit reported as held by depository institutions that are subsidiaries of finance companies.
3. Includes personal cash loans, mobile home loans, and loans to purchase other types of
consumer goods such as appliances, apparel, boats, and recreation vehicles.
4. Outstanding balances of pools upon which securities have been issued; these balances
are no longer carried on the balance sheets of the loan originator.
5. Credit arising from transactions between manufacturers and dealers, that is, floor plan
financing.
6. Includes loans on commercial accounts receivable, factored commercial accounts, and
receivable dealer capital; small loans used primarily for business or farm purposes; and
wholesale and lease paper for mobile homes, campers, and travel trailers.

A34
1.53

Domestic Financial Statistics • November 1998
MORTGAGE MARKETS Mortgages on New Homes
Millions of dollars except as noted
1998
Item

1995

1997

1996

Feb.

Mar.

Apr.

May

June

July

Aug.

Terms and yields in primary and secondary markets
PRIMARY MARKETS

1
2
3
4
5

Terms'
Purchase price (thousands of dollars)
Amount of loan (thousands of dollars)
Loan-to-price ratio (percent)
Maturity (years)
Fees and charges (percent of loan amount)

175.8
134.5
78.6
27.7
1.21

182.4
139.2
78.2
27.2
1.21

180.1
1403
80.4
28.2
1.02

195.3
148.5
78.6
28.0
0.99

191.7
149.5
81.0
28.3
0.95

189.5
147.1
80.4
28.4
0.87

195.6
150.2
79.1
28.3
0.85

193.7
151.0
81.0
28.3
0.85

208.7
160.1
78.7
28.5
0.90

191.5
150.4
81.3
28.6
0.87

7.65
7.85
8.05

7.56
7.77
8.03

7.57
7.73
7.76

7.09
7 24
7.22

7.03
7.17
7.16

7.05
7.20

7.05
7.18
7.11

7.03
7.16
7.08

6.99
7.13
7.05

6.95
7.09
6.86

8.18
7.57

8.19
7.48

7.89
7.26

7.06
6.63

7.09
6.66

7.37
6.63

7.07
6.63

7.07
6.54

7.05
6.48

7.03
6.42

Yield (percent per year)
7 Effective rate1'3
8 Contract rate (HUD series)4

7.19

SECONDARY MARKETS

Yield (percent per year)
9 FHA mortgages (Section 203)5
10 GNMA securities6

Activity in secondary markets
FEDERAL NATIONAL MORTGAGE ASSOCIATION
Mortgage holdings (end of period)
11 T o t a l
12
F H A / V A insured
13
Conventional
14 M o r t g a g e t r a n s a c t i o n s p u r c h a s e d ( d u r i n g p e r i o d )

. . . .

Mortgage commitments (during period)
15 Issued7
16 To sell8

253,511
28.762
224,749

287,052
30,592
256,460

316,678
31,925
284,753

322.957
31,650
291.307

327.02S
31,965
295.060

333,571
32,734
300,837

343,922
32,771
311,151

349,249
32,896
316,353

359.827
33.036
326,791

366,890
32,929
333,961

56,598

68,618

70,465

8,630

12,095

14,668

17,423

11,916

17,326

14,316

56,092
360

65,859
130

69,965
1,298

10,587
0

14,057
92

17,556
0

10,612
0

16,921
0

13,217
419

17,016
233

107,424
267
107,157

137,755
220
137,535

164,421
177
164,244

175,770
170
175.600

185,928
166
185,762

189,471
162
189,309

192,603
158'
192,445'

196,634
422'
196,212'

202,582
456'
202,126'

206,856
450
206,406

98,470
85.877

125,103
119.702

117,401
114,258

13,610
12,481

21,011
19,085

25,132
24,479

23,743
23,338

22,394
21,133

22,604
22.263

21,507
20,633

118,659

128,995

120.089

17,397

23,060

24,468

26,100

20,008

23,528

24,694

FEDERAL HOME LOAN MORTGAGE CORPORATION

Mortgage holdings (end of period)*
17 Total
18 FHA/VA insured
Mortgage transactions (during period)
20 Purchases
21 Sales
22 Mortgage commitmenls contracted (during period)9

1. Weighted averages based on sample surveys of mortgages originated by major institulional lender groups for purchase of newly built homes; compiled by the Federal Housing
Finance Board m cooperation with the Federal Deposit Insurance Corporation.
2. Includes all fees, commissions, discounts, and "points" paid (by the borrower or the
seller) to obtain a loan.
3- Average effective interest rate on loans closed for purchase of newly built homes,
assuming prepayment at the end often years.
4. Average contract rate on new commitments for conventional first mortgages; from US.
Department of Housing and Urban Development (HUD). Based on transactions on the first
day of the subsequent month.
5. Average gross yield on thirty-year, minimum-downpayment first mortgages insured
by the Federal Housing Administration (FHA) for immediate delivery in the private
secondary market. Based on transactions on first day of subsequent month.




6. Average net yields to investors on fully modified pass-through securities backed by
mortgages and guaranteed by the Government National Mortgage Association (GNMA),
assuming prepayment in twelve years on pools of thirty-year mortgages insured by the
Federal Housing Administration or guaranteed by the Department of Veterans Affairs.
7. Does not include standby commitments issued, but includes standby commitments
converted.
8. Includes participation loans as well as whole loans.
9. Includes conventional and government-underwritten loans. The Federal Home Loan
Mortgage Corporation's mortgage commitments and mortgage transactions include activity
under mortgage securities swap programs, whereas the corresponding data for FNMA
exclude swap activity.

Real Estate
1.54

A35

MORTGAGE DEBT OUTSTANDING 1
Millions of dollars, end of period

Type of holder and property

I All holders
2
3
4
5

By type of property
One- to four-family residences
Multifamily residences
Nonfarm, nonresidential
Farm

By type of holder
6 Major financial institutions . . .
Commercial banks'
One- to four-family
Multifamily
Nonfarm, nonresidential
Farm
Savings institutions3
One- to four-family
Multifamily
Nonfarm, nonresidential
Farm
Life insurance companies
One- to four-family
Multifamily
Nonfarm, nonresidential
Farm
22 Federal and related agencies
23
Government National Mortgage Association
24
One- to four-family
25
Multifamily
26
Farmers Home Administration
27
One- to four-family
28
Multifamily
29
Nonfarm, nonresidential
30
Farm
31
Federal Housing and Veterans' Administrations
32
One- to four-family
33
Multifamily
34
Resolution Trust Corporation
35
One- to four-family
36
Multifamily
37
Nonfarm, nonresidential
38
Farm
39
Federal Deposit Insurance Corporation
40
One- to four-family
41
Multifamily
42
Nonfarm, nonresidential
43
Farm
44
Federal National Mortgage Association
45
One- to four-family
46
Multifamily
47
Federal Land Banks
48
One- to four-family
49
Farm
50
Federal Home Loan Mortgage Corporation
51
One- to four-family
52
Multifamily
53 Mortgage pools or trusts5 .
54
Government National Mortgage Association
55
One- to four-family
56
Multifamily
57
Federal Home Loan Mortgage Corporation
58
One- to four-family
59
Multifamily
60
Federal National Mortgage Association
61
One- to four-family
62
Multifamily
63
Farmers Home Administration4
64
One- to four-family
65
Multifamily
66
Nonfarm, nonresidential
67
Farm
68
Private mortgage conduits
69
One- to four-family6
70
Multifamily
71
Nonfarm, nonresidential
72
Farm
73 Individuals and others
74
One- to four-family
75
Multifamily
76
Nonfarm, nonresidential
77
Farm

Q3

Q4

Ql

Q2P

4,393,545'

4,604,609r

4,930,487'

5,062,766'

5,180,917'

5,279,333'

5380,907'

5,505,783

3,355,868
271,823'
682,883'
82,971

3,530,400
281,788'
707,861'
84,561

3,761,560
300,665'
781,129'
87,134

3,860,763'
305,963'
807,361'
88,680'

3,956,815'
308,418'
825,923'
89,760'

4,029,268'
314,590'
845,058'
90,417

4,102,830'
320,237'
866,414'
91,425'

4,195,738
326,527
890,538
92,980

1,819,806
1,012,711
615.861
39,346
334,953
22,551
596,191
477,626

1,894,420
1,090.189
669,434
43,837
353,088
23,830
596,763
482,353
61,987
52,135
288
207,468
7,316
23,435
167,095
9,622

1,979,114
1.145.389
698.508
46,675
375,322
24,883
628,335

2,033,599'
1.196,461'
733,694'
49,116'
387,588'
26,063'
629,062
516,521
60,070
52,132
338
208,077
6,842
23,499
167,548
10,188

2.068,002'
1,227,131'
752,323'
49,166'
398,841'
26,801'
631,444
519,564
60,348
51,187
346
209,426
7,080
23,615
168,374
10,358

2,086,721'
1.244,108'
762.531'
50,642'
403,957'
26,978
631,822'
520,672'
59,543
51,252'
354
210,792
7,186
23,755
169,377
10,473

2,119,279'
1.270.032'
779,927'
51.790'
410.859'
27.456'
637,012'
527,036'
59.074'
50.532'
369
212,235
7,321
23,902
170,423
10,589

2,124,259
1,280,732
784,929
52,175
415.311
28,316
629,882
520,276
58,704
50,519
383
213,645
7,488
24,038
171,393
10,726

315,580
6
6
0
41,781
18,098
11,319
5,670
6,694
10,964
4,753
6,211
10,428
5,200
2,859
2,369
0
7,821
1,049
1,595
5,177
0
174,312
158,766
15,546
28,555
1,671
26,885
41,712
38,882
2,830

306,774
2
2
0
41,791
17,705
11,617

300,935
2
2
0
41,596
17,303
11,685
6,841
5,768
6,244
3,524
2,719
0
0
0
0
0
2,431
365
413
1,653
0
174,556
160,751
13,805
29,602
1,742

0
41,195
17,253
11,720
7,370
4.852
3.821
1,767'
2,054'
0
0
0
0
0
724
109
123
492
0
167,722
156,245
11,477
30,657
1,804
28,853
48,454
42,629
5,825

293,499
8
8
0
40,972
17,160
11,714
7.369
4,729
3.694
1,641'
2 053'
0
0
0
0
0
786
118
134
534
0
166,670
155,876
10,794
31,005
1,824
29,181
50,364
44,440
5,924

294,547
8
8
0
40,921
17.059
11,722
7,497
4,644
3,631
1,610
2,021
0
0
0
0
0
564
85
96
384
0
167,202
156,769
10,433
31.352
1,845
29,507
50,869
44,597
6,272

1,730,004'
450,934
441,198
9,736
490,851
487,725
3,126
530,343
520,763
9,580
19
3
0
9
7
257,857'
208,500
11,744'
37,613'
0

1,863,210'
472,283
10,845
515,051
512,238
2,813
582,959
569,724
13,235
11
2
0
5
4
292,906'
227,800
15,584'
49,522'
0

554.260
551.513
2,747
650,780
633,210
17,570
3
0
0
0
3
353.4991
261,900
21,967'
69,633'
0

2,202,549'
529,867
516,217
13,650
569,920
567,340
2,580
690,919
670,677
20,242
2
0
0
0
2
411,841'
299,400
25,655'
86,786'
0

2,272,999'
536,810
523,156
13,654
579,385
576,846
2,539
709,582
687,981
21.601

2.330.674'
533,011
519,152
13,859
583.144
580,715
2,429
730,832
708,125
22,707

0
0
0
2
447,219'
318,000
29,264'
99,955'
0

0
0
0
2
483,685'
336,824'
33,477'
113,384'
0

2,442,603
537,586
523,243
14,343
609,791
607,469
2,322
761,359
737,631
23,728
2
0
0
0
2
533,865
364,316
38,144
131,405
0

528,155
368,749
69,686
72,738
16,983

540.206
372,786
73,719
75,859
17,841

585,556
376,341
81.389
109,558

618,955'
405,990'
81,702'
112,486'
18,777

627,033'
413,082'
82,392'
112,655'
18,904'

637.455'
422,663'
82.379"
113.312'
19.100'

644,375
428,413
82,529
114,031
19,402

64,343

53,933
289
210,904
7,018
23,902
170,421
9,563

6,248

6,221
9,809
5,180
4,629
1,864
691
647

525
0
4,303
492
428

3,383
0
176,824
161,665
15,159
28,428
1,673
26,755
43,753
39.901
3,852

1. Multifamily debt refers to loans on structures of five or more units.
2. Includes loans held by nondeposit trust companies but not loans held by bank trust
departments.
3. Includes savings banks and savings and loan associations.
4. FmHA-guaranteed securities sold to the Federal Financing Bank were reallocated from
FmHA mortgage pools to FmHA mortgage holdings in 1986:Q4 because of accounting
changes by the Farmers Home Administration.
5. Outstanding principal balances of mortgage-backed securities insured or guaranteed by
the agency indicated.




Q2

461,438

513,712
61.570

52,723
331
205,390
6,772
23,197
165,399
10,022

27,860

46,504
41,758
4,746

2,064.882'
506.340
494.158
12.182

18,268

292.966
7
7
0
41,400
17.239
11.706
7,135
5,321
4,200
2,299
1,900
0
0
0
0
0
1,816
272
309
1,235
0
170,386
157,729
12,657
29,963
1,763
28,200
45,194
40.092
5,102
2,145,995'
520,938
507,618
13,320
567,187
564,445
2,742
673,931
654,826
19,105
0
0
0
2
383,937'
279,450
24,355'
80.132'
0
590,206
377,966
82,081
111,591
18,567

291,410
7
7
0
41,332
17,458
11,713
7,246
4,916
3,462
1,437'
2,025'
0
0
0
0
0
1,476
221
251
1.004
0
168,458
156,363
12,095
30,346
1,786
28,560
46,329
40,953
5,376

292,581

6. Includes securitized home equity loans.
7. Other holders include mortgage companies, real estate investment trusts, state and local
credit agencies, state and local retirement funds, noninsured pension funds, credit unions, and
finance companies.
SOURCE. Based on data from various institutional and government sources. Separation of
nonfarm mortgage debt by type of property, if not reported directly, and interpolations and
extrapolations, when required for some quarters, are estimated in part by the Federal Reserve.
Line 69 from Inside Mortgage Securities and other sources.

A36
1.55

Domestic Financial Statistics • November 1998
CONSUMER CREDIT1
Millions of dollars, amounts outstanding, end of period
1998'

Holder and type of credit

1995

1996

1997
Feb.

Mar.

Apr.

May

June

July

Seasonally adjusted
1 Total
2 Automobile
3 Revolving
4 Other2

l,095,711r

1,181,913'

1,233,099'

1,239461

1,246,016

1,249,950

1,251,874

1,260,676

1,265,978

364,209'
443,183'
288,319'

392,321'
499,486'
290,105'

413,369'
531,140'
288,590'

416,809
535,518
287,234

419,811
539,674
286,530

421,378
542,213
286,359

422,806
541,656
287,412

425,736
545,920
289,020

429,175
543,825
292,979

Not seasonally adjusted
5 Total
By major holder
6 Commercial banks

10 Nonfinancial business3
11 Pools of securitized assets4

1,122,828

1,211,590

1,264,103

1,233,241

1,234,714

1,239,310

1,240,755

1,253,893

1,259,132

501,963
152,123
131,939
40,106
85,061
211,636

526,769
152,391
144,148
44,711
77,745
265,826

512,563
160,022
152,362
47,172
78,927
313,057

492,549
155,675
149,804
47,115
72,761
315,337

492,213
156.480
149,334
47,087
72,754
316,846

500,207
154,328
149,119
47.500
65,102
323,054

497,389
153,556
149,784
47,915
65,238
326.873

491,509
154,275
149,383
48.329
65,278
345,119

491,777
156,394
150,444
48,744
65,497
346,276

By major type of credit
13
14
15

Commercial banks
Finance companies
Pools of securitized assets

367,069
151,437
81,073
44,635

395,609
157,047
86,690
51,719

416,962
155,254
87,015
64,950

412,177
152,747
84,685
65,957

415,524
153,926
86,834
65.057

416.138
151.278
90,564
63,737

418,425
151.677
89.569
65,988

425,453
150.877
89,948
71,615

430,781
153,203
91.741
72,467

17
18
19
20

Commercial banks
Finance companies
Nonfmancial business3
Pools of securitized assets

464,134
210,298
28,460
53,525
147.934

522,860
228,615
32,493
44,901
188,712

555,858
219,826
38,608
44,966
221,465

535,451
204,564
36,851
40,976
223,400

534,420
201,316
36,613
41,246
226,226

535,976
209,171
30,398
33,487
233,668

536,043
207,318
30,495
33,412
235,347

540,147
200,901
29,893
33,544
245,635

537,559
197,646
29,633
33,807
246,031

291,625
140,228
42,590
31,536
19,067

293,121
141,107
33,208
32,844
25,395

291,283
137,483
34,399
33,961
26,642

285,613
135,238
34,139
31,785
25,980

284,770
136,971
33,033
31,508
25,563

287,196
139,758
33,366
31,615
25,649

286,287
138,394
33,492
31,826
25,538

288,293
139,731
34,434
31,734
27,869

290,792
140,928
35,020
31,690
27,778

21 Other
23
24
25

Finance companies
Nonfinancial business3
Pools of securitized assets4

1. The Board's series on amounts of credit covers most short- and intermediate-term credit
extended to individuals. Data in this table also appear in the Board's G.I9 (421) monthly
statistical release. For ordering address, see inside front cover.
2. Comprises mobile home loans and all other loans that are not included in automobile or
revolving credit, such as loans for education, boats, trailers, or vacations. These loans may be
secured or unsecured.

1.56

3. Includes retailers and gasoline companies.
4. Outstanding balances of pools upon which securities have been issued; these balances
are no longer carried on the balance sheets of the loan originator.
5. Totals include estimates for certain holders for which only consumer credit totals are
available.

TERMS OF CONSUMER CREDIT1
Percent per year except as noted
1998
Item

1995

1996

1997
Jan.

Feb.

Mar.

Apr.

May

June

July

INTEREST RATES

Commercial banks2
1 48-month new car
2 24-month personal
Credit card plan
3 All accounts

9.57
13.94

9.05
13.54

9.02
13.90

n.a.
n.a.

8.87
14.01

n.a.
n.a.

n.a.
n.a.

8.69
13.76

n.a.
n.a.

n.a.
n.a.

15.90
15.64

15.63
15 50

15.77
15 57

n.a.

15.65
15.33

n.a.

n.a.

15.67
15.62

n.a.

n.a.

11.19
14.48

9.84
13.53

7.12
13.27

6.12
12.77

6.98
12.87

5.94
12.79

6.20
12.76

6.07
12.73

6.02
12.63

6.25
12.51

54.1
52.2

51.6
51.4

54.1
51.0

52.8
52.2

52.6
52.5

51.5
52.6

50.7
52.9

50.8
52.9

50.9
54.0

51.7
54.1

92
99

91
100

92
99

92
98

92
97

92
97

91
98

93
99

91
100

92
100

16,210
11,590

16,987
12,182

18,077
12,281

18,944
12,391

18,825
12,356

18,932
12,431

18,922
12,716

18,793
12,607

18,878
12,698

19,084
12,733

Auto finance companies
6 Used car
OTHER TERMS 1

Maturity (months)
8 Used car
Loan-to-value ratio
10 Used car
Amount financed (dollars)
11 New car
12 Used car

1. The Board's series on amounts of credit covers most short- and intermediate-term credit
extended to individuals. Data in this table also appear in the Board's G.19 (421) monthly
statistical release. For ordering address, see inside front cover.




2. Data are available for only the second month of each quarter.
3. At auto finance companies.

Flow of Funds A37
1.57

FUNDS RAISED IN U S . CREDIT MARKETS 1
Billions of dollars; quarterly data at seasonally adjusted annual rates

Transaction category or sector

1997
Q4

Q\

Q3

04

Ql

Nonfinancial sectors
572.2

701.6

725.8

768.4

642.2

674.5

614.4

829.6

954.9

919.1

256.1
248.3
7.8

155.9
155.7
.2

144.4
142.9
1.5

145.0
146.6
- 1.6

23.1
23.2
-.1

112.3
115.6
-3.3

64.9
66.3
-1.4

-43.5
-43.8
.2

30.3
31.2
-.9

40.8
39.0
1.7

-31.3
-28.9
-2.4

-69.6
-68.1
-14

1 Total net borrowing by domestic nonfinancial sectors
By sector and instrument
2 Federal government
3 Treasury securities
4 Budget agency securities and mortgages
5 Nonfederal

331.9

416.4

557.1

580.8

745.3

530.0

609.6

658.0

799.3

914.2

950.4

1,004.5

6
7
8
9
10
11
12
13
14
15
16

By instrument
Commercial paper
Municipal securities and loans
Corporate bonds
Bank loans n.e.c
Odier loans and advances
Mortgages
Home
Multifamily residential
Commercial
Farm
Consumer credit

10.0
74.8
75.2
6.4
-18.9
123.7
156.2
-6.8
-26.7
1.0
60.7

21.4
-35.9
23.3
75.2
34.0
173.4
178.5
-1.2
-6.1
2.2
124.9

18.1
-48.2
73.3
102.3
67.2
205.5
174.5
8.1
21.2
1.6
138.9

-.9
2.6
72.5
66.2
33.8
318.0
264.9
12.6
37.9
2.6
88.8

13.7
71.4
90.7
107.6
68.2
341.1
267.7
11.4
58.7
3.3
52.5

-24.1
54.8
89.9
27.8
3.2
331.5
248.4
15.3
66.1
1.6
46.8

7.2
34.1
79.4
140.7
34.2
251.5
217.5
3.9
28.0
2.1
62.5

20.3
59.6
86.1
118.1
19.3
295.1
210.5
12.7
67.7
4.1
59.5

14.5
88.9
122.9
31.6
79.2
411.9
333.6
6.5
67.5
4.3
50.3

12.8
103.2
74.4
140.0
140.1
405.8
309.3
22.3
71.6
2.6
37.8

53.9
116.7
157.2
56.0
80.7
434.3
330.3
19.9
80.1
4.0
51.7

6.6
86.1
160.8
170.1
34.5
487.8
367.9
22.5
91.1
6.2
58.6

17
18
19
20
21
22

By borrowing sector
Household
Nonfinancial business
Corporate
Nonfarm noncorporate
Farm
State and local government

207.8
57.9
52.1
3.2
2.6
66.2

311.4
151.3
143.6
3.3
4.4
-46.2

349.0
259.6
232.7
23.9
2.9
-51.5

372.8
214.8
165.5
44.5
4.8
-6.8

351.6
337.6
267.8
63.5
6.4
56.1

306.6
177.7
108.6
61.4
7.6
45.7

324.7
268.0
215.2
47.8
4.9
16.9

317.3
298.2
223.6
68.6
6.0
42.5

368.3
358.4
287.1
65.8
5.5
72.6

396.2
425.7
345.1
71.6
9.0
92.3

435.9
420.2
334.9
77.4
7.9
94.3

476.7
463.0
363.4
92.2
7.4
64.9

23 Foreign net borrowing in United States
24 Commercial paper
25 Bonds
26 Bank loans n.e.c
27 Other loans and advances

69.8
-9.6
82.9
.7
-4.2

-14.0
-26.1
12.2
1.4
-1.5

71.1
13.5
49.7
8.5
-.5

76.9
11.3
55.8
9.1
.8

56.9
3.7
46.7
8.5
-2.0

93.6
4.4
84.5
7.8
-3.1

31.2
15.5
15.5
-.7
.9

61.7
10.4
38.7
11.5
1.2

92.5
-11.6
100.3
73
-3.5

42.3
.7
32.4
15.7
-6.5

68.8
56.0
14.3
5.5
-7.0

68.5
-24.8
89.8
7.9
-4.4

28 Total domestic plus foreign

657.8

558.2

772.7

802.7

825.3

735.8

705.7

676.1

922.2

997.2

987.9

1,003.5

Financial sectors
468.4

456.4

556.2

644.4

674.1

336.5

659.0

594.0

987.9

840.3

1.016.2

165.3
80.6
84.7
.0

287.5
176.9
115.4
-4.8

204.1
105.9
98.2
.0

231.5
90.4
141.1
.0

212.8
98.4
114.4
.0

252.8
123.3
129.6
.0

105.7
-8.9
114.6
.0

286.2
198.1
88.1
.0

161.0
46.4
114.6
.0

298.1
157.9
140.3
.0

227.3
142.5
84.8
.0

413.4
166.4
247.0
.0

129.1
-5.5
123.1
-14.4
22.4
3.6

180.9
40.5
121.8
-13.7
22.6
9.8

252.3
42.7
196.7
3.9
3.4
5.6

324 7
92.2
179.7
16.9
27.9
7.9

431.6
166.7
208.1
13.6
35.6
7.8

421.3
162.1
199.0
24.0
31.2
4.9

230.9
176.6
61.7
6.5
-20.1
6.2

372.9
77.0
231.4
-6.0
63.0
7.5

433.0
168.8
193.4
23.2
37.5
10.1

689.8
244 2
345.8
30.7
61.7
7.3

613.0
237.4
316.0
18.9
32.7
8.0

602.8
134.8
376.8
7.2
76.0
8.0

13.4
11.3
.2
2
80.6
84.7
83.6
-1.4
.0
3.4
12.0
6.3

20.1
12.8

22.5

2.6

13.0
25.5

46.1
19.7

26.9
23.0

14.4
-16.8

76.4
31.9

32.5
22.3

61.0
41.7

.2

-.1

.1

.1

.3

-.2

.2

.2

.1

1.1
90.4
141.1
153.6
45.9
12.4
11.0
-2.0
64.1

2
98.4
114.4
204.6
48.7
-1.3
24.8
8.1
80.7

2.0
123.3
129.6
157.3
38.1
12.1
15.2
4.9
141.6

.8
-8.9
114.6
85.8
5.6
-.7
15.1
-2.9
129.7

.1
198.1
88.1
122.7
120.5
-12.2
19.8
34.9
-21.5

4&4
114.6
224.7
8.9

-.3
157.9
140.3
385.0
59.6

83.5
10.6
5
.0
142.5
84.8
255.0
80.1

95.9
31.2
.2
-.6
166.4
247.0
363.5
101.8
-5.5
33.9
20.0
-37.6

29 Total net borrowing by financial sectors . . .
30
31
32
33

By instrument
Federal government-related
Government-sponsored enterprise securities .
Mortgage pool securities
Loans from U.S. government

34 Private
35 Open market paper
36 Corporate bonds
37 Bank loans n.e.c
38 Other loans and advances
39 Mortgages
40
41
42
43
44
45
46
47
48
49
50
51

By borrowing sector
Commercial banking
Savings institutions
Credit unions
Life insurance companies
Government-sponsored enterprises
Federally related mortgage pools
Issuers of asset-backed securities (ABSs)
Finance companies
Mongage companies
Real estate investment trusts (REITs) .. .
Brokers and dealers
Funding corporations




.3
172.1
115.4
72.9
48.7
-11.5
13.7
.5
23.1

— i
105^9
98.2
141.1
50.2
.4
5.7
-5.0
34.9

3.6

4.2

5.2

32.0
-6.9
115.4

32.1
7.0
99.2

36.3
-1.0
142.8

A38
1.57

Domestic Financial Statistics • November 1998
FUNDS RAISED IN U.S. CREDIT MARKETS'—Continued
1996
Transaction category or sector

1993

1994

1997

1995

Q4

Ql

Q2

Q3

Q4

Ql

Q2

All sectors
52 Total net borrowing, all sectors

952.2

1,026.6

1,229.0

1,358.9

1,469.7

1,409.9

1,042.2

1,335.1

1,516.2

1,985.1

1,828.2

2,019.6

53
54
55
56
57
58
59
60

-5.1
421.4
74.8

35.7
448.1
-35.9
157.3
62.9
50.3
183.2
124.9

74.3
348.5
-48.2
319.6
114.7
70.2
211.1
138.9

102.6
376.5
2.6
308.0
92.1
62.5
325.9
88.8

184.1
235.9
71.4
345.5
129.7
101.8
348.8
52.5

142.4
365.1
54.8
373.4
59.7
31.3
336.4
46.8

199.3
170.6
34.1
156.6
146.5
15.0
257.7
62.5

107.7
242.6
59.6
356.1
123.6
83.4
302.6
59.5

171.7
191.3
88.9
416.6
62.2
113.3
422.0
50.3

257.7
338.9
103.2
452.6
186.4
195.3
413.1
37.8

347.3
196.0
116.7
487.5
80.4
106.4
442.3
51.7

116.6
343.8
86.1
627.4
185.3
106.1
495.8
58.6

Open market paper
U.S. government securities
Municipal securities
Corporate and foreign bonds
Bank loans n.e.c
Other loans and advances . .
Mortgages
Consumer credit

281.2
-7.2
-.8
127.3
60.7

Funds raised through mutual funds and corporate equities
61 Total net issues

429.7

125.2

143.9

231.8

191.9

162.3

181.9

183.9

248.6

153.0

218.0

194.2

62 Corporate equities
63
Nonfinancial corporations
64
Foreign shares purchased by U.S. residents
65
Financial corporations
66 Mutual fund shares

137.7
21.3
63.4
53.0
292.0

24.6
-44 9
48.1
21.4
100.6

-3.5
-58.3
50.4
4.4
147.4

-5.8
-64.2
60.0
-1.6
237.6

-73.3
-114.6
41.3
.1
265.1

-20.4
-56.0
42.2
-6.7
182.8

-67.7
-90.4
46.6
-23.9
249.6

-66.2
-100.0
54.4
-20.6
250.1

-51.3
-124.0
64.3
8.4
299.9

-108.0
-144.1
-.3
36.5
261.0

-103.4
-138.0
13.6
21.0
321.4

-118.2

1. Data in this table also appear in the Board's Z. 1 (780) quarterly statistical release, tables
F.2 through F.4. For ordering address, see inside front cover.




-129.2
4.0

7.1
312.4

Flow of Funds A39
1.58

SUMMARY OF FINANCIAL TRANSACTIONS1
Billions of dollars except as noted: quarterly data at seasonally adjusted annual rates
1997

1996
Transaction category or sector

1993

1994

1995

1996

Q4
NET LENDING IN CREDIT MARKETS

1 Total net lending in credit markets
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33

Domestic nonfederal nonnnaneia) sectors
Household
Nontinancial corporate business
Nonfami noncorporate business
State and local governments
Federal government
Rest of the world
Financial sectors
Monetary authority
Commercial banking
U.S.-chartered banks
Foreign banking offices in United States
Bank holding companies
Banks in U.S.-affiliated areas
Savings institutions
Credit unions
Bank personal trusts and estates
Life insurance companies
Other insurance companies
Private pension funds
State and local governmentretirementfunds
Money market mutual funds
Mutual funds
Closed-end funds
Government-sponsored enterprises
Federally related mortgage pools
Asset-backed securities issuers (ABSs)
Finance companies
Mortgage companies
Real estate investment trusts (REITs)
Brokers and dealers
Funding corporations

1998

1997
Ql

Q2

Ql

Q4

Ql

QZ

2

952.2
41.6
1.0
9.1
-1.1
32.6
-18.4
129.3
799.7
36.2
142^2
149.6
-9.8
.0
24
-21 1
21.7
9.5
100.9
27.7
49.5
22.7
20.4
159.5
20.0
87.8
84.7
81 0
-20.9
.0
.6
14.8
-35.3

1,026.6

1,229.0

238.7
-93.8
275.5
1.6
17.7
-8.8
4.7
.6
-55.0
-91.4
- 2
—27.5
273.9
132.3
683^0 1.049.1
31 5
12.7
163/1
265^9
148.1
186.5
75.4
11.2
.9
-.3
3.3
4.2
6.7
-7.6
16.2
28.1
-8.3
7.1
66.7
99.2
24.9
21.5
45.5
61.3
22.3
27.5
30.0
86.5
—7 1
52 5
-3.7
10.5
84.7
117.8
115 4
98 2
65.8
119.3
49.9
48.3
—3 4
-24 0
4.7
12
-44.2
90.1
-16.2
-29.7

1,469.7

1,409.9

1,042.2

1,335.1

1,516.2

1,985.1

1,828.2

2,019.6

9.5
-88.8
13.8 -106.1
14.9
15.0
4.4
2.7
-23.7
-.3
4.9
—7 7
414.7
312.1
942.4
1.24L5
38 3
12 3
187.5
324^8
119.6
274.9
63.3
40.2
3.9
5.4
.7
4.2
-4.7
19.9
25.5
16.8
-7.7
7.6
72.5
101.0
25.2
22.5
67.6
48.3
45.9
36.6
87.5
88.8
48 9
80 9
1.2
2.2
92.0
95.0
141 1
114 4
123.4
166.1
21.9
18.4
82
16 4
2.0
-2.0
-15.7
13.7
6.5
33.4

-141.2
-46.6
-16.9
4.4
-82.1
-4.3
586.6
968.8
6.9
2454
152.4
84.1
10.5
-1.6
-47.9
25.8
-2.5
124 5
27.7
34.1
38.1
81.1
25.7
2^2
137.1
129 6
I08J
-3.6
4.1
-2.\
82.7
-48.4

-221.7
-273.5
78.7
2.5
-29.5
17
330.6
93 L7
34 4
316X)
206.1
101.7
2.2
6.1
-5.3
20.5
3.4
88 3
6^0
55.0
23 2
58.2
63.9
2.7
44.9
114 6
623
39.8
-1 3

-138.0
-131.5
31.7
2.8
-41.0
3.3
404.1
1,246.8
22.9
226.2
220.7
4.6
-5.0
5.8
-35.3
13.6
7.3
106.0
32.0
66.2
79.1
121.5
108.0

-14.5
21.5

-50.5
-48.3
-46.7
2.7
41.8
5.7
307.0
1,072.9
42.9
290.0
286.7
-3.6
5.1
1.8
23.8
25.2
10.7
174.4
28.0
58.5
34.6
26.1
90.0
1.3
119.9
88.1
107^8
.9
-24.4
-2.1
-11.7
-10.9

55.8
114.6
162.2
68.3
82.9
-2.1
15.8
1.7

55.0
28.6
-4.1
2.9
27.5
9.0
206.5
1,714.7
52.9
467.1
386.2
58.2
19.4
3.2
-2.0
7.7
8.8
35.3
34.7
90.7
9.5
144.2
61.8
4
159.2
140.3
332.2
-21.4
8.3
-1.7
65.3
121.2

-206.4
-196.5
-5.5
3.0
-7.4
15.5
234 9
1,784.2
27.4
293.7
260.8
12.0
15.3
5.6
10.1
19.6
2.4
108.9
23.4
72.6
81.7
172.0
143.6
.6
166.0
84.8
195.8
28.6
10.4
-2.0
2504
94.1

378.9
297.4
19.8
3.2
58.5
12 8
309.2
1,318'i
77
147.8
143.1
17.2
-17.6
5.1
-11.9
24.9
3.1
116.2
28.1
105.5
72.7
200.1
115.9
2
1434
247.0
3324
27.1
- 11.0
-2.0
-188.6
-40.1

1^58.9

.3

RELATION OF LIABILITIES
TO FINANCIAL ASSETS

34 Net flows through credit markets
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54

Other financial sources
Official foreign exchange
Special drawing rights certificates
Treasury currency
Foreign deposits
Net interbank transactions
Checkable deposits and currency
Small time and savings deposits
Large time deposits
Money market fund shares
Security repurchase agreements
Corporate equities
Mutual fund shares
Trade payables
Security credit
Life insurance reserves
Pension fund reserves
Taxes payable
Investment in bank personal trusts
Noncorporate proprietors' equity
Miscellaneous

55 Total financial sources
56
57
58
59
60
61

Liabilities not identified as assets (—)
Treasury currency
Foreign deposits
Net interbank liabilities
Security repurchase agreements
Taxes payable
.
Miscellaneous

Floats not included in assets { — )
62 Federal government checkable deposits
63 Other checkable deposits
64 Trade credit
65 Total identified to sectors as assets

952.2

1,026.6

1,229.0

1,358.9

1,469.7

1,409.9

1,042.2

1,335.1

1,516.2

1,985.1

1,828.2

2,019.6

.8
.0
4
-18 S
50.5
117 3
-70 3
-21.5
20.2
71.1
137.7
292.0
5^ 2
61.4
36.0
255.6
11.4
.9
25.5
340.0

-5.8
.0
7
52.9
89.8
-9.7
-39.9
196
43.3
78.2
24.6
100.6
94.0
-.1
34.5
246.2
2.6
17.8
55.6
252.0

8.8
2.2
.6
15 3
9.9
-12.7
96.6
65.6
142 3
110.4
-3.5
147.4
100 7
26.7
44.9
233.2
6.2
4.0
71.5
449.4

-6.3
-.5

.7
.0
-2.4
120.1
10.2
-47.3
91.1
136.5
188.2
72.9
-20.4
182.8
110.4
131.1
66.7
281.1
22.1
-4.2
29.4
465.4

-17.6
-2.1
4
186.7
-78.4
81.8
151.5
56.3
157.6
32.7
-67.7
249.6
63.4
110.4
49.8
256^6
21.7
6O
50.1
668.2

.4
.0
2
23.9
-57.0
50.6
34.0
174.7
98.9
218.9
-66.2
250.1
56.0
127.5
62.5
318.9
124
71.8
48.0
527.8

2.4
.0
1.3
116.1
-31.5
-38.4
47.0
188.4
226.2
111.2
-51.3
299.9
121.0
90.6
62.8
326.9
29.6
80.8
49.7
621.6

17.5
.0
-1.9
103.0
-16.2
71.9
156.0
70.8
147.8
98.1
-108.0
261.0
137.7
111.9
36.6
284.8
-3.4
78.4
16.8
529.4

1.0
.0
.3
-45.3
21.2
65.9
152.0
118.5
248.0
250.5
-103.4
321.4
79.6
168.8
47.8
259.9
44.1
50.3
41.0
868.6

8.1
.0

85.9
-51.6
15.8
972
114 0
145.8
40.0
-5.8
2.17.6
72.3
524
43.6
230.8
16.2
-8.6
47.1
415.8

.7
-.5
.0
107.4
-45.8
41.5
97.1
122.5
157.6
115.2
-73.3
265.1
94.5
110.1
52.9
296.8
15.1
75^0
41.1
586.7

44.2
-22.7
110.6
46.6
-30.9
1864
-59.6
-118.2
312.4
63.0
-110.3
38.5
265.4
-7.7
57.5
12.5
399.6

2,312.9

2,083.6

2,768.5

2,900.8

3,529.6

3,244.3

3,082.2

3,288.5

3,770.5

3,977.4

4,418.4

3,215.3

-.2
-5.7
4.2
46.4
15.8
-170.8

_ 2
43.0
-2.7
69.4
16.6
-150.4

-.5
25.1
-3.1
22.9
21.1
-221.3

-.9
59.4
-3.3
-.7
?0 4
-122.6

-.6
107.4
-19.8
72.6
17.7
-303.3

-3.1
51.7
1.5
110.4
24.8
-140.4

-.3
176 9
30.3
-107.3
19 3
25.1

-.5
10.6
-26.7
185.3
27.6
-485.0

.7
93 9
-50.0
23.4
147
-137.8

-2.4
148.3
-32.6
188.9
9.4
-615.5

-.2
-94 6
107.2
187.6
41 2
-207.6

-2566

-1.5
-1.3
-4.0

-4.8
-2.8
1.5

-6.0
-3.8
-12.5

.5
-4.0
-31.5

-2.7
-3.9
9.7

-12.4
-3.8
-9.8

-4.6
-3.3
-5.2

-8.3
-4.3
-53.8

10.0
-3.0
39.4

-7.9
-5.0
58.5

7.5
-4.0
5.9

-41.8
-3.0
-3.4

2,429.9

2,114.0

2,946.7

2,983.7

3,652.5

3,225.3

2,951.3

3,643.7

3,779.1

4,235.7

4,375.5

3,493.0

1. Data in this table also appear in the Boards Z.I (780) quarterly statistical release, tables
F. 1 and F.5. For ordering address, sec inside front cover.




[

2 Excludes corporate equities and mutual fund shares.

-.3
60 3
21.9
-56.3
1 5

A40

Domestic Financial Statistics • November 1998

1.59

SUMMARY OF CREDIT MARKET DEBT OUTSTANDING'
Billions of dollars, end of period
1996
1996

Transaction category or sector

04

Ql

Q2

Q3

Q4

Q2

Nonfinancial sectors
1 Total credit market debt owed by
domestic nonfinancial sectors
By sector and instrument
2 Federal government
3
Treasury securities
4
Budgcl agency securities and mortgages .
5 Nonfederal

13,014.5

13,716.0

14,441.8

15,208.7

14,441.8

14,608.9

14,727.4

14,931.4

15,208.7

15,439.6

15,634.4

1,492..1

3,636.7

3,465.6
26.7

3,608.5
28.2

3,781.8
3,755.1
26.6

3,804.9
3,778.3
26.5

3.781.8
3,755.1
26.6

3,829.8
3.803.5

3.760.6
3.73J.3
26.3

3.771.2
3.745.1
26.1

3.804.9
3,778.3
26.5

3,830.4
3,804.5
25.9

3,749.0
3,723.4

26.3

9,522.2

10.079.3

10.660.1

10.660.1

10.779.1

10,966.8

11,160.2

11,403.8

11,609.2

139.2
1,341.7

156.4
1,296.0
1,398.8
770.6
4,898.3
3,761.6
290.0
759.5
87.1
1,211.6

168.7
1.305.1
1,418.7
964.5
784.4
4,951.3
3,806.1
291.0
766.5
87.7
1,186.4

179.3
1,326.8
1,440.2
1,000.2
788.2
5,027.1
3,860.8
294.2
783.5

176.6
1,340.2
1,470 9
1,000 I
802.8
5,142.7
3,956.8
295.8
800.4

168.6
1,367.5
1,489.5
1,035.9
838.8
5,239.3
4,029.3

202.5
1,425.8
1,569.0
1,100.6
871.9
5,461.8
4,195.7

88.7

89.8

1.205.0

1.226.7

90.4
1.264.1

193.1
1,397.1
1,528.8
1,052.0
864.6
5,338.9
4,102.8
306.4
838.3
91.4

1,264.1

156.4
1,296.0
1,398.8
928.3
770.6
4,898.3
3,761.6
290.0
759.5
87.1
1.211.6

1.234.7

1,253.9

5,383.0
4,681.7
3.291.1
1,235.2
155.4
1,095.5

5,505.2
4,779.2
3,369.2
1,253.7
156.3
1,119.5

5.562.4
4,902.4
3,473.9
1,273.1
155.4
1,144.3

5,689.3
5,028.8
3,571.8
1,296.1
160.9
1,167.3

25.6

6
7
8
9
10
11
12
13
14
15
16

By instrument
Commercial paper
Municipal securities and loans
Corporate bonds
Bank loans n.e.c
Other loans and advances
Mortgages
Home
Mullifamily residential
Commercial
Farm
Consumer credit

759.9
669.6
4,374.8
3,355.9
265.6
670.3
83.0
983.9

157.4
1,293.5
1,326.3
862.1
736.9
4,580.3
3,530.4
273.8
691.6
84.6
1.122.8

17
18
19
20
21
22

By borrowing sector
Household
Nonfinancial business
Corporate
Nonfarm noncorporate
Farm
State and local government

4,452.8
3,947.6
2.683.6
1,121.8
142.2
1,121.7

4,806.8
4,202.3
2.911.4
1,145.8
145.1
1,070.2

5,150.9
4,445.8
3,105.7
1,190.2
149.9
1,063.4

5.505.2
4,779.2
3.369.2
1,253.7
156.3
1,119.5

5,150.9
4,445.8
3,105.7
1.190.2
149.9
1,063.4

5,182.8
4,527.4
3,176.8
1,202.2
148.3
1,069.0

5,271.2
4,609.6
3,236.8
1,219.3
153.4
1,086.1

23 Foreign credit market debt held in
United States

370.8

441.9

518.8

569.6

518.8

524.3

539.2

569.6

584.1

602.1

24
25
26
27

42.7
242.3
26.1
59.8

56.2
291.9
34.6
59.3

67.5
347.7
43.7
60.0

65.1
394.4
52.1
58.0

67.5
347 7
43.7
60.0

69.3
351.6
43.5
599

71.3
361.2
46.4
60.3

64.3
386.3

65.1
394.4
52.1
58.0

76.7
398.0
53.5
55.9

71.4
420.5
55.5
54.8

13,385.3

14,158.0

14,960.7

15,778.3

14,960.7

15,133.2

15,266.6

15,489.1

15,778.3

16,023.7

16,236.5

Commercial paper
Bonds
Bank loans n.e.c
Other loans and advances

28 Total credit market debt owed by nonflnandal
sectors, domestic and foreign

1,253.0

928.3

168.6
1.367.5
1,489.5
1,035.9
838.8
5,239.3
4,029.3
301.4
818.3
90.4

301.4
818.3

312.0

861.1
93.0

Financial sectors
29 Total credit market debt owed by
financial sectors
30
31
32
33
34
35
36
37
38
39

By instrument
Federal government-related
Government-sponsored enterprise securitief
Mortgage pool securities
Loans from U.S. government
Private
Open market paper
Corporate bends
Bank loans n.e.c
Other loans and advances
Mortgages

40
41
42
43
44
45
46
47
48
49
50
51
52

By borrowing sector
Commercial banks
Bank holding companies
Savings institutions
Credit unions
Life insurance companies
Government-sponsored enterprises
Federally related mortgage pools
Issuers of asset-backed securities (ABSs) .. .
Brokers and dealers
Finance companies
Mortgage companies
Real estate investment trusts (RFJTs)
Funding corporations

53 Total credit market debt, domestic and foreign .
54
55
56
57
58
59
60
61

Open market paper
U.S. government securities
Municipal securities
Corporate and foreign bonds
Bank loans n.e.c
Other loans and advances
Mortgages
Consumer credit

3,822.2

4,281.2

4,837.3

5,448.7

4,837.3

4,916.5

5,085.3

5,205.4

5,448.7

5,653.7

5,912.5

2,172.7
700.6
1.472.1
.0

2.376.8
806.5
1.570.3
.0
1,904.4
486.9

2,821.0
995.3
1,825.8
.0

2,608.3

2.634.7

2.706.2

894.7

944.2
1.762.1
.0
2,379 I
642.5
1,458.1
69.2

2.746.5
955.8
1,790.7
.0
2.458.9
684.7

2,821.0
995.3
1,825.8
.0
2,627.6
745.7
1.560.1
83.3
198.5
40.0

2,877.9
1,030.9

1,205.4
52.8
135.0
24.3

2,608.3
896.9
1.711.4
.0
2.229.1
579.1
1,385.1
69.7
162.9
32.2

2,981.2
1,072.5
1.908.7
.0
2,931.3
838.9
1,733.5
89.3
225.6
44.0

102.6

113.6

248.6

150.0
140.5
.4
1.6
896.9
1,711.4
873.8
27.3
529.8
31.5
47.8
312.7

140.6
168.6
160.3
.6
1.8
995.3
1.825.8
1.089.4
35.3
554.5
30.3
72.6
373.8

140.6

148.0

373.8

148.7
181.2
162.9
.7
1.8
1,030.9
1,847.0
1,147.4
35.1
571.9
31.6
81 7
412.9

17,207.5

18,439.2

19,798.0

623.5
5,665.0
1,341.7
2,504.0

700.4
6,013.6
1,293.5
2,823.6
949.6
931.1
4,604.6
1,122.8

803.0
6,390.0
1,296.0
3,131.7
1,041.7
993.6
4,910.5
1,211.6

1,649.5
441.6
1,008.8
48.9
131.6
18.7
94.5
133.6
112.4
.5
.6
700.6

1,472.1
579.0
34.3
433.7
18.7
31.1
211.0

834.9

860.9
4,393.5
983.9

115.0
.4
.5
806.5
1,570.3
720.1
29.3
483.9
19.1
36.8

1. Data in this table also appear in the Board's Z. 1 (780) quarterly statistical release, tables
L.2 through L.4. For ordering address, see inside front cover.




2,627.6
745.7

1,560.1
83.3
198.5
40.0

896.9
1,711.4
.0
2,229.1
579.1
1,385.1
69.7
162.9
32.2
113.6

1,740.0
.0

2,281.8
623.0
1,396.5
70.6
157.9
33.8

173.7
356

1.478.2

74.8
183.0
38.2
130.0
164.0
149.8
.5

944.2

955.8
1,790.7
989.2

2,775.8
804.9
1,634.9
87.3
206.6
42.0

1.6
8969
1,711.4
873.8
27.3
529.8
31.5
47.8
312.7

115.3
151.6
136.3
.4
1.8
894.7
1,740.0
889.9
26.6
528.4
31.4
51.6
348.6

1,762.1
918.4
35.3
557.8
28.3
56.6
350.0

21,227.0

19,798.0

20,049.7

20,351.9

20,694.5

21,227.0

21,677.4

22,149.1

979.4
6,625.9
1,367.5
3,444.1
1,171.3
1,095.3
5,279.3
1,264.1

803.0
6,390.0
1,296.0
3,131.7
1,041.7
993.6
4,930.5
1,211.6

861.1
6.464.5
1.305.1
3,166.8
1,078.6
1,002.3
4,985.0
1.186.4

893.1
6.466.8
1,326.8
3,259.5
1.115.8
1.022.1
5.062.8
1.205.0

925.7
6,517.7
1,340.2
3,335.4
1.123.1
1.044.8
5,180.9
1.226.7

979.4
6,625.9
1,367.5
3,444.1
1,171.3
1,095.3
5,279.3
1,264.1

1,074.8
6,708.3
1,397.1
3,561.8
1,192.8
1,127.1
5,380.9
1,234.7

1,112.7
6.730.2
1.425.8
3,723.0
1,245.4
1,152.4
5,505.8
1,253.9

150.0
140.5
.4

125.7
160 5
144.3
.4
1.8

1,847.0
.0

1.9

33.6
532.7

29.2
64.6
363.4

168.6
160.3

.6
1.8
995.3

1,825.8
1,089.4
35.3
554.5
30.3
72.6

159.7
194.5
170.7
.8

1.6
1,072.5

1,908.7
1,236.1
40.1

596.9
30.2
90.1
410.7

Flow of Funds
1.60

A41

SUMMARY OF FINANCIAL ASSETS AND LIABILITIES1
Billions of dollars except as noted, end of period
1998

1997
Transaction category or sector
Q4

Ql

02

Q3

Q4

Ql

Q2

CREDIT MARKET DEBT OUTSTANDING 2
1 Total credit market assets

2
3
4
5
6
7
8
9
10
L1
12
13
14
15
16
17
18
19
20
21
22
23

Domestic nonfederal nonrinancial sectors
Household
Nonfinancial corporate business
Nonfarm noncorporate business
State and local governments
Federal government
Rest of the world
Financial sectors
Monetary authority
Commercial banking
US.-chartered banks
Foreign banking offices in United States . . .
Bank holding companies
Banks in U.S.-affiliated areas
Savings institutions
Credit unions
Bank personal trusts and estates
Life insurance companies
Other insurance companies
Private pension funds
State and local government retirement funds
Money market mutual funds

24

Mutual funds

25
26
27
28
29
30
31
32
33

Closed-end funds
Government-sponsored enterprises
Federally related mortgage pools
Asset-backed securities issuers (ABSst
Finance companies
Mortgage companies
Real estate investment trusts (REITs)
Brokers and dealers
Funding corporations

17,207.5

18,439.2

19,798.0

21,227.0

19,798.0

20,049.7

20,351.9

20,694.5

21,227.0

21,677.4

22,149.1

3,038.9
1,982.2

2.903.8
1,942.6
280.4
42.3
638.6
203.2
1,530.3
13,801.8
380.8
3,520.1
3.056.1
412.6
18.0
33.4
913.3

2,953.4
2,005.9
2860
46 7
614.8
195.5
1,931.2
14.717.9
393.1
3,707.7
3,175.8
475.8
22.0
34.1
933.2
288.5
232.0
1,654.3
491.2
766.5
529.2
634.3
820.2
98.7

2.814.6

2.953.4
2,005.9
286.0
46.7

2.891.2
1.951.7
286.8
47.4
605.4
195.9
2,019.4
14,943.2

2.842.4
1.898.6
276.9
48.0
618.9
197.3

2,789.4
1.848.1
285.9
48.7

2,814.6
1,849.7
300.9
49.4
614.5
200.4
2,258.4
15.953.6
431 4
4,032.5
3.450.7

2,759.7
1,819.1
280.0
50.2
610.5
204.3
2.322.5
16.391.0
433.8
4,094.1
3,505.1
518.0

2,812.8

289 2
37.6

729 9
203.4
1,216.0
12,749.2
368.2
3,254 3
2.869 6
337.1

184
29.2

920.8
246.8
248.0
1,482.6
446 4

656.9
455.8
459 0
718.8
86.0
663.3
1,472.1
541.7
476 2
36 5
13.3

263.0

239.7
1.581.8
468.7
718.2
483.3
545.5
771.3
96.4

748.0
1.570.3
661.0

1.849.7
300.9
49.4

614.5
200.4
2.258.4
15.953.6
431 4
4.032.5
3.450.7
516.1
27.4
38.3
928.5
305.3
239.5
1,755.2
515.3
834.2
565.8
721.9
901.1
99.8

614.8

195.5
1,931.2
14,717.9
393.1
3,707.7
3,175.8
475.8
22.0
34.1
933.2
288.5
232.0
1,654.3
491.2
766.5
529.2
634.3
820.2

813.6

908.6

1,711.4
784.4
544.5
41.2
17.5
88.7

1.825.8
950.5
566.4
57.6
15.5
181.4
117.4

98.7
813.6
1.711.4
784.4
544.5
41.2
17.5
167.7
88.7

606.6

854.8
1,762.1
819.4

198.2
2,196.3
15,510.7
412 7
3,912.9
3,351.9
501.0
22.5
17 5
929.0
303.9
237.3
1,750.4
506.6
811.5
562.0
678.7
890.4
99.7
868.7
1,790.7
863.4

5524
40.9

553.1

564.4

34.8

17.0
164.1

16.5

100.6

161.2
95.6

55.5
15.9
165.1
91.8

38.3
928.5
305.3
239.5
1,755.2
515.3
834.2
565.8
721.9
901.1
99.8
908.6
1,825.8
950.5
566.4
57.6
15.5
181.4
117.4

397.1

3,775.7
3,218.1
499 5
22.5
35.6
931.9
291.2
232.8

2,094.6

15,217.6
412.4
3,856.8
3.295.2
501.8
23.8
36.1

937.8
299.9

235.5

1.680.2

1,724.1

491.6
780.3
5316
659.0
838.5

498.6
794.9
542.7

99.3

824.3
1.740.0
7<I4.6

656.5
861.3
99.7

93.1
109.3

526.2
33.0
15.5
183.4
82.2

17,207.5

18,4.19.2

19,798.0

21,227.0

19,798.0

20,049.7

20,351.9

20,694.5

53 2
8.0
17.6
373 9
280.1
1,242.0
2,183.2
411,2

63.7
10.2
18.2

53.7
9.7
18.3
516.1

48.9
9.2
18.3

53.7
9.7
18.3

46.7

619.4
193 3
1.286.6
2.474.1

516.1
240.8
1.245.1
2,377.0
590.9
891.1
699.9
2.342.4
358.1
593.8
6,314.7

46.3
9.2
18.4
562.8
2109

46.1
9.2
18.7
597.8
186.9
1.234.2
2.438.8
696.1
1,005.1

167.7

516.1
27.4

31.2
39.7

931.0
307.5
240.1
1,786.3
521.1
852.3
582.5
775.0
939.3
100.0
949.5
1,847.0
993.7
572.0

1,846.8
286.9
51.0
628.2
207.5
2.398.5
16,730.3
440.3
4,140.1
3,546.8
525.5
26.8
41.0
928.1
316.4

240.9
1,815.6
528.2
878.7
603.2
815.9
968.5
100.0

15.0
244.0
146.5

985.9
1.908.7
1,074.6
579.0
57.4
14.5
196.9
137.4

21,227.0

21,677.4

22,149.1

48.2
9.2
18.4
608.1
188.4
1,259.5
2,524.5
744.0
1.130.7
881.4
3,340.2
505.3
658.7
7,955.8
1,395.4
158.6
1,179.3
6.650.9

50.1
9.2
18.4
619.2
186.4
1.321.4
2.532.7
733.5
1,153.7
865.4
3,456.0
481.0

149.2
1,207.2
6,720.1

60.2

RELATION OF LIABILITIES
TO FINANCIAL ASSETS
34 Total credit market debt
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51

Other liabilities
Official foreign exchange
Special drawing rights certificates
Treasury currency
Foreign deposits
Net interbank liabilities
Checkable deposits and currency
Small time and savings deposits
Large time deposits
Money market fund shares
Security repurchase agreements
Mutual fund shares
Security credit
Life insurance reserves
Pension fund reserves
Trade payables
Taxes payable
Investment in bank personal trusts

52 Miscellaneous
53 Total liabilities

Financial assets not included in liabilities ( + )
54 Gold and special drawing rights
55 Corporate equities
56 Household equity in noncorporate business
57
58
59
60
61
62

Liabilities not identified as assets ( - )
Treasury currency
Foreign deposits
Net interbank transactions
Security repurchase agreements
Taxes payable
Miscellaneous

Floats not included in assets (—)
63 Federal government checkable deposits
64 Other checkable deposits
65 Trade credit
66 Total identified to sectors as assets

418.8

290.7
1.229.3
2,279.7

240.8

1,245.1
2,377.0
590.9
891.1
699.9
2,342.4
358.1
593.8
6,314.7
1,313.6
123.8

637.6
7,289.8
1,347.0
142.6
1,058.9
6,409.2

1,220.0
2,427 I

606.0

646.7

950.8

952.4
766.7
2,717.5
414.8
621.9

5,982.5

713.4
1.048.7
815.1
2.989.4
468.2
646.7
7,398.2
1,408.2
138.8
1.082.8
6.452.7

40,778.7

44,341.1

49,039.1

44,341.1

45,163.9

46,549.8

48,013.6

49,039.1

50,934.0

51,831.5

21 I
6.237 9
3.422.4

22.1
8,331.3
3,649.7

21.4
10,062.4
3,868.8

21.1
12,776.0
4,188.6

21.4
10,062.4
3,868.8

20.9
10,063.5
3,963.3

21.1
11.627.0
4.053.9

21.0
12.649.4
4.1 19.5

21.1
12,776.0
4,188.6

21.2
14,397.6
4,188.6

21.0
14,556.1
4,165.5

-5.4
325.4
-6.5
67 8
48.8
-1,039.5

-5.8
360.2
-9.0
90.7
62.4
-1,332.5

-6.9

-6.7
501.5
-22.1
124.9
87.4
-1.735.8

-2,204.8

-7.4
510.8
-2.0
213.0
96.5
-2,190.0

-7.4
525.9
4.7

90.0
76.9
1.749.4

478.0
-8.1
108.6
77.1
-1,743.9

-7.3
534.5
-32.1

-1.749.4

-6.8
475.4
-1.6
68.1
74.8
-1,628 4

100.5
-2,189.2

3.4
38.0
-245.9

3.1
34.2
-258.4

30.1

-8.1
26.2

-291.2

-1.6
30.1
-289.9

25.6
-344.0

-6.8
27.9

-289.9

-369.8

-7.8
19.5
-377.8

-8.1
26.2
-291.2

-10.4
21.4
-342.4

-16.1
24.2
-354.9

47,829.3

53,836.9

59,723.7

67,753.1

59,723.7

60,558.2

63,695.6

66,220.5

67.753.1

71,251.9

72,292.8

602.9

549.5
1,477.3
279.0
505.3
4.870.5
1.1406
101 4
699 4
5,331.3
37,334.1

476.9
745.3
659.9
1,852.8
305.7
550.2
5,588.7
1,241.4

107.6
803.0
5.697.7

871.7

123 8
871.7
5,982.5

-7.3
534.5

-6.7
431.2

-32.1
162.6

-10.6

76.9

-1.6

92.0
-2,204.8

606.2

6,401.5
1.297.3

-6.7
431.2
90.0

713.8
2,410.6
380.0

1,313.6

-10.6

I. Data in this table also appear in the Board's Z.I (780) quarterly statistical release, tables
L. 1 and L.5. For ordering address, see inside front cover.




888.7
6.227.1

1,317.1
133.5
982.9
6.199.9

48.9
9.2
18.3
619.4
193.3
1.286.6
2 474.1
713.4
1,048.7
815.1
2,989.4
468.2
646.7
7,398.2
1,408.2
138.8
1.082.8
6.4527

9.2
18.4
568.8
197.1
1,265.3
2.432.3

137.3

-9.7

6,906.7

795 4
2.973.6
432.2

2. Excludes corporate equities and mutual fund shares.

162.6
92.0

668.3
8,093.9
1.416.9

193.7

A42
2.10

Domestic Nonfinancial Statistics • November 1998
NONFINANCIAL BUSINESS ACTIVITY

Selected Measures

Monthly data seasonally adjusted, and indexes 1992=100, except as noted
1997
Measure

1995

1996

1998

1997
Dec.

Jan.

Feb.

Mar.

Apr.

May

June'

July'

Aug.

1 Industrial production1

114.5

118.5

124.5

127.9

127.8

127.3

128.0

128.4

128.8'

127.5

127.0

129.1

Market groupings
Products, total
Final total
Consumer goods
Equipment
Intermediate
Materials

110.6
111.3
109.9
113.8
108.3
120.8

113.7
114.6
111.8
119.6
110.8
126.2

118.5
119.6
114.4
128.8
115.1
134.1

121.0
122.2
115.9
133.4
117.4
138.9

121.3
122.6
116.6
133.1
117.4
1.38.2

120.6
121 5
115.1
133.1
117.6
138.2

121.3
122.6
116.0
134.3
117.3
138.7

121.8
123.2
116.5
135.0
117.5
139.1

122.2'
123.3'
116.7'
135.2'
118.6
139.6

121.2
122.3
115.2
134.9
117.8
137.5

120.4
121.2
114.1
133.9
118.0
137.5

122.5
124.0
116.6
137.1
117.9
139.7

116.0

120.2

127.0

130.9

131.1

130.6

130.8

131.6

131.7

129.9

129.5

132.0

82.8

81.4

81.7

82.3

82.1

81.4

81.2

81.4

81.1

79.7

79.1

80.4

10 Construction contracts

122.2

130.8

141.7r

144.0

145.0'

146.0r

141.0r

146.0r

146.0'

142.0

143.0

135.0

11 Nonagricultural employment, total4
12 Goods-producing, total
13
Manufacturing, total
14
Manufacturing, production workers
15 Service-producing
16 Personal income, total
17 Wages and salary disbursements
18
Manufacturing
19 Disposable personal income3
20 Retail sales5

114.9
98.3
97.5
99.0
120.2
156.1
150.9
130.3
156.4
151.5

117.2
99.0
97.2
98.4
123.0
165.2
159.8
135.7
164.0
159.6

119.9
100.3
97.6
98.9
126.2
174.5
171.2
144.7
171.7
166.9

121.9
102.1
98.9
100.4
128.2
178.2
176.3
150.2
174.7
169.1

122.3
102.5
99.1
100.5
128.6
179.2
177.8
150.6
175.2
170.8

122.4
102.6
99.1
100.6
128.8
180.2
178.9
151.0
176.0
172.2

122.5
102.4
99.1
100.5
128.9
180.9
179.5
151.2
176.7
172.4

122.8
102.7
99.1
100.4
129.3
181.4
180.3
177.0'
173.7

123.2
102.5
99.0
100.1
129.7
182.2
181.5
151.5
177.5'
175.8

123.3
102.6
98.9
99.9
130.0
182.7
181.8
150.5
177.9
176.0

123.4
101.8
97.8
98.5
130.3
183.5
182.8
149.5
178.6
175.0

123.8
102.2
98.3
99.1
130.6
184.4
184.2
151.3
179.5
175.3

Prices6
21 Consumer (1982-84=100)
22 Producer finished goods (1982=100)

152.4
127.9

156.9
131.3

160.5
131.8

161.3
131.1

161.6
130.3

161.9
130.2

162.2
130.1

162.5
130.4'

162.8
130.4

163.0
130.6

163.2
130.9

163.4
130.6

2
3
4
5
6
7

Industry groupings
8 Manufacturing
9 Capacity utilization, manufacturing (percent) 2 ..

1. Data in this table also appear in the Board's G.17 (419) monthly statistical release. For
the ordering address, see the inside front cover. The latest historical revision of the industrial
production index and the capacity utilization rates was released in December 1997. The recent
annual revision is described in an article in the February 1998 issue of the Bulletin. For a
description of the aggregation methods for industrial production and capacity utilization, see
industrial Production and Capacity Utilization: Historical Revision and Recent Developments," Federal Reserve Bulletin, vol. 83 (February 1997). pp. 67-92. For details about the
construction of individual industrial production series, see "Industrial Production: 1989
Developments and Historical Revision," Federal Reserve Bulletin, vol. 76 (April 1990), pp.
187-204.
2. Ratio of index of production to index of capacity. Based on data from the Federal
Reserve, DRI McGraw-Hill, U.S. Department of Commerce, and other sources.
3. Index of dollar value of total construction contracts, including residential, nonresidential, and heavy engineering, from McGraw-Hill Information Systems Company, F.W. Dodge
Division.

2.11

151.0

4. Based on data from U.S. Department of Labor, Employment and Earnings. Series covers
employees only, excluding personnel in the armed forces.
5. Based on data from U.S. Department of Commerce, Survey of Current Business.
6. Based on data not seasonally adjusted. Seasonally adjusted data for changes in the price
indexes can be obtained from the U.S. Department of Labor, Bureau of Labor Statistics,
Monthly Labor Review.
NOTE. Basic data (not indexes) for series mentioned in notes 4 and 5, and indexes for series
mentioned in notes 3 and 6, can also be found in the Suney of Current Business.
Figures for industrial production for the latest month are preliminary, and many figures for
the three months preceding Ihe latest monih have been revised. See "Recent Developments in
Industrial Capacity and Utilization,'" Federal Resen'e Bulletin, vol. 76 (June 1990), pp.
411-35. See also "Industrial Production Capacity and Capacity Utilization since 1987,"
Federal Reserve Bulletin, vol. 79 (June 1993), pp. 590-605.

LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT
Thousands of persons; monthly data seasonally adjusted
1998
Category

1995

1996

1997
Jan.

Feb.

Mar.

Apr.

May

Juner

July'

Aug.

HOUSEHOLD SURVEY DATA 1

1 Civilian labor force2
Employment
2 Nonagricultural industries'
3
Agriculture
Unemployment
4
Number
5
Rate (percent of civilian labor force)

132,304

133,943

126,297

137,493

137.557

137,523

137,242

137,364

137,447

137,296

137,415

121,460
3,440

123,264
3,443

126,159
3,399

127,764
3.319

127,829
3,335

127,862
3,132

128,033
3,350

128.118
3,335

127,867
3,343

127,626
3,441

127,640
3,529

7,404
5.6

7,236
5.4

6,739
4.9

6,409
4.7

6.393
4.6

6.529
4.7

5,859
4.3

5,910
4.3

6,237
4.5

6,230
4.5

6.247
4.5

117,191

119,523

122,257

124,640

124,832

124,914

125.234

125,562

125,751

125,819

126,184

18.524
581
5,160
6,132
27,565
6,806
33,117
19,305

18,457
574
5.400
6.261
28,108
6,899
34,377
19,447

18,538
573
5,627
6,426
28,788
7,053
35,597
19,655

18,824
592
5,881
6,473
29.039
7,213
36,932
19,686

18,822
590
5.902
6.494
29.052
7.232
37,020
19,720

18,829
587
5,860
6.504
29,042
7,258
37,106
19,728

18,827
582
5,930
6.513
29,133
7,289
37,196
19,764

18,805
579
5,917
6.534
29,238
7,311
37,350
19.828

18.780
578
5,946
6,538
29,269
7.333
37,494
19,813

18,580
571
5,967
6,556
29,370
7,368
37,580
19,827

18,675
569
5,983
6,580
29,397
7,381
37,715
19,884

ESTABLISHMENT SURVEY DATA

6 Nonagricultural payroll employment4

10 Transportation and public utilities
11 Trade
13 Service. .

..

1. Beginning January 1994, reflects redesign of current population survey and population
controls from the 1990 census
2. Persons sixteen years of age and older, including Resident Armed Forces. Monthly
figures are based on sample data collected during the calendar week that contains the twelfth
day; annual data are averages of monthly figures. By definition, seasonality does not exist in
population figures.
3. Includes self-employed, unpaid family, and domestic service workers.




4. Includes all full- and pan-time employees who worked during, or received pay for, the
pay period Ihat includes Ihe twelfth day of the month; excludes proprietors, self-employed
persons, household and unpaid family workers, and members of the armed forces. Data are
adjusted to the March 1992 benchmark, and only seasonally adjusted data are available at this
time.
SOURCE. Based on data from U.S. Department of Labor, Employment and Earnings.

Selected Measures A43
2.12

OUTPUT, CAPACITY, AND CAPACITY UTILIZATION1
Seasonally adjusted
1997
Q3

1997
Q4

Q2<

Ql

Output (1992=100)

Q4

1 Total industry

125.1

127.3

128.2

127.6

130.1

131.1

3
4

Primary processing"
Advanced processing4

118.5
132.1

119.8
135.3

120.2
136.2

119.9
136.7

138.0
165.7

139.2
168.1

5
6
7
8
9
10
11
12
13

Durable goods
Lumber and products
Primary metals
Iron and steel
Nonferrous
Industrial machinery and equipment
Electrical machinery
Motor vehicles and parts
Aerospace and miscellaneous
transportation equipment

143.7
114.9
125.5
122.8
128.8
173.9
236.6
136.7

147.2
114.7
127.8
126.5
129.4
177.6
246.0
144.0

148.2
115.7
128.2
127.2
129.3
181.2
254.0
137.2

149.2
117.3
125.4
123.5
127.6
188.5
257.4
132.9

177.2
140.0
137.2
136.6
137.7
204.4
289.1
184.7

95.6

98.6

101.3

101.1

14
15
16
17
]8
19

Nondurable goods
Textile mill products
Paper and products
Chemicals and products
Plastics materials
Petroleum producls

111.1
110.9
114.1
114.8
130.6
109.5

112.6
111.5
113.5
117.1
131.4
109.8

113.1
110.1
113.1
118.0
130.8
113.0

112.7
109.6
112.7
118.1
131.0
113.5

106.4
114.0
114.2

105.9
115.5
115.7

108.4
110.4
112.1

107.3
115.3
117.8

1973

Previous cycle

High

High

Q2

Capacity (percent of 1992 output)

2 Manufacturing

20 Mining
21 Utilities
22
Electric

Ql

151.3

Q4

Ql

Q2'

Capacity utilization rate (percent)7

156.5

82.7

83.2

82.5

162.4

81.6

82.2

81.6

140.4
170.7

141.4
173.1

85.8
79.8

86.0
80.4

85.6
79.8

84.8
79.0

180.6
141.3
138.5
137.9
138.9
210.0
301.9
186.7

184.1
142.2
140.1
139.4
140.6
215.8
315.4
188.8

187.6
142.6
141.8
141.3
142.1
221.4
328.6
190.8

81.1
82.1
91.5
89.9
93.5
85.1
81 9
74.0

81.5
81.2
92.3
91.8
93.2
84.6
81.5
77.1

80.5
81.3
91.5
91.3
92.0
84.0
80.5
111

79.5
82.3
88.4
87.4
89.8
85.1
78.3
69.7

124.1

124.8

125.5

126.3

77.1

79.0

80.7

80.0

135.0
131.7
126.0
146.3
140.0
115.2

135.7
132.3
126.7
147.5
141.9
115.7

136.4
132.8
127.4
148.6
143.6
116.2

137.0
133.2
128.1
149.4
145.0
117.2

82.3
84.3
90.5
78.5
93.3
95.1

82.9
84.3
89.6
79.4
92.6
94.9

82.9
82.9
88.8
79.4
91.1
97.2

82.2
82.3
88.0
79.0
90.4
96.8

118.1
126.7
125.0

118.2
127.1
125.4

118.4
127.4
125.7

118.6
127.7
126.1

90.1
90.0
91.4

89.6
90.9
92.3

91.6
86.6
89.2

90.4
90.2
93.5

July

Aug.>>

153.0

154.8

Q3

158.3

Latest cycle 6
High

1997

82.0

1998

Aug.

Apr.

May'

Capacity utilization rate (percent)'

1 Total industry

72.6

87.3

70.5

86.9

3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19

85.4

78.1

82.8

82.4

82.4

82.4

81.2

80.6

85.7

76.6

81.8

81.2

81.4

81.1

79.7

91.2
87.2

68.2
71.8

88.1
86.7

79.1

80.4

66.2
70.4

88.9
84.2

77.7
76.1

85.8
80.0

85.1
79.5

85.4
79.6

84.9
79.4

84.0
77.8

83.9
77.0

83.9
78.8

Durable goods
Lumber and products
Primary metals
Iron and steel
Nonferrous
Industrial machinery and
equipment
Electrical machinery
Motor vehicles and parts
Aerospace and miscellaneous
transportation equipment .

89.2
88.7
100.2
105.8
90.8

68.9
61.2
65.9
66.6
59.8

87.7
87.9
94.2
95.8
91.1

63.9
60.8
45.1
37.0
60.1

84.6
93.6
92.7
95.2
89.3

73.1
75.5
73.7
71.8
74.2

81.4
82.5
91.4
89.1
94.3

80.2
81.2
90.3
90.5
90.3

80.3
81.9
90.8
89.9
92.1

80.1
82.3
88.6
87.8
89.7

78.2
82.6
85.9
84.6
87.6

77.1
81.9
85.5
83.7
87.7

79.6
81.7
88.2
87.0
89.9

96.0
89.2
93.4

74.3
64.7
51.3

93.2
89.4
95.0

64.0
71.6
45.5

85.4
84.0
89 1

72.3
75.0
55.9

86.1
81.9
75.2

84.4
79.7
72.1

849
79.4
72.7

85.0
78.4
73.5

85.5
77.2
62.8

86.2
76.9
54.8

84.8
76.1
76.4

Nondurable goods
Textile mill products
Paper and products
Chemicals and products
Plastics materials
Petroleum products

78.4

67.6

81.9

66.6

87.3

79.2

76.9

80.4

79.9

80.3

79.9

80.5

80.6

87.8
91.4
97.1
87.6
102.0
96.7

71.7
600
69.2
69.7
50.6
81.1

87.5
91.2
96.1
84.6
90.9
90.0

76.4
72.3
80.6
69.9
63.4
66.8

87.3
90.4
935
86.2
97.0
88.5

80.7
77 7
85.0
79.3
74.8
85.1

82.2
84.1
90.8
78.3
92.0
95.2

82.4
81.9
88.1
79.0
89.0
98.6

82.7
82.1
88.5
79.5
91.8
97.9

82.4
83.5
88.0
78.9
90.2
96.3

81.5
81.3
87.4
78.6
89.1
96.3

81.6
81.6
88.8
78.1
88.8
96.9

81.4
81.0
87.9
78.1
87.8
96.6

94.3
96.2
99.0

88.2
82.9
82.7

96.0
89.1
88.2

80.3
75.9
78.9

88.0
92.6
95.0

87.0
83.4
87.1

90.0
89.2
90.5

91.2
89.6
91.8

90.6
87.6
90.7

91.4
90.4
94.3

89.3
92.8
95.5

89.5
91.9
94.4

92.2
94.9

89.2

2 Manufacturing

88.5
1

Primary processing
Advanced processing4

20 Mining. . . .
21 Utilities
22 Electric. .

71.1
69.0

1. Data in this table also appear in the Board's G.17 (419) monthly siatistical release. For
the ordering address, see the inside front cover. The latest historical revision of the industrial
production index and the capacity utilization rates was released in December 1997. The recent
annual revision is described in an article in the February 1998 issue of the Bulletin. For a
description of the aggregation methods for industrial production and capacity utilization, see
"Industrial Production and Capacity Utilization' Historical Revision and Recent Developments," Federal Reserve Bulletin, vol. 83 (February 1997), pp. 67-92. For details about the
construction of individual industrial production series, see "Industrial Production: 1989
Developments and Historical Revision," Federal Resen'e Bulletin, vol. 76 (April 1990), pp.
187-204.
2. Capacity utilization is calculated as the ratio of the Federal Reserve's seasonally adjusted
index of industrial production to the corresponding index of capacity.




3. Primary processing includes textiles; lumber; paper; industrial chemicals; synthetic
materials; fertilizer materials; petroleum products; rubber and plastics; stone, clay, and glass;
primary metals: and fabricated metals.
4. Advanced processing includes foods: tobacco; apparel; furniture and fixtures; printing
and publishing; chemical products such as drugs and toiletries; agricultural chemicals: leather
and products; machinery; transportation equipment; instruments; and miscellaneous manufactures.
5. Monthly highs, 1978-80; monthly lows, 1982.
6. Monthly highs, 1988-89; monthly lows, 1990-91.

A44
2.13

Domestic Nonfinancial Statistics • November 1998
INDUSTRIAL PRODUCTION

Indexes and Gross Value1

Monthly data seasonally adjusted

Group

1992
proportion

1997
avg.
Sept.

Jan.

Feb.

Mar.

Apr.

May'

June'

July

Aug.P

Index (1992 = 100)
MAJOR MARKETS

1 Total index

100.0

124.5

125.2

125.6

126.5

127.5

127.9

127.8

127.3

128.0

128.4

128.8

127.5

127.0

129.1

2 Products
3
Final products
4
Consumer goods, total
5
Durable consumer goods
6
Automotive products
7
Autos and trucks
8
Autos, consumer
9
Trucks, consumer
10
Auto parts and allied goods
11
Other
12
Appliances, televisions, and air
conditioners
13
Carpeting and furniture
14
Miscellaneous home goods
15
Nondurable consumer goods
16
Foods and tobacco
17
Clothing
18
Chemical products
19
Paper products
20
Energy
21
Fuels
22
Residential utilities

60.5
46.3
29.1
6.1
2.6
1.7
.9
.7
.9
3.5

118.5
119.6
114.4
131.3
129.9
136.5
115.2
159.1
119.3
132.3

119.2
120.5
114.6
132.1
131.6
137.6
118.6
161.2
121.8
132.5

119.1
120.3
114.5
131.9
132.8
140.9
119.9
166.5
120.1
131.1

120.2
121.5
115.9
131.4
131.2
139.7
115.2
168.6
117.9
131.5

121.2
122.5
116.7
136.5
138.4
147.8
120.3
179.8
123.8
135.0

121.0
122.2
115.9
134.7
133.8
142.7
113.9
175.7
120.1
135.3

121.3
122.6
116.6
135.6
132.6
139.9
116.0
168.2
120.9
138.0

120.6
121.5
115.1
134.3
131.0
137.2
105.7
172.7
121.0
136.9

121.3
122.6
116.0
135.2
132.4
137.7
107.4
172.0
123.7
137.4

121.8
123.2
116.5
136.3
134.5
140.2
108.3
176.0
125.3
137.8

122.2
123.3
116.7
138.0
136.7
142.4
109.3
179.4
127.5
139.0

121.2
122.3
115.2
130.3
122.1
117.6
94.6
144.1
127.1
136.9

120.4
121.2
114.1
123.8
106.9
92.5
76.5
111.5
125.3
137.7

122.5
124.0
116.6
138.7
141.3
151.1
125.6
181.5
127.2
136.3

1.0
.8
1.6
23.0
10.3
2.4
4.5
2.9
2.9
.8
2.1

168.6
117.0
120.0
110.2
109.3
95.9
119.1
109.3
111.3
109.3
112.0

169.8
117.7
119.8
110.3
108.9
96.0
119.4
109.8
112.8
111.0
113.2

1660
116.2
119.4
110.2
108.6
96.0
119.4
110.1
112.4
110.8
112.8

169.4
116.5
118.6
112.1
109.7
96.4
123.0
III 1
116.2
112.0
117.8

177.2
122.1
119.2
111.8
110.7
95.1
121.3
III 7
113.9
106.7
117.1

178.7
116.8
122.1
111.3
110.0
95.1
121.8
110.1
113.5
109.3
115.1

186.4
122.5
121.0
112.0
113.0
95.2
122.9
110.2
107.4
110.5
105.4

188.6
117.7
120.7
110.4
111.8
93.5
121.8
107.8
104.6
110.0
101.5

192.5
116.5
120.8
111.3
111.3
94.7
122.2
106.2
112.6
111.3
112.8

193.8
117.1
120.7
111.6
111.9
94.8
124.1
106.7
110.2
111.7
109.0

192.5
122.3
120.6
111.5
112.0
93.3
123.3
105.8
111.6
111.0
111.5

189.1
118.3
120.2
111.4
110.0
93.5
123.2
105.3
117.7
111.9
120.2

199.7
119.5
117.6
111.4
110.2
93.4
122.8
106.8
116.5
113.6
117.5

198.3
118.9
115.8
111.3
110.2
91.6
123.2
107.1
116.1
113.0
117.2

23
24
25
26
27
28
29
30
31
32
33

Equipment
Business equipment
Information processing and related
Computer and office equipment
Industrial
Transit
Autos and trucks
Other
Defense and space equipment
Oil and gas well drilling
Manufactured homes

17.2
13.2
5.4
1.1
4.0
2.5
1.2
1.3
3.3
.6

128.8
141.9
168.1
385.6
133.3
111.2
119.7
135.0
75.2
149.7
139.1

130.9
144.6
171.1
407.1
135.8
113.3
120.3
137.9
75.0
153.2
139.5

130.6
144.4
172.9
414.6
133 8
114.2
120.2
135.1
74.7
153.1
137.2

131.3
145.5
174.3
420.3
135.9
113.0
117.0
137.5
74.7
149.1
136.9

132.8
147.5
174.7
427 3
136.3
119.9
128.2
137.3
74.5
150.0
138.1

133.4
148.6
176.0
440.1
137.8
121.2
124.6
136.2
74.5
145.9
132.4

133.1
147.3
175.4
457.1
136.4
119.8
121.1
133.6
75.7
154.0
144.0

133.1
146.8
178.0
476.1
134.2
117.9
116.4
132.7
75.9
158.9
148.6

134.3
148.7
179.7
499.2
137.4
117.8
117.1
135.2
75.3
158.6
145.4

135.0
150.2
182.9
518.2
137.6
118.9
119.4
136.2
75.1
150.5
146.9

135.2
150.4
184.2
532.4
136.3
120.5
120.1
134.7
75.4
148.1
148.6

134.9
150.9
185.9
553.5
140.1
114.3
106.9
136.3
75.0
137.5
144.1

133.9
149.8
185.6
566.2
141.5
106.9
88.6
139.6
75.1
132.1
143.7

137.1
154.3
187.8
579.4
140.3
127.8
131.7
129.8
75.5
128.1
144.9

34
35
36

Intermediate products, tola!
Construction supplies
Business supplies

14.2
5.3
89

115.1
121.8
111.1

115.3
122.7
111.0

115.2
120.4
112.2

116.3
121.3
113.4

117.3
123.6
113.5

117.4
123.2
113.9

117.4
125.2
112.9

117.6
126.2
112.6

117.3
124.2
113.2

117.5
124.7
113.2

118.6
126.7
113.7

117.8
126.4
112.7

118.0
127.0
112.7

117.9
126.1
113.1

37 Materials
38
Durable goods materials
39
Durable consumer parts
40
Equipment parts
41
Other
42
Basic metal materials
43
Nondurable goods materials
44
Textile materials
45
Paper materials
46
Chemical materials
47
Other
48
Energy materials
49
Primary energy
50
Converted fuel materials

39.5
20.8
4.0
7.6
9.2
3.1
8.9
1.1
1.8
3.9
2.1
9.7
6.3
3.3

134.1
158.2
139.2
221.9
125.5
120.6
113.0
109.3
112.6
115.2
110.3
103.9
101.7
108.3

134.9
160.3
140.3
227.6
126.0
121.8
112.3
108.4
114.3
113.9
1086
103.9
102.4
106.8

136.1
161.3
140.7
229.6
126.6
121.7
113.3
111.4
112.7
115.6
109.5
105.5
102.2
HIS

136.7
163.2
141.8
233.3
127.8
122.5
113.1
111.9
113.4
115.0
109.0
104.7
101.7
110.6

137.7
165.0
142.3
237.9
128.8
124.9
114.4
111.0
112.2
116.5
113.7
103.9
101.4
108.6

138.9
166.5
146.9
240.9
128.3
122.2
116.0
112.5
113.7
119.1
113.3
104.2
100.7
110.9

138.2
166.2
138.5
245.5
128.8
125.0
114.5
107.9
112.3
119.2
109.4
103.7
102.8
105.5

138.2
165.8
139.3
245.7
127.7
125.4
114.8
108.5
114.0
117.6
112.5
103.7
103.0
105.0

138.7
166.4
139.3
247.7
127.8
122.8
113.5
107.6
111.8
116.6
111.5
106.0
104.0
109.6

139.1
167.6
141.0
249.6
128.4
122.8
113.9
107.6
111.9
117.2
111.7
105.0
103.3
108.3

139.6
167.7
143 2
250.3
127.5
121.4
113.2
107.6
111 1
116.2
111.6
107.2
104.4
112.6

137.5
164.1
128.9
249.4
127.0
119.6
113.0
106.7
112.0
115.7
111.1
106.0
103.0
111.7

137.5
163.6
126.7
250.4
126.4
119.0
113.5
107.0
113.0
115.7
112.4
106.5
104.2
111.0

139.7
168.6
142.2
253.1
128.0
122.6
113.0
106.4
112.2
115.3
111.9
106.6
104.0
111.6

97.1
95.1

124.3
123.8

125.1
124.6

125.4
124.8

126.5
125.9

127.2
126.6

127.7
127.0

127.7
127.3

127.3
126.9

128.0
127.5

128.4
127.9

1288
128.3

127.9
127.8

128.0
128.1

128.7
128.2

98.2
27.4
26.2

121.9
113.2
114.8

122.6
113.4
114.9

122.9
113.0
114.7

123.8
114.6
115.9

124.8
115.0
117.0

125.1
114.4
116.2

124.9
115.4
117.9

124.3
113.9
116.5

124.8
114.8
116.4

125.2
115.2
117.3

125.6
115.3
117.3

124.1
115.0
114.8

123.6
115.0
113.7

125.6
114.8
116.7

147.5

147.3

149.0

149.7

151.5

150.5

150.5

152.6

153.9

154.1

156.3

157.5

12.1
29.8

129.1
143.7

131.2
144.8

130.8
145.8

131.8
147.0

133.5
148.6

134.4
150.2

132.7
149.4

131.7
149.3

133.0
149.2

134.0
150.1

133.8
150.0

133.8
147.6

132.5
147.4

SPECIAL AGGREGATES

51 Total excluding autos and trucks
52 Total excluding motor vehicles and parts
53 Total excluding computer and office
equipment
54 Consumer goods excluding autos and trucks
55 Consumer goods excluding energy
56 Business equipment excluding autos and
trucks
57 Business equipment excluding computer and
office equipment
58 Materials excluding energy




136.6
150.4

Selected Measures A45
2.13

INDUSTRIAL PRODUCTION Indexes and Gross Value'—Continued
1992
proportion

SIC
code

Group

1997

1998

1997
avg.
Aug.

Sept.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr

May'

June'

July

Aug."

Index (1992 = 100)
MAJOR INDUSTRIES

100.0

124.5

125.2

125.6

126.5

127.5

127.9

127.8

127.3

128.0

128.4

128.8

127.5

L27.0

129.1

85.4
26.5
58.9

127.0
118.1
131.4

127.9
118.5
1315

128.0
118.6
1327

129.1
118.9
134.1

130.4
120.0
135^5

130.9
120.5
136.1

131.1
120.6
136.4

130.6
120.1
135.8

130.8
119.8
1363

131.6
120.5
137.2

131.7
120.1
137^5

129.9
119.1
135.4

129.5
119.2
134.6

132.0
119.6
138.3

24
25

45.0
2.0
1.4

142.3
114.9
122.5

144.3
115.4
121 1

1444
113.3
122.0

1455
112.9
123.0

147.7
117.0
124.1

148.6
114.4
124.4

148.3
114.8
122.5

147.8
116.7
120.4

148.6
115.6
123.0

149.7
116.7
122.3

150.2
117.3
121.9

147.6
118.0
122.4

146.4
117.0
121.6

151.9
116.9
122.:

32
33
331,2
331PT
333-6,9
34

2.1
3.1
1.7
1
1.4
5.0

120.5
124.5
122.8
115.9
126.4
122.9

120.5
125.5
121.8
116.1
129.9
122.8

121.2
125.9
124.5
119.2
127.7
122.7

121.0
127.4
126.4
117.7
128.6
124.4

122.1
128.9
121.0
120.9
131 1
124.7

123.4
127.2
126.1
119.2
128.5
126.7

122.3
129.3
127.9
122.8
131.0
125.6

121.4
128.1
127.0
123.7
129.4
124.3

120.7
127.1
126.7
119.5
127.5
125.0

120.2
128.2
126.4
122.8
130.4
125.6

120.4
125.5
124.0
122.3
127.4
126.4

119.2
122,3
120.1
115.9
125.0
125.7

119.6
122.1
119.3
117.2
125.5
124.9

120.6
126.6
124.5
123.1
129.1
125.1

59 Total index
60 Manufacturing
61
Primary processing
62
Advanced processing
63
64
65
66

79
80

Durable goods
Lumber and products
Furniture and fixtures
Stone, cLry, and glass
products
Primary metals
Iron and steel
Raw steel
Nonferrous
Fabricated metal p r o d u c t s . . .
Industrial machinery and
equipment
Computer and office
equipment
Electrical machinery
Transportation equipment. .
Motor vehicles and pans .
Autos and light trucks .
Aerospace and
miscellaneous
transportation
equipment
Instruments
Miscellaneous

81
82
83
84
85
86
87
88
89
90
91

Nondurable goods
Foods
Tobacco products
Textile mill products
Apparel products
Paper and products
Printing and publishing
Chemicals and products . . . .
Petroleum products
Rubber and plastic products .
Leather and products

67
68
69
70
71
72
73
74
75
76
77
78

35

8.0

171.4

175.9

173.7

176.5

177.7

178.6

180.3

179.4

183.8

186.3

188.2

190.9

193.9

192.3

357
36
37
371
371PT

1.8
7.3
9.5
49
2.6

382.3
231.5
115.6
137.2
128.3

403.9
236.8
117.0
138.9
129.5

412.0
237.5
118.8
141.2
132.3

418.0
240.8
118.3
139.6
130.4

425.7
247.4
121.6
145.9
137.7

438.3
249.9
123.4
146.6
132.5

457.1
252.9
119.9
138.3
130.8

476.6
254.1
118.8
136.7
126.7

500.5
254.9
118.7
136.6
127.4

520.1
257.5
119.4
138.3
129.5

535.1
257.5
120.7
140.2
131.4

557.0
257.2
110.8
120.2
109.4

570.4
259.4
104.1
105.4
86.5

584.7
260.2
124.6
147.2
141.4

372-6,9
38
39

4.6
5.4
1.3

94.4
108.0
125.9

95.5
109.2
126.7

96.8
108.9
126.1

97.3
109.7
126.5

97.9
109.5
126.2

100.6
109.0
128.5

101.8
109.0
128.0

101.1
109.6
128.4

101.0
109.9
128.5

100.7
110.4
129.1

101.4
110.6
127.3

101.1
109.6
126.8

102.1
108.6
126.8

102.5
109.9
125.2

20
21
22
23
26
27
28
29
30
31

40.4
9.4
1.6
1.8
2.2
3.6
6.7
9.9
1 4
3.5
.3

111.1
109.6
112.7
109.6
99.6
112.9
104.9
115.3
109.4
126.4
73.7

111.0
108.9
112.5
110.7
99.1
114.4
1044
114.5
109 7
127.9
71.2

111.3
108.6
112.0
111.4
99.1
113 7

112.6
110.9
115.9
112.5
98.6
113.6
1074
116.5
108.6
129.6
71.0

1119
110.9
110.1
110.4
99.3
107.1
118.2
109.7
129.3
71.3

113.6
112.9
116.9
111.8
99.3
112.4
106.5
118.7
112 3
129.3
69.4

113.0
112.0
115.9
109.6
97 7
114.6

115.6
110.1
127.6
70.9

112.2
109.2
118.8
111.6
99.3
112.8
10677
116.7
111.2
127.4
72.4

117.6
111.9
129.4
70.8

112.6
111.4
114.7
108.9
98.2
112.4
105^0
117.7
114.8
129.7
69.4

113.2
112.2
114.0
109.2
98.3
113.2
104.8
118.7
1 14.4
131.9
67.7

112.9
112.3
114.0
1112
97.0
112.7
104.5
118.0
112 8
131.5
67.3

II 1.9
110.3
113.1
108.3
97.3
112.1
103.1
117.6
113.1
130.9
66.5

112.1
110.5
114.2
108.9
97.3
114.1
102.9
117.2
114.2
131.2
66.5

112.0
110.3
115.4
108.1
95.6
113.2
103.5
117.3
1 14.1
130.7
66.2

10
12
13
14

6.9
.5
1.0
4.8
.6

106.0
106.9
109.9
103.2
118.8

106.3
106.0
107 7
104.1
119.9

106.5
105.3
109.5
104.3
117.7

105.9
111.1
109.6
101.1
116.2

106.1
113.2
111.2
102.6
119.2

105.7
103.8
117.4
101.7
120.2

108.4
105.3
116.0
105.0
124.3

108.8
119.5
108.4
105.9
122.6

108.0
105.5
109.4
106.5
117.2

107.4
103.0
110.6
105.3
120.8

108.4
104.7
118.2
104.6
125.6

106.0
105.5
111.7
102.1
127.9

106.3
102.6
114.8
102.4
127.0

105.7
104.4
111.2
101.9
127.3

491,493PT
492.493PT

7.7
6.2
1.6

112.5
113.1
111.0

113.0
113.1
112.5

115.1
115.7
112.7

116.9
118.1
111.9

115.3
114.7
117.8

114.3
114.2
115.0

108.7
110.2
103.0

108.2
110.6
99.0

114.3
115.6
109.5

111.8
114.2
102.4

115.5
118.8
102.4

118.6
120.5
111.0

117.6
119.2
111.4

118.1
119.9
110.9

80.5

126.4

127.2

127.3

128.4

129.4

130.0

130.7

130.2

130.5

131.2

131.2

130.5

130.9

131.1

83.6

124.1

124.8

124.9

125.9

127.2

127.6

127.8

127 1

127.2

127.9

127.9

126.0

125.5

127.9

92 Mining
93
Metal
94
Coal
95
Oil and gas extraction
96
Stone and earth minerals
97 Utilities
98
Electric
99
Gas

ios!i

114]

los'e

SPECIAL AGGREGATES

100 Manufacturing excluding motor
vehicles and parts
101 Manufacturing excluding office
and computing machines . .

Gross v ilue (billions of 1992 dollars , annual rates)

MAJOR MARKETS

102 Products, total

2,001.9 2373.2 2,402.0 2,396.9

2,416.1

2,442.2 2.435.3 2.442.8 2,427.7

103 Final
104 Consumer goods
105 Equipment
106 Intermediate

1,552.1
l,04<3 6
502.5
449.9

1,890.6
1,215.9
674.5
526.5

1,911.0 1,904.9
1,224.1 1,215.7
686 9
689 4
532.3
531.4

1,855.8
1,195.5
660.0
518.1

1,879.3
1,205.2
674 0
523.7

1,875.6
1,203.3
672.3
522.2

I. Data in irm table also appear in the Board's G.17 (419) monthly statistical release. For
the ordering address, see the inside front cover. The latest historical revision of the industrial
production index and the capacity utilization rates was released in December 1997. The recent
annual revision is described in an article in the February 1998 issue of the Bulletin. For a
description of the aggregation methods for industrial production and capacity utilization, see
"Industrial Production and Capacity Utilization: Historical Revision and Recent Develop-




1,911.9
1,224.6
687.3
532.0

1.895.0
1.209.6
685.5
533.3

2,442.6 2,454.7

2.461.1 2,430.9 2,404.3 2,480.2

I.9M.5
1,219.2
692.6
532.1

1.924.5
1,224.8
700.1
537.4

1,922.9
1.225.3
697.9
533.0

1,897.1 1,868.6 1,946.8
1,202.2 1,185.2 1,229.4
695 5
683 9
7184
535.2
534.2
535.2

ments." Federal Resent Bulletin, vol. 83 (February 1997). pp. 67-92. Fcr details about the
construction of individual industrial production series, see "Industrial Production: 1989
Developments and Historical Revision," Federal Reserve Bulletin, vol. 76, (April 1990). pp.
187-204,
2, Standard industrial classification.

A46
2,14

Domestic Nonfinancial Statistics • November 1998
HOUSING AND CONSTRUCTION
Monthly figures at seasonally adjusted annual rates except as noted
1998
1995

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

May

June

July

1,581
1,173
408

Private residential real estate activity (thousands of units except as noted)
NEW UNITS

1,333
997
335
1,354

1.073
247
341

1,426
1.070
356
1,477
1,161
316
820
584
235
1.405
1,123
283
361

1.442
1.056
387
1.474
1.134
340
834
570
264
1,407
1,122
285
354

1,502
1,106
396
1,529
1,124
405
853
574
279
1,384
1,063
321
349

1,475
1,102
373
1,523
1,167
356
862
575
287
1,432
1.145
287
352

1,467
1,094
373
1.540
1,130
410
872
580
292
1,413
1.094
319
353

1,553
1,142
411
1.545
1,225
320
888
593
295
1,314
1,007
307
362

1,635
1,176
459
1,616
1,263
353
907
609
298
1,461
1,142
319
377

1,569
1,136
433
1,585
1,239
346
911
616
295
1,486
1,130
356
374

1,517
1,145
372
1,546
1,237
309
911
619
292
1,509
1,198
311
370

1,543
1,152
391
1,538
1,224
314
917
627
290
1,458
1,112
346
374

1.517
1,128
389
1,620
1,269
351
929
639
290
1,478
1,166
312
362

667
374

757
326

803
287

805
284

875
280

805
282

853
281

878
281

836
285

892'
286

890
286

900
288

886

133.9
158.7

140.0
166.4

145.9
175.8

141.5
172.9

145.0
175.4

145.9
175.8

148.0
178.6

156.0
181.6

152.0'
178.9'

148.0'
176.7'

151.4
183.5

145.8
174.2

147.9
174.1

18 Number sold

3,812

4,087

4,215

4,380

4,390

4,370

4,370

4,770

4,890

4,770

4,830

4,740

Price of units sold (thousands
of dollars)2
19 Median
20 Average

113.1
139 I

118.2
145.5

124.1
154.2

124.4
154.7

124.3
155.0

125.9
157.5

126.1
156.8

124.5
153.9

127.1
157.2

128.2
159.7

130.5
162.3

134.0
169.2

133.8
168.4

645,349

635,428r

647,839r

650365

r

1
2
3
4
5
6
7
8
9
10
11
12
13

Permits authorized
One-family
Two-family or more
Started
One-family
Two-family or more
Under construction at end of period1
One-family
Two-family or more
Completed
One-family
Two-family or more
Mobile homes shipped

Merchant builder activity' in
one-family units
14 Number sold
15 Number for sale at end of period1.
Price of units sold (thousands
of dollars}2
16 Median
17 Average

1,076

278
776

554
222
1.319

1,706

1,299
407
939
643

296
1,530
1.205
325
356

EXISTING UNITS (one-family)

Value of new construction (millions of dollars)
CONSTRUCTION

21 Total put in place

538,158

581,813

618,051

626,608

623,068

626,290

633,714

638,180

639,913

22 Private
Residential
23
24 Nonresidential
25
Industrial buildings
26
Commercial buildings . . .
27
Other buildings
28
Public utilities and other.

408,012
231,191
176,821
32,535
68,245
27,084
48.957

444,743
255,570
189,173
32,563
75,722
30,637
50,252

470,969
265,536
205,433
31.417
83.727
37,382
52,906

477,539
268,623
208,916
30,870
83,838
38,372
55,836

475,340
268,893
206,447
30,075
83,601
38.341
54.430

478,363
273,020
205,343
29,794
83.214
39,275
53,060

487,807
278,956
208,851
31,055
85,807
37,694
54,295

490,896
282,496
208,400
30,936
84,152
39,151
54,161

494,333
286,045
208,288
31,474
83,981
37,812
55.021

499,946
289,587
210,359
31,391
86,206
39,091
53,671

497,269 502,540'
288.808' 292.251'
208,461' 210.289'
29.583' 29,680'
86,569' 88,793'
37,572' 36,644'
54,737' 55,172'

505.009
296,279
208,730

29 Public
30 Military

130,147
2,98.1

137,070
2,639
41.326
5,926
87,179

147,082
2,625
45,246
5,628
93,583

149,069
2,806
43,144
5,148
97,971

147,728
2,889
47,416
5,068
92,355

147,927
2.342
45,306
6.422
93.857

145,907
2,474
46,067
5,281
92,085

147,284
2.916
45,561
6,305
92,502

145,580
2.818
45.559
5,488
91,715

145,404
2.686
46.060
4,980
91,678

138,159'
2,281'
41,989'
5,129'
88,760'

145,357

31

Highway

32
33

Conservation and development.
Other

38,126
6 371
82.667

1. Not at annual rates.
2. Not seasonally adjusted.
3. Recent data on value of new construction may not be strictly comparable with data for
previous periods because of changes by the Bureau of the Census in its estimating techniques.
For a description of these changes, see Construction Reports (C-30-76-5). issued by the
Census Bureau in July 1976.




145,298'
2,651'
44,608'
5,950'
92,089'

28,499
88,361

35,920
55.950
3,329
43,960

5,595
92.473

SOURCE. Bureau of the Census estimates for all series except (I) mobile homes, which are
private, domestic shipments as reported by the Manufactured Housing Institute and seasonally adjusted by the Census Bureau, and (2) sales and prices of existing units, which are
published by the National Association of Realtors. All back and current figures are available
from the originating agency. Permit authorizations are those reported to the Census Bureau
from 19,000 jurisdictions beginning in 1994.

Selected Measures
2.15

A47

CONSUMER AND PRODUCER PRICES
Percentage changes based on seasonally adjusted data except as noted
Change from 12
months earlier

Change from 3 months earlier
(annual rate)
1997

Aug.

Change from I month earlier
Index
level,
Aug.
1998'

1998

Aug.
Sept.

Dec.

Mar.

June

Apr.

May

June

July

Aug.

CONSUMER PRICES"
(1982-84=100)
1 All items

2.2

1.6

2.3

1.5

2 Food
3 Energy items
4 All items less food and energy. .
5
Commodities
6
Services

2.5
.8
2.3
.6
3.0

2.2
-7.7
2.5
1 1
3.1

2.8
8.3
1.7
-.3
2.6

1.5
-7.7
2.4
.6
3.3

1.3
-21.1
2.4

2.5
3.0
-1.9
2.6
1.1
3.2

.1
-.1
.3
1

-.2
-.3
-.5
.1
-.4

I
-10.3
2.1
-.7

1.2
-1.5
6.0
1.7
.6

-1.2
1.5
-5 7
-.3
-2.0

-3.0
-1.8
-27.0
3.9
.0

.0
.6
-3.1
1.4
-.9

.5'
I
y

-.6
.0

-4.4
-.9

-1.6
-1.2

4.1
5.4
-8.2

-14.3
-53.5
-13.6

-3.0
-2.3
-5.0

163.4
.1
-.7
.1
.0

.2
.0
.2
.2
.3

161.0
103.8
173.8
142.7
191 5

-.2'
-.1'

-.1
.1
-1.7
.3
.0

-.4
-.4
-2.3
.0
-.3

130.6
135.0
755
147 4
136.7

-.2
-.1

-.3
-I

2
-'.I

123.6
133.5

-1.0'
-1.0'
.3'

-3.9
-.5

-1.1
-5.1
-2.0

103.0
65.3
140.3

PRODUCER PRICES

(1982=100)
7 Finished goods
8
Consumer foods
9
Consumer energy
10 Other consumer goods
11
Capital equipment
Intermediate materials
12 Excluding foods and feeds
13 Excluding energy
Crude materials
14 Foods
15 Energy
16 Other

-1.7
-.5
-13.8
-4.9
3.0

-7.7
-18.1
-10.9

-5.0
21.8
.3

1. Not seasonally adjusted.
2. Figures for consumer prices are for all urban consumers and reflecl a rental-equivalence
measure of homeownership.




-.1'

-.r

4.5r
-1.1'

-2.8
-.6
-1.8

SOURCE. U.S. Department of Labor, Bureau of Labor Statistics.

A48
2.16

Domestic Nonfinancial Statistics • November 1998
GROSS DOMESTIC PRODUCT AND INCOME
Billions of current dollars except as noted; quarterly data at seasonally adjusted annual rates
1998

1997
1995

Account

1997

1996

Q2

03

Q4

Ql

Q2'

GROSS DOMESTIC PRODUCT

7,269.6

7,661.6

8.110.9

8,063.4

8,170.8

8.254.5

8.384.2

8,440.6

4,953.9
611.0
1,473.6
2,869.2

5.215.7
643.3
1,539.2
3,033.2

5,493.7
673.0
1,600.6
3,220.1

5,438.8
659.9
1,588.2
3,190.7

5,540.3
681.2
1,611.3
3,247.9

5,593.2
682.2
1.613.2
3.297.8

5,676.5
705.1
1.633.1
3.338.2

5,773.7
720.1
1,655.2
3,398.4

1,043.2
1.012.5

1,131.9
1,099.8
787.9
216.9
571.0
311.8

1,256.0
1,188.6
860.7
240.2
620.5
327.9

1,259.9
1,176.4
850.5
234.3
616.2
325.9

1,265.7
1,211.1
882.3
243.8
638.5
328.8

1.292.0
1,220.1
882.8
246.4
636.4
337.4

1,366.6
1,271.1
921.3
245.0
676.3
349.8

1,345.0
1,305.8
941.9
245.4
696.6
363.8

32.1
24.5

67.4
63.1

83.5
77.2

54.6
47.3

71.9
66.9

95.5
90.5

39.2
31.5

-83.9
8194
903.3

-91.2
873.8
965.0

-93.4
965.4
1.058.8

-86.8
961.1
1,047.9

-94.7
981.7
1,076.4

-98.8
988.6
1,087.4

-123.7
973.3
1,097.1

-159.3
949.6
1,108.9

17 Government consumption expenditures and gross investment
18 Federal
19 State and local

1,356.4
509.1
847.3

1.405.2
518.4
886.8

1,454.6
520.2
934.4

1.451.5
522.9
928.6

1,459.5
521.0
938.5

1,468.1
520.1
947.9

1,464.9
511.6
953.3

1,481.2
520.7
960.4

By major t\'pe of product
20 Final sales, total
21
Goods
->2
Durable
23
Nondurable
24
Services . . .
....
25 Structures

7.238.9
2,644.9
1,143.4
1,501.5
3,974.9
619.1

7,629.5
2.780.3
1.228.8
1.551.6
4,179.5
669.7

8,043.5
2.911.2
1,310.1
1,501.0
4,414.1
718.3

7.979.9
2,883.6
1,293.6
1,589.9
4,386.9
709.4

8,116.2
2,944.3
1,337.1
1,607.2
4,448.0
723.9

8,182.6
2,948.7
1,334.3
1,614.4
4,501.2
732.7

8,288.7
3,005.8
1,376.9
1,628.8
4,538.4
744.6

8,401.3
3,025.3
1,380.8
1,644.4
4,619.5
756.6

30.7
32.4
-1.7

32.1
20.8
11.4

67.4
33.6
33.8

83.5
48.8
34.6

54.6
19.9
34.7

71.9
34.0
37.9

95.5
49.9
45.6

39.2
4.5
34.7

6,761.7

(i,994.8

7.269.8

7,236.5

7,311.2

7,364.6

7,464.7

7,498.6

30 Total

5,923.7

6,256.0

6,646.5

6,604.5

6,704.8

6,767.9

6,875.0

6,945.5

31 Compensation of employees
32 Wages and salaries
33
Government and government enterprises - . 34
Other
35
Supplement to wages and salaries
36
Employer contributions for social insurance
37
Other labor income

4,208.9
3,441.9
622.7
2,819.2
767.0
365.3
401.6

4,409.0
3,640.4
640.9
2,999.5
768.6
381.7
387.0

4.687.2
3,893.6
664.2
3,229.4
793.7
400.7
392.9

4,649.2
3,859.2
661.6
3,197.6
790.0
398.4
391.5

4,715.5
3,919.3
666.7
3,252.6
796.2
402.7
393.6

4.798.0
3,993.6
671.4
3,322.2
804.4
407.4
397.0

4.882.8
4.065.9
679.5
3,386.4
816.8
414.1
402.8

4.945.2
4.121.6
685.8
3.435.8
823.5
417.9
405.7

488.1
465.6
22.4

527.7
488.8
38.9

551.2
515.8
35.5

549.9
512.1
37.8

556.5
520.2
36.3

558.0
526.6
31.4

564.2
536.8
27.4

571.7
544.0
27.7

1 Total
By source
Personal consumption expenditures
Durable goods
Nondurable goods
Services

2
3
4
5

6 Gross private domestic investmeni
7
Fixed investment
...
8
Nonresidential
9
Structures
10
Producers' durable equipmenl
11
Residential structures
12
13

inn
201.3
526.4
284.8
30.7
40.1

Change in business inventories
Nontarm

14 Net exports of goods and services
15 Exports
16 Imports

.

.
.
....
,

26 Change in business inventories
27
Durable goods
. .
28
Nondurable goods

,

...

MEMO

29 Total GDP in chained 1992 dollars
NATIONAL INCOME

38 Proprietors' income1
39
Business and professional1
40 Farm1

,

41 Rental income of persons2
42 Corporate profits
43
Profits before tax3
44
Inventory valuation adjustment
45
Capital consumption adjustment
46 Net interest . .

,

.

1. With inventory valuation and capital consumption adjustments.
2. With capital consumption adjustment.




133.7

150.2

158.2

158.0

158.6

158.8

158.3

161.0

672.4
635.6
-22.6
59.4

750.4
680.2
-1.2
71.4

817.9
734.4
6.9
76.6

815.5
729.8
10.3
75.5

840.9
758.9
4.8
77.2

820.8
736.4
4.3
80 1

829.2
719.1
25.3
84.9

820.6
723.5
7.8
89.4

420.6

418.6

432.0

431.8

433.3

432.4

440.5

447.1

3. For after-tax profits, dividends, and the like, see table 1.48.
SOURCE. U.S. Department of Commerce, Survey of Current Business.

Selected Measures A49
2.17

PERSONAL INCOME AND SAVING
Billions of current dollars excepl as noted; quarterly data at seasonally adjusted annual rates
1997
Account

1995

1998

1997

1996

Q2

Q3

Q4

02'

01

PERSONAL INCOME AND SAVING

1 Total personal income

6,072.1

6,425.2

6,784.0

6,743.6

6,820.9

6,904.9

7,0*3.9

7,081.9

2 Wage and salary disbursements
3
Commodity-producing industries
4
Manufacturing
5
Distributive industries
6
Service industries
7
Government and government enterprises

3,428.5
863.9
647.9
782.9
1,158.9
622.7

3,631.1
909.0
674.6
823.3
1.257.9
640.9

3.889.8
975.0
719.5
879.8
1.370.8
664.2

3,855.5
965.4
712.0
870.2
1,358.3
661.6

3,915.5
979.4
722.3
886.3
1.383.2
666.7

3,989.9
1,003.7
741.3
904.5
1.410.2
671.4

4,061.9
1,019.0
750.4
918.9
1,444.5
679.5

4,117.6
1,023.2
750.8
932.2
1,476.4
685.8

401.6
488.1
465.6
22.4
133.7
192.8
704.9
1,015.9
507.8

387.0
527.7
488.8
38.9
150.2
248.2
719.4
1,068.0
538.0

392 9
551.2
515.8
(S 5
158 2
260.3
747.3
1,110.4
565.9

391.5
549.9
512.1
37.8
158.0
259.9
745.7
1,106.8
563.9

393.6
556.5
520.2
.36.3
158.6
260.4
750.5
1,114.0
568.3

397.0
558.0
526.6
31.4
158.8
261.3
753.0
1,120.5
572.2

402.8
564.2
536.8
27.4
158.3
261 6
757.0
1.139.0
581.6

405 7
571.7
544.0
27.7
161.0
262.1
763.0
1.145.8
585.0

8 Other labor income
9 Proprietors' income1
10 Business and professional
11 Farm1
^
12 Rental income of persons"
13 Dividends
14 Personal inleresl income
15Transferpayments
16 Old-age survivors, disability, and health insurance benefits
17

LESS: Persona! contributions for social insurance

18 EQUALS' Personal income
19

LESS: Personal tax and nontax payments

293.6

306.3

326.2

323.7

328.2

333.6

340.9

345.1

6,072.1

6,425.2

6,784.0

6.743.6

6,820.9

6.904.9

7,003.9

7,081.9

795.0

890.5

989.0

975.8

999.0

1,025.5

1,066.8

1,092.9

20 EQUALS' Disposable personal income

5,277.0

5,534.7

5,795 1

5,767.9

5.821.8

5.879.4

5.937.1

5,988.9

21

LESS: Personal outlays

5,097.2

5,376.2

5,674.1

5,616.0

5,723.3

5,781.2

5,864.0

5,963.3

22 EQUALS: Personal saving

179.8

158.5

121.0

151.9

98.5

98.2

73.0

25.6

25,690.5
17,498.4
18,640.0

26,335.7
17,893.0
18,989.0

27,136.2
18,340.9
19,349.0

27.052.3
18,215.6
19,315.0

27,260.4
18,445.2
19,385.0

27,398.2
18.530.5
19,478.0

27.718.8
18.771.1
19.632.0

27,783.0
19,007.8
19,719.0

3.4

2.9

2.1

2.6

1.7

1.7

1.2

.4

27 Gross saving

1,187.4

1,274.5

1,406.3

1,416.3

1,427.0

1,428.0

1,482.5

1,448.5

28 Gross private saving

1,106.2

1,114.5

1.141.6

1.169.5

1.139.0

1,131.6

1.130.1

1,079.0

29 Personal saving
30 Undistributed corporate profits'
31 Corporate inventory valuation adjustment

179.8
256.1
-22.6

158.5
262.4
-1.2

121.0
296.7
6.9

151.9
299.0
10.3

98.5
311.5
4.8

98.2
295.0
4.3

73.0
312.0
25.3

25.6
300.9
7.8

Capital consumption allowances
32 Corporate
33 Noncorporate .

431.1
225.9

452.0
232.3

477.3
242.8

473.7
241.3

480.8
244.4

487.7
247.0

492.5
248.6

497.8
250.7

34 Gross government saving
35
Federal
36
Consumption of fixed capital
37
Current surplus or deficit ( - ) , national accounts
38
State and local
39
Consumption of fixed capital
40
Current surplus or deficit (- ). national accounls

81.2
-103.7
70.7
-174.4
184.8
73.2
111.7

160.0
-39.6
70.6
-110.3
199.7
77.1
122.6

264.7
49.5
70.6
-21.1
215.2
81.1
134.1

246.9
36.1
70.9
-34.8
210.7
80.6
130.1

288.0
70.0
70.3
-.3
218.0
81.4
136.6

296 4
72.3
70.2
22
224.1
82.7
141.4

352.4
128.7
69.9
58.8
223.7
83.5
140 2

369.4
143.9
69.5
74.4
225.6
84.3
141.3

41 Gross investment

1,160.9

1.242.3

1,350.5

1,368.6

1,361.9

1,360.7

1,428.4

1362.7

42 Gross private domestic investment
43 Gross government investment
44 Net foreign investment

1,043.2
218.4
-100.6

1,131.9
229 7
-119.2

1,256.0
235.4
-140.9

1,259.9
232.6
-123.9

1,265.7
237.3
-141.0

1.292.0
236.5
-167.8

1.366.6
237.4
-175.6

1.345.0
232.5
-214.8

-26.5

-32.2

-55.8

-47.7

-65.1

-67.3

-54.1

-85.7

MEMO

Per capita (churned 1992 dollars}
23 Gross domestic product
24 Personal consumption expenditures
25 Disposable personal income
^6 Saving rate (percent)
GROSS SAVING

45 Statistical discrepancy
1. With inventory valuation and capital consumption adjustments.
2. With capital consumption adjustment.




SOURCE. U.S. Department of Commerce, Survey of Current Business

A50
3.10

International Statistics • November 1998
U.S. INTERNATIONAL TRANSACTIONS

Summary

Millions of dollars; quarterly data seasonally adjusted except as noted'
1997
Item credits or debits

1 Balance on current account
2 Merchandise trade balance2
3
Merchandise exports
4
Merchandise imports
5
Military transactions, net
6
Other service transactions, net
7
Investment income, net
8
U.S. government grants
9
U.S. government pensions arid other transfers
10 Private remittances and other transfers
11 Change in U.S. government assets other than official
reserve assets, net (increase, - )

1998

1995

-115,254
-173.729
575,845
-749,574
4,769
69.069
19,275
-11,170
-3,433
-20,035

-134,915
-191,337
611,983
-803,320
4,684
78,079
14,236
-15,023
-4,442
-21,112

Q2

03

Q4

Ql

Q2P

6.781
80,967
-5,318
-12,090
-4.193
-23,408

-35,090
-49,096
169,240
-218,336
2,191
20,390
460
-2,274
-1.055
-5,706

-38,094
-49,296
172,302
-221,598
1,945
20,246
-1,544
-2,362
-1,056
-6,027

-45,043
-49,839
174,284
-224,123
1,103
20,277
-4,247
-5,213
-1.069
-6,055

-46,735
-55,698
171,469
-227,167
1,527
19,164
-2,248
-2,266
-1,126
-6,088

-56,525
-64,831
164,666
-229,497
1,036
19,842
-3,238
-2,060
-1,130
-6.144

-155,215
-197,954
679,325

-877,279

-589

-708

174

-269

436

29

-388

-496

-9,742
0
-808
-2,466
-6,468

6,668
0
370
-1,280
7,578

-1,010
0
-350
-3,575
2,915

-236
0
-133
54
-157

-730
0
-139
-463
-128

-4,524
0
-150
-4,221
-153

-444
0
-182
-85
-177

-1,945
0
72
-1,031
-986

-317,122
-75,108
-45,286
-100,074
-96,654

-374,761
-91,555
-86,333
-115,801
-81,072

-477.666
-147,439
-120,403
-87,981
-121.843

-86,101
-26,625
-9,825
-23,263
-26,388

-123,023
-29,577
-24,791
-41,167
-27,488

-118,946
-27,539
-47,907
-8,030
-35,470

-44,816
3,074
-6,596
-6,973
-34,321

-95,049
-24,979

22 Change in foreign official assets in United States (increase. +)
23
U.S. Treasury securities
24
Other U.S. government obligations
25 Other U.S. government liabilities4
26 Other U.S. liabilities reported by U.S. banks
27
Other foreign official assets5

109,768
68,977
3,735
-217
34,008
3,265

127,344
115,671
5,008
-362
5,704
1,323

15,817
-7.270
4.334
-2.521
21,928
-654

-5,411
-11,689
827
-523
5,043
931

21,258
6.686
2,667
-1,167
12,439
633

-26,979
-24,578
86
-244
-3,250
1.007

11,324
11,336
2,610
-1,059
-607
-956

-10,483
-20.317
254
-422
9,170
832

28 Change in foreign private assets in United Slates (increase, +)
29
U.S. bank-reported liabilities3
30 U.S. nonbank-reporied liabilities
31
Foreign private purchases of U.S. Treasury securities, net
32
Foreign purchases of other U.S. securities, net
33
Foreign direct investments in United States, net

355,681
30,176
59.637
99,548
96,367
57.653

436,013
16,478
39,404
154,996
130,151
77,622

717,624
148,059
107,779
146,710
196,845
93.449

155,184
28,067
5,274
42,614
54,258
20,149

160,180
12,606
26,275
35,432
60,327
18,964

247,470
89,643
47,390
35,301
36,783
28,453

84,205
-50,497
32,707
-1,701
77,019
25,931

173.908
40.888

34 Allocation of special drawing rights
35 Discrepancy
36
Due to seasonal adjustment
37
Before seasonal adjustment

0
-22,742

0
-59,641

0
-99.724

-22,742

-59,641

-99,724

0
-28,077
685
-28,762

0
-20,027
-10,018
-10,009

0
-52,007
3,528
-55,535

0
-3,146
6,217
-9,363

0
-9,410
1,562
-10,972

12 Change in U.S. official reserve assets (increase, - )
13 Gold
14 Special drawing rights (SDRs)
15 Reserve position in International Monetary Fund
16 Foreign currencies
17 Change in U.S. private assets abroad (increase, - )
18
Bank-reported claims3
19 Nonbank-reported claims
20
U.S. purchases of foreign securities, net
21
U.S. direct investments abroad, net

-23,446
-40,261

25,715
69,531
22,036

MEMO

Changes in official ussels
38 U.S. official reserve assets (increase, —)
39 Foreign official assets in United States, excluding line 25
(increase. +)
40 Change in Organization of Petroleum Exporting Countries official
assets in United States (part of line 22)

-9,742

6,668

-1,010

-236

-730

-4,524

-444

-1.945

109,985

127,706

18,338

-4,888

22.425

-26.735

12,383

-10,061

4,239

14,911

10,822

-968

-350

1. Seasonal factors are not calculated for lines 12-16, 18-20, 22-34, and
2. Data are on an international accounts basis. The data differ from the Census basis data,
shown in table 3.11, for reasons of coverage and timing. Military exports are excluded from
merchandise trade data and are included in line 5.
3. Reporting banks include all types of depository institutions as well as some brokers and
dealers.




1.970'

3,031'

-1,282'

4. Associated primarily with military sales contracts and other transactions arranged with
or through foreign official agencies.
5. Consists of investments in U.S. corporate stocks and in debt securities of private
corporations and stale and local governments.
SOURCE. U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current
Business.

Summary Statistics A51
3.11

U.S. FOREIGN TRADE1
Millions of dollars; monthly data seasonally adjusted
1998
Item

1995

1996

1997
Jan.

Feb.

Mar.

Apr.

May

June

July?

1 Goods and services, balance
2
Merchandise
3
Services

-101,857
-173,560
71,703

-111,040
-191,170
80,130

-113,684
-198,975
85,291

-9,935
-17,075
7,140

-11,720
-18,120
6,400

-13,208
-20.503
7,295

-14,274
-21,335
7,061

-15,536
-22,578
7,042

-13,639
-20,530
6,891

-13,923
-20,943
7,020

4 Goods and services, exports
5
Merchandise
6
Services

794,610
575,871
218,739

848,833
612,069
236,764

931,370
678,150
253,220

79.571
57,902
21,669

77,684
56,350
21,334

79.148
57.217
21,931

77,219
55,335
21,884

76.586
54.719
21,867

76.375
54,767
21,608

75,415
53,601
21,814

7 Goods and services, imports
8
Merchandise
9
Services

-896,467
-749,431
-147,036

-959,873
-803,239
-156,634

-1,045,054
-877,125
-167,929

-89.506
-74,977
-14.529

-89,404
-74.470
-14,934

-92,356
-77,720
-14,636

-91,493
-76,670
-14,823

-92,122
-77,297
-14,825

-90,014
-75,297
-14,717

-89,338
-74,544
-14,794

1. Data show monthly values consistent with quarterly figures in the U.S. balance of
payments accounts.

3.12

SOURCE. FT900, U.S. Department of Commerce. Bureau of the Census and Bureau of
Economic Analysis.

US. RESERVE ASSETS
Millions of dollars, end of period
1998
Asset

1 Total

1995

1996

1997
Jan.

Feb.

Mar.

Apr

May

June

July

Aug.c

85,832

75,090

69,954

70,003

70,632

69,354

70,328

70,723

71,161

72,264

73,544

11,050
11,037

11,049
10,312

11,050
10,027

11.046
9.998

11,050
10,217

11,050
10,108

11,048
10,188

11,049
10.296

11,047
10.001

11,046
9,586

11,046
9,891

14,649
49,096

15,435
38,294

18,071
30.809

18,039
30.920

18.135
31.230

17,976
30,220

18,218
30,874

18,957
30,421

18.945
31.168

20,780
30,852

21,161
31,446

2 Gold stock, including Exchange
3 Special drawing rights 23
4 Reserve position in International Monetary
Fund2

SDR holdings and reserve positions in the IMF also have been valued on this basis since July
1974,
3. Includes allocations of SDRs by the International Monetary Fund on Jan. 1 of the year
indicated, as follows: 1970—$867 million; 1971—$717 million; 1972—$710 million; 1979—
$1,139 million; 1980—$1,152 million; 1981—$1,093 million; plus net transactions in SDRs.
4. Valued at current market exchange rates.

1. Gold held "under earmark" at Federal Reserve Banks for foreign and international
iccounls is not included in the gold stock of the United States; see table 3.13, line 3. Gold
stock is valued at $42.22 per fine troy ounce.
2. Special drawing rights (SDRs) are valued according to a technique adopted by the
International Monetary Fund (IMF) in July 1974. Values are based on a weighled average of
exchange rates for the currencies of member countries. From July 1974 through December
1980, sixteen currencies were used; since January 1981, five currencies have been used. U.S.

3.13

FOREIGN OFFICIAL ASSETS HELD AT FEDERAL RESERVE BANKS'
Millions of dollars, end of period
1998
Asset

1995

1996

1997
Jan.

1 Deposits
Held in custody
2 U.S. Treasury securities
3 Earmarked gold3

Mar.

Apr.

May

June

July

Aug.p

386

167

457

215

243

167

162

156

200

161

161

522,170
11,702

638,049
11,197

620,885
10,763

625,219
10,709

621,956
10,705

630,602
10,664

622,220
10,651

622.557
10,641

616,569
10,617

613,893
10,586

588,337
10,510

1. Excludes deposits and U.S. Treasury securities held for international and regional
organizations.
1. Marketable U.S. Treasury bills, notes, and bonds and nonmarketable U.S. Treasury
securities, in each case measured at face (not market) value.




Feb.

3 Held in foreign and international accounts and valued at $42.22 per fine troy ounce; not
included in the gold stock of the United States-

A52
3.15

International Statistics • November 1998
SELECTED U.S. LIABILITIES TO FOREIGN OFFICIAL INSTITUTIONS
Millions of dollars, end of period
1998
Jan.

Feb

Mar.

Apr.

May

June

Julyp

I Total1

758,624

778,538

780,587

780,393

790,921

788,310

786,184'

781,067

773,692

By type
2 Liabilities reported by banks in the United States
3 U.S. Treasury bills and certificates3
U.S. Treasury bonds and notes
4
Marketable

113.098
198,921

135,326
148,301

140,931
145,609

139,739
144,324

134,719
153,335

144,929
138,418

142,658'
137,652

144,097
134,324

140,650
131,139

379,497
*i 968
61.140

423,456
5 994
65.461

422,267
6 031
65,747

423,509
6 069
66,752

429,642
6 110
67,115

430,804
6 149
68,010

431,702
6 189
67,983

428,216
6 229
68,201

428,680
6 269
66,954

257,915
21,295
80,623
385,484
7,379
5,926

263,103
18,749
97.616
382,423
10,118
6,527

261,680
18,339
96,997
387,204
10,213
6,152

261,133
19,065
99,381
385,378
10,518
4,916

259,053
20,280
98,028
397,283
11,440
4,835

268,848
20,254
101,191
382,027
11,281
4,707

269,178
20,122
101,792
379,188'
10,574
5,328

264,637
19,396
100,829
378,154
11,552
6,497

268,719
19,963
100,801
367,747
11,900
4,560

6 U.S. securities other than U.S. Treasury securities"
By area
7 Europe'
10 Asia
11 Africa
12 Other countries

1. Includes the Bank for International Settlements.
2. Principally demand deposits, time deposits, bankers acceptances, commercial paper,
negotiable time certificates of deposit, and borrowings under repurchase agreements.
3. Includes nonmarketable certificates of indebtedness and Treasury bills issued to official
institutions of foreign countries.
4. Excludes notes issued to foreign official nonreserve agencies. Includes current value of
zero-coupon Treasury bond issues to foreign governments as follows: Mexico, beginning
March 1988, 20-year maturity issue and beginning March 1990, 30-year maturity issue;

3.16

LIABILITIES TO, AND CLAIMS ON, FOREIGNERS
Payable in Foreign Currencies
Millions of dollars, end of period

Venezuela, beginning December 1990, 30-year maturity issue, Argentina, beginning April
1993, 30-year maturity issue.
5. Debt securities of U.S. government corporations and federally sponsored agencies, and
U.S. corporate stocks and bonds.
SOURCE. Based on U.S. Department of the Treasury data and on data reported to the
department by banks (including Federal Reserve Banks) and securities dealers in the United
States, and on the 1989 benchmark survey of foreign portfolio investment in the United
States.

Reported by Banks in the United States1

1997
Item

I Banks' liabilities
2 Banks' claims
3
Deposits
4
Other claims
_.
5 Claims of banks' domestic customers*

1994

89,258
60,711
19,661
41,050
10,878

Data on claims exclude foreign currencies held by U.S. monetary authorities.




1995

109,713
74,016
22,696
51,320
6,145

1998

1996

103,383
66,018
22,467
43,551
10,978

Sept.

Dec.

Mar.'

June

120,105
91,158
32,154
59,004
10,090

117,524
83,038
28.661
54,377
8,191

100,342
81,977
27,934
54,043
7,926

90,119
68,095
27,213
40,882
7,354

2. Assets owned by customers of the reporting bank located in the United States that
represent claims on foreigners held by reporting banks for the accounts of the domestic
customers.

3.17

LIABILITIES TO FOREIGNERS
Payable in U.S. dollars

Bank-Reported Data

A53

Apr.

July1

Reported by Banks in the United States1

Millions of dollars, end of period

Feb.

Mar.

May

June

BY HOLDER AND TYPE OF LIABILITY

1 Total, all foreigners
2 Banks' own liabilities
3
Demand deposits
4
Time deposits2
5
Other1
6
Own foreign offices4
7 Banks' custodial liabilities5
8
U.S. Treasury bills and certificates6
9
Other negotiable and readily transferable
instruments
10 Other
11 Nonmonetary international and regional organizations'
12
Banks' own liabilities
13
Demand deposits
14
Time deposits2
15
Other'
16
17
18
19

Banks' custodial liabilities5
U.S. Treasury bills and certificates'
Other negotiable and readily transferable
instruments
Other

20 Official institutions'
21
Banks' own liabilities
22
Demand deposits
23
Time deposits2
24
Other3
25
26
27
28

Banks' cuslodial liabilities5
U.S. Treasury bills and certificates6
Other negotiable and readily transferable
instruments
Other

29 Banks"
30
Banks' own liabilities
31
Unaffiliated foreign banks
32
Demand deposits
33
Time deposits2
34
Other1
35
Own foreign offices
36
37
38
39

Banks' custodial liabilities5
U.S. Treasury bills and certificates6
Other negotiable and readily transferable
instruments
Other

40 Other foreigners
41
Banks' own liabilities
42
Demand deposits
43
Time deposits2
44
Other'
45
46
47
48

Banks' custodial liabilities5
US. Treasury bills and certificates6
Other negotiable and readily transferable
instruments
Other

MEMO
49 Negotiable time certificates of deposit in custody for
foreigners

1,162,148

753.461
24,448
192,558
140.165
396,290

758,998
27,034
186,910
143,510
401,544

883,639'
32,104
198,470
168,013'
485,052'

867,220'
29,716
187,617
185,049
464,838'

879,686'
29.691
183.285
189,527
477,183'

843,906
32,588
183,109
188,425
439,784

861,727'
32,107
185,948
204,294'
439,378

852,052
31,201
185,160
192,167'
443,524'

884,747
36,247
186,724
183,451
478,325

897,675
32,017
187,800
192,273
485,585

346,088
197,355

403,150
236,874

400,047'
193,239

400,066'
184,881

403,989'
186,564

411,169
191.571

408,899
174,256

408,221'
173,873

401,999
167,997

407,758
163,085

52,200
96,533

72,011
94.265

93,641'
113,167

96.982'
118.203

99,402'
118,023

96.364
123,234

111,398
123,245

107,797
126,551'

112,527
121,475

116,864
127,809

11,039
10,347
21
4,656
5,670

13,972
13,355
29
5,784
7,542

11,690'
11,486'
16
5,466
6,004'

11,240
11,048
175
5,023
5,850

16,184
15,855
74
5,316
10,465

15,246
14,925
98
5,957
8,870

14,186
13,559
229
7,029
6,301

14,079
13,441
226
6,784
6,431

13,715
11.622
47
5,969
5,606

692
350

617
352

204
69

192
85

329
149

321
247

416
344

627
359

638
338

2,093
349

341
1

265
0

133
2

107
0

180
0

72
2

72
0

0

298
2

1,744
0

275,928
83,447
2,098
30,717
50,632

312,019
79,406
1,511
33,336
44,559

283,627
101,910
2,314
41,420
58,176

286,540
111,027
1,682
38,726
70,619

284,063
109,959
1,910
37,242
70,807

288,054
104,006
2.051
40,265
61,690

283,347
105,731
2,532
38.865
64,334

280,310'
104,358
2,052
36.060
66.246

278.421
102,256
2,582
36,068
63.606

271.789
100,583
3,559
36,367
60,657

192.481
168,534

232,613
198,921

181,717
148,301

175,513
145,609

174,104
144,324

184,048
153.335

177,616
138,418

175,952'
137,652

176.165
134,324

171,206
131,139

23,603
344

33,266
426

33,211
205

29,614
290

29,643
137

30,183
530

38.745
453

38.010
290'

41,178
663

39,759
308

691,412
567,834
171,544
11,758
103,471
56,315
396,290

694,835
562,898
161,354
13,692
89,765
57,897
401,544

816,064'
642,324'
157,272
17,527
83,433
56,312
485,052'

794 728'
620,490'
155,652
15.974
79,051
60,627
464,838'

799,943'
623,213'
146,030
16,084
75,255
54,691
477.183'

763,349
585,083
145,299
18,350
70,060
56,889
439,784

776,269
596,509
157,131
17,152
72,703
67,276
439,378

782.828'
601,967
158,443'
16,111
74.018
68,314'
443.524'

807.952
633,006
154,681
20.773
75,230
58,678
478,325

825.824
645,870
160.285
15,097
78,316
66,872
485,585

123,578
15,872

131.937
23,106

173,740
31,915

174.238
27.607

176,730
30,620

178,266
28.499

179,760
26,650

180,861'
26.920

174,946
24,109

179,954
21.690

13,035
94,671

17,027
91,804

35,333
106,492

35,266
111.365

35,107
111,003

34,962
114,805

37,942
115,168

38,186
115,755'

38,077
112,760

39,133
119,131

121,170
91,833
10,571
53,714
27.548

141,322
103,339
11.802
58,025
33,512

172,305'
127,919
12,247
68.151
47,521

174,778'
124,655
11,885
64,817
47.953

183,485'
130,659
11,623
65,472
53,564

188,426
139,892
12,089
66,827
60.976

196,116
145,009
12,058
67,734
65,217

182,949
132,168
12.809
68,053
51,306

186,294
136,044
12,666
68,642
54,736

194,105
139,600
13.314
67,148
59.138

29,337
12,599

37,983
14,495

44,386'
12,954

50,123'
11,580

52,826'
II ,471

48,534
9,490

51,107
8,844

50,781
8,942

50,250
9,226

54,505
9,907

15,221
1,517

21,453
2,035

24,964'
6,468

31,995'
6,548

34,472'
6,883

31,147
7,897

34,639
7,624

31,333
10,506

32,974
8,050

36,228
8,370

9,103

14,573

16,083'

17,075'

20,823'

22,416

22,503

2.3.440

21,229

22.897

1,283,686' 1,267,286' 1,283,675'

1. Reporting banks include all types of depository institutions as well as some brokers and
dealers. Excludes bonds and notes of maturities longer than one year.
2. Excludes negotiable time certificates of deposit, which are included in "Other negotiable and readily transferable instruments."
3. Includes borrowing under repurchase agreements.
4. For U.S. banks, includes amounts owed to own foreign branches and foreign subsidiaries consolidated in quarterly Consolidated Reports of Condition filed with bank regulatory
agencies. For agencies, branches, and majority-owned subsidiaries of foreign banks, consists
principally of amounts owed to the head office or parent foreign bank, and to foreign
branches, agencies, or wholly owned subsidiaries of the head office or parent foreign bank.
5. Financial claims on residents of the United States, other than long-term securities, held
by or through reporting banks for foreign customers.




1,305,433

1,099349

1,255,075

l,270,<i26' 1,260,273' 1,286,746

14,894'
14.478'
365
6,646
7,467'

6. Includes nonmarketable certificates of indebtedness and Treasury bills issued to official
institutions of foreign countries.
7. Principally bankers acceptances, commercial paper, and negotiable time certificates of
deposit.
8. Principally the Internationa] Bank for Reconstruction and Development, the InterAmerican Development Bank, and the Asian Development Bank. Excludes "holdings of
dollars" of the International Monetary Fund.
9. Foreign central banks, foreign central governments, and the Bank for International
Settlements.
10. Excludes central banks, which are included in "Official institutions."

A54
3.17

International Statistics • November 1998
LIABILITIES TO FOREIGNERS Reported by Banks in the United States'—Continued
1998
1995

1997
Jan.

Feb.

Mar.

Apr.

May

June

Julyp

50 Total, all foreigners

1,099,549

1,162,148

l,283,686r

1,267,286'

1,283,675'

1,255,075

1,270,626' l,260,273r

1,286,746

1,305,433

51 Foreign countries

1,088,510

1,148,176

1,271,996'

1,256,046'

1,267,491'

1,239,829

1,255,732

1,246,087'

1,272,667

1,291,718

362,819
3,537
24,792
2,921
2,831
39,218
24,035
2,014
10,868
13,745
1.394
2,761
7,948
10.011
3,246
43,625
4,124
139,183
177
26,389

376,590
5,128
24,084
2,565
1.958
35.078
24,660
1,835
10,946
11.110
1,288
3,562
7,623
17,707
1.623
44,538
6.738
153,420
206
22.521

420,438'
2.717
41.007
1.514
2.246
46,607
23,737
1,552'

401.641'
2.787
39,018
1.625
2.177
44,773
21,988
1,713'
9,854
6.287
955
1.515
5,573
19,413
1,415
37.340
3.659
176.457
292
24.800

420,018'
2,774
38.178
1,215
2,136
44,990
2.3.290
1,695'
9,804
7,043
845
1,437
6,118
20,137
2.055
37.157
4,047
191.181
244
25,672

390,750
2,375
33,244
1,094
1.549
44,027
20,971
2,020
9,631
8.208
346
1.426
6.466
16.315
1,967
35,463
4,154
174,198
236
27,060

406,391
2,957
38,530
2,588
1,768
48,468
24,895
2,383
10,600
8.051
514
2.279
5,381
18,071
1.785
32,341
4,340
172,829
246
28,365

405,348
3,012
35,518
1,443
1,365
47,869
26,452
2.610
11,127
7.265
774
2,160
3,952
15,520
2,197
33,893
4,467
178,185
270
27,269

401,090
2,268
35,454
1,989
1,438
46,161
25,470
2,429
11.510
6,845
607
2,334
4,654
11,650
3,148
37,887
4,875
176,892
234
25,245

432,085
2,603
33,880
2,013
1,211
47,037
23,729
2,784
11,113
7,082
1,179
2,823
6,398
12,080
2,198
43,660
5,351
198,164
322
28.458

52 Europe
53
Austria
54
Belgium and Luxembourg
55
Denmark
Finland
France
Germany
Greece
Italy
Netherlands
Norway
Portugal
Russia
Spain
Sweden
Switzerland
Turkey
United Kingdom
Yugoslavia
Other Europe and other former U.S.S.R.1
72 Canada

11,378
7,385
317
2.262
7,968
18,989
1,628
39.172
4,054
181,904
239
25,762

30,468

38,920

28.341

29.035

29,470

27.121

27,398

26,021

28,862

29,525

440,213
12,235
94,991
4,897
23,797
239,083
2.826
3,659
8
1,314
1,276
481
24.560
4.673
4.264
974
1,836
11,808
7,531

467,529
13,877
5,527
27,701
251,465
2,915
3,256
21
1.767
1,282
628
31.240
6.099
4.099
834
1,890
17,363
8,670

536,365
20.199
112,217
6.9 I I
31.037
276.389
4,072
3,652
66
2.078
1,494
450
33,972
5,085
4,241
893
2.382
21,601
9,626

532,828'
19,215
117,673'
6,279
31,857
268,034
4,514
3,584
63
1,877'
1,492
449
33,230
5,777
3,921
876
2,201
22,340'
9,446

533,907'
18,278
110,900'
8,283
33,026
273,464
4,450
3,908'
58
1,998'
1,382
437
33.611
5.417
4.087
912
2,247
21,891'
9,558

529,446
18,835
109,041
8,273
34,017
261,542
3,975
4,200
55
1.814
1,438
431
35,708
11.351
3.958
878
2,228
21,474
10.228

552,896
17,766
112,510
6,657
36,777
273,565
4,330
4,212
57
1,737
1,478
449
37,623
17,569
4,211
878
2,097
20,696
10,284

550.714
16,938
114.222
7,142
38,463
277.929'
4,230
4,383
59
1,783
1,353
438
37,682
7,447
4,106
964
1,991
21,600
9,984'

567,974
18.503
116,410
7,769
35,345
295,110
4,349
4,799
63
1,606
1,363
522
38,046
6,861
3,723
925
1,982
20,442
10,156

563,618
21,011
115,398
7,216
34,291
289,486
4,981
4,023
63
1,756
1,273
519
38,556
8,937
3,597
984
2.097
19,492
9.938

240,595

249,083

269,299'

274,770

267.957

275.173

251,423

244,779'

254.422

247,968

33,750
11,714
20,197
3,373
2,708
4,041
109,193
5,749
3,092
12,279
15,582
18,917

30,438
15,995
18,789
3,930
2.298
6.051
117,316
5,949
3,378
10,912
16,285
17,742

18.252
11,760
17,722
4,567
3.554
6.281
143,401
13.060'
3,250
6,501
14.959
25.992

20,153
12,936
18,002
5,331
2,909
7.190
138,686
12,171
2,530
5,858
16,059
32,945

18,575
12,942
17,797
5.265
2,989
7,197
140,426
12,530
2,872
4,676
15.952
26,736

20,701
13,619
17,825
5.586
4,015
7,589
137.700
11,233
3,009
9,073
16,217
28,606

20,122
13,776
19,762
4,813
4,266
7.348
113.283
13,711
2,870
7.928
17,095
26.449

20,209
12,648
18,106
4,882
3,197
6,251
111.623
14,010'
2,802
8,876
15,296
26,879

21,558
11,619
19,720
4,821
3,860
6,095
118.669
13,269
3,418
7,148
13,825
30,420

18,919
11,333
15,825
4,679
3,950
5,969
123,145
12,733
2,609
6,780
13,907
28,119

105 Africa
106 Egypt
107 Morocco
108 South Africa
109 Zaire
110 Oil-exporting countries14 .
Other

7,641
2.136
104
739
10
1,797
2,855

8,116
2,012
112
458
10
2,626
2,898

10.347
1,663
138
2,158
10
3,060
3.318

10,291
1.949
131
1.685
7
3 470
3,049

9,670
1,670
73
1.825
4
3,479
2,619

11,385
1,449
88
2.547
10
4,275
3,016

11,160
1,236
131
2,556
3
4,332
2,902

10,965
1,460
115
2,465
5
4,079
2,841

10,732
1,523
84
2,642
5
3,552
2,926

10,785
1,319
74
2,446
7
3,893
3,046

112 Other
113 Australia . . . .
114
Other

6,774
5,647
1,127

7,938
6.479
1,459

7.206
6.304
902

7,481
6,385
1,096

6.469
5,466
1,003

5.954
4,989
965

6.464
5,450
1,014

8,260
7,416
844

9,587
8,510
1,077

7,737
6,490
1,247

11,039
9,300
893
846

13,972
12,099
1,339
534

11,690'
10,517'
424
749

11,240
10,016
975
249

16,184
14,591
1.217
376

15,246
14,331
536
379

14,894'
13,431'
762
701

14,186
12.509
830
847

14,079
12,548
670
861

13,715
10,654
717
2,344

73 Latin America and Caribbean . . .
74
Argentina
75
Bahamas
76
Bermuda
77
Brazil
78
British West Indies
79 Chile
80 Colombia
81 Cuba
82
Ecuador
83
Guatemala
84
Jamaica
85
Mexico
86
Netherlands Antilles
87
Panama
88
Peru
89 Uruguay
90
Venezuela
91
Other
92 Asia
China
93
Mainland
94
Taiwan
95
Hong Kong
96 India
97
Indonesia
98
Israel
99 Japan
100 Korea (South)
101 Philippines
102 Thailand
103 Middle Eastern oil-exporting countries'
104 Other

115 Nonmonetary international and regional organizations
116 International15
117
Latin American regional16
118 Other regional17

11. Since December 1992. has excluded Bosnia, Croatia, and Slovenia.
12. Includes the Bank for International Settlements. Since December 1992, has
included all pans of the former U.S.S.R. (except Russia), and Bosnia, Croatia, and Slovenia.
13. Comprises Bahrain. Iran. Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab
Emirates (Trucial States).
14. Comprises Algeria, Gabon, Libya, and Nigeria.




15. Principally the International Bank for Reconstruction and Development. Excludes
"holdings of dollars" of the International Monetary Fund.
16. Principally the Inter-American Development Bank.
17. Asian. African, Middle Eastern, and European regional organizations, except the Bank
for International Settlements, which is included in "Other Europe."

3.18

Bank-Reported Data

A55

BANKS' OWN CLAIMS ON FOREIGNERS Reported by Banks in the United States1
Payable in U.S. Dollars
Millions of dollars, end of period

Area or country
Jan.

Feb.

Mar.

Apr.

May'

June

Julyp

1 Total, all foreigners . . .

532,444

599,925

708,272'

703,190

703,988'

687,648'

700,035'

703,532

727,916

740,719

2 Foreign countries

530,513

597,321

705,809'

700,273

701,233'

684,700'

696,742'

701,140

725,001

737,050

132,150
565
7,624
403
1,055
15,033
9,263

165,769

199,880
1,354
6,641
980

204,763
1,917
5,714
1,531
1,492
21,474
10,849
504
6,655
5,384
989
655
1,297
6,926
1,736
28,515
1,648
99,302
53
8,122

212,307
1,934
6,021
907
1,554
18,963
10,752
504
5,974
5,447
1,296
533
1,143
6,255
2,184
29,006
1,675
110,357
53
7,749

205,528
1,566
6,148
895
1,686
18,206
13,047
503
6,601
6,618
850
589
1,115
5,778
2,798
31,306
1,914
97,588
61
8.259

207,154
1,827
5,482
968
1,018
17,383
16,931
442
6,938
5,851
662
935
1,133
7,458
2,975
25,069
2,324
101,772
59
7,927

208,567
2,130
6.115
1,286
931
16,276
15.301
428
6,533
3.980
736
1,496
1,117
6,218
3,181
29,317
2,386
102,889
19
8.228

223,277
1,259
7,782
1,198
1,146
15,474
15,751
364
6,435
5,763
680

230,904
1,892
8,464
933
1,258
14,158
11.312
475
6,189
5,703
553
1,170
1,345
6,344
4,543
49,359
2,757
104,755
57
9,637

3 Europe
4
Austria
5
Belgium and Luxembourg
6
Denmark
7
Finland
8
France
9
Germany
10 Greece
11 Italy
12 Netherlands
13 Norway
14 Portugal
15 Russia
16 Spain
17 Sweden
18 Switzerland
19 Turkey
20 United Kingdom
21
Yugoslavia2
22
Other Europe and other former U.S.S.R.3 .
23 Canada

469
5,370

5,346
665
888
660
2,166
2,080
7,474

1,662

6,727
492
971
15,246
8,472
568
6,457
7,117
808
418
1,669

3,211
1,739
19,798

803

1,109

67,784

85,234
115
3,956

147

4,355

1,233

16,239
12,676
402
6,230

6,141
555
777
1,248
2,942
1,854
28,846
1,558
103,143
52
7,009

1,057
5,560
3,069
34,970
2,414
109,755
53
9,659

20,874

26,436

27,176

25,155

24,872

29,827

25,785

24.961

32,703

36,007

24 Latin Amenca and Caribbean
25
Argentina
26
Bahamas
27 Bermuda
28 Brazil
29 British West Indies
30 Chile
31 Colombia
32 Cuba
33 Ecuador
34 Guatemala
35 Jamaica
36 Mexico
37 Netherlands Antilles
38 Panama
39 Peru
40 Uruguay
41 Venezuela
42 Other

256,944
6,439
58,818
5,741
13,297
124,037
4,864
4,550
0
825
457
323
18,024
9,229
3,008
1,829
466

274,153
7,400
71,871
4,129
17,259
105,510
5,136
6,247
0
1,031
620
345
18,425
25,209
2,786
2,720
589

343.820
8,924
89,379

1,661
3,376

1,702
3,174

345.787
9,076
90,823
9,385
22,541
145,935
7,910
6,733
0
1.390
863
410
20,515
16,026
4,074
3,413
588
2,257
3,848

345,643
9,402
84,982
8,917
23,987
149,520
8,249
6,729
0
1,398
868
401
21,107
15,594
4,232
3,550
594
2,334
3,779

338.909
8,726
77,585
8,997
25,283
147,910
8,171
6,783
0
1.476
904
364
20,680
17,618
4,108
3,538
920
2,169
3,677

354,302
8,540
82,711
9,462
26,033
159,649
8,444
6,772
0
1,522
955
373
20,913
14,073
4,422
3,644
773
2,194
3,822

361,082
8,207
78,083
8,890
25,354
168,124
8,482
7,208
0
1,498
955
385
21.215
17,352
4,393
3,792
807
2,381
3,956

365,820
8,502
77,700
9,347
24,552
176,825
8,497
7,102
0
1,430
932
320
20,393
14,294
4,233
3,965
959
2,495
4,274

359,559
8,406
78,876
10,517
24,202
166,461
8,436
6,913
0
1,649
911
360
20,059
16,278
4,328
3,989
1,155
2,435
4,584

43 Asia
China
44
Mainland
45
Taiwan
46
Hong Kong
47
India
48
Indonesia
49
Israel
50
Japan
51
Korea (South)
52
Philippines
53 Thailand
54
Middle Eastern oil-exporting countries4
55
Olher

115,336

122,478

125,063'

114.457

109,045'

101.353'

99.183'

96.813

94,772

100.162

1,023
1,713
12,821

1,401
1,894
12,802
1,946
1,762

2,534
847
14,569
2,299
2,361
946
52,904
14,450
1,794
2,164
9.133
10,456

1,988
820
13,520
2,172
2,270'
987
51,891
12,812
1,645
2,138
9,101
9,701

2,762
740
12,628
1,927
2,291'
812
46,660
11,520
1,813
2,144
8.921
9,135

2,921
939
10,162
1,807
2,210'
874
44,970
10,852
1,561
1,971
11,028

2,934
723
12.884
1,913
2,099
893
42,071
11.936
1,614
1,906
9.338
8,502

1,989
835
12,871
1,972
2,066
954
43,010
11,001
1,541
1,889
8,448
8,196

1,579
695
11,045
1,822
1,976
1,116
45,566
12,863
1,243
1,820

8,782

21,696
145,471
7,913
6,945
0
1,311
886
424
19,518
17,838
4,364
3,491
629
2,129
4,120

6,486

10,424
8,372

1,579
921
13,990
2,200
2,634
768
59,540
18,162'
1,689
2,259
10,790
10,531

56 Africa
57
Egypt
58
Morocco
59
South Africa
60
Zaire
61
Oil-exporting countries5
62
Other

2,742
210
514
465
1
552
1,000

2,776
247
524
584
0
420
1,001

3,530
247
511
805
0
1,212
755

3,580
279
498
694
0
1,324
785

3,403
304
514
573
0
1,219
793

3.567
289
518
559
0
1,364
837

3,337
294
483
490
0
1,194
876

3,693
281
490
859
0
1,078
985

2,484
283
430
653
0
308
810

3,497

63 Other
64
Australia .
65
Other ..

2,467
1,622
845

5,709
4.577
1,132

6,340
5,299
1,041

6.531
5,419
1,112

5.963
5,139
824

5.516
5.011
505

6,981
6,513
468

6,024
5,704
320

5,945
5,439
506

6,921

66 Nonmonetary international and regional organizations6

1,931

2,604

2,463

2,917

2,755

2,948

3,293

2,392

2,915

3,669

1,846
1,696

739
61,468
13,975
1,318
2,612
9,639

633

59,967
18,901
1,697
2,679

1. Reporting banks include all types of depository institutions as well as some brokers and
dealers.
2. Since December 1992, has excluded Bosnia, Croatia, and Slovenia.
3. Includes the Bank for International Settlements. Since December 1992, has included all
parts of the former U.S.S.R. (except Russia), and Bosnia, Croatia, and Slovenia.




11,207
9,230
294
471

630
0
1,331
771
6,067

854

4. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab
Emirates (Trucial States).
5. Comprises Algeria, Gabon, Libya, and Nigeria.
6. Excludes the Bank for International Settlements, which is included in "Other Europe "

A56
3.19

International Statistics • November 1998
BANKS' OWN AND DOMESTIC CUSTOMERS' CLAIMS ON FOREIGNERS
Payable in U.S. Dollars

Reported by Banks in the United States1

Millions of dollars, end of period
1998
1995

Type of claim

1996

1997
Jan.

Feb.

703,190
30,195
415.708
111,015
30,840'
80,175'
146,272

703,988'
27,041
421,733
106,600
26,559
80,041
148,614'

Mar.'

Apr'

May'

700,035
32,465
409,955
104.622
24,324
80,298
152,993

703,532
28,986
415,175
105,501
21,282
84.219
153,870

June
881,154

1 Total

655,211

743,919

2 Banks' claims
3
Foreign public borrowers
4
Own foreign offices2
5
Unaffiliated foreign banks
6
Deposits
7
Other
8
All other foreigners . . .

532.444
22,518
307,427
1(11.595
37,771
63.824
100.904

599,925
22,216
341,574
113,682
33,826
79.856
122,453

708.272'
20.660
431,685
109,224
31,042
78,182
146,703'

122,767
58,519

143,994

144,627
73.110

154,813
85,406

153,238
86,408

53.967

51,594

52,133

17,550

17,813

14,697

7.496

6,595

9 Claims of banks" domestic customers*
10 Deposits
11 Negotiable and readily transferable
instruments4
12 Outstanding collections and other
claims

....

44,161
20,087

77,657
51,207
15,130

852,899'

842,461
687,648
28,232
402,387
107,794
25,657
82,137
149,235

July'

727.916
27,739
435,286
107,544
22,843
84,701
157,347

740,719
34,816
446.657
101,878
23,283
78,595
157.368

MEMO

13 Customer liability on acceptances
14 Dollar deposits in banks abroad, reported by
nonbanking business enterprises in the
United States5

8,410

10,388

9.624

30,717

39,661

34,046

35,842'

31,958

31,633

32,172

25,287

30,067

principally of amounts due from the head office or parent foreign bank, and from foreign
branches, agencies, or wholly owned subsidiaries of the head office or parent foreign bank.
3, Assets held by reporting banks in the accounts of their domestic customers.
4, Principally negotiable time certificates of deposit, bankers, acceptances, and commercial
paper.
5, Includes demand and time deposits and negotiable and nonnegotiable certificates of
deposit denominated in U.S. dollars issued by banks abroad.

1. For banks' claims, data are monthly; for claims of banks" domestic customers, data are
for quarter ending with month indicated.
Reporting banks include all types of depository institution as well as some brokers and
dealers
2. For U.S. banks, includes amounts due from own foreign branches and foreign subsidiaries consolidated in quarterly Consolidated Reports of Condition filed with bank regulatory
agencies. For agencies, branches, and majonly-owiied subsidiaries of foreign bank;-, consists

BANKS' OWN CLAIMS ON UNAFFILIATED FOREIGNERS
Payable in U.S. Dollars

3.20

36,741'

Reported by Banks in the United States1

Millions of dollars, end of period
1998

1997
Maturity, by borrower and area

I Total
2
3
4
5
6
7

By borrower
Maturity of one year or less
Foreign public borrowers
All other foreigners
Maturity of more than one vear
Foreign public borrowers
All other foreigners

8
9
10

By area
Maturity of one year or less
Europe
Canada
Latin America and Caribbean

j i

^ \ s i a . . . . . . . . . * . . . • • • • • • . . . . . . . . • .

12
13

Africa
All other1
Maturity of more than one year

15
16

Canada
Latin America and Caribbean

18
19

Africa
Allother 3

1995

1994

Sept.

Dec.

Mar.

Junep

202,282

224,932

258,106

281,000

276,597'

285^18

286,905

170,411
15.435
154,976
31,871
7,838
24,033

178,857
14,995
163,862
46,075
7,522
38,553

211,859
15.411
196.448
46.247
6.790
39,457

217,981
20,123
197,858
63,019
8,752
54,267

205,859
12,069'
193,790'
70.738'
8,525
62,213'

214,822
16,952
197.870
70.696
11.310
59.386

206,813
16.497
190,316
80,092
10,625
69,467

56,381
6,690
59,583
40,567
1,379
5 811

55,622
6,751
72,504
40,296
1,295
2,389

55,690
8,339
103,254
38,078
1,316
5,182

69,204
8,460
99,929
34,650
2,157
3,581

58,294
9,917
97,277
33,972
2.211
4.188

69.245
Q.304
101.013
28,748
2,228
4,284

70,724
8,516
98,912
23,076
1,117
4.468

4,358
3,505
15,717
5,323
1,583
1,385

4,995
2,751
27,681
7,941
1,421
1,286

6,965
2,645
24 943
9,392
1,361
941

11,202
3,842
34,988
10,393
1,236
1.358

13,240
2.512
42.069
10,198'
1,236
1,483

15,118
2.752
39.337
10,731
1,254
1.504

15,337
2,573
47 463
12,053
1,259
1,407

1. Reporting banks include all types of depository institutions as well as some brokers and
dealers




1996

2. Maturity is time remaining until maturity.
3. Includes nonmonetary international and regional organizations.

Bank-Reported Data A57
3.21

CLAIMS ON FOREIGN COUNTRIES
Billions of dollars, end of period

Held by U.S. and Foreign Offices of U.S. Banks'

Area or country
Sept.

Sept.

499.5

551.9

612.8

586.2

645.3

647.5

678.8

711.0

725.9

726.1

191.2
7.2
19.1
24.7
11.8
3.6
2.7
5.1
85.8

226.9
11.4
18.0
31.4
14.9
4.7
2.7
6.3
101.6
12.2
23.6

220.0
11.3
17.4
33.9
15.2
5.9
3.0
90.5
14.8
21.7

228.3
11.7
16.6
29.8
16.0
4.0
2.6
5.3
104.7
14.0
23.7

231.4
14.1
19.7
32.1
14.4
4.5
3.4
6.0
99.2
16.3
21.7

250.0
9.4
17.9
34.1
20.2
6.4
3.6
5.4
110.6
15.7
26.8

247.7
11.4
20.2
34.7
19.3
7.2
4.1
4.8
108.3
15.1
22.6

242.8
11.0
15.4

21.1

206.0
13.6
19.4
27.3
11.5
3.7
2.7
6.7
82.4
10.3
28.5

13.7
286

244.3
11.2
15.6
25.5
19.7
7.3
4.8
5.6
115.3
13.5
25.8

13 Other industrialized countries .
14 Austria
15 Denmark
16 Finland
17 Greece
18 Norway
19 Portugal
20 Spain
21 Turkey
22 Other Western Europe
23 South Africa
24 Australia

45.7
11
1.3
.9
4.5
2.0
1.2
13.6
1.6
3.2
1.0
15.4

50.2
.9
2.6
.8
57
3.2
1.3
11.6
1.9
4.7
1.2
16.4

55.5
1.2
3.3
.6
5.6
2.3
1.6
13.6
2.3
3.4
2.0
19.6

62.1
1.0
1.7
.6
6.1
3.0
1.4
16.1
2.8
4.8
1.7
22.8

65.7
1.1
1.5
.8
6.7
8.0
.9
13.2
2.7
4.7
2.0
24.0

66.4
1.9
1.7
.7
6.3
5.3
1.0
14.4
2.8
6.3
1.9
24.4

71.7
1.5
2.8
1.4
6.1
4.7
1.1
15.4
3.4
5.5
1.9
27.8

73.8
1.7
3.7
1.9
6.2
4.6
1.4
13.9
4.4
6.1
1.9

64.5
1.5
2.4
1.3
5.1
3.6
.9
11.7
4.5
8.2
2.2
23.1

74.3
1.7
2.0
1.5
6.1
4.0
.7
16.5
4.9
9.9
3.7
23.2

25 OPEC2
26
Ecuador
27
Venezuela
28
Indonesia
29
Middle East countries . .
30
African countries

24.1
.5
3.7
3.8
15.3
.9

22.1
.7
2.7
4.8
13.3

20.1

19.2
.9
2.3

21.8
1.1
1.9
4.9
13.2
.7

22.3
.9
5.6
12.5
1.2

22.9
1.2
2.2
6.5
11.8
I.I

26.0
1.3

.6

.9
2.3
4.9
11.5
.5

19.7
1.1
2.4
5.2

2.5
6.7
14.4
1.2

25.7
1.3
3.3
5.5
14.3
1.4

3! Non-OPEC developing countries .

96.0

112.6

126.5

128.1

140.6

137.0

138.7

145.8

12.9
13.7
6.8
2.9
17.3

14.1
21.7

Other

11.2
8.4
6.1
2.6
18.4
.5
2.7

42
43
44
45
46
47

Asia
China
Mainland
Taiwan
India
Israel
Korea (South) . .
Malaysia
Philippines
Thailand
Other Asia

1.1
9.2
4.2
.4
16.2
3.1
3.3
2.1
4.7

1.8
9.4
4.4
.5
19.1
4.4
4.1
4.9
4.5

48
49
50
51

Africa
Egypt
Morocco
Zaire
Other Africa3

2 G-10 countries and Switzerland .
3
Belgium and Luxembourg
4
France
5
Germany
6
Italy
7 Netherlands
8 Sweden
9
Switzerland
10 United Kingdom
Canada
Japan

Latin America
Argentina
Brazil
Chile
Colombia

Mexico
Peru

39
40
41

52 Eastern Europe
53
Russia4
54
Other
55 Offshore banking centers.
56
Bahamas
Bermuda.
Cayman Islands and other British West Indies .
58
Netherlands Antilles
59
60
Panama*
61
Lebanon
62
Hong Kong, China
63
Singapore
64
Other*...
65 Miscellaneous and unallocated7

10.0

72.9
10 2
8.4
21.4
1.6
1.3
.1
20.0
10.1
.1

66.9

10.7
.4

14.3
20.7
7.0
4.1
16.2
1.6
3.3

14.3
22.0
6.8
3.7
17.2
1.6
3.4

16.4
27.3
7.6
3.3
16.6
1.4
3.4

17.1
26.1
8.0
3.4
16.4
1.8
3.6

18.4
28.6
8.7
3.4
17.4
2.0
4.1

19.3
32.4
9.0
3.3

2.9

2.6

9.8
4.2
.6
21.7
5.3
4.7
5.4
4.8

10.4

2.5
10.3
4.3
.5
21.5
6.0
5.8
5.7
4.1

2.7
10.5
4.9
.6
14.6
6.5
6.0
6.8
4.3

3.6
10.6
5.3
.8
16.3
6.4
7.0
7.3
4.7

4.3
9.7
4.9
1.0
16.2
5.6
5.7
6.2
4.5

3.2
9.0
4.9
.7
15.6
5.1
5.7
5.4
4.3

4.2
11.7
5.0
.7
14.6
4.5
5.0
5.5
4.2

.7
.0
1.0

.7
.7
.1
.9

.9
.6
.0
.9

1.1
.7
.0
.9

.9
.7
.0
.9

15.4
1.2
3.0

3.8
.5
21.9
5.5
5.4
4.8
4.1
.6

17.7
2.1
4.0

1.0
.6
.0
1.1

4.2
1.0
3.2

5.1
1.0
4.1

5.3
1.8
3.5

6.9
3.7
3.2

8.9
35
5.4

7.1
4.2
2.9

9.8
5.1
4.7

9.1
5.1
4.0

9.9
5.3
4.6

99.2
11.0
6.3
32.4
10.3
1.4
.1
25.0
13.1
.1
57.6

106.1
17.3
4.1
26.1
13.2
1.7
.1

105.2
14.2
4.0
32.0
11.7
1.7
.1
26.0
15.5
.1
50.0

134.7
20.3
4.5
37.2
26.1
2.0

131.3
20.9
6.7

129.6
16.1
7.9
35.1
15.8
2.6
.1
35.2
16.7
.3
57.6

138.9
19.8
9.8
45.7
21.7
2.1
.1
27.2

145.7

129.3
29.2
9.0
24.9
14.0
3.2
.1
33.8
15.0
.1
96.7

1. The banking offices covered by these data include U.S. offices and foreign branches of
U.S. banks, including U.S. banks that are subsidiaries of foreign banks. Offices not covered
include U.S. agencies and branches of foreign banks. Beginning March 1994, the data include
large foreign subsidiaries of U.S. banks. The data also include other types of U.S. depository
institutions as well as some types of brokers and dealers. To eliminate duplication, the data
are adjusted to exclude the claims on foreign branches held by a U.S. office or another foreign
branch of the same banking institution.
These data are on a gross claims basis and do not necessarily reflect the ultimate country
risk or exposure of U.S. banks. More complete data on the country risk exposure of U.S. banks
are available in the quarterly Country Exposure Lending Survey published by the Federal
Financial Institutions Examination Council.




5.4
10.2
.4

2.1

28.1

15.5
6.2
3.3
7.2
113.4

15.0
17.8
6.6
3.1
16.3
1.3
3.0

6.7
2.8

.4
.7
.0
.9

1.9

6.3

28.6

27.6

15.9
.1
111

32.8
19.9
2.0

.1

.1

27.9

30.8
17.9
.1
59.6

16.7

.1
59.6

29.9
9.8
43.4
14.6
3.1

12.7

.1
32.2
12.7

.1
80.8

.1
99.1

2. Organization of Petroleum Exporting Countries, shown individually; other members of
OPEC (Algeria, Gabon, Iran, Iraq, Kuwait. Libya, Nigeria, Qatar, Saudi Arabia, and United
Arab Emirates); and Bahrain and Oman (not formally members of OPEC).
3. Excludes Liberia. Beginning March 1994 includes Namibia.
4. As of December 1992, excludes other republics of the former Soviet Union.
5. Includes Canal Zone.
6. Foreign branch claims only.
7. Includes New Zealand. Liberia, and international and regional organizations.

A58
3.22

International Statistics • November 1998
LIABILITIES TO UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises in
the United States
Millions of dollars, end of period
1998
Type of liability, and area or country
June

Sept.

Dec.

1 Total

54,309

46,448

54,798

54,798

58,667

56,501'

55,891r

59,618'

56,741

2 Payable in dollars
3 Payable in foreign currencies

38,298
16.011

33,903
12,545

38,956
15,842

38,956
15,842

39,861
18,806

38,651
17.850'

39,746
16.145'

41,888
17,730'

42,237
14.504

By type
4 Financial liabilities
5
Payable in dollars
6
Payable in foreign currencies

32.954
18,818
14,136

24,241
12,903
11,338

26,065
11,327
14,738

26,065
11.327
14,738

29,633
11,847
17.786

28.263'
11,442
16,821'

26,461'
11,487
14,974'

29.113'
12.975
16,138'

26,751
13,547
13,204

7 Commercial liabilities
8
Trade payables
9
Advance receipts and other liabilities

21,355
10,005
11,350

22,207
11,013
11.194

28.733
12.720
16.013

28,733
12,720
16.013

29.034
11,432
17,602

28.238
11,040
17,198

29,430
10,885
18,545

30,505
10,904
19,601

29,990
10,107
19,883

..

10
11

Payable in dollars
Payable in foreign currencies

19,480
1,875

21,000
1,207

27,629
1.104

27,629
1,104

28,014
1,020

27,209
1,029

28,259
1.171

28,913
1,592

28,690
1,300

12
13
14
15
16
17
18

By area or country
Financial liabilities
Europe
Belgium and Luxembourg
France
Germany
Netherlands
Switzerland
United Kingdom

21.703
495
1,727
1,961
552
688
15,543

15.622
369
999
1.974
466
895
10,138

16.195
632
1.091
1.834
556
699
10.177

16,195
632
1,091
1,834
556
699
10,177

20,081
769
1,205
1,589
507
694
13,863

18,530
238
1,280
1,765
466
591
12,968

18,019
89
1,334
1,730
507
645
12,165

19,238'
186
1,684
2,018
494
776
12,318r

19,008
127
1,795
2,578
472
345
11,846

629

632

1.401

1,401

602

l,616r

651'

2,392'

1,045

19

Canada

20
21
22
23
24
25
26

Latin America and Caribbean
Bahamas
Bermuda
Brazil
British West Indies
Mexico
Venezuela

2,034
101
80
207
998
0
5

1,783
59
147
57
866
12

1.668
236
50
78
1,030
17
1

1,668
236
50
78
1,030
17

1,876
293
27
75
965
16
1

1,285
124
55
97
775
15
1

1,067
10
64
52
669
76
1

1.386
141
229
143
604
26
1

965
17
86
91
517
21
I

27
28
29

Asia
Japan
Middle Eastern oil-exporting countries'

8,403
7,314
35

5,988
5,436
27

6,423
5,869
25

6,423
5,869
25

6,370
5,794
72

6,248
5,668
39

6.239
5.725
23

5,394
5.085
32

5,024
4,767
23

30
31

Africa
Oil-exporting countries

135
123

150
122

38
0

38
0

29
0

29
0

33
0

60
0

33
0

9,767
479
680
1.002
766
624
4,303

9,524
639
679
1,043
551
480
4,158

8,683
736
708
845
288
429
3.818

9,343
703
782
945
452
400
3,829

10,228
666
764
1,274
439
375
4,086

9,951
565
840
1,068
443
407
4,041

32
33
34
35
36
37
38
39

All other3
Commercial liabilities
Europe
Belgium and Luxembourg
France
Germany
Netherlands
Switzerland
United Kingdom

340
6,773
241
728
604
722
327
2,444

7,700
331
481
767
500
413
3,568

9,767
479
680
1.002
766
624
4,303

40

Canada

1,037

1,040

1,090

1.090

1,068

1,136

1.150

1,175

1,347

41
42
43
44
45
46
47

Latin America and Caribbean
Bahamas
Bermuda
Brazil
British West Indies
Mexico
Venezuela

1,857
19
345
161
23
574
276

1,740
1
205
98
56
416
221

2,574
63
297
196
14
665

2.574
63
297
196
14
665
328

2,562
43
479
200
14
633
318

2,500
33
397
225
26
594
304

2,224
38
180
233
23
562
322

2,176
16
203
220
12
565
261

2,051
27
174
249
5
520
219

48
49
50

Asia
Japan
Middle Eastern oil-exporting countries'

10,741
4,555
1,576

10,421
3,315
1,912

13,422
4,614
2,168

13,422
4,614
2,168

13,915
4.465
2,495

13,875
4,430
2,420

14,628
4,553
2,984

14,966
4,500
3,111

14,672
4,372
3,138

51
52

Africa
Oil-exporting countries2

428
256

619
254

1,040
532

1,040
532

1,037
479

941
423

929
504

874
408

833
376

53

Other'

1,103

1,156

1,086

1,136

687

1. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab
Emirates (Trucial States).




2. Comprises Algeria, Gabon, Libya, and Nigeria.
3. Includes nonmonetary international and regional organizations.

Nonbank-Reported Data A59
3.23

CLAIMS ON UNAFFILIATED FOREIGNERS
the United States
Millions of dollars, end of period

Reported by Nonbanking Business Enterprises in

1996
Type of claim, and area or country
Sept.
1 Total . .

57,888

52,509

63,642

63,642

68,102

68,266

70,760

70,077

72,837

2 Payable in dollars
3 Payable in foreign currencies

53,805
4,083

48,711
3,798

58,630
5,012

58,630
5,012

62,126
5,976

62,082
6.184

64,144
6,616

62,173
7,904

65.359

By type
Financial claims
Deposits
Payable in dollars
Payable in foreign currencies
Other financial claims
Payable in dollars
Payable in foreign currencies

33,897
18,507
18,026
481
15,390

35,268
21,404
20,631
773
13,864
12,069
1,795

35.268
21,404
20,631
773
13,864
12,069
1,795

40,547
22,150
20,499
1,651
18,397
15,381
3,016

40,717
24,308'
22.817'
1.491
16,409'
13.152'
3,257

42,059
24,125'
22,566'
1,559
17,934'
14.621'
3.313

38,908
23,139
21,290
1,849
15,769
11,576
4,193

42,134
21,030
19,322

1,084

27,398
15,133
14.654
479
12,265
10,976
1,289

1,708
21,104
16,814
4,290

11 Commercial claims
12 Trade receivables
13 Advance payments and other claims

23,991
21,158
2,833

25,111
22.998
2,113

28,374
25,751
2,623

28,374
25,751
2,623

27,555
24,801
2,754

27,549
24,858
2,691

28,701
3,591

31,169
27,536
3,633

30,703
26,888
3,815

14
15

Payable in dollars
Payable in foreign currencies

21,473
2,518

23,081
2,030

25,930
2 444

25,930
2,444

26,246
1,309

26,113
1,436

26,957
1,744

29,307
1,862

29,223
1,480

16
17
18
19
20
21
22

By area or country
Financial claims
Europe
Belgium and Luxembourg
France
Germany
Netherlands
Switzerland
United Kingdom

7,936
86
800
540
429
523
4,649

7,609
193
803
436
517
498
4,303

9,282
185
694
276
493
474
6,119

9,282
185
694
276
493
474
6,119

13,076
119
760
324
567
570
9,837

12,904
203
680
281
519
447
9,814

15,862
360
1,112
352
764
448
11,254

16,948
406
1,015
427
677
434
12,286

16,020
378
902
393
911
401

3,581

2,851

3,445

3,445

4,917

6,422

4,279

3,313

4,688

19,536
2,424
27
520
15.228
723
35

14,500
1,965
81
830
10.393
554
32

19,577
1,452
140
1,468
15,182
457
31

19.577
1.452
140
1,468
15,182
457
31

19,742
1,894
157
1,404
15,176
517
22

18,725

19,176
2,442
190
1,501
12,957
508
15

15,543
2,459
108
1,313
10,311
537
36

18.207
1,316
66
1,408
13,551
967
47

1,871
953
141

1.579
871
3

2,221
1,035
22

2,221
1,035
22

2,068
831
12

1.934
766
20

2.015
999
15

2,133
823
11

2,174
791

0

276
5

174
14

174
14

182
14

179
15

174
16

319
15

325
16

652

720

4
5
6
7
8
9
10

24
25
26
27
28
29
30

Latin America and Caribbean
Bahamas
Bermuda
Brazil
British West Indies
Mexico
Venezuela

31
32
33

Asia
Japan .
Middle Eastern oil-exporting countries

34
35

Africa
Oil-exporting countries2

36

All other3

37
38
39
40
41
42
43

Commercial claims
Europe
Belgium and Luxembourg
France
Germany
Netherlands
Switzerland
United Kingdom

14,306

600

9,540
213
1,881
1,027
311
557
2,556

2,064
188

1,617
13,553
497
21

25,110

553

9,824
231
1,830
1.070
452
520
2,656

7.478

11,122

9

10.443
226
1.644
1,337
562
642
2,946

10,443
226
1,644
1.337
562
642
2,946

9,863
364
1,514
1,364
582
418
2,626

9,603
327
1,377
1,229
613
389
2,836

10.486
331
1,642
1,395
573
381
2,904

12,120
328
1,796
1,614
597
554
3,660

12,854
232
1,939
1.670
534
476
4,828

44

Canada

1,988

1,951

2,165

2,165

2,381

2,464

2,649

2.660

2.882

45
46
47
48
49
50
51

Latin Ameri
ind Caribbean
Bahamas
Bermuda
Brazil
British West Indies
Mexico
Venezuela

4,117
9
234
612
83

4.364
30
272
898
79
993
285

5,276
35
275
1,303
190
1,128
357

5,276
35
275
1,303
190
1.128
357

5.067
40
159
1,216
127
1,102
330

5,241
29
197
1,136
98
1,140
451

5,028
22
128
1,101
98
1,219
418

5,750
27
109
1,392
576

5.481
13
238
1,128
88
1,302
441

52
53
54

Asia
Japan
Middle Eastern oil-exporting countries1

708

7,312
1,870
974

8,376
2,003
971

8,376
2,003
971

8.348
2,065
1.078

8,460
2.079
1.014

8,576
2,048
987

8,713
1,976
1,107

7,638
1,713
987

55
56

Africa
Oil-exporting countries2

454
67

654
87

746
166

746
166

718
100

618
81

764
207

680
119

613
122

57

Other 3 ..

1,006

1,368

1,368

1,198

1,246

1,235

1,243
348
6,982

2.655

1. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab
Emirates (Trucial States).




2. Comprises Algeria, Gabon. Libya, and Nigeria.
3. Includes nonmonetary international and regional organizations.

244
1,162

A60
3.24

Internationa] Statistics • November 1998
FOREIGN TRANSACTIONS IN SECURITIES
Millions of dollars

1997'

Transaction, and area or country

Jan. July

Jan/

Feb/

Mar.'

Apr.r

May1

June

July?

U.S. corporate securities
STOCKS

1 Foreign purchases
2 Foreign sales
3 Net purchases, or sales ( - )
4 Foreign countries
5
6
7
8
9
10
11
12
13
14
15
16
17
18

Europe
France
Germany
Netherlands
Switzerland
United Kingdom
Canada
Latin America and Caribbean . . .
Middle East1
Other Asia
Japan
Africa
Other countries
Nonmonetary international and
regional organizations
BONDS

906,034
859,226

100,282
9.1.156

106,988
97,501

136,184
122,769

134,177
130,628

129.528
121.355

146.113
143.579

152,762
150,238

12,511

69,597

46,808

7,126

9,487

13,415

3,549

8,173

2,534

2,524

12,585

69.754

47,134

7,178

9,477

13,419

3,570

8,193

2,559

2,738

5,367
-2,402
1,104
1,415
2,715
4,478
2,226
5,816

62,688
6,641
9,059
3,831
7,848
22,478
-1,406
5,203
383
2,072
4,787
472
342

57,086

7.487
1,467
546
613
683
2,818
-254
2,645
-164
-2,686
-1.112
34
116

9,088
-40
768
140
1,132
4,576
-461
2,183
-273
-944
-667
13
-129

11.144
1.480
627
557
1.95b
3.402
566
2,110
-170
-202
-1,422
83

5.511
-260
1.453
161
974
595
55
-3.689
346
1,563
555
128
-344

10.670
650
1.834
564
2.234
2 968
-506
-1,333
-234
-611
-208
275

6,204
710
1,020
830
1,491
695
-1,600
1,798
286
-3,950
-540
206
-385

6,982
199
1,503
1,265
1,092
1,153
-443
-633
-134
-2.905
-306
5
-134

72.041
62,208

-1.600

918
-372
-85
-57

4.206
7,751
4,130

9,562
16,207
-2,643

3,081
-343
-9,735
-3,700
744
-1.056

-52

...

20 Foreign sales
...

2 2 Foreign countries
23
24
25
26
27
28
29
30
31
32
33
34
35
36

1,097,958
1,028,361

-20

2

19 Foreign purchases

21 N e t p u r c h a s e s , o r s a l e s ( - )

590,714
578,203

Europe
France
Germany
Netherlands
Switzerland
United Kingdom
Canada
Latin America and Caribbean . .
Middle East1
Other Asia
Japan
Africa
Other countries
Nonmonetary international and
regional organizations . .

393,953
268,487

610,116
475,958

125,466

134,158

125,295

133,595

117,905

13,122

77,570
4,460
4,439
2,107
1,170
60,509
4,486
17,737
1,679

71,631
3,300
2,742
3.576
187
54,134
6,264
34,733
2,155
16,996
9,357
1,005
811

70,730
2,207
3,665
1,637
3,586
51,515
4,161
33,042
1,931
6,729
4,050
154
1,158

5.425
74
289
-433
760
4.172
1.409
5.339
78
485
-958
142
244

23,762

14.173
624
-563

483,123
364,768

57.548
44,394

67.420
49,991

70,079
50,208

76.452
52,225

65,495
52,584

74.088
53,158

17,429

19,871

24,227

12,911

20,930

9,833

17,360

19,732

24,097

12,853

20,831

9,910

8,253
272
419
199
266
6,194
114
5,514
820
2,428
886
36
195

12,669
727
249
364
358
9,833
400
4.835
522
1,166
742
-72

19,024
33
1,727
523
772
14,346
363
2,256
69
2,078
2,904
45
262

5.555
-17
-133
532
794
4,585
628
6,703
109
-106
460
-31
-5

12,117
667
302
344
404
8,696
607
6,368
162
1.266
527
82
229

7,687
451
812
108
232
3,689
640
2,027
171
-588
-511
-48
21

69

139

58

Foreign securities
37 Stocks, net purchases, or sales (—)
38
Foreign purchases
39
Foreign sales
40 Bonds, net purchases, o r s a l e s ( - )
41
Foreign purchases
42
Foreign sales

-59.268
450,365
509,633
-51,369
1.114.035

-40,942
756,015
796,957
-48,171
1,451,704

1.165.404

1.499,875

-110,637

-89,113

43 Net purchases, or sales (—), of stocks and bonds
44 Foreign countries
45
46
47
48
49
50
5f

Europe
Canada
Latin America and Caribbean
Asia
Japan
Africa
Other countries

-109,766
-57,139
-7,685
-11,507
-27.831
-5.887
-1,517
-4,087

-3,393
80,941
84,334
-1,882
110,403
112,285

2.529
88,443
85.914
-11,334
151,474
162,808

-3,188
82,035
85,223
3,076
118,887
115,811

-6,248

-12,295

-5,275

-8,805

-112

-6,220

-12,331

-5,443

-8,779

-41

-2,587
742
527
-4,800
-3.584
-146
94

2,898
-1,783
618
-7,902
-7,118
-152
101

-1,457
-475
-6,108
-3,520
1,265
-302
-469

-2,035
-1,335
-1.092

-6,218
214
-2,555
517
-38
-33
-704

2,676
2,195
-4,873
-64
-316
-269
294

-42

-28

36

168

-26

-71

88
63.632
63,544
-99
100,712
100.811

-1.209
68,832
70,041
-5,003
100,043
105.046

-1,689
81,360
83,049
-4,559
128,396
132,955

-38,958

-11

-6,212

-38,906

78

-6,170

-10.792
588
-12,608
-14,259
-7,511
-1,080
-755

-4.069
1,030
875
2,289
2.961
-99
52
-89

-88,921
-29,874
-3,085
-25,258
-25,123
-10,001
-3,293

52 Nonmonetary international and
regional organizations
1. Comprises oil-exporting countries as follows: Bahrain, Iran, Iraq, Kuwait, Oman, Qatar,
Saudi Arabia, and United Arab Emirates (Trucial States).




-137
80,736
80,873
-12.158
118.296
130,454

- 6.999
545.979
552.978
-31,959
828,211
860,170

-779

-681
-79
-123

2. Includes state and local government securities and securities of U.S. government
agencies and corporations. Also includes issues of new debt securities sold abroad by U.S.
corporations organized to finance direct investments abroad.

Securities Holdings and Transactions/Interest and Exchange Rates A61
3.25

MARKETABLE US. TREASURY BONDS AND NOTES
Millions of dollars; net purchases, or sales (-) during period

Foreign Transactions1

1998
Area or country
Jan.July

Apr.

May

June

Julyp

1 Total estimated

232,241

184,171

37,171

5,512

9,959'

-4,091

6,078

21,267

1,688

2 Foreign countries

234,083

183,688

36,378

4,990

10,093'

-5,287

6,769

21,116

1,992

-3,295

118,781
1.429
17,980
-582
2,242
328
65,658
31,726
2,331

144,921
3,427
22,471
1,746
-465
6,028
98,253
13,461
-811

26.405
972
-163
-1,185
608
2,039
10,040
14,094
345

18,215
304
-1,085
403
82
2,419
11,879
4,213
-1

6,798
252
1,096
-792
-430
1,690
5,875
-893
266

-857
704
1,897
-1,733
400
170
-3,705
1,410
-517

6,530
-165
-829
130
-202
-483
5,785
2,294
1,457

788
176
-143
341
184
44
-2,720
2,906
-223

714
-513
-1,181
731
335
-974
-1,426
3,742
-66

-5,783
214
82
-265
239
-827
-5,648
422
-571

20,785
-69
8,439
12,415
89.735
41,366
1,083
1,368

-2,554
655
-549
-2,660
39,567
20,360
1,524
1,041

5,724
793
9,522
-4,591
5,919
327
404
-2,419

-3,619
4
1,711
-5,334
-8,757
-6,484
-43
-805

2,125'
99'
2,949
-923
1,348
764
176
-620

-8,383
-128
-11
-8,244
3,522
-168
154
794

-7,981
14
-632
-7,363
7,966
6,301
-18
-1,185

20,033
-339
-335
20,707
1,455
1,582
13
-950

2,593
693
3,528
-1,628
-1,153
-2,442
145
-241

956
450
2,312
-1,806
1,538
774
-23
588

-1,842
-1,390
-779

483
621
170

793
364
200

522
445
32

1,196
900
10

-691
-715
-4

151
136
-1

-304
-226
0

53
47
192

234,083
85,807
148,276

183,688
43,959
139,729

36,378
5,224
31,154

4,990
-1,189
6,179

10,093'
1,242
8,851'

-5,287
6,133
-11,420

6,769
1,162
5,607

21,116
898
20,218

1,992
-3,486'
5,478'

-3,295
464
-3,759

10.232
1

7,636
-12

-4,062
I

-2,411
1

409
0

1,325
0

-380
0

951
0

-1,388
0

-2,568
0

3
4
5
6
7
8
9
10
11

Europe
Belgium and Luxembourg
Germany
Netherlands
Sweden
Switzerland
United Kingdom
Other Europe and former U.S.S.R
Canada

12
13
14
15
16
17
18
19

Latin America and Caribbean
Venezuela
Other Latin America and Caribbean
Netherlands Antilles
Asia
Japan
Africa
Other

20 Nonmonetary international and regional organizations
21
International
22
Latin American regional

-134
-223
-29

-3,242

MEMO

23 Foreign countries
24
Official institutions
25
Other foreign
Oil-exporting countries
26 Middle East 2
27 Africa3

1. Official and private transactions in marketable U.S. Treasury securities having an
original maturity of more than one year. Data are based on monthly transactions reports.
Excludes nonmarketable U.S. Treasury bonds and notes held by official institutions of foreign
countries.

3.26

2. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab
Emirates (Tmcial States).
3. Comprises Algeria, Gabon, Libya, and Nigeria.

DISCOUNT RATES OF FOREIGN CENTRAL BANKS1
Percent per year, averages of daily figures
Rate on Sept. 30, 1998

Rate on Sept. 30, 1998
Country

Country

Belgium
Denmark
France2

Percent

Month
effective

2.5
2.75
5.75
4.25
3.3

Apr. 1996
Oct. 1997
Sept. 1998
Sept. 1998
Oct. 1997

1. Rates shown are mainly those at which the central bank either discounts or makes
advances against eligible commercial paper or government securities for commercial banks or
brokers. For countries with more than one rate applicable to such discounts or advances, the
rate shown is the one at which it is understood that the central bank transacts the largest
proportion of its credit operations.

3.27

Month
effective

Percent

2.5
5.0
.5
2.5
1.0

Germany
Italy
Netherlands

Apr.
Apr.
Sept.
Apr.
Sept.

1996
1998
1995
1996
1996

2. Since February 1981, the rate has been that at which the Bank of France discounts
Treasury bills for seven lo ten days.

FOREIGN SHORT-TERM INTEREST RATES1
Percent per year, averages of daily figures

Type or country

1
2
3
4
5
6
7
8
9
10

Eurodollars .. .
United Kingdom
Canada
Germany
Switzerland
Netherlands
France
Italy
Belgium
Japan

1995

5.93
6.63
7.14
4.43
2.94
4.30
6.43
0.43
4.73
1.20

1996

5.38
5.99
4.49
3.21
1.92
2.91
3.81
8.79
3.19
.58

1997

5.61
6.81
3.59
3.24
1.58
3.25
3.35
6.86
3.40
.58

1. Rates are for three-month interbank loans, with the following exceptions: Canada,
finance company paper; Belgium, three-month Treasury bills; and Japan, CD rate.




5.56
7.47
4.93
3.44
1.06
3.42
3.45
5.59
3.61
.74

Apr.

May

5.56
7.41
4.94
3.56
1.39
3.52
3.50
5.09
3.69
.66

5.57
7.37
5.09
3.55
1.52
3.53
3.50
4.98
3.67
.56

July
5.57
7.61
5.10
3.49
1.81
3.51
3.47
4.99
3.62
.57

5.57
7.67
5.10
3.46
1.98
3.46
3.44
4.75
3.59
.67

Aug.
5.56
7.61
5.35
3.42
1.68
3.43'
3.44
4.78
3.48
.69

Sept.
5.39
7.35
5.66
3.40
1.43
3.33
3.43
4.86
3.42
.45

A62
3.28

International Statistics • November 1998
FOREIGN EXCHANGE RATES AND INDEXES OF THE FOREIGN EXCHANGE VALUE OF THE US. DOLLAR1
Currency units per dollar except as noted

1995
Apr.

May

July

Aug.

Sept.

Exchange Rates
COUNTRY/CURRENCY UNIT

1
2
3
4
5
6
7
8
9
10
11

Australia/dollar2
Austria/schilling
Belgium/franc
Brazil/real
Canada/dollar
China, P.RVyuan
Denmark/krone
Finland/markka
France/franc
Germany/deutsche mark
Greece/drachma

12
13
14
15
16
17
18
19
20
21
22

Hong Kong/dollar
India/rupee
Ireland/pound2
Italy/lira
Japan/yen
Malaysia/ringgit
Mexico/peso
Netherlands/guilder
New Zealand/dollar2
Norway/krone
Portugal/escudo

23
24
25
26
27
28
29
30
31
32
33

Singapore/dollar
South Afnca/rand
South Kgrea/won
Spain/peseta
Sri Lanka/rupee
Sweden/krona
Switzerland/franc
Taiwan/dollar
Thailand/baht
United Kingdom/pound2
Venezuela/bolivar

74.07
10.076
29.47
0.9162
1.3725
8.3700
5.5999
4.3763
4.9864
1.4321
231.68

78.28
10.589
30.97
1.0051
1.3638
8.3389
5.8003
4.5948
5.1158
1.5049
240.82

74.37
12.206
35.81
1.0779
1.3849
8.3193
6.6092
5.1956
5.8393
1.7348
273.28

65.23
12.760
17.42
1.1409
1.4298
8.3058
6.9174
5.5053
6.0782
1.8132
315.82

63.12
12.491
36.62
1.1475
1.4452
8.3084
6.7662
5.3966
5.9528
1.7753
307.22

60.46
12.615
36.98
1.1543
1.4655
8.3100
6.8294
5.4503
6.0118
1.7928
304.24

61.80
12.650
37.07
1.1614
1.4869
8.3100
6.8499
5.4653
6.0280
1.7976
299.35

58.88
12.574
36.85
1.1717
1.5346
8.3100
6.8067
5.4340
5.9912
1.7869
301.21

58.89
11.955
3505
1.1805
1.5218
8.3055
6.4717
5.1734
5.6969
1.6990
292.47

7.7357
32.42
160.35
1.629.45
93.96
2.5073
6.447
1.6044
65.63
61155
149.88

7.7345
35.51
159.95
1.542.76
108.78
2.5154
7.600
1.6863
68.77
6.4594
154.28

7.7431
36.36
151.63
1,703.81
121.06
2.8173
7.918
1.9525
66.25
7.0857
175.44

7.7497
39.70
138.94
1,791.24
131.75
3.7376
8.502
2.0422
55.34
7.5315
185.81

7.7490
40.47
141.74
1,750.79
134.90
3.8204
8.585
2.O0O5
53.88
7.4539
181.87

7.7471
42.37
140.51
1.766.32
140.33
4.0006
8.920
2.0208
51.23
7.5785
183.58

7.7483
42.61
139.88
1,772.42
140.79
4.1591
8.899
2.0267
51.85
7.6246
183.93

7.7494
42 84
140.37
1,763.01
144.68
4.2036
9.371
2.0148
50.11
7.7248
182.99

7.7480
42.58
147.24
1,678.92
134.48
3.8050
10.219
1.9169
50.44
7.5564
174.19

1.4171
3.6284
772.69
124.64
51.047
7.1406
1.1812
26.496
24.921
157.85
174.85

1.4100
4.3011
805.00
126.68
55.289
6.7082
1.2361
27.468
25.359
156.07
417.19

1.4857
4.6072
950.77
146.53
59.026
7.6446
1.4514
28.775
31.072
163.76
488.39

1.6007
5.0459
1,391.55
153.99
62.903
7.8238
1.5051
33.016
39.654
167.23
531.26

1.6374
5.0927
1,399.05
150.81
64.261
7 7026
1.4790
33.466
39.198
163.82
537.26

1.6941
5.3910
1,397.77
152.18
65.150
7.9174
1.4949
34.553
42.332
165.04
543.82

1.7085
6.2285
1,295.76
152.58
65.908
7.9942
1.5136
34.387
41.300
164.37
558.47

1.7571
6.3198
1,314.29
151.72
66.642
8.1282
1.4933
34.731
41.720
163.42
571.88

1.7226
6.0966
1,375.54
144.33
66.260
7.8816
1.4000
34.646
40.402
168.23
583.85

100.90
117.87

101.38
118.17
99.31

101.80
120.14
100.96

97.17
118.85
96.99

125.97

125.64

127.77

Indexes'1

34
35
36
37

G-10 (March 1973= 100)4
Broad (January 1997= 100)5
Major currency (March 1973-100) 6
Other important trading partner (January
1997-100/
'..

38 Broad (March 1973= 100)'
39 Major currency (March 1973=100)'
40 Other important trading partner (March
1973= 100)7

84.25
92.53
81.40

87.34
97.41
85.22

96.38'
104.47
91.85

99.61
115.16
96.88

104.67

92.55

85.87
80.78

87.85
85.83

92.55
93.20

99.08
98.06

99.82
98.40

102.13
100.41

102.52
101.41

102.86
103.17

101.58
99.26

101.32

98.33

99.48

108.96

110.34

113.29

112.82

111.13

113.59

1. Averages of certified noon buying rates in New York for cable transfers. Data in this
table also appear in the Board's G.5 (405) monthly statistical release. For ordering address,
see inside front cover.
2. Value in U.S. cents.
3. For more information on the indexes of the foreign exchange value of the dollar, see
Federal Reserve Bulletin, vol. 84 (October 1998), pp. 811-818.
4. Weighted average of the foreign exchange value of the U.S. dollar against the currencies
of the other G-10 countries. The weight for each of the ten countries is the 1972-76 average
world trade of that country divided by the average world trade of all ten countries combined.
Series revised as of August 1978 (see Federal Reserve Bulletin, vol. 64 (August 1978),
p. 700).
5. Weighted average of the foreign exchange value of the U.S. dollar against the currencies
of a broad group of U.S. trading partners. The weight for each currency is computed as an




100.30
114.13
96.41

average of U.S. bilateral import shares from and export shares to the issuing country and of a
measure of the importance to U.S. exporters of that country's trade in third country markets.
6. Weighted average of the foreign exchange value of the U.S. dollar against a subset of
broad index currencies that circulate widely outside the country of issue. The weight for each
currency is its broad index weight scaled so that the weights of the subset of currencies in the
index sum to one.
7. Weighted average of the foreign exchange value of the U.S. dollar against a subset of
broad index currencies that do not circulate widely outside the country of issue. The weight
for each currency is its broad index weight scaled so that the weights of the subset of
currencies in the index sum to one.

A63

Guide to Statistical Releases and Special Tables
STATISTICAL RELEASES—List Published Semiannually, with Latest Bulletin Reference
Issue
June 1998

Page
A72

Issue

Page

Assets and liabilities of commercial banks
September 30, 1997
December31, 1997
March 31, 1998
June 30, 1998

February 1998
May 1998
August 1998
November 1998

A64
A64
A64
A64

Terms of lending at commercial banks
November 1997
February 1998
May 1998
August 1998

February 1998
May 1998
August 1998
November 1998

A68
A66
A67
A66

Assets and liabilities of U.S. branches and agencies offoreign banks
September 30, 1997
December31, 1997
March 31, 1998
June30, 1998

February 1998
May 1998
August 1998
November 1998

A72
A70
A72
A72

January 1998
July 1998
October 1998

A64
A64
A64

Residential lending reported under the Home Mortgage Disclosure Act
1995
1996
1997

September 1996
September 1997
September 1998

A68
A68
A68

Disposition of applications for private mortgage insurance
1996
[997

September 1997
September 1998

A76
A72

Small loans to businesses and farms
1997

September 1998

A76

Community development lending reported under the Community Reinvestment Act
1997

September 1998

A79

Anticipated schedule of release dates for periodic releases
SPECIAL TABLES—Data Published Irregularly, with Latest Bulletin Reference
Title and Date

Pro forma balance sheet and income statements for priced service operations
September 30, 1997
March 31, 1998
June 30, 1998




A64
4.20

Special Tables • November 1998
DOMESTIC AND FOREIGN OFFICES Insured Commercial Bank Assets and Liabilities
Consolidated Report of Condition, June 30, 1998
Millions of dollars except as noted
Banks with foreign offices1
Total

1 Total assets2 Cash and balances due from depository institutions
3
Cash items in process of collection, unposted debits, and currency and coin
4
Cash items in process of collection and unposted debits
5
Currency and coin
6
Balances due from depository institutions in the United States
7
Balances due from banks in foreign countries and foreign central banks
8
Balances due from Federal Reserve Banks
MEMO
9 Non-interest-bearing balances due from commercial banks in the United States
(included in balances due from depository institutions in the United States)

Domestic
total

Banks with domestic
offices only2

Total

Domestic

Over 100

Under 100

5,145,464

4,419,405

3,452,551

2,726,492

1,407,026

285,887

330,213

245,194

247,600
120,646
n.a.
n.a.
33.593
77.341
16.020

162,580
117,949
93,151
24,799
21,373
7,534
15,725

68,247
36,487
24,541
11,946
20,781
2,696
8,283

14,366

11,910

15.309

5,459

t

n.a.

t

n.a.

1

32,678

n.a.

t

n.a.

1

10 Total securities, held-to-maturity (amortized cost) and available-for-sale (fair value) . . . .
11 U.S. Treasury securities
12 U.S. government agency and corporation obligations (excludes mortgage-backed
securities)
13
Issued by U.S. government agencies
14
Issued by U.S. government-sponsored agencies
J5 Securities issued by states and political subdivisions in the United States
]6
General obligations
17
Revenue obligations
18
Industrial development and similar obligations
] 9 Mortgage-backed securities (MBS)
20
Pass-through securities
21
Guaranteed by GNMA
22
Issued by FNMA and FHLMC
23
Privately issued
24
Other mortgage-backed securities (includes CMOs, REMICs, and stripped MBS) ..
25
Issued or guaranteed by FNMA, FHLMC or GNMA
26
Col lateral ized by MBS issued or guaranteed by FNMA. FHLMC, or GNMA . .
27
All other mortgage-backed securities
28
Other debt securities
29
Other domestic debt securities
30
Foreign debt securities
31
Equity securities
32
Investments in mutual funds and other equity securities with readily determinable
fair value
33
All other equity securities

882,082
145,891

482,043
75,571

324,676
55.197

75,363
15,123

155,143
5,509
149,634
79,871
59,207
19,901
763
389,133
249,472
71,969
175,734
1,769
139,661
107.144
2,471
30,047
83.767
n.a.
n.a.
28,276

43,897
2,521
41,377
22,832
16,154
6,162
515
249,897
165,972
47,173
117,534
1,265
83,925
61,439
856
21,630
72,141
23,134
49,008
17,704

81.746
2,150
79,596
43,398
33,156
10,043
199
124,734
74,152
21,707
51,975
469
50,583
40,827
1,475
8,281
10.327
10.135
192
9,275

29,500
838
28,662
13,642
9,897
3,696
48
14,502
9,348
3,089
6,224
34
5,154
4,878
140
136
1,299
n.a.
n.a.
1.297

2,476
6,799

383
914

34 Federal funds sold and securities purchased under agreements to resell

269,564

35 Total loans and lease-financing receivables, gross
36 LESS: Unearned income on loans
37 Total loans and leases (net of unearned income)
38
LESS: Allowance for loan and lease losses
39 LESS: Allocated transfer risk reserves
40 EQUALS: Total loans and leases, net
Total loans and leases, gross, by category
41 Loans secured by real estate
42 Construction and land development
Farmland
One- to four-family residential properties. .
Revolving, open-end loans, extended under lines of credit
All other loans
Multifamily (five or more) residential properties
Nonfarm nonresidential properties
49 Loans to depository institutions
50 Commercial banks in the United States
51
Other depository institutions in the United Slates
52
Banks in foreign countries
53 Loans to finance agricultural production and other loans to farmers
54 Commercial and industrial loans
55 U.S. addressees (domicile)
56 Non-U.S. addressees (domicile)
57 Acceptances of other banks
58
U.S. banks
59 Foreign banks
60 Loans to individuals for household, family, and other personal expenditures (includes
purchased paper)
61
Credit cards and related plans
62
Other (includes single payment and installment)
63 Obligations (other than securities) of states and political subdivisions in the United State;
(includes nonrated industrial development obligations)
64 All other loans
65
Loans to foreign governments and official institutions
66
Other loans
67
Loans for purchasing and carrying securities
68
All other loans (excludes consumer Joans)
69 Lease-financing receivables
70
71
72
73
74
75
76
77

Assets held in trading accounts
Premises and fixed assets (including capitalized leases).
Other real estate owned
Investments in unconsolidated subsidiaries and associated companies
Customers' liability on acceptances outstanding
Net due from own foreign offices, Edge Act and agreement subsidiaries, and IBFs
Intangible assets
All other assets




n.a.

n.a.

6.054
11,651

8,913
19,364
188,966

201,563

120,965

52,256

15,744
171,732
603
171,129
2,455
0
168,673

3,073,881
3,886
3,069,995
55,986
12
3,013,997

2,775,509
3,092
2,772,417
n.a.
n.a.
n.a.

2,000,644
1,666
1,998,978
35,869
12
1,963,097

1,702,272
872
1,701,400
n.a.
n.a.
n.a.

901,506
1,617
899,888
17,662
0
882,226

1,275,455

703,881

100,431
n.a.
n.a.
n.a.
46,903
845,481
n.a.
n.a.
1,538
n.a.
n.a.

1,246,383
94,883
28,316
735,235
97.138
638,097
42,056
345,893
72,299
n.a.
n.a.
n.a.
46,150
681,582
n.a.
n.a.
749
n.a.
n.a.

95,844
48,518
13,810
33,517
10,173
662,588
522,382
140,206
1,397
348
1,050

674,809
46.200
4,087
436,227
67,701
368,526
22,323
165,972
67,713
47,465
13,752
6,496
9,419
498,690
492,114
6,576
608
346
262

475,641
41,475
12,719
249,974
27,031
222,944
17,668
153.805
4,492
4,203
41
247
17,332
153,815
153,106
710
111
n.a.
n.a.

95,932
7,207
11,510
49,034
2,406
46.628
2,066
26,116
94
n.a.
n.a.
n.a.
19,398
29,078
n.a.
n.a.
30
n.a.
n.a.

541,599
215.988
325,611

504,126
n.a.
n.a.

291,629
106,636
184,993

254,157
n.a.
n.a.

225,081
107,919
117,162

24,888
1,433
23,455

17,800
135,921
n.a.
n.a.
n.a.
n.a.
108.754

17,795
101,048
n.a.
n.a.
n.a.
n.a.
105,377

10,545
126,816
7.580
119,236
n.a.
n.a.
97,769

10,540
91,943
746
91,197
22.962
68,235
94,392

6,440
8,238
19
8,219
1,654
6,565
10,356

814
867
n.a.
n.a.
n.a.
n.a.
630

1,491
21,560
1,337
412
238
n.a.
17,385
37,196

1
5,393
356
45
7
n.a.
881
5,020

t

n.a.

1

300,800
68,087
4,042
6,163
13,576
n.a.
75,991
180,948

t

n.a.
1

44,935
n.a.
n a.

t

n.a.

1

299.270
41,134
2,348
5,706
13.332
n.a.
57,725
138,733

f

n.a.
I

44,935
n.a.
n a.

Commercial Banks A65
4.20

DOMESTIC AND FOREIGN OFFICES Insured Commercial Bank Assets and Liabilities—Continued
Consolidated Report of Condition, June 30, 1998
Millions of dollars except as noted
Banks with foreign offices1
Domestic
total
Total

Banks with domestic
offices only
Over 100

Under 100

78 Total liabilities, limited-life preferred stock, and equity capital .

5,145,464

1,407,026

285,887

79 Total liabilities

4,702332

3,976,473

3,180,241

2,454,182

1,2673*9

254,922

80 Total deposits
81
Individuals, partnerships, and corporations
82
U.S. government
States and political subdivisions in the United States. ..
Commercial banks in the United States
Other depository institutions in the United States
Foreign banks, governments, and official institutions. . .
Banks
Governments and official institutions
Certified and official checks

3,482,874
3.094,299

2,934,013
2,725,427
4,838
129,346
37,241
10,460
10,148
n.a.
n.a.
16,554

2,193,039
1.904,957
n.a.
n.a.
60,017
n.a.
147,290
102,351
44,939
9.242

1,644,179
1,536,085
3,891
52,560
28,053
5,676
9,689
7,831
1,858
8,224

1.045,163
968,050
761
57,477
8,322
3,450
444
415
28
6,660

244.672
221,292
186
19,309
867
1,333
16
n.a.
n.a.
1,670

737,746
636,420
1,607
41,956
28,339
3,577
9,295
n.a.
n.a.
16,554

419.529
358,586
1,057
17,770
22,409
2,596
8,887
7.420
1,467
8,224

248,343
217,049
446
17,282
5,622
888
397
392
5
6,660

69.874
60,785
104
6,904
308
93
10

577,786
501,671
1,493
16,889
28,333
3,560
9,287
n.a.
n.a.
16,554

372,778
319,313
1,013
10,340
22,409
2,594
8,885
7,420
1,465
8,224

168,644
149,467
393
5,231
5,620
876
397
392
5
6,660

36.365
32,891
87
1,318
304
90
5
n.a.
n.a.
1,670

2,196,268
2,089,007
3,231
87,390
8,902
6,883
854

1,224.650
1,177,498
2,834
34,791
5,644
3,081
802
411
391

796,819
751,001
315
40,194
2,700
2,562
47
23
23

174,798
160,507
82
12,405
558
1,240
5

260,601
42,050
n.a.
207,623
10,104
n.a.
102,079
n.a.

76.160
4,659
77
112,207
238
4,968
n.a.
23,898

2,648
186
1
4,749
7
28
n.a.
2,632

139,657

30,965

90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109

112
113
114
115
116
117
118
119
120
121
122
123
124
125
126

n.a.
69,205
147,749
n.a.
17,572

Total transaction accounts
Individuals, partnerships, and corporations
U.S. government
States and political subdivisions in the United States..
Commercial banks in the United States
Other depository institutions in the United States
Foreign banks, governments, and official institutions..
Banks
Governments and official institutions
Certified and official checks
Demand deposits (included in total transaction accounts) . . .
Individuals, partnerships, and corporations
U.S. government
States and political subdivisions in the United States
Commercial banks in the United States
Other depository institutions in the United States
Foreign banks, governments, and official institutions
Banks
Governments and official institutions
Certified and official checks
Total nontransaction accounts
Individuals, partnerships, and corporations
U.S. government
States and political subdivisions in the United States..
Commercial banks in the United States
Other depository institutions in the United States
Foreign banks, governments, and official institutions..
Banks
Governments and official institutions
Federal funds purchased and secunties sold under agreements to repurchase
Demand notes issued to the U.S. Treasury
Trading liabilities
Other borrowed money
Banks' liability on acceptances executed and outstanding
Notes and debentures subordinated to deposits
Net due to own foreign offices, Edge Act and agreement subsidiaries, and IBFs
All other liabilities

127 Total equity capital

386,568
46,894
206,891
365,765
13,738
67,077
n.a.
132,725

3,452351

339,409
46,894
324,579
10,348
n.a.
102,079

307,760
42,050
206,813
248,808
13,494
62,081
n.a.
106,196
272,310

442,932

n.a.

n.a.
1,670

MEMO

128 Trading assets at large banks ..
129 U.S. Treasury securities (domestic offices)
130 U.S. government agency corporation obligations
131
Securities issued by states and political subdivisions in the United States
132 Mortgage-backed securities
133 Other debt securities
134 Other trading assets
135 Trading assets in foreign banks
136
Revaluation gains on interest rate, foreign exchange rate, and other
commodity and equity contracts
137 Total individual retirement (IRA) and Keogh plan accounts
138 Total brokered deposits
139 Fully insured brokered deposits
140
Issued in denominations of less than $100,000
141
Issued in denominations of $100,000, or in denominations greater than $100,000 and
participated out by the broker in shares of $100,000 or less
142 Money market deposit accounts (MMDAs)
143 Other savings deposits (excluding MMDAs)
144 Total time deposits of less than $100,000
145 Total time deposits of $100,000 or more
146 All negotiable order of withdrawal (NOW) accounts
147 Number of banks
NOTE. Table 4.20 has been revised; it now includes data that was previously reported in
table 4.22, which has been discontinued.
The notation "n.a." indicates the lesser detail available from banks that don't have foreign
offices, the inapplicability of certain items to banks that have only domestic offices or the
absence of detail on a fully consolidated basis for banks that have foreign offices.
1. All transactions between domestic and foreign offices of a bank are reported in "net due
from" and "net due to" lines. All other lines represent transactions with parties other than the
domestic and foreign offices of each bank. Because these intraoffice transactions are nullified
by consolidation, total assets and total liabilities for the entire bank may not equal the sum of
assets and liabilities respectively of the domestic and foreign offices.
Foreign offices include branches in foreign countries, Puerto Rico, and US. territories and
possessions; subsidiaries in foreign countries; all offices of Edge Act and agreement corporations wherever located; and IBFs.




0(,532

t

n.a.
97,148
54,267

n.a.

8,966

103,384

299,172

12,611
2,511
1,489
9,601
8,427
14,477
0
54,267
150,945
57,732
46,016
9,350

54,262

36,666
702,790
360,544
741,218
391,715
157,254
8,966

162

102.024
12.536
2,159
1,405
9,005
8,184
14,473
0

1,360
74
352
84
596
244
4
0

54,262
78,262
35.370
25,726
4,524

5
59,505
20,836
18,848
3,709

13,178
1.526
1.443
1.117

21,201
484,679
194,373
325,665
219,932
46,232

15,139
192,723
141,918
322,444
139,734
78,289

326
25,387
24,253
93,109
32,049
32,732

2,940

5,864

2. "Over 100" refers to banks whose assets, on June 30 of the preceding calendar year,
were $100 million or more. (These banks file the FFIEC 032 or FFIEC 033 Call Report.)
"Under 100" refers to banks whose assets, on June 30 of the preceding calendar year, were
less than $100 million. (These banks file the FFIEC 034 Call Report.)
3. Because the domestic portion of allowances for loan and lease losses and allocated
transfer risk reserves are not reported for banks with foreign offices, the components of total
assets (domestic) do not sum to the actual total (domestic).
4. Components of "Trading assets at large banks" are reported only by banks with either
total assets of $1 billion or more or with $2 billion or more in the par/notional amount of their
off-balance-sheet derivative contracts.

A66

Special Tables • November 1998

4.23 TERMS OF LENDING AT COMMERCIAL BANKS Survey of Loans Made, August 3-7, 1998
A. Commercial and industrial loans made by all commercial banks'
Weightedaverage
effective
loan rate
(percent)2

Amount of
loans
(millions
of dollars)

7.14
6.32
6.71
7.03
7.59

137,640
7,161
31,454
46,643
35,911

781
849
1,889
680
874

By malurity/repricing interval
6 Zero interval
7 Minimal risk
8
Low risk
9
Moderate risk
10 Other

8.40
7.99
7.56
8.34
9.17

19,705
206
2,700
7,302
4,112

11 Daily
12 Minimal risk
13 Low risk
14 Moderate risk
15 Other

6.81
6.06
6.71
6.50
7.26

16 2 to 30 days
17 Minimal risk
18 Low risk
19 Moderate risk
20 Other
21 31 to 365 days
22 Minima] risk
23
Low risk
24 Moderate risk
25
Other

Average loan
size
(thousands of
dollars)

Amount of loans (percent)

Weightedaverage
maturity3

Most
common
base pricing
rate4

Secured by
collateral

Callable

Subject to
prepayment
penalty

353
207
194
398
405

38.4
48.1
24.1
39.4
44.8

15.2
5.1
12.8
19.2
13.3

28.7
56.1
36.8
24.6
3)4

73.7
81.5
79.2
79.5
63.6

Foreign
Foreign
Foreign
Foreign
Fed funds

285
131
598
220
167

561
471
383
577
638

52.3
37.4
45.4'
62.8
65.6

11.2
33.6
10.2
16.4
12.1

56
10.5
5.4
8.7
7.0

68.8
77.6
92.8
91.2
87.7

Prime
Prime
Prime
Prime
Prime

62,544
4,010
19,441
16,648
16,591

1,641
7,324
7,095
1,287
2,867

128
86
52
161
83

38.0
60.0
23.5
38.9
44.1

18.8
2.2
13.1
29.6
15.5

30.3
54.7
40.1
16.5
36.4

64.5
92.7
73.3
66.4
36.2

Fed funds
Foreign
Fed funds
Fed funds
Fed funds

6.82
6.25
6.36
6.81
7.30

24,353
1,616
4,200
9,726
5,598

1,380
1,212
2,006
1,549
1,212

344
209
298
227
713

25.7
15.2
11.2
21.7
41.2

12.6
4.5
13.7
14.5
9.6

34.9
63.9
27.0
34.0
36.2

83.8
76.9
83.5
81.9
81.3

Foreign
Foreign
Foreign
Foreign
Foreign

7.10
7.06
6.44
6.92
7.59

26,447
885
4,571
10,855
8.892

806
222
857
1.098
2,324

472
198
388
474
525

35.5
59.1
25.5
32.2
38.1

10.4
10.6
10.6
10.4
11.3

39.1
58.4
50.3
42.6
31.9

90.7
52.1
92.2
94.4
90.4

Foreign
Fed funds
Foreign
Foreign
Foreign

63.5
41.9
24.5
83.9
37.6

8.6
8.9
14.2
5.4
4.8

17.9
57.2
40.9
6.5
18.3

61.1
57.3
78.7
46.7
86.7

Prime
Other
Other
Prime
Prime

83.8
68.8
40.3
31.9

29.6
22.1
14.5
14.0

5.5
14.7
27.5
32.0

77.4
87.0
81.0
68.7

Prime
Prime
Foreign
Fed funds

Days

Made under
commitment

LOAN RISK

1 All commercial and industrial loans
2 Minimal risk
3
Low risk
4
Moderate risk
5
Other

Months
26 More than 365 days.
27 Minimal risk
28 Low risk
29 Moderate risk . . .
30
Other

7.92
6.77
7.13
8.19
8.74

3,586
436
434
1,805
496

230
504
243
347
356

63
41
60
67
83

Weightedaverage risk
rating5

Weightedaverage
maturity/
repricing
interval5
Days

SIZE OF LOAN

(thousands of dollars)
31
32
33
34

1-99
100-999
1,000-9,999
10,000 or more

9.59
8.60
7.36
6.76

2,930
11,496
37,075
86.138

3.2
3.2
3.1
2.9

156
123
76
40

Average size
(thousands
of dollars)
BASE RATE OF LOAN 4

35
36
37
38
39

7

Prime
Fed funds
Other domestic
Foreign
Other
Footnotes appear a( end of table.




8.97
6.64
6.35
6.80
7.31

22,495
37,436
17.066
39,434
21,209

3.2
3.3

2.7
2.9
2.6

129
14
20
51
112

67.6
36.3
12.2
39.9
29.1

20.8
18.6
33.3
7.0
4.8

5.6
23.5
31.6
49.3
22.2

79.4
39.5
80.7
93.5
85.9

194
10,093
2,707
3.544
545

Financial Markets A67
4.23

TERMS OF LENDING AT COMMERCIAL BANKS

Survey of Loans Made, August 3-7, 1998

B. Commercial and industrial loans made by domestic banks'

Item

Amount of loans (percent)

Weightedaverage
maturity"

Weightedaverage
effective
loan rate
(percent)

Amount of
loans
(millions
of dollars)

7.27
6.34
6.49
7.24
7.93

78,182
4,213
14,187
30,261
14,625

470
508
978
467
389

525
346
338
560
762

39.4
25.6
28.5
42.0
49.5

8.37
7.98
7.54
8.34
9.07

19,031
205
2,666
6.972
3,805

281
131
604
215
159

550
471
376
566
618

26,009
1,917
6,508
9,016
3,751

Til
3,826
3,589
748
755

Average loan
size
(thousands of
dollars)

Most
common
base pricing
rate4

Subject to
prepayment
penalty

Made under
commitment

19.6
8.7
26.6
18.6
20.6

11.5
37.5
14.4
11.1
7.4

74.3
78.9
75.1
77.7
77.6

Prime
Other
Domestic
Prime
Prime

51.8
37.1
45.3
62.5
65.8

11.0
33.8
10.3
16.0
12.6

5.1
10.5
5.4
8.1
6.2

67.9
77.4
92.8
90.8
87.4

Prime
Prime
Prime
Prime
Prime

267
178
150
318
300

33.5
28.6
32.1
34.3
26.3

37.5
4.7
39.0
37.5
53.7

8.2
14.8
18.3
5.8
2.4

63.3
89.0
59.5
54.6
44.8

Domestic
Other
Domestic
Domestic
Fed funds

Days

Secured by
collateral

LOAN RISK

L All commercial and industrial loans
2
Minimal risk
3

L o w risk

4
5

Moderate risk
Other

By maturity/repnetng interval^
6 Zero interval
7
Minimal risk
8
Low risk
9
Moderate risk
10 Other
11 Daily
12 Minimal risk
13

L o w risk

14
15

Moderate risk
Other

6.69
6.18
6.12
6.70
6.97

16 2 to 30 days
17
Minimal risk
18 Low risk
19 Moderate risk
20
Other

6.77
5.99
6.17
6.85
7.53

15,865
1,381
2,840
5,798
2,747

998
1,052
1,675
1,044
680

355
245
391
297
702

27.2
8.6
10.3
26.3
49.2

8.6
5.3
15.6
5.0
4.5

21.0
64.8
8.6
16.8
12.7

88.7
73.0
83.8
91.4
85.4

Other
Domestic
Foreign
Other
Other

21 31 to 365 days
22
Minimal risk
23
Low risk
24
Moderate risk
25
Other

7.21
7.22
6.69
6.89
7.88

13.228
266
1,797
6.400
3,684

450
68
376
757
1,485

690
512
475
614
951

39.0
54.5
16.4
32.2
54.7

10.2
35.2
22.0
9.2
6.0

16.4
48.5
22.9
18-7
93

90.7
72.9
91.8
91.9
92.4

Foreign
Other
Other
Foreign
Foreign

26 More than 365 days .
21 Minimal risk
28
Low risk
29
Moderate risk .. .
30
Other

7.94
6.77
7.17
8.18

3,323
436
285
1,772
416

217
504
173
341
324

63
41
53
67
85

67.2
41.9
37.3
83.6
43.1

8.2
8.9
21.6
3.6
4.7

12.2
57.2
10.1
4.7
8.9

58.7
57.3
67.6
45.7
89.1

Prime
Other
Other
Prime
Prime

Weightedaverage risk
rating5

Weightedaverage
maturity/
repricing
interval

84.6
71.9
46.4
24.3

29.5
21.9
13.7
21.7

5.2
10.4
13.8
10.9

77.1
86.0
79.7
68.1

rnme
Prime
Prime
Domestic

Days
SIZE OF LOAN

(thousands of dollars)
31
32
33
34

1-99
100-999
1,000-9,999
10,000 or more

9.62
8.74
7.58
6.56

2,865
10,018
24,137
41,162

3.2
3.2
3.0
2.7

157
129
90
66

Average size
(thousands
of dollars)
BASE RATE OF LOAN"

35
36
37
38
39

Prime7
Fed funds
Other domestic.
Foreign
Other
Footnotes appear at end of table.




8.91
6.15
6.36
7.02
6.93

20,484
9,765
14,352
16,878
16,703

3.2
29
3.0
27

132
9
23
73
138

68.8
34.9
14.2
32.3
35.0

17.3
64.6

24.1
6.4

5.9

4.9
2.2
21.4
15.7
13.1

77.6
29.0
77,4
86.0
82.4

181
7.138
2,398
2,554
431

A68

Special Tables D November 1998

4.23 TERMS OF LENDING AT COMMERCIAL BANKS Survey of Loans Made, August 3-7, 1998
C. Commercial and industrial loans made by large domestic banks1

Item

Weightedaverage
effective
loan rate
(percent)2

Amount of
loans
(millions
of dollars)

7.07
6.08
6.30
7.06
7.68

65,973
3,471
12,260
26,156
12,267

952
3,935
2,953
975
568

8 22
8 22
7.30
8.11
8.94

14 779
101
1,808
5,187
2,794

6.59
6.06
6.08
6.63
6.88

Average loan
size
(thousands of
dollars)

Amount of loans (percent)

Weightedaverage
maturity

Most
common
base pricing
rate4

Secured by
collateral

Callable

Subject to
prepayment
penalty

467
294
315
533
536

34.3
16.2
25.5
37.7
43.3

19.9
4.3
27.7
18.3
22.5

10.8
42.5
16.1
11.1
4.7

72.8
86.5
73.3
77.4
76.9

Prime
Other
Domestic
Foreign
Foreign

483
359
1,043
403
205

544
1111
419
613
512

442
29.5
36.0
55.6
55.9

9.5
58.1
9.5
14.7
14.0

4.5
20.1
6.0
8.9
2.4

63.3
97.9
91.9
95.8
88.2

Prime
Prime
Other
Prime
Prime

24,457
1,823
6,409
8,357
3,587

981
7,311
6,141
998
980

249
94
138
321
286

31.7
25.8
31.8
33.3
24.0

38.3
4.7
39.4
38.7
55.5

8.2
14.5
18.6
5.2
2.0

61.5
92.0
59.0
51.4
42.4

6.59
5.94
6 10
6.75
7.22

13,261
1,176
2 576
5,388
2,338

2,158
9,627
5 005
2,633
975

305
234
397
303
295

21.1
1.0
83
24.4
42.6

8.7
.0
16.7
3.5
4.2

17.5
71.3
9.5
16.2
9.0

88.8
73.7
83.6
92.0
88.7

Other
Domestic

7.03
6 03
6.34
6.78
7.74

11,035
111
1,320
5,669
3,217

2,625
853
2,221
2,976
2,996

687
844
567
642
777

36.4
36 4
13.2
29.0
52.7

7.5
.4
16.5
7.7
4.7

16.0
92.7
30.5
18.2
5.8

93.0
98.9
95.0
93.0
94.7

Foreign

60.5
28
23.0
79.4
35.8

4.4
2.4
2.6
8.3

18.2
97.1
15.4
5.3
16.0

58.8
95.8
94.0
42.4
98.2

Prime
Other
Other
Prime
Prime

82.8
67.6
42.5
23.1

36.8
19.9
13.8
22.5

6.2
10.6
13.6
9.6

91.4
90.6
78.3
66.4

Prime
Prime
Prime
Domestic

Days

Made under
commitment

LOAN RISK5
1 All commercial and industrial loans
3
5

Low risk
Other
By maturity/repricing interval

7
10

Minimal risk
Other

11 Daily
12 Minimal risk
14
15

Moderate risk
Other

16 2 to 30 days
18

Low risk

20

Other

21 31 to 365 days
22
Minimal risk
23 Low risk
25

Other

Other
Domestic

Other
Other

Foreign
Foreign

Months
26 More than 365 days
27 Minimal risk
28 Low risk
29 Moderate risk
30 Other

7.70
5 97
6.50
7.98
8.78

2,043
256
68
1,396
209

1,123
3 884
498
1,640
460

51
52
45
51
56

Weightedaverage risk
rating5

Weightedaverage
maturity/
repricing
interval'
Days

SIZE OF LOAN

(thousands of dollars)
31
32
33
34

1-99
100-999
1 000-9 999
10,000 or more

9.40
8.62
7.49
6.52

1,206
6,564
19,424
38,779

3.4
3.3
3.0
2.8

45
60
60
68

Average size
(thousands
of dollars)
BASE RATE OF LOAN 4

35 Prime7

39 Other
Footnotes appear at end of table.




8.82
6.14
6.24
6.94
6.74

15,019
9,394
13,568
14,501
13,491

3.2
2.9
2.6
3.0
2.8

128
6
16
49
101

65.1
35.1
10.0
32.1
26.3

16.3
65.8
25.1
5.3
3.3

4.4
1.2
22.8
13.7
10.8

75.7
26.3
78.9
84.5
83.1

275
9,183
5,318
2,984
2,180

Financial Markets A69
4.23

TERMS OF LENDING AT COMMERCIAL BANKS

Survey of Loans Made, August 3-7, 1998

D. Commercial and industrial loans made by small domestic banks1
Amount of loans (percent)

Weightedaverage
maturity

Weightedaverage
effective
loan rate
(percent)2

Amount of
loans
(millions
of dollars)

8.33
7.53
7.75
8.39
9.21

12,209
741
1,927
4,105
2,358

126
100
186
108
148

817
632
465
738
1784

67.0
69.3
47.0
69.8
82.1

By maturity/repricing interval**
6 Zero interval
7
Minimal risk
8
Low risk
9
Moderate risk
10 Other

7.75
8.04
9.00
9.44

4,252
104
857
1,785
1,011

114
81
320
91

575
158
288
418
893

11 Daily
12
Minimal risk
13 Low risk
14 Moderate risk
15 Other

8.32
8.42
8.57
7.58
8.86

1,552
93
100
659
165

150
371
130
179
126

16 2 to 30 days
17 Minimal risk
18 Low risk
19 Moderate risk
20
Other

7.69
6.29
6.85
8.13
9.34

2,604
206
264
410
409

21 31 to 365 days
22
Minimal risk
23
Low risk
24
Moderate risk
25
Other

8.10
8.06
7.68
7.67
8.86

26 More than 365 days
27
Minimal risk . ..
28
Low risk
29
Moderate risk . .
30
Other

8.31
7.90
7.38
8.90
8.83

Hem

Average loan
size
(thousands of
dollars)

Most
common
base pricing
rate4

Subject to
prepayment
penalty

Made under
commitment

17.6
29.7
19.0
20.1
10.6

15.2
14.1
33
11.5
21.4

82.7
43.4
86.5
80.1
81.3

Prime
Other
Prime
Prime
Prime

78.5
44.4
65.0
82.4
93.1

16.1
10.2
11.9
19.7
8.7

7.2
1.2
4.1
5.8
16.5

84.0
57.5
94.8
76.2
85.4

Prime
Other
Prime
Prime
Prime

471
1982
693
289
446

62.0
83.3
48.1
47.3
76.1

25.8
5.3
15.3
22.4
16.3

8.4
21.1
*
13.8
11.5

91.7
31.4
92.1
94.5
96.0

Prime
Prime
Prime
Prime
Prime

267
173
224
117
249

616
357
331
201
2971

58.3
51.8
29.4
51.3
87.1

8.0
35.4
4.8
23.9
6.0

38.2
27.4
.2
24.2
34.2

88.1
68.9
85.8
83.4
66.5

Foreign
Domestic
Foreign
Foreign
Foreign

2,193
155
477
731
466

87
41
114
112
331

704
275
225
392
2187

52.2
67.4
25.2
56.9
68.6

23.8
60.1
37.2
20.9
14.6

18.0
17.0
1.8
23.0
37.6

79.2
54.4
82.7
82.6
76.8

Foreign
Other
Other
Foreign
Foreign

1,280
180
217
375
207

95
225
143
87
249

82
24
56
130
114

78.0
97.6
41.8
99.1
50.5

14.3
21.6
27.5
7.4
1.2

2.5
.3
8.4
2.4
1.7

58.4
2.4
59.3
57.8
79.9

Other
Other
Foreign
Prime
Foreign

Weightedaverage risk
rating5

Weightedaverage
maturity/
repricing
interval

85.8
79.9
62.5
43.9

24.2
25.7
13.5
9.4

4.5
10.0
14.5
31.7

66.7
77.2
85.6
95.9

Prime
Prime
Pnme
Other

Days

Secured by
collateral

LOAN RISK'

1 All commercial and industrial loans
2
Minimal risk
3
Low risk
4
Moderate risk
5
Other

Days
SIZE OF LOAN

(thousands of dollars)
31
32
33
34

1-99
100-999
1,000-9,999 . . .
10,000 or more.

9.78
8.95
7.98
7.11

1,659
3,454
4,714
2.383

3.0
3.0
3.0
2.5

238
261
215

39

Average size
(thousands
of dollars)
BASE RATE OF LOAN 4
35
36
37
38
39

Prime7
Fed funds
Other domestic
Foreign
Other

Footnotes appear at end of table.




9.17
6.42
8.45
7.50
7.71

5,464
371
785
2,377
3,212

3.0
2.8
3.1
3.1
2.5

144
67
147
217
301

78.7
29.6
87.0
33.0
71.6

20.0
32.7
9.1
13.2
17.0

6.3
28.1
28.4
22.9

82.8
98.6
50.1
95.1
79.4

93
1,075
229
1,359
99

A70

Special Tables • November 1998

4.23 TERMS OF LENDING AT COMMERCIAL BANKS Survey of Loans Made, August 3-7, 1998
E. Commercial and industrial loans made by U.S. branches and agencies of foreign banks1

Weightedaverage
effective
loan rate
(percent)2

Amount of
loans
(millions
of dollars)

6.96
6.31
6.88
6.63
7.37

59,458
2,948
17,268
16,381
21,286

5.930
20,126
8,064
4,359
6,010

8.93
8.39
10.44

34
330
307

338
460
446

Average loan
size
(thousands of
dollars)

Amount of loans (percent)

Weightedaverage
maturity3

Most
common
base pricing
rate4

Secured by
collateral

Callable

Subject to
prepayment
penalty

157
15
96
134
205

37.0
80.2
20.6
34.6
41.6

9.4
.0
1.5
20.3
8.4

51.0
82.7
55.3
49.4
48.0

73.0
85.3
82.6
82.6
54.1

874
975
878
860

65.5
*
48.5
69.6
62.7

16.4
*
7.1
26.7
6.2

5.2
22.5
17.7

90.6
99.9
90.7

45.7
#

65.4

Fed funds

13,953
8,683
15,683

18
29
53

19.2
44.2
49.3

.1
20.2
4.3

51.1
29.2
46.4

80.2
80.3
33.7

Fed funds
Fed funds
Fed funds

Days

Made under
commitment

LOAN RISK 5

1 AH commercial and industrial loans
2 Minimal risk
3 Low risk
4
Moderate risk
5
Other
By maturity/repricing interval
6 Zero interval
7 Minimal risk
8
Low risk
9
Moderate risk
10 Other
11 Daily
12 Minimal risk
13 Low risk
14 Moderate risk
15 Other

6.90
*
7.02
6.27
7.34

12,999

12,933
7,632
12,839

Fed funds
Foreign
Foreign
Fed funds
Fed funds
Prime
Prime
Prime
Prime

16 2 to 30 days
17 Minimal risk
18 Low risk
19 Moderate risk
20 Other

59.7

74.8

Foreign

6.74
6.75
7.08

1,359
3,929
2,851

3,412
5,435
4,900

107
128
723

13.1
15.1
33.5

9.9
28.5
14.6

65.5
59.3
58.9

82.9
68.0
77.3

Foreign
Fed funds
Foreign

21 31 to 365 days
22 Minimal risk
23 Low risk
24 Moderate risk
25 Other

6.99
6.99
6.28
6.98
7.39

13,220
620
2,774
4,455
5,208

3,832
8,231
5,041
3,126
3,870

254
61
333
273
225

31.9
61.1
31.4
32.2
26.4

3.2
12.1
15.0

61.8
62.6
68.1
76.9
47.5

90.8
43.3
92.4
98.1
89.0

Foreign
Fed funds
Foreign
Foreign
Foreign

26 More than 365 days
11 Minimal risk . . .
28 Low risk
29
Moderate risk . .
30
Other

7.69

263

1,067

66

15.6

14.5

7.05

149

1,133

73

8.41

80

750

74

Weightedaverage risk
rating5

Weightedaverage
maturity/
repricing
interval'

22.8

8,487

•

90.0
*

92.2

Fed funds

100.0

Fed funds

74.4

Prime

92.0
93.7
83.4
69.3

Prime
Foreign
Foreign
Fed funds

100.0
67.3

Days
SIZE OF LOAN

(thousands of dollars)
31
32
33
34

1-99
100-999
1,000-9,999
10,000 or more

8.23
7.66
6.94
6.94

65
1.478
12,938
44,977

3.0
3.2
3.2
3.0

91
83
49
16

48.0
47.9
28.9
38.9

33.7
23.6

15.8
7.1

19.3
43.2
52.8
50.7

Average size
(thousands
of dollars)
BASE RATE OF LOAN 4

35
36
37
38
39

Prime7
Fed funds
Other domestic
Foreign
Other
Footnotes appear at end of table.




961
6.82
6.28
6.64
8.71

2,011
27,671
2,713
22,556
4,506

3.5
3.5
2.9
2.8
2.0

99
16
5
35
14

56.4

36.9
1.1
45.7
7.1

56.3
2.4
77.2
7.4
.9

12.3
31.0
80.3
74.4
55.9

98.1
43.2
98.1
99.2
98.7

741
11,820
8,469
4,991
33.929

Financial Markets

NOTE. The Survey of Terms of Business Lending collects data on gross loan extensions
made during the first full business week in the mid-month of each quarter. The authorized
panel size for die survey is 348 domestically chartered commercial banks and fifty U.S.
branches and agencies of foreign banks. The sample data are used to estimate the terms of
loans extended during that week at all domestic commercial banks and all U.S. branches and
agencies of foreign banks. Note that the terms on loans extended during the survey week may
differ from those extended during other weeks of the quarter. The estimates reported here are
not intended to measure the average terms on all business loans in bank portfolios.
1. As of December 31, 1996, assets of most of the large banks were at least $7.0 billion.
Median total assets for all insured banks were roughly $62 million. Assets at all U.S. branches
and agencies averaged 1.3 billion.
2. Effective (compounded) annual interest rates are calculated from the stated rate and
other terms of the loans and weighted by loan amount. The standard error of the loan rate for
all commercial and industrial loans in the current survey (line 1, column 1) is 0.11 percentage
points. The chances are about two out of three that the average rate shown would differ by less
than this amount from the average rate that would be found by a complete survey of the
universe of all banks.
3. Average maturities are weighted by loan amount and exclude loans wilh no stated
maturities.
4. The most common base pricing rate is thai used to price the largest dollar volume of
loans. Base pricing rates include the prime rate (sometimes referred to as a bank's "base" or
"reference" rate); the federal funds rate; domestic money market rates other than the prime
rate and the federal funds rate; foreign money market rates; and other base rates not included
in the foregoing classifications.




A71

5. A complete description of these risk categories is available from the Banking and
Money Market Statistics Section, Mail Stop 81, Board of Governors of the Federal Reserve
System, Washington, DC 20551. The category "Moderate risk" includes the average loan,
under average economic conditions, at the typical lender. The category "Other" includes loans
rated "acceptable" as well as special mention or classified loans. The weighted-average risk
ratings published for loans in rows 31-39 are calculated by assigning a value of " 1 " to
minimal risk loans; "2" to low risk loans; " 3 " to moderate risk loans, "4" to acceptable risk
loans; and "5" to special mention and classified loans. These values are weighted by loan
amount and exclude loans with no risk rating. Some of the loans in lines 1,6, 11, 16,21,26,
and 31-39 are not rated for risk.
6. The maturity/repricing interval measures the period from the date the loan is made until it
first may reprice or it matures. For floating-rate loans mat are subject to repricing at any
time—such as many prime-based loans—the maturity/repricing interval is zero. For floating-rate
loans that have a scheduled repricing interval, the maturity/repricing interval measures the number
of days between the date the loan is made and the date on which it is next scheduled toreprice.For
loans having rates that remainfixeduntil the loan matures (fixed-rate loans), the maturity/repricing
interval measures the number of days between the date the loan is made and the date on which it
matures. Loans that reprice daily mature or reprice on the business day after they are made. Owing
to weekends and holidays, such loans may have maturity/repricing intervals in excess of one day;
such loans are not included in the "2 to 30 day" category.
7. For the current survey, the average reported prime rate, weighted by the amount of
loans priced relative to a prime base rate, was 8.52 percent for all banks; 8.50 percent for
large domestic banks, 8.60 percent for small domestic banks; and 8.50 percent for U.S.
branches and agencies of foreign banks.

A72
4.30

Special Tables • November 1998
ASSETS AND LIABILITIES of U.S. Branches and Agencies of Foreign Banks, June 30, 19981
Millions of dollars except as noted
New York
Total
including

1 Total assets4

IBFs
only3

Total
including

IBFs
only

Total
including
IBFs

IBFs
only

Total
including
IBFs

IBFs
only

930,972

229,961

731,184

193,995

45,690

10,847

58,015

7,480

2 Claims on nonrelated parties
3 Cash and balances due from depository institutions
4
Cash items in process of collection and unposted debits
5
Currency and coin (U.S. and foreign)
6
Balances with depository institutions in United States
7
U.S. branches and agencies of other foreign banks
(including IBFs)
8
Other depository institutions in United States (including IBFs)..,
9
Balances with banks in foreign countries and with foreign central
banks
10
Foreign branches of U.S. banks
11
Banks in home country and home-country central banks
12
All other banks in foreign countries and foreign central banks ..
13 Balances with Federal Reserve Banks

774,667
78,862
3,986
21
47,542

101,661
43,543
0
n.a.
20,122

602,628
73,715
3,863
15
43,863

86,632
41,910
0
n.a.
19,292

42,282
864
11
1
622

3,692
267
0

57,422
1,307
33
1
1.008

2,188
557
0

43,026
4,516

19,385
737

40,124
3,738

18,564
728

364
258

105
5

698
310

358
0

25,944
1,026
4,950
19,969
1,368

23.421
864
4,472
18,085
n.a.

24,717
981
4,853
18,883
1,257

22,618
823
4,396
17,399

202
0
14
188
28

157
0
14
143
n.a.

251
28
50
173
14

199
28
50
121

14 Total securities and loans

480,693

49,049

352,610

36,917

39,398

3,308

41,848

15 Total securities, book value
16 U.S. Treasury
17 Obligations of U.S. government agencies and corporations
18 Other bonds, notes, debentures, and corporate stock (including state
and local securities)
19
Securities of foreign governmental units
20
All Other

116,839
26,266
44,301

6,145
n.a.
n.a.

110,349
24,736
43,951

5,307

1,640
94
142

591
n.a.

3,667
847
25

46,272
14,753
31,519

6,145
3,226
2,919

41,662
14,131
27,531

5,307
2,968
2,340

1,405
372
1,033

591
141
450

2,795
181
2.614

207
103
104

77,800
14,175
6,271
57.354

7,036
3,571
84
3,381

67,384
12,990
5,703
48,691

6,040
3,442
84
2,514

619
399
105
115

36
36
0
0

7,423
247
12
7,164

707
55
0
652

364,111
257
363,854

42,935
31
42,903

242,437
175
242,262

31,636
26
31,610

37,792
34
37,758

2,719
1
2,717

38,190
9
38,181

681
1

21,948
34,129
8,334
6,292
2,042
59
25,736
1,360
24,376
58,356

138
22,660
4,048
3,778
271
0
18,612
762
17,850
1,863

14,191
20,908
5,496
3,985
1,511
35
15,377
1,249
14,127
44.706

72
14,454
2,425
2,172
253
0
12,029
666
11,363
1,707

4,855
2,322
1,549
1,390
159
0
773
0
773
1,969

65
1,868
1,145
1,145
0
0
723
0
723
0

915
874
162
143
19
0
712
0
712
5,892

0
497
119
109
10
0
378
0
378
13

38 Commercial and industrial loans
39 U.S. addressees (domicile)
40
Non-U.S. addressees (domicile)
41 Acceptances of other banks
42
U.S. banks
43
Foreign banks
44 Loans (o foreign governmenls and official institutions (including
foreign central banks)
45 Loans for purchasing or carrying securities (secured and unsecured) .
46 All other loans

224,183
184,823
39,361
407
21
386

15,775
123
15,651
33
0
33

141.367
112,492
28,875
160
9
151

13,083
121
12,961
33
0
33

27,896
25,590
2,306
12
4

747
2
745
0
0
0

28.726
26,597
2,130
132
0
132

169
0
169
0
0
0

3,675
13,513
7,121

2.333
10
123

2,964
12,326
5,490

2,183
10
93

244
288
206

38
0
0

79
54
1,068

3
0
0

47
48
49
50
51
52
53
54
55
56
57
58

778
778
0
103,451
33,862
3,679
2,024
1,655
30,183
156,305

0
0
0
276
1,757
n.a.
n.a.
n.a.
1,757
128,300
n.a.

326
326
0
80,929
27,990
2,670
1,362
1,308
25,320
128,556

0
0
0
276
1,488
n.a.
n.a.
n.a.
1,488
107,363

0
0
0
71
1,329
679
558
120
651
3,408

0
0
0
0
81
n.a.

450
450
0
5,296
1,549
210
95
116
1,339
593

0
0
0
0
38
n.a.
n.a.
n.a.
38
5,292
n.a.

21 Federal funds sold and securities purchased under agreements to
resell
U.S. branches and agencies of other foreign banks
Commercial banks in United States
Other

22
23
24

25 Total loans, gross
26
LESS: Unearned income on loans
27
EQUALS: Loans, net
Total loans, gross, by category
28 Real estate loans
29 Loans to depository institutions
30 Commercial banks in United States (including IBFs)
31
U.S. branches and agencies of other foreign banks
32
Other commercial banks in United States
33 Other depository institutions in United States (including I B F s ) . . . .
34 Banks in foreign countries
35
Foreign branches of U.S. banks
36
Other banks in foreign countries
37 Loans to other financial institutions

Lease financing receivables (net of unearned income)
U.S. addressees (domicile)
Non-U.S. addressees (domicile)
Trading assets
All other assets
Customers' liabilities on acceptances outstanding
U.S. addressees (domicile)
Non-U.S. addressees ((domicile)
)
Other assets including other claims on nonrelated parties
Net due from related depository institutions
Net due from head office and other related depository institutions5.
Net due from establishingg entity, head office, and other related
depository
depository institutions
institutions

59 Total liabilities4
60 Liabilities to nonrelated parties.
Footnotes appear at end of table.




156,305
n.a.
930,972
773.030

128,300
229,961
206,680

128,556
n.a
731,184
640,562

81
7,156
n.a.

3,408
107,363
n.a.
193,995
45,690
174.600

20,573

593
7,156
10,847
10,457

n.a.
58,015
40,553

5,292
7,480
7.291

U.S. Branches and Agencies
4.30

A73

ASSETS AND LIABILITIES of U.S. Branches and Agencies of Foreign Banks, June 30, 1998'—Continued
Millions of dollars except as noted

Total
excluding
IBFs3

Individuals, partnerships, and corporations
U.S. addressees (domicile)
Non-U.S. addressees (domicile)
Commercial banks in United States (including IBFs)
U.S. branches and agencies of other foreign banks
Other commercial banks in United States
Banks in foreign countries
Foreign branches of U.S. banks
Other banks in foreign countries
Foreign governments and official institutions
(including foreign central banks)
All other deposits and credit balances
Certified and official checks
74 Transaction accounts and credit balances (excluding IBFs)
75
Individuals, partnerships, and corporations
76
U.S. addressees (domicile)
77
Non-U.S. addressees (domicile)
78
Commercial banks in United States (including IBFs)
79
U.S. branches and agencies of other foreign banks
80
Other commercial banks in United States
81
Banks in foreign countries
82
Foreign branches of U.S. banks
83
Other banks in foreign countries
84
Foreign governments and official institutions
(including foreign central banks)
85
All other deposits and credit balances
86 Certified and official checks
87 Demand deposits (included in transaction accounts
and credit balances)
Individuals, partnerships, and corporations
U.S. addressees (domicile)
Non-U.S. addressees (domicile)
Commercial banks in United States (including IBFs)
U.S. branches and agencies of other foreign banks
Other commercial banks in United States
Banks in foreign countries
Foreign branches of U.S. banks
Other banks in foreign countries
Foreign governments and official institutions
(including foreign central banks)
98
All other deposits and credit balances
99
Certified and official checks

88
89
90
91
92
93
94
95
96
97

100 Nontransaction accounts (including MMDAs, excluding IBFs) .
101
Individuals, partnerships, and corporations
102
U.S. addressees (domicile)
103
Non-U.S. addressees (domicile)
104 Commercial banks in United States (including IBFs)
105
U.S. branches and agencies of other foreign banks
106
Other commercial banks in United States
107
Banks in foreign countries
108
Foreign branches of U.S. banks
109
Other banks in foreign countries
110 Foreign governments and official institutions
(including foreign central banks)
111 All other deposits and credit balances
112 IBF deposit liabilities
113
Individuals, partnerships, and corporations
114
U.S. addressees (domicile)
115
Non-U.S. addressees (domicile)
116 Commercial banks in United States (including IBFs)
117
U.S. branches and agencies of other foreign banks
118
Other commercial banks in United States
119
Banks in foreign countries
120
Foreign branches of U.S. banks
121
Other banks in foreign countries
122 Foreign governments and official institutions
(including foreign central banks)
123
All other deposits and credit balances
Footnotes appear at end of table.




IBFs
only3

Total
excluding
IBFs

IBFs
only

Total
excluding
IBFs

IBFs
only

Total
excluding
IBFs

IBFs
only

294,678
212,536
196,144
16,391
52,984
20,541
32,443
8,948
2,217
6,732

156,321
12,825
349
12,476
22,894
20,469
2,425
84,256
2,972
81,284

247,719
173,067
163.782
9,285
47,488
17,053
30,435
8,366
2,077
6,289

138,921
7,346
246
7.101
22.009
19.727
2.281
78,172
2,681
75,490

5,191
4,713
2,513
2,200
376
211
165
75
60
15

1,913
491
0
491
283
248
35
328
5
323

14,432
11,300
10,726
574
2,179
1,215
964
159
77
82

4,423
220
104
116
334
334
0
2,094
246
1,849

7,261
12,727
222

36,245
101

6,193
12,412
193

31,309
85

4
18
5

797
14

752
40
3

1,773
2

11,176
8,478
6,232
2,246
847
796
5!
1,026
4
1,022

8,905
6,636
5,331
1,304
843
794
49
694
1
693

343
315
147
167
0
0
0
15
0
15

429
422
420
2
0
0
0
2
0
2

412
191
222

367
173
193

1
7
5

2
1
3

10,563
7,938
6,014
1,924
838
791
47
994
4
990

8,581
6,377
5,153
1,224
833
788
44
664
1
663

222
197
118
79
0
0
0
15
0
15

428
420
418
2
0
0
0
2
0
2

403
169
222

360
154
193

4
5

2
1
3

283,502
204,058
189,912
14,146
52,137
19,745
32,392
7,922
2,212
5,709

238,814
166,432
158,451
7,981
46,645
16,260
30,386
7,672
2,075
5,596

4,848
4,398
2,365
2,033
376
211
165
60
60
0

14,003
10,878
10,306
572
2,178
1,215
964
157
77

6,849
12,536

5,825
12,240

3
12

750
39

156,321
12,825
349
12,476
22,894
20,469
2,425
84,256
2,972
81,284

138,921
7,346
246
7,101
22,009
19,727
2,281
78,172
2,681
75,490

1,913
491
0
491
283
248
35
328
5
323

4,423
220
104
116
334
334
0
2,094
246
1,849

36,245
101

31,309
85

797
14

1,773
2

A74
4.30

Special Tables • November 1998
ASSETS AND LIABILITIES of U.S. Branches and Agencies of Foreign Banks, June 30, 19981—Continued
Millions of dollars except as noted

Total
including
IBFs3
124 Federal funds purchased and securities sold under agreements to
repurchase
125
U.S. branches and agencies of other foreign banks
126 Other commercial banks in United States
127 Other
128 Other borrowed money
129 Owed to nonrelated commercial banks in United States (including
IBFs)
130 Owed to U.S. offices of nonrelated U.S. banks
131
Owed to U.S. branches and agencies of nonrelated
foreign banks
132 Owed to nonrelated banks in foreign countries
133 Owed to foreign branches of nonrelated U.S. banks
134 Owed to foreign offices of nonrelated foreign banks
135 Owed to others
136 All other liabilities
137 Branch or agency liability on acceptances executed and
outstanding
138 Trading liabilities
139 Other liabilities to nonrelated parties
140 Net due to related depository institutions5
141
Net due to head office and other related depository institutions5 .
142
Net due to establishing entity, head office, and other related
depository institutions5

IBFs
only

Total
including
IBFs

IBFs
only

Total
including
IBFs

IBFs
only

Total
including
IBFs

141,980
13,290
15,520
113,171
87,475

13,559
2,597
464
10,498
34,616

126,202
9,574
10.783
105,845
61,383

10,758
1,890
349
8,519
22,956

2,084
926
547
611
10,209

554
171
73
311
7,911

5,655
913
669
4,073
7,913

1,036
235
42
759
1,783

14,872
6,434

6,232
802

10,691
5,533

3,616
560

2,559
531

1,924
160

594
114

167
32

8,438
25,157
1,664
23,492
47,446

5,430
22,788
5,596

5,158
16,236
1,100
15,135
34,457

3,056
14,398
1,010
13,388
4,942

2,027
5,987
345
5,642
1,664

1.764
5,844
343
5,501
143

480
1,555
121
1,435
5,764

135
1,490
121
1,369
126

92,577

2,184

66.337

1,964

1,176

79

8,130

50

3,829
65,136
23,612

n.a.
116
2,068

2,790
43,867
19,679

n.a.
116
1,848

679
59
438

0
79

211
6,591
1,328

n.a.
0
50

157,942
157,942

23,280
n.a.

90,622
90,622

19,395
n.a.

25,117
25,117

390
n.a.

17,462
17,462

189
n.a.

1,474
21,314

23,280

19.395

MEMO

143 Non-interest-bearing balances with commercial banks
in United States
144 Holding of own acceptances included in commercial and
industrial loans
145 Commercial and industrial loans with remaining maturity of one year
or less (excluding those in nonaccrual status)
146 Predetermined interest rates
147
Floating interest rates
148 Commercial and industrial loans with remaining maturity of more
than one year (excluding those in nonaccrual status)
149
Predetermined interest rates
150
Floating interest rates
Footnotes appear at end of table.




IBFs
only

1,257

1,039

3,671
n.a.
126,355
77,152
49,204

2,346

839

396

75,386
45,700
29,686

16,071
8,125
7,946

20,314
16.647
3.667

96,223
22,618
73,605

64,511
16,271
48,239

11,763
2,601
9,162

8,366
2,248
6,117

76

U.S. Branches and Agencies
4.30

A75

ASSETS AND LIABILITIES of U.S. Branches and Agencies of Foreign Banks, June 30, 1998'—Continued
Millions of dollars except as noted.
All states2
Item

151 Components of total nontransaction accounts,
included in total deposits and credit balances
(excluding IBFs)
152
Time deposits of $100,000 or more
153 Time CDs in denominations of $100,000 or more
with remaining maturity of more than 12 months

New York

IBFs
only-1

Total
excluding
IBFs

IBFs
only

Total
excluding
IBFs

IBFs
only

Total
excluding
IBFs

IBFs
only

281,506
271,985

n.a.
n.a.

238,151
230,247

n.a.
n.a.

4,731
4,592

n.a.
n.a.

12,899
12,445

n.a.
n.a.

9,521

n.a.

7,904

n.a.

139

n.a.

453

n.a.

New York

Illinois

California

Total
including
IBFs

IBFs
only

Total
including
IBFs

IBFs
only

Total
including
IBFs

IBFs
only

Total
including
IBFs

IBFs
only

36,182
449

n.a.
0

26,150
226

n.a.
0

5,969
96

n.a.
0

2,587
36

n.a.
0

1. Data are aggregates of categories reported on the quarterly form FFIEC 002, "Report of
Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks."' The form was first
used for reporting data as of June 30, 1980, and was revised as of December 31, 1985. From
November 1972 through May 1980, U.S. branches and agencies of foreign banks had filed a
monthly FR 886a report. Aggregate data from that report were available through the Federal
Reserve monthly statistical release G. 11, last issued on July 10, 1980. Data in this table and in
the G.I 1 tables are not strictly comparable because of differences in reporting panels and in
definitions of balance sheet items.
2. Includes the District of Columbia.
3. Eifective December 1981, the Federal Reserve Board amended Regulations D and Q to
permit banking offices located in the United States to operate international banking facilities
(IBFs). Since December 31, 1985, data for IBFs have been reported in a separate column.
These data are either included in or excluded from the total columns as indicated in the
headings. The notation "n.a." indicates that no IBF data have been reported for that item,




Illinois

Total
excluding
IBFs3

All states2

154 Immediately available funds with a maturity greater than one day
included in other borrowed money
155 Number of reports filed6

California

either because the item is not an eligible IBF asset or liability or because that level of detail is
not reported for IBFs. From December 1981 through September 1985, IBF data were
included in all applicable items reported.
4. Total assets and total liabilities include net balances, if any, due from or owed to related
banking institutions in the United States and in foreign countries (see note 5). On the former
monthly branch and agency report, available through the G. 11 monthly statistical release,
gross balances were included in total assets and total liabilities. Therefore, total asset and total
liability figures in this table are not comparable to those in the G.I 1 tables.
5. Related depository institutions includes the foreign head office and other U.S. and
foreign branches and agencies of a bank, a bank's parent holding company, and majorityowned banking subsidiaries of the bank and of its parent holding company (including
subsidiaries owned both directly and indirectly).
6. In some cases two or more offices of a foreign bank within the same metropolitan area
file a consolidated report.

A76

Federal Reserve Bulletin • November 1998

Index to Statistical Tables
References are to pages A3—A75 although the prefix "A" is omitted in this index
ACCEPTANCES, bankers (See Bankers acceptances)
Assets and liabilities (See also Foreigners)
Commercial banks, 15-21, 64, 65
Domestic finance companies, 32, 33
Federal Reserve Banks, 10
Foreign banks, U.S. branches and agencies, 72-75
Foreign-related institutions, 20
Automobiles
Consumer credit, 36
Production, 44, 45
BANKERS acceptances, 5, 10, 22, 23
Bankers balances, 15-21, 72-75. (See also Foreigners)
Bonds (See also U.S. government securities)
New issues, 31
Rates, 23
Business activity, nonfinancial, 42
Business loans (See Commercial and industrial loans)
CAPACITY utilization, 43
Capital accounts
Commercial banks, 15-21, 64, 65
Federal Reserve Banks, 10
Central banks, discount rates, 61
Certificates of deposit, 23
Commercial and industrial loans
Commercial banks, 15-21, 64, 65, 66-71
Weekly reporting banks, 17, 18
Commercial banks
Assets and liabilities, 15-21, 64, 65
Commercial and industrial loans, 15-21, 64, 65, 66-71
Consumer loans held, by type and terms, 36, 66-71
Number, by classes, 64, 65
Real estate mortgages held, by holder and property, 35
Terms of lending, 66-71
Time and savings deposits, 4
Commercial paper, 22, 23, 32
Condition statements (See Assets and liabilities)
Construction, 42, 46
Consumer credit, 36
Consumer prices, 42
Consumption expenditures, 48, 49
Corporations
Profits and their distribution, 32
Security issues, 31, 61
Cost of living (See Consumer prices)
Credit unions, 36
Currency in circulation, 5, 13
Customer credit, stock market, 24
DEBT (See specific types of debt or securities)
Demand deposits, 15-21
Depository institutions
Reserve requirements, 8
Reserves and related items, 4, 5, 6, 12, 64, 65
Deposits (See also specific types)
Commercial banks, 4, 15-21, 64, 65
Federal Reserve Banks, 5, 10
Discount rates at Reserve Banks and at foreign central banks and
foreign countries (See Interest rates)
Discounts and advances by Reserve Banks (See Loans)
Dividends, corporate, 32
EMPLOYMENT, 42
Eurodollars, 23, 61



FARM mortgage loans, 35
Federal agency obligations, 5, 9, 10, 11, 28, 29
Federal credit agencies, 30
Federal finance
Debt subject to statutory limitation, and types and ownership
of gross debt, 27
Receipts and outlays, 25, 26
Treasury financing of surplus, or deficit, 25
Treasury operating balance, 25
Federal Financing Bank, 30
Federal funds, 23, 25
Federal Home Loan Banks, 30
Federal Home Loan Mortgage Corporation, 30, 34, 35
Federal Housing Administration, 30, 34, 35
Federal Land Banks, 35
Federal National Mortgage Association, 30, 34, 35
Federal Reserve Banks
Condition statement, 10
Discount rates (See Interest rates)
U.S. government securities held, 5, 10, 11, 27
Federal Reserve credit, 5, 6, 10, 12
Federal Reserve notes, 10
Federally sponsored credit agencies, 30
Finance companies
Assets and liabilities, 32
Business credit, 33
Loans, 36
Paper, 22, 23
Float, 5
Flow of funds, 37-41
Foreign banks, U.S. branches and agencies, 70, 72-75
Foreign currency operations, 10
Foreign deposits in U.S. banks, 5
Foreign exchange rates, 62
Foreign-related institutions, 20
Foreign trade, 51
Foreigners
Claims on, 52, 55, 56, 57, 59
Liabilities to, 51, 52, 53, 58, 60, 61
GOLD
Certificate account, 10
Stock, 5, 51
Government National Mortgage Association, 30, 34, 35
Gross domestic product, 48, 49
HOUSING, new and existing units, 46
INCOME, personal and national, 42, 48, 49
Industrial production, 42, 44
Insurance companies, 27, 35
Interest rates
Bonds, 23
Commercial banks, 66-71
Consumer credit, 36
Federal Reserve Banks, 7
Foreign banks, U.S. branches and agencies, 70
Foreign central banks and foreign countries, 61
Money and capital markets, 23
Mortgages, 34
Prime rate, 22
International capital transactions of United States, 50-61
International organizations, 52, 53, 55, 58, 59
Inventories, 48
Investment companies, issues and assets, 32

A77

Investments (See also specific types)
Commercial banks, 4, 15-21, 64, 65
Federal Reserve Banks, 10, 11
Financial institutions, 35
LABOR force, 42
Life insurance companies (See Insurance companies)
Loans (See also specific types)
Commercial banks, 15-21, 64, 65, 66-71
Federal Reserve Banks, 5, 6, 7, 10, 11
Financial institutions, 35
Foreign banks, U.S. branches and agencies, 70
Insured or guaranteed by United States, 34, 35
MANUFACTURING
Capacity utilization, 43
Production, 43, 45
Margin requirements, 24
Member banks, reserve requirements, 8
(See also Depository institutions)
Mining production, 45
Mobile homes shipped, 46
Monetary and credit aggregates, 4,12
Money and capital market rates, 23
Money stock measures and components, 4, 13
Mortgages (See Real estate loans)
Mutual funds, 13, 32
Mutual savings banks (See Thrift institutions)
NATIONAL defense outlays, 26
National income, 48
OPEN market transactions, 9
PERSONAL income, 49
Prices
Consumer and producer, 42, 47
Stock market, 24
Prime rate, 22
Producer prices, 42, 47
Production, 42, 44
Profits, corporate, 32
REAL estate loans
Banks, 15-21,35
Terms, yields, and activity, 34
Type of holder and property mortgaged, 35
Reserve requirements, 8
Reserves
Commercial banks, 15-21
Depository institutions, 4, 5, 6, 12
Federal Reserve Banks, 10
U.S. reserve assets, 51
Residential mortgage loans, 34, 35
Retail credit and retail sales, 36, 42




SAVING
Flow of funds, 37-41
National income accounts, 48
Savings institutions, 35, 36, 37-41
Savings deposits (See Time and savings deposits)
Securities (See also specific types)
Federal and federally sponsored credit agencies, 30
Foreign transactions, 60
New issues, 31
Prices, 24
Special drawing rights, 5, 10, 50, 51
State and local governments
Holdings of U.S. government securities, 27
New security issues, 31
Rates on securities, 23
Stock market, selected statistics, 24
Stocks (See also Securities)
New issues, 31
Prices, 24
Student Loan Marketing Association, 30
TAX receipts, federal, 26
Thrift institutions, 4. (See also Credit unions and Savings
institutions)
Time and savings deposits, 4, 13, 15-21, 64, 65
Trade, foreign, 51
Treasury cash, Treasury currency, 5
Treasury deposits, 5, 10, 25
Treasury operating balance, 25
UNEMPLOYMENT, 42
U.S. government balances
Commercial bank holdings, 15-21
Treasury deposits at Reserve Banks, 5, 10, 25
U.S