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JAKE GARN, Utah, Chairman
JOHN HEINZ, Pennsylvania
JOHN H. CHAFEE, Rhode Island
ALAN J. DIXON, Illinois
New Mexico
M. DANNY WALL, Sta!! Director
ALBERT C. EISENBERG, Acting Minority Btaf! Director
w. LAMAR SMITH, Chief Economist

Opening statements of:
Chairman Garn___________________________________________________
Senator Cranston_________________________________________________
Senator Hayakawa_______________________________________________
Senator Proxmire________________________________________________
Letters from :
National Small Business Association_______________________________
International Council of Shopping Centers_________________________
National Association of Home Builders_____________________________
National Society of Public Accountants_____________________________
North Carolina Home Builders Association__________________________
Biographical material on Mr. Martin__________________________________
Answers to subsequent written questions received from Senator Riegel____

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Washington, D.C.
The committee met at 10 a.m., in room 5302, Dirksen Senate
Office Building, Senator Jake Garn, chairman of the committee,
· ·presiding.
Present: Senators Garn, Proxmire, Cranston, and Sarbanes.
The CHAIRMAN. The Banking Committee will come to order.
The purpose of our hearing this morning is to consider the nomination of Preston Martin to be a member and Vice Chairman of the
Board of Governors of the Federal Reserve System.
Mr. Martin, we are happy to have you with us this morning.
Senator Cranston will be here and would like the privilege of introducing you, so I will go ahead with my opening statement and
then when I'm through with that, we will pause until Senator Cranston
is here so he can have that privilege.
In the confirmation hearing for Lyle Gramley, I pointed out that
with his addition to the Board of Governors of the Federal Reserve
System, six of the seven Board members would be individuals who
had spent most of their professional live~ in Washington or with
the Federal Reserve itself.
Paul Volcker was President of the New York Fed. Henry Wallich,
while he was a professor at Yale, also worked on the staff of the New
York Fed and on the President's Council of Economic Advisers
and at the Treasury. Chuck Partee was the Director of Research
at the Board of the Governors at the Fed. Nancy Teeters came from
staff of the House Budget Committee. Emmett Rice came from
a Washington bank. Lyle Gramley came from the President's Council
of Economic Advisers and had previously worked at the Board.
Last September I pointed out that the one Governor who did not
come from Washington or a Federal Reserve background was Vice
Chairman Schultz whose term as Governor was about to expire.
At the time of the Lyle Gramley hearings I considered voting
against him. I decided not to and announced in that hearing that it
was not fair for me to impose these standards on him when they
had not been announced. But! wished to put the Carter administration
on notice at that time that any future appointments I would reject
without regard to personality if they fit this traditional mold of

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inbreeding within the Washington establishment of the Federal
Reserve Board.
When President Reagan became President I wanted that message
to become loud and clear down at this administration. That was
that without regard to personality I would simply try to block the
nomination of anyone who fit that traditional mold over the last few
So last September, along with Senator Jepsen, I introduced Senate
Resolution 209 which called for Governor Schultz' successor to
meet the fair representation provision of the Federal Reserve Act
providing for agricultural, commercial, including small business,
and broad regional representation on the Board of Governors.
There were several proposals that would try to change the makeup
of the Fed. I felt that the fair representation provision of the act was
already sufficient. It did require broad geographical representation
which had been ignored by various means-well, somebody went to
college in a particular geographical area or passed through on an airliner and that qualified them.
I felt that with this resolution we would make certain that the
Reaga_n administration would adhere to that fair representation
On December 7 of last year, this committee held a hearing on
Senate Resolution 209 and six other resolutions and bills dealing
with representation on the Board of Governors and the structure of
the Board. That very afternoon the Senate adopted a resolution
declaring it to be the sense of the Senate that the next vacancy on
the Board of Governors should be filled by an individual who had
subst~ntial small business, agriculture, or other small business
Preston Martin, the nominee before the committee today, obviously
meets the call for an individual with substantial small business
experience. While teaching finance at the University of Southern
California, Mr. Martin also ran a consulting firm with fewer than
20 employees from 1954 to 1966. During this same period he was a.
principal m a small homebuilding firm and financial companies as well.
In 1972, Mr. Martin founded a small company named PMI and
certainly I don't believe we can fault you, Mr. Martin, for the fact
that this very small company grew into three large companies and
that you eventually sold your interest to Sears. You certainly started
out small.
While Mr. Martin did serve here in Washington from 1969 through
1972 as Chairmnn of the Federal Home Loan Bank Board, he clearly is
not a product of the Washington Federal Reserve establishment.
The vast majority of his career has been spent as a professor of
finance and an operator of small businesses.
Thus, Mr. Martin will bring to the Board not only an understanding
of the unique problems facing small business but also an invaluable
background in the study of monetary economics gained while serving
as a professor of finance at the University of Southern California.
A third valuable background which Mr. Martin will bring to the
Board is his experience with the problems confronting thrift
institutions and the homebuilding industry in general. Not only has
he served as Chairman of the Federal Home Loan Bank Board, but

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~he small businesses he has run have operated in the homebuilding
In nominating Preston Martin as a member of the Board of Governors and as the Board's Vice Chairman, I believe President Reagan
has been most responsive to the Senate's concerns over the Board's
composition and I believe the President has chosen a man whose
background makes him uniquely qualified to serve on the Board at
this very difficult time.
Senator Cranston, we would be happy to hearfrom you.

Senator CRANSTON. Thank you very much, Mr. Chairman.
It's my privilege to introduce Preston Martin, a distinguished citizen
from the Stat.e of California, to the committee and to recommend hini
as a member and Vice Chairman of the Board of Governors of the
Federal Reserve System.
I have known Preston Martin for many, many years. I can't think
of a better, more well-rounded and skilled nommee for a position of
this magnitude than Mr. Martin. He brings to this position a very
successful background in many walks of life from academic to small
business and big business, all of which will be affected by the decisions
of the Federal Reserve Board.
Mr. Martin is a graduate of USC, he taught finance there from 1950
to 1965, and has been ~n important and creative force in the private
mortgage insurance business. He founded a small business, as you
noted, Mr. Chairman, PMI Mortgage Insurance Co., which grew mto
a big nationwide business. He's had numerous private business experiences forming his own companies and founding and managing
companies of others related to real estate and housing finance.
Additionally, he's had experience at the State and Federal Government level, first as the savin~ and loan commissioner of the State of
California, and then as Chairman of the Federal Home Loan Bank
Board. He distinguished his service during this period by engineering
the development of the Federal Home Loan Mortgage Corporation, a
secondary mortgage facility for savings and loans that has caused millions of units of private housing to be built.
Mr. Chairman, at a time when the housing and savings and loan
industries are bearing the brunt of the Federal Reserve's high interest
rate policies, a nominee with Mr. Martin's housing and finance background cannot help but b:i;ing the sensitivity that he's shown in the
past to the present needs of industry that is so vital to the American:
way of life.
After Mr. Martin was nominated for this position we met. I expressed my concerns about the role of the Fed and the policies of the
Fed to him. I did not seek to extract any commitments of any way,
shape, or manner in regard to those J.>Olicies and to that structure, but I
think and I know that Mr. Martm is sensitive to the concerns of
many of us and many citizens throughout the country about present
monetary policy, the present structure whereby our country deals
with that, and I think he will, because of that sensitivity, be a very
fine member of the Federal Reserve Board.

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It's a pleasure to be associated with this nomination and I present
him to the committee for confirmation. Thank you very much.
The CHAIRMAN. Thank you, Senator Cranston.
I would also indicate that I had the privilege of having a private
conversation with him and trying to sensitize hrm to some of the feelings of this committee as well. So he's probably been ganged up on
from a number of us on this committee.
Senator Hayakawa.

Senator HAYAKAWA. Mr Chairman, it's my pleasure this morning
to appear before you to introduce Mr. Preston Martin who is the
admmistration's nominee for the position of Vice Chairman of the
Federal Reserve Board.
I had the pleasure of meeting Mr. Martin in my office a few we.eks
ago to discuss his thoughts on the state of the economy and what
approach ought to be taken to bring us in to recovery. I have been
very much concerned that the nominee for this position be an individual with a broad background not only in academia and finance
as so many of the other current and _prior Board members have had,
but also in business, particularly small business.
I think it is imperative that the body which has some measure of
control over the credit availability for businesses have some firsthand
insight into the real needs of business. My concerns have been answered
in Mr. Martin.
He has vast business experience as a founder of a small business
that grew into PMI Mortgage Insurance Co., PMI Insurance Co.,
and PMI Mortgage Corp. More recently he founded a new Sears
company, Seraco Enterprises, which provides capital and oversight
of real estate and financial subsidiaries.
These experiences have provided Mr. Martin and will provide the
Fed with appreciation for the needs of small businesses both in terms
of financing and expectations. I believe the lack of a concrete and
demonstrable vision of future credit activity as evidenced in the
extreme fluctuations in short-term money figures has been devastating
to businesses. It is my hope that Mr. Martm will be able to convince
the Board that a roller coaster money supply does not make business
Mr. Martin's other experiences will equally well prepare him for
the tasks ahead. He's served as the chairman of the Federal Home
Loan Bank Board and as California Savings and Loan commissioner.
Both of these positions give Mr. Martin an essential background
in government finance and related activity.
Through his private sector experience and his public sector service,
I'm sure Mr. Martin will be an asset to the Federal Reserve Board.
Thank you, Mr. Chairman.
The CHAIRMAN. Thank you very much, Senator Hayakawa. We
appreciate you taking the time to come to the committee this morning.
Senator Proxmire.

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Senator PROXMIRE. Thank you, Mr. Chairman.
Mr. Chairman, you and I come at this from different angles.
You're for Preston Martin for one reason and I'm for him for another,
but we're both for him and that's what counts. I'm for him exactly
because he has the kind of training and background and experience
we need on the Federal Reserve Board.
We have the feeling that if somebody ha'>n't committed a crime
and they come from the right State and if he's associated with the
right kind of business, he's qualified for the Federal Reserve Board.
This is a very complicated operation that requires great expertise,
and I think the people on the Federal Reserve Board should hit
the ground running. I'm for him because I think he can do ex1tctly that.
He has a degree in economics from Indiana University. He served
as a very distinguished chairman of the Home Loan Bank Board,
and for a long time I have been pressing hard to get people appointed
to public office who have the kind of qualifications for public office
that a football coach would have to coach a football team. We'd
never dream of appointing somebody to coach the Redskins if he
didn't have a solid record as a football coach. If the owner did, he'd
be run out of town on a rail.
Well, you have that kind of qualification. Too often we consider
somebody whose only background for a job is that he's got opinions.
Now he sits on a bar stool somewhere and spouts off. W? know all
kinds of people that we run into that can solve the world's problems
with no background. You have a background. You ha··e a track
record. You have shown that you understand these pro~1bms very
well. You've come before this committee of ten and been q rnst ioned,
and I'm just delighted that the President has recommended your
You were recommended by the previous administration in 1969,
was it?
Mr. MARTIN. Yes, sir, 1969.
Senator PROXMIRE. And I think the other remarks about your
background, that you've had a solid small business exnerience i-very helpful and very good. But, frankly, here's one Senator who':;
for you because you have the right qualifications for the Federal
Reserve Board at this time who's faced with tremendously complex,
difficult, challenging professional kind of decisions and competence.
You bring to the Board that kind of ability.
So I think President Reagan has done himself proud in appointing
you and I think you're going to be a fine Governor of the Federal
Reserve Board.
The CHAIRMAN. I'm a little bit worried now, with such an enthusiastic endorsement, after 7 years of seeing my good friend,
Bill Proxmire, just chew on most nominees for anything. I'll have
to reevaluate. [Laughter.]
Very seriously, I want my friend from Wisconsin to know that
I don't support Preston Martin only because he's from the '\Yest,
because if that had been the qualification I would have insisted on
somebody from Utah. He does have the q•1alifications. I don't mind
too much that he has a Ph. D. in economics. If he had been both an

92-595 0 - 82 - 2

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attorney and had a Ph. D. in economics, then I would have had
trouble with that.
Mr. :'.\Iartin, you're an excellent nominee for this position and
before you start your testimony, if I could have you stand and be
[Whereupon, the nominee was duly sworn.]
The CHAIRMAN. If you would like to proceed.
Mr. MARTIN. Thank you, ~Ir. Chairman and Senator Proxmire. I
have no written statement, Mr. Chairman, as you know. I want to
indicate my great satisfaction with the opportunity to appear again
before this committee. I have not had that privilege since 1972, but as
Senator Proxmire indicated, I have had the opportunity to appear
before the committee many times in the past. I am, of course, deeply
honored that President Reagan has selected me for the dual position
of the membership on the Board of Governors of the Federal Reserve
and as Vice Chairman and I'm certainly open to any questions at this
time, sir.
The CHAIRMAN. Thank you very much.
It is my understanding that you resigned from your position a'>
chief executive officer for Seraco in November 1981 and as a board
member in December 1981; is that correct?
Mr. MARTIN. Yes, sir. That's correct.
The CHAIRMAN. I understand that you have already resigned from
your position as a board member for various companies. Could you
specify which boards you have resigned from?
Mr. :'.V1ARTIN. Yes. Mr. Chairman, I have resigned from the Seraco
Enterprises board, from the Sears Roebuck & Co. board, from PMI
Mortgage Insurance Co. board, and the other companies that Senator
Hayakawa mentioned as part of the PMI group, from Allstate
Savings & Loan Association, from Allstate Enterprises :'.\1ortgage Co.,
and from Executrans.
The CHAIRMAN. You also plan to resign from the President's
Housing Commission if confirmed?
Mr. MARTIN. Yes, sir. If confirmed, I will resign.
The CHAIRMAN. And how about the International Conference of
Shopping Centers?
Mr. :MARTIN. Yes, sir. That is a trade association from whose
bmud of trustees I will resign if confirmed.
The CHAIRMAN. I have been advised that Sears, in appreciation of
your past services, will make a lump-sum severence payment and a.
1981 bonus payment to you. Is that correct?
Mr. MARTIN. It is correct that my severence win take the form of a
lump sum-payment if I'm confirmed. The bonus for 1981 results of the
companies for which I formerly had responsibility has already beeQ
The CHAIR:VIAN. Additionally, you receive pen-,ion benefits for which
you will be fully vested beginning January 1, 1984, after you turn 60,
but you have the option of receiving such pen-,ion payment3 monthly
or in a single lump sum. You will also participate in a Sears executive
group life insurance plan and have the option of participating in
Seraco's group medical insurance plan both at no cost to you. Is that
Mr. MARTIN. That is correct.

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The CHAIRMAN, Do all of these arrangements arise out of your past
work for Sears?
Mr. MARTIN. They do, sir.
The CHAIR~IAN. Are the amounts in terms of these arrangements
contractually fixed and unalterable?
Mr. MARTIN. Yes, they are.
The CHAIRMAN. It's my understanding that you will seek a waiver
determination from the Chairman of the Federal Reserve Board regarding the Sears vested pension group life and medical insurance
plans so you may take part in general policy decisions of the Board in
which Sears may have an interest. It's my further understanding that
the General Counsel and the Federal Reserve ethics official will recomcomend that such waiver be granted. Is that correct?
Mr. MARTIN. That is corrected .
. . The CHAIRMAN. Nevertheless, do you agree to recuse yourself from
matters before the Board where Sears is either a named party or has
a direct and identifiable specific interest?
Mr. MARTIN. I do, sir.
The CHAIRMAN. With regard to your Sears stock, it's my understanding that you and your wife will dispose of all Sears stock and stock
options if you're confirmed. Is that correct?
Mr. MARTIN. I will, sir.
The CHAIRMAN. As to your Sears stock which is presently restricted,
will you also dispose of that once the restriction is removed?
Mr. MARTIN. I will, sir.
The CHAIRMAN. When will that restriction be removed enabling you
to sell the stock?
Mr. MARTIN. The compensation committee of the board of directors
of Sears Roebuck met on March the 22 and agreed to release those
shares from escrow and remove the restrictions therefrom and as soon
as I am in possession of those shares I will divest of them.
The CHAIRMAN. Are you eligible or entitled to any other payments
from Sears or any other concerns for past services?
Mr. MARTIN. No, sir.
The CHAIRMAN. I have been advised that you have already sold all
of the stock you hold in banks or bank holding companies and your
wife will sell her remaining bank stock if you're confirmed. Is that
Mr. MARTIN. That is correct.
The CHAIRMAN. Additionally, it's my understanding that you and
your wife will divest yourselves of all stocks which either of you may
personally hold in companies which, in the opinion of the Federal Reserve, would create even an appearance of a conflict of interest due to
the fact the comyan;(s ~usiness is involved in financial services.
Mr. MARTIN. ,,e will, sir.
The CHAIR:\IAN. ,vm you and your wife sell any Treasury notes
which are personally owned by you if confirmed?
Mr. MARTCN. Yes, sir.
The CHAIRMAN. Will you divest yourself of any other security which,
in the opinion of the Federal Reserve, may create an appearance of
conflict of interest if retained?
Mr. MARTIN. I agree to do that.
The CHAIRMAN. According to your financial disclosure, your wife
is a beneficiary in two separate trusts which hold Treasury securities.
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Do you or your wife have any control of the investments made under
those trusts?
:\fr. :\IARTIN. No, we do not, sir. In the past we have attempted to
advise the trustees and have had absolutely no impact on their decisionmaking whatsoever.
The CHAIR1IAN. Is your wife the only beneficiary under those
Mr. MARTIN. No, sir. Her sister, Eloise Martin is likewise
a beneficiary.
The CHAIRMAN. In your confidential statement to this committee
you have disclosed that Sears Bank & Trust Co. and Manufacturers
Hanover Trust have both issued letters of credit on your behalf.
It's my understanding that these letters serve as guarantees for
promissory notes which you personally executed in connection with
mvestments and do not represent outstanding lines of credit which
can be drawn down in the future. Is that correct?
Mr. MARTIN. That is correct.
The CHAIRMAN. Is Sears Bank connected with the Sears Co.
Mr. MARTIN. It is not. It is located in the Sears Tower in Chicago
which gives it certain marketing advantages, but it has no corporate
The CHAIRMAN. In summary, you're agreeing that you not participate in any activity or hold any assets that might be in conflict with
your position at the Federal Reserve Board, that you will recuse
yourself from matters which would have the appearance of any conflict?
Mr. MARTIN. I do, sir.
The CHAIRMAN. If confirmed, do you agree to appear before this
or any other congressional committees when requested?
Mr. MARTIN. Yes, sir.
The CHAIRMAN. Thank you very much, Mr. Martin. We appreciate
your candor in answer to those conflict of interest questions.
Senator Proxmire.
Senator PROXMIRE. Mr. Martin, there's another reason why I
think it's so good that you're being appointed, and that is that
there's no industry that's more credit sensitive than housing. No
industry has taken more of a beating than housing in the last several
years, particularly in the last several months. As you know, housing
starts are down to less than 1 million a year annual rate and that
means we will lose about 2 million jobs a year in that one industry-.
We had a hearing just yesterday in which it was pointed out agam
and again that housing has led us into the recession and can lead us
out of the recession. The _policies of the Federal Reserve Board have
a profound effect on housmg. Nobody has had better experience that
I know of who will serve on the Board than you have. You have been
Chairman of the Home Loan Bank Board whose function it is to
regulate the savings ·and loans which in turn finance housing. So
that you're in a critical position to be helpful.
Let me put it this way. Yesterday we had a hearing on the Lugar
bill. You may or may not be familiar with that. That's a bill that
would provide for a substantial interest rate subsidy for new housing
to be subsidized to the extent of about 4 percentage points. In
other words, get a 17-percent mortgage down to 13 percent, and in

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that way provide a substantial stimulus for housing, and the amount
provided would, in the calculations of Senator Lugar, give us about
400,000 housing starts which would cost, I calculate, about $26
billion in additional credit.
Now the difficulty with that is if the Federal Reserve Board fails to
accommodate that additional credit, it can only have the effect, it
seems to me, of crowding out other borrowing, especially other housing,
but also automobiles and others.
How do you view that, the effect of a new congressional program
which has very substantial support and may be enacted into law, would
provide subsidies of 400,000 new homes, and calculations are, if it
works fully, with no net loss, could create almost 800,000 new jobs?
What's your feeling, first, about the legislation and, second, would the
Federal Reserve Board react in any way to that initiative by the Congress?
Mr. MARTIN. Well, Senator Proxmire, I will certainly agree with you
entirely with regard to the depth and breadth of the impact of both
today's econom1., the recession, and with regard to high interest rates
and the availability of credit flows in the economy. As a former homebuilder, I'm greatly aware that not only is the unemployment rate in
construction perhaps the highest-at least one of the two highest,
unemployment rates in industry, but that, furthermore, if you contemplate our small business problem in the country, small busmessmen
are literally failing by the thousands. It's a failure rate that is at a
historic high and, of course, the typical homebuilder is a small businessman. His wife keeps the books. His pickup truck is what they use for
recreation on the weekend and so forth. So it is a grave, serious
As you have described Senator Lugar's bill, I see the advantage in
that the "buying-down," as is said in the trade, of the mortgage rate
is a common commercial practice. It has been the way in which,
frankly, the sales of new completed dwelling units have had some "up"
months. Without the buying down by builders and joint venturers we
would have had a flat, low housing sales curve recently. So buy·ng
down has the advantage that it comes out of our positive experience, as
a way of moving the product, if you will-merchandise, particularly
the merchandise to the younger first-time homebuyer, that being 11
segment of our population that's suffering very much from their
inability to finance.
As to the Federal Reserve's accommodation of such credit, however,
I feel that buy downs constitute a practice which has worked entirely
privately, a practice which I don't relate to credit for automobiles and
durables of various kinds. I don't know in my own experience as a
homebuilder, as a joint venturer homebuilder, at Allstate Snvings &
Loan, that we detected any of that relationship. It mny exist. I simply
haven't detected it. I don't believe that the substantial, deep responsibility of the Board of Governors has to combat inflation, which can
be argued to be its paramount responsibility, its unique responsibility
among the various Government agencies, needs to be sacrificed in any
way. I don't believe there needs to be, let us say, a change in the intermediate monetary targets to accommodate such a bill.
I think that if it is passed it will work-that is to say, the Lugar
proposal will work, and I don't believe it would require the Fed to in
any way change-

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Senator PROXMIRE. That's an assertion, but does it make any
sense? The Fed determines the availability of credit in the long
run and in the fairly short run even.
Mr. MARTIN. Yes, sir.
Senator PROXMIRE. Now if the Fed does not change its policies
and the Lugar bill provides for an increase of $26 billion in additional
demand for credit, why wouldn't that drive up interest rates an<l in
the process discourage other homebuilders or home buyers from
getting into the market, and why wouldn't some of that probably
spill over because it would lift the whole level of interest rates?
You see what I'm saying?
Mr. MARTIN. Yes, sir, I see what you're saying.
Senator PROXMIRE. If there's no accommodation by the Federal
Reserve Board, it seems to me you're stuck with a particular specific
level of available credit. There's no way you can wave a wand or
Congress can take action, and come up with $26 billion without the
Federal Reserve Board providing some give here. I think you state
the case very well. It's an agonizing choice here because the Fed
is the only anti-inflation game m town. I have consistently supported
the Fed's position because I think we have to pay that rough price.
On the other hand, we now see a situation where in home building
we are operating at less than 50 percent of capacity. A stimulus
would not therefore be inflationary. You could take 400,000 housing
starts and they could do that easily, it seems to me, in all likelihood
over a year's period without raising the prices, without even stopping
the :prices from falling, because you would still have the level of
housmg starts that would be well within the capacity of the industry.
It would put more people to work. But I don't see at this level of
capacity, this level of operations, that you would be putting inflationary pressures on the economy, and you would be putting
people back to work.
Now as I understood your answer, it was that the Fed should not
accommodate this increase from the Lugar bill at all. Then it would
seem to me that I can't understand how it can work. Can you explain
to me how it can work without any increase in the availability of
Mr. MARTIN. I think, Senator, that particularly with the progress
that has been made in inflation in the recent 4, 5, or 6 months, that
the growth in the nominal gross national product and the increases
in flows of funds within our whole financial system is so enormous
and has the potential of bringing in foreign funds at the tremendously
high level of interest rates in this country, that there's enough
liquidity in the system to accommodate substantially more credit
over time-because the $26 billion would not be a shortrun impact;
it would take a while. As a former builder, let me tell you, it takes
a while for us to gear up for these things. I believe there's enough
liquidity in the system that investors would buy these mortgages
in lieu of some other investment.
Senator PROXMIRE. Well, I hope and pray you're right, but it just
seems to me that it is clear, with the enormous deficits we have been
running, with the huge national debt, with the fact that the Federal
Government took $1 out of $6 of new savings in 1970-71 when you
were Chairman of the Home Loan Bank Board and this year it will
take $1 out of $3, and next year the calculations are that it will take

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almost $1 out of $2, that any new invasion of that credit market by the
Federal Government-and this would constitute that because it
would be a. federally supported operation-would crowd out other
credit that otherwise would be available.
Mr. MARTIN. I think the Senator is particularly referring to 1983,
1984, 1985, the outyears. I have no quarrel with the crowding out that
very large deficits threaten, an add on a new mortgage credit program
on top of very large deficits-Senator PROXMIRE. Aren't we doing exactly that in the Lugar bill?
Mr. MARTIN. I must admit that my answer was short run. I was
thinking of the immediate impact of the Lugar bill in 1982 and early
1983 before the funds are crowding out in the degree that you have
rightly indicated would occur.
Senator PROXMIRE. Well, my only problem is that the level of in~rest rates right now is a reflection of the crowding out at the present
· Let me go on. To what extent do you think the Government deficits
are responsible for high interest .rates?
· Mr. MARTIN. I thmk the expectation by market participants of
future deficits is probably the No; 1 factor in today's very, very high
real interest rates.
Senator PROXMIRE. How much emphasis would you place on solving
our economic problem on balancing the budget, cutting expenditures,
increasing taxes, each in turn? First, balancing the budget.
Mr. MARTIN. I think that material reductions in the outyear budget
deficits would be the most important thing that any group of individuals or institutions could do. I think that cutting expenditures would
come second in any kind of a hierachy. The expenditures not only
crowd out in financial markets but crowd out in real markets for real
I think reversal of tax cuts is a much more cr,mplicated questionwhich tax cuts, what are the relationships with regard to incentives
it's a much more difficult one to answer, as the Senator knows.
Sena.tor PROXMIRE. My time is up, Mr. Chairman.
The CHAIRMAN. Mr. Martin, first, may I insert in the record three
letters in your behalf; one from the President of the National Small
Business Association-it's known as the voice of small business-who
actively support your nomination; and also one from Mr. Albert
Sm,sman, International Council of Shopping Centers, also from the
National Association of Home Builders in support of your nomination.
[Copies of the letters follow:]
March 19, 1982.
Chairman, Senate Committee on Banking, Housing, and Urban Affairs,
Washington, D.C.
DEAR MR. CHAIRMAN: The National Small Business Association is pleased
to endorse the President's nomination of Preston Martin to serve on the Board
of Governors of the Federal Reserve System.
Mr. Martin has a sound history of small business experience having owned
and operated a small business of his own during the 50s and 603, there'ore he is
well attuned to the hardships and problems involved in having to meet a payroll.
His subsequent service as chairman of the Federal Home Loan Bank Board,

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followed by further experience as an independent businessman prior to being
bought out by Sears, has added to his knowledge and understanding of the interest
rate sensitive Eectors of our economy. Based upon his experience, we believe Mr.
Martin will be a valued and dedicated Governor of the Federal Reserve System
and further that he will be responsive to the needs of the small business community.
Mr. Martin fits the requirements of the resolution passed by the Senate which
calls for the next appointment to be filled by a person with small business or
agricultural experience.
It is our firm hope that Mr. Martin will be quickly and enthusiastically confinned
by the Committee and the full Senate.
New York, N.Y., January 8, 1988.

Dirhen Senate Office Building,
W a3hington, D. C.
DEAR SENATOR GARN: I urge you to consider favorably the nomination of
Preston Martin as vice-chairman of the Federal Reserve Board. when it is officially
·presented to the Committee on Banking, Housing and Urban Affairs• .
Mr. Martin is a member of the Board of Trustees of the International Council
of Shopping Centers, a trade and business association of more than 10,000 members who deveiop, own, operate and invest in shopping centers; own and operate
chain and independent retail and department stores, and provide professional
consulting and business services to shopping centers. He has been a leader of
our industry and, as chairman of the Seraco Group of Sears Roebuck and Company, has exercised prescient, highly informed and insightful judgments.
He is a brilliant analyst of business issues, a warm, human executive and a
carefully reasoned decision-maker. I have unqualified admiration for him as a
person and for his professional talents. He has bridged the very best of the
academic, public service and business spheres in his professional and personal
career and should make outstanding contributions to the stabilization of our
monetary and economic system on the Federal Reserve Board.
I am sure his appointment would be endoresd by our members and I am confident that he will bring to the Federal Reserve Board a point of view and frame
of reference that should earn overwhelming confidence among the leaders of the
business community of our country.
Sincerely yours,
Executive Vice Pruidtnt.
Wa3hington, D.C., April B, 1982,
Banking, Housing, and Urban Affairs CommiUee,
U.S. Senate, Washington, D. C.
DEAR MR. CHAIRMAN: On behalf of the more than 114,000 members of the
National Association of Home Builders (NAHB), of which I am President, ·I
urge you to support the President's nomination of Preston Martin to be a member
of the Board of Governors and Vic<> Chnirman of the Federal Reserve System.
Mr. Mart,in brings a wealth of cxpcri!'11ce and talent to that position and would,
in our opinion, be a critical asset to the Federal Reserve System. We respectfully
request that this letter be made a part of the hearing record.
Mr. Martin's career has spanned many high level positions of importance to
housing and finance. He served as Commissioner of the California Savings and
Loan Department from 1967 to 1969 and as Chairman of the Federal Home
Loan Bank Board from 1969 to 1972. Mr. Martin i8 a former member of the Federal
Home Loan Mortgage Corporation Advisory Committee and serves on th_e
Advisory Boards of the Joint Center of Urban Studies at MIT-Harvard University and the Wharton School of Business.
Mr. Martin has also proven to be an innovator ln the art)a of mortgage finan_ce.
He founded, organized and staffed Seraco Enterprises, a 1'ears, Roebuck holdl!}S
company that provlaes capital and overall -planning of real -estate. and financ1al
subsidiaries. For over twenty years, he was involved in home building and mort-

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gage finance and created one of the first private mortgage insurance companies
small businesses and housing finance as Vice Chairman of the Federal Reserve
Commission on Housing.
N AHB believes that Preston Martin will provide excellent representation for
small businesses and housing finance as Vice Chairman of the Federal Reserve
Board. We again urge your support for his nomination.


The CHAIRMAN. Let me follow along the line just for a moment
that Senator Proxmire was proceeding on about the overall economic
and budgetary problems.
As I have analyzed the situation, it seems to me that although
Congress has certainly done a good job of cutting discretionary programs the last couple years by some $50 billion, in my assessment of
the long-term money markets we simply have not yet faced the problem of those outyear deficits because to them, those who make
long-term loans, 30-year mortgages, that's the year 2012. So when
we talk about the outyears of 1983, 1984, and 1985, that's tomorrow
to those who are in the long-term lending business.
So essentially where we have taken this $50 billion from is the
so-called discretionary programs where we have maintained annual
appropriations control and the Appropriations Committee decides
how much money will be appropriated for those.
Most of the budget growth is in the so-called "uncontrollables"
where the authorizing committees have created automatic indexes,
automatically increasing programs, and here we're getting into the
so-called political untouchables in the entitlements. When people
talk about entitlements, they very rarely say social security, veterans'
pensions, Federal civil service, where most of the entitlements are,
and where most of the growth has occurred.
In very round numbers, what we have accomplished is cutting
about 4 7 percent of the budget by 8 percent compounded per
year, and that's commendable and I voted for those cuts, but in
approximately 53 percent of the budget it's still increasing at 16
percent compounded per year. Nobody has to be too smart to figure
out that if more than half the budget is increasing at 16 percent
and less than half is decreasing at 8 percent, it isn't ever goin~ to
balance. With all of the rhetoric going on in this town about thmgs
we ought to do to reduce those deficits, not too many people are talking about-the only way you're going to do it is in that 53 percent.
If you did away with the third year of the tn,x cut, as m1tny people
talk abou.t, do away with half of it this June, and took $220 million
this year out of the military budget-most every proposnl you henr
floatmg around-you still wouldn't b11Jance the budget, not with more
than hn.lf the budget growing at that rate. And you're not even tnlking
about the outyenrs.
It would seem to me thnt even if, through accommodntion of tax
increases and expenditure cuts we balnnce the budget in 198:l or 1984,
interest rates would still stay uo very high, at least long-term interest
rates, looking to that late 1980's and early 1990's and the year 2000.
So it seems to me that it's just a bunch of rhetoric in this town,
(which we never have a shortage of) until Congress really comes to
grips with the automatically increasing programs and has the courage

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to tell people even on social security that we're not going to cut your
pension-nobody is going to be eliminated-but we are going to slow
the growth.
To be specific, if there's a IO-percent CPI increase, we may decide
maybe we can only afford a 5-percent increase that year. So I want to
make it very clear I'm talking about slowing the increase, showing
the long-term money market managers that those deficits in those
out years are trendin~ downward, that we are really going to get a
gri_p_on that explosion m that half of the bu<lget.
My question is, in that whole scenario, do you agree with that? Is
that where on the fiscal side we have to get control and quit playing
games with less than half the budget in these discretionary programs,
until we have the willingness to slow that growth in the entitlements
program, are interest rates going to stay high?
Mr. MARTIN. I think it is a question of the appropriateness as a
potential member of the Board of Governors respondmg in detail to
a question which lies so much in the purview and province of this
deliberative body.
The CHAIRMAN. We don't hesitate to interfere with the Fed. I
don't know why you shoulrl hesitate to interfere with us.
Mr. MARTIN. I have no basis on which to quarrel with the Senator's
arithmetic and analysis.
The CHAIRMAN. Without going into detail, just in general, would
you say that that 53 percent of the budget is a problem, without
saying specifically what ought to be cut or how much, in order to
bring interest rates down we have to face up to that problem?
. Mr. MARTIN. I have no hesitation to agree with you 100 percent,

The CHAIRMAN. Well, I would hope not only in Congress but this
administration would start having the courage to face up to that
because in this case neither the administration nor Congress has been
willin~ to do that.
Various :proposals have been made for using the Federal Reserve
discount wmdow to di~ct credit to certain purposes or industries.
How would you evaluate the proposals for using the window for these
purl?ose_s rather than just to provide temporary liquidity to financial
Mr. MARTIN. I think, sir, that it is so important that policies be
pursued by the Nation's central bank to combat inflation and that
the course of decreasing the growth in the money supply, however
defined, be held ste.ady, that to layer on top of that most fundamental
responsibility-mandate-a differentiation at the discount ":indow,
industry by industry, leads to an inappropriate use of the discount
The basic job is so important to do, that to have the Board of
Governors or some of its staff indicate that industry "A" is worthy
and industry "B" is not worthy I think would be an impossible task
to perform, No. 1; and, No. 2, it would be diverting from the ba.'lic
job of controlling inflation.
The CHAIRMAN. I agree with you.
For what purposes do you believe thrift institutions should be
allowed to borrow at the discount window?
Mr. MARTIN. I believe that the extende1l credit program that
is now in place in which the local regional Federal Reserve Bank

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backs up the local regional Federal Home Loan Bank is an appropriate
use. There are times in which the consolidated obligation issuance by
the Federal Home Loan Bank System runs into market difficulties.
If that is coterminus with the need for substantial liquidity in some
part of the country, I would think that the Fed should be-for institutions that are viable, should be a backstop to the Federal Home
Loan Bank System.
The CHAIRMAN. What is your evaluation of each of the following
proposals? No. 1, the return to contemporaneous reserve accounting
from the current lag reserve accounting system?
Mr. MARTIN. As an operating officer of various kinds of institutions,
my response to that, sir, is that I'm looking forward to the opportunity to review both the substantial volumes of comments-as the
chairman knows, this proposal in two forms has been out and comments have come back in-and the kinds of analyses that bear on
that subject.
My mind is completely open as to how the reserve activities should
The CHAIRMAN. How about implementation of the market oriented
discount rate?
Mr. MARTIN. I think the same comment. I believe those two
subjects are quite intimately related.
The CHAIRMAN. How about stopping collecting and reporting
weekly Ml figures?
Mr. MARTIN. Well, as a person who used to be on the borrowing
side of the world in very heavy amounts, I could never understand
all the fuss about those weekly figures. In the first place, as an exteacher of statistics, I don't see how you can get seasonally adjusted
annual rates from weekly figures. They are not nonsense certainly.
They are not noise. They are real, but what they mean I don't think
anybody has the slightest idea. Any kind of improvement in the
Federal Reserve's communication to the world as to what's happening
to money growth and reserves surely would be good.
The CHAIRMAN. You know, I've yet to ask any witness before this
committee that hasn't essentially said the same thing. Some of them
have been more specific. They say it's ridiculous and they're
inaccurate and they're meaningless. A panel of experts sitting here
says that and I aEk, "Why do you use th€m ?" And they said, "Well,
because that's all there is."
· I was at an international monetary conference in London a couple
weeks ago and I asked the same question there and all the British and
French and German bankers said they're ridiculous. I said, "Why
do you put meaning to them? Why do you use them?" I got the same
answer. Everybody agrees it's ridiculous, that you can't seasonally
adjust them, and yet we continue to do it. I have yet to find a subject
since I have been in the Senate that everybody agrees doesn't make
sense but we continue to do it.
So I expect to introduce a resolution in the Senate this week or by
next week at the latest to say stop doing it, just the sense of the
Senate, to see if I can maybe get everybody to quit doing what they
all say is ridiculous. It's sending out false signals. I'll find out if the
majority of the Senate agrees with me that we ought to stop something that's ridiculous.

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What is your view of the relative importance of controlling the
monetary aggregates as opposed to controlling interest rates?
Mr. MARTIN. I feel that the change of procedure which was instituted in 1979 is certainly in the right direction. We all are suffering
under the current level of rates and we all coping with the tremendous variability in market rates that is going on. I feel that diverting
the Fed's energies to a greater emphasis on rates e.s a basis of controlling the money supply rather than focusing on the current emphasis
on total reserves an<l on borrowed reserves would be a step m the
wrong direction.
The CHAIRMAN. Once again, proposals are circulating for reducing
the Fed's independence. Some have proposed that we make the
Chairman and Vice Chairman's terms coincidental with that of the
President. Some would provide for the Chairman and Vice Chairman
to serve at the pleasure of the President. Others would put the Federal Reserve under the Treasury Department. There are numerous
variations of these proposals. Alternatively, instead of giving the
executive branch more control over the Fed, there have been other
proposals to give Congress more say over the <lay-to-day implementation of monetary policy. That is not new either. There have been
actual legislative proposals since I have been here to mandate the
range of monetary aggregates for a particular year.
How would you evaluate any of these proposals to take away
independence of the Fed either to Congress or to the administration?
Mr. MARTIN. Mr. Chairman, I believe that the independence
of the Fed has served this country well over the years. I feel that
the current oversight by this committee and by the House committee and by other committees in the two Houses of Congress is
I think there is a substantial flow of information and testimony
from the Chairman of the Fed and from the members of the Board
of Governors, I feel that the working relationship between the
Federal Reserve, Treasury, the administration, and the Congress
is functionin~.
I believe, 1f you look back in history, the flow of information and
the interface among these institutions and organizations I've mentioned is unparalleled. I think one cannot find such interface in foreign
central banks and their administration and treasury officials.
I think we have a working system and I'm strongly in favor of
the independence of the Fed. I observed that the President in February
reiterated his support for the independence of the Fed. If anything,
the Congress should be alert to those instances in the history of
the central bank in which the Board of Governors has been too
responsive to political pressure.
The CHAIRMAN. Well, I would certainly agree with
though many times I have been highly critical of the Fe and some
of its decisions, I certainly do not want to turn that policy over
to the whims of politics. I doubt if there's ever been a oetter snow
job done by Congress than using the Fed as a scapegoat for all the
economic problems of this country. I go home and go across this
country and hear just do something to the Fed, change their makeup,
make the President to be able to appoint them, let Congress dictate,
and everything will be cured overrught and we'll have low interest


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rates. It's amazing we have been able to get away with that while
obscuring the real culprit, because no President ever spent a dime
not ap:{>ropriated by Congress. No Fed ever monetized part of
the nat10nal debt that wasn't overspent by Congress.
People tend to forget that the Constitution gives the appropriation authority only to Congress. But we have done one heck of a
good job of blamin~ Presidents and the Fed when I think 99 percent
of the problem is right here within our own fiscal policy.
So even though I have been highly critical of the Fed, I certainly
don't want to turn over monetary policy to the burglars who have
destroyed the fiscal policy of this country over the years. I think
hindsight can tell us how bad Congress fiscal policy has been and
certainly to have us dictate monetary policy would be bad.
So I suppo1t your position. Even though I may yell at you from
now and then, I will still support your independence to do something
I think is dumb.
Nothing has contributed more to holding interest rates up than
financial markets' lack of confidence that the Federal Government
will stay on course in implementing the anti-inflationary monetary
and fiscal policies.
Now many people, including some Members of Congress, are urging
the Fed to adopt a substantial increase in the 1982 target range for
M-1 money growth, and I've said in hearings with the Chairman of
the Federal Reserve here before that I would hope they would hit
the upper range of their targets-as you know, they have been hitting
the lower range-and try to get more in the upper range of their own
targets. But some have advocated that we increase beyonrl the target
ranges to make up for the lower end of it that occurred this last year.
I think that would be a serious mistake. It would pump that much
money back into the economy. I wonder if you would comment on
some of those proposals.
Mr. MARTIN. I think any implementation of such a proposal would
take away the credibility of the Board of Governors in its exercise of
monetary policy in the form of increasing the targets-deliberately
changing or exceeding the targets under the present set of circumstances-we all know that circumstances change and international
exogenous events occur and occasionally these changes have to take
place. Under the current situation, the current fact, for the Fed
deliberately to exceed the upper limit I think would send absolutely
the wrong signal to the financial markets around the world an cl the
increase in interest rates would be such that we would get back to the
20- or 25-percent range rather than-the Federal funds after all trades
down yesterday toward 13 percent, thank God-the overly high
rates that we are dealing with today. I think it would be an outrageous
The CHAIRMAN. Along with your background in small business,
you'll be able to bring to the Federal Reserve Board an invaluable
understanding of the thrift institutions and the housing industry as
a. result of your years as Chairman of the Federal Home Loan Bank
Board and your private sector experience in the housing industry.
Now this is a very general question and I would expect just a
general answer not going into a great deal of detail, but do you have
any recommendations with that background experience for the short

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run? All of us know we've got to have lower interest rates. I would
hope that at least parts of my S. 1720 on restructuring the thrift
industry and banking industry would be helpful. You responded to
Senator Lugar's bill in response to questions from Senator Proxmire,
but the big question now is everbody comes in and says that's fine,
Senator Garn, we like S. 1720 and we like the future, but what are
you going to do for us the next 2 or 3 months? There are a lot of
proposals around for deep subsidies, for large bailouts, and so on
which in light of the budget situation I can't go along with.
Do you have any recommendations, without being specific, as to
any shorter term solution for the problem of the thrifts?
.Mr. MARTIN. Mr. Chairman, I think that my re,;;ponse to this is
going to sound banal because it has been made by so many of my
former colleagues-I hope to be former colleagues-in the housing
industry and housing finance. That is, the pension funds remain
peculiarly in this country disinvolved, if that's the word, with housing
and with mortgage finance and with mortgage-backed securities.
And I add that third category in that I'm aware of the size of staffs
of pension funds. I have been working on this as a private individual
before. I know they don't have large staffs and I know they don't
have housing specialized staffs or mortgage specialized staffs. But
you have this enormous and growing pool of resources out there
and they cannot under ERISA and other-they say they cannot
under ERISA constraints and other Federal regulatory and State
regulatory constraints invest in these mortgage-backed securities
and invest in equities in real estate.
We've got an equity real estate problem in the country too, not
to add to the problems of this committee, and I'm encouraged by
what I understand-I was not a participant-what I understand
was a White House conference with the pension fund money manager,;;.
I think anything would be helpful that the administration or the
Congress can do to get ERISA-those aspects of ERISA that are
impeding investment in real estate equities and, more importantly,
real estate residential mortgages by pension funds-they want to do
it. At the Miami conference' of the AFL-CIO, Bob Georgine said
his unions would put $500 million into mortgages. When he went
back and talked to his lawyers, they probably said "there isn't any
way we can do that."
The CHAIRMAN. The Credit Control Act is scheduled to expire
this summer. \Yould you advocate extending its life or letting it
Mr. l\fARTIN. While I was doing real estate development for Sears
I couldn't help overhearing the impact on Sears Roebuck of sales
of soft goods when that act was implemented by the Federal Reserye.
I feel that the distortion of resources that occurred was very negative
to our economy. I think that many of the people hit by those controls
were blue collar folks who were buying things for their families, I
think it was the wrong measure, at the wrong time, wrongly implemented.
The CHAIRMAN. Well, I think we have a great deal more proof
of that even in that period of time when President "Tricky Dicky"
had phase 1, phase 2, and phase 4, in the dislocations we had from
that situation of price and wage and credit controls.

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Sena.tor Sa.rba.nes.
Senator SARBANEs. Thank you, Mr. Chairman.
Mr. Martin, I'm sorry I wasn't here at the outset. If I ask you
questions that have already been asked to you, I hope you will understand the repetition.
Mr. MARTIN. Yes, sir.
Senator SARBANES. I'm interested in your view of the relationship
between the Federal Reserve Board and the rest of the National
Government, the Congress, and the President.
What do you see as the working relationship between the Federal
Reserve Board and the Congress, and then separately, the executive
Mr. MARTIN. Senator Sarbanes, I support strongly the sections
of the Humphrey-Hawkins Act which direot the Board of Governors
to enunciate and report on targeting in its implementation of monetary
policy. I belieye co~gressional oversight is vitally impor~ant because
of the strategic pos1t10n of the Board of Governors and its 12 banks
in economic policy. The Board of Governors is a creature of Congress
and it is appropriate that it be supervised in that sense.
The working relationship between the Fed and any administration
is one that is a tightrope. It is vitally necessary that coordination
occur and it is inappropriate and faulty that direction should flow
from Treasury or the White House to a politically independent agency,
independent within Government. I'm sorry that I'm being repetitious
and I apologize to the chairman.
I believe the present system is working. I believe the communication flows are very substantial and adequate.
Senator SARBANEs. How do you envision that that coordination
between the executive branch and the Federal Reserve should take
Mr. MARTIN. I think it should take place-I'm an operating executive and I've had the good fortune to have had responsibility with
more than one company at times. Mayby my analogy is faulty, but
I've got to go by my own experience as a businessman.
I don't believe there's any reason why in this country, with our
traditions of openness and consultation and communication, that
two working bodies-three working bodies-the Treasury, the Fed,
the White House-cannot, as Americans, work together, share
information, argue with each other, do a little yelling back and forth,
a.s the chairman indicated occurs, and it should occur-that's healthyand work it out the way we in this country work out everything else.
Senator SARBANES. Well, I'm still not quite clear what that means
as far as the relationship should work. Do you think that the President
and the Chairman of the Fed should regularly meet in order to discuss
economic policy?
Mr. MARTIN. Yes, sir.
Senator SARBANES. Do you think that efforts should be made to
pursue the same policy?
Mr. MARTIN. I think that it is vitally necessary, particularly in
such troubled times as these, that the policies pursued be coordinated,
that to the extent possible the policies fit together and work together,
and that objectives are shared. As the President indicated in his
February comment on the Federal Reserve, among other thin(J's,
he endorsed the announced objectives, I think the words were, of the

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Federal Reserve for 1982 and the growth in the money supply.
That is the kind of coordination I think is appropriate.
Senator SARBANES. So it's your perception that the Federal Reserve
Board is presently pursuin~ a monetary policy that is in coordination
or consistent with what the administration would like to see them
pursue. Is that correct?
Mr. MARTIN. Yes, sir. It is anti-inflationary. It is in its longer
term targeting aimed at reducing the growth in the money supply.
Both of those sets of objectives have been endorsed by the administration, including the President.
Senator SARBANES. What is your view of the relationship between fiscal and monetary policy?
~fr. MARTIN. Well, that relationship, of course, is an infinitely
complex one. I think one reason why most of the forecasting companies and individuals in the country feel like suicide from time to
time is that-and they miss their forecasts almost all the time-is
that the interface, the interworking of the two kinds of policies have
changed some. Partly this is a function of the huge-of the expectations of the huge deficits that most observers detect, project, :year
in and year out, almost indefinitely in the future, and partly 1t is
that the implementation of monetary policy is so much m the
There was a time when I was in Washington off and on in which
the Chairman of the Board of Governors appeared before congressional committees two or three times a year and it was kind of a
pleasant kind of getting together of old friends and people working
and nobody paid much attention to the Fed, but-Senator SARBANES. It's not that way anymore.
l\fr. MARTIN. No, sir. I recognize that, Senator.
Senator SARBANEs. I still am not sure as to what you see as the
interaction between fiscal and monetary policy.
Mr. MARTIN. I think that the Federal Open Market Committee
in its review of the economy and its work to set the targets for monetar,r growth year by year must take as one of the first two or three
series of data to review the expected expenditures and revenues and
revenue enhancement and all those other new buzz words that are
being employed here-revenue shortfalls and all the rest of it-as
almost a first step in setting monetary targets. You cannot exercise
monetary policy without starting with fiscal policy and its probable
results-ranges of results.
Senator SARBANES. Do you regard monetary targets as the key
figure that the Fed should be concentrating on as opposed to, let's
say, interest rates?
Mr. MARTIN. I do, sir.
Senator SARBANEs. Why is that?
Mr. MARTIN. I'm a pragmatist, Senator, and looking back over
the-I haven't done this in depth I must admit, but skimimng over
the results and the implementation of monetary policy over the last
few years, I think a case can be ma'.ie that there have baen imtance;;
in which to affect interest rates in a particular direction-to k~ep
interest rates from rising at a particular time, that op~n ml.rbt activities have been pursued in such a way as to overinfla.te the gro~t~
in the money supply, leading-6 months and 9 months and now 1t s

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shortening to 4 months to 3 months, to almost insta.ntly-lea.<iing to
disturbances in the economy which could have been a.voided had the
stress been less on interest rates and more on the growth of the nonborrowed reserves. I'm just saying from experience monetary policy
now ought to work better but nobody knows these things. It's unknowable perhaps. It ought to work better to concentrate on the
nonborrowed reserves and less on the Federal funds rate, for example.
Sena.tor SARBANES. In your view, would the interest rate go up
or down if the money supply goes up or down?
Mr. MARTIN. Well, sir, 1t used to be pretty to respond to that:
One just said, well, when the money supply growth was increa.sed,
why then, there was going to be a. lot more supply of funds, so rates
would go down. Now you get into a. kind of mythology. You read
those Wall Street letters and they say, well, the money supply went up
a. lot last week and therefore interest rates ought to go up. You say,
well, but isn't that increasing the supply and doesn't that normally,
put the prices down of any commodity or good; and they say, well,
!_es, but since the money supply increased a. lot, that means that the
Fed is going to really have to crunch down on things.
So you get this "never-never" land we're living in now in which supply and demand factors run through this expectational filter and they
come out upsidedown at times. So if the markets feel the money
SUJ>ply has been increasing unduly, the odds seem to be interest rates
will go up.
Senator SARBANES. Well, it's difficult to a.ct rationally under those
circumstances, isn't it?
Mr. MARTIN. As someone who used to try to fine.nee shopping centers and housing, Senator, I never was able to figure out a rational
course to follow.
Sena.tor SARBANES. I see my time is up. Thank you.
The CHAIRMAN. Mr. Martin, assummg that we have some success
in restructuring the financial services industry, it would seem to me
that consideration should be given to restructuring regulators as well.
When the subject has been raised in the past it's been suggested many
times that the Federal Reserve be stripped of responsibility of regulating the banks and bank holding companies so that the Fed could
simply operate on money policy without that other function, giving
full attention to monetary policy.
Do you have any feelings about that type of suggestion?
Mr. MARTIN. I have very mixed feelings, Sena.tor, on that. Going to my experience at the Federal Home Loan Bank Boa.rd, there
the combination of supervisory responsibilities and mortgage credit
responsibilities worked together, and I think most of the time worked
pretty well. That is, we were able to deal with regional needs for
credit and the overgeneration of credit for that matter through the
regional Federal Home Loan Bank. That bank was effective or that
bank president-what we called the supervisory agent was effective
partly because he was also the banker for the savings and loan he was
dealing with in supervisory matters.
So as a practical matter, I think it helps exercising both policies,
but I'm openminded about that also. I don't know of my own knowledge that the supervisory regulatory function i-; interfering with
monetary policy, but I don't know it isn't.

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The CHAIRMAN. Well, I'm in the same boat. I have an open mind
on it. I don't know the answers either.
Chairman Pratt has suggested greatly expanding the powers of
savings and loan service companies. One of the _proposed new powers
would be to sell and underwrite private mortgage msurance.
Given your background in private mortgage insurance, what do
you think of the proposal to allow savings and loan service companies
to get into this business?
Mr. MARTIN. I would have no objection to their service corporations as a public interest matter providing this service because such
com_panies would be subject to the same insurance commissioner
reqmrements State by State for capital and for underwriting standards and so forth as anybody else.
The CHAIRMAN. Yesterday the Labor Department announced
that in February the annual rate of increase in consumer prices
dropped to only 2.4 percent. In 1979 we had 13.3 percent in the
same period. In 1980, 12.4 percent. The question I would ask you-and
I'm sure that certainly the recession has a good deal to do with
that reduction, but would you also feel that, in addition, the Fed's
monetary policy and the fiscal restraint exercised by Congress in
the last year in cutting expenditures is partly responsible for that
too? Was it a combination of all three?
Mr. MARTIN. I think it's a combination of all three. I think that
if one looks back historically that those periods of time in which
the growth in the money supply was controlled and even reduced,
those periods of time in which the financial community believed
that the Congress was moving in a more responsible direction in
fiscal policy, you had these results. These are not unexpected results.
The CHAIRMAN. Well, some people would have us think that the
reduction in inflation has only been a result of the recession and
I would hate to think that we have gone through all the pain of
the budget cutting as well as the tight Fed monetary policy with
no result of that policy at all. So I would hope there's some credit
given to the fiscal and monetary policies and not the recession alone.
Mr. Martin, I have no further questions for you today. I think
you're an excellent nominee. I think you have responded very well
to the questions. As I say, my only reservation is Senator Proxmire's
enthusiastic support. I only say that kiddingly and facetiously because
of the fact that Senator Proxmire is so enthusiastic. As I say, when
he looks at nominees so carefully, you must be the only one we've
had in a long, long time that he is so satisfied with. So we thank you for
your testimony here today •and I would expect no difficuhies with your
nomination. We will process it in the committee as rapidly as we can
and get it to the floor for confirmation at the earliest possible date.
Thank you very much.
Mr. MARTIN. I appreciate it very much, sir.
The CHAIRMAN. The committee 1s adjourned.
[Whereupon, at 11 :15 a.m., the hearing was adjourned.]
[Biographical material on the nominee, answers to subsequent
written questions from Senator Riegel and additional letters received
for the record follow :J

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Name: _ _ _ _MART_=IN
_ _ _ __



Fusitlon to which Member /Vi~ Oiairman, Board of Gover"95~e of
of the Federal leserve System
nomination: _ _ _ _ _ _ _ __

Date of birth: December 5 1 1923

Marital status:
Name and aps



Place of birth: IDs Angeles, California



Full name of spouse: Adrienne May Hatch Martin

Jeffrey - 30

Gay - 28

Pier - 20




Indiana University

Sept. 1948,JJJQP ]950

University of Southern CA 1946-1948
University of Oklah:xna


Dates of




B. Sci.

Finance. M.B,A.





IDs Angeles State College 1942-1943

Honors and awards: List below all scholarships, fellowships, honorary degrees, military medals, honorary society
memberships, and any other special recognitions for outstanding service or achievement.

1973 Premier Performance Award, the 'l\lrn Table Builders, N.A.H.B.
1972 AlLmni Award, University of Southern California
1971 Construction Industry Award, Engineering News Record
1971, 1970 Management Excellence Awards, White House
1969 Top Perfonner, lbuse and Heme Magazine

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List below all memberships and offices held in professional, fraternal, business, scholarly,
civic, charitable and other organizations.
Office held


(if any)


.American Finance Associatioo



.American EXxlncmics Associatioo



Lambda Alpha (Urban El::oncmics)



Beta Garrrna Sigma





Inter. O:lnf. Soop. Ctrs.
Lambda Oii Alpha



Employment record: List below all positions held since college, Including the title or description of job, name of
employment, location of work, and dates of inclusive employment.

1979 FMI l'brtgage Insurance Co., San Francisco, CA, Oiairman and CED
1972.__._Fed,.,,,,ee.,r,..a.,l'--"lblle""'"--'Loa""""'n'--Ba"""ncek,__.Boa""'"'rd,,_,_• ..,W,sa.,s"'h,.,_._...--'D"".,_,C,.,.c1,---"'Ch'"a"'1..,·rma,,,,,,"'n'--------1966
1968 Division of Savings and Loan, California, Les Angeles, CA Ctmnissioner
Professor of Finance. Graduate School of Business Administration.
U'liversity South.Calif., Les Angeles, CA
1964 Director of Executive Prcgrams. University of Calif •• IDs Angeles. CA,
and Professor of Finance, USC
1965 Instructor to Professor of Finance, USC, Graduate School of Business
1965 Jxooqnjc Research Group, ros ~eJes. CA Proprietor
1956(mid)l957 Institute per lo Studio Organizatzione Azienclale, 'lbrino, Italia,
(Professor of Fioaoce)
1980 The :nd<es Corp., Sm1 Diego, Cal., D1rector
19C2 Cent~x Corp.,, Texas, Director
1981 Sear:; R:iebcd~ & Co., Oiicago, Ill., Director
Director of the folla,ing Sears subsidiaries: atte,eprixs, Inc,

Hanart Devclo;n:m:: Caapany
Al 1-:;tate ,..aavi~c; mrl T.£>c10 Association
Allstate Enter:;:,ri::;es Mortgage Conpany
pm ~trrr;:age 01:Dpfey
FMI Mortgage In:::un:nce Conpany of California

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List any experience in or direct association with Federal, State, or local governments, including any advisory, consultative, honorary or other part-time service or positions.

Please see enployment record for full time oosts held,
Present mernter, President's Housirv;i Canni.ssion
Former member. FN1A Advisory Council
Former mernter, Federal Hare Loan l'brtgage Corp. Advisory Council
FHIBB Advisory Crnmittee. 1976
H.u.o. Advisory Canni.ttee, "Future of FllA", 1977-1978


List the titles, publishers and dates of books, articles, reports or other published materials
you have written.

Contributing Fditor, "The Professional Builder", 1974-1979 1
wrote nllll'erous articles on regular basis
~Principles and Practices of Real Estate", University text, The
Macmillan Catpany, 1959
"'!tie Bureaucrat as Innovator", Report to Management 423 USC, 1970
''Savirv;is and Loans in New Subnarkets",
!?!_ Marketing ~ . 1967
"Affluence and Household Liquidity", Journal of Finance and ~antitative
Analysis, March, 1966
--- - --- "Forecasting Southern California Business Conditions", Report to
Management 413, University of Southern California, 1965

and activities:

List all memberships and offices held in and services rendered to all political parties or
election committees during the last 10 years.

National Reagan for President Carmittee. mid-1980.
My wife Adrienne was an Alternate Delegate. California Delegation.

to the Republican National Convention in 1968.
I served as an "Honorary Delegate", California Delegation, to the
Republican National eon~-v~e~o~t~i~OdOL...>i~oL..l.lz97L2...,_,_ _ _ _ _ _ _ _ _ _ _ _ __

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Itemize all political contributions of $500 or more to any individual, campaign organization, political party, political action committee or similar entity during the last eight
years and identify the specific amounts, dates, and names of the recipients.

1978, July or August: Luncheon "Pete Wilson for G:lvernor"
(of California), $500.00 Approx.
1919, O::tobet JL co::ktetil pe.rty for lffletld Fleagai, for President,
July 9, 1981: Sears loebuck Political Action Q:mnitte, $500.00


State fully your qualifications to serve in the position to which you have been named.
(attach sheet)

see attached sheet.

Future employment
1. Indicate whether you will sever all connections with your present employer, business
firm, association or organization if you are confirmed by the Senate.

see attached sheet,
2. As far as can be foreseen, state whether you have any plans after completing government service to resume employment, affiliation or practice with your previous em-

ployer, business firm, association or organization.
No plans


3. Has anybody made you a commitment to a job after you leave government?

4. Do you expect to serve the full term for which you have been appointed?


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Attaclmlent, Page 4.


This is to state my qualifications for the positioo of Member and
Vice Olairman of the Board of Governors of the Federal Reserve System.
canbination of developing and managing governmental and business
organizations is unusual. My experience includes managing several
activities of a similar agency, the Federal lbne Loan Bank Board, in
the formulation and implementation of credit policy (nortgage credit),
financial institution supervision (and supervisory mergers), and


Most of my working career has been involved with managing small
b.lsinesses and in the •start-up" phases of ventures, particularly
Savings and Loan Associations. My consulting firm The Econanic Research
Group was active for twelve years in those activities. As a sole
proprietor I performed a wide range of activities. Similarly, the
founding, staffing, and expansion of PMI Mortgage Insurance o:rnpany
for eight years and several b.lsiness cycles in the lblsing and Financial
Industries taught me atout nonetary policy's iJtt>acts.
My two years at Sears, loebuck & Cb. were ones of responsibility for
two small organizations, and three medium sized firms; the planning

and restaffing which was acccmplished was greatly affected by our
outlooks regarding developing nvnetary, fiscal, and regulatory policies.

Attachment, Page 4.

Future enq;,loyment relationships:

Terminated status as active e!l{lloyee of Sears, loebuck & Co. on
November 17, 1981. Received right to severance benefits through December 31,
1983, and retirement benefits thereafter, have no obligation to
provide any services to Sears, loeb.lck & Co. or any of its affiliates or

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Potential conflicts
of interest:

1. Describe any financial arrangements or deferred compensation agreements or other
continuing dealings with business associates, clients or customers who will be af-

fected by policies which you will influence in the position to which you have been

Terminated status as active employee of Sears, lbeb..tck & Co., on
November 17, 1981. Will receive severance payment of $446,438 prior
to taking oath of office and wiJ l receiue PQA&ion

effective January 1, 1984. Will continue as a participant in Sears'
non=contttbawry sapplenental lifi! insuraice plan fut key exa::atives.
2. List any investments, obligations, liabilities, or other relationships which might involve
potential conflicts of interest with the position to which you have been nominated.

wife owns 585 shares of the cathay Bank, IDs Angeles, which

will be sold.

3. Describe any business relationship, dealing or financial transaction (other than tax-

paying) which you have had during the last 10 years with the Federal Government,
whether for yourself, on behalf of a client, or acting as an agent, that might in any
way constitute or result in a possible conflict of interest with the position to which you
have been nominated.


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4. List any lobbying activity during the past 10 years in which you have engaged for the
purpose of directly or indirectly influencing the passage, defeat or modification of
any legislation at the national level of government or affecting the administration and
execution of national law or public policy.


5. Explain how you will resolve any potential conflict of interest that may be disclosed by
your responses to the above items.

My wife ard I will sell our National City Corporation shares
her cathay Bank shares upon confirmation.
Civil, criminal and


1. Give the full details of any civil or criminal proceeding in which you were a defendant
or any inquiry or investigation by a Federal, State, or local agency in which you were
the subject of the inquiry or investigation.

As a member of the Federal Heme Toan Bank Board frClll J969 J972 and
as Cannissioner of Savings & I.Dans of California fran 1966-1969,
I was named as a deferi::tant 1n various c1v1I an::::I iM:::flT\ln1strat1ve
'llg the be&t c;,f II>,' kooo>le<lge, RQA8 aE& peRdi.Rg at tl.i.& No criminal or other proceedings.

2. Give the full details of any proceeding, inquiry or investigation by any professional
association including any bar association in which you were the subject of the proceeding, inquiry or investigation.

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April 5, 1982

Dear Senator Riegle:
I am pleased to enclose responses
to the written questions you submitted in
connection with my nomination hearing held
on March 24.
Please let me know if I can be of
further assistance.


Preston Martin
The Honorable Donald W. Riegle
United States Senate
Washington, D.C. 20510


What differences, if any, do you have with the current conduct of
monetary policy by the Fed and what changes would you reconmaend?

I support fully the basic thrust of current Federal Reserve policy,
namely, the persistent application of monetary restraint in order to

maintain progress toward price stability and thus lay the groundwork
for sustained economic growth.

It is my intention to study proposals

for changes in the methods used to implement the Federal Reserve's
policies--for example, the possibility of contemporaneous reserve

Without having had the oppottunity to review in detail

the research on these technical issues, including the internal work
by Federal Reserve staff, I don't think it would be appropriate for me

to take a position on them at this point.

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What in your opinion are the major issues facing the American banking
industry today and how would you propose to address them?

The American banking industry and its regulators face a number of
challenging issues today.

Under the general heading of "soundness, ..

I think I would highlight the question of capital adequacy.


the intensifying competition in domestic and international
and the erosive impact of inflation has resulted in a significant
reduction in capital ratios.

Thia is especially discomforting in an

environment in which the risk exposure asaot:iated with certain credits

seems greater.

Bank.era must focus their attention on the maintenance

of adequate returns on their operations and make sure that their lending
margins are consistent with a realistic assessment of their risk-taking.
Thia traditional problem of bank management must, furthermore, be
addressed today against a backdrop of potentially major change in the
structure of the financial services industry.

Institutional development&

to date already have dictated a careful rethinking of balance sheet
structures and product mixes, including alternative emphases on retail
versus wholesale business and responses to changing regulations regarding
branching, international banking facilities, Edge corporations, and
interest rates.

Questions of possible interstate banking or revisions

of bank holding company and Glass-Steagall statutes present additional
strategic issues for
As regards

as well as for their regulators.

general approach to the broad issue of banking regu-

lation, it is my belief that, while taking due account of the transitional
problems of the thrift industry in particular, we should move as rapidly
as possible toward a circumstance in which depository institutions are
free--within the bounds of safety and soundness considerations--to respond
as their business judgment dictates to changing customer needs.


should be able to provide different combinations of services to customers
depending on the individual characteristics of the banks and the segments of
the consumer, business, government, or international markets that they can
and should serve.

An important element of the deregulatory process should

be the reduction of reporting burden based on the careful analysis of data

needs by the banking agencies.

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What in your opinion will be the end result of the Fed'• tight 111:onetary
policy and the President'• proposed large deficits?
I think it 11 crucial that the Congre1s 11.ove boldly to cut back the
size of the federal budget deficits now in proapect in the years ahead

under current programs.

Enactment of deficit-reducing

for fis-

cal years 1983, 1984, and 1985 on a scale at least as large •• vhat
been proposed by Preddent Reagan vould do

to convince the public

that the Federal governaent is putting its fiacal house in order.


fears of inflationary pre1sure1 and persistent financial strains that
have veighed heavily on the credit aarkets would be calmed I aettin,g in
110tion expectational forces that will lower interest rates, eapecially
in long-tera



and bolster economic activity.

Your ideas about monetary policy are not generally known. Are you a
monetarist or do you identify with any other particular school of
economic thought?
I do not identify with any particular school of econo11.ic thought.
The bulk of my professional career has been in the management and development of organizations 1 both public and private.

While I believe one

must work from aome conceptual framework, my experience has tau9ht me
that a pragmatic approach ta necessary for sound decision-maktng--a
willingness to examine the strengths and weaknesses of a variety of
doctrines, and then to adopt those elements of theory that beat 11.eet
the tests of the real world-


What approach do you think should be taken by the Fed to bring down
interest rates in the 111.mediate future?

It is important to recognize that. the actions of the Federal Reserve
are not the only forcea influencing intereat ratea.

I don't think there

ls any additional step that the System. can take that would bring down
interest rates im11.ediately--and 'keep them down.

By pursuing its current

policy of measured anti-inflationary monetary restraint, the Syatem is
taking the most promi&iff8 action it can to bring about a
tained reduction in interest rates.


Substa'ntial--and I believe prompt--

relief from the current tensions in credit aark.ets could be achieved by
decisive action to reduce the federal government'• currant and pro1pective
budget deficits and aaaoclated borrowing requireaenta.

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Jenjamin Friedman of Harvard believes the J'ederal R.e1erve
should change tta excluaive focus on the 110ney supply and shift to a
"No-target" policy, including both
and credit. Re vould uae
total net credit of nonflnancial lnstt.tutions--busineaa, conswaers
and goverDJ1ent--aa hla credit target. Superior
he says, would
be a three-target monetary policy, including interest rate• aa well as
aoney and credit. What do you think of this idea?
I must respectfully defer my answer to your technical queation with
regard to '"two-target"' or "three-target· approaches to aonetary policy.

t vould vant to have an opportunity to examine carefully Profeaaor
Friedman's argument• and evidence, as well _aa related studies by others-including any internal studies by Federal Reserve staff, to which I have
not had access as a private

I might

as a general matter

that, I recognize the practical need to coanunicate policy intentions with
clarity internally and externally.

la best ac:coaplished by plac-

ing pri11&ry focus on a 1111.i ted set of


Many people believe that ve are in the vorst recession since the end of
World War II and newspaper columnists are increasingly talking about a
possible depresaion . How aeriou1
the current economic lituation in
your opinion and what ahould the Central Bank be doing to relieve conditions?

The current economic decline ta 1ertoua, but I don't aee a justification for talk about possible "depreation"'--certainly not if one takes
ae the vord'a meaning a downturn of the magnitude of the 1930a or in ao11e
earlier periods of our nation's history.

There are many mechanisms in

place to prevent such a continuing, cumulative contraction in activity-• central bank that 1• keeping the money stock growing and providing
liquidity to depository institutions through the discount window, a eet
of federal aupervleory and insurance agencies that deal effectively with
the weaker depositories, and a federal budget that contains powerful automatic stabilizers
uled large


well as, in the

that are deeply troubled today,

circumstances, some sched-

Of course, there are 1ector1 of our econoaay

notably the auto, housing, ftlall buai-

neaa, agribusiness and thrift industries.

On the financial eide, I

think it ta important that some version of the so-called "Regulators'
Bill" be enacted immediately to provide the federal regulatory agencies
with more tools to deal with failing depositories.

To address the problems

of housing and other credit-sensitive nonfinancial aectore, it is imperative
that the federal government reduce its call on private savings including its
•off budget• call and thereby ease the

on interett rates.

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What do you foresee aa the major issues in international banking during
the next few years?

One major issue in international banking that has arisen and will
continue to be an issue in the next few years

the credit expo-

aure of large banks to developing countries and countries in Eastern

To date the loss experience on such lending has been quite


However, the combination of debt service requirement,, high

world interest rates, sluggish growth in the industrial cotmtries, weak
commodity prices, and the potential for political instability means that
this area requires careful aonitoring.
A second issue in international banking ta the ability of banks to

operate in major foreign markets.

The United States traditionally has

followed a policy of national treatment where foreign banks are permitted
to enter and compete with American
of 1978.

area were

on roughly equal terms.


by the International Banking Act

Not all industrialized countries offer foreign banks the eame

freedom to enter and compete, and the banking agencies in the United
States should continue bilateral discussions and negotiations with those
major foreign coun triea where the access of our banks is limited.


the other hand, although the International Banking Act aodified the
treatment of foreign banks in the United
taking place in U.S. financial markets

the changes that are
that the role of foreign

banks will have to be reviewed to ensure competitive equality for foreign
banks as laws and regulations affecting the ability of domestic banks to
compete in domestic markets and product lines are revised.
A third major international banking issue concerns the Euromark.ets
and their impact on credit flows, monetary conditions, and bank soundness.
These subjects are discussed and analyzed by various international groups,
particularly under the auspices of the Bank for International Settlements.
Given the likelihood of continued growth of these markets, these matters
will have to remain under consideration in the next few years.

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When you headed the Federal Home Loan Bank Board I gather that you
occasionally ran afoul of Arthur Burns who was then Chariaan of the
Fed. Mr. Burns reportedly did not want S&Ls to becom.e too
commercial banks. What is your current thinking on this matter and
vhat were your basic differences with Mr. Burns?

My task •• FHLBB Chairman was partly one of offsetting the cyclical

contractions in mortgage credit flows.
viewed as working toward


While euch activities


evening out the sectoral impacts of credit

etringency, it could also be argued that they tend to blunt the countercyclical thrust of monetary restraint.
assisting the

In addition, in the course of

market, the FHLB System often has been involved

in heavy borrowings, which may exacerbate in some degree pressures on

These facets of FHLB System activity have froa time

to time raised issues among governmental departments and agencies whose
basic missions differ.
On the more specific issue .you note, however, I auat say that
not in a position to confirm that Ambassador Burns did not want savings
and loans to become too much like commercial banks.

One of ay objectives

at the FHLBB was the deregulation of the savings and loan industry, but
I was not an advocate of NOW accounts at that time (1969 to 1972) and I
do not recall differences of view between myself and then Chairman Burns
on the subject of aavings and loan liabilities.
I believe that our society as a whole would be the loser if deregulation were to produce a financial system lacking in specialized institutiona.

I believe that a bank or a savings and loan can specialize in a

geographic sense, in serving only its community of domicile; it should
have the legal leeway to specialize in a particular industry or group
of industries, including housing.

Given their present management, their

tens of thousands of rather specialized employees I and their huge mortgage portfolioa, I do not believe that the majority of saving• and loans
will become .. too much like commercial banks ...

It'• unlikely that most

savings and loans will be transformed into heavy buaineas lenders,
relying overwhelmingly upon transactions deposits and purely money market
liabilities for their aources of funds.

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Bank representatives have testified before this Committee during the
past year that non bank, nondeposi tory institutions are increasingly
entering the banking industry by offering financial services and are
taking some of their business. To what extent are banks and nonbanks
competing for the same services on an "unequal playing field" and how
serious is the problem?

What would you propose to do about it?

Banks and nonhanks auch as Sears, Prudential and American Express are
competing in a very minor way, at the margin, for consumer and creditcard related services.

The phrase .. unequal playing field" I do not think

is relevant in this context.

American ExpI'ess branches are not commer-

cial banks and do not have insured deposits.

Indeed, American Express

has attempted to divest itself of its commercial banking activities;

already done so.

At this time, the competitive situation is

a healthy one in that different kinds of institutions are stimulating
the provision of new services to consumers.
I would propose to continue close monitoring of the services provided and consumer response thereto.

would use the favorable

of competition to guide deregulation of commercial banking to widen and
deepen that! tion.




Alexanitria, Va., March 30, 1982.

Chairman, Committee on Banking, Housing, and Urban Affairs, Dirksen Senate
Office Building, Washington, D.C.

DEAR SENATOR GARN: The Committee of which you are Chairman was scheduled
to hold hearings on March 24, 1982 on the nomination of Preston Martin to be a
member and Vice Chairman of the Board of Governors of the Federal Reserve
The National Society of Public Accountants is a national organization representing more than 17,000 independent, self-employed, professional practitioners
who offer a variety of accounting, tax, auditing and management advisory
services to small business firms and individuals.
,ve are neutral on the nomination of Mr. Martin to the Federal Reserve Board.
However, as a national organization whose members service over four million
small businesses across the nation, we must express our disappointment that the
Administration apparently did not consider House Concarrent Resolution No. 195
introduced by Representative Byron L. Dorgan, expressing the sense of Congress
that the President should fill the 1982 vacancy on the Federal Reserve Board
with a person of substantial small business experience.
Sincerely yours,
CARL C. PERRY, President.

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Raleigh, N.O., April 1, 1982.

Senator JAKE


Dirksen Building,
Washington, D.C.
DEAR SENATOR GARN: Read in the Wall Street Journal that there doesn't
appear to be any significant opposition to Preston Martin's appointment to the
Federal Reserve Board Committee.
Well, I oppose his appointment, since we don't need another economist, S&L
executive or banker on the Federal Reserve Board. "\Ve need a small businesseman
on the Board.


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