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.8 2213





30 1975








OCTOBER 8, 1974

Printed for the use of the
Committee on Banking, Houstng and Urban Affairs







JOHN SPARKMAN,Alabama, Chairman
THOMAS J. McINTYRE, New Hampshire
JOSEPH R. BIDEN, JR., Delaware

EDWARD W. BROOKE, Massachusetts
BILL BROCK,Tennessee
LOWELL P. WEICKER, JR., Connecticut

L. O'NEAL, Jr., Staff Director and General Counsel
WI/. HOWARD BEASLEY III, Director of Minority Staff





Washington, D.C.
The committee met at 10 a.m. in room 5302, Dirksen Senate Office
Building, Sen. John Sparkman, Chairman of the committee presiding.
Present: Senators Sparkman, Proxmire, and Tower.
The CHAIRMAN. Let the committee come to order.
The purpose of the meeting this morning is to consider the nomination of Mr. Philip E. Coldwell of Texas to be a member of the Board of
Governors of the Federal Reserve System for the unexpired term of
14 years, from February 1, 1966, in the place of Andrew F. Brimmer,
Both Senators from Texas, Senator Tower and Senator Bentsen,
have approved the nomination.
Mr. Coldwell, we have your biographical sketch, and it will be made
a part of the record.
[The biographical sketch follows:1
Philip E. Coldwell has served as President of the Federal Reserve Bank of
Dallas, Texas, since 1968. He has also served as a member of the Federal Open
Market Committee of the Federal Reserve System—the Nation's prime monetary
policy-making body.
Born in Champaign, Illinois, in 1922, Dr. Coldwell received his Bachelor's
and Master's degrees from the University of Illinois and a Ph. D. in Economics
from the University of Wisconsin. During World War II, he served in the U.S
Navy as a fighter pilot.
Dr. Coldwell has taught economics at the University of Illinois, the Southwestern Louisiana Institute, the University of Wisconsin, and the University of
Montana. He joined the Federal Reserve Bank of Dallas in 1952 as a research
officer. In 1962, he was appointed First Vice President of the Bank.
Dr. Coldwell has authored a number of articles on economic and financial
subjects. He is well known throughout the southwest through appearances before
many business, professional, and civic organizations in that section of the country.
His memberships in professional and civic organizations include the American
Economic Association, the Southern Economic Association, the Dallas Economists
Club, and the Newcomen Society of North America. He is a member of the
Advisory Council of Assemblies for Bank Directors at Southern Methodist
University, of the Board of Trustees of the Southwestern Legal Foundation at
SMU, and of the Advisory Committee of the College of Commerce and Business
Administration of the University of Illinois. He is a Public Councilor of the
Texas A&M Research Foundation, and a director of the Dallas Council on World
Affairs. He is also a ruling elder of the Highland Park Presbyterian Church in
Dallas. Dr. Coldwell is married to the former Norma Elaine Abels and they have
two children.


The CHAIRMAN. We have your financial statement. It will be made
available to members of the committee here in the committee room.
Then it will be locked up in our safe and retained during your tenure
in office plus 1 year.
Senator TOWER. Mr. Chairman, would you yield?
The CHAIRMAN. Yes, Senator Tower.
Senator TOWER. I simply would like to say I am delighted to have
the opportunity to present Dr. Coldwell to the committee.
He is certainly well-known and highly regarded in my State, and
I think in economic and financial circles all over the United States.
I won't make a lengthy statement. I think his biographical sketch,
showing his range of experience and background speaks for itself.
He comes highly recommended to this position, which is a very
sensitive one, as we all understand. And I think he will perform with
sagacity and good judgment. I would urge the committee's favorable
The CHAIRMAN. Mr. Coldwell, your financial statement was made
to Chairman Burns from Mr. Andrew F. Oehmann. Is he the General
Counsel of the Federal Reserve Board?
Mr. COLDWELL. He is Acting General Counsel, Mr. Chairman.
The CHAIRMAN. Acting General Counsel of the Federal Reserve
The CHAIRMAN. The statement certifies that he has examined your
holdings, and that he finds nothing that would constitute a conflict
of interest therein.
Can you tell this committee that is correct?
Mr. COLDWELL. That is correct, Mr. Chairman.
The CHAIRMAN. This is a question we must ask of all our nominees
coming before this committee.
If you are confirmed in this position, will you hold yourself ready
to respond to requests from this committee to appear, or any other
appropriate committee of the Congress, to appear and testify without
Mr. COLDWELL. I will, Mr. Chairman.
The CHAIRMAN. Senator Proxmire?
Senator PROXMIRE. Mr. Coldwell, you have served in the Federal
Reserve system in one way or another since 1952, is that right, 22
Mr. COLDWELL. I have been with the Federal Reserve system since
1951, yes.
Senator PROXMIRE. You were a research officer?
Mr. COLDWELL. Yes, sir.
Senator PROXMIRE. What did you do in the 10 years before you
became first vice president of the Federal Reserve Bank in Texas?
Mr. COLDWELL. I was an economist with the Federal Reserve Bank
of Dallas, and a research officer of that bank.
Senator PROXMIRE. What kind of work did you do in that capacity?
Mr. COLDWELL.I worked primarily in the field of industrial economics, although I did move into the field of monetary policy and financial
markets later on.
Senator PROXMIRE. You were also a member of the Federal Open
Market Committee of the Federal Reserve System?
Mr. COLDWELL. Yes, sir.

Senator PROXMIRE. For how long?
Mr. COLDWELL. I have been there since I have been president of
the Federal Reserve Bank of Dallas. I have been a voting member
twice since that time.
Senator PROXMIRE. That is how long?
Mr. COLDWELL. Since 1968.
Senator PROXMIRE. You have been a member continuously since
Mr. COLDWELL. Well, I have been attending continuously. I have
been a voting member only on rotation every third year.
Senator PROXMIRE. I see.
What do you see as the responsibility of the Federal Reserve Board
to the Congress and the President?
How do you see its relationship?
Mr. COLDWELL. Well, the Federal Reserve, of course, is a creature
of the Congress and responds to Congress inquiries for information.
It is responsible for the delegated authority which Congress has given
to it to attempt to maintain the monetary policy that will be in the
best interests of the United States.
Senator PROXMIRE. How about the relationship to the President?
Mr. COLDWELL. Well, the Federal Reserve must be in sympathy
with the President's overall program; it has a responsibility of its
own, however, to look after monetary policy and to render an independent judgment on that policy.
Senator PROXMIRE. Independent of what?
Mr. COLDWELL. Independent in terms of pressures from either the
Executive or from Congress, or other places in the sense that it ought
to have its own judgments as to the direction of policy.
Senator PROXMIRE. This is precisely the point. It is my understanding, based on your first response, that the Federal Reserve Board is
indeed a creature of the Congress.
Mr. COLDWELL. That is correct.
Senator PROXMIRE. We have a constitutional authority, as you
know, in title I, section VIII, subparagraph 5 of the Constitution to
coin money and regulate the value thereof and that is the money
power we have.
We delegate some of that to the Federal Reserve Board, but we
don't give it away.
So in what sense do you have an independence of the Congress?
Mr. COLDWELL. Only independence in making judgments on the
policies. We are expected and do report to Congress and we would
expect to be responsive when Congress raises questions on these
matters. But in the delegated area, I think the Federal Reserve
should have the responsibility and authority to operate.
Senator PROXMIRE. Supposing, for example, the Congress should
decide to limit the rate of expansion of the money supply. We have
the authority to do it. Would you conform to that?
Mr. COLDWELL. If Congress passes a piece of legislation requiring
the Federal Reserve to do that, I am sure we would conform.
Senator PROXMIRE. I am somewhat disturbed about this notion of
independence of the Congress. I certainly recognize the independence
of the Executive. But the independence of Congress is something I
don't know any basis for.

It seems to me we have a constitutional responsibility for controlling
and directing and overseeing the Federal Reserve Board.
Mr. COLDWELL. I agree with that, Senator.
Senator PROXMIRE. Where is there any room for independence as
far as we are concerned?
Mr. COLDWELL. Well, the only independence I see is in the day-today decisions on policymakina.
b you feel about having the Federal
Senator PROXMIRE. How do
Reserve Board audited by the General Accounting Office? The General Accounting Office is an arm of the Congress. I think the Federal
Reserve Board has been blessed with very able men of the highest
integrity. I have great respect for Dr. Burns, Mr. Martin who precede him, and for you and the other members, but after all, we
shouldn't have any agency of Government that doesn't have some
kind of close observation with respect to their operations.
Why should not the General Accounting Office do this?
Mr. COLDWELL. Well, Mr. Proxmire, I have taken a position
publicly on this, and I see no reason to withhold it here.
I think action to provide the GAO authority to audit the system
is duplicative of what we are already doing. We do have intense
audits throughout the Federal Reserve and we report regularly to
Now you and I might differ on the result of this, but in terms of
the GAO audit, it is a first step toward outside interference.
Senator PROXMIRE. I am not talking about financial audits, I am
talking about economy and efficiency audits, the kind we have in
every agency in the Government. All the others are subject to GAO
audits. And this is a creature of the Congress, so why shouldn't it
also be subject to that kind of audit?
Mr. COLDWELL. We are heavily audited already, Senator.
Senator PROXMIRE. Only with respect to financial. I am not talking
about that. I am talking about efficiency.
Mr. COLDWELL. Senator, I have been in this organization for nearly
a quarter of a century, and I can assure you we live under intense
budget and efficiency pressures constantly.
Senator PROXMIRE. What was the total budget of the Fed last
Mr. COLDWELL. The total Federal Reserve, I can't give you that
answer, sir.
Senator PROXMIRE. I understand it was $496 million, is that right?
Mr. COLDWELL. I would guess in the neighborhood of a half billion
dollars, yes.
Senator PROXMIRE. It is my understanding in the last 5 years the
expenditures of the Federal Reserve increased twice as fast as those
of the rest of the Federal Government.
Mr. COLDWELL. There have been certain things which have been
assigned and certain steps which we thought were necessary to
accomplish these assignments.
Senator PROXMIRE. Why shouldn't we, as the responsible overseer
of the Federal Reserve, why shouldn't we know about that, have
an audit, so we are on top of it and can follow it closely and determine whether or not, in our judgment—we have the responsibility,
as I say, the constitutional authority and right and duty—why,

under those circumstances shouldn't we have our investigative arm
give us the full information?
Mr. COLDWELL. We have given you considerable information as
a result of the audits performed. They have not been performed by
the GAO. But they have been performed and we have given you
the results of those audits.
Senator PROXMIRE. Why are you opposed to an outside audit?
Mr. COLDWELL. Well, it is a matter, I guess, of the attempt to try
to keep the separation I spoke of and to make sure that the Federal
Reserve does maintain a clear independence of thinking on the
monetary policy.
Senator PROXMIRE. From whom? That is the point. There is no
constitutional basis for an independence from the Congress. You
are our creature, as you said in the beginning. You do have an independence of the executive, rightly or wrongly. I think it is right;
other people disagree. I think it is right and constitutional. But
GAO is not an arm of the President, it is our arm. It is the congressional arm. So why should you maintain an independence of that?
Why shouldn't we know about the efficiency, the way you have
expended this rapid increase in resources which you had under your
control, a half billion dollars, twice as rapid an increase in spending
as the rest of the Federal Government?
Why shouldn't we be on top of that?
Mr. COLDWELL. I think you do know that, we have given you the
results of the audits.
Senator PROXMIRE. All we know from the audit we have is that the
Federal Reserve Board has operated honestly. We don't question
that at all. I am sure that is the case.
But there is something beyond that, whether this is a wise investment of this additional money, whether its policies are operating
in the right direction, whether it should have this or that kind of
Mr. COLDWELL. Well, Senator, some of these expenditures come
directly from congressional mandates.
Senator PROXMIRE. I am sure they do. That is another reason why
GAO should tell us whether these mandates are wise or not.
Well, reconsider it. I know you are only one member, and you are
obviously very well-qualified.
I would like to ask you a couple of other questions. One relates to
You are replacing Andrew Brimmer, and he was the only member
of the Federal Reserve Board who believed we should have some way
of providing more resources for housing, especially in the credit
crunch. He favored variable reserve requirements which would encourage banks to put more money into housing. In that sense, that
limited sense, provide for a little greater credit.
How do you stand on that?
Mr. COLDWELL.I do not favor allocation of credit, Mr.Proxmire.
Senator PROXMIRE. We allocate it now with the S. & L.'s. We restrict where they can invest their money, we mandate their savings
largely to housing. That is allocation.
Mr. COLDWELL. That is an area in which I would propose change.
I would permit them wider authorities, and permit--

Senator PROXMIRE. You mean make it worse for housing than it is
Mr. COLDWELL. No, I don't believe so. I think you have an imbalance in maturities and rates between the assets and liabilities of
the thrift institutions.
Senator PROXMIRE. You recommend the abolishment of regulation
Mr. COLDWELL. I think the raising of some of the ceilings would
help, but I would not recommend the abolition of regulation Q.
Senator PROXMIRE. How much would you raise it?
Mr. COLDWELL.I think within a time frame, we could go up a small
amount, but I would have to reserve judgment on that depending on
the individual time frame we are talking about.
Senator PROXMIRE. Of course this is a difficult question, I realize.
I think there is a lot of merit in that from the standpoint of the small
saver, but we have to recognize the consequences on housing. It would
be adverse, wouldn't it?
Mr. COLDWELL. Well, if other actions are taken to permit S. & L.'s
to invest more broadly, and perhaps give the Federal Reserve the
right to lend to banks on mortgage collateral at the basic discount
rate, these are actions which might help housing.
Senator PROXMIRE. You favor the continuation of the quarterpoint differential with respect to regulation Q?
Mr. COLDWELL. As long as the savings and loans are held to their
current types of investments, yes. If we are going to broaden their
investments into bank type investments, then I think there ought to
be elimination of that.
Senator PROXMIRE. If we broaden it, I don't see how you can escape
the notion that you would have less funds for housing.
You say you not only would not provide for greater incentives of
one kind or another for banks or other institutions to put their money
in housing
Mr. COLDWELL. I did not say that.
Senator PROXMIRE. You would also provide for less incentive for
S. & L.'s to put their money in housing?
Mr. COLDWELL. I did not say I would not provide greater incentive. I think there can be incentives to banks and savings and
Senator PROXMIRE. Such as?
Mr. COLDWELL. They could come in tax form, they could come
in terms of availability of credit from the Federal Reserve by way
of a discount window. These are matters which could be done fairly
Senator PROXMIRE. Discount window. Would you permit the
Federal Reserve Board to discount housing paper?
Mr. COLDWELL. Yes, sir, if the Congress were to permit us to. We
are not authorized to do so now except at a penalty rate.
Senator PROXMIRE. Would you recommend that to the Congress?
Mr. COLDWELL. I would. I believe the Board of Governors has
done that.
Senator PROXMIRE. I didn't get that last.
Mr. COLDWELL. I believe the Board of Governors has done so.
Senator PROXMIRE. Do you know if the Federal Reserve Board
can buy GNMA or FNMA paper now?

Mr. COLDWELL. I believe it can and has done so in the open
Senator PROXMIRE. How much? To what extent have they done
Mr. COLDWELL. I can't give you the amount which is presently
Senator PROXMIRE. I understand it has only been done once.
Mr. COLDWELL. I don't believe that is right, Mr. Proxmire, but
I would have to check the records.
Senator PROXMIRE. Maybe you can check and put it in the record.
[The following information subsequently was furnished by Mr.
The Federal Reserve first made outright purchases of government agency
securities in September 1971. The latest figures for System holdings of FNMA
and GNMA securities are as follows (as of October 11, 1974): FNMA—$1,916
million and GNMA—PC's $60 million.

How about the very uneasy situation we have today with such an
enormous expansion of business loans by banks in relationship to
their deposits?
I understand a few years ago it was less than 50 percent of deposits
were in loans; now more than 75 percent is in loans, and in some
areas almost 100 percent of deposits are in loans.
We have had a very uneasy situation not only with respect to the
Franklin National Bank, but other banks. What do you think we
can do to provide greater security, greater assurance that we have
adequate protection for depositors?
We have an uneasy situation now in this country. As a bank regulator, as a Governor of the Federal Reserve Board, you will be one
of the seven men who have the authority to act in this area as far
as the Federal Reserve is concerned.
Mr. COLDWELL. Well, we have taken some actions as you know,
in attempting to protect against bank failures. Are continually
monitor our banks to encourage them
Senator PROXMIRE. Somehow it is not enough, because the situation
is getting worse, or it seems to be getting worse, or am I wrong? Do
you think the situation now is about as safe and sound as it should be?
Mr. COLDWELL. I would not go that far, but I don't think it is an.
unsound situation for most of the banks. There are exceptions obviously. But I think the banking system of this country is safe and
Senator PROXMIRE. I am sure most of them are. But there are
thousands and thousands of banks.
Mr. COLDWELL. Right.
Senator PROXMIRE. You have a situation in which the third biggest
bank in the country the other day had a massive writedown in the
value of their bonds, with considerable repercussions. We had the
20th largest bank in the country on the brink of failure, and the
Federal Reserve had to pour hundreds of millions of dollars into it.
We had a large bank on the Pacific coast that went under.
So it is an uneasy situation. It looks as if we need some kind of
change, if we are going to have the kind of sound banking situation
we ought to have.

Mr. COLDWELL. Well, I would say one of the things we need to do
is to make sure we have good management of these banks, because
many of these problems are management problems.
Senator PROXMIRE. How do you do that?
Mr. COLDWELL. Well, it is difficult, as you know. You can't insure
people against failures of their own management. If we get into
that kind of situation, then you don't get any rewards for good
management either. So I really think what you are saying is that
we have had a few cases in which management has failed to be
responsible, and to act correctly in their situations.
I don't think we have a broad-scale management problem.
Senator PROXMIRE. No, but we are moving into a 'situation, a very
dramatic and clear shifting of resources into loans, in a big way. So
that instead of just one or two or three or four big banks being in
trouble,* we might have a situation in which many banks will be.
Mr. COLDWELL. I don't think we are in a situation where we have
a large number of unsound banks.
Senator PROXMIRE. How many officers lost their jobs in Franklin
National, speaking of management?
Mr. COLDWELL. I do not know. As President of the Federal
Reserve Bank of Dallas, I don't get into the President of the Federal
Reserve Bank of New York's business very often.
Senator PROXMIRE. Well, as I understand it, there has been very
little change, and very little improvement, although the Federal
Reserve, as I said, put in an enormous amount of money, as you know,
had to put it in.
Would you feel the Federal Reserve Board should stand by to provide funds for any bank that is in trouble to make sure that it doesn't
go under?
Mr. COLDWELL. The Federal Reserve should act as a lender of last
resort to its member banks and has done so.
Senator PROXMIRE. What does that mean?
Mr. COLDWELL. That means if they are in an illiquid, but not an
insolvent situation, we should provide adjustment credit.
Senator PROXMIRE. What about a Franklin National case, where
the bank has been mismanaged?
Mr. COLDWELL. We are still protecting the depositors, not the
stockholders or management of the bank. That is our purpose.
Senator PROXMIRE. You seem to be taking the position that no
bank can fail?
Mr. COLDWELL. No, sir, I am not.
Senator PROXMIRE. No big bank.
Mr. COLDWELL. Well, if we permit large banks, or even banks in a
small community where there aren't many banks, to fail, and create
a crisis of confidence in our financial institutions, we have done this
country a disservice.
Senator PROXMIRE. We provide for an insurance of depositors, we
just increased that in conference to $40,000, which means that the
overwhelming majority of the depositors, 99-plus percent, are fully
Beyond that, I just wonder if we are going to have an efficient system if the incompetent and wasteful and extravagant speculators are
allowed to continue in banking regardless of their mistakes.

9Mr. COLDWELL. I would not put a blanket guarantee behind the
management or stockholders of a bank.
Senator PROXMIRE. Thank you very much, Mr. Coldwell.
As I say, you are extremely well-qualified. This is a good appointment, you have a fine background. And I don't mean simply because
you got your Ph. D. from the University of Wisconsin
The CHAIRMAN. That doesn't hurt though.
Senator PROXMIRE. It doesn't hurt a bit. And you have a lifetime
of fine training in the Federal Reserve system, so I think it is a most
appropriate appointment and I am happy and proud to support it
and we will be looking forward to seeing you from time to time.
The CHAIRMAN. Senator Tower?
Senator TOWER. No questions, Mr. Chairman.
The CHAIRMAN. I want to ask one or two follow-up questions.
I have been reading newspaper articles from time to time about
the loss of member banks in the Federal Reserve system.
Is that a serious problem?
Mr. COLDWELL. It is a problem of great concern to me, Senator,
because in my position, I view the Federal Reserve's monetary policy
as being our prime job. And I think our base of monetary policy control is being eroded by the logs of membership. We are having to put
greater pressure on the remaining number of members in the Federal
Reserve. It is for this reason that the Federal Reserve Board asked
Congress for universal reserve requirements.
The CHAIRMAN. Is there anything the Federal Reserve Board can
do to bolster their position in this respect?
Mr. COLDWELL. Yes; we could do some things. I would be out of
sympathy with some of these actions though.
We could provide a subsidy for member banks as opposed to nonmember banks. We could provide some fancy services of some kind.
They could be very expensive.
I don't think it is appropriate, however, that only a part of the
financial institutions of this Nation contribute to the monetary policy
of the Nation. I think monetary policy is made for the Nation as a
whole,not for a limited group of banks.
The CHAIRMAN. I would agree with you on that. Certainly, I
didn't have in mind any subsidy or any favoritism.
But do you have anything to do with the management of member
banks, the selection of the management of such banks, the directors or
anything of that nature?
Mr. COLDWELL. No; we have nothing to do with their selection.
We do have some cease-and-desist powers which we occasionally use.
But we are not a chartering agency. It is either the Comptroller of the
Currency or the State banking departments which charter the banks.
The CHAIRMAN. I was very much impressed with a speech made
some little time ago, not long after that the bank in California, U.S.
National—what was the name of that bank?
Mr. COLDWELL. There was a San Francisco National.
The CHAIRMAN. No; the banks in San Diego in which Arnold
Mr. COLDWELL. Yes; I know the one you are talking about. I
think it was Security National, but I am not sure.
The CHAIRMAN. It seems to me it was the U.S. National, but I
wouldn't be certain of that.

Mr. COLDWELL. Yes. U.S. National, that is it.
The CHAIRMAN. Mr. LeMaitre, a member of the FDIC, made a
speech not too long after that difficulty in which he charged directors
of banks with a great deal of responsibility that they ought to pay
more attention to their job?
I don't know that there is anything you can do to stimulate something of that kind, but it seemed to me it was a very good suggestion.
Mr. COLDWELL. Senator, for more than 7 years now I have been
working as a part of a group in Dallas called the Bank Director
Assemblies, with just exactly that in mind, to try to educate bank
directors on their responsibilities.
The CHAIRMAN. Now Senator Proxmire asked you about your
position with reference to purchasing the GNMA mortgages.
Senator PROXMIRE. The discounts.
The CHAIRMAN. Yes. And you said you recognized you had that
authority and you had
We will probably take up in the Senate in the next few days a bill
that we just reported out of this committee and in that bill we restate
that authority. We hope that will be taken as a reemphasizing of what
we consider to be a very important thing that the Federal Reserve
can do.
By the way,in that connection, let me say that I have been greatly
pleased with the steps the Federal Reserve has taken in recent years
in showing an interest in housing.
I think Dr.Burns has demonstrated his interest in it in certain things
that he has suggested and programs he has carried out. He did a lot
in putting some points in GNMA,in the Federal Home Loan Bank
system, things he urged.
I can remember back many years ago when the Federal Reserve
apparently had no interest in housing at all. We had a rather difficult
time ever getting the Federal Reserve interested in housing. But I
think there has been a change of heart, particularly by Chairman
Burns. I do hope that this interest will continue. I hope that our
inserting the provision in the present housing bill that we have
reported will be taken as a restatement of our interest in the Federal
Reserve's participation in GNMA mortgages.
Mr. COLDWELL. I would hope also you would put in that bill the
privilege of the Federal Reserve to lend on mortgages through the
discount program at the basic rate.
Mr. COLDWELL. Because that would be a help to us.
The CHAIRMAN. Do you mean mortgages generally? We did not
provide that the bill provides a re-statement of the policy of the
Federal Reserve purchasing GNMA securities.
Mr. COLDWELL. I recognize what you are saying, but I would hope
you would also do the other one.
The CHAIRMAN. What is it you would recommend?
Mr. COLDWELL. The Federal Reserve does not have the authority
to discount mortgages and provide discount credit on such mortgages
held by commercial banks except at a penalty rate.
The CHAIRMAN. And you would recommend that they be given
that authority?

Mr. COLDWELL. I certainly would.
Senator PROXMIRE. Would you use it if we gave it to you?
Mr. COLDWELL. Certainly.
The CHAIRMAN. We just might do it.
Senator PROXMIRE. I am all for it. I will be delighted to cosponsor
an amendment, if the chairman will put it in. That will be great, an
amendment to this bill that is moving now.
Mr. COLDWELL. This action has been recommended by the Federal
Reserve in its housing study.
The CHAIRMAN. I believe that is all of the questions I have.
Senator PROXMIRE. I have one other question, if the chair will
Senator PROXMIRE. You say you would cover the 6,000 country
banks in the reserve requirement that you have for your member
banks as a way of correcting this situation in which you have been
losing membership when you use reserve requirements as a way of
monetary policy?
Mr. COLDWELL. There is no question but that the reserve requirement is the principal reason for the loss.
Senator PROXMIRE. And you would apply that to the country
banks, too.
In an ideal system, that is what you favor?
MT. COLDWELL. Yes, sir, universal.
Senator PROXMIRE. How about the obligations of bank holding
companies, big bank holding companies? Why shouldn't they be
covered when they issue commercial paper?
Why shouldn't they be required to make a deposit in the Federal
Reserve as a reserve requirement?
You cover the little banks; why not cover the big ones?
Mr. COLDWELL. The holding companies are a corporate structure;
Senator, and I do not believe they have any direct depository ability.
Senator PROXMIRE. But the money is channeled back to the bank?
Mr. COLDWELL. The bank has the reserve requirement.
Senator PROXMIRE. But the bank doesn't borrow, a holding
company can borrow.
Mr. COLDWELL. But it is not on borrowings we place reserve
requirements. We place reserve requirements on deposits.
Senator PROXMIRE. But they have gotten around it by holding
company borrowing when it is available.
Mr. COLDWELL. If the moneys are available and go into the bank,
the bank does maintain a reserve requirement on them. You wouldn't
want duplication.
Senator PROXMIRE. Well, I understand that the bank sells loans
to the holding company, which in turn uses borrowed funds and
there is no reserve requirement in that process.
Mr. COLDWELL. No,the bank might sell a participation to a holding
company. There are limits on this, but it might do so. The funds
available might come from issuing commercial paper. But they
would not be deposits in a bank, and deposits are what we place
reserve requirements on.
Senator P
- ROXMIRE. Isn't that an indirect form of making funds
available to the bank?

Mr. COLDWELL. Oh, yes, but I think the limits are narrow enough
that I wouldn't worry too much about it, providing we also maintain
our examination and control.
Senator PROXMIRE. They expect this method to go to $10 billion?
Mr. COLDWELL. Yes, and as long as we are maintaining close
observation and scrutiny of the holding companies themselves, I
think this is a safe procedure.
Senator PROXMIRE. But isn't that beyond the grasp of the reserve
requirement method?
Mr. COLDWELL. Under those conditions, so are all savings and
loans, all insurance companies, and every corporate treasurer.
Senator PROXMIRE. But we are talking about banks. You would
require the 6,000 country banks to have reserve requirements, but
not the big holding companies?
Mr. COLDWELL. Well, the holding companies are not creating
deposits, Senator, and it is the deposits authority which we have for
creating a reserve requirement.
Senator PROXMIRE. I am afraid we are just differing here.
Mr. COLDWELL. I think you are aiming at putting reserve requirements on other paper or on assets. And we don't have that authority.
We have the authority to place reserve requirements on deposits.
Senator PROXMIRE. Do you think you ought to have that authority?
Mr. COLDWELL. I have questions about that. I would certainly
look at it if the Congress thought we ought to move in that direction.
But this is a thing that Governor Brimmer had recommended, if you
will recall.
Senator PROXMIRE. I don't see why you are so concerned about
covering the small banks, the 6,000 banks, with additional reserve
requirements, but not the holding companies?
Mr. COLDWELL. Well, I am concerned because a bank has the
ability to expand credit on its base. A holding company can own only
what it has in the way of funds. It doesn't have any multiple expansion.
Senator PROXMIRE. Nevertheless it does seem to give an advantage
to the bigger banks and would tend to result in a corresponding
shortage of funds in the rural areas, the small towns, and more in the
big city areas.
Mr. COLDWELL. I don't happen to agree.
Senator PROXMIRE. Thank you, Mr. Chairman.
The CHAIRMAN. I want to ask you about something along the line
of what Senator Proxmire was asking you.
I am talking about securities issued by holding companies, their
affiliates or subsidiaries, with variable rate interest payments.
Mr. COLDWELL. Such as the Citicorp note?
The CHAIRMAN. Exactly.
Mr. COLDWELL. What is your question, Senator, I am sorry?
The CHAIRMAN. If we give you the authority to control such issues,
will you use it?
Mr. COLDWELL. I would be very careful in using that authority,
Senator. We are in effect saying to banks and other financial institutions, whenever you come up with a new idea, we are going to regulate
it promptly.
I don't know that this is a bad thing. There are some very good
things about having notes available where the small investor can go

in and get a commensurate rate of return. Whether the holding company side of this is adverse, I think we need a little more time to look
at it.
But in terms of your providing the authority to us, I have no
objection to that. Of course you are our masters, I don't tell you what
to provide.
But in terms of our using it, I think we would need to look at it
with great care.
The CHAIRMAN. Of course it would be discretionary with the Board.
I have a feeling that Dr. Burns does support such legislation. In
fact when the first stir came on the Citicorp issues, I know he was
somewhat disturbed. He didn't know whether the Board had the
authority to regulate it or not. And I am not sure that it was ever
decided definitely. I know he did put his legal force to work on the
problem. I don't know just what the situation is now.
But you do feel there ought to be some authority to control it or to
regulate it?
Mr. COLDWELL. Well, I would not object to providing the authority.
I would hope it would not come in a mandatory form.
The CHAIRMAN. No, it would be purely discretionary with the
Board as to whether and when it would use it.
Do you support regulation Q? Do you think that ought to be
Mr. COLDWELL. Yes, sir, I do. There are two elements to regulation
Q which I think have some importance to us. There are some competitive problems between large and small banks which would be
exacerbated if regulation Q were lifted entirely.
There are also of course the competitive problems between the
savings and loans and the commercial banks, and this would aggravate
the flow of funds for housing.
So I would support a continuation of regulation Q.
The CHAIRMAN. Certainly we are interested in the savings and
loan associations, and the Home Loan Bank Board. We recognize
them as being very effective tools in the field of housing. We would
want to see an arrangement such that they would not be in danger
of losing their savings to the extent that they couldn't continue a
vigorous housing program.
Mr. COLDWELL. Right.
The CHAIRMAN. You would agree with that?
Mr. COLDWELL. I would certainly agree with that.
The CHAIRMAN. Anything further?
Senator TOWER. I have nothing further, Mr. Chairman.
The CHAIRMAN. Senator Proxmire?
Senator PROXMIRE. As I say, I am all for you, because I think
you are well qualified, although I think we disagree on the notion
of the way in which the Federal Reserve Board is a creature of the
Congress, the fact that it ought to be audited by GAO, the fact that
there is a great increase in Federal Reserve spending that ought to
be accounted for from the standpoint of economy and efficiency,
not just from the standpoint of whether the Board's financially
honest or not.
Also I think there seems to be a lesser concern on your part, with
all due respect, Mr. Coldwell, than I would hope there would be for
the soundness of our banking system.

Mr. COLDWELL. Senator, I don't want to be left on the record as
being unconcerned. I am concerned. We watch these bank positions
very- carefully, and we are constantly counseling with the individual
bank managers, where we think they have gotten out of line.
Senator PROXMIRE. Thank you.
The CHAIRMAN. Thank you very much. I think we are all pleased
to see you here, and to hear what you had to say this morning, and
we look forward to your very able participation in the matters that
are of great interest to the economic welfare of this country.
We commend you, congratulate you.
Mr. COLDWELL. Thank you, Mr. Chairman. And thank you for
your courtesy.
The CHAIRMAN. I am assuming you will be confirmed.
At this time the committee will go into executive session.
[Thereupon, at 10:50 p.m. the nomination hearing was concluded.]