The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
LIBRARY
ROOM 5030
UUL 1 1 1986
TREASURY DEPARTMENT
Treas.
HJ
10
.A13P4
v. 270
U.S. Dept. of the Treasury.
PRESS RELEASES.
UIBRARY
ROOM 5030
UUL 1 11986
TREASURY DEPARTMEN
TREASURY NEWS
department of the Treasury • Washington, D.c. • Telephone
FOR RELEASE ON DELIVERY
EXPECTED AT 10:00 A.M.
November 6, 1985
STATEMENT OF JOHN J. NIEHENKE
DEPUTY ASSISTANT SECRETARY OF THE TREASURY (FEDERAL FINANCE)
BEFORE THE SUBCOMMITTEE ON COMPENSATION AND EMPLOYEE BENEFITS
OF THE HOUSE COMMITTEE ON POST OFFICE AND CIVIL SERVICE
Madame Chair and Members of the Subcommittee:
I welcome this opportunity to appear before you this morning
to discuss the continuing efforts of the Treasury Department and
of the Secretary of the Treasury to assure persons receiving
benefits and other payments from the United States that their
payments will be made and honored notwithstanding Congressional
failure to agree on a debt limit increase. I roust emphasize
that we can continue to provide such assurances only through
November 14, by which date Congress must act on the debt limit
bill to avoid default.
On September 10, when I testified before the Senate Finance
Committee urging that the debt limit bill, H.J. Res. 372, as
passed by the House, be enacted prior to September 30, I stated
that "without an increase in the debt limit by that date,
investment of the Civil Service Retirement and Disability Fund in
Treasury securities will have to be delayed to avoid exceeding
the debt limit." I estimated that the cost of the delay to the
Civil Service and two other funds would total approximately $8
million per day.
B-348
- 2 As the Chair is aware, funds other than Civil Service have
also been adversely affected, and, moreover, our ability to
operate the finances of the United States on a routine and
predictable basis has been sorely strained.
It is the obligation
of the Secretary of the Treasury to reconcile his responsibility
not to issue debt in excess of the debt limit with his concurrent
obligation to manage responsibly the finances of the United
States, including in particular the timely payment of benefits
for a number of programs for which he serves as fund manager.
In
balancing these responsibilities, the Secretary has made
decisions based on four guidelines:
(1) avoid an unprecedented
default on obligations of the United States; (2) ensure that
recipients of benefit payments receive their payments when
expected; (3) minimize, to the extent possible, the costs to the
various funds administered by Treasury of actions taken, and (4)
stay within the debt limit.
I can report to you today that, in spite of numerous and
complex problems, Treasury has, to date, managed to avoid a
default, ensured that recipients of monthly payments have been
paid on time, minimized the cost of actions necessary to make
payments on time, and stayed within the debt limit.
I must
caution, however, that we are running out of time.
Continued
delay in passing a debt limit bill is unacceptable.
I trust
today's testimony, and testimony I will give tomorrow, will
clarify what we have done and reassure you and the American
public that our actions have not jeopardized the solvency of any
- 3 trust funds.
But I must point out that only a prompt passage of
a debt limit bill will relieve the unnecessary and unfortunate
anxiety that recipients'of payments from these funds are
experiencing.
The Civil Service Retirement and Disability Fund is
established by section 8348 of title 5, United States Code.
The
Secretary of the Treasury is directed to take certain actions
with respect to the fund, including receiving monies and
investing "such currently available portions of the Fund as are
not'immediately required for payments from the Fund."
The
investments are to be made in special obligations of the
Treasury, at an interest rate set monthly on the basis of a
statutory formula.
Unlike other trust fund statutes, the Civil
Service fund statute does not explicitly provide for redemption
of Fund investments in order to pay benefits.
However, the
statute does appropriate monies in the Fund for payment of
benefits and administrative expenses.
Since benefits cannot be
paid unless investments either mature or are redeemed, it is
obvious that the Secretary's authority to invest also
contemplates redemption.
The Civil Service fund has two major sources of
income—periodic payments from agencies in respect of employee
salaries and lump sum payments at the end of the fiscal year in
respect of unfunded liabilities. When Treasury is unconstrained
f
in its ability to issue new debt to the Fund, all this income is
- 4 immediately invested in Treasury securities.
At the same time,
both benefit payments and repayments of contributions to
departing employees must- be made from the Fund. The payments vary
from month to month, but are generally on the order of $2
billion per month.
When payment checks or electronic funds
transfers are presented to Treasury for payment, payment is made
from the Treasury general cash account and investments of the
Fund are redeemed to reimburse the Treasury.
The vast bulk of
these redemptions occur during the first ten days of each month.
Throughout Augus"t and in September until September 30, the Fund
was invested and redeemed as usual; there were no non-investraents
or early redemptions.
Because of the relatively small scale of the daily
transfers, and the concurrent redemptions, we have until now been
able fully to invest the daily transfers.
However, as I warned
in my September 10 testimony, the failure to enact an increased
debt limit by September 30 has meant that a portion of the annual
lump sura payment to the Civil Service fund has not been invested.
Treasury transferred to the Fund approximately $17 billion in
respect of unfunded liabilities on September 30, on which date
Treasury was already at the debt limit.
invest the $17 billion at that time.
Therefore, we could not
I want to emphasize that
the transfer was made, it was only the investment that was
delayed.
Except for the interest loss discussed below, the
principal amount of the fund is fully as large as it would have
been had the increased debt limit been passed before September 30.
- 5 The Civil Service fund, unlike the Social Security Trust
Funds, does not operate under an advance investment "normalized
tax transfer" system.
Therefore, as I stated in September and as
Secretary Baker reiterated in an October 1 letter, when the Fund
is uninvested, it loses interest.
Because of this interest loss,
as debt limit capacity became available during October (through
redemptions to pay benefits), the Fund, along with other
interest-losing funds, was partially invested.
By the end of
October, over $12 billion of the $17 billion transferred on
September 30 (in addition to the daily transfers) had been
invested.
Moreover, because of the structure of the Fund's
portfolio, redemptions to pay benefits during October were able
to be made fully out of short-term and low-yield longer term
obligations, avoiding the redemption of any higher-yielding longterm obligations.
We estimate that the October interest loss to
the Civil Service fund because of delayed investments and
non-investment was approximately $55 million.
In September and October, Treasury's cash balances were
sufficient to permit the payment of benefits followed by
redemption of obligations held by the Fund, as is normal Treasury
operating practice.
However, as of the close of business on
October 31, Treasury's cash balance was only $1.8 billion
(compared to a normal cash balance on that date of between $10
and $20 billion and a minimum desirable level of $5 billion).
Treasury estimated that checks and electronic funds transfers
presented for payment the next day would be in excess of $10
- 6 billion, including approximately $1.4 billion of Civil Service
benefit payments and $6.9 billion of Social Security benefit
payments.
billion.
November 1 revenues were estimated to be less than $3
A similar situation was projected for November 4.
In order to raise the necessary cash to make sure benefits
could be paid, on October 29 and 30 Treasury auctioned obligations in the amount of $13 billion to be issued on November 1,
and on October 31, Treasury auctioned an additional $4.75 billion
in obligations to be issued on November 4.
Although Treasury
hoped that the new debt could be issued under an increased debt
limit, an increase was not enacted.
Therefore, Treasury pro-
ceeded to redeem fund obligations only in an amount equal to
November benefit payments in order to be able to raise cash by
issuing the new obligations while staying under the debt limit.
Because cash flows are uncertain within a wide margin, Treasury
needed to accelerate the redemptions.
Thus, $1,513 billion in
securities were redeemed from the Fund on November 1, $198
million was redeemed on November 4, and $52 million is expected
to be redeemed on November 8.
Under normal circumstances, $1.4
billion would have been redeemed on November 1, $225 million on
November 7 and $151 million on November 8.
We estimate that the
interest loss to the Fund from the early redemption is
approximately $404,000.
I wish to assure you that the securities redeemed on
November 1 and 4 were short-term securities.
Therefore, the
- 7 redemption will have no adverse consequence for the Fund's
portfolio.
Finally, I wish to assure you that Treasury will of
course comply with section 273 of H.J. Res. 372 if it is enacted
into law.
That section provides for issuance of securities and
transfers of funds to relieve the Civil Service and other funds
of losses since September 1 resulting from the debt limit
impasse.
The debt limit impasse has put us all in the position of
facing choices we would rather not face.
The Secretary has
recently been faced with choosing between defaulting on all
United States obligations, including beneficiary payments, or
advancing the redemption of trust fund obligations to pay those
benefits.
He chose the latter course to ensure that millions of
Americans would continue to receive their benefits in a timely
fashion.
That completes my formal statement. I will be happy to
answer any questions you may have.
TREASURY NEWS
lepartment of the Treasury • Washington, D.c. • Telephone 566-2041
FOR RELEASE ON DELIVERY
EXPECTED AT 2:00 P.M.
NOVEMBER 7, 1985
STATEMENT OF JOHN J. NIEHENKE
DEPUTY ASSISTANT SECRETARY OF THE TREASURY (FEDERAL FINANCE)
BEFORE THE SUBCOMMITTEE ON SOCIAL SECURITY AND INCOME
MAINTENANCE PROGRAMS
OF THE SENATE FINANCE COMMITTEE
Mr. Chairman and Members of the Subcommittee:
I welcome this opportunity to appear before you to
explain what actions Treasury has taken during the current
debt limit impasse that have affected the Social Security
Trust Funds.
In this testimony I will cover four points.
First, explain how the Social Security Trust Funds operate
with respect to the payment of benefits, transfer of credits
and redemption of obligations by these Trust Funds when there
are no debt limit restraints on investment by the Trust Funds.
Second, explain what actions Treasury has taken with respect
to these funds during this current debt limit impasse.
Third,
outline three types of potential costs to the Trust Funds
arising from the actions Treasury has taken.
Finally, outline
the costs to the non-Social Security funds due to the failure
of Congress to increase the debt limit.
I know this Committee recognizes the importance of
managing the finances of the United States on a routine and
responsible basis and assuring that those due payments from
the United States receive those payments on an orderly basis.
B-349
- 2 Failure to increase the debt limit has strained our ability to
meet these responsibilities. This strain results in
uncertainty on the part of those due payments from the United
States about when and whether they will receive those payments.
The Secretary of the Treasury must reconcile his
responsibility not to issue debt in excess of the debt limit
with his concurrent responsibility to manage responsibly the
finances of the United States including timely payment of
benefit payments for a number of programs for which he serves
as fund manager. In balancing these responsibilities, the
Secretary has made decisions based on four guidelines: (1)
avoid an unprecedented default on obligations of the United
States; (2) ensure that recipients of Social Security and
other retirement programs receive their payments when
expected; (3) minimize, to the extent possible, the costs to
the various funds administered by Treasury of actions taken,
and (4) stay within the debt limit.
I can report to you today that in spite of numerous and
complex problems, Treasury has, to date, managed to avoid
default, ensured that recipients of Social Security payments
have been paid on time, minimized the cost to the Trust Funds
of actions necessary to make payments on time, and stayed
within the debt limit. I must caution, however, that we are
running out of time. Continued delay in passing a debt limit
- 3 bill is unacceptable. I trust today's testimony will clarify
what we have done and reassure you that our actions have not
jeopardized any payments from the Social Security or other
Trust Funds. But I must point out that the only long-term
solution to relieve the anxiety that recipients of payments
from the funds are experiencing is prompt passage of a debt
limit bill.
I will now turn to the normal operation of the two Social
Security Trust Funds — Federal Old Age and Survivors
Insurance Trust Fund (OASI) and Federal Disability Insurance
Trust Fund (DI) (the Trust Funds). The Trust Funds receive
transfers in the form of credits from the Treasury in amounts
equal to taxes collected (primarily FICA withholding taxes)
under applicable provisions of the Internal Revenue Code.
Since May 1, 1983, the transfer has been made at the beginning
of each month in an amount equal to the Secretary's estimate
of tax receipts to be received by the Trust Funds that month.
This procedure is referred to as the Normalized Tax Transfer
("NTT"). These transfers are invested in interest-bearing
obligations maturing on the next June 30. These obligations
are subject to the debt limit.
At the end of each month, Treasury mails checks and
forwards electronic funds transfer tapes for benefits payable
on the third day of the following month. When these transfers
are made and checks are presented to the Treasury, payment is
- 4 made from the Treasury cash account and Trust Fund investments
are then redeemed to reimburse the Treasury.
Thus monthly
redemption of obligations held by the Trust Funds is and has
been an integral part of the Secretary's administration of the
Trust Funds.
To properly account for benefits paid by electronic funds
transfers obligations with a face value of approximately 50
percent of total benefit payments would be redeemed on the day
electronic funds transfers and checks are payable.
In
accordance with the requirements of section 153 of the Social
Security Amendments of 1983 (P.L. 98-21), obligations in a
face amount equal to approximately 30 percent of the benefit
payments would be redeemed on the fourth business day
following the check issue date; the remaining 20 percent would
be redeemed on the fifth business day following the issue
date.
The normal redemption procedure is that the first
obligations redeemed are those that mature the following
June 30, lowest interest rate first.
The redemption process
includes the most recently invested NTT.
If these obligations
are insufficient to cover benefit payments, obligations
maturing the next June 30 are redeemed, again lowest interest
rate first, and so on.
Therefore, in months when the NTT i s
less than benefits paid (which can happen even when there ig
an annual surplus), longer term obligations may be redeemer.
- 5 This happens several times each year, most recently in August,
1985. These redemptions are totally unrelated to the debt
limit and take place due to normal fluctuations in monthly
Trust Fund receipts.
Long-term investments are made each June 30. The
proceeds of all maturing obligations are reinvested in obligations with maturities based on projected benefit payments.
(All obligations mature on June 30, but they mature in different years.) The interest rate on each of these obligations,
no matter what the maturity, is the statutory formula rate for
the June during which they are issued. This rate may be
higher or lower than the rates on the maturing obligations.
Now let me explain the actions Treasury has taken during
the current debt limit impasse. On September 3, 1985 (the
first working day of September), Treasury transferred the full
September NTT to the Trust Funds as required by law. However,
also on that date, the principal amount of outstanding obligations subject to the debt limit reached the statutory limit of
$1823.8 billion. Therefore, Treasury was unable to fully
invest the NTT on September 3. However, as Trust Fund
obligations were redeemed to reimburse Treasury for payment of
Trust Fund benefits during September according to Treasury's
normal operating practice, the uninvested balance in the Trust
Funds was invested to the maximum extent possible.
- 6 On October 1, Treasury again transferred the full October
NTT to the Trust Funds.
However, because obligations out-
standing subject to the statutory debt limit again equaled the
limit, the NTT was not, and thereafter has not been invested.
I want to assure you that, in spite of inability to
invest the NTT, Trust Fund total balances have remained
essentially stable since July 31.
The Trust Fund balances and
investments for the period July 31 - October 31, 1985 are
shown in the following table (in millions of dollars).
July 31 August 31 September 30 October 31
Invested:
Long-term
Short-term
Total invested
Uninvested
36244
1563
37807
"34436
2760
37196
27535
8875
36410
453
160
3077
15877 est.
Grand Total
38260
37356
39487
38840 est.
22642
321
22963
Under normal circumstances, obligations with face amounts
totaling almost $15 billion would have been redeemed by the
Trust Funds on November 1, 7 and 8.
$6,899 billion of
obligations would have been redeemed on November 1, $4,816
billion would have been redeemed on November 7 and $3.21
billion would have been redeemed on November 8.
That amount
equals the amount of benefits that will be paid in November.
No more than this $15 billion of obligations will be redeemed
from the Trust Funds; however instead of being redeemed o n
November 1, 7 and 8, they are being redeemed on November \t ^
- 7 and 8.
On November 1 obligations in an amount of $9,613
billion were redeemed.
On November 4 obligations in an amount
of $4,181 billion were redeemed.
On November 8 obligations in
an amount of $1,131 billion will be redeemed.
Let me stress
that, while the timing of redemptions has been accelerated,
since the same amount of obligations would have been redeemed
in any event, Trust Fund obligations were only used for Trust
Fund November payments.
This early redemption, also referred to as disinvestment,
was necessary because unlike September and October, when
Treasury's cash balances were sufficient to permit payment of
benefits followed by redemption of obligations held by the
Trust Funds, in November Treasury's cash balance was virtually
depleted.
As of the close of business on October 31, the
Treasury's cash balance was only $1.8 billion (compared to a
normal cash balance on that date of between $10 and $20 billion
and a desirable minimum level of $5 billion).
Treasury
estimated that checks and electronic funds transfers that would
be presented to the Treasury for payment the next day would be
in excess of $10 billion, including approximately $6.9 billion
of Trust Fund benefit payments.
November 1 revenues were
estimated to be less than $3 billion.
projected for November 4.
A similar situation was
Thus, unless Treasury took action,
the United States would have defaulted.
If the United States
defaulted, recipients of Social Security payments would not
have been paid.
- 8 In order to avoid default on November 1, on Tuesday and
Wednesday, October 29 and 30, Treasury auctioned $13 b i H i o n
new Treasury obligations, which were issued- on November 1-
in
Tne
auction raised cash to enable Treasury to make benefit
payments.
An additional $4.75 billion of Treasury securities
was auctioned Thursday, October 31, for issuance on November 4,
also to provide cash for benefit payments.
In order to minimize costs to the Trust Funds, Treasury
altered its normal method of redeeming securities and, in
November, redeemed securities on the basis of lowest interest
rate first —
regardless of maturity.
This Treasury action
avoided the redemption of high coupon obligations held by the
Trust Funds.
The failure to pass a debt limit and the actions taken by
Treasury to ensure November benefit payments could result in
three potential losses to the Trust Funds,
(1) losses directly
due to non-investment of the Normalized Tax Transfer; (2)
losses resulting from acceleration of the November redemption,
and (3) losses resulting from premature redemption of
obligations maturing after June 30, 1986.
Let me discuss each
potential loss.
The NTT mechanism was part of the 1983 amendments to the
Social Security Act.
As explained above, under the NTT,
anticipated receipts are invested on the first business day
of
- 9 each month. By law, excess interest earned by the Trust Funds,
however, must be repaid to the Treasury. This adjustment is
accomplished at Trust Fund interest payment dates by reducing
the interest otherwise due the Trust Funds on the Treasury
obligations by the amount of excess interest earned by the
Trust Funds because of the NTT. Due to this semi-annual
interest netting mechanism, Treasury, at this time, can and
will make the Trust Funds whole for loss of interest due to the
inability to invest fully the Trust Funds.
A second loss is the loss that results from the
accelerated redemption of Trust Fund obligations. Last week in
testimony I testified this loss would be approximately $10
million. I can now report that we have been able to determine
that the loss is approximately $9 million.
The third potential loss arises from the premature
redemption of Trust Fund obligations with maturities after
June 30, 1986. The economic effect on the Trust Funds of
premature redemption of longer maturity obligations is
uncertain and, moreover, different for each of the funds. For
example, although the OASI obligations redeemed had interest
rates slightly higher than the current statutory investment
rate, obligations redeemed by DI in November carried interest
rates lower than the current rate. Thus, if interest rates
remain steady until June, 1986, although OASI would experience
a loss from the redemptions, DI would have a gain. While we
- 10 cannot quantify what will happen as a result of these redemptions, we now know that in October, 1984 there was a loss when
we also had to redeem long-term obligations. Furthermore, we
know that, as the GAO reported to Congress in 1979, the Trust
Funds experienced losses in 1978 due to a debt limit impasse
that year.
Finally, let me briefly comment on losses experienced by
other funds. Unlike the Social Security Trust Funds, other
funds do not operate under an advance investment "normalized
tax transfer" system. Therefore, as I stated in September and
as Secretary Baker reiterated in an October 1 letter, when
those funds are uninvested, they lose interest. Because of
this interest loss, as debt limit capacity became available
during October (through redemptions to pay benefits), those
funds were partially invested. We estimate that the interest
loss to those funds because of delayed investments and noninvestment was approximately $ 70 million through October 31.
Yesterday I testified that early redemption of securities
held by the Civil Service Retirement Fund resulted in a onetime interest loss of approximately $404,000. Similarly the
Railroad Retirement Account lost approximately $265,000.
These other funds may also suffer losses due to the
redemption of obligations with interest rates above what they
could be invested at today and maturities beyond June 30, l986<
- 11 As with the Trust Funds it is not possible to calculate the
effect of redemption of these obligations because it requires
predictions of interest rates after June 30, 1986.
Section 273 of H.J. 372 as passed by the House on
November 1, provides for issuance of securities and transfers
of funds to relieve all funds of losses resulting from the debt
limit impasse this year. As I testified yesterday, Treasury
will of course comply with that provision, or similarly
effective legislation, if enacted into law. This legislation,
however, would not cure losses from previous years, a fact you
may wish to take into consideration when you consider this
legislation.
The debt limit impasse has put us all in the position of
facing choices we would rather not face. The Secretary has
recently been faced with choosing betweeen defaulting on all
United States obligations, including beneficiary payments, or
advancing the redemption of trust fund obligations to pay those
benefits. He chose the latter course to ensure that millions
of Americans would continue to receive their benefits in a
timely fashion.
Mr. Chairman, that concludes my prepared remarks.
TREASURY NEWS
tepartment of the Treasury • Washington, D.c. • Telephone 566-2041
For Immediate Release
November 8, 1985
Contact: Charlie Powers
Phone: (202) 566-2041
TREASURY IMPLEMENTS BAN ON LOANS
TO THE SOUTH AFRICAN GOVERNMENT
The Department of the Treasury announced the issuance today
of regulations prohibiting financial institutions in the United
States from making loans to the Government of South Africa.
These regulations implement measures under the President's
Executive Order Number 12532 of September 9, 1985, and become
effective at 12:01 a.m. Eastern Standard Time, November 11, 1985.
The regulations are issued as amendments to the South African
Transactions Regulations, which were previously issued by the
Treasury Department to implement the ban on importation of South
African Krugerrands under Presidential Executive Order 12535 of
October 1, 1985.
The prohibition on loans applies to banks, savings banks,
trust companies, savings and loan associations, credit unions,
securities brokers and dealers, investment companies, employee
pension plans, and their holding companies and subsidiaries.
These institutions may not make loans, directly or indirectly, to
the South African. Government or any entity controlled by that
government. The term loan covers a variety of transfers or extensions of funds or credits, including furnishing trade credits
to the South African Government, purchasing debt securities
issued by the South African Government after November 11, 1985,
and acquiring loans previously made to the South African
Government by other persons.
Limited exceptions will be available to permit loans for
educational, housing, or health facilities that would benefit all
persons on a non-discriminatory basis, or loans which will
improve the economic situation of South Africans disadvantaged by
apartheid.
oOo
B-350
DEPARTMENT OF THE TREASURY
Office of Foreign Assets Control
31 C.F.R. Part 545
South African Transactions Regulations
AGENCY: Office of Foreign Assets Control
ACTION: Final Rule
SUMMARY: The Office of Foreign Assets Control is
amending the South African Transactions Regulations to
prohibit financial institutions in the United States
from making loans to the South African Government or
its controlled entities, and for other purposes.
EFFECTIVE. DATE: 12:01 a.m. Eastern Standard Time,
November 11, 1985.
FOR FURTHER INFORMATION CONTACT: Marilyn L. Muench,
Chief Counsel, Office of Foreign Assets Control,
Department of the Treasury, Washington, D.C. 20220;
202/376-0408.
SUPPLEMENTARY INFORMATION: On September 9, 1985, the
President issued Executive Order 12532, finding that
the policies and actions of the Government of South
Africa constitute an unusual and extraordinary threat
to the foreign policy and economy of the United States
and invoking the authority, inter alia, of the
-2International Emergency Economic Powers Act (50 U.S.C.
1701 et seq.)•
Executive
Among other measures taken through the
Order,
institutions
the
in
the
President
United
prohibited
States
from
financial
making
or
approving loans to the South African Government or its
controlled entities, except in certain narrowly specified circumstances.
The order delegated authority to
implement the loan prohibitions to the Secretary of the
Treasury.
These
amendments
to
the
South
African
Transactions Regulations, including the definitions of
certain terms used therein, have been adopted for the
sole purpose of implementing
the provisions of the
Executive Order.
Since the regulations
function,
the
Procedure
Act,
involve a foreign affairs
provisions
5
U.S.C.
of
553,
the
Administrative
requiring
notice
of
proposed rulemaking, opportunity for public participation, and delay in effective date, are inapplicable.
Because no notice of proposed rulemaking
is required
for this rule, the Regulatory Flexibility Act, £ U.S.C.
601 et seq., does not apply.
Because the regulations
are issued with respect to a foreign affairs function
of the United States, they are not subject to Executive
Order 12291 of February 17, 1981, dealing with Federal
Regulations.
The
information
collection
requests
contained in this document are being submitted to the
Office of Management
and Budget
under
the Paperwork
-3Reduction Act of 1980, 44 U.S.C. 3501 et seq. Notice
of OMB action on these requests will be published in
the Federal Register.
List of Subjects in 31 CFR Part 545
South Africa, Imports, Krugerrands, Loans,
Penalties, Reporting and Recordkeeping Requirements.
PART 545 - AMENDED
31 CFR Chapter V, Part 545, is amended as set
forth below:
1. The "Authority" citation for Part 545 is
amended to read as follows:
Authority: 50 U.S.C. 1701 et seq.; E.O. 12532, 50
FR 36861, Sept. 9, 1985; E.O. 12535, 50 FR 40325,
October 3, 1985.
2. The table of contents of Part 545 is amended
by the addition of the following sections:
Subpart B — Prohibitions.
Section 545.202 Prohibition on loans to the Government
of South Africa.
Subpart C — General Definitions
Section
Section
Section
Section
Section
Section
Section
Section
Subpart
545.303 Importation.
545.304 Loan.
545.305 Financial institution.
545.306 The Government of South Africa; South
African Government.
545.307 Entities controlled by the South
545.308 African
Person. Government.
545.309 Entity.
545.310 Affiliate.
D — Interpretations
-4Government as obligor.
Approval of loans by foreign
affiliates.
Section 545.409 Loan participations.
Section 545.410 South African law.
Subpart E — Licenses, Authorizations and Statements of
Licensing Policy
Section 545.408
Section 545.503 Loans for educational, housing, or
health facilities.
Section 545.504 Loans to benefit persons disadvantaged
by the apartheid system.
Subpart I — Miscellaneous
Section 545.901 Paperwork Reduction Act Notice.
3. New Section 545.202 is added to read as
follows:
Section 545.202 Prohibition on loans to the
Government of South Africa.
(a) Except as authorized under this part, no
financial institution in the United States may make or
approve any loan, directly or indirectly, to the
Government of South Africa as defined in this part.
(b) The prohibition in paragraph (a) shall not
apply to any loan which a financial institution in the
United States is obligated to make under an agreement
entered into before September 9, 1985.
4. Section 545.203 is amended to read as follows:
Section 545.203 Effective dates.
(a) The effective date of the prohibition in
-5section 545.201 shall be 12:01 a.m. Eastern Daylight
Time, October 11, 1985.
(b) The effective date of the prohibition in
section 545.202 shall be 12:01 a.m. Eastern Standard
Time, November 11, 1985.
5. New Section 545.303 is added to read as
follows:
Section 545.303 Importation.
The term "importation" means the bringing of any
item within the jurisdictional limits of the United
States with the intent to unlade it.
6. New Section 545.304 is added to read as
follows:
Section 545.304 Loan.
The term "loan" means any transfer or extension of
funds or credit on the basis of an obligation to repay,
or any assumption or guarantee of the obligation of
another to repay an extension of funds or credit. The
term "loan" includes, but is not limited to:
overdrafts; currency swaps; the purchase of debt
securities issued by the South African Government after
November 11, 1985; the purchase of a loan made by
another person; the sale of financial assets subject to
an agreement to repurchase; and a renewal or
refinancing whereby funds or credits are transferred or
extended to the South African Government. The term
H
loanM does not include reschedulings of existing loans
-6under section 545.404.
7.
New Section
545.305
is added
to read as
follows:*
Section 545.305
Financial institution.
The term "financial institution" means any entity
engaged
in
the
business
making,
transferring,
of
accepting
holding,
or
deposits
brokering
or
loans,
including, but not limited to, banks, savings banks,
trust companies, savings and loan associations, credit
unions,
securities
brokers
and
dealers,
investment
companies, employee pension plans, holding companies of
such institutions, and subsidiaries of any of the
foregoing.
8.
New Section 545.306
is added
to read
as
follows:
Section 545.306
Government
of
South
Africa;
South
African Government.
The terms "Government of South Africa" and "South
African Government" include the national government of
South Africa; the South African Reserve Bank; the
government
of
any
political
Africa; the government
dominion
of
South
subdivision
of
South
of any territory under
Africa;
the
government
of
the
any
"homeland" established under the apartheid system, including
and
any
Bophuthatswana, Ciskei, Transkei, and Venda;
entity
controlled
by
the
South
Government, as defined in Section 545.307.
African
-79.
New
Section
545.307
is added
to read as
follows:
Section 545.307
Entity controlled by the South
African Government.
The term "entity controlled by the South African
Government"
includes
any
corporation,
partnership,
association or other entity in which the South African
Government owns a majority or controlling interest, any
entity managed or substantially funded by that government, and any entity which is otherwise controlled by
that government.
10.
New Section 545.308 is added to read as
follows:
Section 545.308
The
term
Person.
"person"
means
an
individual
or
an
entity.
11.
New Section 545.309 is added to read as
follows:
Section 545.309
The
term
partnership,
12.
Entity.
"entity"
association,
New Section
means
or
545.310
a
other
is added
corporation,
organization.
to read as
follows:
Section 545.310
Affiliate.
The term "affiliate" includes, but is not limited
to, a branch or a subsidiary.
13.
New Section
545.404
is added
to read as
-8follows:
Section 545.404
Rescheduling existing loans to the
South African Government.
Provided
that no funds or credits are
thereby
transferred or extended to the Government of South
Africa, section 545.202 does not prohibit a financial
institution in the United States from rescheduling
loans to the South African Government or otherwise
extending
the
maturities
of
such
loans,
charging fees, or interest at commercially
or
from
reasonable
rates, in connection therewith14.
New
Section
545.405
is
added
to
read
as
follows:
Section 545.405
(a)
Trade related credits.
Section
institutions
in
545.202
the
prohibits
United
issuing, or confirming
States
financial
from
letters of credit
opening,
or similar
trade credits for which the Government of South Africa
is the account party, except those which have been
fully collateralized in such institution by the South
African Government
in advance of payment.
545.202 also prohibits
financial
institutions
Section
in the
United States from creating or discounting acceptances
or
similar
instruments
to provide
financing
for the
South African Government, except acceptances which have
been
fully
African
funded
in such
Government
in
institutions by the South
advance
of
creation
or
-9discounting.
(b) Section 545.202 does not prohibit financial
institutions
in
the
United
issuing, or confirming
States
from
letters of credit
opening,
or similar
trade credits in favor of the South African Government
respecting
Section
exports
545.202
institutions
of
the
does
South African
not
Government.
prohibit
financial
in the United States from creating or
discounting acceptances respecting exports of the South
African Government.
15.
New
Section
545.406
is
added
to
read
as
follows:
Section 545.406
Loans through intermediaries.
Section 545.202 prohibits a financial institution
in the United States from making a loan to any person
in the United States or a foreign country, where the
institution has reason to believe that the loan is
being obtained for or on behalf of the South African
Government, and that the relevant funds or credit will
be made available to the South African Government.
16.
New
Section
545.407
is
added
to
read
as
follows:
Section 545.407 Substitution of the South African
Government as obligor.
Section
institution
545.202
does
not
prohibit
a
financial
in the United States from complying with
applicable laws, regulations or other directives of the
-10South African Government requiring or permitting the
South African Government to become the primary or
secondary obligor with respect to an outstanding loan,
provided
that
transferred
no
or
funds
extended
or
credits
to
the
are
thereby
South
African
Government•
17. New
Section
545.408
is
added
to
read
as
follows:
Section 545.408 Approval of loans by foreign
affiliates.
Section 545.202 prohibits financial institutions in
the United States from approving loans by their foreign
affiliates to the South African Government.
18. New
Section
545.409
is added
to
read
as
follows:
Section 545.409
Loan participations.
Section 545.202 prohibits a financial institution
in the United States from purchasing, or otherwise
acquiring a participation in, all or part of any loan
made by any other person or persons to the South
African Government, regardless of the date of the
original loan, unless such financial institution is
obligated to make the purchase under an agreement
entered
into
acquisition
before
is
September
incidental
to
9,
the
1985,
or
purchase
such
or
acquisition of an institution or all or substantially
all of the assets of an institution that has made or
-11acquired participations in such loans.
19.
New
Section
545.410
is
added
to
read
as
follows:
Section 545.410
South African law.
If, under applicable laws of South Africa, a
financial
institution
in
the
United
States
cannot
obtain enough information from a person in South Africa
to enable it reasonably to conclude that a loan is not
being obtained for or on behalf of the South African
Government, Section 545.202 prohibits the loan.
20.
New
Section
545.503
is
added
to
read
as
housing,
or
follows:
Section 545.503
Loans
for
educational,
health facilities.
Specific
licenses
may
be
issued
to
financial
institutions in the United States authorizing them to
make loans to the South African Government, where the
loans
will
be
used
to
benefit
all
persons
on
a
non-discriminatory basis, and where it is determined
that the loans are for educational, housing, or health
facilities.
21.
New
Section
545.504
is
added
to
read
as
follows:
Section 545.504
Loans to benefit persons disadvantaged
by the apartheid system.
Specific licenses may be issued to financial institutions in the United States authorizing them to make
-12loans to the South African Government, where it is
determined that the loans will improve the welfare or
expand the economic opportunities of persons in South
Africa disadvantaged by the apartheid system. No such
loan will be authorized to any apartheid enforcing
entity.
22. New Section 545.901 is added to read as
follows:
Part I Miscellaneous
Section 545.901 Paperwork Reduction Act Notice
[Reserved.]
Dated:
Dennis M. O'Connell
Director
Office of Foreign Assets Control
Approved:
David D. Queen
Acting Assistant Secretary
Enforcement & Operations
Filed:
Published:
TREASURY NEWS
lepartment of the Treasury • Washington, D.c. • Telephone 566-2041
Remarks By Secretary of Treasury
James A. Baker, III
at the Paper Check Conversion Announcement
November 8, 198 5
Good morning. We have an important announcement to make
today — one affecting the 115 million Americans who receive
U.S. government checks, and the millions more involved in the
check-cashing process.
Within a month, our new paper check will come into
widespread use. This multicolored check, introduced on a
pilot basis earlier this year, replaces the old, green
punched-card check used for the past 40 years.
The new checks will be phased in over several months.
On December 3, the 20 million people who get Social Security
benefits by mail will start receiving this new check. Next
year's tax refunds will all be made on the new check. Most
other payments, including Veterans' benefits and most Federal
paychecks, will change over in April.
This conversion embodies the Administration's goals of
modernizing government, cutting costs, and embracing
public/private sector initiatives.
We're changing the check because the punched card
technology is obsolete, and punched cards are no longer
consistent with modern banking practices. Because of lower
paper and storage costs, the new check will save taxpayers $6
million annually.
We also wanted a more secure check — one that is more
difficult to alter or counterfeit.
This new check has more than a dozen security features,
which will help put check counterfeiters and alterers out of
business. These features include:
B-351
-2A pattern of "USA" in non-reproducible blue ink on the
back of the check. The endorsement line section, which
appears blank to the naked eye, becomes a series of
"USA" when magnified. The hidden word "VOID" appears
when the check is photocopied.
Safety paper used in the check will show an obvious
chemical reaction upon any attempt at alteration
or writing on the paper surface using ink eradicators,
mechanical erasures, and so forth.
Sta ins will appear in the name of the payee or in the
unt p
printed on the check if an attempt is made to alter
amount
the check in these areas.
We are making this announcement today because we want to
notify Americans that a new check is coming soon. We don't want
anybody to be confused by the change, or be skeptical about the
check's authenticity.
So we have begun a public/private sector initiative to spread
the word about the change. More than 200 organizations have
agreed to help do this, including the American Association of
Retired Persons, the American Bankers Association, the Food
Marketing Institute, and veterans groups. We are grateful for
their assistance.
And now, let me turn the podium over to Commissioner Douglas,
who, along with Commissioner McSteen and Commissioner Egger, will
brief you further on these new paper checks, and answer any
questions you may have.
Thank you very much.
TREASURY NEWS
epartment of the Treasury • Washington, D.c. • Telephone 566-2041
FOR RELEASE AT 4:00 P.M.
November 12, 19 85
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice, invites
tenders for two series of Treasury bills totaling approximately
$14,800 million, to be issued November 21, 1985. This offering
will provide about $525 million of new cash for the Treasury, as
the maturing bills are outstanding in the amount of $14,274 million.
Tenders will be received at Federal Reserve Banks and Branches and
at the Bureau of the Public Debt, Washington, D. C. 20239, prior to
1:00 p.m., Eastern Standard time, Monday, November 18, 1985.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $7,400
million, representing an additional amount of bills dated
February 21, 19 85, and to mature February 20, 1986 (CUSIP No.
912794 JT 2), currently outstanding in the amount of $15,794 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $7,400 million, to be dated
November 21, 1985, and to mature May 22, 1986 (CUSIP No.
912794 KG 8 ) .
The Treasury will postpone the auctions unless it has assurance
of Congressional action on legislation to raise the statutory debt
limit before the scheduled auction date of November 18, 1985.
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Both series of bills will be issued
entirely in book-entry form in a minimum amount of $10,000 and in
any higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Branches, or of the Department of the Treasury.
The bills will be issued for cash and in exchange for Treasury
bills maturing November 21, 1985. Tenders from Federal Reserve
Banks for their own account and as agents for foreign and international monetary authorities will be accepted at the weighted
average bank discount rates of accepted competitive tenders. Additional amounts of the bills may be issued to Federal Reserve Banks,
as agents for foreign and international monetary authorities, to the
extent that the aggregate amount of tenders for such accounts exceeds
the aggregate amount of maturing bills held by them. Federal Reserve
Banks currently hold $1,234 million as agents for foreign and international monetary authorities, and $3,234 million for their own
account. Tenders for bills to be maintained on the book-entry
records of the Department of the Treasury should be submitted on Form
PD 4632-2 (for 26-week series) or Form PD 4632-3 (for 13-week series).
B-3^2
TREASURY'S 13-, 26-, AND 52-V7EEK BILL OFFERINGS, PAGE 2
Each tender must state the par amount of bills bid for,
which must be a minimum of $10,000. Tenders over $10,000 must
be in multiples of $5,000. Competitive tenders must also show
the yield desired, expressed on a bank discount rate basis with
two decimals, e.g., 7.15%. Fractions may not be used. A single
bidder, as defined in Treasury's single bidder guidelines, shall
not submit noncompetitive tenders totaling more than $1,000,000.
Banking institutions and dealers who make primary markets in
Government securities and report daily to the Federal Reserve Bank
of New York their positions in and borrowings on such securities
may submit tenders for account of customers, if the names of the
customers and the amount for each customer are furnished. Others
are only permitted to submit tenders for their own account. Each
tender must state the amount of any net long position in the bills
being offered if such position is in excess of $200 million. This
information should reflect positions held as of 12:30 p.m. Eastern
time on the day of the auction. Such positions would include bills
acquired through "when issued" trading, and futures and forward
transactions as well as holdings of outstanding bills with the same
maturity date as the new offering, e.g., bills with three months to
maturity previously offered as six-month bills. Dealers, who make
primary markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and borrowings
on such securities, when submitting tenders for customers, must
submit a separate tender for each customer whose net long position
in the bill being offered exceeds $200 million.
A noncompetitive bidder may not have entered into an agreement,
nor make an agreement to purchase or sell or otherwise dispose of
any noncompetitive awards of this issue being auctioned prior to
the designated closing time for receipt of tenders.
Payment for the full par amount of the bills applied for must
accompany all tenders submitted for bills to be maintained on the
book-entry records of the Department of the Treasury. A cash
adjustment will be made on all accepted tenders for the difference
between the par payment submitted and the actual issue price as
determined in the auction.
No deposit need accompany tenders from incorporated banks and
trust companies and from responsible and recognized dealers in
investment securities for bills to be maintained on the book-entry
records of Federal Reserve Banks and Branches. A deposit of 2 percent of the par amount of the bills applied for must accompany
tenders for such bills from others, unless an express guaranty of
payment by an incorporated bank or trust company accompanies the
tenders.
4/85
TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, PAGE 3
Public announcement will be made by the Department of the
Treasury of the amount and yield range of accepted bids. Competitive bidders will be advised of the acceptance or rejection of their
tenders. The Secretary of the Treasury expressly reserves the right
to accept or reject any or all tenders, in whole or in part, and the
Secretary's action shall be final. Subject to these reservations,
noncompetitive tenders for each issue for $1,000,000 or less without
stated yield from any one bidder will be accepted in full at the
weighted average bank discount rate (in two decimals) of accepted
competitive bids for the respective issues. The calculation of
purchase prices for accepted bids will be carried to three decimal
places on the basis of price per hundred, e.g., 99.923, and the
determinations of the Secretary of the Treasury shall be final.
Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on the issue date, in cash or other immediately-available funds
or in Treasury bills maturing on that date. Cash adjustments will
be made for differences between the par value of the maturing bills
accepted in exchange and the issue price of the new bills. In addition, Treasury Tax and Loan Note Option Depositaries may make payment for allotments of bills for their own accounts and for account
of customers by credit to their Treasury Tax and Loan Note Accounts
on the settlement date.
In general, if a bill is purchased at issue after July 18,
19 84, and held to maturity, the amount of discount is reportable
as ordinary income in the Federal income tax return of the owner
at the time of redemption. Accrual-basis taxpayers, banks, and
other persons designated in section 1281 of the Internal Revenue
Code must include in income the portion of the discount for the
period during the taxable year such holder held the bill. If the
bill is sold or otherwise disposed of before maturity, the portion
of the gain equal to the accrued discount will be treated as ordinary income. Any excess may be treated as capital gain.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76 and 27-76, Treasury's single bidder guidelines, and this
notice prescribe the terms of these Treasury bills and govern the
conditions of their issue. Copies of the circulars, guidelines,
and tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt.
4 /o c
TREASURY NEWS
Department of the Treasury • Washington, D.c. • Telephone
FOR IMMEDIATE RELEASE
November 12, 1985
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $6,704 million of 13-week bills and for $6,719 million
of 26-week bills, both to be issued on November 14, 1985, were accepted today.
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
13-week bills
maturing February 13, 1986
Discount Investment
Price
Rate
Rate 1/
26-week bills
maturing May 15, 1986
Discount Investment
Price
Rate
Rate 1/
7.18%a/
7.22%
7.21%
7.20%
7.24%
7.23%
7.41%
7.46%
7.45%
98.185
98.175
98.177
7.58%
7.62%
7.61%
96.360
96.340
96.345
a/ Excepting 2 tenders totaling $940,000.
Tenders at the high discount rate for the 13-week bills were allotted 18%.
Tenders at the high discount rate for the 26-week bills were allotted 87%.
,
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
TENDERS RECEIVED AND ACCEPTED
(In Thousands)
Received
Accepted
Received
Accepted
$
44,090
16,894,505
29,485
63,115
50,570
77,310
1,441,925
48,450
38,660
73,890
40,440
891,240
345,260
$
44,090
5,658,705
29,485
63,115
50,570
64,460
234,905
28,450
18,145
73,890
36,340
56,240
345,260
: $
66,965
: 16,576,450
:
19,160
:
89,240
:
55,415
:
118,100
1,513,975
:
64,640
43,910
55,900
33,875
:
891,240
361,230
$
41,315
5,252,020
19,160
85,990
55,415
96,600
452,645
33,990
40,660
55,900
28,875
195,240
361,230
$20,038,940
$6,703,655
. $19,890,100
$6,719,040
$17,218,630
1,147,295
$18,365,925
$3,883,345
1,147,295
$5,030,640
$16,995,845
972,455
• $17,968,300
$3,824,785
972,455
$4,797,240
1,504,115
1,504,115
1,475,000
1,475,000
168,900
168,900
446,800
446,800
$20,038,940
$6,703,655
: $19,890,100
$6,719,040
1/ Equivalent coupon-issue yield.
:
2041
TREASURY NEWS
department of the Treasury • Washington, D.C. • Telephone 566-2041
STATEMENT BY THE SECRETARY OF THE TREASURY
JANES A. BAKER, III
BEFORE THE U.S. CONGRESSIONAL SUMMIT
ON EXCHANGE RATES AND THE DOLLAR
NOVEMBER 12, 1985
Thank you, Jack, for your kind words* I appreciate the
invitation to address this distinguished group, as you evaluate
the operation of the international monetary system and consider
possible improvements in it.
The current* international monetary system has provided a
useful framework for responding to global economic 6hocks during
the past decade. Without a flexible system, adjustment to the
dramatic Increases in oil prices and high inflation, as well as
the subsequent global recession and debt crisis, would have been
more difficult and probably more costly.
Nevertheless, the current system has not been as stable as
we would have liked, and we should not be complacent about the
problems which exist.
The close interdependence of our economies
has magnified the potential impact of policies in one country on
the ability of other countries to pursue their own economic
objectives.
B-354
This interdependence, coupled with divergent
- 2 economic performance among the major Industrial countries, has
contributed to large exchange rate movements and to potentially
destabilizing imbalances among our economies which have fostered
strong protectionist pressures.
There is a clear need to improve the functioning and
stability of the international monetary system, as an essential
framework for international trade and economic growth.
Improving
the system is not an overnight task; it will take some time.
The Report pf the Group of Ten issued this past June put
forward a number of suggestions to accomplish this objective.
Important among them were proposals to strengthen IMF
surveillance as a means of encouraging the adoption and
implementation of sound economic policies and a favorable
convergence of economic performance among the major countries,
without which no system can be stable.
Progress is_ being made in the direction of sound policies
and better performance, but more needs to be Gone. The Group of
Five's meeting at the Plaza Hotel in New York on September 22
recognized both of these facts. While noting that considerable
progress had recently been made in improving underlying economic
fundamentals, the G-5 Ministers and Governors also expressed
specific individual policy intentions to further this process,
hereby helping to promote stronger and more balanced growth in
- 3 -
our economies and to reduce external imbalances, including the
high U.S. trade and current account deficits.
Further, as you know, the G-5 also agreed that the exchange
markets did not accurately reflect recent changes in fundamental
economic conditions. Therefore, for the first time the G-5
Ministers and Governors agreed that some orderly appreciation of
the main non-dollar currencies against the dollar was desirable.
They committed to cooperate more closely to encourage this when
to do so would be helpful. This package of measures had an
Immediate and significant impact on exchange markets, reflecting
the importance of the commitments made. This impact has
continued.
The G-5 announcement is not a one-shot effort, but
one step in a continuing process of enhanced economic cooperation
focusing on the underlying fundamentals.
Conclusion
The Plaza Hotel Accord is only seven weeks old. In
addition, we will be preparing for a meeting of the IMF Interim
Committee next spring where governments will be continuing their
efforts to evaluate the system, and considering possible
improvements in it.
For these reasons, this conference is clearly a timely one.
It goes without saying that I think we must be ever vigilant in
our efforts to improve the system when we can.
I therefore look
forward to hearing your views on how this can best be done.
TREASURY NEWS
lepartment of the Treasury • Washington, D.c. • Telephone 566-2041
FOR IMMEDIATE RELEASE November 12, 1985
The Treasury Department announced that the amount of
the weekly bills to be auctioned today is being reduced from
$14,400 million to $13,400 million.
The 13-week and the 26-week
bills to be issued November 14 are each being offered in the
amount of $6,700 million.
This action is being taken to avoid exceeding the debt
limit on Thursday, November 14.
oOo
B-355
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-204
FOR RELEASE ON DELIVERY
EXPECTED AT 2:00 PM
November 13, 1985
^
STATEMENT OF CHARLES O. SETHNESS
ASSISTANT SECRETARY OF THE TREASURY (DOMESTIC FINANCE)
BEFORE THE SUBCOMMITTEE ON ECONOMIC STABILIZATION
OF THE HOUSE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS
Mr. Chairman and Members of the Subcommittee:
It is a pleasure to be here to discuss the Administration's
proposals with regard to the Farm Credit System.
As you know,
over the last several months, the Administration has been reviewing
the structure of the Farm Credit System and the System's financial
condition.
It has become apparent that basic structural reforms
are necessary to permit the Farm Credit System to utilize its
own substantial resources effectively to solve the System's
financial problems and to assure the viability of the System in
the future.
The Farm Credit System Problem
The Farm Credit System, a privately-owned cooperative
chartered by the Congress, will incur very large loan losses
between now and the end of 1987.
Systemwide losses are
expected to amount to up to $2.5 billion in the rest of 1985
and $1-1/2 billion in each of 1986 and 1987 before the System
will achieve a marginal profit in 1988.
Interest income will
offset only a small portion of these losses.
These expected losses should be assessed within the context
of the Farm Credit System's capacity to absorb them.
At the end
of September, FCS capital totaled $10.8 billion including
$5.5 billion of earned surplus and $5.3 billion of borrower-owned
- 2 stock.
The System also had loss reserves totaling $1.6 billion.
Under the current statutory structure, the System has had
difficulty mobilizing these resources to deal with loan loss
problems.
Moreover, there has been considerable uncertainty in the
financial community regarding the extent of System loan losses
and the System's ability to deploy its own considerable resources
to cope with these losses. As a result, securities market investors
have insisted on larger risk premiums (of as much as one percentage
point) on Farm Credit securities, so that the Farm Credit System
has had to pay relatively more to roll over its maturing debt.
It is worth noting that the System's borrowing cost spread over
Treasury securities has improved somewhat over the past week,
and is currently only 30-to-50 basis points worse than other
"agency" borrowers for longer maturity paper.
The Farm Credit System must be able to refinance its debt
to remain a key source of credit for farmers. Since all of the
institutions in the System draw on systemwide securities issuance
to fund their lending activities, they are all dependent upon
its financial health. There were $68.3 billion of Farm Credit
System notes and bonds outstanding on September 30.
The System problem has developed in part because the System's
regulator, the Farm Credit Administration, has had neither the
tools to intervene properly nor the distance from the System to
develop and enforce an'independent supervisory judgment.
The unfortunate result of these inter-related problems has
been increased pressure on farm borrower stockholders in the System.
- 3 -
Because the System has had difficulty mobilizing its resources,
farmers in particularly distressed areas have had to pay higher
interest rates, worry about their stock investments in the System
and undergo loan restructurings without access to the cushion
of all of the cooperative System's collective surplus.
The Need for Reform
The Administration recognizes the vital role that the System
plays for the Nation's farmers and is alert to the need to maintain the System as a privately-owned organization that is sensitive
to market forces rather than to Government dictates. The Administration agrees with the desire of the System's borrowers to retain
the cooperative nature of the System, including local management
of the lending institutions.
We believe the Congressional preference for helping ailing
financial institutions to help themselves is the appropriate
approach to the problem. In this connection, direct Government
support would increase the deficit and spur demands of others
seeking "equal treatment."
So long as it can borrow at reasonable interest rates, the
System's large earned surplus and loss reserves will assure that
it can remain a viable lender — even with estimated losses of
$5.5 billion for the rest of 1985 through 1987. Not only must
the System have the will, it also must have the capability to tap
its own considerable resources for the benefit of the whole System.
That is what a cooperative is all about: All stand together.
- 4 The System needs two basic changes. First, it must have the
capability to mobilize its earned surplus, under appropriate
supervision, so as to-deal effectively with bad loans and to
provide assurance that borrower-owned stock is cushioned by
System-wide resources. More orderly restructuring of loans,
where prudent, would be possible and would alleviate pressure to
liquidate associations. Second, the Farm Credit Administration
must be reorganized and reformed so that it will operate as an
independent regulator of the System.
The Administration's Proposal
The reform that the Administration is proposing will deal
effectively with the System's problems over the longer term.
They are (1) self-help changes that will enable the System to
tap its own considerable resources, and (2) reform of the Farm
Credit Administration into an independent supervisor. If Congress
is willing to legislate both of these reforms, the Administration
will further assess the need for Federal financial assistance.
There is definitely no need for financial assistance now —
and it would be a mistake to grant it, given the need for
prompt legislative action.
With regard to self-help, the Administration recommends
establishing an entity that could mobilize all System units'
earned surplus, purchase bad System loans at market value,
restructure such loans and assess System institutions to
cover the entity's debt service costs and any losses. The
Farm Credit Administration, which would be reformed into a
- 5 financial institution regulator, would charter and supervise a
Farm Credit Capital Corporation. The Chairman of the Farm
Credit Administration- would establish the initial capitalization
from the System banks1 and associations1 earned surplus. The
Capital Corporation would have the authority, subject to Farm
Credit Administration supervision, to:
° Purchase assets at market value from troubled FCS
institutions;
° Assume or issue FCS obligations, in accord with its
joint and several liability with other FCS institutions,
to finance assets being leased or restructured in an
orderly fashion;
° Assess FCS banks and associations to cover its expenses;
° Administer capital assistance among FCS institutions.
The FCS Capital Corporation's authority would be limited
to that of other FCS institutions, except as stated specifically
to enable systemwide self-help.
Secondly, the Administration proposes substantial reform
of the Farm Credit Administration and its regulatory authorities
to make it broadly similar to Federal supervisors of depository
institutions.
Under this approach the new Chairman of the Farm Credit
Administration would be appointed by the President, subject to
Senate confirmation, and the current Federal Farm Credit
Board would serve as an advisory committee. The Farm Credit
- 6 Administration would have the power to establish capital requirements and safety and soundness regulations and to enforce
supervisory directives. Annual, independent, outside audits
in accordance with generally accepted accounting principles
would be required. Moreover, legislation should provide for
Farm Credit Administration authority over entry and exit of
institutions in the System, including power over mergers, and
should delete delegations of authority to the System and various
powers that are inconsistent with the role of an effective
supervisory agency.
Finally, the reform legislation should specify borrowers'
rights pertaining to disclosure, access to documents, prompt
review of credit decisions, and shareholders' actions against
FCS officer-directors in accord with corporate law.
Farm Credit System Capacity to Handle Financial Problems
The System appears to have sufficient earned surplus and
current earnings to enable it to absorb its projected losses
without jeopardizing stock held by borrowers, despite a large
volume of nonperforming loans held by System institutions.
Despite this, the System has asked for very large cash infusions
of taxpayers' funds (although the amount of their request seems
to keep falling as scrutiny of their projections proceeds.)
The System's assessment of its ability to absorb losses is
too conservative in several ways. First, the System's debt to
capital ratio of approximately 8:1 compares favorably with
other sponsored agencies; FNMA's leverage ratio, for example is
70:1. Second, the System has been reluctant to tap the earned
surplus of System banks totaling $3.6 billion and System associat
- 7 totaling $1.9 billion.
(There are also systemwide loss reserves
of $1.6 billion.) Third, System institutions, which fear the
flight of good borrowers who can obtain credit elsewhere,
believe competition will force them to compress the net interest
margin on good loans — but these spreads are already considerably
below historical levels.
While the System's concerns regarding competition and
borrower flight have some validity, such concerns are clearly
not sufficient to warrant considering Federal assistance at
this time. Many System competitors also face financial
difficulties, and it is questionable whether a large number of
System borrowers could repay their land loans (currently about
$48 billion of the System's portfolio) with credit from alternative
sources in today's market environment.
Some system bankers have expressed a concern over having
to increase their interest rates to farmers sharply if their
earned surplus is shared with other units. We believe that
this is not necessary as long as the System comes to understand
that many units will have to show losses — and should, given
their asset quality problems — and that they have full systemwide earned surplus available to absorb those losses. All they
have to do for continuing good borrowers is maintain historical
spread levels over borrowing costs that are still lower than
many private corporations.
Retained earned surplus and loss reserves should enable
the System to continue to operate as a viable lender, with the
possibility of returning to breakeven or minimal profitability
in 1988. The data in the table below combine estimates for
- 8 -
the System banks and associations and is based on Farm Credit
Administration and System estimates for the 1985-87 period.
(These estimates include further land value declines of 20%
nationwide and up to 35% on the hardest hit areas.) It
simply extrapolates to 1988. It indicates that there would
be $5.0 billion of capital in the System at the end of 1988,
$.7 billion of which would represent earned surplus. Implicit
in these estimates is that the value of farmer-borrower stock
in System institutions would be preserved, except for those
borrowers who cannot keep their loans up. Also, FCS' assumptions
about holding non-earning assets do not appear to envision a
very aggressive foreclosure and disposal process.
Farm Credit System Financial Condition
($ Millions)
1984a 1985e 1986e 1987e 1988e
Net income
Surplus
Total Capital
Loan Loss
Reserves
Capital as a
% of Assets
373
(2,800)
(1,348)
6,200
3,400
2,100
700
11,800
8,700
7,000
5,000
1,300
3,300
3,000*
2,300*
13.5%
10.6%
9. 2%
(1,412)
small bif
positive
700+
5,000+
7.8%
* These estimates depend on the rate at which charge-offs are
incurred to reflect foreclosures and restructurings. We used
FCS's assumptions about holding non-earning assets, which
do not envision an aggressive disposal process.
*
7.8%+
- 9 Summary
While the Farm Credit System is burdened by the weight of
a heavy volume of nonperforming loans in institution portfolios,
it has substantial financial resources to deal with the problems.
The Administration is recommending legislative reforms that will
facilitate the distribution of System resources to institutions
that are most in need.
We are also proposing a major restructuring
of the regulation of the Farm Credit System to prevent problems
from occurring in the future, so that the financial viability
of the Farm Credit System will be assured.
We believe that the debt markets will remain open to FCS
at reasonable cost as long as the restructuring and reform legislation
allowing them to help themselves moves promptly.
Trying to devise
Federal financial assistance approaches at a time when they are
not needed would undermine the effort to get FCS to pay its
own bills and complicate the process of getting them what they
really need.
Mr. Chairman, that completes my statement.
to answer any questions that you have.
I will be glad
TREASURY NEWS
>epartment of the Treasury • Washington, D.c. • Telephone 566-2041
FOR RELEASE AT 4:00 P.M.
November 13, 1985
TREASURY TO AUCTION $9,500 MILLION OF 2-YEAR NOTES
The Department of the Treasury will auction $9,500 million
of 2-year notes to refund $8,321 million of 2-year notes maturing
November 30, 1985, and to raise about $1,175 million new cash.
The $8,321 million of maturing 2-year notes are those held by the
public, including $638 million currently held by Federal Reserve
Banks as agents for foreign and international monetary authorities.
The $9,500 million is being offered to the public, and any
amounts tendered by Federal Reserve Banks as agents for foreign and
international monetary authorities will be added to that amount.
Tenders for such accounts will be accepted at the average price of
accepted competitive tenders.
In addition to the public holdings, Government accounts and
Federal Reserve Banks, for their own accounts, hold $758 million of
the maturing securities that may be refunded by issuing additional
amounts of the new notes at the average price of accepted competitive tenders.
The Treasury will postpone the auction unless it has assurance
of Congressional action on legislation to raise the statutory debt
limit before the scheduled auction date of November 20, 1985.
Details about the new security are given in the attached
highlights of the offering and in the official offering circular.
oOo
Attachment
B-357
HIGHLIGHTS OF TREASURY
OFFERING TO THE PUBLIC
OF 2-YEAR NOTES
TO BE ISSUED DECEMBER 2, 1985
November 13, 1985
Amount Offered:
To the public
$9,500 million
Description of Security:
Term and type of security
2-year notes
Series and CUSIP designation .... AC-1987
(CUSIP No. 912827 SW 3)
Maturity Date
November 30, 1987
Call date
No provision
Interest Rate
,
To be determined based on
the average of accepted bids
Investment yield
To be determined at auction
Premium or discount
To be determined after auction
Interest payment dates
May 31 and November 30
Minimum denomination available .. $5,000
Terms of Sale:
Method of sale
Yield auction
Competitive tenders
Must be expressed as an
annual yield, with two
decimals, e.g., 7.10%
Noncompetitive tenders
Accepted in full at the average price up to $1,000,000
Accrued interest payable
by investor
None
Payment by noninstitutional investors
Full payment to be
submitted with tender
Payment through Treasury Tax
and Loan (TT&L) Note Accounts ... Acceptable for TT&L Note
Option Depositaries
Deposit guarantee by
designated institutions
Acceptable
Key Dates:
Receipt of tenders
Wednesday, November 20, 1985,
prior to 1:00 p.m., EST
Settlement (final payment
due from institutions)
a) cash or Federal funds
Monday, December 2, 1985
b) readily-collectible check .. Wednesday, November 27, 1985
TREASURY NEWS
epartment of the Treasury • Washington, D.c. • Telephone 566-2041
Remarks of the Honorable David D. Queen
Acting Assistant Secretary (Enforcement and Operations)
U.S. Department of the Treasury
At the
Italian-American working Group On
Organized Crime and Drug Trafficking
November 12, 19 8 5
Treasury's Role in the Investigation of Money Laundering
It is a distinct pleasure to exchange views, once again,
on a topic that is of vital importance to each of our countries.
You will recall that money laundering investigations were a
topic at the January meetings, at which time former Assistant
Secretary Walker gave a detailed presentation on the n.s. Government's efforts in this field.
Today, I would like to give you a summary of our progress
since then. Our investigations, carried out .by our multiagency task forces, have made significant advances against the
financial base of criminal organizations. Through one of our
initiatives, the Organized Crime Drug Enforcement Task Forces,
we have opened over 1000 cases, even though these task forces
have been fully operational for only 30 months. As you know,
our Departments of Justice and Treasury combine their
investigative expertise on these task forces, which have
produced indictments of approximately 6500 individuals since
their inception in 1983.
From a money laundering standpoint, what is important about
the task forces is this: approximately two cases out of three
have a financial component. An even larger percentage of the
cases rely on Treasury's analytical capability, which stems from
our regulatory work under the Bank Secrecy Act, for evidence
or for investigative leads.
Without the benefit of the work done by the Financial
Analysis Division, located at U.S. Customs headquarters, many
of the cases would never have been made. Others would have
suffered from evidentiary problems. Also, at least 18 major
money laundering syndicates would still be in operation.
Before they were destroyed as a result of financial investigations, these 18 organizations had laundered at least $2.8
billion.
B-358
- 2 Assistant Secretary Walker mentioned our other task forces
as well
the Treasury Financial Task Forces located across
the country. We now have approximately forty of these task
forces, working hand-in-hand with those in the Organized Crime
Drug Enforcement Task Force Program.
Despite our progress to date, we are under no illusions
regarding the task ahead of us. We have indications that the
problem of money laundering continues to grow despite our
advances so far.
For example, huge currency surpluses continue to be
reported to our Federal Reserve Banking System from the
Florida region. This region, as you know, is the hub of the
drug smuggling and trafficking industry in the United States.
Another indication of the pervasiveness of money
laundering is that more $100 bills are in circulation
than any other denomination. Sixty billion dollars worth
of these bills are in circulation today. The $100 bill
is not ordinarily considered to be a transactional form of
currency.
There are several reasons, we believe, why money laundering
continues to pose such an enormous problem for law enforcement:
First, because all organized crime depends on money laundering, those who wash crime proceeds will resort to any
conceivable scheme, limited only by the human imagination,
to evade the probing eye of government.
Second, it is an extremely lucrative business. It attracts
a highly sophisticated class of criminal, one who appears
as a legitimate businessman or other professional. As
a result, ordinary citizens, such as unwary or untrained
bank employees, can be deceived into thinking the money
launderer is a law-abiding customer.
Third, the freedom and complexity in our financial systems
afford countless means of concealing illicit cash among
legitimate financial activities.
A fourth reason why money laundering is so intractable
a problem is one that is all too familiar to both of
our countries. It is the growing importance of offshore
bank havens to international criminal enterprises.
- 3 Since we last met, the U.S. Treasury Department has taken
several steps to bolster our attack on money laundering and the
host of crimes that it supports.
First, you may recall that we mentioned our plans for a
regulation that would authorize reporting of selected transactions between U.S. and foreign financial institutions, as a
means of uncovering and tracking the offshore laundering of
criminal proceeds. These regulations have now been promulgated
in final form, and we are analyzing data with a view toward
imposing new reporting obligations.
Second, we have placed increased emphasis on the compliance
with our regulatory requirements by U.S. banks. We have brought
a number of cases this year, and we have imposed substantial
fines in instances where banks have failed to report.
Our efforts are paying off in an increased level of
compliance. Over one million currency transaction reports
will be filed this year. This represents a 40% increase over
the number filed in 1984. However, we still have a long way
to go, and we have set an ambitious goal: we want nothing
less than to deny the money launderer his access to our financial
system. To do so would strike at the lifeblood of organized
crime.
As Steve Trott has discussed, another major element in our
attack is new legislation. Rut even without new legislation,
we believe we can improve our current program through additional
regulatory changes.
One change we are considering would address the problem
of money laundering through the use of cashiers checks. These
checks are widely used in Central and South America, in the
drug trade and in connection with money laundering schemes.
To the extent that they are drawn on U.S. banks, we intend to
reduce their attractiveness to the money launderer by requiring
additional reporting or by posing certain restrictions regarding
their purchase by non-bank customers.
The cashiers check problem is a part of a larger trend that
has come to be described as "smurfing". This refers to any
scheme to avoid our Bank Secrecy Act reporting requirements by
splitting up transactions among different financial institutions.
In the larger sense, the solution to this problem mav require
legislative as well as regulatory changes.
- 4 In general, our initiatives are based on the realization
that money laundering is not one problem, but many problems,
on both a national and an international scale. We recognize and
appreciate the attention that law enforcement in your country
is directing to the investigation of money laundering, and we
welcome the opportunity to further our cooperation in this
vital area.
Together, we have an unprecedented opportunity to expand
our joint attack on financial crimes with international
dimensions.
Let me conclude by thanking you for your kind attention.
I look forward to hearing the views of General Lodi, and to
our discussion of possible ways that we can further our joint
progress.
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-204
For Immediate Release
Thursday, November 14, 1985
Contact:
Art Siddon
566-5252
Charles 0. Sethness
Appointed Assistant Secretary for Domestic Finance
Charles 0. Sethness was appointed by President Reagan to be
the Assistant Secretary for Domestic Finance at the Treasury
Department. His nomination was confirmed by the United States
Senate on October 29, 1985.
As Assistant Secretary for Domestic Finance, Mr. Sethness
will have three main areas of responsibility. The first is the
Office of Federal Finance, which includes management of the
government debt, the Federal Financing Bank, and government
credit programs. He is also responsible for the Office of
Financial Institutions, which is involved in developing
Administration policy on the rapidly changing financial services
industry. His third area of responsibility is the Office of
State and Local Finance, which includes monitoring the finances
of State and local governments, and administration of the Revenue
Sharing Program.
Prior to his appointment, Mr. Sethness spent four years as
the Associate Dean for External Relations at the Harvard Business
School. Prior to that he was a Managing Director of Morgan
Stanley & Co., Incorporated.
Mr. Sethness is no stranger to the Washington political
scene. Between 1973 and 1975 he served as the U.S. Executive
Director on the board of the World Bank.
Mr. Sethness received his bachelors degree from Princeton
University in 1963, and graduated from Harvard Business School
with high distinction in 1966 as a Baker Scholar.
He is a native of Winnetka, Illinois, is married and has
four children.
B-359
TREASURY NEWS
epartment of the Treasury • Washington, D.C. • Telephone
FOR IMMEDIATE RELEASE Contact: Art Siddon
November 14, 1985
Phone:
(202) 566-2041
Treasury Statement on Debt Limit Extension ^TA JC^r
The Congress has agreed to a temporary debt limit
extension, which provides for an $80 billion increase in
the debt limit and has an expiration date of December 6.
The White House has indicated the President will sign the
bill. The bill also provides that "immediately" upon
enactment the Secretary of the Treasury shall "restore to
the Social Security Trust Funds, or any other trust funds
established pursuant to Federal law, any securities
disinvested since September 30, 1985."
The $80 billion temporary increase amount was
determined based on the following assumptions:
The United States Government will meet all of its
obligations, including all benefit payments due to be
made at the beginning of December;
All trust funds will be fully invested as if a debt
limit had been passed, as requested by Treasury, by
September 30;
The Normalized Tax Transfer for the Social Security
Trust Funds will be made and invested as usual on
December 1; and
A reasonable cash balance will remain on December 6.
As noted by Senator Packwood during Senate floor
colloquy, even though this bill has an expiration date of
December 6, Treasury will be able to avoid a default through
midnight December 11. The reason for the difference between
the expiration of the temporary debt limit and the default day
is that Treasury will have sufficient cash on hand to meet its
daily obligations through December 11; however, it needs to
finance $14.3 billion of maturing Treasury securities on
December 12. Treasury cannot raise enough cash to meet this
December 12 payment unless a new debt ceiling has been passed.
In addition, unless Treasury has additional debt authority
beginning December 7, during the period December 7 through 11:
New receipts for most trust funds cannot be invested.
Because of the normalized tax transfer procedure,
however, December receipts for the Social Security Trust
Fund (Old Age and Disability) will have already been
fully invested;
B-360
- 2 -
Savings bonds cannot be sold; and
Special Treasury securities issued for State and Local
Governments ("SLGs") cannot be issued.
In order to avoid these adverse consequences, Congress
should pass a long-term permanent increase in the debt limit
prior to December 6.
TREASURY NEWS
department of the Treasury • Washington, D.C. • Telephone 566-2041
FOR IMMEDIATE RELEASE
November 14, 1985
TREASURY ANNOUNCES FINANCINGS
Treasury announced today a total of $61.0 billion of
financing to include the following issues:
14-day cash management bills of $18,000 million
69-day cash management bills of $4,000 million
3-year notes of $8,750 million
10-year notes of $7,000 million
30-year bonds of $6,750 million
52-week bills of $9,000 million
5-year 2-month notes of $7,500 million
Details of each issue are in separate announcements.
oOo
B-361
TREASURY NEWS
department of the Treasury • Washington, D.C. • Telephone 566-2041
FOR IMMEDIATE RELEASE
November 14, 1985
TREASURY NOVEMBER QUARTERLY FINANCING
The Treasury will raise about $22,500 million of new cash by
issuing $8,750 million of 3-year notes, $7,000 million of 10-year
notes, and $6,750 million of 30-year bonds.
The 10-year note and 30-year bond being offered today will be
eligible for exchange in the STRIPS program and, accordingly, may
be divided into their separate Interest and Principal Components
and maintained on the book-entry records of the Federal Reserve
Banks and Branches. Once a security is in the STRIPS form, the
components may be maintained and transferred in multiples of $1,000.
Financial institutions should consult their local Federal Reserve
Bank or Branch for procedures for requesting securities in STRIPS
form.
The three issues totaling $22,500 million are being offered to
the public, and any amounts tendered by Federal Reserve Banks for
their own accounts and as agents for foreign and international monetary authorities will be added to that amount. Tenders for such
accounts will be accepted at the average prices of accepted competitive tenders.
Details about each of the new securities are given in the
attached "highlights" of the offering and in the official offering
circulars. The circulars, which include the CUSIP numbers for components of securities with the STRIPS feature, can be obtained by
contacting the nearest Federal Reserve Bank or Branch.
oOo
Attachment
B-362
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC
OF 3-YEAR NOTES, 10-YEAR NOTES, AND 30-YEAR BONDS
November 14, 1985
Amount Offered to the Public.
$8,750 million
Description of Security:
Term and type of security.... ....3-year notes
Series and CUSIP designation.
Series U-1988
(CUSIP No. 912827 SX 1)
CUSIP Nos. for STRIPS Compone ts..Not applicable
$7,000 million
$6,750 million
30-year bonds
10-year notes
Bonds of 2015
Series D-1995
(CUSIP No. 912810 DT 2)
(CUSIP No. 912827 SY 9)
Listed in Attachment A
Listed in Attachment A
of offering circular
of offering circular
Issue date
November 26, 1985
November 29, 1985 (to be
November 29, 1985 (to be
dated November 15, 1985)
dated November 15, 1985)
Maturity date
....November 15, 1988
November 15, 2015
November 15, 1995
Interest rate
....To be determined based on
To be determined based on
To be determined based on
the average of accepted bids
the average of accepted bids
the average of accepted bids
Investment yield
....To be determined at auction
To be determined at auction
To be determined at auction
Premium or discount
....To be determined after auction To be determined after auction To be determined after auction
Interest payment dates
....Ma> 15 and November 15
May 15 and November 15
May 15 and November 15
Minimum denomination availabli
$5,000
$1,000
$1,000
Amount Required for STRIPS... ....Not applicable
To be determined after auction To be determined after auction
Terms of Sale:
....Yield auction
Yield auction
Method of sale
Yield auction
....Must be expressed as
Must be expressed as
Competitive tenders
Must be expressed as
an annual yield with two
an annual yield with two
an annual yield with two
decimals, e.g., 7.10%
decimals, e.g., 7.10%
decimals, e.g., 7.10%
Noncompetitive tenders ,
....Accepted in full at the aver- Accepted in full at the aver- Accepted in full at the average price up to $1,000,000
age price up to $1,000,000
age price up to $1,000,000
Accrued interest payable
....None
by investor.
To be determined after auction
To be determined after auction
Payment through Treasury Tax
and Loan (TT&L) Note Accounts.
Payment by non-institutional
investors
Deposit guarantee by
designated institutions
Key Dates:
Receipt of tenders
Settlement:
a) cash or Federal funds
b) readily-collectible check..
Acceptable for TT&L Note
Option Depositaries
Acceptable for TT&L Note
Option Depositaries
Acceptable for TT&L Note
Option Depositaries
Full payment to be
submitted with tender
Full payment to be
submitted with tender
Full payment to be
submitted with tender
Acceptable
Acceptable
Acceptable
Tuesday, November 19, 1985,
prior to 1:00 p.m., EST
Thursday, November 21, 1985, Friday, November 22, 1985,
prior to 1:00 p.m., EST
prior to 1:00 p.m., EST
Tuesday, November 26, 1985
Friday, November 22, 1985
Friday, November 29, 1985
Wednesday, November 27, 1985
Friday, November 29, 1985
Wednesday, November 27, 1985
TREASURY NEWS
department of the Treasury • Washington, D.C. • Telephone 566-2041
FOR IMMEDIATE RELEASE
November 14, 1985
TREASURY OFFERS $22,000 MILLION OF CASH MANAGEMENT BILLS
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling approximately $22,000 million, to be issued November 15, 1985, as follows:
14-day bills (to maturity date) for approximately $18,000
million, representing an additional amount of bills dated November 29,
1984, and to mature November 29, 1985 (CUSIP No. 912794 HP 2 ) , and
69-day bills (to maturity date) for approximately $4,000
million, representing an additional amount of bills dated January 24,
1985, and to mature January 23, 1986 (CUSIP No. 912794 JP 0) .
Competitive tenders will be received only at the Federal Reserve
Bank of New York prior to 10:00 a.m., Eastern Standard time, Friday,
November 15, 1985. Wire and telephone tenders may be received at the
discretion of the Federal Reserve Bank of New York. Each tender for
the respective issues must be for a minimum amount of $10,000,000.
Tenders over $10,000,000 must be in multiples of $1,000,000. Tenders
must show the yield desired, expressed on a bank discount rate basis
with two decimals, e.g., 7.15%. Fractions must not be used.
Noncompetitive tenders from the public will not be accepted.
Tenders will not be received at the Department of the Treasury,
Washington, or at any Federal Reserve Bank or Branch other than
the Federal Reserve Bank of New York.
The bills will be issued on a discount basis under competitive
bidding, and at maturity their par amount will be payable without
interest. The bills will be issued entirely in book-entry form in
a minimum denomination of $10,000 and in any higher $5,000 multiple,
on the records of the Federal Reserve Banks and Branches. Additional amounts of the bills may be issued to Federal Reserve Banks
as agents for foreign and international monetary authorities at
the average price of accepted competitive tenders.
Banking institutions and dealers who make primary markets
in Government securities and report daily to the Federal Reserve
Bank of New York their positions in and borrowings on such securities may submit tenders for account of customers, if the names
of the customers and the amount for each customer are furnished.
Others are only permitted to submit tenders for their own account.
Each tender must state the amount of any net long position in the
bills being offered if such position is in excess of $200 million.
This information should reflect positions held as of 9:30 a.^.,
Eastern time, on the day of the auction. Such positions would
include bills acquired through "when issued" trading, futures,
B- 3 6 3
- 2 and forward transactions as well as holdings of outstanding bills
with the same maturity date as the new offering, e.g., bills with
three months to maturity previously offered as six-month bills.
Dealers, who make primary markets in Government securities and
report daily to the Federal Reserve Bank of New York their positions
in'and borrowings on such securities, when submitting tenders for
customers, must submit a separate tender for each customer whose
net long position in the bill being offered exceeds $200 million.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities. A deposit of 2 percent of the par
Amount of the bills applied for must accompany tenders for such
bills from others, unless an express guaranty of payment by an
incorporated bank or trust company accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and yield range of accepted bids. Those
submitting tenders will be advised of the acceptance or rejection
of their tenders. The Secretary of the Treasury expressly reserves
the right to accept or reject any or all tenders, in whole or in
pact, and the Secretary's action shall be final. The calculation
of purchase prices for accepted bids will be carried to three
decimal places on the basis of price per hundred, e.g., 99.923.
Settlement for accepted tenders in accordance with the bids must
be made or completed at the Federal Reserve Bank of New York in
cash or other immediately-available funds on Friday, November 15,
1985.
In general, if a bill is purchased at issue after July 18,
1984, and held to maturity, the amount of discount is reportable
as ordinary income in the Federal income tax return of the owner
at the time of redemption. Accrual-basis taxpayers, banks, and
other persons designated in section 1281 of the Internal Revenue
Code must include in income the portion of the discount for the
period during the taxable year such holder held the bill. If the
bill is sold or otherwise disposed of before maturity, the portion
of the gain equal to the accrued discount will be treated as ordinary income. Any excess may be treated as capital gain.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76 and 27-76, and this notice, prescribe the terms of
these Treasury bills and govern the conditions of their issue.
Copies of the circulars may be obtained from any Federal Reserve
Bank or Branch.
TREASURY NEWS
lepartment of the Treasury • Washington, D.C. • Telephone 566-2041
FOP I .W£ or ATE RELEASE
November 14, 19 8 5
TREASURY TO AUCTION $7,500 MILLION
OP 5-YEAR 2-MONTH NOT35
The Department of the Treasury will auction $7,500 million
of 5-year 2-month notes to raise new cash. Additional amounts
of the notes may be issued to Federal Reserve Banks as agents
for foreign and international monetary authorities at the average
price of accepted competitive tenders.
Details about the new security are given in the attached
highlights of the offering and in the official offering circular.
oOo
Attachment
B-364
HIGHLIGHTS OF TREASURY
OFFERING TO THE PUBLIC
OF 5-YEAR 2-MONTH NOTES
TO BE ISSUED DECEMBER 3, 1985
November 14, 1985
Amount Offered:
To the public
$7,500 million
Description of Security:
Term and type of security
5-year 2-month notes
Series and CUSIP designation .... H-1991
(CUSIP No. 912827 SZ 6)
Maturity Date
February 15, 1991
Call date
No provision
Interest Rate
To be determined based on
the average of accepted bids
Investment yield
To be determined at auction
Premium or discount
To be determined after auction
Interest payment dates
August 15 and February 15 (first
payment on August 15, 1986)
Minimum denomination available .. $1,000
Terms of Sale:
Method of sale
Yield auction
Competitive tenders
Must be expressed as an
annual yield, with two
decimals, e.g., 7.10%
Noncompetitive tenders
Accepted in full at the average price up to $1,000,000
Accrued interest
payable by investor
None
Payment by noninstitutional investors
Full payment to be
submitted with tender
Payment through Treasury Tax
and Loan (TT&L) Note Accounts ... Acceptable for TT&L Note
Option Depositaries
Deposit guarantee by
designated institutions
Acceptable
Key Dates:
Receipt of tenders
Wednesday, November 27, 1985,
prior to 1:00 p.m., EST
Settlement (final payment
due from institutions)
a) cash or Federal funds
, Tuesday, December 3, 1985
b) readily-collectible check .. Friday, November 29, 1985
TREASURY NEWS
epartment of the Treasury • Washington, D.C. • Telephone 566-2041
FOR IMMEDIATE- RELEASE
November 14, 1985
TREASURY'S 52-WEEK BILL OFFERING
The Department of the Treasury, by this public notice, invites
tenders for approximately $9,000
million of 364-day Treasury bills
to be dated November 29, 1985, and to mature November 28, 1986
(CUSIP No. 912794 KT 0 ) . This issue will provide about $475
million of new cash for the Treasury, as the maturing 52-week bill
is outstanding in the amount of $8,535
million. Tenders will be
received at Federal Reserve Banks and Branches and at the Bureau
of the Public Debt, Washington, D. C. 20239, prior to 1:00 p.m.,
Eastern Standard time, Tuesday, November 26, 1985.
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. This series of bills will be issued
entirely in book-entry form in a minimum amount of $10,000 and in
any higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Branches, or of the Department of the Treasury.
The bills will be issued for cash and in exchange for
Treasury bills maturing November 29, 1985.
In addition to the
maturing 52-week bills, there are $14,272 million of maturing bills
which were originally issued as 13-week and 26-week bills. The disposition of this latter amount will be announced next week. Federal
Reserve Banks currently hold $2,470 million as agents for foreign
and international monetary authorities, and $5,005 million for their
own account. These amounts represent the combined holdings of such
accounts for the three issues of maturing bills. Tenders from Federal Reserve Banks for their own account and as agents for foreign
and international monetary authorities will be accepted at the
weighted average bank discount rate of accepted competitive tenders.
Additional amounts of the bills may be issued to Federal Reserve
Banks, as agents for foreign and international monetary authorities,
to the extent that the aggregate amount of tenders for such accounts
exceeds the aggregate amount of maturing bills held by them. For
purposes of determining such additional amounts, foreign and international monetary authorities are considered to hold $60
million
of the original 52-week issue. Tenders for bills to be maintained
on the book-entry records of the Department of the Treasury should
B-365
be
submitted on Form PD 4632-1.
TREASURY'S 13-, 26-, AND 52-V7EEK BILL OFFERINGS, PAGE 2
Each tender must state the par amount of bills bid for,
which must be a minimum of $10,000. Tenders over $10,000 must
be in multiples of $5,000. Competitive tenders must also show
the yield desired, expressed on a bank discount rate basis with
two decimals, e.g., 7.15%. Fractions may not be used. A single
bidder, as defined in Treasury's single bidder guidelines, shall
not submit noncompetitive tenders totaling more than $1,000,000.
Banking institutions and dealers who make primary markets in
Government securities and report daily to the Federal Reserve Bank
of New York their positions in and borrowings on such securities
may submit tenders for account of customers, if the names of the
customers and the amount for each customer are furnished. Others
are only permitted to submit tenders for their own account. Each
tender must state the amount of any net long position in the bills
being offered if such position is in excess of $200 million. This
information should reflect positions held as of 12:30 p.m. Eastern
time on the day of the auction. Such positions would include bills
acquired through "when issued" trading, and futures and forward
transactions as well as holdings of outstanding bills with the same
maturity date as the new offering, e.g., bills with three months to
maturity previously offered as six-month bills. Dealers, who make
primary markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and borrowings
on such securities, when submitting tenders for customers, must
submit a separate tender for each customer whose net long position
in the bill being offered exceeds $200 million.
A noncompetitive bidder may not have entered into an agreement,
nor make an agreement to purchase or sell or otherwise dispose of
any noncompetitive awards of this issue being auctioned prior to
the designated closing time for receipt of tenders.
Payment for the full par amount of the bills applied for must
accompany all tenders submitted for bills to be maintained on the
book-entry records of the Department of the Treasury. A cash
adjustment will be made on all accepted tenders for the difference
between the par payment submitted and the actual issue price as
determined in the auction.
No deposit need accompany tenders from incorporated banks and
trust companies and from responsible and recognized dealers in
investment securities for bills to be maintained on the book-entry
records of Federal Reserve Banks and Branches. A deposit of 2 percent of the par amount of the bills applied for must accompany
tenders for such bills from others, unless an express guaranty of
payment by an incorporated bank or trust company accompanies the
tenders.
4/85
TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, PAGE 3
Public announcement will be made by the Department of the
Treasury of the amount and yield range of accepted bids. Competitive bidders will be advised of the acceptance or rejection of their
tenders. The Secretary of the Treasury expressly reserves the right
to accept or reject any or all tenders, in whole or in part, and the
Secretary's action shall be final. Subject to these reservations,
noncompetitive tenders for each issue for $1,000,000 or less without
stated yield from any one bidder will be accepted in full at the
weighted average bank discount rate (in two decimals) of accepted
competitive bids for the respective issues. The calculation of
purchase prices for accepted bids will be carried to three decimal
places on the basis of price per hundred, e.g., 99.923, and the
determinations of the Secretary of the Treasury shall be final.
Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on the issue date, in cash or other immediately-available funds
or in Treasury bills maturing on that date. Cash adjustments will
be made for differences between the par value of the maturing bills
accepted in exchange and the issue price of the new bills. In addition, Treasury Tax and Loan Note Option Depositaries may make p a y
ment for allotments of bills for their own accounts and for account
of customers by credit to their Treasury Tax and Loan Note Accounts
on the settlement date.
In general, if a bill is purchased at issue after July 18,
1984, and held to maturity, the amount of discount is reportable
as ordinary income in the Federal income tax return of the owner
at the time of redemption. Accrual-basis taxpayers, banks, and
other persons designated in section 1281 of the Internal Revenue
Code must include in income the portion of the discount for the
period during the taxable year such holder held the bill. If the
bill is sold or otherwise disposed of before maturity, the portion
of the gain equal to the accrued discount will be treated as ordinary income. Any excess may be treated as capital gain.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76 and 27-76, Treasury's single bidder guidelines, and this
notice prescribe the terms of these Treasury bills and govern the
conditions of their issue. Copies of the circulars, guidelines,
and tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt.
4/R5
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone
FOR IMMEDIATE RELEASE
November 15, 1985
RESULTS OF TREASURY'S AUCTION OF 14-DAY AND 69-DAY
CASH MANAGEMENT BILLS
Tenders for $18,006 million of 14-day Treasury bills and
for $4,009 million of 69-day Treasury bills, both to be issued
on November 15, 1985, were accepted at the Federal Reserve Bank
of New York today. Tenders received amounted to $38,566 million
for the 14-day bills, and $13,883 million for the 69-day bills.
The details are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS:
14-day bills
maturing November 29, 1985
Discount Investment
Rate
Rate 1/
Low
High
8.20%
8.34%
8.34%
8.47%
Price
99.681
99.676
69-day bills
maturing January 23, 1986
Discounc Investment
Rate
Rate 1/
7.47%
7.50%
7.69%
7.71%
Tenders at the high discount rate for the 14-day bills
were allotted 65%.
Tenders at the high discount rate for the 69-day bills
were allotted 92%.
1/ Equivalent coupon-issue yield
B-366
Price
98.568
98.563
2041
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-2041
FOR IMMEDIATE RELEASE
November 15, 1985
AVERAGES OF ACCEPTED BIDS IN TREASURY'S AUCTION
OF 14-DAY AND 69-DAY CASH MANAGEMENT BILLS
The averages of accepted competitive bids for the cash
management bills auctioned earlier today were as follows:
14-day bills : 69-day bills
maturing November 29, 1985
:
maturing January 23, 1986
Discount Investment : Discount Investment
Rate
Rate 1/
Price :
Rate
Average 8.25% 8.40% 99.679 : 7.48% 7.70% 98.566
1/ Equivalent coupon-issue yield.
B-367
Rate 1/
Price
FREASURYNEWS
apartment of the Treasury • Washington, D.C. • Telephone 566-2041
FOR RELEASE AT 9:30 A.M.
November 14, 1985
STATEMENT OF GERALD MURPHY
ACTING FISCAL ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE SUBCOMMITTEE ON COMMERCE, TRANSPORTATION AND TOURISM
OF THE HOUSE COMMITTEE ON ENERGY AND COMMERCE
Mr. Chairman and Members of the Subcommittee:
I welcome this opportunity to appear before you this morning
to clarify the continuing efforts of the Treasury Department and
of the Secretary of the Treasury to assure persons due payments
from the United States that their payments will be made and
honored notwithstanding the lack of Congressional action on a
debt limit increase. I must emphasize that we provide such
assurances only through today, when Congress must act on the debt
limit bill to avoid default.
As the Committee is aware, the present debt limit precluded
Treasury from following normal investment and disinvestment
procedures for several Government accounts. Moreover, our
ability to operate the finances of the United States on a routine
and predictable basis has been sorely strained. It is the
obligation of the Secretary of the Treasury to reconcile his
responsibility not to issue debt in excess of the debt limit with
his concurrent obligation to manage responsibly the finances of
the United States, including in particular the timely payment of
benefits for a number of programs for which he serves as fund
manager. In balancing these responsibilities, the Secretary has
made decisions based on four guidelines: (1) avoid an
unprecedented default on obligations of the United States; (2)
ensure that recipients of benefit payments receive their payments
when expected; (3) minimize, to the extent possible, the cost of
actions taken to the various funds administered by Treasury; and
(4) stay within the debt limit.
I can report to you today that, in spite of numerous and
complex problems, Treasury has, to date, managed to avoid a
default, ensured that recipients of monthly payments have been
paid on time, minimized the cost of actions necessary to make
payments on time, and stayed within the debt limit. I must
caution, however, that we are running out of time. Passing a
debt
B-368limit bill today is essential. I trust today's testimony,
and testimony Treasury has given in the last two weeks, will
-2clarify what we have done and reassure you and the American
public that our actions have not jeopardized the solvency of any
trust funds. I must repeat, however, that only immediate passage
of a debt limit bill will relieve the unnecessary and unfortunate
anxiety that recipients are experiencing.
Treasury carries three accounts for the Railroad Retirement
Board—(i) the Railroad Retirement Benefits Account, which is by
far the largest and includes almost all the system's surplus,
(ii) the Social Security Equivalent Benefits Account, which is
relatively small and operates largely on a cash flow basis, and
(iii) the Railroad Retirement Supplemental Account, which is
still smaller. Each month Treasury receives from the Railroad
Retirement Board instructions about the investment and
disinvestment of the accounts. Where the funds hold market-based
securities, with respect to which there is a significant amount
of investment management required by the Board, the Board's
instructions as to investment amounts and timing are quite
specific. Where special par value securities (described in
section 15(e) of the Railroad Retirement Act) are involved, the
Board usually just informs Treasury of the amount of maturing
securities to be reinvested on the first of each month. The
difference between the amount maturing and the amount required to
pay benefits is the amount to be reinvested. The actions
Treasury took in early November involved these special par value
investments in the Railroad Retirement Account.
Notwithstanding the severe squeeze on both Treasury's cash
flow and its ability to invest, until November 1, the three
railroad retirement accounts were operated using totally standard
procedures. There were no non-investments, early redemptions, or
any other actions taken that would adversely affect those funds.
During this period, in fact, Treasury continued to make
redemptions several days after the issuance of benefit checks—to
grant them float—according to standard Treasury operating
practices for major retirement funds.
During September and October, Treasury's cash balances were
such that, as is normally the case, benefits could be paid
without first redeeming trust fund securities. However, on
October 31, Treasury's closing cash balance was approximately
$1.8 billion, as compared to a normal cash balance for that day
of approximately $20 billion. On November 1, Treasury estimated
that it would have to make approximately $10 billion in payments,
including approximately $6.9 billion of Social Security benefit
payments, approximately $1.4 billion of Civil Service retirement
payments and approximtely $320 million in Railroad Retirement
benefit payments. Revenues for that day were estimated at
approximately $3 billion. A similar situation was projected for
November 4.
Given this severe cash constraint, the only way that
Treasury could assure that benefit payments would be made and
honored at the beginning of November was to advance the normal
-3date on which trust fund securities were redeemed to pay
benefits. In the case of Railroad Retirement, this advancing of
the redemptions to November 1 and 4 (with a small redemption on
November 8) instead of the usual November 1, 7 and 8 represented
modification of the float benefit Treasury had unilaterally been
providing to the Railroad Retirement Account. Modifying the
redemption schedule set by Treasury reduced the amount of
interest on the float the Railroad Retirement Account otherwise
would have gained by approximately $160,739.00. Treasury would
be able to replace the interest loss if Congress passes a
statutory provision similar to Section 273 of the Gramm-Rudman
Amendment as it passed the House on November 1 which would make
all funds whole.
The Committee is aware that errors were made in processing
these unusual transactions on November 1. The Committee, I
believe, is also aware that these errors were discovered and
corrected. Essentially, the errors were that an excess $321
million was redeemed on November 1, and $124 million of the
redemption on November 4 was not taken into account in a later
redemption of the two smaller accounts, according to normal
procedures. Although none of us like mistakes, in an office
where six people are investing over 130 accounts involving over
$300 billion in an abnormal situation with directions mainly
given over the telephone, errors can happen. Treasury has
procedures, involving cross-confirmations with the program
agencies, to identify any errors quickly and to correct them
promptly.
When there are debt limit constraints, our ability to make
corrections immediately is somewhat more difficult.
Nevertheless, the error involving the excess $321 million
redemption on November 1 was corrected as of November 1; the
error involving the $124 million redemption on November 4 was
corrected as of November 4. The account will suffer absolutely
no loss of interest as a result.
The actions Treasury has taken are actions which enabled
railroad retirees to receive their benefits this month. These
actions could have been avoided had Congress responded prior to
November 1 to Secretary Baker's October 22 letter in which he
urged quick passage of a debt limit increase to avoid -the need
for such actions.
TREASURY NEWS
apartment
of the Treasury • Washington, D.C. •November
Telephone
18, 1985
FOR IMMEDIATE RELEASE
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $7,409 million of 13-week bills and for $7,443 million
of 26-week bills, both to be issued on November 21, 1985, were accepted today.
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
13-week bills
maturing February 20, 1986
Discount Investment
Rate
Rate 1/
Price
7.23%
7.24%
7.24%
7.47%
7.48%
7.48%
26-week bills
maturing May 22, 1986
Discount Investment
Rate
Rate 1/
Price
98.172
98.170
98.170
7.25%
7.26%
7.26%
7.63%
7.64%
7.64%
96.335
96.330
96.330
Tenders at the high discount rate for the 13-week bills were allotted 65%,
Tenders at the high discount rate for the 26-week bills were allotted 67%,
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
TENDERS RECEIVED AND ACCEPTED
(In Thousands)
Received
Received
Accepted
Accepted
$
31,335
22,614,500
19,355
25,990
82,495
55,565
1,460,705
80,670
41,890
39,185
27,545
1,720,825
330,050
$
31,335
6,358,605
19,355
25,990
39,685
28,275
451,775
40,670
15,875
37,785
17,545
45,825
330,050
$7,408,815
: $26,530,110
$7,442,770
$23,802,920
1,092,570
$24,895,490
$4,358,135
1,092,570
$5,450,705
:
$23,502,590
845,820
:
: $24,348,410
$4,415,250
845,820
$5,261,070
1,649,310
1,649,310
1,650,000
1,650,000
308,800
308,800
531,700
531,700
$26,853,600
$7,408,815
: $26,530,110
$7,442,770
$
42,335
22,564,275
32,435
47,295
80,405
57,975
1,446,075
45,715
36,360
63,070
42,850
2,059,990
334,820
$
42,265
6,568,315
31,560
47,220
43,395
47,200
74,655
25,715
11,360
57,920
32,850
91,540
334,820
$26,853,600
1/ Equivalent coupon-issue yield.
:
:
2041
TREASURY MEWS
epartment of the Treasury • Washington, D.C. • Telephone 566-204
STATEMENT OF THE HONORABLE
DAVID C. MULPORD
ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS
BEFORE THE SUBCOMMITTEE ON
INTERNATIONAL FINANCE, TRADE, AND MONETARY POLICY
BOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
NOVEMBER 19, 1985
Mr. Chairman, Members of the Committee:
I welcome this opportunity to 'tliscuss efforts to improve the
international monetary system, and to enhance exchange rate
stability in particular.
The bills which you are considering generally reflect concern
about the strong dollar. They propose changes in either U.S.
foreign exchange market intervention operations or the
international monetary system itself in order to bring about
greater stability and a lower value for the dollar.
I recognize that the strong dollar has had an adverse impact
on the competitive position of a number of U.S. industries.
However, many of the proposed exchange rate remedies contained in
these bills focus on the symptoms rather than the fundamental
causes of recent problems. Such remedies are likely to be
ineffective and potentially counterproductive, in the absence of
measures to address the underlying economic fundamentals
themselves. The Treasury Department opposes both bills. The
provisions contained in them are unnecessary and would impose
undesirable constraints on U.S. interternational monetary policy.
The current international monetary system has provided a
useful framework for responding to global economic shocks during
the past decade. Without a flexible system, adjustment to the
substantial increases in oil prices and high inflation, as well as
the subsequent global recession and debt crisis, would have been
more difficult and probably more costly.
We believe that the basic elements of the current, system, and
the principles encompassed in the IMF Articles of Agreement,
remain sound. Nevertheless, the current system has not been as
stable as we would have liked, and we should not be complacent
about
3-370 the problems which exist.
- 2 -
The trade and capital market liberalization which has
occurred during the past two decades has benefitted all of our
nations and should not be reversed. As a result of these positive
developments, however, our economies are also more open than ever
before to external influences. Through their influence on both
trade and capital flows, policies in one country can affect the
ability of other governments to pursue their own domestic policy
objectives.
This increased interdependence, coupled with divergent
economic performance among the major industrial countries, has
contributed to large exchange rate movements and to potentially
destablizing imbalances among our economies which have fostered
protectionist pressures. Markets have also had to adjust recently
to further capital market deregulation, with which they have had
little experience. This factor has also introduced an element of
uncertainty in exchange markets.
There is a clear need to improve the functioning and
stability of the international monetery system, as an essential
framework for international trade and economic growth. This
doesn't mean capital controls, nor does it require the imposition
of trade barriers to isolate our economies from the external
world. Such measures are damaging to ourselves as well as to
others and merely bring on retaliation in kind.
A more positive approach to greater stability is needed. I
would like to outline our thoughts on this important issue by
first addressing the underlying causes of the strong dollar and
the lessons to be learned from recent exchange market developments. I will then discuss the implications of this experience
for current efforts to improve the functioning of the
international monetary system.
Causes of the Strong Dollar
Our analysis indicates that while there is a complex and
multifaceted relationship between the strength of the dollar and
the trade deficit, two fundamental factors stand out:
— strong economic performance in the U.S. relative to other
major industrial countries; and
— the LDC debt situation.
A. Disparities in Economic Performance
The vigorous U.S. expansion, and our strong gains in
employment since 1982, contrast with the relatively weak
performance of our trading partners over the period of dollar
appreciation, mid-1980 to end-February 1985.
- 3 For example, at the end of 1984 industrial production in the
United States was 11 percent higher than it was 4 years earlier,
despite a year long recession in 1982. In contrast, industrial
production in Europe at the end of 1984 was essentially unchanged
from its 1980 level. There have also been stark performance
differences in a broader measure of output — our real GNP in the
fourth quarter of 1984 was 12 percent higher than during the
recession's trough in 1982. Real GNP in the other major
industrial countries rose only 7 percent over the same period and,
in Europe alone, only 4 percent.
This was a reversal of historical trends. During the
Sixties, the U.S. economy grew more slowly than the other major
nations, with an average annual growth rate of about 4 percent, as
compared to more than 6 percent for other industrial countries.
During the Seventies, this growth gap narrowed to less than 1
percentage point, although the United States still grew more
slowly. During 1982-84, however, our relative growth rates
reversed: we grew at an average 5.3 percent, nearly double the
average growth rate of other industrial nations.
U.S. inflation performance also'improved markedly relative to
Europe between 1980 and 1984. The U.S. inflation rate fell from
more than 13 percent in 1980 to slightly more than 4 percent in
1984, an improvement of over 9 percentage points. Inflation in
the four major European countries fell from an average of about 13
percent in 1980 to about 6 percent in 1984, an improvement of 7
percentage points.
Why has U.S. performance been so strong relative to Europe in
particular? The answer is found in the economic policies pursued
by the Administration and Congress over the past five years.
Anti-inflation efforts, deregulation, tax reductions, and a shift
both in attitude and behavior towards free markets stimulated
investment and increased rates of return to entrepreneurship. The
dynamic and flexible environment produced by these policies is
reflected in the creation of over 8-1/2 million jobs during the
current expansion.
By contrast, European growth and job creation have been
hampered by policies that have limited their economies' ability to
adapt to changing economic circumstances. For example, an array
of hiring and firing regulations and generous unemployment benefits have raised the cost to firms of taking on new workers and
reduced the desire of workers to seek new jobs. Europe lost over
half a million jobs during 1982-84 — at a time of positive
growth.
These differences in economic performance have had a strong
impact on the trade balance and the dollar over the past five
years:
- 4 —
Stronger U.S. growth relative to our major trading
partners resulted in strong U.S. import growth and weak
export growth. As a rule of thumb, each one percent of
U.S. GNP growth raises our imports by $10 billion; each
one percent of growth by the other countries increases
U.S. exports by $5 billion.
— U.S. investors looked at our strong economic performance,
our stable political environment and our high after-tax
real rate of return on investment, in both absolute terms
and relative to other countries, and decided to keep
their money at home. Foreign investors found dollar
assets attractive for similar reasons, and increased
their investments in the U.S. Strong net capital inflows
to the United States contributed to the appreciation of
the dollar.
B. LDC Debt Situation
The LDC debt situation was also a major element in both the
strong dollar and our trade deficit. In 1980, the non-OPEC LDCs
accounted for nearly 30 percent of our exports. But as their
external and domestic economic conditions deteriorated with the
emergence of the international debt problem, their economic growth
fell sharply. As a result, our exports to-all non-OPEC LDCs in
1984 were about $7 billion below the 1981 level.
These effects of the debt situation also contributed to the
stronger dollar, through its impact on the U.S. capital account.
Between 1982 and 1984, net U.S. commercial bank lending swung from
an outflow of $45 billion to an inflow of $23 billion. This large
swing reflected in part the preference of U.S. banks to lend
domestically rather than to LDCs after the debt problem emerged
late in 1982.
It is also likely that the sizable difference between
recorded U.S. net capital inflows and our current account deficit
primarily reflects unrecorded capital flows from the developing
world to the U.S. — the safe haven factor. Poor domestic
economic performance and a general lack of confidence in economic
policies encouraged domestic investors in LDCs to send their money
abroad.
C. The Strong Dollar and the Trade Deficit
Up to this point, I have treated the trade deficit and the
strong dollar as separate phenomena, both reflecting the common
underlying factors of disparities in performance and the LDC debt
situation. This is the basic fact which has guided our response
to the problem posed by the strong dollar and the trade deficit.
- 5 However, I recognize that the strong dollar, in turn, has
directly contributed in a substantial way to the deterioration in
our trade balance by making our goods less price competitive
abroad and foreign goods more price competitive here. We estimate
that the appreciation of the dollar may have accounted for one
third to one half of our trade balance deterioration.
The need to deal with the strong dollar has been recognized
by the G-5 Governments, rather dramatically in fact by the
September 22 meeting of the G-5 at the Plaza Hotel in New York.
The question is: what is the most realistic and effective way to
deal with the problem? One point of very wide, indeed almost
universal agreement, is that the strong dollar can only be dealt
with effectively by influencing or changing the economic
fundamentals which underly its strength. This means we must
concentrate our efforts on economic policies and performance if we
are to alter in a fundamental sense exchange rate relationships in
the world economy. In concrete terms, this means:
(1) Looking to disparities in economic performance among the
major industrial nations as.the major cause of the strong
appreciation of the dollar between 1980 and 1984;
(2) Working with other major industrial countries to
accomplish a greater convergence of favorable
performance; and
(3) Making the policy changes necessary to support this
objective. In the U.S. case, this will require reducing
the budget deficit, and creating an environment for the
further lowering of interest rates.
As for intervention, it is widely recognized as a policy
option with only limited use over the long run as a substitute for
basic economic policies for influencing long-term exchange market
trends.
Conclusions very similar to these were reached by the Finance
Ministers and Central Bank Governors of the Group of Ten
industrial countries, following their Deputies' review and report
on the current international monetary system, which was released
in June. The G-10 report emphasizes the importance of
international"cooperation, the adoption of sound domestic
policies, and a convergence of economic performance as
prerequisites for greater exchange rate stability.
The report took two years to produce and received the
attention of several of the world's most experienced financial
market people. The key issue discussed by the G-10 Deputies was
the best means of encouraging sound policies among sovereign
nations which result in convergence toward sustained noninflationary growth. One approach outlined by one group of
Deputies was a proposal for the adoption of target zones for
- 6 exchange rates, to be phased in progressively and to be used as a
trigger for consultations on policies.
The great majority, however, felt that it would be extremely
difficult to agree on a range of correct and desirable exchange
rates to apply for some extended period of time. It was
acknowledged that initially, such target zones would probably have
to be so wide as to raise questions about their utility; and there
would remain the difficult task, indeed the heart of the matter,
namely allocating the burden of policy adjustment among the
countries involved. Target zones could also impose additional
constraints on domestic policies which could undermine other
policy objectives. This was clearly the case under the old fixed
exchange rate system and one of the reasons it broke down in 1971.
The probability is that a target zone system in which there
was no clear agreement between countries to merge their domestic
policy interests with their interests in the stability of the
exchange rate system would be unsustainable. If there were a
willingness now to submerge domestic policies to international
consultations between countries, we would be able to make the
present exchange rate system operate tnore effectively than it now
does and probably would remove the pressures for major change.
But, of course, there is not such a willingness now evident.
On intervention, the Deputies confirmed the long-standing
position that intervention can be useful to counter disorderly
market conditions and to reduce short-term volatility, but that it
normally will be useful only when complementing and supporting
other policies. Neither capital controls nor intervention, they
concluded, could be relied upon to attain lasting stability of
exchange rates.
The Deputies therefore focussed on other means of achieving
this goal. There was a broad consensus that there should be close
and continuing cooperation among countries to ensure that
countries take account of the implications of their policies and
performance on others. The Deputies also agreed that international surveillance should be strengthened to improve the sound
policies and the convergence of favorable economic performance,
and put forward a number of proposals to strengthen IMF surveillance. The IMF must be at the center of efforts to improve
the international monetary system and we believe there is
considerable potential for a strengthening of IMF surveillance in
order to encourage sound policies in member countries. We will be
pursuing the recommendations of the G-10 Deputies further within
the IMF Executive Board in the months ahead.
The specific measures proposed by the G-10 report to accomplish these objectives are modest, but sound ones and represent
a solid basis on which to build for the future as we continue our
efforts to strengthen the system. However, as Secretary Baker
indicated in Tokyo in June, this shouldn't be the end of the road.
- 7 Greater monetary stability can only be achieved if each nation
develops the political will to tackle the difficult problems it
faces — and is supported both at home and by comparable actions
by the other key nations.
The Group of Five's meeting in New York on September 22
reflects an important step toward putting into practice the G-10
recommendations for enhanced cooperation and compatible policies
among the five major industrial nations whose policies have the
greatest impact on exchange markets. This is the real message
behind the New York Announcement, and one that it will be
essential to maintain in the months ahead. In light of the major
importance of this meeting, I would like to discuss it in some
detail.
The G-5 Announcement
After the G-10 meeting in Tokyo, we became convinced that
concrete measures were needed to follow up on the discussions in
Tokyo. While the G-10 report would be referred to the IMF Interim
Committee for broader review and discussion, earlier action was
also needed to address underlying policies in order to help
improve exchange market stability.
After considerable preparation, the Group of Five therefore
met to discuss economic development and policies in their
countries and their implications for economic performance and
prospects. The G-5 recognized the serious dangers posed by rising
protectionist pressures and focused discussion on factors
contributing to large external imbalances. These include growth
differentials, exchange rate movements, differing degrees of
market openness and the LDC debt situation.
The G-5 Finance Ministers and Central Bank Governors noted
that economic fundamentals in all of the countries are moving in
the direction necessary to foster adjustment of external
imbalances. For example,
— After very rapid growth last year, the U.S. economy
slowed in the first half of 1985 and is now growing at a
more moderate, sustainable rate;
— Growth in other major industrial countries is
strengthening and is becoming more balanced between
domestic and export-led components.
This improved performance is the result of policy changes
already undertaken in a number of countries over the past year or
two, a fact clearly highlighted in the G-5 announcement. The G-5
Governments also agreed to pursue additional policies to sustain
and accelerate these favorable changes in the future. These
policy intentions reflect widespread agreement that convergence of
economic policies and performance is the best basis for stability
in exchange rate relationships.
- 8 The Ministers and Governors were convinced that improvements
in underlying economic fundamentals will help to promote stronger
and more balanced growth in our economies, thereby strengthening
the main non-dollar currencies and reducing external imbalances,
including the high U.S. trade and current account deficits. They
noted that exchange markets did not fully reflect these underlying
improvements and agreed, for the first time, that some orderly
appreciation of the main non-dollar currencies against the dollar
was in fact desirable. They also committed to cooperate more
closely to encourage this when to do so would be helpful.
The G-5 announcement and subsequent actions by the G-5
Governments have helped to improve market recognition of the
recent and prospective changes in underlying policies and
performance. Intervention has been useful in this process
precisely because it has been supported by changes in underlying
performance and policies, confirming our basic view that
intervention alone cannot have lasting effects on exchange rates.
The exchange market impact of the G-5 announcement reflects
the market's recognition that better convergence is taking place
and that the policy intentions outlined in the announcement are
significant and will continue this favorable pattern. Since
September 22 the dollar has fallen/ under generally orderly
conditions, an additional 9 percent against the DM and French
franc, over 16 percent against the yen and 5" percent against
sterling. Over half of the dollar's rise against the DM between
the end of 1980 and last February's peak has now been reversed, as
has virtually all of the rise against the yen. The initial impact
of the G-5 announcement therefore has continued and remains
positive.
I believe that as time passes awareness of the relationship
between economic fundamentals and exchange market behavior will
establish itself more firmly. This should provide greater
long-term stability in exchange markets, provided that major
countries can continue to improve and strengthen the consultative
process necessary in international economic matters.
v
Conclusion
In conclusion, there is a clear need to improve the
international monetary system. This will not be an overnight
task. It will .take some time.
However, it is premature at this stage to decide whether an
international monetary conference is needed. The IMF Interim
Committee, which includes all IMF member countries, already has
held preliminary discussions on the G-10 recommendations for
improvements, as well as separate recommendations prepared by the
Group of 24 developing nations. The IMF Executive Board will now
review both reports in preparation for detailed consideration at
the spring meeting of the IMF Interim Committee.
- 9 -
It is important that this process continue, and that progress
in the monetary area not be held hostage to progress on the trade
side. Indeed, a number of steps have already been taken toward
improving monetary stability, while we are still some steps away
from even beginning negotiations in a new trade round.
Secretary Baker indicated in April that the United States
would be willing to consider the possible value of hosting a
high-level meeting of the major industrial countries to follow up
on the Group of Ten's proposals on improving the international
monetary system. We remain prepared to do so if at some future
date such a meeting appears to be useful.
The G-5 meeting in New York represents an important step in
achieving a sound world economy and a more stable international
monetary system. The policy intentions announced in New York must
be actively implemented, and the consultation process continued.
For our part, an effective U.S. contribution to sustaining
progress toward greater convergence and stability will require
Congressional support:
— to reduce the U.S. budget deficit;
— to pass meaningful tax reform; and
— to resist protectionism.
Exchange market stability can only be assured if we all do
our part. The G-5 announcement must not be a one-shot effort, but
a continuing process of enhanced economic cooperation focusing on
the underlying fundamentals.
TREASURY NEWS
department of the Treasury • Washington, D.C. • Telephone
FOR RELEASE AT 4:00 P.M.
November 19, 1985
TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice, invites
tenders for two series of Treasury bills totaling approximately
$14,800 million, to be issued November 29, 1985. This offering
will result in a paydown for the Treasury of about $17,475 million,
as the maturing bills total $32,278 million (including the 14-day
cash management bills issued November 15, 1985, in the amount of
$18,006 million). Tenders will be received at Federal Reserve Banks
and Branches and at the Bureau of the Public Debt, Washington, D. C.
20239, prior to 1:00 p.m., Eastern Standard time, Monday,
November 25, 1985. The two series offered are as follows:
90-day bills (to maturity date) for approximately $7,400
million, representing an additional amount of bills dated
August 29, 1985,
and to mature February 27, 1986 (CUSIP No.
912794 JU 9 ) , currently outstanding in the amount of $7,263 million,
the additional and original bills to be freely interchangeable.
181-day bills for approximately $7,400 million, to be dated
November 29, 1985, and to mature May 29, 1986
(CUSIP No.
912794 KH 6 ) .
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Both series of bills will be issued
entirely in book-entry form in a minimum amount of $10,000 and in
any higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Branches, or of the Department of the Treasury.
The bills will be issued for cash and in exchange for Treasury
bills maturing November 29, 1985. In addition to the maturing
13-week and 26-week bills, there are $8,535 million of maturing
52-week bills. The disposition of this latter amount was announced
last week. Tenders from Federal Reserve Banks for their own account
and as agents for foreign and international monetary authorities will
be accepted at the weighted average bank discount rates of accepted
competitive tenders. Additional amounts of the bills may be issued
to Federal Reserve Banks, as agents for foreign and international
monetary authorities, to the extent that the aggregate amount of
tenders for such accounts exceeds the aggregate amount of maturing
bills held by them. For purposes of determining such additional
amounts, foreign and international monetary authorities are considered to hold $2,585 million of the original 13-week and 26-week
issues. Federal Reserve Banks currently hold $2,645 million as
agents for foreign and international monetary authorities, and $5,005
million for their own account. These amounts represent the combined
holdings of such accounts for the three issues of maturing bills.
Tenders for bills to be maintained on the book-entry records of the
Department of the Treasury should be submitted on Form PD 4632-2
B-^7l
(for 26-week series) or Form PD 4632-3 (for 13-week series).
TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, PAGE 2
Each tender must state the par amount of bills bid for
which must be a minimum of $10,000. Tenders over $10,000 must
be in multiples of $5,000. Competitive tenders must also show
the yield desired, expressed on a bank discount rate basis with
two decimals, e.g., 7.15%. Fractions may not be used. A single
bidder, as defined in Treasury's single bidder guidelines, shall
not submit noncompetitive tenders totaling more than $1,000,000.
Banking institutions and dealers who make primary markets in
Government securities and report daily to the Federal Reserve Bank
of New York their positions in and borrowings on such securities
may submit tenders for account of customers, if the names of the
customers and the amount for each customer are furnished. Others
are only permitted to submit tenders for their own account. Each
tender must state the amount .of any net long position in the bills
being offered if such position is in excess of $200 million. This
information should reflect positions held as of 12:30 p.m. Eastern
time on the day of the auction. Such positions would include bills
acquired through "when issued" trading, and futures and forward
transactions as well as holdings of outstanding bills with the same
maturity date as the new offering, e.g., bills with three months to
maturity previously offered as six-month bills. Dealers, who make
primary markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and borrowings
on such securities, when submitting tenders for customers, must
submit a separate tender for each customer whose net long position
in the bill being offered exceeds $200 million.
A noncompetitive bidder may not have entered into an agreement,
nor make an agreement to purchase or sell or otherwise dispose of
any noncompetitive awards of this issue being auctioned prior to
the designated closing time for receipt of tenders.
Payment for the full par amount of the bills applied for must
accompany all tenders submitted for bills to be maintained on the
book-entry records of the Department of the Treasury. A cash
adjustment will be made on all accepted tenders for the difference
between the par payment submitted and the actual issue price as
determined in the auction.
No deposit need accompany tenders from incorporated banks and
trust companies and from responsible and recognized dealers in
investment securities for bills to be maintained on the book-entry
records of Federal Reserve Banks and Branches. A deposit of 2 percent of the par amount of the bills applied for must accompany
tenders for such bills from others, unless an express guaranty of
payment by an incorporated bank or trust company accompanies the
tenders•
4/85
TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, PAGE 3
Public announcement will be made by the Department of the
Treasury of the amount and yield range of accepted bids. Competitive bidders will be advised of the acceptance or rejection of their
tenders. The Secretary of the Treasury expressly reserves the right
to accept or reject any or all tenders, in whole or in part, and the
Secretary's action shall be final. Subject to these reservations,
noncompetitive tenders for each issue for $1,000,000 or less without
stated yield from any one bidder will be accepted in full at the
weighted average bank discount rate (in two decimals) of accepted
competitive bids for the respective issues. The calculation of
purchase prices for accepted bids will be carried to three decimal
places on the basis of price per hundred, e.g., 99.923, and the
determinations of the Secretary of the Treasury shall be final.
Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on the issue date, in cash or other immediately-available funds
or in Treasury bills maturing on that date. Cash adjustments will
be made for differences between the par value of the maturing bills
accepted in exchange and the issue price of the new bills. In addition, Treasury Tax and Loan Note Option Depositaries may make payment for allotments of bills for their own accounts and for account
of customers by credit to their Treasury Tax and Loan Note Accounts
on the settlement date.
In general, if a bill is purchased at issue after July 18,
19 84, and held to maturity, the amount of discount is reportable
as ordinary income in the Federal income tax return of the owner
at the time of redemption. Accrual-basis taxpayers, banks, and
other persons designated in section 1281 of the Internal Revenue
Code must include in income the portion of the discount for the
period during the taxable year such holder held the bill. If the
bill is sold or otherwise disposed of before maturity, the portion
of the gain equal to the accrued discount will be treated as ordinary income. Any excess may be treated as capital gain.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76 and 27-76, Treasury's single bidder guidelines, and this
notice prescribe the terms of these Treasury bills and govern the
conditions of their issue. Copies of the circulars, guidelines,
and tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt.
4/85
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone
FOR IMMEDIATE RELEASE
RESULTS OF AUCTION OF 3-YEAR NOTES
November 19, 1985
The Department of the Treasury has accepted $8,764 million
of $17,975 million of tenders received from the public for the
3-year notes, Series U-1988, auctioned today. The notes will be
issued November 26, 1985, and mature November 15, 19 88.
The interest rate on the notes will be 8-5/8%. The range of
accepted competitive bids, and the corresponding prices at the 8-5/8%
interest rate are as follows:
Yield Price
Low
8.68%
99.859
High
8.75%
99.679
Average
8.74%
99.705
Tenders at the high yield were allotted 83%.
TENDERS RECEIVED AND ACCEPTED (In Thousands)
Location
Received
$
110,570
Boston
New York
15,266,695
27,200
Philadelphia
Cleveland
133,655
56,220
Richmond
97,495
Atlanta
1,113,030
Chicago
St. Louis
179,380
Minneapolis
47,895
Kansas City
111,615
Dallas
12,890
816,060
San Francisco
Treasury
2,790
Totals
$17,975,495
Accepted
$
49,510
7,465,740
27,200
131,485
50,370
92,495
206,850
160,210
47,725
111,585
12,890
405,560
2,780
$8,764,400
The $8,764 million of accepted tenders includes $958
million of noncompetitive tenders and $7,806 million of competitive tenders from the public.
In addition to the $8,764 million of tenders accepted in
the auction process, $45 million of tenders was awarded at the
average price to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $300 million
of tenders was also accepted at the average price from Government
accounts and Federal Reserve Banks for their own account in
exchange for maturing securities.
rREASURYNEWS _
ipartment of the Treasury • Washington, D.C. • Telephone 566-2041
FOR IMMEDIATE RELEASE
RESULTS OF AUCTION OF 2-YEAR NOTES
November 20,1985
The Department of the Treasury has accepted $9,532 million
of $24,743 million of tenders received from the public for the
2-year notes, Series AC-1987, auctioned today. The notes will be
issued December 2, 1985, and mature November 30, 1987.
The interest rate on the notes will be 8-1/2%.
The range of
accepted competitive bids, and the corresponding prices at the 8-1/2%
interest rate are as follows:
Yield
8.57% 1/
8.59%
8.58%
Tenders at the high yield were allotted 71%
Low
High
Average
Price
99.874
99.838
99.856
TENDERS RECEIVED AND ACCEPTED (In Thousands)
Location
Received
Accepted
Boston
$
71,875
$
55,875
New York
20,756,895
7,902,790
Philadelphia
44,580
44,580
Cleveland
446,425
237,925
Richmond
133,525
93,170
Atlanta
187,210
87,510
Chicago
1,639,905
305,445
St. Louis
183,490
163,145
Minneapolis
51,195
49,615
Kansas City
184,265
180,015
Dallas
33,575
30,575
San Francisco
1,003,365
374,205
Treasury
6,970
6,970
The Totals
$9,532 million of$24,743,275
accepted tenders includes
$1,279
$9,531,820
million of noncompetitive tenders and $8,253 million of competitive tenders from the public.
In addition to the $9,532 million of tenders accepted in
the auction process, $295 million of tenders was awarded at the
average price to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $758 million
of tenders was also accepted at the average price from Government
accounts and Federal Reserve Banks for their own account in
exchange for maturing securities.
1/ Excepting 1 tender of $1,000,000.
BT-373
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-2041
November 21, 1985
Biography of George Gould
Under Secretary of the Treasury
George D. Gould was confirmed as Under Secretary of the
Treasury for Finance, on November 14, 1985. He succeeds
Norman B. Ture.
From 1976 until his appointment at Treasury, Mr. Gould was
Chairman and Chief Executive Officer of Madison Resources, Inc.
He was also a General Partner in the investment banking firm of
Wertheim and Company since January 1985.
A 1951 graduate of Yale University, with a 1955 Master of
Business Administration from Harvard, Mr. Gould has spent his
career in various forms of finance. From 1951 to 1953, he
worked in investment management for the firm of Brundage, Story
and Rose. He held a similar position for the company of
Jeremiah Milbank from 1955 to 1961.
Mr. Gould then joined the Donaldson, Lufkin, and Jenrette
Securities Corporation in October 1961, rising to the position
of Chairman from 1974 to 1976.
Mr. Gould has been active in many civic endeavors. He
served as director and chairman of several government agencies
in New York State, including the Municipal Assistance
Corporation, the Housing Finance Agency, and most recently, the
Dormitory Authority.
Mr. Gould is married, has one child, and resides in New
York City. He was born May 22, 1927, in Boston, Massachusetts.
B-374
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-2041
FOR RELEASE ON DELIVERY
EXPECTED AT 10:00 a.m.
November 21, 1985
STATEMENT OF CHARLES O. SETHNESS
ASSISTANT SECRETARY OF THE TREASURY (DOMESTIC FINANCE)
BEFORE THE
SUBCOMMITTEE ON CONSERVATION, CREDIT AND RURAL DEVELOPMENT
OF THE HOUSE AGRICULTURE COMMITTEE
Mr. Chairman and Members of the Subcommittee:
I appreciate this opportunity to appear before you to
discuss H.R. 3792, the "Farm Credit Act Amendments of 1985."
I want to open by expressing my high regard to the full
Committee, this Subcommittee, and their staffs for their
expeditious, and substantial effort in drafting this bill.
The
legal and financial subjects are complex, the participants can
be contentious, and time has been short.
We all recognize that
there is need for reform to enable the Farm Credit System (FCS)
to take self-help actions to remain a viable lender for America's
farmers and reassure concerned capital market investors.
I
compliment this Subcommittee on its effort to get the ball
rolling.
The Administration's Position on Self-Help Powers for FCS
and the Reform of FCA
The Administration recognizes the vital role that the
FCS plays for the country's farmers.
It is alert to the need
to maintain the System as a privately owned organization that
B-375
- 2 is sensitive to market forces. We are monitoring closely the
sizable loan losses that the System expects to incur over the
next few years.
We have urged the Congress to take two actions as quickly
as possible to help the FCS solve its current problems and
avoid future difficulties.
First, the FCS needs legislative
authority to mobilize fully its substantial earned surplus
($5.5 billion as of September 30, 1985) to absorb operating
losses and manage troubled loan assets.
FCS must have an
effective capability to pool and quickly allocate its considerable
resources to cope with localized problems.
All the System's
resources should be available to cushion borrower stock and
to permit the more orderly restructuring of loans.
Second, we need to transform the Farm Credit Administration
(FCA) into an independent financial regulator that has the will
and the tools to supervise the FCS effectively.
neither the full capability —
FCA has had
nor the proper separation
—
to assess, cope with, and prevent the recurrence of FCS's
financial problems before they expand.
H.R. 3792 seeks to address both these points.
While we
have not had time to subject the bill language to close scrutiny,
I believe that H.R. 3792 incorporates most of the critical reforms.
Naturally, we are reviewing the bill carefully and will report
later on any technical suggestions we may have.
I will note
later in this testimony some important features of the bill that
- 3 the Subcommittee may wish to review. We are, of course, willing
to assist the Subcommittee in making those adjustments that will
enable the legislation to accomplish the results we all seek.
Unfortunately, H.R. 3792 also contains a financial "backstop"
provision that the Administration believes is the wrong approach,
at the wrong time, leading to a possible wrong result.
H.R. 3792's Financial Assistance Component
H.R. 3792 authorizes the Secretary of the Treasury, at his
discretion, to purchase obligations of the FCS Capital Corporation.
This provision is inappropriate on two counts.
First, the System does not now need the Government's
financial support in any fashion. It has a capital base that
would be the envy of other financial institutions. As of
September 30, 1985, the FCS had earned surplus of $5.5 billion,
loan loss reserves of $1.6 billion, and member stock totaling
$5.3 billion. Even accepting the FCS's and the FCA's estimated
loan losses of between $3 billion and $5.5 billion for the
remainder of 1985 through 1987, the System has the retained
earnings and reserves to sustain its losses while maintaining a
cushion for borrower stock. At a minimum, it is clear that
the FCS does not have any immediate need for financial
assistance.
Second, I am also concerned that the inclusion of financial
assistance language would require the proper additional review
by other committees. This review would certainly slow down
the legislative process at a time when farmers, investors, and
- 4 the Government need prompt action. Furthermore, a bill that
incorporates financial assistance will necessarily involve longer
consideration by the Senate.
Specific Provisions of H.R. 3792
Based on a preliminary review, the Administration recommends
nine adjustments in H. R. 3792.
These changes should ensure
that the FCA becomes an effective financial regulator and that
the FCS operates an efficient, accountable lending business that
serves America's farmers.
We also have some more technical
comments that we would be pleased to supply to your staff.
1.
FCA's Power to Regulate the Transfer of Funds
We note that H.R. 3792's restatement of the FCA's powers
adjusts the FCA's authority over the transfer of funds within
the System.
The redesignated section 5.17(a)(6) permits the FCA
to establish standards for the transfer of funds.
Current law
authorizes the FCA "to regulate" such transfers, and the FCA has
interpreted this authority to include the power to direct
transfers of funds.
The Administration believes it is absolutely critical for
the FCA to retain its present authority.
Indeed, H.R. 3792
seems to presuppose this retention, because it makes the FCS
Capital Corporation's assessment powers subject to the FCA's
regulation.
The change in language in the new section 5.17(a)(6)
may have been the inadvertant result of joining this FCA power
with another dealing with loan security requirements.
We strongly
urge the Committee to restate the exact language of current
section 5 .18( 11) .
- 5 2. FCA's Power to Require Surety Bonds
H.R. 3792 drops FCA's authority to require surety bonds
(section 5.18(15) under current law). This provision ensures
that FCS institutions are protected against losses caused by
employees. We cannot understand why H.R. 3792 deletes this
authority, which provides for a protection common to financial
institutions. Indeed H.R. 3792's own language regarding the
Capital Corporation (new section 4.28H(a)(3)) recognizes the
importance of surety bonds. We recommend that current section
5.18(15) remain among the FCA's specified powers.
3. Establishing the Value of Assets Purchased by the
Capital Corporation
The list of powers of the Capital Corporation includes the
authority to purchase nonaccrual loans and acquired assets (new
section 4.28(H)(a)(16)). The language stipulates that the purchases
be at "current value," which is described as the "value disclosed
in the most recent examination of such institution... by the Farm
Credit Administration."
We urge the Committee to substitute the phrase "fair market
value" for "current value" and to grant the FCA authority to
regulate its determination. We fear that the phrase "current
value" does not have a generally understood meaning. Moreover,
it would be inappropriate to purchase assets at a value determined
through an examination that might have taken place months before.
We would expect that the Capital Corporation would seek a current
appraisal before it purchased an asset.
- 6 Our proposed change is significant because it ensures that
the Capital Corporation will expend other FCS institutions'
surplus in an equitable manner. When the Capital Corporation
buys an asset, it should receive the fair market value for which
it has paid. The Capital Corporation would, of course, continue
to have the authority to allocate funds to System institutions
whose viability was threatened.
4. The Capital Corporation's Authority to Borrow
H.R. 3792 authorizes the new Capital Corporation to borrow
money on its own and through System-wide bond issues (new
sections 4 .28H(a)(11),(12)). We strongly recommend that the
Capital Corporation only be authorized to raise funds through
System-wide debt issues (i.e., to delete section 4.28H(a)(11)) .
It is imperative that the Capital Corporation not be seen, both
inside and outside FCS, as an entity separate from the other
System institutions. Since the Capital Corporation will be
purchasing bad loans from FCS institutions, they must share
responsibility for its performance and obligations.
Furthermore, new section 4.28H(a)(12) may necessitate a
technical change to ensure that the Capital Corporation remains
jointly and severally liable with System banks. As drafted, the
bill states that the Capital Corporation must satisfy the
requirements of section 4.3 to be jointly and severally liable.
The new section 4.3 establishes capital requirements. If the
Capital Corporation did not meet these requirements, one might
- 7 assert it was no longer jointly and severally liable. It would
be far preferable to add a "c" behind "section 4.3," thereby
limiting the requirement to the collateral standards for banks
participating in System-wide debt issues.
5. The Capital Corporation's Power to Issue Regulations
Sections 4.28(H)(a)(14)(A) and (B) authorize the Capital
Corporation to issue regulations pertaining to FCS institutions'
provision of assistance funds to the Capital Corporation. These
sections appear to be directed at evaluating how much capital is
available and enforcing compliance. We believe it is a serious
mistake to mix again the regulator with the regulated by granting
these powers to the Capital Corporation (including, it appears,
the authority to issue enforcement directives). Nor are these
powers necessary to achieve what appears to be the purpose of
these provisions.
First, H.R. 3792 already contains a requirement (new
section 4.1) that FCS institutions must pay assessments and
contribute capital to the Capital Corporation. Second, in the
event an FCS institution will not comply, we should leave the
task of enforcement to FCA, the true regulator. Otherwise, we
will in effect have two regulators, with one being an independent
System corporation. Finally, to protect FCS institutions against
assessments that may threaten their viability, one can either:
(a) grant FCA the power to set the appropriate standards; or
(b) note in new section 4.28H(a)(13) that the Capital Corporation's
- 8 power to require stock purchases and assessments must not imperil
an institution's viability or preclude it from supplying credit
on reasonable terms.
5. The "Escape Clause" from GAAP Reporting
We recommend that the Committee narrow the "escape clause"
it has appended to the requirement that System institutions file
annual financial reports in compliance with generally accepted
accounting principles (GAAP). Everyone who has struggled to
understand the FCS's current difficulties has bemoaned its
accounting problems. The authorization to the FCA to make
exceptions to the reporting requirement is probably based on a
well-disposed intent to permit the FCA to require "more
stringent" accounts, but the effect is to open an ill-defined
loophole. Loopholes can become financial chasms when pressures
build on a regulator.
This System is in dire need of uniform, consistent, accurate,
and independently audited financial reports in a form understood
by outside investors and analysts. That is what GAAP is all
about. We should not lightly permit departures from it.
We suggest that the Committee substitute two narrowly drawn
exceptions to the rule that all FCS institutions prepare
independently audited financial reports according to GAAP.
First, the FCA must have authority to establish temporary
accounting rules to govern the reporting of new or unique
circumstances not yet addressed by the Financial Accounting
Standards Board (which establishes GAAP). Second, the FCA should
- 9 be able to permit consolidated financial reports of System
institutions where it determines that presentation is sufficient.
7. Surplus Formulae
Current law contains numerous formulae that dictate how
System institutions are supposed to build up earned surplus.
These formulae are no longer necessary once the FCA has
authority to set capital requirements, and they might pose
obstacles to the System's ability to pool its surplus. We
recommend that the Committee delete these formulae while
maintaining the FCA's authority to regulate dividends.
8. Merger Powers
We recognize the sensitivity of the merger issue among the
FCS institutions. But we believe that the present financial
problems and high-cost inefficiencies within the System
necessitate at least some modest merger powers.
First, we recommend a provision authorizing voluntary FCS
mergers of like associations within a district if the merger is
approved by either (a) two-thirds of the associations in a
district (each approving association would require a majority
vote of its shareholders), or (b) a three-fourths vote of all
the association shareholders in the district. The FCA also
would have to approve the merger. This change would make a
district-wide association merger possible where the vast majority
of associations or shareholders seek it. Under current law, one
association can halt a merger sought by all others in its district.
- 10 Second, the FCA needs the limited authority to require a
merger of two banks operating under the same title when one can
no longer meet its obligations. Under present law, if a bank
cannot meet its obligations, the FCA must declare the bank
insolvent and liquidate it. Such a liquidation would be
disruptive to the System, its borrowers, and the creditors of
the liquidated bank. An FCA-directed merger in such a situation,
after consultation with the district boards, would enable the
FCA to manage an impending bank failure more effectively and
less expensively.
9. New Enforcement Power Language
The Administration agrees wholeheartedly with the new
enforcement powers that H.R. 3792 would grant the FCA. But
the language employed would cause problems for the FCA in
practice.
H.R. 3792's language appears to be a good faith attempt to
clarify and streamline the statutes on which essentially all
Federal banking and thrift regulators rely. That statutory
language is highly technical and precise. The courts are familiar
with it, having applied it in countless cases. By employing
revised and edited language, H.R. 3792 would be interpreted
as intending different enforcement treatment in numerous situations
Yet we would wish FCA to have the same effective enforcement
powers now possessed by all other Federal financial institution
regulators.
- 11 Therefore, we urge the Committee to employ the same basic
enforcement language relied on by the other regulators.
Conclusion
The Administration recognizes the vital role that the
Farm Credit System plays for the Nation's farmers. We
understand the urgent need to maintain the System's vitality.
To alleviate the FCS's current problems and-establish a permanent
solution, we strongly support those provisions of H.R. 3792 that
would (1) enable the Farm Credit System to deploy its own
substantial resources to solve its localized financial difficulties,
and (2) reform and strengthen the Farm Credit Administration.
We believe that the establishment and effective operation of the
Farm Credit System Capital Corporation and the reinvigoration of
the Farm Credit Administration as a strong regulator will achieve
our common goals without the need for Federal financial assistance.
The President has decided that the Administration will
further assess the FCS's need for Federal financial assistance,
but only if the Congress is willing to legislate the
restructuring and self-help changes we all want to achieve.
The Administration is committed to a reassessment of the
financial assistance question once the necessary reforms have
been implemented.
It is crucial that legislation be enacted expeditiously
to reform the FCA and to enable the FCS to muster its own
considerable resources to help farmer borrowers. We will
work with you to pass such legislation. However, we are
- 12 concerned that the inclusion of financial assistance provisions,
which we cannot support, would make it virtually impossible to
enact this legislation promptly. I look forward to working with
you, your Subcommittee, and the full Committee to resolve these
important issues.
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone
FOR IMMEDIATE RELEASE November 21, 1985
RESULTS OF AUCTION OF 10-YEAR NOTES
The Department of the Treasury has accepted $7,005 million
of $15,998 million of tenders received from the public for the
10-year notes, Series D-1995, auctioned today. The notes will be
issued November 29, 1985, and mature November 15, 1995.
The interest rate on the notes will be 9-1/2%. The range of
accepted competitive bids, and the corresponding prices at the 9-1/2%
interest rate are as follows:
Yield Price
Low 9.52% 99.858
High
9.58%
99.478
Average
9.54%
99.731
Tenders at the high yield were allotted 80%.
TENDERS RECEIVED AND ACCEPTED (In Thousands)
Location
Received
Boston
$
7,785
New York
14,052,705
Philadelphia
8,950
Cleveland
107,234
Richmond
19,330
Atlanta
37,563
Chicago
804,047
St. Louis
142,695
Minneapolis
15,857
Kansas City
29,130
Dallas
9,163
San Francisco
761,795
Treasury
1,416
Totals
$15,997,670
Accepted
$
7,785
6,314,705
8,950
107,234
14,330
36,353
218,647
140,695
15,357
29,130
9,163
100,795
1,416
$7,004,560
The $7,005 million of accepted tenders includes $615
million of noncompetitive tenders and $6,390 million of competitive tenders from the public.
In addition to the $7,005 million of tenders accepted in
the auction process, $105 million of tenders was awarded at the
average price to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $184 million
of tenders was also accepted at the average price from Federal
Reserve Banks for their own account in exchange for Treasury bills
issued on November 15, 1985, for securities that matured on that
date.
B-376
TREASURY NEWS
department of the Treasury • Washington, D.C. • Telephone 566-2041
FOR IMMEDIATE RELEASE
November 22, 1985
Accrued Interest on 10-Year Note
Accrued interest on 9-1/2% Treasury Notes of Series D-1995
auctioned November 21, 1985 should be applied as follows:
1) Amount of accrued interest to be paid by investors is
$3.67403 per $1,000.
2) In the case of noncompetitive tenders of $1,000, the net
accrued interest ($.98) resulting from applying the discount
($2.69) does not have to be collected.
3) However, all bidders who submitted tenders larger than
$1,000 will be required to pay the difference between the
accrued interest payable and the particular equivalent price
resulting from the auction.
4) In addition, the minimum par amount for STRIPS is
$400,000.
B-377
T
o
e\j
CO
CD
federal financing bank
December 22, 19 8 5
FEDERAL FINANCING BANK ACTIVITY
Francis X. Cavanaugh, Secretary, Federal Financing
Bank (FFB), announced the following activity for the
month of September 1985.
FFB holdings of obligations issued, sold or guaranteed by other Federal agencies totaled $153.5 billion on
September 30, 1985, posting an increase of $0.8 billion
from the level on August 31, 1985. This net change was
the result of increases in holdings of agency assets of
$0.6 billion and holdings of agency debt of $0.8 billion.
Holdings of agency-guaranteed debt declined by
$0.6 billion during the month. FFB made 316 disbursements
during September.
Attached to this release are tables presenting FFB
September loan activity, new FFB commitments entered during
September and FFB holdings as of September 30, 1985.
# 0 #
B-37 8
•V*J•
C
CO
CO
m
» m
CO
m
CD
LL
a. u.
WASHINGTON, D.C. 20220
FOR IMMEDIATE RELEASE
00
CD
FEDERAL FINANCING BANK
SEPTEMBER 1985 ACTIVITY
FINAL
MATURITY
INTEREST
RATE
(semiannual)
9/12
9/16
9/16
9/18
9/23
9/23
9/25
9/30
9/30
$ 167,000,000.00
319,000,000.00
169,000,000.00
303,000,000.00
9,000,000.00
139,000,000*00
91,000,000.00
74,000,000.00
56,000,000.00
80,000,000.00
171,000,000.00
100,000,000.00
9/9/85
9/12/85
9/16/85
9/18/85
9/20/85
9/23/85
9/25/85
10/1/85
10/2/85
10/2/85
10/7/85
10/9/85
7.495%
7.485%
7.615%
7.605%
7.565%
7.565%
7.565%
7.355%
7.355%
7.185%
7.285%
7.285%
9/18
200,000,000.00
9/30/15
10.705%
9/3
97,000,000.00
9/1/95
10.405%
9/16
9/18
9/30
900,000.00
5,000,000.00
1,760,000.00
9,900,000.00
20,350,000.00
900,000.00
62,165,000.00
10/3/85
12/2/85
12/9/85
12/9/85
12/16/85
10/4/85
12/30/85
9/30
970,000,000.00
5/1/11
10.475%
50,000,000.00
162,000,000.00
35,000,000.00
170,000,000.00
85,000,000.00
50,000,000.00
9/1/95
9/1/90
9/1/00
9/1/95
9/1/00
9/1/05
10.405%
10.095%
10.755%
10.335%
10.565%
10.805%
1,646,971.47
7/1/04
10.472%
9/30/15
10.625%
DATE
SORROWER
AMOUNT
OF ADVANCE
INTEREST
RATE
(other than
semi-annual)
ON-BUDGET AGENCY DEBT
TENNESSEE VALLEY AUTHORITY
Advance
Advance
Advance
Advance
Advance
Advance
Advance
Advance
Advance
Advance
Advance
Advance
#509
#510
#511
#512
#513
#514
#515
#516
#517
#518
#519
#520
Power Bond Series 1985 E
9/2
9/6
9/9
EXPORT-IMPORT BANK
Note #65
10.,273% qtr.
NATIONAL CREDIT UNION ADMINISTRATION
Central Liquidity Facility
+Note
+Note
+Note
+Note
+Note
Note
+Note
#352
#353
#354
#355
#356
#357
#358
9/3
9/3
9/9
9/9
7.495%
7.525%
7.645%
7.645%
7.575%
7.565%
7.295%
OFF-BUDGET AGENCY DEBT
UNITED STATES POSTAL SERVICE
AGENCY ASSET'S
FARMERS HOME ADMINISTRATION
Certificates of Beneficial Ownership
9/1
9/9
9/23
9/30
9/30
9/30
DEPARTMENT OF HEALTH & HUMAN SERVICES
Health Maintenance Organization Notes
Block #34
9/30
RURAL ELECTRIFICATION ADMINISTRATION
Certificate of Beneficial Ownership
9/30
+rollover
187,600,000.00
10.,676%
10..350%
11..044%
10..602%
10..844%
11..097%
arm.
arm.
arm.
arm.
arm.
arm.
rage J ot y
FEDERAL FINANCING BANK
SEPTEMBER 1985 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
(semiannual
INTEREST
RATE
(other than
semi-annual)
GOVERNMENT - GUARANTEED LOANS
DEPARTMENT OF DEFENSE
Foreign Military Sales
Greece 15
Turkey 17
Turkey 17
Liberia 10
Peru 10
Botswana 4
Ecuador 8
Egypt 7
Jordan 10
Jordan 11
Kenya 11
Morocco 13
Dominican Republic 8
Jordan 10
Jordan 11
Turkey 17
Bolivia 2
Greece 11
Turkey 13
Turkey 17
Greece 15
Thailand 12
Turkey 17
9/6
9/6
9/9
9/9
9/9
9/9
9/9
9/9
9/9
9/9
9/9
9/9
9/10
9/10
9/10
9/10
9/10
9/11
9/18
9/18
9/25
9/25
9/30
$ 2,336,975.17
1,352,136.00
3,081,393.89
141,154.30
136,465.81
514,823.54
36,722.00
20,158,999.24
100,170.00
3,791.70
180,157.25
673,706.00
100,059.07
169,676.52
144,430.48
21,370.23
99,900.00
123,188.10
18,906.80
2,776,686.03
192,470.55
2,863,994.32
38,181,733.95
6/15/12
10.546%
11/30/13 10.595%
11/30/13 10.796%
5/15/95
10.615%
4/10/96
10.545%
7/25/92
7.815%
7/31/96
10.025%
7/31/14
10.950%
3/10/92
10.435%
11/15/92
9.555%
5/15/95
10.595%
5/31/96
10.265%
4/30/96
9.865%
3/10/92
10.405%
11/15/92
9.515%
11/30/13 10.825%
11/22/95 10.565%
4/30/11
11.005%
3/24/12
10.845%
11/30/13 10.767%
6/15/12
10.615%
3/20/96
9.969%
11/30/13 10.682%
DEPARTMENT OF HOUSING & URBAN DEVELOPMENT
Community Development
•Detroit, MI
*Phoenix, AZ
•Lawrence, MA
Waukegan, IL
•Detroit, MI
Rochester, NY
Albany, NY
Albany, NY
Cmaha, NE
Philadelphia, PA
Springfield, MA
Westland, MI
Rock Hill, SC
Oakland, CA
9/3
9/3
9/3
9/3
9/4
9/5
9/13
9/13
9/13
9/13
9/13
9/18
9/23
9/26
20,968,660.83
3,300,000.00
2,000,000.00
1,250,000.00
15,088,000.00
225,000.00
100,000.00
94,926.00
150,000.00
533,700.00
447,500.00
219,849.54
474,602.00
150,000.00
9/11
9/12
9/12
9/26
9/26
65,308,000.00
117,268,592.12
1,584,418.71
124,086,023.84
1,584,382.00
9/23
139,150.20
9/1/96
9/1/91
9/1/91
9/1/90
9/1/90
8/31/04
7/1/03
7/1/03
5/31/87
10/1/03
8/1/86
10/1/85
11/1/86
9/1/03
10.376%
9.715%
9.715%
9.516%
9.772%
10.476%
10.767%
10.767%
9.085%
10.769%
8.245%
7.565%
8.295%
10.513%
10/15/85
10/15/85
10/15/85
10/15/85
10/15/85
7.595%
7.605%
7.605%
7.215%
7.215%
10/1/92
9.925%
10.645%
9.951%
9.951%
9.742%
10.011%
10.750%
11.057%
11.057%
9.291%
11.059%
8.393%
ann
ann
ann
ann
ann
ann
ann,
arm
ann
ann
ann,
8.467% ann,
10.789% ann,
DEPARTMENT OF THE NAVY
Ship Lease Finaneinq
Darnell
Fisher
Fisher Container
Bonnyman
Bonnyman Container
Defense Production Act
Gila River Indian Community
"aturity extension
9.805% qtr.
Page
FEDERAL FINANCING BANK
SEPTEMBER 1985 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
(semiannual )
$ 60,000,000.00
3/31/86
7.300%
INTEREST
RATE
(other than
semi-annual)
OREGON VETERAN'S HOUSING
+Note #2 9/30
RURAL ELECTRIFICATION ADMINISTRATION
*S. Mississippi Electric #171
*S. Mississippi Electric #171
•Saluda River Electric #186
•Allegheny Electric #93
•Oglethorpe Power #246
•Basin Electric #87
•Basin Electric #137
•Basin Electric #232
Saluda River Electric #186
KEPCO #282
•Saluda River Electric #186
United Power #159
United Power #212
New Hampshire Electric #270
•San Miguel Electric #110
Upper Missouri G&T #283
Central Iowa Power #295
•Cajun Electric #180
•Tex-La Electric #208
•Brazos Electric #108
•Big Rivers Electric #65
Tele. Ut. of E. Oregon #256
•Wolverine Power #101
•Wabash Valley Power #104
•Wolverine Power #182
•Wolverine Power #183
•Wolverine Power #234
•Wabash Valley Power #206
Deseret G&T #211
•Oglethorpe Power #66
•Oglethorpe Power #66
•Oglethorpe Power #74
•Oglethorpe Power #150
•Dairyland Power #161
•Dairyland Power #173
•Central Electric #131
•Wolverine Power #100
•Wolverine Power #101
•East Kentucky Power #73
•East Kentucky Power #188
*N.E. Missouri Electric #217
Wolverine Power #234
Jnited Power #67
United Power #86
United Power #129
Western Illinois Power #182
Old Dominion Electric #267
Deseret G&T #170
Oglethorpe Power #246
•Big Rivers Electric #58
•Big Rivers Electric #65
•Big Rivers Electric #91
San Miguel Electric #110
Corn Belt Power #292
•Big Rivers Electric #143
*Big Rivers Electric #179
•Basin Electric #137
-i- rollover
•maturity extension
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/4
9/4
9/5
9/6
9/6
9/9
9/9
9/9
9/9
9/9
9/10
9/10
9/10
9/10
9/10
9/12
9/13
9/16
9/16
9/16
9/16
9/16
9/16
9/16
9/16
9/16
9/16
9/16
9/16
9/16
9A6
9/17
9/17
9/17
9/17
9/19
9/19
9/19
9/20
9/20
9/20
9/23
9/23
9/23
9/23
9/23
1,639,000.00
1,800,000.00
3,610,000.00
2,805,000.00
16,804,000.00
712,000.00
5,000,000.00
1,158,000.00
948,000.00
620,000.00
5,637,000.00
958,000.00
117,000.00
544,000.00
5,600,000.00
796,000.00
1,940,000.00
24,266,000.00
1,600,000.00
1,100,000.00
4,112,000.00
1,953,000.00
520,000.00
3,161,000.00
2,170,000.00
2,686,000.00
9,664,000.00
6,605,000.00
20,399,000.00
3,880,000.00
3,044,217.00
25,429,000.00
26,772,000.00
3,768,000.00
462,000.00
265,000.00
58,736,000.00
75,063,000.00
4,700,000.00
7,023,000.00
438,000.00
1,343,000.00
700,000.00
375,000.00
1,050,000.00
2,681,000.00
730,000.00
154,000.00
57,524,000.00
3,827,000.00
12,000.00
1,829,000.00
8,000,000.00
337,000.00
336,000.00
6,435,000.00
25,000,000.00
9/3/87
9/3/87
12/31/15
9/30/87
1/2/18
12/3/85
12/3/85
12/3/85
12/31/19
12/31/15
1/2/18
12/31/19
12/31/19
1/2/18
12/31/12
9/30/87
9/30/87
12/31/17
12/31/17
12/31A5
1/2/18
9/30/87
9/30/87
9/30/87
9/9/88
9/9/88
9/14/87
9/13/87
9/16/87
9/16/87
9/16/87
9/16/87
9/16/87
9/16/87
9/16/87
9/16/87
9/30/87
9/30/87
12/31/15
12/31/15
1/2/18
9/30/87
12/31/13
12/31/13
12/31/13
12/31/15
12/31/13
12/31/19
9/21/87
12/31/12
12/31/12
12/31/12
12/31/12
9/30/87
12/31/17
12/31/17
12/3/85
9.105%
9.105%
10.669%
9.103%
10.659%
7.525%
7.525%
7.525%
10.652%
10.664%
10.659%
10.630%
10.630%
10.573%
10.689%
9.065%
9.305%
10.891%
10.891%
10.896%
10.891%
9.265%
9.254%
9.255%
9.655%
9.655%
9.265%
9.275%
9.175%
9.175%
9.175%
9.175%
9.175%
9.175%
9.175%
9.175%
9.164%
9.164%
10.794%
10.804%
10.795%
9.175%
10.775%
10.775%
10.775%
10.767%
10.793%
10.841%
9.195%
10.850%
10.850%
10.850%
10.788%
9.145%
10.765%
10.765%
7.355%
9.004% qtr.
9.004% qtr.
10.530% qtr.
9.002% qtr.
10.521% qtr.
7.496% qtr.
7.496% qtr.
7.496% qtr.
10.514% qtr.
10.526% qtr.
10.521% qtr.
10.492% qtr.
10.492% qtr.
10.437% qtr.
10.550% qtr.
8.965% qtr.
9.199% qtr.
10.747% qtr.
10.747% qtr.
10.752% qtr.
10.747% qtr.
9.160% qtr.
9.149% qtr.
9.150% qtr.
9.541% qtr.
9.541% qtr.
9.160% qtr.
9.170% qtr.
9.072% qtr.
9.072% qtr.
9.072% qtr.
9.072% qtr.
9.072% qtr.
9.072% qtr.
9.072% qtr.
9.072% qtr.
9.061% qtr.
9.061% qtr.
10.657% qtr.
10.662% qtr.
10.653% qtr.
9.072% qtr.
10.634% qtr.
10.634% qtr.
10.634% qtr.
10.626% qtr.
10.651% qtr.
10.698% qtr.
9.092% qtr.
10.707% qtr.
10.707% qtr.
10.707% qtr.
10.646% qtr.
9.043% qtr.
10.624% qtr.
10.624% qtr.
7.346% qtr.
Page 5 of 9
FEDERAL FINANCING BANK
SEPTEMBER 1985 ACTIVITY
BORROWER
DATE
~~~
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
(semiannual)
INTEREST
RATE
(other than
semi-annual)
RURAL ELECTRIFICATION ADMINISTRATION (Cont'd)
9/24
•Colorado Ute Electric
•Upper Missouri G&T #172
9/25
•South Mississippi Electric #3 9/26
•South Mississippi Electric #90 9/26
9/27
North Carolina Electric #268
9/27
•East Kentucky Power #140
•East Kentucky Power #188
9/27
•Brazos Electric #108
9/30
•Brazos Electric #144
9/30
•Deseret G&T #211
9/30
•Deseret G&T #211
9/30
•Deseret G&T #211
9/30
•Basin Electric #88
9/30
•Basin Electric #137
9/30
•Basin Electric #137
9/30
•Basin Electric #232
9/30
9/30
•Wabash Valley Power #104
•Wabash Valley Power #206
9/30
•Allegheny Electric #93
9/30
•Allegheny Electric #93
9/30
•Southern Illinois Power #38
9/30
9/30
•Corn Belt Power #166
•North Carolina Electric #185
9/30
•North Carolina Electric #185
9/30
•North Carolina Electric #185
9/30
•North Carolina Electric #185
9/30
•North Carolina Electric #185
9/30
9/30
•Wolverine Power #182
9/30
•Wolverine Power #183
9/30
•Wolverine Power #234
•Cajun Electric #147
9/30
•Cajun Electric #180
9/30
•Big Rivers Electric #91
9/30
9/30
•Big Rivers Electric #136
•Big Rivers Electric #143
9/30
•Big Rivers Electric #179
9/30
•Big Rivers Electric #179
9/30
•Saluda Rivers Electric #186
9/30
•Saludc Rivers Electric #186
9/30
•Vermort Electric #259
9/30
•Tex-La Electric #208
9/30
•Cooperative Power #70
9/30
•Oglethorpe Power #246
9/30
•S. Mississippi Electric #171
9/30
Basin Electric #232
9/30
Basin Electric #272
9/30
Kamo Electric #266
9/30
Colorado Ute Electric #276
9/30
Wolverine Power #274
9/30
Kansas Electric #282
9/30
Western Illinois Power #160
9/30
Western Illinois Power #294
9/30
New Hampshire Electric #270
9/30
Saluda River Electric #271
9/30
Brazos Electric #230
9/30
Tex-La Electric #208
9/30
Soyland Power #293
9/30
Cont. Tele, of Arkansas *264
9/30
Cont. Tele, of Arkanasa #265
9/30
•Central Electric #128
9/30
•Sunflower Electric #174
9/30
•Kansas Electric #216
9/30
Maturity extension
$ 2,868,000.00
233,000.00
5,000.00
495,000.00
20,249,000.00
800,000.00
2,000,000.00
1,210,000.00
3,613,000.00
15,787,000.00
14,879,000.00
28,700,000.00
105,000.00
40,000,000.00
25,000,000.00
2,058,000.00
5,634,000.00
11,392,000.00
4,584,000.00
5,000,000.00
1,500,000.00
660,000.00
10,824,000.00
19,610,000.00
10,371,000.00
17,248,000.00
34,471,000.00
4,003,000.00
4,905,000.00
16,704,000.00
10,000,000.00
30,000,000.00
415,000.00
580,000.00
43,000.00
5,376,000.00
12,436,000.00
7,000,000.00
11,150,000.00
1,336,000.00
3,100,000.00
12,300,000.00
36,701,000.00
7,881,000.00
24,711,000.00
587,000.00
3,497,000.00
1,032,000.00
2,536,000.00
5,754,000.00
455,000.00
25,350,000.00
2,893,000.00
11,962,000.00
1,015,000.00
3,628,000.00
32,809,000.00
2,248,000.00
4,574,000.00
2,440,000.00
2,200,000.00
640,000.00
9/24/87
9/25/87
9/30/87
9/30/87
12/31/17
12/31/17
12/31/17
12/31/15
12/31/15
12/31/85
12/31/85
12/31/85
12/3/85
12/3/85
12/3/85
12/3/85
9/30/87
9/30/87
9/30/87
9/30/87
9/30/87
9/30/87
9/30/87
9/30/87
9/30/87
9/30/87
9/30/87
9/30/88
9/30/88
9/30/87
12/31/15
12/31/15
12/31/15
12/31/15
12/31/15
12/31/15
12/31/17
12/31A5
12/31/17
12/31/17
12/31/17
9/30/87
12/31/17
10/1/87
12/3/85
9/30/87
9/30/87
9/30/87
9/30/87
12/31/15
12/31/19
12/31/17
12/31/17
12/31/17
12/31/19
12/31/19
1/2/18
12/31/19
12/31/19
9/30/87
9/30/87
12/31/17
9.015%
8.945%
8.810%
8.812%
10.654%
10.659%
10.659%
10.663%
10.663%
7.295%
7.295%
7.295%
7.285%
7.285%
7.285%
7.285%
8.865%
8.865%
8.845%
8.845%
8.852%
8.865%
8.865%
8.865%
8.865%
8.865%
8.865%
9.245%
9.245%
8.865%
10.663%
10.663%
10.663%
10.663%
10.663%
10.663%
10.660%
10.663%
10.660%
10.660%
10.660%
8.865%
10.660%
8.875%
7.285%
8.846%
8.851%
8.864%
8.855%
10.658%
10.657%
10.653%
10.660%
10.654%
10.657%
10.657%
10.653%
10.657%
10.657%
8.865%
8.865%
10.660%
8.916%
8.847%
8.715%
8.717%
10.516%
10.521%
10.521%
10.525%
10.525%
qtr.
qtr.
qtr.
qtr.
qtr.
qtr.
qtr.
qtr.
qtr.
8.769% qtr.
8.769% qtr.
8.749% qtr.
8.749% qtr.
8.756% qtr.
8.769% qtr.
8.769% qtr.
8.769% qtr.
8.769% qtr.
8.769% qtr.
8.769% qtr.
9.141% qtr.
9.141% qtr.
8.769% qtr.
10.525% qtr.
10.525% qtr.
10.525% qtr.
10.525% qtr.
10.525% qtr.
10.525% qtr.
10.522% qtr.
10.525% qtr.
10.522% qtr.
10.522% qtr.
10.522% qtr.
8.769% qtr.
10.522% qtr.
8.779% qtr.
8.750% qtr.
8.755% qtr.
8.768% qtr.
8."'59% qtr.
10.520% qtr.
10.519% qtr.
10.515% qtr.
10.522% qtr.
10.516% qtr.
10.519% qtr.
10.519% qtr.
10.515% qtr.
10.519% qtr.
10.519% qtr.
8.769% qtr.
8.769% qtr.
10.522% qtr.
Page 6 of 9
FEDERAL FINANCING BANK
SEPTEMBER 1985 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
(semiannual)
INTEREST
RATE
(other than
semi-annual)
RURAL ELECTRIFICATION ADMINISTRATION (Cont'd)
•Kansas Electric #216
•Kansas Electric #216
•Kansas Electric #216
•Kansas Electric #216
•Seminole Electric #141
9/30
9/30
9/30
9/30
9/30
$ 800,000.00
585,000.00
665,000.00
5,300,000.00
2,037,000.00
12/31/17
12/31/17
12/31/17
12/31/17
9/30/87
10.660%
10.660%
10.560%
10.660%
8.865%
9/1/00
9/1/00
9/1/00
9/1/00
9/1/00
9/1/00
9/1/00
9/1/00
9/1/00
9/1/00
9/1/00
9/1/00
9/1/00
9/1/00
9/1/00
9A / 0 5
9/1/05
9/1/05
9/1/05
9A/05
9/1/05
9/1/05
9/1/05
9A / 0 5
9/1/05
9/1/05
9/1/05
9A / 0 5
9/1/05
9/1/05
9/1/05
9/1/05
9/1/05
9/1/05
9/1/05
9A / 0 5
9/1/05
9/1/05
9/1/05
9/1/05
9/1/05
9/1/05
9/1/05
9A / 0 5
9/1/05
9/1/05
9/1/05
9/1/05
9/1/05
9/1/05
9A / 0 5
9/1/05
9/1/05
9/1/05
9/1/05
10.396%
10.396%
10.396%
10.396%
10.396%
10.396%
10.396%
10.396%
10.396%
10.396%
10.396%
10.396%
10.396%
10.396%
10.396%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
SMALL BUSINESS ADMINISTRATION
State & Local Development Company Debentures
Hamilton County Dev. Co., Inc. 9/4
Bus. Dev. Corp. of Nebraska
9/4
Indiana Statewide CDC
9/4
Northeast Louisiana Ind., Inc. 9/4
Dev. Corp. of Middle Georgia
9/4
Region E Development Corp.
9/4
St. Louis Local Dev. Co.
9/4
Greater Salt Lake Bus. Dis.
9/4
Beaumont Ec. Dev. Foundation
9/4
Downstate Development Corp.
9/4
Mahoning Valley Ec. Dev. Corp. 9/4
Indiana Statewide CDC
9/4
St. Louis County LDC
9/4
Central California CDC
9/4
CDC Business Dev. Corp.
9/4
Nine County Development, Inc. 9/4
Nine County Development, Inc. 9/4
Nine County Development, Inc. 9/4
Nine County Development, Inc. 9/4
Asheville-Buncombe Dev. Corp. 9/4
Montgomery County B.D.C.
9/4
Old Colorado City Dev. Co.
9/4
Oakland County LDC
9/4
CDC of Warren County, Inc.
9/4
Indiana Statewide CDC
9/4
Clay County Dev. Corp.
9/4
Mid-Atlantic CDC
9/4
Florida 1st Cap. Finance Corp. 9/4
Jacksonville LDC, Inc.
9/4
Greater Salt Lake Bus. Dis.
9/4
Coastal Area Dis Dev Auth, Inc 9/4
CDC of Mississippi, Inc.
9/4
Corp. for E.D. in Des Moines
9/4
Centralina Dev. Corp., Inc.
9/4
E.D.C. of Shasta County
9/4
Cincinnati L.D.C.
9/4
The Southern Dev. Council, Inc.9/4
Cascades W. Fin. Services, Inc.9/4
Syracuse Ec. Dev. Corp.
9/4
Florida 1st Cap. Finance Corp. 9/4
Mid City Pioneer Corp.
9/4
San Diego County LDC
9/4
Toledo Ec. Planning Coun., Inc.9/4
Western Mass. S.B.A., Inc.
9/4
Chester County S.B.A. Corp.
9/4
St. Louis County L.D.C.
9/4
Hamilton County Dev. Co., Inc. 9/4
Long Island Dev. Corp.
9/4
Massachusetts C.D.C.
9/4
Pioneer Country Dev., Inc.
9/4
Forward Development Corp.
9/4
Virginia Ec. Dev. Corp.
9/4
Iowa Business Growth Co.
9/4
San Diego County L.D.C.
9/4
Housatonic Indus. Dev. Corp.
9/4
•maturity extension
32,000.00
48,000.00
52,000.00
53,000.00
56,000.00
77,000.00
101,000.00
101,000.00
102,000.00
116,000.00
116,000.00
120,000.00
210,000.00
263,000.00
500,000.00
12,000.00
34,000.00
36,000.00
51,000.00
55,000.00
57,000.00
68,000.00
73,000.00
83,000.00
84,000.00
89,000.00
91,000.00
92,000.00
93,000.00
95,000.00
95,000.00
102,000.00
103,000.00
105,000.00
109,000.00
114,000.00
118,000.00
146,000.00
151,000.00
162,000.00
168,000.00
189,000.00
210,000.00
210,000.00
231,000.00
231,000.00
239,000.00
250,000.00
252,000.00
253,000.00
260,000.00
302,000.00
305,000.00
372,000.00
378,000.00
10.522% qtr.
10.522% qtr.
10.522% qtr.
10.522% qtr.
8.769% qtr.
Page 7 of 9
FEDERAL FINANCING BANK
SEPTEMBER 1985 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
(semiannual)
9/1/05
9/1/05
9/1/05
9/1/05
9/1/05
9/1/05
9A / 0 5
9/1/10
9/1/10
9A/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1/10
9A/10
9/1/10
9/1/10
9/1/10
9/1/10
9/1A0
9A/10
9/1A0
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.586%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
10.676%
9/1/88
9/1/88
9/1/90
9/1/90
9/1/90
9/1/92
9/1/92
9/1/92
9/1/95
9A/95
9/1/95
9/1/95
9/1/95
9/1/95
9/1/95
9/1/95
9/1/95
9A/95
9/1/95
9/1/95
9/1/95
9/1/95
9/1/95
9/1/95
9/1/95
9.505%
9.505%
9.945%
9.945%
9.945%
10.365%
10.365%
10.365%
10.495%
10.495%
10.495%
10.495%
10.495%
10.495%
10.495%
10.495%
10.495%
10.495%
10.495%
10.495%
10.495%
10.495%
10.495%
10.495%
10.495%
State & Local Development Company Debentures (Cont'd)
Bay Colony Dev. Corp.
E.D.C. of Shasta County
E.D.F. of Sacramento, Inc.
Eastern Maine Dev. District
Bay Coloney Dev. Corp.
Massachusetts C.D.C.
Iowa Bus. Growth Co.
Columbus Countywide Dev. Corp.
United Communities C.D.C.
Treasure Valley C.D.C.
Columbus Countywide Dev. Corp.
Area Investment & Dev. Corp.
Texas C.D.C, Inc.
Columbus Countywide Dev. Corp.
Columbus Countywide Dev. Corp.
N.W. Piedmont Dev. Corp., Inc.
San Diego County L.D.C.
Community Ec. Dev. Co.
Columbus Countywide Dev. Corp.
Bay Area Employment Dev. Co.
North Shore Bus. Finance Corp.
Area Investment & Dev. Corp.
San Diego County L.D.C.
Bay Colony Dev. Corp.
San Diego County L.D.C.
Mentor Econ. Assistance Corp.
Nevada State Dev. Corp.
Opportunities Minnesota, Inc.
Bay Area Business Dev. Co.
Quaker State C.D.C, Inc.
Granite State Ec. Dev. Corp.
Arizona Enterprise Dev. Corp.
Bay Area Employment Dev. Co.
Rural Missouri, Inc.
Greater Hartford B.D.C, Inc.
Denver Urban Ec. Dev. Corp.
Bay Area Business Dev. Co.
Massachusetts C.D.C.
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
9/4
397, 000.00
420,000.00
441, 000.00
441,000.00
493,000.00
500,000.00
500,000.00
56,000.00
73,000.00
78,000.00
79,000.00
84,000.00
98, 000.00
100,000.00
102,000.00
105,000.00
110,000.00
133,000.00
135,000.00
146,000.00
154,000.00
159,000.00
166,000.00
168,000.00
173,000.00
195,000.00
210,000.00
210,000.00
218,000.00
239,000.00
241,000.00
280,000.00
319,000.00
348,000.00
383,000.00
464,000.00
500,000.00
500,000.00
9A/io
Snail Business Investment Company Debentures
Advent IV Capital Corporation
Market Capital Corporation
Advent IV Capital Corporation
Maine Capital Corporation
Round Table Capital Corp.
Albuquerque Sm. Bus. Inv. Co.
Maine Capital Corporation
Tappan Zee Capital Corp.
Americap Corporation
Business Achievement Corp.
Capital Corp. of Wyoming, Inc.
Capital Impact Corporation
Capital Marketing Corporation
Capital Marketing Corporation
Edwards Capital Corporation
Equity Capital Corporation
Ferranti High Technology, Inc.
James River Capital Associates
Market Capital Corporation
Metropolitan Capital Corp.
North Star Ventures, Inc.
Questech Capital Corporation
Unicorn Ventures, II, L.P.
Walnut Capital Corporation
White River Capital Corp.
9/17
9A7
9/17
9/17
9/17
9/17
9/17
9/17
9/17
9/17
9A7
9/17
9/17
9/17
9A7
9/17
9/17
9A7
9A7
9/17
9/17
9/17
9/17
9/17
9/17
3,000,000.00
250,000.00
3,000,000.00
500,000.00
500,000.00
250,000.00
500,000.00
300,000.00
600,000.00
120,000.00
300,000.00
4,000,000.00
3,500,000.00
4,020,000.00
500,000.00
300,000.00
1,000,000.00
750,000.00
200,000.00
500,000.00
500,000.00
2,000,000.00
2,000,000.00
4,000,000.00
500,000.00
"INTEREST"
RATE
(other than
semi-annual)
Pace 3 of
FEDERAL FINANCING BANK
SEPTEMBER 1985 ACTIVITY
AMOUNT
OF ADVANCE
DATE
BORROWER
INTEREST
RATE
(semiannual)
FINAL
MATURITY
INTEREST
RATE
(other than
semi-annual)
TENNESSEE VALLEY AUTHORITY
Seven States Energy Corporation
•Note A-85-12
9/30
$ 594,232,232.86
12/31/85
7.295%
FEDERAL FINANCING BANK
SEPTEMBER 1985 Commitments
BORROWER
Oakland, CA
Rock Hill, SC
Saginaw, MI
Wilmington Trust
Wilmington Trust
Wilmington Trust
Wilmington Trust
Wilmington Trust
Kansas Electric
Co.
Co.
Co.
Co.
Co.
GUARANTOR
AMOUNT
HUD
HUD
HUD
$ 810,000.00
1,578,000.00
2,000,000.00
75,000,000.00
225,000,000.00
3,000,000.00
225,000,000.00
3,000,000.00
10,000,000.00
(Darnell)
(Fisher)
(Fisher Container)
(Bonnyman)
(Bonnyman Container)
Navy
Navy
Navy
Navy
Navy
REA
COMMITMENT
EXPIRES
MATURITY
9A / 8 6
11/1/86
10/1/86
12/11/90
12/12/90
12/12/90
12/26/90
12/26/90
12/31/92
9/1/03
11/1/86
10/1/86
7/15/0 5
7/15/10
7/15/10
7/15/10
7/15/10
12/31/19
Page 9 of 9
FEDERAL FINANCING BANK HOLDINGS
(in millions)
Program
September 30, 1985
August 31, 1985
Net Change
9/1/85-9/30/85
Net Change—FY 1985
10/1/84-9/30/85
On-Budget Agency Debt
Tennessee Valley Authority $ 14,381.0
Export-Import Bank
NCUA-Central Liquidity Facility
15,409.0
222.2
$ 14,275.0r
15,728.8
225.8
$ 106.0
-319.7
-3.7
$ 946.0
-280.8
-46.7
Off-Budget Agency Debt
U.S. Postal Service 1,690.0
U.S. Railway Association
73.8
720.0
73.8
970.0
63,779.0
109.0
126.1
390.0
-0-
603.0
22.5t
Agency Assets
Farmers Home Administration 64,169.0
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Overseas Private Investment Corp.
Rural Electrification Admin.-CBO
Small Business Administration
109.3
122.8
6.1
3,724.3
32.9
3,536.7
33.4r
187.6
-0.5
4,658.0
-6.8
-9.1
-4.8
187.6
-7.2
18,093.5r
5,000.0
-4.9
977.6
6.1
0.3
-3.3
-0-
Government-Guaranteed Lending
DOD-Foreign Military Sales
DFri.-Student Loan Marketing Assn.
riOE-<feothermal Loan Guarantees
DOE-Non-Nuclear Act (Great Plains)
DHUD-Community Dev. Block Grant
DHUD-New Communities
DIIUD-Public Housing Notes
General Services Administration
DOI-Guam Power Authority
DOI-Virgin Islands
NASA-Space Communications Co.
DON-Ship Lease Financing
DON-Defense Production Act
Oregon veteran's Housing
Rural Electrification Admin.
SBA-Small Business Investment Cos.
SBA-State/Local Development Cos.
TVA-Seven States Energy Corp.
DOT-Section 511
DOT-WMATA
18,088.5
5,000.0
-0-0289.4
33.5
2,146.2
408.4
35.1
28.2
887.6
1,313.1
5.8
60.0
21,675.5
1,023.9
595.7
1,651.4
153.6
177.0
TOTALS^ $ 153,513.3
•fiqures may not total due to rounding
treflects adjustment for capitalized interest
r=revised
-01,138.0
290.lr
33.5
2,146.2
408.4r
35.6
28.2
887.6
1,003.2
5.7
60.0
21,459.2r
l,009.4r
585.3r
1,628.4
153.6
177.0
$ 152,756.4
-0-0-1,138.0
-0.7
-0-0-0-0.4
-0-0309.8
0.1
-0216.3
14.5
10.4
23.0
-0-0$ 756.8
-0-6.2
-1,290.0
81.1
-0-32.3
-5.0
-0.9
-0.5
-67.0
1,313.1
2.7
60.0
1,088.4
163.6
241.1
95.9
-6.0
-0$ 8,677.1
TREASURY NEWS
department of the Treasury • Washington, D.C. • Telephone 566-2041
For Immediate Release
Friday, November 25, 1985
Contact:
Art Siddon
566-5252
NIEHENKE RESIGNS AS DEPUTY ASSISTANT SECRETARY FOR FEDERAL FINANCE
The Department of the Treasury announced today that
John J. Niehenke has resigned as Deputy Assistant Secretary for
Federal Finance effective November 26.
Mr. Niehenke, who joined Treasury in June 1984, has been
responsible for formulating the U.S. government's debt management
and financing policies, and for analyzing the impact of different
financing options on U.S. money and capital markets. Specifically,
he managed the Department's program to design and implement the
STRIPS program, which facilitates trading the component parts of
Treasury securities. From March 1985 to October 1985, Mr. Niehenke
was the Acting Assistant Secretary for Domestic Finance.
Secretary James A. Baker III, noted that Mr. Niehenke has done an
excellent job with Treasury debt management during an important
period.
Before joining the Treasury Department, Mr. Niehenke, 40, was
a Senior Vice President of Girard Bank, Philadelphia, now a
subsidiary of Mellon National Corporation. During his 14 years at
Girard, Mr. Niehenke had responsibilities involving investment
portfolio and liability management. He also managed the bank's
national lending group which coordinated lending in large corporate
markets.
From 1976 to 1978, Mr. Niehenke was Special Assistant to the
Secretary for Debt Management at the Treasury where he was awarded
the Exceptional Service Award and Meritorious Service Award, the
Department's two highest honors.
B-379
TREASURY NEWS
department of the Treasury • Washington, D.C. • Telephone 566
FOR IMMEDIATE RELEASE
November 22, 1985
RESULTS OF AUCTION OF 30-YEAR BONDS
The Department of the Treasury has accepted $6,761 million of
$14,856 million of tenders received from the public for the 30-year
Bonds auctioned today. The bonds will be issued November 29, 1985,
and mature November 15, 2015.
The interest rate on the bonds will be 9-7/8%.!/ The range
of accepted competitive bids, and the corresponding prices at the
9-7/8% interest rate are as follows:
Yield Price 2/
Low 9.88% 99.936
High
Average
9.95%
9.93%
99.271
99.460
Tenders at the high yield were allotted 22%.
TENDERS RECEIVED AND ACCEPTED (In Thousands)
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
Totals
Received
Accepted
$
35,362
13,331,904
910
30,669
13,286
13,526
858,651
40,871
2,253
5,871
705
521,224
374
$14,855,606
$
802
6,366,884
910
669
6,286
9,186
262,151
39,871
2,253
5,871
705
64,664
374
$6,760,626
The $6,761 million of accepted tenders includes $340
million of noncompetitive tenders and $6,421 million of competitive tenders from the public.
In addition to the $6,761 million of tenders accepted in the
auction process, $131 million of tenders was accepted at the average
price from Government accounts and Federal Reserve Banks for their
own account in exchange for Treasury bills issued on November 15,
1985, for securities that matured on that date.
1/
~~
2/
-
The minimum par amount required for STRIPS is $1,600,000.
Larger amounts must be in multiples of that amount.
in addition to the auction price, accrued interest of $3.81906
per $1,000 for November 15, 1985, to November 29, 1985, must be
paid.
TREASURY NEWS
tepartment of the Treasury • Washington, D.c. • Telephone 566-2041
FOR IMMEDIATE RELEASE
November 25, 1985
CONTACT: Art Siddon
566-5252
TREASURY DEPARTMENT ASSESSES PENALTY AGAINST
SEATTLE FIRST NATIONAL BANK UNDER BANK SECRECY ACT
The Department of the Treasury announced today that Seattle
First National Bank of Seattle, Washington, has agreed to a
settlement that requires the bank to pay a civil penalty of
$697,000 for failure to report 2788 currency transactions between
1980 and 1985 as required by the Bank Secrecy Act. These violations were discovered following a compliance examination by the
Comptroller of the Currency.
The decision was announced by David D. Queen, Acting
Assistant Secretary for Enforcement and Operations. Queen said
that the penalty represented a complete settlement of Seattle
First's civil liability on these 2788 violations. Queen added
that Seattle First cooperated with Treasury in developing the
scope of its liability after the compliance problems were
discovered.
The Department of the Treasury has no evidence that Seattle
First knowingly engaged in money laundering in connection with
these 2788 reporting violations. Seattle First has instituted
measures to ensure full compliance with reporting requirements in
the future.
Queen said, "We view Bank Secrecy Act reporting failures,
for whatever reason, as extremely serious. Failures to file
timely currency reports deprive Treasury of potentially useful
law enforcement information."
This year, more than 60 financial institutions have
disclosed reporting violations to Treasury. Most of these
institutions have come forward voluntarily, a few, such as
Seattle First, have done so after non-compliance was discovered
by bank regulators. Since June, penalties ranging from $210,000
to $2.25 million have been assessed against six other banks.
The civil liability of the other financial institutions is under
review.
B-381
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone
FOR IMMEDIATE RELEASE
November 25, 1985
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $7,404 million of 13-week bills and for $7,413 million
of 26-week bills, both to be issued on November 29, 1985, were accepted today.
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
13-week bills
maturing February 27. 1986
Discount Investment
Rate
Rate 1/
Price
7.12%
7.17%
7.15%
7.35%
7.40%
7.38%
26-week bills
maturing May 29. 1986
Discount Investment
Rate
Rate 1/
Price
98.220
98.208
98.213
7.24% £/
7.27%
7.26%
7.62%
7.65%
7.64%
96.360
96.345
96.350
a/ Excepting 2 tenders totaling $2,505,000.
Tenders at the high discount rate for the 13-week bills were allotted 89%,
Tenders at the high discount rate for the 26-week bills were allotted 16%,
TENDERS RECEIVED AND ACCEPTED
(In Thousands)
Received
Accepted
:
Received
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
$
41,855
17,145,570
22,200
54,740
86,310.
78,110
1,471,545
45,745
10,010
38,410
44,180
1,670,125
296,650
:
:
!
s
s
J
s
ii
\
:
:
!
:
$
31,910
17,699,740
21,340
32,730
68,425
49,750
1,692,135
53,000
14,175
39,225
30,965
1,567,395
259,535
$
31,910
6,111,670
21,340
32,730
68,425
47,910
553,255
33,000
14,175
39,225
25,965
173,395
259,535
$21,005,450
$7,404,020
: $21,560,325
$7,412,535
$18,050,735
1,009,030
$19,059,765
$4,449,305
1,009,030
$5,458,335
: $18,006,710
:
813,615
: $18,820,325
$3,858,920
813,615
$4,672,535
1,655,485
1,655,485
:
1,550,000
1,550,000
290,200
290,200
:
1.190,000
1,190,000
$21,005,450
$7,404,020
: $21,560,325
$7,412,535
1/ Equivalent coupon-issue yield
B-382
$
41,855
6,207,970
22,200
54,740
75,760
74,800
356,575
25,745
10,010
38,410
39,180
160,125
296,650
Accepted
2041
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-2041
FOR RELEASE AT 4:00 P.M.
TREASURY'S WEEKLY BILL OFFERING
November 26, 1985
The Department of the Treasury, by this public notice, invites
tenders for two series of Treasury bills totaling approximately
$15,200 million, to be issued December 5, 1985.
This offering
will provide about $950
million of new cash for the Treasury, as
the maturing bills are outstanding in the amount of $14,256 million.
Tenders will be received at Federal Reserve Banks and Branches and
at the Bureau of the Public Debt, Washington, D. C. 20239, prior to
1:00 p.m., Eastern Standard time, Monday, December 2, 1985.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $7,600
million, representing an additional amount of bills dated
September 5, 1985, and to mature March 6, 1986
(CUSIP No.
912794 JV 7 ) , currently outstanding in the amount of $7,261 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $7,600 million, to be dated
December 5, 1985,
and to mature June 5, 1986
(CUSIP No.
912794 KJ 2 ) .
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Both series of bills will be issued
entirely in book-entry form in a minimum amount of $10,000 and in
any higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Branches, or of the Department of the Treasury.
The bills will be issued for cash and in exchange for Treasury
bills maturing December 5, 1985.
Tenders from Federal Reserve
Banks for their own account and as agents for foreign and international monetary authorities will be accepted at the weighted
average bank discount rates of accepted competitive tenders. Additional amounts of the bills may be issued to Federal Reserve Banks,
as agents for foreign and international monetary authorities, to the
extent that the aggregate amount of tenders for such accounts exceeds
the aggregate amount of maturing bills held by them. Federal Reserve
Banks currently hold $936
million as agents for foreign and international monetary authorities, and $3,466 million for their own
account. Tenders for bills to be maintained on the book-entry
records of the Department of the Treasury should be submitted on Form
PD 4632-2 (for 26-week series) or Form PD 4632-3 (for 13-week series).
B-383
TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, PAGE 2
Each tender must state the par amount of bills bid for,
which must be a minimum of $10,000. Tenders over $10,000 must
be in multiples of $5,000. Competitive tenders must also show
the yield desired, expressed on a bank discount rate basis with
two decimals, e.g., 7.15%. Fractions may not be used. A single
bidder, as defined in Treasury's single bidder guidelines, shall
not submit noncompetitive tenders totaling more than $1,000,000.
Banking institutions and dealers who make primary markets in
Government securities and report daily to the Federal Reserve Bank
of New York their positions in and borrowings on such securities
may submit tenders for account of customers, if the names of the
customers and the amount for each customer are furnished. Others
are only permitted to submit tenders for their own account. Each
tender must state the amount of any net long position in the bills
being offered if such position is in excess of $200 million. This
information should reflect positions held as of 12:30 p.m. Eastern
time on the day of the auction. Such positions would include bills
acquired through "when issued" trading, and futures and forward
transactions as well as holdings of outstanding bills with the same
maturity date as the new offering, e.g., bills with three months to
maturity previously offered as six-month bills. Dealers, who make
primary markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and borrowings
on such securities, when submitting tenders for customers, must
submit a separate tender for each customer whose net long position
in the bill being offered exceeds $200 million.
A noncompetitive bidder may not have entered into an agreement,
nor make an agreement to purchase or sell or otherwise dispose of
any noncompetitive awards of this issue being auctioned prior to
the designated closing time for receipt of tenders.
Payment for the full par amount of the bills applied for must
accompany all tenders submitted for bills to be maintained on the
book-entry records of the Department of the Treasury. A cash
adjustment will be made on all accepted tenders for the difference
between the par payment submitted and the actual issue price as
determined in the auction.
No deposit need accompany tenders from incorporated banks and
trust companies and from responsible and recognized dealers in
investment securities for bills to be maintained on the book-entry
records of Federal Reserve Banks and Branches. A deposit of 2 percent of the par amount of the bills applied for must accompany
tenders for such bills from others, unless an express guaranty of
payment by an incorporated bank or trust company accompanies the
tenders.
4/85
TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, PAGE 3
Public announcement will be made by the Department of the
Treasury of the amount and yield range of accepted bids. Competitive bidders will be advised of the acceptance or rejection of their
tenders. The Secretary of the Treasury expressly reserves the right
to accept or reject any or all tenders, in whole or in part, and the
Secretary's action shall be final. Subject to these reservations,
noncompetitive tenders for each issue for $1,000,000 or less without
stated yield from any one bidder will be accepted in full at the
weighted average bank discount rate (in two decimals) of accepted
competitive bids for the respective issues. The calculation of
purchase prices for accepted bids will be carried to three decimal
places on the basis of price per hundred, e.g., 99.9 23, and the
determinations of the Secretary of the Treasury shall be final.
Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on the issue date, in cash or other immediately-available funds
or in Treasury bills maturing on that date. Cash adjustments will
be made for differences between the par value of the maturing bills
accepted in exchange and the issue price of the new bills. In addition, Treasury Tax and Loan Note Option Depositaries may make payment for allotments of bills for their own accounts and for account
of customers by credit to their Treasury Tax and Loan Note Accounts
on the settlement date.
In general, if a bill is purchased at issue after July 18,
1984, and held to maturity, the amount of discount is reportable
as ordinary income in the Federal income tax return of the owner
at the time of redemption. Accrual-basis taxpayers, banks, and
other persons designated in section 1281 of the Internal Revenue
Code must include in income the portion of the discount for the
period during the taxable year such holder held the bill. If the
bill is sold or otherwise disposed of before maturity, the portion
of the gain equal to the accrued discount will be treated as ordinary income. Any excess may be treated as capital gain.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76 and 27-76, Treasury's single bidder guidelines, and this
notice prescribe the terms of these Treasury bills and govern the
conditions of their issue. Copies of the circulars, guidelines,
and tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt.
4/85
TREASURY NEWS
FOR IMMEDIATE
26, 1985
department
of theRELEASE
Treasury • Washington, D.C.November
• Telephone
566-2041
RESULTS OF TREASURY'S 52-V;EEK BILL AUCTION
Tenders for $9,005 million of 52-week bills to be issued
November 29, 1985, and to mature November 28, 1986, were accepted
today. The details are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Low
High
Average -
Discount
Rate
7.32%
7.34%
7.33%
Investment Rate
(Equivalent Coupon-Issue Yield) Price
92.599
7.86%
92.578
7.88%
92.589
7.87%
Tenders at the high discount rate were allotted 83
TENDERS RECEIVED AND ACCEPTED
(In Thousands)
Received
Accented
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
$ 46,705
19,888,020
8,845
91,170
36,810
93,170
1,517,300
91,525
11,150
26,075
17,895
1,347,815
67,750
$23,244,230
$
27,685
7,809,210
8,845
86,920
26,130
44,220
329,390
57,995
11,150
26,015
12,045
497,935
67,750
$9,005,290
$20,968,285
415,945
$21,384,230
1,800,000
$6,729,345
415,945
$7,145,290
1,800,000
60,000
$23,244,230
60,000
$9,005,290
An additional $40,000 thousand of the bills will be issued
to foreign official institutions for new cash.
B-384
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-2041
November 27, 198 5
FOR IMMEDIATE RELEASE
TREASURY ANNOUNCES MARKET BORROWING REQUIREMENTS
The Treasury Department announced today its estimates
of Treasury borrowing needs for the current quarter and
January-March 1986.
This announcement was delayed from the
usual late October announcement date because of the delay
in Congressional action on the debt limit.
Treasury net borrowing in the form of marketable bills,
notes and bonds is estimated to total $61.3 billion in the
October-December 1985 quarter, assuming a cash balance of
$15.0 billion on December 31.
Of this amount, $55.9 billion
has been issued or announced to date, including the weekly
bill auctions announced yesterday.
The remaining $5.4
billion could be raised by additions to regular weekly
and monthly bills and to the 2-year and 4-year notes settling
December 31.
The regular weekly bill auctions on December 9
will not be held unless there is assurance of Congressional
action on the debt limit.
In the January-March 1986 quarter, Treasury market
borrowing is estimated to be in a range of $60 to $65 billion,
assuming a $10 billion cash balance on March 31.
B-385
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-2041
For Immediate Release
Friday, November 29, 1985
Contact:
Art Siddon
566-5252
TREASURY DEPARTMENT ASSESSES PENALTY AGAINST
NATIONAL BANK OF DETROIT UNDER BANK SECRECY ACT
The Department of the Treasury announced today that National
Bank of Detroit has agreed to a settlement that requires the bank
to pay a civil penalty of $168,000 for failure to report 764
currency transactions between 1980 and 1985 as required by the
Bank Secrecy Act.
David D. Queen, Acting Assistant Secretary for Enforcement
and Operations, who announced the penalty, said the penalty
represented a complete settlement of National Bank of Detroit's
civil liability. Queen said National Bank of Detroit promptly
and on its own initiative brought this matter to the attention of
the Department of the Treasury, cooperated fully with Treasury,
and conducted an extensive internal investigation of its Bank
Secrecy Act compliance. National Bank of Detroit has instituted
measures to ensure full compliance with reporting requirements in
the future.
The Department of the Treasury has no evidence that National
Bank of Detroit knowingly engaged in money laundering or criminal
behavior in connection with these reporting violations.
B-3B6
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-2041
FOR IMMEDIATE RELEASE
November 27, 1985
RESULTS OF AUCTION OF 5-YEAR 2-MONTH NOTES
The Department of the Treasury has accepted $7,519 million
of $25,110 million of tenders received from the public for the
5-year 2-month notea, Series H-1991, auctioned today. The notes
will be issued December 3, 1985, and mature Pebruary 15, 1991.
The interest rate on the notea will be 9-1/8%. The range of
accepted competitive bids, and the corresponding prices at the 9-1/8%
interest rate are as followsi
Yield Price
Low
9.12%
99.942
High
9.13%
99.901
Average
9.13%
99.901
Tenders at the high yd.eld were al}.c>tted 60%.
TENDERS RECEIVED AND ACCEPTED (In Thousands)
Location
Received
Accepted
Boston
$
61,113
$
22,113
New York
22,444,767
6,695,427
Philadelphia
32,730
31,086
Cleveland
64,835
51,195
Richmond
44,228
30,228
Atlanta
49,514
46,704
Chicago
1,158,132
231,082
St. Louis
151,180
134,180
Minneapolis
26,433
24,433
Kansas City
69,552
67,352
Dallas
18,100
13,100
San Prancisco
986f503
169,803
Treasury
2,768
2,768
Totals
$S5,lfl$,855
*7,51§!4V1
The $7,519 million of accepted tenders includes $820
million of noncompetitive tenders and $6,699 million of competitive tenders from the public.
In addition to the $7,519 million of tenders accepted in
the auction process, $130 million of tenders was awarded at the
average price to Federal Reserve Banks as agents for foreign and
international monetary authorities.
B-387
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-204'
Contact: Art Siddon
Phone: (202) 566-5252
FOR IMMEDIATE RELEASE
November 29, 1985
. S. Treasury Department Statement
The Treasury Department reaffirmed today the critical
role of the multilateral institutions in the "Program for
Sustained Growth", Secretary James A. Baker Ill's initiative
to strengthen the international debt strategy. As part of
this initiative, the International Monetary Fund (IMF) is
expected to continue to play a central role in efforts to
deal with international debt problems, in conjunction with an
enhanced role for the multilateral development banks.
While every country would not necessarily have to have a
formal IMF program, it is expected that debtor countries
would develop their short ani long term economic policies for
growth in cooperation with the IMF and the multilateral
development ban ks .
o 0 o
B-388
TREASURY NEWS .
Department of the Treasury • Washington, D.C. • Telephone 566-2041
FOR IMMEDIATE RELEASE
December 2, 1985
RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $7,612 million of 13-week bills and for $7,606 million
of 26-week bills, both to be issued on December 5, 1985, were accepted today.
RANGE OF ACCEPTED
13--week bills
COMPETITIVE BIDS: maturing March 6, 1986
Discount Investment
Rate
Rate 1/
Price
Low
High
Average
7.16%
7.20%
7.19%
7.39%
7.44%
7.42%
98.190
98.180
98.183
26--week bills
maturing June 5, 1986
Discount Investment
Price
Rate 1/
Rate
:
:
7.24%
7.27%
7.26%
7.62%
7.65%
7.64%
96.340
96.325
96.330
Tenders at the high discount rate for the 13-week bills were allotted 74%
Tenders at the high discount rate for the 26-week bills were allotted 93%
•
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
TENDERS RECEIVED AND ACCEPTED
(In Thousands)
Received
Accepted
:
Received
$
45,400
15,037,605
19,325
47,695
45,810
46,975
1,555,000
87,780
11,150
60,660
41,545
1,428,580
319,440
$
45,400
6,524,885
19,325
47,695
45,810
46,975
212,000
47,780
11,150
59,925
41,545
189,580
319,440
: $
33,465
: 16,876,115
:
18,440
31,180
43,690
46,305
1,503,310
90,705
:
11,875
48,905
33,150
1,691,670
320,160
$
33,465
6,582,595
18,440
31,180
43,690
45,535
256,710
50,705
11,875
48,905
27,800
134,670
320,160
$18,746,965
$7,611,510
: $20,748,970
$7,605,730
$15,648,555
1,065,110
$16,713,665
$4,513,100
1,065,110
$5,578,210
s $17,798,110
:
841,060
: $18,639,170
$4,654,870
841,060
$5,495,930
1,775,900
1,775,900
:
1,700,000
1,700,000
257,400
257,400
:
409,800
409,800
$18,746,965
$7,611,510
: $20,748,970
$7,605,730
1/ Equivalent coupon-issue yield.
B-389
Accepted
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-2041
FOR IMMEDIATE RELEASE
December 2, 1985
CONTACT: Art Siddon
(202) 566-5252
TREASURY PUBLISHES PROPOSED
REGULATIONS FOR BOOK-ENTRY ACCOUNTS
The Department of the Treasury today published proposed regulations for Treasury securities to be held in its new Treasury Direct
Access Book-Entry System (referred to in the regulations as T-DAB)
that is currently under development. The proposed regulations will
be open for public comment for 45 days.
The new system governed by these regulations is to be known as
the TREASURY DIRECT system and is scheduled to be implemented in
July 1986. As of the implementation date, investors will be able
to obtain new issues of Treasury bonds and notes in book-entry form
only, but will have the option of holding their securities through
the new TREASURY DIRECT system or through the existing commercial
book-entry system. Treasury bills, which are already offered
exclusively in book-entry form, will be available through the new
system in 1987.
The proposed regulations provide investors with a variety of
registration options, essentially similar to those provided today
for registered definitive (paper) securities. The new rules also
provide for a number of substantive improvements. In addition to
the change to an exclusively book-entry environment, payments of
interest and principal will be made through the use of an electronic funds transfer system. Investors will also have the use of
a single master account for holding all their investments in
Treasury bills, notes, and bonds.
Implementing the new system will complete the Department's goal
of issuing all marketable securities exclusively in book-entry
form. After implementation of the TREASURY DIRECT system, no new
issues of bonds and notes will be available in definitive form.
The proposed regulations published today address only those
securities to be held in the TREASURY DIRECT system. However, the
Department noted that revised regulations governing the commercial
part of the book-entry system will also be published in proposed
form, for public comment, in the near future.
oOo
B-390
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-2041
FOR IMMEDIATE RELEASE
EXPECTED AT 10:00 A.M.
DECEMBER 3, 1985
STATEMENT OF THE HONORABLE DAVID C. MULFORD
ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL AFFAIRS
BEFORE THE SUBCOMMITTEE ON INTERNATIONAL FINANCE, TRADE
AND MONETARY POLICY
COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
HOUSE OF REPRESENTATIVES
Thank you, Mr. Chairman.
I am pleased to appear before
this Subcommittee to testify on H.R. 3667, the Competitive Tied
Aid Credit Fund Act. H.R. 3667, as unanimously reported by the
Subcommittee, contains the essential elements of the War Chest
proposal made by the President as part of the trade package
announced in September. It is a key element of our attack on
foreign unfair trade practices. I am here today to "respond to
questions from a number of members as to why the Administration's War Chest proposal requires new budgetary authority
rather than funding from Eximbank's capital and reserves.
The Administration is seeking a new appropriation for the
War Chest for the following reasons:
( 1 ) New funding will substantially increase the effectiveness of an offensive, targeted War Chest and underscore the importance which Congress and the President
attach to negotiating the elimination of tied aid credit
abuses.
(2) New funding is required to maintain the integrity of
Eximbank's financial position and to ensure that the
Bank's ability to support U.S. exports under normal export
credit terms is not impaired.
(3) The approach embodied in H.R. 3667, if supported by
an appropriation of new money, is a cost-effective means
to end tied aid credit abuses, thus expanding U.S. export
opportunities and preserving U.S. jobs in the export
sector.
B-391
- 2 Increasing Negotiating Leverage
The War Chest will be targeted at those sectors and
markets of particular importance to countries impeding negotiations. Since the proposed program is aggressive and preemptive and not available to all exporters, it is fundamentally
different from normal Eximbank activities. By placing the War
Chest in Treasury, which is the lead agency in negotiations, we
would not alter the basic approach of Eximbank, which is to
offer competitive financing for exports in a nondiscriminatory
manner.
Creation and funding of a new program in Treasury is
imperative if we are to have credibility in the negotiations
with our trading partners. If a War Chest were to be enacted
but not funded, the Europeans, especially the French, would
likely view the legislation as an empty threat.
Maintaining the Financial Integrity of Eximbank
Since the Administration proposal was transmitted to Congress, members of this Subcommittee and of the full Banking
Committee have continually stressed the need to maintain the
integrity of Eximbank's financial position and to ensure that
the War Chest proposal would not compromise Eximbank's normal
export credit activity. A tied - aid credit program is v e r y
expensive, given the high level of subsidization required. The
most honest and straightforward way to fund this program is to
appropriate money for it.
Substantial use of Eximbank's
reserves for this purpose would accelerate depletion of Eximbank's already dwindling capital and reserves.
If the tied aid credit program were to be in Eximbank, it
would significantly decrease the Bank's net income over the
next twenty years, thus further depleting its capital and
reserves.
Our proposal would support up to $1.0 billion in
U.S. tied aid credits over the next two years. If $1.0 billion
of tied aid credits were supported through soft loans in
Eximbank during the next two years, we estimate that the cost
to Eximbank would amount to $600-900 million in nominal terms,
depending on the grant element, and this cost would be borne
over the next tlxirty years.
Due mainly to heavy subsidies in previous lending activities, Eximbank's capital and reserves are already being depleted at a rate of $300-400 million per year, even without new
tied aid credits.
We should not exacerbate this problem by
adding yet another burden on the Bank's dwindling capital and
reserves. If we wish to subsidize our exports for the purpose
we propose, we should be willing to appropriate the money for
it now.
- 3 If Eximbank is directed to create the tied aid credit
program, it is likely that this program would be funded within
Eximbank's existing lending authority, thus reducing the
authority available for normal export financing by at least
$300 million. However, if Treasury were to receive a new $300
million appropriation for the tied aid credit program, that
would not affect Eximbank's current lending authority.
Actual total budgetary outlays in FY 86 and FY 87, as
contrasted with budget authority, under a fund appropriated to
Treasury would not differ significantly from outlays in a
program using Eximbank's capital and reserves.
Budgetary
outlays under either approach would be small during FY 86 and
FY 87, due to the long disbursement periods inherent in project
financing.
Expanding U.S. Trade Opportunities
The War Chest proposal embodied in H.R. 3667 is a wellfocused, cost-effective way to attack the predatory and unfair
trade practice of tied aid credits. By taking aggressive and
timely action to end this practice, we will help all U.S.
exporters, and not just the relatively few that might benefit
from defensive use of tied aid credits for an extended period
of time.
An end to the predatory misuse of tied aid credits will
greatly increase U.S. export opportunities. Many opportunities
now denied our exporters by the proliferation of tied aid practices will become available, thereby preserving U.S. jobs in
the export sector. Most importantly, we will have leveled the
playing field at a fraction of the cost to U.S. taxpayers that
would have been incurred under defensive proposals to match and
thus perpetuate the distorting practice of tied aid credits for
commercial purposes.
The legislation before you this week provides a practical
and realistic approach to give American business an opportunity
to compete fairly in the world marketplace. We urge early
approval of the Competitive Tied Aid Fund Act for a grant
program in Treasury, if we are serious about negotiating the
elimination of this unfair trade practice.
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-2041
FOR RELEASE AT 4:00 P.M.
TREASURY'S WEEKLY BILL OFFERING
December 3, 19 85
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling approximately $15,200 million, to be issued December 12, 1985. This offering will provide about $925 million of new cash for the Treasury, as
the maturing bills are outstanding in the amount of $14,268 million.
Tenders will be received at Federal Reserve Banks and Branches and
at the Bureau of the Public Debt, Washington, D. C. 20239, prior to
1:00 p.m., Eastern Standard time, Monday, December 9, 1985. The two
series offered are as follows:
91-day bills (to maturity date) for approximately $7,600 million,
representing an additional amount of bills dated September 12, 1985,
and to mature March 13, 1986 (CUSIP No. 912794 JW 5 ) , currently outstanding in the amount of $7,238 million, the additional and original
bills to be freely interchangeable.
182-day bills (to maturity date) for approximately $7,600
million, representing an additional amount of bills dated June 13,
1985, and to mature June 12, 1986 (CUSIP No. 912794 KK 9) , currently
outstanding in the amount of $8,533 million, the additional and
original bills to be freely interchangeable.
The Treasury will postpone the auctions unless it has assurance of Congressional action on legislation to raise the statutory
debt limit before the scheduled auction date of December 9, 1985.
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Both series of bills will be issued
entirely in book-entry form in a minimum amount of $10,000 and in
any higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Branches, or of the Department of the Treasury.
The bills will be issued for cash and in exchange for Treasury
bills maturing December 12, 1985. Tenders from Federal Reserve
Banks for their own account and as agents for foreign and international monetary authorities will be accepted at the weighted
average bank discount rates of accepted competitive tenders. Additional amounts of the bills may be issued to Federal Reserve Banks,
as agents for foreign and international monetary authorities, to the
extent that the aggregate amount of tenders for such accounts exceeds
the aggregate amount of maturing bills held by them. Federal Reserve
Banks currently hold $1,085 million as agents for foreign and international monetary authorities, and $3,753 million for their own
account. Tenders for bills to be maintained on the book-entry
records of the Department of the Treasury should be submitted on Form
P D 4632-2 (for 26-week series) or Form PD 4632-3 (for 13-week series).
B-3 9><
TREASURY'S 13-, 26-, AND 52-V7EEK BILL OFFERINGS, PAGE 2
Each tender must state the par amount of bills bid for,
which must be a minimum of $10,000. Tenders over $10,000 must
be in multiples of $5,000. Competitive tenders must also show
the yield desired, expressed on a bank discount rate basis with
two decimals, e.g., 7*15%. Fractions may not be used. A single
bidder, as defined in Treasury's single bidder guidelines, shall
not submit noncompetitive tenders totaling more than $1,000,000.
Banking institutions and dealers who make primary markets in
Government securities and report daily to the Federal Reserve Bank
of New York their positions in and borrowings on such securities
may submit tenders.for account of customers, if the names of the
customers and the amount for each customer are furnished. Others
are only permitted to submit tenders for their own account. Each
tender must state the amount of any net long position in the bills
being offered if such position is in excess of $200 million. This
information should reflect positions held as of 12:30 p.m. Eastern
time on the day of the auction. Such positions would include bills
acquired through "when issued" trading, and futures and forward
transactions as well as holdings of outstanding bills with the same
maturity date as the new offering, e.g., bills with three months to
maturity previously offered as six-month bills. Dealers, who make
primary markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and borrowings
on such securities, when submitting tenders for customers, must
submit a separate tender for each customer whose net long position
in the bill being offered exceeds $200 million.
A noncompetitive- bidder may not have entered into an agreement,
nor make an agreement to purchase or sell or otherwise dispose of
any noncompetitive awards of this issue being auctioned prior to
the designated closing time for receipt of tenders.
Payment for the'full par amount of the bills applied for must
accompany all tenders submitted for bills to be maintained on the
book-entry records of the Department of the Treasury. A cash
adjustment will be made on all accepted tenders for the difference
between the par payment submitted and the actual issue price as
determined in the auction.
No deposit need accompany tenders from incorporated banks and
trust companies and from responsible and recognized dealers in
investment securities for bills to be maintained on the book-entry
records of Federal Reserve Banks and Branches. A deposit of 2 percent of the par amount of the bills applied for must accompany
tenders for such bills from others, unless an express guaranty of
payment by an incorporated bank or trust company accompanies the
tenders.
4/85
TREASURY'S 13-, 26-, AND 52-WEEK BILL OFFERINGS, PAGE 3
Public announcement will be made by the Department of the
Treasury of the amount and yield range of accepted bids. Competitive bidders will be advised of the acceptance or rejection of their
tenders. The Secretary of the Treasury expressly reserves the right
to accept or reject any or all tenders, in whole or in part, and the
Secretary's action shall be final. Subject to these reservations,
noncompetitive tenders for each issue for $1,000,000 or less without
stated yield from any one bidder will be accepted in full at the
weighted average bank discount rate (in two decimals) of accepted
competitive bids for the respective issues. The calculation of
purchase prices for accepted bids will be carried to three decimal
places on the basis of price per hundred, e.g., 99.9 23, and the
determinations of the Secretary of the Treasury shall be final.
Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on the issue date, in cash or other immediately-available funds
or in Treasury bills maturing on that date. Cash adjustments will
be made for differences between the par value of the maturing bills
accepted in exchange and the issue price of the new bills. In addition, Treasury Tax and Loan Note Option Depositaries may make payment for allotments of bills for their own accounts and for account
of customers by credit to their Treasury Tax and Loan Note Accounts
on the settlement date.
In general, if a bill is purchased at issue after July 18,
1984, and held to maturity, the amount of discount is reportable
as ordinary income in the Federal income tax return of the owner
at the time of redemption. Accrual-basis taxpayers, banks, and
other persons designated in section 1281 of the Internal Revenue
Code must include in income the portion of the discount for the
period during the taxable year such holder held the bill. If the
bill is sold or otherwise disposed of before maturity, the portion
of the gain equal to the accrued discount will be treated as ordinary income. Any excess may be treated as capital gain.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76 and 27-76, Treasury's single bidder guidelines, and this
notice prescribe the terms of these Treasury bills and govern the
conditions of their issue. Copies of the circulars, guidelines,
and tender forms may be obtained from any Federal Reserve Bank or
Branch, or from the Bureau of the Public Debt.
4/85
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-2041
Remarks by
Secretary of the Treasury
James A. Baker, III
Upon Reception of the Tax Foundation's Public Service Award
New York, New York
December 4, 1985
I am delighted to be here tonight with so many distinguished
friends from both the business and academic communities. I am
also honored, and grateful, to receive your Public Service Award.
This award is especially meaningful since this group has .been
noted for its own "distinguished public service" for nearly half a
century.
The Tax Foundation has provided straightforward analysis and
thorough research during a period of great historical change and
intellectual ferment. Your combination of scholarly and practical
perspectives has been invaluable to generations of practitioners
in the fields of taxation and public policy.
When the Tax Foundation was established in 1937, our federal
income tax system was vastly different. Our tax laws were not yet
even codified. Only about 5 percent of the people had to worry
about what was in those laws. And only those making over five
million a year in Depression era dollars complained about the top
rate of 79 percent.
Now, it's more fair. Everybody has something to worry about!
I'm sure this audience has been following, with a
particularly keen eye, the newspaper accounts of tax reform. At
times, it might seem as though a Committee of Seurats is creating
a pointilist painting, albeit with a few erasures and smears. If
the observer isn't careful, he won't see the evolving portrait for
all the dots, i.e., losing sight of the forest for the trees — as
we say in Texas!
B-393
-2That's simply how the legislative process addresses a large
and complex tax system. We have over 500 legislators considering
an unspeakably complicated code that is many hundreds of pages
long. So every voice that wants to be heard should be heard.
But the harsh glare of the spotlight darkens and obscures the
background. Our eye, caught by the individual tax issue under the
spotlight, loses sight of the powerful motivations behind tax
reform.
Tonight, I want to step back for a moment, look beyond the
daily headlines, and describe what I believe those fundamental
values are, and what they mean for Americans and their government.
America's tax policies have always reflected the important
political values of the day. Taxation represents government power
— the power of other people — over our personal property. More
than that, taxation involves public powers over how we lead our
private lives, and exercise our economic, social, and cultural
choices.
The United States was born out of a revolution against the
taxing authority of the British. Before long, the power to tax
became a central issue of the balance between state and national
authority. In McCullough v. Maryland, Chief Justice Marshall
stated the issue plainly: "The power to tax involves the power to
destroy."
Throughout the 19th century, the epic political struggle over
the tariff reflected the nation's sectional strife. The tariff
battles pitted the northeast, whose manufacturing elements sought
import protection, against the agrarians of the south and west.
During the late 1800's, the public grew concerned about land
shortages: they worried that our frontiers were closing, and that
urban landowners, through no labor of their own, were becoming
rich because of the burgeoning population of cities. Again, a
major social and economic issue became a tax issue when Henry
George proposed a "single tax" on landowners.
At about the same time, the Populist Movement led to a
revival of the income tax, first enacted out of the need to to
finance the Civil War. After the Supreme Court found these direct
taxes unconstitutional, the Progressive Movement picked up the
banner, passing the 16th Amendment in 1913.
As the claims of government expanded rapidly during world
wars and a depression, tax rates soared. We even tried "excess
profits" taxes to address the public's concern about fortunes won
from war production and the government's concern about raising
money.
-3As time went on, the personal exemption dropped sharply.
Loopholes proliferated. Inflation shoved taxpayers into brackets
of previously unimagined heights.
As the income tax became more complex, less fair, and more of
a burden, the calls for reform became inevitable.
In his noted 1938 book, Professor Henry Simons articulated
the theory that a broad-based tax system, with few deductions, was
the fairest one. His work has guided many tax reform efforts
since then.
Twenty-five years later, Stanley Surrey of the Treasury
Department led us to recognize that tax breaks were another form
of expenditure. Moreover, he argued, they were particularly
pernicious forms because of their hidden nature and their effect
of undermining the public's trust in the tax system.
Yet tax reform has assumed a greater vitality in recent
years. Something is going on that is much bigger than professors'
pleas to reform the tax code.
Look for a moment at the proponents of tax reform in recent
years. They include President Reagan, a conservative Republican
President who associates himself with President Kennedy.
Both Ralph Nader and the Chairman of General Motors agree on
the need for broad-based tax reform. And so do leaders on both
sides of the political aisle on Capitol Hill, including
neo-conservatives and neo-liberals.
What underlies their common interest in tax reform? And why
has it appeared now?
Let me offer a hypothesis. I submit that these opinion
leaders are not drawn together by common acceptance of some
underlying economic theory. To the contrary, the 60's, 70's, and
80's have left both opinion leaders and the public skeptical of
all-encompassing theoretical constructs.
Instead, I believe the reform movement is powered by an
emotional engine, which is fueled by some very common sense
notions and experiences.
I'd label this political
The movement is populist
excessive concentrations
and drawn toward simple,
force "market-oriented" populism.
because it is anti-elitist, opposed to
of power, supportive of basic fairness,
straightforward solutions.
-4But the movement is market-oriented, unlike some earlier
populist causes. I believe the appeal of markets is a corollary
of the populists' distaste for concentrated power — for today
power is concentrated in government elites. Moreover, people are
coming to feel that fairness and opportunity may be more easily
found in impartial and efficient markets than in bureaucracies,
regulations, and the like.
Basically, there is a new confidence in the individual. The
struggle is now against the biggest monopoly of all — the federal
government!
In recent decades, we have watched vast government endeavors
collapse under the weight of their own ambition. Left behind has
been a morass of sluggish growth, overregulation, heavy taxes, and
unrestrained interest rates and inflation.
The public is wary of attempts to manage society. It is
dismayed by the irrational results of "rational" policies. It is
disenchanted by the well-intentioned failures of the "best and the
brightest."
This sentiment helped bring two outsiders, Jimmy Carter and
Ronald Reagan, to the Presidency. It fueled the tax revolts in
California and other states. It won 49 states for President
Reagan last year!
By any reckoning, there has been renewed public faith in the
free market. It takes confidence to start a new business — and
over 600,000 of them were begun last year. It takes confidence to
create a new job — and over 8 million jobs have been created
since the recovery began. It takes confidence to try a new idea,
and America's high tech enclaves are the envy of the world.
It is natural that this market-oriented populism would
eventually focus its attention on our tax policies. Taxation and
government power are synonymous. And the public has expressed
strong dissatisfaction about both.
One survey recently found that 4 of 5 taxpayers believe that
the present system benefits the rich and is unfair to the ordinary
working man or woman. The majority believed that the tax system
is too complicated and that cheating on taxes is rampant.
The values of market-oriented populism are clearly driving
much of the discontent with the tax code.
There is distrust of the code's social engineering. Not only
may these tax expenditures cause problems, but they require higher
rates for the majority.
-5There is suspicion that others benefit from the code's
complexity, to the detriment of most taxpayers.
There is confusion and fear about non-compliance with a
system that has swollen beyond the understanding of all but those
who spend their careers studying it.
There is bewilderment with a code that communicates
incentives through tax breaks rather than through a lower tax rate
on earnings.
There is cynicism about a tax code that seems to place tax
shelters above productivity and growth.
This taxpayer resentment does not reflect well on the
American government. It's a wedge between our government and the
people it should be serving.
Nevertheless, these emotions also present an opportunity to
achieve something considered difficult in the United States:
large-scale, non-incremental change.
It took broad-based movements concerned about values to make
other sweeping changes in government policy. Witness the civil
rights cause of the 1960's, the environmental movement in the late
1960's and 1970's, and the President's economic program "in 1981.
I believe these emotions, rooted in a mood of market-oriented
populism, are what has focused attention on tax reform now,
despite the attacks of every individual interest that fears giving
up its tax break to achieve a greater goal.
The President's tax reform proposal addresses the public's
frustration with the income tax. Its goals are fairness, economic
growth and simplicity.
These goals are consistent with the President's overall
economic policy. They reflect the modern populist ideal of
limited government power. To achieve these goals tax reform
should as much as possible embody the following fundamentals:
First, we must lower personal rates. Lower rates are fairer,
will stimulate work and innovation, and will discourage tax
shelters.
Second, we must broaden the tax base through the reduction of
preferences and shelters. (We cannot lower rates without a
broader base.) Moreover, the reduction of preferences will lead
to greater fairness for people with similar incomes. It should
also give us a simpler system.
-6Third, we must not place the tax burden on low-income people.
No family at or below the poverty level should have to carry the
load of federal income tax.
Fourth, we seek equitable treatment of different businesses,
with incentives for the growth of all businesses.
Fifth, we want to achieve lower corporate rates in a manner
consistent with an overall interest in capital formation and
growth.
Sixth, the reform must be revenue neutral. It cannot be a
stalking horse for a tax increase if it is to keep the faith with
the American people. (Nor should it increase the deficit.)
Yesterday, the House Ways and Means Committee reported out —
by a margin of 28 to 8 — a tax reform bill, having previously
voted down a Ways & Means Republican alternative. Both are flawed
in several respects, but they represent an important start toward
meaningful tax reform. They can be improved in the Senate. With
this in mind, the President told the GOP leadership yesterday that
he wants the tax reform process to continue.
(And the President reaffirmed that in a public statement
today which called for a positive vote in the House of
Representatives as a first step.)
Of course, that process will continue to move in fits and
starts. That's the nature of our representative system. Good
reporters will focus our attention on each detail. It will appear
at times as if only the tax experts and the lobbyists care about
tax reform. Discouragement and frustration will be close
companions of those who seek true reform.
But there is a force for major change here. Significant tax
reform can happen.
The opportunity awaits. We must pursue it with tenacity. We
owe America no less than our best efforts in this historic task.
Thank you.
TREASURY NEWS
department of the Treasury • Washington, D.C. • Telephone 566-2041
FOR RELEASE UPON DELIVERY
December 4, 1985
STATEMENT OF THE HONORABLE
DAVID C. MULFORD
ASSISTANT SECRETARY OF THE TREASURY FOR INTERNATIONAL AFFAIRS
BEFORE THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
DECEMBER 4, 1985
I am pleased to have the opportunity to appear before you
this morning to discuss S. 812, the Financial Export Control Act.
I will respond to your request for Treasury's views on the
administrative aspects of this proposal, and also discuss the
wider policy implications of this legislation. As you know the
President held a joint meeting yesterday of the National Security
Council and Economic Policy Council and after hearing views of
the Cabinet decided to oppose this legislation.
S. 812 would amend the Export Administration Act (EAA) to
give the President discretionary authority to use in non-emergency circumstances. If enacted, the President could prohibit,
curtail, monitor, or otherwise regulate the export or transfer of
money or other financial assets, the making of a loan or any type
of credit, or an extension of credit, including supplying of
funds through underwriting and distribution of securities,
assisting in making a direct placement, or participation in the
offering of securities to the government of any "controlled
country."
The list of "controlled countries" currently consists of
Communist countries, excluding Yugoslavia, but including China.
Under the EAA "controlled countries" could include any other
country that the President might add (or remove) from the list,
taking into account criteria set forth in the Act and other
factors the President considers appropriate.
The Administration opposes such broad discretionary
authority for use in non-emergency circumstances. We do not
believe that controls on international capital movements should
be exercised except in the case of an international emergency
that affects the national security of the United States or
threatens the economic stability of the United States or the
world. The existing International Emergency Economic Powers Act
(IEEPA) provides adequate authority to deal with such
emergencies.
B-394
2
We understand that the purpose of S. 812 is to limit or
reduce Bloc purchases of sensitive goods and technology.
Although the President has decided to oppose S. 812, I want to
assure you that the Administration is in sympathy with your
desire to control such trade. We believe, however, that there
are better ways than capital controls.
Direct controls on U.S. exports of sensitive goods and
technology are already in place and can be more efficiently
regulated under the exisiting EAA. To that end we should enforce
our exisiting export controls effectively to reduce the flow of
technology and strategic exports. The optimal approach is to
tighten multilateral enforcement of rules of the Coordinating
Committee for Multilateral Export Controls (COCOM).
As regards capital controls, the Administration believes
that the approach of S. 812 would not work and would hurt U.S.
interests.
I will try to explain why.
It has been U.S. policy to encourage mutually beneficial
non-strategic trade with the Eastern Bloc. If we were to attempt
to make financing impossible for trade in general, we would
clearly be altering in a major way U.S. policy towards the
Eastern Bloc.
Because money is fungible and is used to finance most trade,
capital controls are clearly too blunt a tool to achieve the
specific purpose. In any case they would not be effective in
denying hard currency to Bloc nations.
Attempts to regulate broad capital flows historically have
been ineffective. Capital controls are totally ineffective when
they are unsupported by those in the market, again, because money
is fungible and tends to find ways to move freely.
It is even more difficult to impose unilateral constraints
on the aggregate flow of credit to a particular country. U.S.
controls in this case would be unilateral because there is no
consensus for coordinated controls on loans to "controlled
countries." In fact, our European allies place a high priority
on maintaining normal trade and financial relations with the
Eastern Bloc as a means of fostering detente. Accordingly, they
strongly reject proposals to restrict trade or financial flows as
"economic warfare," as we have learned in the recent past. To
pursue controls against the clear policies of our allies would be
counter productive.
Unilateral controls by the U.S. would also invite retaliation from our allies, who would strongly resent any attempt to
enforce such controls on the foreign branches of U.S. banks.
Unless specifically limited to banking offices located in the
3
United States, legislation imposing or authorizing financial
controls raises such problems with respect to their extraterritorial reach.
Controls would also invite retaliation from Bloc countries
which probably would direct their hard currency to the export
sales of our competitors. Our trade flows in general would
certainly be adversely affected, and we would be at a
disadvantage in financing whatever export business remained for
our producers. We would no doubt lose sales of grain and other
commodities, which would penalize U.S. farmers. In general our
economic growth and employment would be reduced.
Capital controls would always damage U.S. capital markets;
the impact is even worse in non-emergency circumstances. Controls, even in critical emergencies, seriously damage foreign
perceptions of the United States as a nation of free markets.
Part of the dynamism of our own economy is reflected in its
ability to attract foreign capital which seeks safety in an often
uncertain world.
Unnecessary controls would be viewed by foreign interests
as politically capricious. They would weaken the perceptions
that the United States is a good place to invest, therefore
undermining cur ability to attract foreign investment. Controls
also would weaken our ability to persuade other nations to remove
barriers they impose to the free flow of capital.
I would now like to comment on what is perhaps the most
serious weakness of the controls proposed in this legislation
— the fact that they would be totally ineffective. I have
already mentioned that our allies would not support such
controls. Therefore we must look to our own market share to
determine the potential effect that controls imposed unilaterally
by the United States would have.
In this case the U.S. banks have a very small share of the
total market. Measured in terms of total "exposure" to Bloc
nations, U.S. banks' share is between 6% and 7%. Exposure takes
into account commitments to lend as well as outstanding claims
and incorporates only assets for which banks are at risk. U.S.
banks' exposure, which declined to $2.6 billion in June, compares
to the exposure of non-U.S. banks of roughly $40 billion.
At times the syndications led by U.S. banks are reported as
lending by U.S. banks, when in fact the end participation of U.S.
banks as lenders has been very small. While there has been a
modest resumption of lending by U.S. banks to some Bloc nations,
on balance outstanding loans of U.S. banks have continued to
decline.
It is worth noting that net lending (new loans less
repayments) in the first half of this year was by non-U.S. banks.
4
Net lending to the Bloc was on the order of $3 billion, and all
was provided by non-U.S. banks. The outstanding claims of
non-U.S. banks increased to a level of $49.3 billion. (The
claims of non-U.S. banks are larger than their exposure, because
their exposure excludes, but total claims include, loans
guaranteed by other institutions, particularly official export
credit agencies.)
In the same period, the claims of U.S. banks on Eastern Bloc
countries fell overall by $156 million to a level of $2.3
billion. The decline indicated that Bloc repayments in that
period still exceeded the amount of any new U.S. bank loans.
If we imposed controls or advised our banks to refrain from
lending or managing financing for the Bloc, other countries would
be more than willing to see their banks assume our banks' market
share.
You asked about administrative aspects of the bill* Should
the bill be enacted, Treasury's Office of Foreign Assets Control
(OFAC) would be responsible for administration of any controls
imposed. OFAC presently administers economic sanctions measures,
authorized by the Trading With the Enemy Act and the IEEPA,
against South Africa, Nicaragua, Cuba, Viet Nam, North Korea and
Cambodia. Exactly what might be needed in terms of additional
personnel would obviously depend on the contours of any specific
controls imposed and cannot be predicted on the basis of the
language of the bill itself.
Conclusion
The Presidential meeting in Geneva was an initial step
toward more stable and constructive East-West relations. One
element of such a relationship must be mutually beneficial
non-strategic trade. Although the authority contained in S. 812
is discretionary, it would have a chilling effect on the President's efforts to encourage mutually beneficial nonstrategic
trade, but without producing any concomitant benefits to our
efforts to control the flow of strategic technology to Soviet
Bloc countries. The message this legislation would send runs
directly counter to the message from Geneva and would create
confusion among our allies concerning our policy towards the
Soviet Union.
The Administration strongly opposes new authority to monitor
and impose controls against the Bloc, and possibly other countries, because in our view such action would not achieve the
strategic results intended. However, it would damage U.S.
financial and economic interests as well as relations with our
allies, who will resist attempts to persuade them to cooperate.
It would be a perverse effect if in an attempt to injure the Bloc
we instead weakened the Western Alliance.
THE SECRETARY OF THE TREASURY
WASHINGTON
December 4, 1985
Dear Mr. Chairman:
The Banking Committee meets again today to consider H.R. 3667,
the Competitive Tied Aid Fund Act. This legislation contains
the essential elements of the tied aid War Chest proposal made
by the President in September and introduced as the St GermainWylie bill (H.R. 3515). That measure was cosponsored by 35
Members of the Banking Committee and represented a true bipartisan base of support for this vital legislation.
This proposal is a well-focused, cost-effective means to provide
the United States with the necessary leverage to press other
governments to negotiate an end to tied aid credit abuses. An
end to tied aid credit abuses will greatly increase U.S. export
opportunities, thereby preserving and creating American jobs in
the export sector. If the Congress were to fail to authorize
and fund an offensive tied aid credit program in the Department
of the Treasury, our ability to negotiate the elimination of
these abuses would be severely impaired.
I know that many Members have raised questions about the $300
million price tag for implementing this program. At a time when
we are confronting our serious budget deficits, such concerns
cannot be very far from any of our minds. However, we must also
consider the cost of doing nothing. The costs involved in lost
opportunities for U.S. exporters and the related erosion of
American jobs, or the costs of engaging in a protracted practice
of matching mixed credit offers, are much greater over the
course of time than this program.
The Administration strongly supports and encourages the early
passage of this authorization bill, as well as the necessary
appropriation of $300 million in FY 1986. As we have already
stated for the record, we intend to seek a special, specific
appropriation for this request. If budgetary reduction requirements are enacted by the Congress requiring offsets for such a
request for new funding, I am prepared to work with the Committee at that time to ensure that the required offsets do not
impair the existing housing and multilateral development banks
(MDB) programs under the jurisdiction of the Committee.
- 2 Furthermore, since it is important that countries engaged in the
predatory use of tied aid credits know how seriously we view
eliminating this practice, we must clearly indicate that the War
Chest proposal is not being funded at the expense of existing
export credit programs. Therefore, it is not my intention to
impair Eximbank's activities through an offset of its lending
authority.
We fully intend to satisfy the concerns of the Appropriations
Committee as we aggressively seek funding for this program.
However, I must stress the urgency with which we view the necessary first step of gaining enactment of the pending authorization legislation before the end of this year. Those countries
engaged in this insidious practice must know of our resolve to
negotiate its end.
Passage of H.R. 3667 will send a strong signal that the United
States is serious in its resolve to provide a level playing
field for all exporters, and I hope that the Banking Committee
will give the measure its strong endorsement today.
A. Baker, III
The Honorable Fernand J. St Germain
Chairman
Committee on Banking, Finance
and Urban Affairs
United States House of Representatives
Washington, D.C. 20515
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-2041
FOR IMMEDIATE RELEASE
December 5, 1985
Contact: Art Siddon
Phone: (202) 566-2041
Treasury Statement on Debt Limit Extension
On November 14, 1985, Treasury stated that, although it
would have enough cash to meet government obligations through
December 11, if Congress did not pass a debt limit extension by
December 6 it would be forced to take the following actions
effective December 7:
— Not invest new receipts for trust funds (other than the
Social Security Old Age and Disability Trust Funds that
were fully invested on December 1 ) ;
— Suspend all Savings Bonds sales; and
— Suspend sales of special Treasury securities issued to
State and Local Governments ("SLGs").
Today, Secretary James A. Baker, III sent the following telegram to
the governors of all 50 states.
Unless Congress acts before midnight, December 6, to
increase the debt limit, the Treasury Department will be
forced to suspend the sale of State and Local Government
Series securities effective December 7. Almost fifty
entities in twenty-two states have requested issuances
totaling over $1 billion for December 9 through 11. State
and local government entities in your jurisdiction that have
made previous application for SLG issues will be notified of
the suspension by a Federal Reserve Bank or Branch.
In addition, Secretary Baker directed that all Savings Bonds
sales are to stop effective December 7. Treasury will announce
when Savings Bonds issuances may be resumed.
B-395
TREASURY NEWS
Department of the Treasury • Washington, D.C. • Telephone 566-2041
December 5, 1985
Jill E. Kent
Appointed Deputy Assistant Secretary
Jill E. Kent has recently been appointed Deputy Assistant
Secretary for Departmental Finance and Planning",
responsible for the formulation and execution of the
Department's budget and long-range planning.
From 1980 until her appointment at Treasury, Mrs. Kent
worked at the Office of Management and Budget. She held
the position of Chief of the Treasury and General Services
Branch since June 1984.
Mrs. Kent has spent her career in various positions with
the Federal Government spanning nearly 15 years, including
2i years with the Department of the Treasury as a Staff
Attorney.
Mrs. Kent received her B.A. in 1970 from the University of
Michigan; and J.D. in 1975 and L.L.M. (Taxation) in 1979,
both from George Washington University.
Mrs. Kent is married and resides in Washington, D.C.
Br-396
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
Washington, D.C. 20220
FOR IMMEDIATE RELEASE
Decemoer :>, iy«5
CONTACT:
Art Siddon
566-2041
DIDC LIFTS MINIMUM DENOMINATION REQUIREMENTS
In accordance with the deregulation schedule established
by the Depository Institutions Deregulation Committee (DIDC)
at its meeting of September 30, 1983, the current $1,000
minimum denomination requirement on the money market deposit
account (MMDA)r, the Super-NOW account, and the seven to 31 day
ceiling-free time deposit will be eliminated in its entirety
effective January I, 1986. Individual depository institutions
will thereafter have complete discretion in determining minimum
denomination requirements and interest rate structures on these
accounts.
By way of clarification, removal on January 1, 1986 of
the minimum denomination requirement on the MMDA does not affect
other characteristics of this account. These characteristics,
including transactions limitations, availability to all
depositors and exemption from transaction account reserves,
will remain in effect. At the close of March 3 1 , 1986, the DIDC
will cease to exist and the ability of depository institutions
to continue to offer MMDAs will depend on the surviving
statutory and regulatory authorities. Moreover', the flexibility
of depository institutions to offer such accounts may be limited
by the treatment of such an account under the Federal Reserve
Board's Regulation D (Reserve Requirements of Depository
Institutions).
Also, the January 1, 1986 elimination of the minimum balance
requirement on the Super-NOW account will effectively remove the
major difference between the regular NOW account and the SuperNOW account, and institutions will be able to pay interest on
all NOW accounts at any rate agreed to by the depositor. However,
the statutory eligibility requirements, which restrict NOW accounts
to individuals, nonprofit organizations, and governmental units,
will remain in effect (even after the termination of the DIDC at
the close of March 31, 1986).
Effective at the close of March 31, 1986, the interest rate
ceiling on passbook savings (and ATS) accounts will be eliminated,
and the DIDC's deregulatory mandate will be fulfilled. However,
the removal of DIDC regulatory limitations on the payment of
interest on time and savings deposits does not remove the statutory
prohibition on the payment of interest on demand deposits.
B-397
COMPTROLLER OF THE CURRENCY
FEDERAL RESERVE BOARD
FEDERAL DEPOSIT INSURANCE CORPORATION
NATIONAL CREDIT UNION ADMINISTRATION
FEDERAL HOME LOAN BANK BOARn
DEPARTMENT OF THE TREASURY
- 2In addition, at the close of March 31, 1986', the authorities
transferred to the DIDC by the Depository Institutions Deregulation Act will cease to be effective, and the DIDC itself will
cease to exist. Thus, effective at the close of March 31, 1986,
current DIDC regulations regarding such items as early withdrawal
penalties, premiums, and finders' fees will no longer be in
force. However, the independent regulatory agencies, pursuant
to their own statutory authorities and for their own supervisory
purposes, may elect to retain some or all of these regulations',
as currently written or subject to revision. Depository institutions would be subject only to those regulations imposed by the
appropriate regulator.
Finally, with the expiration of the DIDC on March 31, 1986,
the current DIDC service to depository institutions of promulgating
the 2-1/2 year Treasury yield curve rate will also cease.
[For further information contact Mark G. Bender", Executive
Secretary, Depository Institutions Deregulation Committee,
(202) 566-4211.]
964
WtRT
l|Nt
BOOKBINDING
ft.
Gnntvil
ille. 1986
May — lune
U.S. TREASURY LIBRARY
1 0031642
@FedFRASER