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EI Paso· Houston' San Antonio I I September 1981 1 Farmers and Consumers: Conflict Ahead? 7 "Fed Quotes" 10 Regulatory Briefs and Announcements 12 Now Available from the Federal Reserve This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) Farmers and Consumers: Conflict Ahead? By Don A. Riffe 1'he early 1970's were a time of extraordinary occurrences in markets for food and agricultural Products. A series of national and international e.vents combined to produce a sharp rise in domes· !~c food prices during 1973·74-the sharpest rise lnce World War II. These years were also a time ?f historic conflict between farmer and consumer Interests. As had often been done for farmers, an ~ttempt was made to insulate domestic consumers fOm world market conditions. Unfortunately, the ~Sulting price and export controls were costly to Sarmera and not especially beneficial to consumers. Ut the period did mark an increased particiPation by consumers in policy decisions affecting agriculture. Although consumers have continued to exert a ~re~t~r influence upon food and agricultural policy eCISlons, a moderation in the rise of food prices r~lative to the prices of other goods has lessened t e attention focused on food since the middle 1970's. The share of disposable personal income ~ent on food has resumed its downward trend in e United States. However, the U.S. Department ~f A.griculture (USDA) has identified some emergng trends that may increase the probability that the World food balance will again tighten suddenly and Significantly before the end of the 1960's. If September lBSt/Volce this should occur, food prices will again be the focus of national attention. A brief look at the past may hold some lessons for the future. Looking back: Caught by surprise . .. In late 1971, abundant U.S. and world grain stocks led to declining prices for corn and wheat and to pressure for increased acreage diversion in the United States. Diverted acreage was increased from 37.6 million acres in 1971 to 62.1 million in 1972. No one could foresee that world output of wheat and coarse grains would drop 3 percent in 1972 or that the Soviet Union and the People's Republic of China would begin to respond to food shortages by importing. World production declined significantly and demand for grain increased as 62.1 million acres sat idle in the United States. A devaluation of the dollar in February 1973 made U.S. commodities even more attractive to foreign buyers, and export volume grew rapidly. Food prices, as measured by the consumer price index, were rising at double-digit annual rates by 1973 for the first time since 1951. More important, food prices outpaced incomes enough to cause a decline in the living standards of some domestic consumers. 1 Food prices became more volatile relative to other U.S. prices in the 1970's 1.2 - - - - - - - - - - - - - - - - - - - - - - - 1.1 - 1.0 - .9- RATIO OF IMPLICIT PRICE DEFLATOR FOR FOOD TO IMPLICIT PRICE DEFLATOR FOR ALL PERSONAL CONSUMPTION EXPENDITURES .8 - 4 O--,I-,i~ri-.i-,i"llr_ri-.i-,i~ir-TI-,i-,r_r_Ti-,I-,ir-r'-,-,~r-T-,-,~r-.-,~r-.-,-,.-r• I' • I' I 1950 I 1955 1960 1965 1970 1975 1980 SOURCE: U.S. Department 01 Commerce • . . . consumers and farmers found themselves at odds !he food price inflation gave a boost to the emerg109 consumer movement, which became a force to be reckoned with politically. Many of the control measures on food in 1973 appear to have been in reaction to public pressure to "do something" about rising prices. I Public supp ort for the controls, along with organ ized meat boycotts and accusations abou t food quality, was understandably offens~ve to farme rs and placed farmers squarely opPosite cons umers in political debate. Food became a major target in th e later stages of the Economic Stabilization Program undertaken during 1971-74. Although there was genuine concern abou t the inflation ary effe ct that rising food prices would h ove on other sectors of the econo my 1. Kenneth J. Fedor and Reginald J. Brown, "The Design and Implementation of Food Price Regulations," and John T. Dunlop, "Lessons of Food Controls, 1971·1974" both In The Lessons of Wage ond Price Controls-Th~ Food Sector, cd. John T. Dunlop and Kenneth J, Fedor {Cambridge: Harvord University Press, 1977J. 2 (through wage escalations based on the consUin et price index), public opinion had a great deal of influ ence upon the handling of price and export controls on food and agricultural products. ThiS was largely because of pressure from th e growing consumer movement. th e visibility of food prices, find the apparent perception by the controll ers ths! the success or failure of the entire program would be judged by th e behavior of fo od prices. 2 A genera l freeze on prices in all sectors of the economy in mid-1973 was short-lived but particU ' larly disruptive for the food and agricultural sec lor, Prices of comm odities at the farm level, although technically exe mpt from con trol, were affected because no "pass-through" of rising costs \,;85 allowed at relail, The timing of the freeze was poor with respec t to seasonal price pressures for soJ11e co mmodities, and price ce ilings on meats resulted in a serious misallocation of resources. It has beel! sugges ted that the price freeze in mid-1973 had thlt overa ll effect of increasing food price inflation in 2. Dunlop, "Lessons of Food Controls." Fedoral Reserve Bank of DIll" The Importance of food expenditures to U.S. consumars • .• TABLE 1. Food·lncome Ratios, by Income Group Family , 0< housel>old Income groups' , • , Food e. pendltureS" percent 01 totll Incom. Dati Idurce Period Consumar Expenditure Survey(CES) ...........• 1960·61 34 26 22 20 17 1972·73 21 16 14 10 32 25 20 14 22 16 15 10 Nationwide Food Consumption Survey(N FCS)' ... 1977-78 3' 50 Special USDA survoy· ......................... 1979 35 1. Incom. group • •.,p.eunt equalllttllS ot aIIrve)' populltlons and a," ,"n~ed t.om 10"'HI to Mghflil. with Group 1 hlVln; thl lowest Incom •. 2. NFCS Includes more lhln tood ,.pendIlU,.". A value placed on I II lood COnlumed. whetho, purchued. productd;ol home. o. obtllned othflrwl,.. 3. Survey co ... recl only 2.000 l>oulllIoldS Ind m.y not r:.. .. "fllDe IS thfl CES o. the NFCS DlelUN 0\ urKlltrrep,"Mntltlon ot hlgh.. \ a nd loweit Income groups. SOURCE: u.s. ~Irtment 0\ Agriculture. w" 1974.' Export controls during the same period, Primarily on oiIseeds and related products, pro~ided some benefits to consumers, but these benets must be weighed against the costs of lower Prices to farmers and the damage to international relations that resulted from breaking contracts "-'jth U.S. trading partners. It is important to note that while agricultural C?recasting error was a problem in 1973, the patenlIaUy negative effects of the controls were not Unknown and some measures were implemented agains t the advice of economic advisers. In the e~d. supply disruptions in the food sector contributed to a reversal of public attitudes toward ~~~trols and a dismantling of the Economic Sislilzation Program. lznporlance of food a source of political pressure l'~e political pressure to do something about food Pl'ices was obViously a factor in the imposition of wntrols on food and agricultural products in 1973 . bith total food expenditures accounting for only ~ Out one-sixth of disposable personal income in ~ e United States in 1973 (down from about oneOllrth in th e early 1950's), th e strength of con8Umer pressure to get tough on food prices might ~e~ puzzling. Indeed, farmers found it so, and I elr representatives emphasized the relatively low eVel of the food-income ratio in debates of fo od!'elated issues during the 1970's. However. as :. A.lbert Eckstein and Dale Holen, "The 1973 Food Price ~naUon." Amo rican Journol 0/ Agricultural Economics. '1' tQ7a. September 1Nt/Vole. Blakley has pointed out, the commonly used aggrega te food-in come ratio is somewhat misleading. and emphasizing it may have damaged the public relations of ogricult ure. 4 The food-income ratio is a ratio of national aggregates and does not necessarily describe the importance of food to a majority of consumers. While all such measurements are somewhat imprecise, it is possible to compute measures of the importance of food to "typical" consumers that are representative of various segments of the population. Two important sources of information on consumer food expenditures are the Consumer Expenditure Survey by the U.S. Bureau of Labor Statistics and the USDA's Nationwide Food Consumption Survey. Unfortunately, th ese surveys have been conducted only intermHtently.a Information for a smaller numb er of households is available from a special USDA survey conducted in 1979. For each of these surveys, the respondents have been divided inlo five equal groups according to income. and the food-income ratio has been calculated for each group (Table 1). Th e survey data provide some clues about the distribution of consumers by share of income spent on food. The Consumer Expenditure Survey data are probably the most reliable and show that roughly 60 percent of all families surveyed spent 4. Leo V. Diakley. "Domestic Food Costs," Am ericon Journal 0/ Agricullurol Economics. December 1974. 5. A con ti nuing. quaflerly Consumer Expendllure Survey Is under way, but results wUl not be forthcoming until 1982. • , , , will likely affect the Intensity of consumer partlc:lpatlon In fu ture farm and food policy debates TABLE 2, Estlmatod Shares of Income Spent on Food by Representative Families, by Income Group Flmlly Income IIrOUPI' , , , flmm'". . • Food upend llure,., PIIrClnl 01 m..n Income Ve.r 1960 . .. 58 2. 2. 21 1965 ... 4. 22 22 18 1970 .. . 41 1975 .. . 1978 ... u.a 25 20 ,. ,. " 13 11 17 47 23 20 16 12 18 42 2;0 18 14 10 16 21 I . 1 _ IIrOUPI r~r"'"1 equl l llltll. 0' 11\41 number ot ' Imill.. Ind III rl"~ed I,om IoweSI 10 1I1~lIesl. wUn G,o up 1 "1.lng 1I>e!ow.., 10111 Income. NOTE: "'"n u,lloo<1 COI' I t,)f ,apr"enlilive ' amlll.. were ..lIm'lld .. ll nll 1111 USO ...·• too<l pll"' lor me,11 I I nome. T".IO"'COI' plln Wit used l or Groupi I end 2, 1"1 modeflIH:O.1 pll" ' or Groups 3 Ind ' . ,nd I'" lloeril Pll" lor Group $. An ad)Ullmen' Will rrIIode 'or dl " 1.lInell In I . "agl ' I mlly IIZI IC'O.I I"comellroupi. Tna mOd"II .. COil plln wlS u"" lor I"" .gllrllllill IIrouP. SOURCES: U.S. OePl"mllnt 01 Ag,lculture. U.S. Oepa"mII"1 o t Commllctl. FlOe',! ReselV(l 61n ~ o r 011111. more of their in come for food than is indicated by the aggregate ratiClS of 20 percent in 1960-61 and 15 percent in 1972-73. Another perspective may be gained by tracking the share of income that would maintain a representative diet fat' the "average" family within various income groups (Table 2). The USDA family food budgets provide estimates of the cost of food al home for three meal plans-low-cost, moderate-cos i. and liberal-making it possible to estimale annual food costs for a hypothetical family and allow for variations in diets as incomes rise. For each income group, one of the USDA family budgets was used to estimate represen tative annual food costs for a family having the mean income of the group. In 1978, a family in Ihe lowest income group with the mean income of that group would have spent about 42 pel'cent of its total income on food by following the low-cost USDA food plan, A family with the mean income of the highest income group would have spent only about 10 percent of Hs total income on the liberal food plan. The data suggest that about 40 percent of all families spend considerably more of Iheir incomes on food than a single agg regate food-income ratio would indicate.e Rapidly rising food prices would be more likely 10 have a noticeable effect on the 4 standards of living of these families than for 1M higher-income groups simpl y because food is s. much larger budgetary item and less unallocaled income is available to cushion the impact. While many fac tors, including the visibility of food prices and th e tendency of the public to vie\I' Ihem as a barometer of inflation, may affect Ihe public's sense of urgency to do something aboll t food prices. th e importance of food expenditures to a large number of consumers should not be diScounled. If increases in food prices should again significantly outpace increases in incomes. Jess emphasis on the aggrega te food-income ralio would seem appropriate. Looking ahead:: Could we be surprised again? The Department of Agriculture expects global demand for agricultural products to expand at or near record ra tes in the years ahead as growth ill global product ion slows to about Ihree-fourths of the average postwar rate. If Ih is fore cas t is correct, the world supply-demand balance will become increasingly tenuous, and the rest of th e world could be importing 15 percent of Us agricultural supplies from the United States by 1985. Thai compares with 2 percent in the early 1950's and 11 percent in th e late 1970·s.' The projection of a noticeably tighter world food balance as the· decade progresses is based largel)' on the assumption that income-related shifts ill diets will be rapid in a group of middl e-income develop ing cOllmtries. The group includes the oilexporting nations and a few high-growth oil· im porting countries, such as Ghana. Korea. Malaysia, and Taiwan. Rising incomes in thi s groUP of countries, which have a combined population of about 600 million. nrc expected 10 increase both the quantity of food demanded and the proportiO Il of livestock pr oducts in th e mix of foods conswn ed, Another important factor is that, according 10 the USDA, many countries will be nearing wh9 t some consider absolul e production constraill tS 6. The Impact of food assistance programs Is not taken Inio account but would easo the burdon on some lowIncome consumers. 7. Tho scenario presented here draws heavily on a paper by O'Brlon. See Patrick M. O'Brien, "Global Prospects for Agriculture," Agricultural-Food Policy Review: Perspectives /or Ihe 1980's, no. AFPR-4, U.S. Departmont of Agriculture, Economics and Statistics Service (Washington, D.C .• April 1981). Federal Relerve Bank of D. tI" The cushion against crop failure is getting smaller 25 PERCENT OF C O N S U M P T t O N - - - - - - - - - - - - - - - - - - - - 15- •...... 10 _ WORLD CARRYOVER STOCKS OF GRAIN RELATIVE TO CONSUMPTION 5- o-,r~~r-,-~-rr-r-~'-,r-~Tr~-,ir-~r-7r-,r-~r-,-'rr-~ 1960 1965 1970 MARKETING YEARS 1975 1980 1980 .nd 1981 projected. SOURCE: U.S. Department 01 AgrlcuUure. \vithin the next five years. Reserves of readily ~vailab l e fertile land have almost been depleted In developed and centra ll y planned countries. The s~me is true for some developing countries. espe- Cially in Asia. North Africa, and the Middle East. Expansion in the resources committed to agricultUre by developing countries is expected to be slower than in the 1960's and 1970'5 as it becomes tnore difficult and costly to increase the cropland base. In addition. because of poor management and conservation practices. some developing countries will have difficulty main taining productivity On lands already in use. Accelerated adoption of existing technologies C.ould possibly increase world agricultural product~vily growth s ubstantially in th e 1980's. but adopho n of technology tends to be a relatively slow Process and accelerated adoption would likely reqUire substantial economic incentives. Aggravating the situation is the fact that such key inputs as ferti lizers. pesticides. and fuels are energy-based and will make productivity gains expensive to altain. Major new technological breakthroughs are • eplembe r lSSI/Volce possible but do not appear imminent and would also likely have substantial lead times from discovery to widespread adoption. It is anticipated that more land, whether well suited or not, will have to be brought into cultivation around the world in the 1980's. As more land of marginal productive capacity is added to the world's crop land base. the overall vulnerability of crops to weather will increase. By 1985, it is expected that 30 percent of the land under cultivation in the world will be semiarid and rainfall_ dependent, compared with less than 20 percent in the 1960's, Wider swings in world production could have an increasingly destabilizing effect in the United States as exports gradually become a larger component of total agricultural sales. Currently, the production from about lout of every 3'/! acres in this country is sold abroad, compared with about lout of every 5 acres a decade ago. The tight global supply-demand scenario suggested here is not the only plausible one and must be viewed with caution. However, if world demand 5 does tend to grow significantly faster than world output, the impact of erratic, weather·related swings in output will be magnified as world grain stocks are drawn down. T he resulting surges in export demand for U.S. farm products could have a sizable impact on domestic food and farm product prices. Conclusion After being surprised by a strong surge in export demand for farm pr'oducts in the early 1970's, the U.S. Gove rnment experimented with price and export controls on food and agricultural products. The controls were of an ad hoc nature, were largely ineffective :in curbi ng inflation, nnd had some undesirable sEde effec ts. That is not to say that some form of controls could not have worked more effectively, but the experience of the early 1970's illustrates thE~ potentia l for political conflict over food prices and th e difficulty of formu lating and implementing policies during such a conflict. Although current farm and food policies have been designed with the experience of the early • 1970's in mind, there is great uncertainty aboul how the United Slates would deal with a dramatiC rise in domestic food prices that was induced by conditions in other parts of the world. Increased use of bilateral trade agreements and reliance on a farmer·owned reserve may not be enough to insulate domestic consumers from the price effects of large swings in world output. In the event of another major burst of rood price inflation, Ihere would undoubtedly be publiC pressure to "do something," and as Paarlberg haS pointed ou t, the passage of time w ill dim the memo ory of difficulties experienced with controls in the early 1970's.' While such a large surge in de" mand might never occur again, the risk appears sufficiently greal to make it wo rth while for farmers and consumers to debate and enact policies for dealing with a more volatile world food balance in advance of a potentially destabilizing surge in export demand. 8. Don Paarlbcrg, Porm ond Food Policy; Issucs of thc 1980s (Lincoln: University of Neb raska Prcs9, 1980), p. 70. Fedcral Rcserve Bank of DaU" -. Ped Quotes ~~ Brief Excerp ts from Recent Federal Reserve Speeches, Statements. Publications. Etc. "Why arc interest rates so high? The proximate reason is that demands for money and credit have been strong at a time when the Federal Reserve has been ~rYing to li mit money growth in the interests of bringing inflation down. But the more ,undamental reason is that inflation accelerated so much from the early 19605 until ~U8t recently. with periodic bursts into the double-digit range. Inflation permits orrowers to payoff loans with shrunken dollars. Since both debtors and creditors ~ow understand this clearly, lenders require-and borrowers are forced to pay- an Inflation premium' that compensa tes for the erosion of purchasing power. Furthermore, since the rate of inflation has been not only high but also volatile, lenders appear to be requiring a risk premium to protect against capital losses in the event of yet another upward wrench to inflation and interest rates. "Still another reason why interest rates have had to rise to such high levels to ration a limited supply of funds is that some kinds of credit demands do not respond lTIuch to interest rates. The demands of the Treas ury to finance huge deficits is the cleares t case in point. Some private demands may also be rather insensitive to interest rates- for example. those of defense contractors, or high technology industries, Or firms investing to comply with governmental regulations. The burden of adjustment. therefore. is shifted to others. "Pumping up the money supply is not the way to bring interest rates down. The eXperience of the past ]5 yea rs indicates that faster creation of money can bring only a temporary respite to interest rates. Time and again, when monetary policy eased in the face of gathering financia l strains or economic slack, the additional ~oney crea ted and the temporarily lower interest rates ultimately served to fue l Inflation. Expansive fiscal policies added to the problem. Expectations therefore deepened that governmen t action would never be adequa te or sustained long enough to get the job done. One by-product of such altitudes is tha t financial market participants have become so sensitive that faster money growth may no t lower interest rates even in the short run. For example, on Friday a week ago, the weekly release ?f monetary data indicated a $7 bil lion rise in the money supply; interest rates Immediately rose substantially, on the expectation that inflation-driven demands for money and credit would collide with Federal Reserve efforts to co ntain them . . " In the long run, the only way to reduce interest rates is to reduce inflation. That IS What the Federa l Reserve is trying to do, by reducing the growth of money." Lyle E. Grllmley, Member, Board of Governors of the Federal Rellerve System (Before the U.S. Senale Forum. July 27, 1981) September 1 9S1 / Volce , "The essential p oint about u.s. economic policies-monetary, fiscal , and other&is our commitment to reducing inflation. Most of the foreign leaders with whom I have talked readi ly agree that it is in their countries' fundamental inter'est, as well as ours, that the United States make significant progress against inflation. Because of the dollar's role in world financial markets and because of the U.S. prominence in the world economy, a necessary condition for the restoration of stability in currency markets and for the resumption of sustained, worldwide economic growth is the restoration of greater price stability in the United States. "Obviously, they. as we, would like to see lower and more stable U.S. interest rates and less variation in exchange rates. Everyone would agree that reduced inflation and a c1eal~ sense of movement toward price stability must be the basis for maintaining such stability over time. Against that background, international discussions raise questions of means, not ends. "As you know, Federal Reserve monetary policy has been directed at restraint in the rate of growth of the monetary aggregates. Some observers-and they are nol confined to those outside our borders- believe we are following a policy deliberately directed at achievirJg high interest rates and dollar appreciation. Such 'v- iews are mistaken; the Federal Reserve has neither an interest rate nor an cxchnnge rate objective. We do take the view that persistent restraint in the growth rates of the monetary aggregates is necessary to ensure lower inflation-and therefore lower interest rates-ove)' time. I find no disposition among my colleagues abroad to question that necessity." Paul A. Vol!:ker. Chuirman. Board of GovernOrS of the Federal Reaerve System (Before the Joint Economic Committee of the U.S. Congren. July 16, 1981) "I have often emph asized tbat money supply dala-like many othel: financial and economic dala--have some inherent instability in the sbort run. Th e trend over lime is what counts, both as a measure of monetary policy and in terms of economic effect. For some months in the latter part of 1980, as you will recall, thl~ rise in M1 was relatively rapid. Against that background the sluggish growth during most of the first half of 1981 was welcomed as a desirable offset by the FOMe [Federal Open Market Committee). confirming the trend toward a lower rate of growth over time. At the same time, we have been conscious of the relative strength of M2 and M3. Those measures indude money market funds, short-term repurchase agreements, and certain U.s.-held Eurodollars, which to a greater or lesser degree can serve as substitutes for Ml ·balances. With those components growing relatively rapidly. our experience this year, 10 my mind, reinforces the need to take account lof all ava il able information in assessing the significance of short-term movements in the monetary aggregates and jud8ing our policy posture. "More fundamentally, recent experience also confirms that demands for mon ey and credit growing out of an expanding and inflating economy, pressing against a restrained supply, will be reflected in strong pressures on interest rates and credit markels-pressureB that in turn restrain the grow th in business activ ity. Some important sectors (If the economy are relatively impervious for one reuson or another to direct financiall'estraint-energy. high technology, many services. a.nd defense. Those sectors have been strong, sustaining forces in the economy generally, and • Federal Reserve Bank of DaU.' Particularly in some geographi c areas. The brunt of the restraint falls on other creditdependent sectors, and , as th e dollar has sharply appreciated, increasingly on eXporters faced with a less favorable competitive position. Should interest rates decli ne in response to weakness in the economy, many of those sec tors would likely, and rather promptly, rebound." Paul A. Volcker. Chairma n. Board of Governors of the Federal Reserve System (Before the Committee on Banking. Finance and Urban Affairs, U.S. HOuse of Representatives, July 21, 1981) New Member Banks National Bank of Commerce-South. Austin, Texas, a newly organized institution located in the territory served by the San Antonio Branch of the Fed eral Reserve Bank of Dallas, opened for business August 12. 1961, as a member of the Federal Reserve System. The new member bank opened with capital of $750,000 and surplus of $750.000. The officers are: Gene D. Wyatt, Chairman of the Board; John C. Hambrick. President and Chief Executive Officer ; and Joyce E. Kimbro, Assistant Vi ce Presid ent and Cashier. Chisholm National Bank, Plano, Texas, a newly organized in stituti on located in the territory served by the Head Office of th e Federal Reserve Bank of Dallas, opened for business August 14, 1961, as a member of the Federal Reserve System. Th e new member bank opened with capital of $1.250,000 and surp lus of $1,250,000. The officers are: Dixon H. Holland, Chairman of the Board. President, and Chief Executive Officer; Jerry G. Cox, Vice President and Cashier; and R. L. Macon. Assistant Vice President. Westside National Bank, Houston. Texas, a newly organized ins titution located in the territory served by th e Hous ton Branch of the Federal Reserve Bank of Dallas, opened for business August 25, 1961, as a member of th e Federal Reserve System. Th e new member bank opened with capital of $1,561,250 and surplus of $1,581,250. The officers arc: H. Fred Haemisegger, Chairman of the Board; C. Mark Aderman, President; Richard Heath, Vice President and Cashier; and Michael Brown, Vice President. New Nonmember Bank First Western Bank, Houston, Texas, a newly organized nonmember bank located in the territory served by th e Hous ton Bran ch of the Federal Reserve Bank of Dallas, opened for business August 17, 1961. September 1981/Volce 9 ~egulti.tory~rjefs andvAnnouncelnenm Dallas Reserve Bank Amends Guidelines for Transfers of Funds The Federal Reserve Bank of Dallas has revised Bulletin 6, which establishes operating guidelin es for wire transfers of funds, and has made related changes in Bulletins SA and 6B. One amendment to Bulletin 6 defines and clarifies the term "trHnsrer request." A transfer request refers to a transfer of funds initiated by telephone and differs from a "request for payment." A new paragraph has been added regarding handling of "requestB for payment" by the Reserve Bank. The pilragraph indicates that the Bank handles a request for payment, or a negative response, involving clDly on-line institutions. It also notes that a requlest for payment will impose no obligation on the I:eceiving in stitution to transfer the funds or even to acknowledge the request. In regard to ;requests for payment, it is stressed that the closing hour for such requests is two hours earlier tl~an the closing hour for wire transfers. In addition, each request for payment will incur a charge of: 80 cents; however, a negative response will incur no charge. A transfer of funds in response to a trans:fer request will also cost 80 cents. Another amendmem.t states that telephone advice of credit for sle tUement transfers is not given unless the tranBferee has mad e a standing order for immediate notification of all transfers. A new paragraph has also been added to indicate that the Bank handles service messages involving questions and corrections regarding previously sent or received transfers of funds. Questions about these changes may be directed to Bob Boyanton, (214) 651-6100 , or Anan Neale, (214) 651-6334, at the Dallas Office; Ralph Olivas or Javier Jimenez, (91 5) 544-4730, EI Paso Branch; Jan Williams or Rodney Franklin, (713) 659-4433, Houston Branch; and Dorothy Ja sso or Rene Gonzales, (512) 224-2'141, San Antonio Branch. 10 Board Sets New Borrowing Rate for Extended Credit The Federal Resl~rve Board has established a new borrowing rate for extended credit to banks and thrift institutions under sustained liquidity pressures. The new discount rate will be the basic rate of 14 percent for th,e 6rs160 days of borrowing, 15 percent for the next 90 days, and 16 percent thereaft er. The basic discount rate of14 percent and the 4-percent surcharge that applies to large, frequent borrowers of short-term adjustment credit were not affected by this action. The extended I::redit program is available to commercial banks and thrift institutions alike, including membe:r institutions of the Federal Hom!' Loan Bank System. Regulation C: Board Adopts Revised Version The Board of Governors of the Federal Reserve System has revised and simplifi ed Regulation C. which implements the Home Mortgage Disclosure Act. The act requ.ires financial institutions in standard metropolitan statistical areas (SMSAs) to disclose publidy the location of their residential mortgage loans. rnstitutions with more than $10 million in assets iBre covered. The revised version of Regulation C implements certain amendments to the act that were made by the Congress. In addition, the Board has also revised the regulation-in keeping with the Board's Regulatory Improvement Project-to simplify the language and substance of Regulation C, to focus disclosure requirements on those that are most useful and that can be provided at reasonable cost, lind to make the regulation more concise. The revi sed regulation is nearly a third shorter than the original version. Federal Reserve Bank of Dallal The principal revisions of Regulation C follow: • Requirement that depository institutions report the location of property on which they make mort· gage or home improvement loans, and related data, to th eir primary Federal regulators. The data will he forwarded to the Federal Reserve for comlIUation and aggregation. • Requirement that covered institutions, effective September 30, 1961, display a notice in the lobby that information about the institution's mortgage lending is available. • Permitting the use of either 1970 or 1960 census tracts as a basis for reporting, pending full availability of 1960 census tra ct maps from the Census Bureau. • Permitting most institutions that have been exempt (on grounds of size or location) but which lase their exemption to begin compiling data for ~he year [oHowing the year in which the exemption 18 lost (rather than for the year preceding the 108s). • Requirement of disclosures of conventional loans and of FHA, FmHA (Farmers Home A.dministration), and VA loans but not (as pre· viously required) the su m of the conventional and other types of loans. • Avoidance of duplicate reporting of loans by a branch and a hend office o f a lending institution located in the same SMSA. • Limitation of reports by branch offices to data on loans made on property in the SMSA where the branch is located. Itegulation Q: Effective Date Announced for New Interpretation on NOW Account Eligibility The Board of Governors of the Federal Reserve System has set September 16, 1961, as the effective date of an interpretation of Regulation Q (Interest on Deposits) that clarifies which depositors are eligible to hold interest·bearing checking accoun ts at member banks. The interpretation affects eligibility for negotiable order of withdrawal (NOW) accounts authorized nationwide by the Consumer Checking Account Equity Act of 1980. The Regulation Q interpretation permits the following depositors to establish NOW accounts at member banks: • All individuals, including businesses operated September 19811Volce as sole proprietorships. Only these individuals and sole proprietorships will continue to be eligible to hold automatic transfer service (ATS) accounts. • Nonprofit organizations described in specified sections of the Internal Revenue Code. • Governmental units, if the funds are in the name of or are used for the purposes of schools, colleges, universities, libraries, hospitals, or other medical or educational facilities. NOW accounts that would no longer qualify under the revised eligibility standards and that were established before September 1, 1961 , are permanently grandfathered. Regulation Y: Amendments Limit Insurance Agency Activities of Bank Holding Companies The Federal Reserve Board has amended its Regu· lation Y (Bank Holding Companies and Change in Bank Control) concerning the sale as agent of certain kinds of insurance. This action was re· qu i red to conform the Board's regulation to court decisions. The Board deleted the authority of bank holding companies to act as an agent for the sale of insurance sold as a matter of convenience to the public. In addition, the Board removed the author· ity under Section 4 (c)(6) of the Bank Holding Company Act for bank holding companies to act as agent for th e sa le of insurance for themselves or for their subsidiaries. This latter activity was determined to be permissible under other pro· visions of the act. Subject to approval of specific proposals, it remains permissible for bank holding companies to act as agent or broker for the sale of insurance (including property and casualty insurance) directly related to an extension of credit, or the provision of financial services, by a bank or a bank-related firm. 11 (JVowJIvailable Recently issued Federal Reserve circulars, speeches. statements to Congress, pub licati ons. etc., may be obtained by contacting the Department of Communications, Financial and Community Affairs. Federal Reserve 8!1nk of Dallas. Station K. Dallas, Texas 75222, un less ind icated otherwise. Requests for circulars shou ld specify the circula r numbers. Circulars Pamphlets, Brochures, and Reports Proposed Pricing Schedule for Cash Transportation. 14 pp. Glvo Your.oU Crodil! A Consumer's Guide to Credit PrO" toction Law •. Produced by the Fedeflll Reserve Bank of Son Francisco. (Describes credit, creditworthinesS, and the legal ri ghts of borrowers In obtaining c redit! 40 pp. June 1981. Circular No. 81-159 (August 4, 1981). Regulation C IHome Mortgage Dildo.ure): Revision and Slmpllflcolion. 5 pp. Circular No. 81-162 (A ugust 11, 1081). Cash Services Survey. 1 p. Circular No. 81-163 (August 12, 1981). Correction-Regulations G (Securities Credit by Persona Other Thon Bonb, Broken, or Dealers1. T (Credit by Broken and Dealers!. ond U (Credit by Bonks for the Purpose of Purchasing or Carrying Margin Stocks!: Proposed Amendments. 9 pp. Circular No. 81-164 (August 14. 1981). Election of Directors-Nomination Procedures. 11 pp. Circ ular No. 81-188 (August 18, 1981). Revisions to Bulletin 6-Wire Transfers of Funds; Bulletin 6A-Schedule of Time Limits; Bulletin 6R-Fee Schedule for Transfers of Funds Services. 10 pp. Circular No. 61-167 (August 16,1981). Cash Letteu 10 Be Charged on Normal Banking Days. 2 pp. Circular No. 81-166 (A ugust 24, 1981). Regulation Y-Bank Holding Companies and Change in Bonk Control Acl (Proposed Rulemaking Relating to Dala Processing and Electronic Funds Transfcr ActiviHes). 5 pp. Circular No. 61·170 (August 25, 1961 ). Amendment to Regulation Q Iinterest on Deposits!. 3 pp. Circ ular No. 81-171 (August 26, 1961). Regulation K-International Banking Operations: Notice of Final Rulemaklng Relating to Capital Requlrcmenls of Edge Corporations. 2 p p. Circular No. 81 -172 (August 26,1981). Regulation Y-Bank Holding Companies and Change in Bank Control Act: Amendments and Interpretation (Insurance Agency Activitiea). 9 pp. Circular No. 61· 173 (August 26, 1981.) Resorve Requirements of Depository Institutions (Regula· lion DJ: Reminder of Change In Transitional Ad· jua tm ent Percentage for Reaerve Requi rement Computations (Nonmember Depository Inatitutlonsl. 1 p. Circular No. 81·176 (August 31,1981). 12 Federal Reservo Bank of Dolls'