Annual Report of the Federal Reserve Board, 1982

'Report X£_> 1982 Board of Governors of the Federal Reserve System Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Letter of Transmittal BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Washington, D.C., April 15, 1983 THE SPEAKER OF THE HOUSE OF REPRESENTATIVES Pursuant to the requirements of section 10 of the Federal Reserve Act, I am pleased to submit the Sixty-Ninth Annual Report of the Board of Governors of the Federal Reserve System. This report covers operations of the Board during calendar year 1982. Sincerely, Paul A. Volcker, Chairman Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Contents Part 1 Monetary Policy and the U.S. Economy in 1982 3 INTRODUCTION 5 THE ECONOMY IN 1982 5 Household sector 8 Business sector 9 Foreign sector 9 Government sector 10 Labor market developments 12 Prices 14 MONETARY POLICY AND FINANCIAL MARKETS 15 Monetary aggregates and interest rates 20 Aggregate credit flows 24 INTERNATIONAL DEVELOPMENTS 25 U.S. international transactions 27 Foreign currency operations 30 MONETARY POLICY REPORTS TO CONGRESS 30 Report on February 10, 1982 42 Report on July 20, 1982 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Part 2 Records, Operations, and Organization 59 RECORD OF POLICY ACTIONS OF THE BOARD OF GOVERNORS 59 Regulation B (Equal Credit Opportunity) 59 Regulation D (Reserve Requirements of Depository Institutions) 63 Regulation D (Reserve Requirements of Depository Institutions) and Regulation Q (Interest on Deposits) 63 Regulation E (Electronic Fund Transfers) 64 Regulation G (Securities Credit by Persons Other than Banks, Brokers, or Dealers), Regulation T (Credit by Brokers and Dealers), and Regulation U (Credit by Banks for the Purpose of Purchasing or Carrying Margin Stocks) 65 Regulation K (International Banking Operations) 66 Regulation L (Management Official Interlocks) 67 Regulation O (Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks) 67 Regulation Q (Interest on Deposits) 69 Regulation T (Credit by Brokers and Dealers) 70 Regulation U (Credit by Banks for the Purpose of Purchasing or Carrying Margin Stocks) 70 Regulation Y (Bank Holding Companies and Change in Bank Control) 71 Regulation Z (Truth in Lending) 72 Policy statements and other actions 74 1982 discount rates 79 Rl ( OR!) OF POLICY ACTIONS OF THE FEDERAL OPEN MARKET COMMITn.L 79 Authorization for domestic open market operations 81 Domestic policy directive 82 Authorization for foreign currency operations 84 Foreign currency directive 85 Meeting held on February 1-2, 1982 92 Meeting held on March 29-30, 1982 99 Meeting held on May 18, 1982 105 Meetings held on June 30-July 1, 1982, and on July 15, 1982 114 Meeting held on August 24, 1982 121 Meeting held on October 5, 1982 128 Meeting held on November 16, 1982 134 Meeting held on December 20-21, 1982 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

143 CONSUMER AND COMMUNITY AFFAIRS 143 Regulatory actions 146 Compliance aids 147 Collection and use of data 154 Compliance with consumer regulations 156 Legislative recommendations 157 Consumer Advisory Council 159 Community Reinvestment Act 159 Federal Financial Institutions Examination Council 161 LITIGATION 161 Bank holding companies—Antitrust action —Review of Board actions 163 Other litigation involving challenges to Board procedures and regulations 167 LEGISLATION ENACTED 167 Export Trading Company Act 167 Garn-St Germain Depository Institutions Act 170 Continuing appropriations 171 BANKING SUPERVISION AND REGULATION 171 Supervision for safety and soundness 178 Regulation of U.S. banking structure 183 Enforcement of other laws and regulations 186 Federal Reserve membership 188 REGULATORY SIMPLIFICATION 188 Monetary policy and payments system 189 Banking structure and supervision 190 Consumer and community affairs regulations 191 Securities credit and securities activities 192 Regulatory impact studies 192 Regulatory Service and other informational services 193 FEDERAL RESERVE BANKS 193 Developments in the payments mechanism and in the pricing of Federal Reserve services 197 Examination 197 Income and expenses 198 Federal Reserve Bank premises 199 Holdings of securities and loans 199 Volume of operations Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

201 r>« - \K1> ' if GOVERNORS 201 Financial statements 207 STATISTICAL TABLES 208 1. Detailed statement of condition of all Federal Reserve Banks combined, December 31, 1982 210 2. Statement of condition of each Federal Reserve Bank, December 31, 1982 and 1981 214 3. Federal Reserve open market transactions, 1982 216 4. Federal Reserve holdings of U.S. government and federal agency securities, December 31, 1980-82 216 5. Number and salaries of officers and employees of Federal Reserve Banks, December 31, 1982 217 6. Bank premises of Federal Reserve Banks and Branches, December 31, 1982 218 77. Income and expenses of Federal Reserve Banks, 1982 222 8 Income and expenses of Federal Reserve Banks, 1914-82 226 9 Volume of operations in principal departments of Federal Reserve Banks, 1979-82 226 10 Revenue and expenses of priced services at Federal Reserve Banks, 1982 227 11 Federal Reserve Bank interest rates, December 31, 1982 227 12 Reserve requirements of depository institutions 230 13 Maximum interest rates payable on time and savings deposits at federally insured institutions 232 14 Margin requirements 233 15 Principal assets and liabilities, and number of insured commercial banks, by class of bank, June 30, 1982 and 1981 234 16 Reserves of depository institutions, Federal Reserve Bank credit, and related items—Year-end, 1918-82, and month-end, 1982 238 17 Changes in number of banking offices in the United States, 1982 240 18 Mergers, consolidations, acquisitions of assets or assumptions of liabilities approved by the Board of Governors, 1982 249 MAP OF FEDERAL Ki SERVE SYSTEM—DISTRICTS 251 FEDERAL RESERVE DIRECTORIES AND MEETINGS 252 Board of Governors of the Federal Reserve System 254 Federal Open Market Committee 255 Federal Advisory Council 256 Consumer Advisory Council 257 Federal Reserve Banks, Branches, and Offices 277 INDEX Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Part 1 Monetary Policy and the U.S. Economy in 1982 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Introduction Production and employment in the margins, and high rates of unused United States declined appreciably capacity, businesses cut investment during 1982 as the economy contin- spending and liquidated inventories. ued the difficult transition from infla- Industrial production fell sharply in tion to price stability. Most broad 1982, forcing widespread layoffs, and price indexes rose less than 5 percent employment dropped throughout the over the year, about half the increase year. The overall rate of civilian in 1981. The improved price per- unemployment reached a postwar formance was attributable in part to high of 10.8 percent at the end of generally weak product markets, ex- the year. ceptionally good harvests, and a The principal objectives for monsurplus of oil in world markets. But etary policy in 1982 were to maintain more fundamental improvement was the financial discipline necessary to evident also as underlying trends in achieve further progress toward price wages began to reflect more fully the stability and, at the same time, to progress on the price front as well as foster conditions conducive to the domestic and international competi- development of a sustained recovery tive pressures; with businesses ag- in economic activity. Accordingly, gressively acting to strengthen pro- the Federal Open Market Committee ductivity, unit labor costs in the adopted target ranges that provided nonfarm business sector rose only for some slowing in the underlying about 43/4 percent. The rise in the growth of the monetary aggregates foreign exchange value of the dollar from their rates of expansion in 1981. contributed to the moderation in As the year progressed, however, inflation by reducing import prices, the necessity arose to tolerate growth but the effect on export and import above the upper limits of those volume of the decline in the compet- ranges to accommodate unusual deitive position of the United States in mands for liquid assets; to have world markets was a source of weak- maintained growth within the originess in domestic economic activity. nal targets in such circumstances Real disposable income edged up would have exacerbated recessionary over the four quarters of the year, tendencies in the economy. Over the despite a decline in real gross na- four quarters of 1982, each of the tional product. The tax cut in mid- aggregates did, in fact, exceed its 1982 and the increase in transfer targeted range. The overshoot for payments more than offset the weak- Ml was especially large; the bulk of ness in wages and salaries. Purchases the increase was in other checkable of homes, automobiles, and other deposits, which rose 34 percent over durable goods were constrained by the year. In the fourth quarter, the high cost of financing as well as substantial inflows from maturing all by the limited improvement in spend- savers certificates were superimable real income. In addition, faced posed on already strong demands for with reduced sales volume, low profit liquidity, and Ml rose at an annual Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Introduction rate of 13 percent. In anticipation of sector. Interest rates remained relathis development and of distortions tively high, but declined significantly that would be associated with the in the third quarter. By the end of introduction of money market de- the year, nominal interest rates across posit accounts in December, the the maturity spectrum had in most Committee in October shifted its cases reached the lowest levels in focus to the broader aggregates in more than two years. Mounting eviimplementing its policy objectives. dence of a slowing in underlying Credit flows increased in 1982, as inflation might well have produced stepped-up borrowing by all levels of still larger declines in long-term rates government more than offset reduc- but for the threat of widening federal tions in financing by the private deficits. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Economy in 1982 Economic activity declined in 1982, credit markets and, in the context of as real gross national product dropped continued efforts by the Federal 1.1 percent, continuing the recession Reserve to maintain monetary discithat began in mid-1981.1 The current pline, tended to hold long-term indownturn came on the heels of a terest rates at high levels relative to sharp drop in GNP in the second the prevailing rate of inflation. quarter of 1980 and a short-lived Inflation slowed dramatically in recovery in the second half of 1980 1982. The price index for the gross and early 1981. As a result, by the domestic business product rose only end of 1982 real GNP had fallen AVi percent after an advance of 9 below its level three years earlier. percent in 1981. The deceleration of The sharp drop in industrial produc- prices was not only sizable, but also tion in 1982 was associated with widespread: the rates of inflation for widespread layoffs and plant clos- consumer goods and services and ings. And, with limited job oppor- capital equipment were all appreciatunities in other sectors as well, the bly lower. The slowdown in prices unemployment rate rose to a postwar was reinforced by progress in retardhigh of 103/4 percent by the end of ing the rate of increase of labor the year. The economic downturn, costs. Slack labor markets, as well as after the prolonged period of little lower inflation and expectations of or no growth, brought about a sig- inflation, contributed to the decelernificant slowing of inflation, with ation of wages. The improvement most broad price measures rising less was apparent across all major labor than 5 percent. market groups: wage increases in Declines in activity were particu- manufacturing and services and for larly large for business investment white-collar and blue-collar workers and exports, which in real terms fell all moderated from the previous 8 and 13 Vi percent respectively in year. In addition, wage concessions 1982. Consumption expenditures rose were negotiated in a number of large over the year, as real disposable collective bargaining settlements. income increased slightly, reflecting a cut in federal taxes and the effects Household Sector of automatic countercyclical income stabilizers. In addition, defense pur- Personal consumption expenditures chases increased rapidly. At the same increased 2Vi percent in 1982, with time, the large and growing federal much of this rise reflecting an upbudget deficit weighed heavily on the swing in motor vehicle purchases at the end of the year. Outside the auto sector, the increase in outlays was 1. Throughout the discussion of the econ- more moderate, as real disposable omy in 1982, annual growth rates reported income rose less than 1 percent measure the changes from the fourth quarter during 1982. In particular, the July of 1981 to the fourth quarter of 1982 unless indicated otherwise. cut in personal taxes, which followed Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

6 The Economy in 1982 Indicators of Economic Performance Percentage change, Q4 to Q4 Ratio Real GNP Inventory-sales ratio -CL^-J Index, 1967=100 Millions of units Industrial production Housing starts Percent Millions of units Unemployment rate Auto sales 10 Domestic Foreign ! i Percentage change, Q4 to Q4 Percentage change Gross domestic business product price index Unit labor costs n r 10 p 1976 1978 1980 1982 1976 1978 1980 1982 All data are seasonally adjusted at annual rates. The inventory-sales ratio is based on real (1972 dol- The industrial production indexes (monthly) are Fed- lars) manufacturing and total trade sales and inveneral Reserve data; the unemployment rate (monthly) tories. Prices are measured by the fixed-weight price and the change in unit labor costs are U.S. Depart- index for gross domestic business product (1972 ment of Labor data; auto sales are from the Motor weights). Unit labor costs are for the nonfarm busi- Vehicle Manufacturers' Association. All other data ness sector; percentage change is from four quarters are from the U.S. Department of Commerce. Real earlier. GNP and real final sales are in terms of 1972 dollars. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Economy in 1982 7 the earlier reduction in October 1981, drop in purchases of furniture and served only to offset a sharp decline appliances. in real wages and salaries. With Activity in the housing sector picked income growth sluggish and employ- up last year, with housing starts rising ment and income prospects uncer- 45 percent from the postwar record tain, consumers appeared reluctant lows reached in late 1981. Residento reduce saving and to acquire big- tial construction put in place, which ticket durable goods. The saving rate lags starts, was up 1 percent in real averaged 6.6 percent for the year as terms over 1982. The improvement a whole, about the same as in 1981. stemmed primarily from a marked The demand for new domestic decline in mortgage interest rates: automobiles was poor in 1982: sales the interest rate on new commithave declined dramatically since early ments for fixed-rate conventional 1979 and last year averaged only 5.8 home mortgages at savings and loan million units, the lowest level since associations dropped from a high of 1961. The pattern of auto sales fluc- 18V2 percent in the autumn of 1981 tuated considerably during the year to 13*/2 percent by the end of 1982. as consumers reacted to incentives Construction of both single- and such as rebates. In the most success- multifamily units experienced gains. ful program, in the fourth quarter, In the multifamily sector, starts rose auto makers offered concessions on about 40 percent over the year to an interest rates coupled with end-of- annual rate of 460,000 units in the year price discounts on 1982 models, fourth quarter. The strength during and the rate of sales was sustained the year resulted partly from an above 6 million units for two consec- increase in units initiated under the utive months for the first time since expiring section 8 subsidy program the middle of 1981. Purchases of administered by the Department of foreign cars held up well in 1982; at Housing and Urban Development. 2.2 million units for the year as a Starts of unsubsidized rental units whole, they accounted for a record also appeared to pick up as vacancy 28 percent of total car sales. Sales of Japanese cars, which made up about Income, Consumption, and Saving 80 percent of foreign auto sales, rose Percentage change, Q4 to Q4 at the end of the year despite export restrictions on most models. Real consumption Excluding motor vehicles, real per- Uri _fpii I1 r n Reat'ii^'^^'Mncome sonal consumption expenditures rose l3/4 percent during 1982, in part because of an increase of nearly 2Vi 0 Percent percent in spending for services. Real outlays for food and gasoline also grew over the year, although a smaller portion of household budgets than in recent years was devoted to gasoline purchases because of favorable price 1976 1978 1980 1982 trends. Sales of all durable goods Based on U.S. Department of Commerce data, seaother than cars fell % percent in real sonally adjusted at annual rates. Real consumption and real disposable income are in terms of 1972 dolterms, mostly because of a 4 percent lars. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

8 The Economy in 1982 rates remained quite low despite as measured by the share of beforesome increase at year-end, and rents tax profits in the gross domestic rose more rapidly than the general product for the nonfinancial sector, rate of inflation. also dropped to a postwar low, and Much of the improvement in the the number of business failures single-family sector came toward the reached postwar highs. In addition, end of the year, when the cost of interest rates remained high relative mortgage credit had fallen to afford- to the pace of inflation last year, able levels for many homebuyers. exacerbating financial pressures. Starts of single-family homes jumped Virtually all of the decline in fixed to an annual rate of 800,000 units in investment last year was in equipthe fourth quarter, almost 50 percent ment rather than in structures. Real above the year-earlier pace. Sales, spending for producers' durable which had remained depressed equipment fell 103/4 percent over the through the summer, revived toward year, and reductions were wideyear-end, with sharp gains in sales of spread. The steepest declines ocnew homes. Reflecting mainly the curred in outlays for heavy industrial unusually weak market conditions machinery such as engines, and for during the first three quarters of the construction machinery and farm year, the average price of homes sold equipment. Purchases of most types rose moderately in 1982. Measured of transportation equipment, includwithout regard to concessionary fi- ing aircraft and railroad equipment, nancing or to changes in quality, the also fell sharply. Reductions in outaverage price of existing homes sold lays for office and store machinery, was up 3 percent over the year, and communications equipment, and inthe increase in average sales price of struments were relatively small. new homes sold slowed to about 1 Real outlays for nonresidential percent, both because of a modera- structures declined only 2 percent in tion in construction costs and be- 1982. Reductions were concentrated cause of continued movement toward in petroleum and mining activity, smaller models. which dropped nearly HV2 percent over the year as energy markets softened. Spending on new factories Business Sector and commercial structures such as Business fixed investment fell 8 per- shopping malls and retail stores also cent in real terms during 1982. The fell. In contrast, real outlays for contraction in capital spending last construction of office buildings and year came soon after the relatively institutional structures continued to shallow decline in 1980. This period increase. of prolonged stagnation for the cap- The outlook for business fixed ital goods sector reflected weakness investment continues to be weak. in the underlying determinants of Both private and public surveys of capital spending. By the end of 1982, capital spending plans indicate furreal final sales were no higher than ther reductions in the capital goods in mid-1979; the rate of capacity sector into 1983. Forward-looking utilization in manufacturing declined indicators suggest that outlays for throughout 1982, slumping to a post- producers' durable equipment are war low at year-end. Profit margins, likely to fall slightly in early 1983; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Economy in 1982 9 these outlays are likely to stabilize fourth quarter; imports ended the once a recovery in final demand is year nearly 7 percent below their well under way. But expenditures for level at the end of 1981. The decline nonresidential buildings could de- in the fourth quarter of last year cline substantially given the large appears to have been associated in drop in the real value of contracts part with the sharp liquidation in for new construction and rising va- inventories at that time. The strength cancy rates during 1982. of imports that developed earlier in Business inventories increased over the year, despite the weak domestic the second half of 1981, and by the economic situation, was greatly influbeginning of 1982, manufacturing enced by the increased price competand trade inventories, in real terms, itiveness of foreign goods brought were exceptionally high relative to about by the appreciation of the sales. As a result, businesses cut dollar. output further and liquidated stocks at a rapid pace in the first quarter. Government Sector The reduction continued at manufacturers, but stocks in the trade sector Total government purchases of goods accumulated. During the summer the and services rose 2% percent in real inventory correction stalled as ship- terms during 1982. All of the increase ments and sales fell, and by the came from the federal sector; spendautumn significant overhangs re- ing by state and local governments emerged, with imbalances especially was about unchanged. severe among durable goods. A sec- The budget deficit for the federal ond round of aggressive liquidation government on a national income began in the fourth quarter. By the accounts basis increased from an end of the year inventory imbalances annual rate of $102 billion in the were reduced, but stocks remained fourth quarter of 1981 to a rate of high relative to sales in several key about $200 billion at the end of last sectors, such as primary metals and year. This marked widening of the nonelectrical machinery. deficit resulted from a drop in receipts coupled with continued growth of expenditures. Tax receipts fell Foreign Sector about Wi percent in nominal terms, The foreign sector also contributed compared with increases of 9 to 12 significantly to the 1982 decline in percent in recent years, as both the real GNP. Exports of goods and recession and the tax reductions enservices fell Yil/i percent over the acted in 1981 cut into revenues from year as foreign demand was limited personal income and corporate profit by the continued strength of the taxes. In addition, the weak oil dollar (which reduced the price com- market meant a reduction in receipts petitiveness of U.S. goods), by low from the windfall profits tax; and the levels of economic activity in other growth of contributions to social nations, and by financial constraints security slowed markedly because of in some developing countries. The weak income growth. volume of imports of goods and Total federal expenditures grew services increased during much of about 12 percent in nominal terms, 1982 but dropped sharply in the down only slightly from the average Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

10 The Economy in 1982 rise of 13 percent during the preced- from slower revenue growth and cuts ing five years. About half of the in- in outlays for education resulting from crease in 1982 reflected a W/z percent the decline in the school-age popurise in transfer payments that would lation. Transfer payments increased, have been even greater if increases in in nominal terms, in 1982 as state and expenditures had not been slowed by local governments attempted to comsmaller cost-of-living adjustments in pensate for some of the reductions social security payments and cuts in imposed at the federal level. As a reunemployment compensation. The sult, total expenditures rose more than growth of net interest payments, at 5V2 percent last year, and the sector's about 12 percent, was considerably operating budget (total balance withslower last year than in 1981, as the out social insurance funds) was in sigeffect of declining interest rates partly nificant deficit for the first time since offset a record volume of financing. 1974. Federal purchases for defense, measured in real terms, rose 6% percent, Labor Market Developments about matching the administration's target growth rate. Nondefense pur- Employment fell throughout 1982 as chases also increased in real terms; the recession continued to force most of the rise reflected a sharp in- widespread layoffs. The reduction in crease in payments for the federal ag- employment was concentrated in the ricultural support program in the goods-producing sector, in which emfourth quarter that was only partly ployment has now fallen for three offset by reductions in discretionary consecutive years; but even the serspending and purchases for the stra- vice-producing sector, the primary tegic petroleum reserve. Grants to source of employment growth in states and localities fell more than 43A recent years, experienced declining percent in nominal terms for the year payrolls. By the end of 1982, total as a whole because of budget cuts in nonfarm payroll employment reached a broad range of programs, from a level nearly 3 million below its July medicaid to mass transit; the reduc- 1981 peak, a reduction of more than tions in grants in both 1981 and 1982 3 percent. came after steady increases for two The job losses last year were decades. concentrated in manufacturing, in The state and local sector experi- which monthly declines averaged enced increasing fiscal problems in nearly 130,000. The cyclically sensi- 1982. In addition to the cuts in federal tive durable goods industries experigrants, growth in own-source reve- enced the largest reductions. Espenues slowed, partly because of smaller cially sharp declines were registered increases in personal tax collections. in the metals, machinery, and trans- On the expenditure side, real pur- portation equipment industries, in chases of goods and services were lit- which inventory imbalances were most tle changed last year; they have been severe. Payrolls in nondurable manrelatively flat since the late seventies ufacturing industries were reduced after decades of steady increases. The 350,000 over the year, and nearly all recent reduction in the growth of state major industries were affected. Layand local purchases can be attributed offs continued at construction sites, to both budgetary pressures arising despite gradual improvement in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Economy in 1982 11 homebuilding during the year, and remained virtually flat last year. A mining employment was reduced decline in the teenage population, substantially. Employment in the which meant fewer young jobseekservice-producing sector turned down ers, was another factor that retarded in 1982 after a year of relatively slow growth in the labor force in 1982. growth in 1981. Reacting to sluggish Last year, productivity registered sales, trade establishments reduced its strongest advance since 1977. their staffs by 225,000. In the public Aggregate hours worked were resector, budget restraint led to reduc- duced throughout the year, with tions in employment at all levels of particularly sharp declines in the government. second half of the year. The cut in These employment cutbacks were hours was greater than the reduction reflected in a marked increase in the in output, and productivity in the unemployment rate. The overall rate nonfarm business sector increased of unemployment reached a postwar sharply over the final two quarters high of 10.8 percent in December, of 1982 and for the year as a whole well above the 7.2 percent level that was up 1% percent. The growth in prevailed before the current contrac- productivity was larger than is usual tion began. Nearly all of the increase near the trough of a business cycle; in the unemployment rate was among this development reflects greater efthose who previously had held jobs; forts on the part of firms to trim the inability of new entrants and work forces and to concentrate proreentrants to the labor force to find duction in efficient plants during an jobs accounted for only a small unusually long period of slack. It fraction of the addition to the rolls may lead to some improvement in of the unemployed. The increase was the underlying trend rate of growth particularly large for adult men, who of productivity. hold a disproportionate number of The signs of declining increases in jobs in the durable goods and con- wage rates observed in 1981 were struction industries; the rate of un- confirmed in 1982 by a pervasive employment for this group rose from slowing in all measures of wages and a low of 5.8 percent in July 1981 to labor costs. Weak demand for labor 10.1 percent in December 1982. and continued progress in reducing Growth in the labor force slowed the rate of price inflation were the markedly during 1982, reflecting both major contributors to this slowdown. cyclical factors and longer-term trends. The rate of wage increase for pro- The l3/4 percent rate of growth of duction workers declined from %Vi the civilian labor force last year was percent in 1981 to less than 6 percent substantially below the 2xh percent in 1982, the smallest advance since rate that had prevailed over the 1967. Wage gains for white-collar previous decade. The acute deterio- workers, as measured by the employration of the labor market in 1982, ment cost index, had failed to slow after two years of diminished em- in 1981, but decelerated nearly 2lh ployment opportunities, discouraged percentage points last year to an entry into the labor force. With adult increase of less than 6V2 percent. The women failing to join the labor force slowdown in wages and the improveat the rate typical of the 1970s, the ment in productivity combined to overall labor force participation rate hold the increase in unit labor costs Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

12 The Economy in 1982 in the nonfarm business sector to 43A just 4V2 percent in 1982, compared percent in 1982, down substantially with a peak increase of 123/4 percent from a peak rate of IIV2 percent in 1979. In addition, producer prices over the four quarters of 1979. at the intermediate and crude stages The moderation in wage increases of processing were about unchanged was particularly notable in new con- over the year. Although food and tracts negotiated under collective energy prices contributed to the bargaining agreements. For the 3lA slowdown, price inflation excluding million workers covered by new set- these items also declined sharply. tlements, first-year increases aver- The price index for the gross domesaged 3% percent in 1982, compared tic business product excluding food with 8 percent the last time these and energy decelerated from a 9lA same workers negotiated new con- percent rate of increase in 1981 to a tracts. Important wage concessions 5 percent pace in 1982. were negotiated during the heavy Food prices at the retail level bargaining schedule early in the year: advanced just 3Vi percent in 1982. the auto, trucking, airline, and ap- This was the fourth consecutive year parel industries departed signifi- in which food prices rose less than cantly from traditional settlements the overall rate of inflation. To a by deferring or eliminating scheduled large extent, the same factors that pay increases, cost-of-living adjust- had restrained price increases in 1981 ments, or both. Concession bargain- were present in 1982. For a second ing continued for a wide range of year large harvests and mounting contracts for smaller unions in the grain stocks supplied ample crops. In second half of the year. Several addition, weak income growth, both factors were responsible for the prev- at home and abroad, and the strong alence of concessions. First, high value of the dollar limited the derelative labor costs left firms in some mand for farm products. However, industries in precarious financial con- not all of the deceleration in food dition as demand slackened. Second, prices was due to transistory factors; deregulation and intensified compe- labor costs in the food sector also tition from both foreign firms and slowed substantially last year. domestic nonunion producers gener- Despite an erratic quarterly patated additional pressure in some tern, changes in energy prices reindustries. flected the considerable weakness evident in world petroleum markets in 1982. Prices for refined petroleum Prices products plummeted in the first half Inflation declined significantly fur- of last year. A portion of this decline ther in 1982, with the deceleration was retraced in the second half, but apparent in most types of goods and prices were generally lower at the services. The fixed-weight price in- close of 1982 than they had been at dex for gross domestic business prod- its opening. Besides holding down uct increased 4Vi percent last year, prices of gasoline and fuel oil, lower after a 9 percent gain in 1981 and a petroleum prices helped to halve the 10V4 percent rise in 1980. Consumer rate of increase in electricity prices. prices exhibited similar improve- In contrast, natural gas prices continment: the consumer price index rose ued their steep ascent as deregulation Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Economy in 1982 13 proceeded under the Natural Gas in 1981 to a IV2 percent pace in 1982. Policy Act of 1978. Medical care and education were the In 1981, progress in reducing infla- only major categories in which inflation outside of the volatile food and tion showed no sign of abating. energy sectors was small and con- The pervasive slowing in labor fined to a limited number of sectors. costs and prices has created a climate In contrast, the slowing in 1982 was in which continued progress in lowboth more substantial and more evenly ering inflation is likely. Reductions balanced. Weak demand, decelerat- in wage inflation and in price inflaing labor costs, declining inflation tion tend to be mutually reinforcing expectations, and a strong dollar all when accompanied by persistent acted to slow prices. Inflation for monetary discipline. Decelerating laconsumer commodities excluding bor costs relieve pressure on prices, food, energy, and homeownership while the improved price performfell from 8VA percent in 1981 to 5lA ance can, in turn, reduce inflation percent in 1982. Similarly, prices of expectations and formal or informal capital goods, as measured by the cost-of-living adjustments, and thus producer price index, rose only 4lA lead to a further slowing of labor percent last year, less than half the costs. An important aspect of the 1981 pace. Prices of consumer ser- 1982 experience was that each of the vices excluding energy, which had elements in this process was evident failed to slow in 1981, decelerated in the substantially lower rates of from a 103A percent rate of increase inflation. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

14 Monetary Policy and Financial Markets Monetary policy in 1982 continued tives are likely to be not so telling to aim at moderating inflationary for OCDs as for demand deposits. pressures and, in the process, to Moreover, shifts of funds associated provide a basis for sustainable growth with the maturation of a substantial in real economic activity. Early in volume of all savers certificates and the year the Federal Open Market with the introduction of money mar- Committee adopted target ranges for ket deposit accounts distorted the growth in the monetary aggregates behavior of Ml in the fourth quarter. believed to be consistent with these Because the extent of these distorobjectives. Those ranges were reaf- tions could not be anticipated, the firmed at midyear, with the proviso FOMC at its meeting in early Octothat growth above the targets might ber decided to deemphasize Ml, at have to be tolerated for a time if least temporarily, as an operating unusual demands for money and guide for monetary policy, and inliquidity emerged, as seemed possi- stead, to place greater emphasis on ble in light of prevailing economic M2 and M3 in the expectation that and financial uncertainties. In the these measures would be less afsecond half of the year, demands for fected by developments in the fourth highly liquid assets did prove to be quarter. appreciably greater than had been Interest rates declined substananticipated, leading, for the year as tially on balance over 1982, mostly a whole, to growth in the aggregates after midyear. Yields on short-term above the upper limits of their re- market instruments generally ended spective target ranges. Indeed, over the year 3 to 5 percentage points the year the income velocities of the below their levels of late 1981, and monetary aggregates (defined as the long-term rates declined 3 to 4 perratio of nominal gross national prod- centage points. Although the weakuct to money) declined at the sharp- ness in private credit demands assoest rates of the postwar period. ciated with slumping household and The conduct of monetary policy in business spending freed funds to 1982 was complicated by financial finance the government, a growing developments that greatly hindered federal deficit tended to hold longthe interpretation of movements in term rates up. Thus, concerns with narrow money, Ml. Specifically, the the burgeoning deficit tended to component consisting of other check- offset the effects on long-term rates able deposits (OCDs), which in- of diminishing inflation expectations. cludes NOW accounts and similar Risk premiums in the interest rate interest-bearing checking balances, structure widened at times as probdominated the growth of Ml during lems of financial and industrial firms the year. OCDs are probably quite sparked concerns about the safety of sensitive to changes in the proportion investments. of savings that households want to In the aggregate, net borrowing by hold in highly liquid form for precau- nonfinancial sectors of the economy tionary purposes; transaction mo- increased somewhat in 1982. The Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets 15 Interest Rates Percent per annum Short-term Federal funds Long-term State and local government bonds 1976 1978 1980 1982 Monthly averages except for Federal Reserve dis- utility bonds, weighted averages of new publicly ofcount rate and conventional mortgages (based on fered bonds rated Aaa, Aa, and A by Moody's Invesquotations for one day each month). Yields: U.S. tors Service and adjusted to Aaa utility basis by Fed- Treasury bills, market rate on three-month issues, eral Reserve; U.S. government bonds, market yields discount basis; conventional mortgages, rates on first adjusted to 20-year constant maturity by U.S. Treamortgages in primary markets, unweighted and sury; state and local government bonds (20 issues, rounded to nearest 5 basis points, from U.S. De- mixed quality), Bond Buyer. partment of Housing and Urban Development; Aaa federal government's demands on toward the end of the year as lower the credit markets were up roughly long-term interest rates allowed many 85 percent from the previous year, firms to repay short-term debt with and state and local government units the proceeds of long-term security borrowed more than twice as much issues. as in 1981. In contrast, households greatly curtailed additions to their Monetary Aggregates installment and mortgage debt while and Interest Rates they increased their acquisitions of liquid assets. Business borrowing re- Money market conditions during 1982 mained relatively strong during the were influenced by changes in defirst three quarters of the year, but mands for and supplies of bank dropped off sharply in the fourth. reserves, and by investor concerns Short-term debt fell even more sharply about the effects of protracted weak- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

16 Monetary Policy and Financial Markets ness in the economy on the credit- third quarter as loan losses suffered worthiness of borrowers. Short-term by several large banks and the exinterest rates turned upward in early posure of domestic banks to large 1982 as a brisk uptrend in Ml growth losses on foreign loans added to over the final months of 1981 was investor concerns. augmented by a burst in January. By early fall, weakness in the Because monetary growth exceeded economy, accompanied by unusually by a considerable margin the Sys- strong liquidity demands and increastem's objectives, the gap between ing financial strains domestically and required reserves and the amount of abroad, led the Federal Reserve to nonborrowed reserves consistent with adopt a more accommodative posthe System's objectives for monetary ture toward supplying reserves. As growth widened substantially. After short-term interest rates declined furpeaking in mid-February, about 2 to ther, concerns about the financial 3 percentage points above the levels condition of borrowers diminished posted at the beginning of the year, and spreads related to credit quality money market rates receded slightly narrowed appreciably. Money marover the remainder of the quarter in ket rates continued to fall through response to the relative stability of year-end, a trend that was reinforced Ml after its January bulge. by additional reductions in the dis- Short-term rates continued to drift count rate. lower through the second quarter. Most long-term interest rates However, yields on private credit changed little on balance over the instruments rose relative to those on first half of the year. Despite appar- Treasury securities in response to ent improvement in the outlook for heightened concerns about the credit- inflation, sentiment in the bond marworthiness of borrowers; these con- ket over the period was dominated cerns were stirred by filings by sev- by the impact of large prospective eral large firms under chapter 11 of federal deficits and the possibility the federal bankruptcy laws, the that, as the economy began to rebankruptcies of two relatively small cover, demands for money and credit securities dealers, and rising business would press harder against restricted failures in general. supplies. In the second half, bond During the summer, weakness in yields moved downward despite such narrow money lowered reserve de- concerns, reflecting further progress mands relative to the supply of non- against inflation and a spreading view borrowed reserves, and short-term among market participants that the interest rates fell markedly. Further depth of the economic contraction downward movements in rates ac- and international financial tensions companied several reductions of Vz would preclude an early reversal of percentage point each in the discount the easing in money market condirate in July and August. Spreads tions. between yields on lower- and higher- The relative growth and composirated private money market instru- tion of the monetary aggregates in ments, as well as between yields on 1982 reflected the introduction of private and U.S. government securi- new types of deposit accounts, unties, widened considerably over the certainties related to the weak econ- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets 17 Reserves and Monetary Aggregates Annual rates of change based on seasonally adjusted data unless otherwise noted,percent1 1981 1982 1980 1QO1 1Q09 iiem J.7O1 04 01 02 Q3 04 Member bank reserves2 Total 6.7 4.3 7.1 3.1 7.5 .6 4.8 14.8 Nonborrowed 7.5 7.1 7.9 10.9 -0.9 4.2 11.2 16.5 Required 6.4 4.7 6.8 3.5 7.1 1.1 4.6 13.9 Monetary base3 8.5 4.9 7.7 4.1 7.9 6.6 6.7 8.5 Concepts of money4 Ml 7.2 5.1(2.3)5 8.5 3.2 10.5 3.2 6.1 13.2 Currency and traveler's checks 9.2 5.9 7.8 5.1 7.9 8.3 6.9 7.3 Demand deposits 3.1 -12.5 .9 -2.5 .6 -5.4 -.1 8.5 Other checkable deposits. 58.1 181.7 33.8 19.6 46.3 19.6 21.6 33.7 M2 9.0 9.4 9.2 9.6 8.7 7.0 10.9 9.2 Nontransaction component 9.6 10.9 9.5 11.7 8.0 8.3 12.4 8.0 Small-denomination time deposits6 14.2 15.6 5.3 14.2 3.1 9.4 12.0 -3.7 Savings deposits and money market deposit accounts ... -4.4 -16.4 9.2 -12.2 3.7 -.6 .8 32.4 General purpose and broker/dealer money market mutual fund assets (n.s.a.)7 101.5 133.6 29.8 74.3 35.4 22.4 35.0 15.2 Overnight RPs and Eurodollars (n.s.a.) 25.5 20.1 30.2 -17.9 56.3 2.4 27.9 25.2 M3 9.7 11 7 10.1 10.6 8.6 8.5 12.5 9.4 Non-M2 component 14.0 24.3 14.3 15.4 8.2 16^0 20!0 10.4 Large-denomination time deposits 12.7 21.3 11.9 6.0 10.7 17.5 13.4 4.3 Institution-only money market mutual fund assets (n.s.a.) 76.8 115.0 44.6 125.2 8.7 10.8 109.7 32.7 Large term RPs (n.s.a.) 8.0 7.5 8.0 16.8 -6.6 16.8 -12.6 35.2 1. Changes are calculated from the average amounts ings banks. M2 is Ml plus overnight repurchase agreeoutstanding in each quarter. ments (RPs) issued by commercial banks, overnight 2. Annual rates of change in reserve measures have Eurodollar deposits held by U.S. nonbank residents been adjusted for regulatory changes in reserve re- at Caribbean branches of U.S. banks, taxable and quirements. tax-exempt money market mutual fund shares other 3. Consists of total reserves (reserve balances of than institution-only fund shares, savings deposits, depository institutions in the current week plus vault money market deposit accounts, and small time decash held two weeks earlier), currency in circulation posits (including retail RPs) at all depository insti- (currency outside the U.S. Treasury, Federal Reserve tutions. M3 is M2 plus large time deposits at all dep- Banks, and the vaults of depository institutions), and ository institutions, large term RPs issued by surplus vault cash at depository institutions. commercial banks and thrift institutions, and assets 4. Ml consists of currency in circulation, traveler's of institution-only money market mutual funds. checks of nonbank issuers, demand deposits at all 5. Number in parenthesis is adjusted for the effects commercial banks other than those due to domestic of shifts from non-Mi sources into other checkable banks, the U.S. government, and foreign banks, and deposits. official institutions less cash items in the process of 6. Balances in individual retirement accounts (IRAs) collection and Federal Reserve float, and other check- and Keogh accounts at commercial banks and thrift able deposits (OCD). OCD consists of negotiable or- institutions are subtracted from small time deposits. der of withdrawal and automatic transfer service ac- 7. Excludes balances in IRA and Keogh accounts, counts at depository institutions, credit union share n.s.a. Not seasonally adjusted. draft accounts, and demand deposits at mutual sav- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

18 Monetary Policy and Financial Markets omy, and interest rate movements. occurred in its most liquid compo- Ml increased 8V2 percent over the nents, including passbook savings year, 3 percentage points above the deposits, shares of money market upper bound of the FOMC's target mutual funds, and overnight repurrange. Ml surged despite the sharp chase agreements (RPs) and Euroreduction in income growth; and, as dollars. a result, Ml velocity fell roughly 5 Three new highly liquid deposit percent, the largest drop in any four- accounts authorized by the Deposiquarter span since World War II. tory Institutions Deregulation Com- The changing character of Ml mittee in 1982—the 91-day and 7- to made its behavior in 1982 difficult to 31-day small-denomination time deinterpret. In particular, the bulk of posit accounts, and the money marthe growth in narrow money was ket deposit account (MMDA)—also accounted for by OCDs, which not registered sizable inflows. The 91only serve as a means of payment day and 7- to 31-day small time but also, like savings deposits, are accounts (authorized effective May 1 used by many households as a repos- and September 1) required minimum itory of liquid assets. Because OCDs balances of $7,500 and $20,000 rehave this savings feature, it was spectively, and paid interest rates difficult during the year to determine whose ceilings were tied to recent whether movements in Ml reflected yields on 91-day Treasury bills.3 By mainly changes in the demand for year-end deposits in these two actransaction balances, or instead, gen- counts totaled $30 billion, only a eral changes in the demand for liquid fraction of which apparently repreassets. On the whole, the latter sented new funds for depository inseems to have dominated: the sub- stitutions; substantial amounts placed stantial inflows to OCDs in 1982 in these accounts are thought to have appear to have been part of a broadly been shifted from other, longerbased buildup of liquid assets by maturity, small time deposits. households, which may have re- Unlike the new small time acflected mounting concerns about em- counts, MMDAs (authorized effecployment and income prospects as tive December 14) have no fixed well as the effects of declining open minimum maturity and require only market interest rates. a $2,500 average minimum balance Growth in M2, at 9lA percent, was to qualify for the payment of unregassociated with a decline of 5V2 ulated interest rates. Moreover, up percent in velocity, also a postwar to six automatic, preauthorized, telerecord.2 The most rapid expansion phone, or check-writing transfers can within the nontransaction part of M2 be made from an MMDA each month (but no more than three transfers by check), making these 2. The growth rates for M2 and M3 reported accounts competitive with shares of in the text and in the table reflect minor changes made to the definitions of these money market mutual funds. Deposaggregates in February 1983. Under these new definitions, M2 and M3 include shares of tax- 3. Effective January 5, 1983, the interest exempt money market mutual funds and rate ceiling on 7- to 31-day small time deposits exclude balances in IRA and Keogh accounts. was removed, and minimum-balance require- Under the previous definition, M2 growth in ments for both 91-day and 7- to 31-day small 1982 would have been 93A percent. time deposits were lowered to $2,500. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets 19 Monetary, Bank Credit, and itory institutions promoted MMDAs Reserve Aggregates heavily, and by the end of the year Billions of dollars balances in MMDAs stood at $87 billion, approximately three-fifths of Targeted and actual M1 which were at commercial banks (the 475 remainder were at thrift institutions). Although most of these balances 450 apparently were reallocated from within M2, funds also were shifted from large-denomination time deposits and term RPs, as well as from Targeted and actual M2 sources outside M3. Despite the large inflows to these 1900 new types of accounts, overall expansion in the nontransaction component of M2 moderated in 1982 as 1800 inflows to total small time deposits and to money market mutual funds abated sharply. Growth in the money market mutual funds, though still substantial, dropped to only onefourth of the 1981 pace, reflecting to some extent an inevitable deceleration in the number of accounts as the pace of the public's learning Targeted and actual bank credit about this instrument slowed. At the same time, growth in small time 1400 deposits declined by two-thirds: sizable runoffs of six-month money 1350 market certificates and all savers certificates (ASCs) more than offset rapid expansion of retail RPs, 2V2year small savers certificates, and Reserve aggregates balances in the new 91-day and 7- to 31-day accounts. Small time deposits were especially weak in the fourth quarter; they were depressed by lower open market rates after mid- , N 011 borrowed reserves. year, which apparently encouraged '81 1982 many investors to place significant amounts of maturing ASC funds in Targets are ranges adopted by the FOMC for 1981 OCDs and savings deposits, as well 04 to 1982 04. as by runoffs of balances accumu- Target ranges for bank credit reflect the use of a December 1981-January 1982 base to minimize the lated in anticipation of MMDAs. effects of asset shifts into international banking fa- M3 increased 10 percent in 1982, cilities. The reserve aggregate series have been adjusted to compared with IP/4 percent in 1981, remove discontinuities associated with changes in re- as markedly slower expansion of serve requirement ratios. Nonborrowed reserves inboth large-denomination time deposclude extended credit. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

20 Monetary Policy and Financial Markets its and assets of institution-only money Aggregate Credit Flows market mutual funds more than off- Total funds raised by domestic nonset the uptick in M2 growth.4 The financial sectors increased 9 percent reduced issuance of large-denominain 1982 to $412 billion, led principally tion time deposits by commercial by an unprecedented pace of borrowbanks reflected stronger expansion ing by government at all levels. of core deposits in combination with Business financing, although down somewhat slower growth in bank from the extraordinary 1981 pace, credit. remained substantial until late in the From a base calculated as the year, when reductions in capital and average for December 1981 and Janinventory outlays relative to interuary 1982, bank credit expanded at nally generated funds enabled firms a 7 percent rate, about the same as to reduce their reliance on external it had over the previous year, alsources of finance. As households though the pace of expansion slowed made concerted efforts to rebuild considerably after the first quarter.5 liquidity, their borrowing weakened Much of the deceleration during the noticeably. Funds raised by foreign year occurred in business loans, reentities in U.S. markets also dropped flecting weak economic activity and, markedly in response to relatively in the second half of the year, steeply high interest rates in the United declining interest rates that encour- States, a rising dollar, and weakening aged many firms to refinance shorteconomic activity abroad. term indebtedness with longer-term The U.S. Treasury raised approxbonds. Real estate lending also slowed imately $160 billion in U.S. credit noticeably in the second half. Lendmarkets to finance a combined deficit ing to consumers remained depressed of the federal government and offuntil late in the year, when bank budget agencies of $146 billion for financing of consumer auto purcalendar year 1982; the Treasury chases spurted. In addition, acquisiused about half of the excess to build tions of securities—mainly Treasury up its cash balance. Issuance of obligations—surged in 1982, in remarketable debt totaled approxisponse to heavy Treasury borrowing mately $163 billion, as outstanding and strong inflows of core deposits nonmarketable debt and other borrelative to loan demands. U.S. bankrowing from the public declined by ing offices again made substantial small amounts. Coupon issues acadvances to their foreign affiliates as counted for roughly three-fifths of the interest costs on domestic liabilthe funds raised, and net sales of ities, compared with Eurodollar rates, Treasury bills for the remainder. As continued to favor such funding of in 1981, money market mubank assets. tual funds acquired a substantial part of the net issuance of short-term Treasury debt. State and local governments also were major purchasers 4. Under the previous definition, the growth of Treasury securities, likely using rate of M3 in 1982 would have been WA percent. such investments as a temporary 5. Unlike the monetary aggregates, the base repository for funds raised through for the FOMC's target for bank credit was accelerated bond sales. Households specified as the December-January average and commercial banks bought most to reduce the distorting effects of shifts of Digitized faosrs FetRs AtoS EinRte rnational banking facilities. of the remainder. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets 21 Net Funds Raised and Supplied in Credit and Equity Markets Billions of dollars 19812 19822 Sector 1980 1981 19821 HI H2 HI H21 Net funds raised Total, all sectors 466 496 515 534 459 492 538 Domestic nonfinancial 368 379 412 404 356 365 459 U.S. government 79 87 161 82 93 99 223 State and local government . 27 22 47 25 20 42 53 Private 262 270 203 297 244 224 182 Business 144 150 118 156 144 141 96 Household 118 120 85 141 100 84 87 Domestic financial 68 89 86 96 83 110 62 Private intermediaries 25 44 25 53 35 51 1 Sponsored credit agencies. 24 30 13 27 33 21 5 Mortgage pool securities .. 19 15 47 16 15 38 57 Foreign 29 27 18 35 20 17 18 Net funds supplied Total, all sectors 466 496 515 534 459 492 538 Domestic nonfinancial 115 95 136 102 87 113 160 U.S. government 21 24 19 27 21 14 24 State and local government 22 20 47 20 20 32 63 Private 70 51 70 55 46 67 73 Business -2 8 13 7 8 5 21 Household 72 43 57 48 37 62 52 Domestic financial 322 379 352 393 367 353 349 Private intermediaries 273 324 280 352 297 299 260 Commercial banking 100 103 99 108 99 121 77 Thrift institutions 54 24 24 43 5 29 18 Insurance and pension funds. 93 95 106 98 93 106 106 Other3 26 102 51 103 100 43 59 Sponsored credit agencies. 25 31 15 29 33 23 7 Mortgage pool securities .. 19 15 47 16 15 37 57 Federal Reserve System... 5 9 10 -4 22 -6 26 Foreign 29 22 28 39 26 30 1. Includes preliminary data for the fourth quarter. real estate investment trusts, open-end investment 2. Seasonally adjusted annual rates. companies, and security brokers and dealers. 3. Includes finance companies, money market funds, State and local governmental units and local debt surged to record levels issued both general-obligation and in the final months of the year in revenue bonds in large amounts response to declining interest rates; throughout most of 1982, in part at the same time, a provision of the because of continued pressures on Tax Equity and Fiscal Responsibility tax revenues. Net of retirements, Act (passed in August), requiring all funds raised by state and local gov- municipal bonds to be issued in ernments more than doubled be- registered form beginning in 1983, tween 1981 and 1982, while the evidently prompted many issuers to issuance of industrial revenue bonds advance the marketing of bonds (included in borrowing by the cor- planned for that year. The effective porate sector) recorded a smaller but date for the new registration requirenevertheless substantial rise as eligi- ment was, in fact, postponed six ble private borrowers availed them- months in mid-December, but most selves of the lower rates on tax- of this accelerated financing had exempt obligations. Offerings of state been accomplished by that time. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

22 Monetary Policy and Financial Markets Funds Raised by Faced with low profits, nonfinan- Domestic Nonfinancial Sectors cial corporations continued to rely Billions of dollars heavily on external sources of funds during much of 1982. Toward the Federal government end of the year, however, their financing needs dropped off sharply as they made substantial cuts in both inventories and expenditures for plant 300 and equipment. For the year as a whole, corporate business financing in debt and equity markets combined 200 was about 20 percent less than in Business and households 1981. 100 The sharp decline in interest rates State and local governments that began in July and the subsequent strong rally in stock prices brought 1978 1982 Financing Pattern of Includes equities. Data are quarterly totals at seasonally adjusted annual rates. Nonfinancial Corporations For the second year in a row, a Financing gap large slate of municipal bonds met with weakening demand from the Capital traditional institutional buyers in this market. Commercial banks and property and casualty insurance companies on net acquired virtually no tax-exempt securities in 1982; these investors provided almost 30 percent of the net funds raised in the munic- Net funds raised in credit markets: ipal market in 1981 and 60 percent Total the year before that. Commercial banks evidently found other ways to shelter their income, while many property and casualty insurance companies, suffering continued heavy underwriting losses, had no need for tax-exempt income. Thus households By type purchased nearly all of the record volume of offerings by state and local 50 governments, for the most part directly but also through mutual funds and unit investment trusts. Reflecting the reduced investments by insti- Securities and mortgages tutional investors and the unusually heavy issuance, the ratio of tax- 1976 ' 1978 1980 'l982 exempt to taxable yields remained near the record high level reached Excludes equities. Data are seasonally adjusted quarterly totals at annual rates. late in 1981. IVA, inventory valuation adjustment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets 23 about a marked shift in the compo- than half the record amount in 1979. sition of business financing. Through Growth in installment debt was slugthe first half of the year, high long- gish through most of 1982, reflecting term rates of interest induced busi- in part continued restrictive lending nesses to rely mainly on bank loans standards as well as reluctance by and commercial paper, as they had consumers to assume debt for the done so extensively in 1981. As a purchase of major durable goods; result, the ratio of short-term to total toward year-end, however, such debt on the balance sheets of U.S. lending picked up appreciably when companies reached a record level. car makers offered concessionary fi- From July through December, how- nancing. ever, yields on long-term corporate Growth in the value of financial bonds fell approximately 4 percent- assets held by households during age points to about 12 percent for 1982 was nearly twice the pace of top-rated issues, and stock prices 1981, and with the slowdown in debt rose 35 to 45 percent. Taking advan- accumulation, household net worth tage of the lower yields, businesses expanded much more rapidly than it floated substantial quantities of long- had the year before. At the same term debt and equity, using much of time, delinquency rates on consumer the proceeds to pay down commer- loans fell during the year—an unucial paper and bank loans. Even with sual occurrence during a period of these shifts, however, only a massive, slack economic activity. sustained restructuring effort could In contrast, mortgage loan delinrestore debt ratios to the levels of a quencies and defaults increased few years ago. sharply, as households that lost in- Stimulated by the midyear tax cut come found it difficult to meet the as well as by growing concerns about large monthly payments on highemployment and income prospects, interest-rate loans. The rise in morthouseholds increased their savings in gage delinquencies and defaults also 1982; they concentrated heavily on may have reflected the effects on accumulating financial assets, many homeowners' equity of softness in of which bore extraordinarily high house prices in some parts of the real rates of return. Despite some country. On balance, however, pickup in mortgage borrowing late households by year-end had made in the year as interest rates declined, considerable progress in strengthenthe addition to home mortgage debt ing their balance sheets and in reducwas the smallest since 1976 and less ing their exposure to financial stresses. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

24 International Developments Worldwide economic activity contin- ment. Pervasive weakness of private ued to stagnate in 1982. The gener- investment and mounting unemployally expected upturn from the slow ment were the most telling indicators pace of 1981 did not occur, and of the extent of the world economic activity in nearly all countries slowed slowdown. further. For foreign industrial coun- Certain features of the slowdown tries, real growth (measured fourth in activity and the disinflationary quarter to fourth quarter) was nega- atmosphere of 1982 assumed special tive, while for developing coun- importance. One of these was the tries—especially those in Latin resurgence of protectionist forces in America—there was an abrupt de- the United States and elsewhere. celeration from the substantial growth Such a development was especially rates of recent years. The lack of dangerous because it hampered a buoyancy in the world economy since renewal of growth in the volume of 1979 reflects a concerted effort in world exports, which has declined industrial countries to contain the for two successive years. Over the high rates of inflation that resulted in part from the second steep in- GNP and Consumer Price Index crease in oil prices late in 1979. 1970=100 During 1982, foreign industrial countries continued to aim at fiscal disci- Gross national product pline, and also generally maintained restrictive monetary policies. To some United States extent the policy stance of other countries was influenced by the high real interest rates experienced in the United States, which tended to raise the value of the dollar in the market and aggravate inflation abroad. Percentage change from previous year By late 1982, however, the outlook Consumer price index began to brighten. Inflation rates 15 were generally subsiding, with the help of moderating wage settlements United States r ^ x and a lower level of commodity 10 prices, especially for oil. Responding Foreign to this easing of inflationary pres- 5 sures and the steep slide in demand, nominal interest rates in the United States and other industrial countries 1978 1980 1982 declined considerably. Still, real in- Foreign is multilaterally weighted average of the terest rates remained exceptionally Group of Ten (G-10) countries plus Switzerland, ushigh, blunting the revival of con- ing 1972-76 total trade weights. Data for the United States are from the U.S. Desumer spending and business investpartment of Commerce. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

International Developments 25 years, growth in foreign trade has authorities through the Bank for been one of the major supports of International Settlements (BIS). As gains in general economic welfare. a further measure to help stabilize A second significant feature was the the international financial system, emergence of severe liquidity prob- the United States supported an adelems for developing countries that quate increase in quotas in the IMF, had been financing rapid growth by as well as an enlargement and extenborrowing large amounts from com- sion to all members of a borrowing mercial banks. The burden of serv- facility built on the General Arrangeicing this debt, much of it of rela- ments to Borrow, for use by the IMF tively short maturity, became heavier in emergency situations that threatvery rapidly when export proceeds ened the stability of the international fell, the cost of oil and other imports monetary system. remained high, and real dollar inter- The U.S. dollar resumed a strong est rates rose sharply. upward trend in exchange markets Lending to developing countries early in 1982, and by the end of the other than members of the Organi- year its weighted average value had zation of Petroleum Exporting Coun- risen 13 percent. However, the doltries (OPEC), by U.S.-chartered lar's value peaked early in November banks, including their foreign and declined moderately thereafter. branches, has expanded greatly in From the beginning of the upsurge recent years—from about $50 billion in the second half of 1980 through outstanding at the end of 1978 to the end of 1982, the weighted averabout $105 billion by September age value of the dollar rose more 1982. Of that total, about half was than 40 percent, to about 20 percent accounted for by Mexico, Argentina, above its level when generalized and Brazil. During 1982, severe pres- floating began in March 1973. As sure had developed on the Mexican discussed later, there is no simple peso, forcing the government of explanation for the extent of the Mexico to allow its value to depre- dollar's rise in this period, but the ciate several times during the year effects on prices and activity in the and to seek external financial assis- United States, as well as on the U.S. tance in dealing with a critical ero- balance of international transactions, sion of liquidity. Bank lending to were significant. Mexico and other debtors, especially in Latin America, threatened to dry U.S. International Transactions up. Working with the International Monetary Fund (IMF), Mexico, Ar- Under the influence of slack ecogentina, and Brazil agreed to change nomic activity abroad and of a greatly their economic policies sufficiently appreciated dollar, the U.S. current to qualify for financial assistance account slid from a moderate surplus from that institution. In conjunction in 1981 to a growing deficit during with those agreements, commercial 1982. The trade deficit rose to about banks undertook to provide some $36 billion for the year and was near new financing, and special short-term a $50 billion annual rate in the bridge financing was arranged with second half. Export volume dropped U.S. monetary authorities, in some about 15 percent from the fourth cases acting with other monetary quarter of 1981 to the fourth quarter Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

26 International Developments U.S. Balances on Trade and Net outflows of private capital, as Current Account recorded in the international ac- Billions.of dollars counts, declined considerably in 1982. Flows through banking channels ac- Current account counted for much of the reduction, reflecting in part a slowdown in lending to some developing countries after midyear. The authorization by the Federal Reserve of international 20 banking facilities (IBFs) at the end of 1981 resulted in a sizable shift of eligible foreign assets and liabilities 40 to these offices from both U.S. and Merchandise trade offshore affiliates of banks, but had no net effect on U.S. international 1978 1980 1982 capital flows. Data are from the U.S. Department of Commerce A considerable net inflow resulted and are seasonally adjusted at annual rates. from heightened interest by foreign investors in U.S. Treasury obligaof 1982, with export prices changing tions and especially in U.S. corporate only slightly. That decline in export bonds offered in offshore markets. volume was considerably greater than Those offerings rose from about $6 the average for other industrial coun- billion in 1981 to more than $14 tries. Imports declined about 9 per- billion in 1982. Nearly all of these cent in volume, including a sharp issues are sold by the offshore finandrop in imports of petroleum. In cial affiliates of U.S. companies, and 1982, weak activity abroad and a most of the proceeds are accounted strong dollar reduced U.S. net re- for as direct investment inflows when ceipts from abroad of investment passed on to the U.S. parent comincome and for services. In particu- pany. These transfers, together with lar, earnings of U.S. direct invest- the lower reinvested earnings of U.S. ments abroad dropped more than companies abroad, account for the one-fourth. net inflows from U.S. direct invest- The decline in real U.S. exports ments abroad. A contrasting develof goods and services in 1982 repre- opment was a drop in foreign direct sented more than one-third of the investment in the United States from total decline in U.S. gross national the peak 1981 amount. The persisproduct in that year. This sector was tence of a large positive statistical also a negative factor in 1981. Such discrepancy in the international acprolonged weakness in the export counts suggests a continuing demand sector contrasts with the generally for dollar assets that is operating supportive behavior of exports in through channels that are not well earlier periods of slack in the U.S. covered in the reporting system. economy. At the same time, the rise In official capital flows, foreign in the value of the dollar over the official assets in the United States past two years probably reduced the rose only slightly in 1982 despite a inflation rate nearly \xh percentage record level of intervention sales of points during 1982. dollars by foreign monetary authori- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

International Developments 27 ties. A substantial portion of those Foreign Currency Operations sales apparently were financed from current earnings, borrowing, or as- The weighted average exchange value sets held outside the United States. of the dollar rose sharply further in Assets of OPEC countries held in 1982, recording a net increase of 13 the United States increased moder- percent from December to Decemately. U.S. official reserves rose ber. The dollar's rise reflected, in somewhat during the year; the U.S. part, a perceived improvement in reserve position with the IMF in- U.S. price performance, both actual creased as that institution used dol- and prospective, relative to that lars to provide liquidity to other abroad. Nominal interest differenmembers, and reserve gains also tials shifted slightly against the dollar reflected swap agreements with Mex- over the year, but differentials in ico and Brazil. real interest rates may have moved U.S. International Transactions1 Billions of dollars Year Quarter Transaction 1981 1982 1981 1982 04 01 Q2 Q3 Q42 Current account3 4.5 -6.7 -.9 1.1 2.2 -4.2 -5.6 Merchandise trade balance -27.9 -36.1 -9.2 -5.9 -5.8 -12.5 -11.9 Exports 236.3 211.2 57.6 55.6 55.0 52.3 48.2 Imports 264.1 247.3 66.8 61.5 60.8 64.8 60.1 Investment income (net)4 33.0 28.2 8.5 6.9 7.7 7.4 6.2 Other services 5.9 8.9 1.6 2.1 2.0 2.5 2.4 Unilateral transfers, private and government -6.6 -7.7 -1.9 -2.0 -1.7 -1.7 -2.3 Private capital flows -25.8 -22.2 -16.0 -1.0 -7.5 -8.2 -5.5 Bank-reported capital, net (outflows, -) -43.3 -42.5 -22.2 -7.3 -14.4 -10.8 -10.0 U.S. net purchases (-) of foreign securities -5.4 -7.5 -2.8 -.5 -.4 -3.1 -3.5 Foreign net purchase ( + ) of U.S. Treasury securities 2.9 6.7 1.2 1.3 2.1 1.3 2.0 Foreign net purchase of other U.S. securities 7.1 5.9 .4 1.3 2.5 .1 2.0 U.S. direct investment abroad4 -8.7 5.5 -1.0 -.1 2.6 1.0 2.0 Foreign direct investment in United States4 21.3 8.3 9.3 1.2 2.8 2.3 2.0 Other corporate capital flows, net 1.5 -1.0 3.1 -2.6 1.1 Foreign official assets in United States .2 (increase, +) 3.0 8.1 -3.1 2.0 2.1 2.0 U.S. government foreign assets, net 4.8 (increase, -) -12.5 -.7 -2.0 -2.7 -3.2 -4.7 Reserve position in IMF -10.3 -2.5 -.4 -.8 -.7 Convertible currencies and other re- -.5 -.5 serve assets -2.5 -2.1 .7 -.3 -1.0 U.S. government foreign credits and -.9 -.5 -.3 other claims, net -7.0 -7.9 -.9 -1.5 -3.0 -1.0 -2.4 Allocation of special drawing rights— 1.1 Seasonal adjustment discrepancy 2.5 — 9 .6 -2.0 2.3 Statistical discrepancy 25.8 38.3 7.0 5.4 15.5 7.5 1. Details may not add to totals because of round- 4. Includes reinvested earnings. ing. SOURCE. U.S. Department of Commerce, Bureau 2. Data for fourth quarter are partial and prelim- of Economic Analysis. inary, and include Federal Reserve staff estimates. 3. Current account seasonally adjusted; other accounts not seasonally adjusted. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

28 International Developments Weighted Average Exchange Value and weighted averages, the mark held Interest Rate Differential fairly steady through the year; the Pc March 1973=100 yen weakened during the first nine months, in part because of political Weighted average exchange value of the dollar uncertainties, then advanced sharply at year-end; and sterling held fairly steady till late in the year, when it fell sharply as concern mounted that oil prices could drop significantly. Major foreign central banks sold, 100 net, some $40 billion in official interrential vention operations, after sales of 90 nearly $30 billion in 1981. U.S. monetary authorities sold $132 mil- 1980 1981 1982 lion against foreign currencies, inter- Exchange value of U.S. dollar is the index of Selected Exchange Rate Indexes weighted average exchange value of the U.S. dollar December 1979=100 against currencies of the other G-10 countries plus Switzerland, using 1972-76 total trade weights. Interest rate differential is the interest rate on threemonth U.S. certificates of deposit minus the weighted average foreign three-month interest rate for other G-10 countries plus Switzerland using 1972-76 total trade weights. 80 slightly in favor of dollar assets. A substantial part of the strength of the Dollar/mark dollar appeared to be related to "safe haven" considerations—concerns about political uncertainties abroad and about strains on the international banking system, particularly in the wake of the Mexican debt crisis of midsummer. Developments in the 100 U.S. current account seemingly had Dollar/yen little effect on the dollar until November, when public forecasts by U.S. officials of very large trade and current account deficits in 1983 may have contributed to a 4 percent decline in the dollar. Dollar/pound Over the year, the dollar rose against all major foreign currencies; gains ranged from 5V* percent against the Canadian dollar to 20 percent 1980 1981 1982 against the French franc. Against the mark, yen, and sterling the dollar The weighted average value for each currency is advanced 7, IOV2, and 173A percent its exchange value against the currencies of the other G-10 countries plus Switzerland, using 1972-76 total respectively. Calculated on their trade weights. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

International Developments 29 vening on five days during the year. August, $217 million repaid in De- Of this total, $30 million was sold in cember) and an additional $286 milthe second quarter, $11 million in lion outstanding on the special swap the third quarter, and $91 million in line with the System (part of the the fourth quarter. The Federal Re- $1.85 billion package arranged serve's share of U.S. purchases of through the BIS in August). In foreign currencies amounted to $43 addition, the Federal Reserve held, million equivalent of yen and $33 under warehousing agreement, some million equivalent of marks. $1,292 million equivalent of foreign The Federal Reserve's holdings of currencies for the Treasury. The foreign currencies at year-end were Federal Reserve incurred foreign exvalued at $4,437 million, mostly in change translation losses of $150 marks. Mexico had $483 million out- million on its foreign exchange posistanding on its regular swap line with tion at year-end, reflecting the dolthe System ($700 million drawn in lar's appreciation during the year. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

30 Monetary Policy Reports to Congress Given below are reports submitted had been eroding the foundations of to the Congress by the Federal Re- the nation's economy: capital forserve on February 10, 1982, and on mation had slowed; productivity was July 20, 1982, pursuant to the Full sagging; the functioning of basic Employment and Balanced Growth market mechanisms was being im- Act of 1978. paired; and inequitable and capricious transfers of wealth were harm- Report on February 10, 1982 ing many of the weakest among us. The task of reversing the inflationary Monetary Policy and the trend of earlier years was made more Performance of the Economy difficult because a decade of escalatin 1981 ing prices and unsuccessful anti-infla- The economy was growing rapidly as tion policies had led to firmly held 1981 began, continuing the sharp expectations of continued high—if cyclical rebound that had started in not accelerating—rates of inflation. mid-1980. Activity leveled out during Thus, it was recognized that reducing the spring and summer, however, inflation would take time and that and it fell in the final quarter of the anti-inflation policies would have to year. As a result, the rate of produc- be applied with persistence if they tion of goods and services—real gross were to be effective in altering exnational product—was only slightly pectations and slowing the rate of higher at the end of 1981 than it had increases in prices. been a year earlier. With the weak- While fiscal policy and decisions ening of output late in the year, the made in the private sector have much margin of unutilized plant capacity to do with the course of economic widened and the unemployment rate developments, economic theory and rose sharply to near postwar record experience alike indicate that proglevels. ress toward price stability cannot be While economic activity was dis- obtained without adequate restraint appointing last year, signs of progress on the growth of money and credit. in reducing inflationary pressures were Monetary policy was conducted in emerging. The rate of price inflation 1981 with this crucial fact in mind. slowed from the extremely rapid The Federal Reserve set objectives pace of the preceding two years, and for the growth of the monetary as 1981 progressed there also were aggregates that it believed would indications of an easing in the rate help to damp inflation and would of wage increases, particularly in lead to movement over time toward some key pattern-setting industries. trend rates of monetary expansion Confidence in the restoration of consistent with the growth of potenreasonable overall price stability is tial output at stable prices. needed if economic growth is to be Short-term market rates of interest resumed on a sustained basis. The began 1981 at record levels, as rapid accelerating inflation of earlier years growth of economic activity in the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 31 second half of 1980 had pushed up the volatility of the markets may the demand for money and credit have inhibited aggressive buying of faster than could be accommodated longer-term securities. within the target ranges for growth The tensions in credit markets in of the monetary aggregates and bank 1981 had their greatest impact on reserves. Early in 1981 these de- capital formation by businesses and mands began to subside, pressures households. Housing construction fell on bank reserve positions were re- to its lowest level in the postwar lieved, and money market rates de- period; only 1.1 million new housing clined for a time. A bulge in money units were started in 1981. The weakdemand early in the second quarter ness in real estate markets last year was steadily resisted by restraining reflected a number of influences. Of the supply of reserves, and in the paramount importance in the short process short-term interest rates run was the cost of mortgage funds. moved back to their earlier highs. The average rate on mortgages closed By midsummer, short-term interest for new homes was 15.3 percent in rates were declining, as demands for the fourth quarter of 1981, up from money and credit slackened while 12.6 percent a year earlier. But it the Federal Reserve expanded non- was not higher mortgage rates alone borrowed reserves in an effort to that cut into housing demand: high maintain adequate monetary growth. prices also adversely affected the Those declines in interest rates ac- ability of those seeking new homes celerated in October and November to afford the monthly payments. as the recession took hold. Although house prices changed little On balance, short-term interest in 1981, over the preceding five years rates—although volatile—moved prices of new and existing homes had down considerably over the course risen half again as fast as the overall of 1981. In contrast, long-term rates rate of inflation. As a result, the rose substantially over the period, share of average family disposable despite declines in the last quarter of income needed to service the monthly the year. The pressure on long-term payment on a typical new mortgage rates appeared to reflect a combina- rose from 21 percent in 1976 to tion of factors. Of continuing strong nearly 40 percent last year. investor concern were anticipations Slow income growth and rising that continued large federal budget unemployment, along with the indeficits would clash with private credit creased cost of credit, combined to demands particularly as the economy damp consumer spending in 1981— expanded and put strong pressures particularly for more discretionary, on credit markets. Despite reduc- large-ticket items such as autos, tions in the growth of many federal furniture, and appliances. Since the spending programs, federal borrow- mid-1970s, household real after-tax ing in calendar year 1981 siphoned income has only been rising at an off roughly a quarter of the total annual rate of Vi percent, compared funds available to domestic nonfinan- with a long-run trend of 2 percent. cial borrowers. In the background At the same time, the prices of were continuing doubts and skepti- essential items such as food, gasocism that anti-inflation programs line, heating fuel, utilities, and medwould be carried through. Moreover, ical services—as a group—have been Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

32 Monetary Policy Reports rising faster than the overall inflation price of new cars, high gasoline and rate, and the share of disposable other operating costs, sluggish growth income devoted to these items has of real income, intense foreign combeen increasing. The resulting squeeze petition, and government regulations on family budgets led many house- that have necessitated large investholds to overextend themselves dur- ments to comply with emission coning the second half of the 1970s, trol standards and to improve fuel taking on more and more debt to efficiency. As 1981 was ending, the finance their purchases. auto industry appeared to be taking With household balance sheets aggressive actions to reduce costs debt-laden and credit costs rising, a and to improve the competitiveness retrenchment in consumer borrowing of its products. began in 1980, and continued through Business firms, like households, 1981. As the year progressed, house- restrained their spending on investhold balance sheets appeared to be ment goods in 1981. Demand was improving. Consumer debt burdens damped by a substantial degree of (the ratio of monthly debt repayment excess capacity and by the rising obligations to income) declined to trend in corporate bond rates their lowest level in more than five throughout much of the year, which years. Moreover, partly in response boosted the real cost of capital. In to the higher after-tax income after real terms, expenditures for new the tax cut on October 1, the saving plant and equipment rose only IV2 rate rose from about 5 percent in the percent over the four quarters of first three quarters of 1981 to 6 1981. Although spending for new percent in the fourth quarter. structures increased during the year, In real terms, personal consump- real equipment outlays fell for the tion expenditures rose IVi percent second year in a row; the biggest over the four quarters of 1981. The declines were for electrical machingain was concentrated in the early ery and transportation equipment, months of the year as real consumer while spending for most other capital spending fell, on balance, over the goods remained weak. final three quarters of 1981. Pur- In contrast to fixed investment chases of new automobiles were outlays, sizable unintended inventory hardest hit. Sales of domestically accumulation boosted business fiproduced cars totaled 6.2 million nancing requirements. As the year units in 1981, the poorest perfor- went on, unexpectedly weak demand mance in 20 years. The depressed led to a buildup of excess stocks in conditions in the auto sector were several industries. The most prorelated, in part, to the typical cyclical nounced problem was in autos, but volatility in the demand for motor other manufacturers and retailers vehicles and to credit market condi- also found their inventory levels tions, which affected the cost of uncomfortably high relative to sales. financing new car and truck pur- On balance, total nominal business chases. However, the current prob- capital spending—fixed investment lems in the industry appear to be and inventories—rose about 20 perrelated mainly to longer-term trends cent above the 1980 average. in the demand for automobiles. These Early in 1981, strong economic include the rapid increase in the growth helped boost corporate inter- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 33 nal funds, greatly reducing corporate various times during the year changes needs for external financing. But as in the differential between interest the economy slowed, corporate prof- rates on dollar assets and rates of its turned sluggish and businesses return on foreign currency assets also were forced to rely more heavily on had a noticeable impact on exchange credit markets to satisfy their rising rates. capital needs. The bulk of business Real exports of goods and services borrowing last year was in short-term increased in the first quarter of 1981, markets, as most firms felt it best to in part because of strong growth of defer making long-run commitments GNP in one of our major trading in the current financial environment. partners, Canada. But for the next With the accumulation of additional three quarters, real exports declined short-term debt, however, corporate in response to a slowing of economic balance sheet positions deteriorated growth abroad and the effect of the further, and the ratio of short-term appreciation of the dollar in 1980 to total debt of the nonfinancial and 1981. The volume of imports, corporate sector rose to a record other than oil, rose fairly steadily high. throughout the year. The current Real purchases of goods and ser- account, reflecting this weakened vices at all levels of government rose trade performance, shifted from a only moderately during 1981 as a surplus in the first quarter to a deficit sharp increase in purchases by the by the fourth quarter. federal government was partly offset Employment grew at a moderate by curtailed spending at the state rate during the first three quarters of and local level. The rise in federal 1981 and the unemployment rate spending on goods and services re- edged down. Job increases were flected another large increase in de- strongest in the service and trade fense purchases, while federal pay- sectors. As economic activity began roll reductions helped to contain to contract in the autumn, the deincreases in nondefense outlays. At mand for labor fell sharply and the the state and local level, real pur- unemployment rate climbed to 8.8 chases fell 2 percent owing to a percent in December—only fractioncombination of the withdrawal of ally below its postwar high. Layoffs federal support for many activities, in the durable goods and constructhe continued impact of tax limita- tion industries accounted for much tion measures, and the effects of a of the drop in employment. As a sluggish economy on tax revenues. result, the unemployment rate of The weighted-average value of the adult men—who tend to be more dollar against major foreign curren- heavily employed in these induscies rose nearly one-fourth during tries—jumped to a postwar record of the period from January to August. 7.9 percent in December 1981. The dollar eased somewhat in the Labor productivity (output per hour last part of 1981, but at the end of worked) showed considerable flucthe year still remained well above its tuation during 1981, reflecting the year-earlier level. The improvement course of economic activity. Producin the inflation outlook in the United tivity rose at an annual rate of \lA States was a factor in the apprecia- percent in the first three quarters of tion of the dollar. Moreover, at 1981. However, as often happens at Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

34 Monetary Policy Reports the beginning of a cyclical downturn, inflation were exceptionally favoroutput fell more than employment in able agricultural supplies and dethe fourth quarter and productivity clines, after the first quarter, in world declined, offsetting the gains earlier oil prices. Inflation in areas other in the year. Averaging across short- than food and energy—particularly run cyclical movements, productivity consumer commodities and capital has shown little improvement in re- equipment—also began to abate, alcent years, and thus has provided though price pressures persisted in virtually no offset to the impact of the consumer service sector, notably rapidly rising compensation on unit for medical care. As the year prolabor costs. gressed, surveys of consumer expec- Compensation and wage increases tations suggested that the inflationdid decelerate during 1981—with con- ary psychology, which had increasingly tinuing progress observed through- permeated many aspects of economic out the year. But the slowing was behavior in earlier years, appeared moderate, reflecting the basic inertia to be subsiding. of the wage-determination process, in which many union contracts last three years or more and nonunion wage The Growth of Money and agreements usually are set annually. Credit in 1981 By the second half of 1981, however, some changes in those traditional The Board of Governors in its report wage-setting practices were under way to the Congress last February indiin several important industries: man- cated that the System intended to agement and workers alike began to maintain restraint in the expansion reconsider planned wage adjust- of money and credit in 1981. The ments; some expiring contracts were specific ranges chosen by the Federal renegotiated well in advance of ter- Open Market Committee (FOMC) mination dates; and labor agreements for the various monetary aggregates at a number of firms were modified anticipated a deceleration in monein an effort to ease cost pressures and tary growth that would encourage to enable firms to compete more ef- further improvement in price perfectively. These adjustments, cou- formance. Measured from the fourth pled with the progress seen in reduc- quarter of 1980 to the fourth quarter ing inflation during 1981, suggest that of 1981, and abstracting from the the nation's anti-inflation policies have effects on deposit structure of the set the stage for a sustained unwind- authorization of negotiable order of ing of wage and price increases. withdrawal (NOW) accounts nation- The trend in inflation improved wide, the ranges adopted were as noticeably during 1981, and by year- follows: for Ml-A, 3 to 5Vi percent; end virtually all aggregate price in- for Ml-B, 3Vi to 6 percent; for M2, dexes were advancing well below 6 to 9 percent; and for M3, 6V2 to double-digit rates for the first time 9x/2 percent. The associated range for since 1978. The consumer price index commercial bank credit was 6 to 9 rose 8.9 percent over the course of percent. 1981, down from the average rate of In formulating its objectives for nearly 13 percent in 1979 and 1980. 1981, the FOMC knew that the Important factors in the slowing of growth rates of the narrow aggre- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 35 gates would be affected markedly by shift-adjusted narrow aggregates were shifts into NOW accounts, which for low in the opening months of the the first time became available na- year, a development that was weltionwide in January. Transfers into come following rapid growth in the NOW accounts, which are included latter part of 1980. A strong surge in in Ml-B, from savings deposits and April was offset by weakness over other asset holdings not included in the remainder of the second quarter. Ml were expected to be particularly On the whole, average growth in large in the early months of the year. adjusted Ml-B over the first half of Thus, in order to avoid confusion 1981 was well below the growth that about the intent of policy and to would have been expected on the facilitate comparisons with previous basis of historical relationships among years, the objectives announced for money, GNP, and interest rates. On Ml-B abstracted from such shifts.1 the other hand, despite the weakness Even after accounting for such shifts, in Ml-B, the broader aggregates however, the FOMC anticipated that expanded quite rapidly in early 1981. the growth rates of the various ag- Growth in M2 over the first half was gregates were likely to diverge more near the upper end of its annual than usual, reflecting the rapid pace range, while the expansion of M3 of institutional change in financial placed this aggregate above the upmarkets. The FOMC indicated that per bound of its range at midyear. if Ml-B growth (adjusted for shifts After reassessing its objectives for into new NOW accounts and other 1981 at midyear, the FOMC elected checkable deposits) was about in the to leave unchanged the previously middle of its annual range, the growth established ranges for the aggregates of M2 was likely to be in the upper over the remainder of the year. part of its range, given the popularity However, in light of the reduced of the nontransaction components of growth in Ml-type balances over the M2 that pay market-related interest first half of the year, indications that rates. It also was noted that the this weakness might reflect a lasting relationship of M3 and bank credit change in cash management practices to their respective ranges would be of individuals and businesses related influenced in an important way by to the growth of alternative means the pattern of credit flows that would of holding highly liquid funds, and emerge, and particulary by whether given the relatively strong growth of financial conditions would be conthe broader aggregates, the FOMC ducive for corporations to refinance anticipated that growth of the narrow short-term borrowing in the bond aggregates might likely and desirably and equity markets. end the year near the lower bounds It soon became apparent as 1981 of their annual ranges. Even so, unfolded that the behavior of the given the sluggishness early in the aggregates was turning out to be year, this decision implied that growth even more divergent than had been of Ml-A and of Ml-B would accelanticipated. Growth rates of the erate over the balance of the year. At the same time, the FOMC indicated that M2 and M3 might well 1. The shift adjustments were estimated on end the year around the upper ends the basis of survey evidence and were published regularly over the past year. of their ranges. This expectation also Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

36 Monetary Policy Reports reflected in part the possibility that percent. On a yearly average basis, regulatory and legislative actions as which reflects movements through well as the popularity of money the year as a whole relative to the market mutual funds might intensify level of the previous year, the inthe public's preference to hold the crease was at a rate of 4% percent. type of assets encompassed in the At the same time, measured from broader aggregates. the fourth quarter of 1980 to the Although growth of narrow money fourth quarter of 1981, growth of M2 in the second half of the year was on was 9.4 percent, 0.4 percentage point average about the same as in the above the upper limit of its range. first half, Ml-B strengthened appre- Also, growth of M3 exceeded the ciably in the final two months of the upper end of its range by 1.9 peryear. This acceleration appeared to centage points, while bank credit reflect in part a lagged response to growth was just inside the upper end large short-term interest rate declines of its annual range. in the summer and fall and in part a The table puts the performance of shift to preferences for very liquid the aggregates during 1981 into a assets in an environment of height- somewhat longer-term perspective, ened economic and financial uncer- showing two measures of annual tainty. Similarly, M2 growth in the growth. No matter which of the second half was about in line with measures of annual growth is used, expansion in the first half, although a marked deceleration in Ml-B since growth in this measure also picked 1978 is apparent. The table also up at the end of the year. The clearly illustrates that growth rates expansion in M3, on the other hand, for the broader aggregates have been decelerated from the rapid pace of maintained around a higher level, the first half, as sales of large certif- and larger divergences have develicates of deposit slowed in concert oped from growth of Ml-B. In conwith a slackening in growth of bank siderable part, these differences can credit and stronger growth in core deposits. Growth of Money and Bank Credit Measuring growth for the year from the fourth quarter of 1980 to Percentage changes the fourth quarter of 1981, growth in Period Ml-B1 M2 M3 c B re a d n i k t2 Ml-B adjusted for shifts into NOW accounts was about 2VA percent—IVi Fourth quarter to fourth quarter percentage points below the lower 1978 8.3 8.3 11.3 13.3 end of its targeted range.2 Growth 1979 . 7.5 8.4 9.8 12.6 1980 6.6 9.1 9.9 8.0 rates, of course, are affected by the 1981 2.3 9.4 11.4 8.8 particular pattern of variation that Annual average to develops over the course of the year. annual average 1978 8.2 8.8 11.8 12.4 Measuring expansion from Decem- 1979 7.7 8.5 10.3 13.5 ber to December, growth in adjusted 1980 5.9 8.3 9.3 8.5 1981 4.7 9.7 11.5 9.4 Ml-B in 1981 was at a rate of 3% 1. Growth rates for 1980 and 1981 adjusted for shifts to other checkable deposit accounts since the 2. Unadjusted for shifts into NOW ac- end of the preceding year. counts, Ml-B increased 5.0 percent from the 2. The December level used for calculating these 1981 growth rates incorporates an adjustment to fourth quarter of 1980 to the fourth quarter abstract from the shifting of assets from domestic of 1981. banking offices to international banking facilities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 37 be explained by structural changes in aggregates and also relative to past financial markets. relationships with income and inter- As noted earlier, it was already est rates. Continued high interest obvious last February when the rates provided a substantial incentive FOMC was meeting to set its objec- for businesses to intensify efforts to tives for 1981 that shifts into NOW pare narrow money balances and to accounts after their nationwide au- make increasingly widespread use of thorization at the beginning of 1981 sophisticated cash management techwould alter the behavior of the niques. At the same time, explosive narrow aggregates. Data for early growth of money market mutual January had pointed to a very large funds (MMMFs), many of which movement of funds at the beginning offer check-writing or other thirdof the year. However, the pattern party-payment services comparable and magnitude of subsequent move- with conventional checking accounts, ments could not be predicted with appeared to induce some households any certainty. As events unfolded, to minimize checking account balthe shifts into NOW accounts were ances. Also, the broader availability more concentrated in the early part of NOW accounts may have stimuof 1981 than was anticipated by the lated households to reconsider in a working assumptions of the Board's more general way their habits of cash staff. Through June, the adjustments management. made to the aggregates to correct for Likewise, the strong growth of M2 such shifts had the effect of raising over the past few years reflected Ml-A by $28 billion and lowering changing financial practices. Money Ml-B by $9Vz billion. Over the market funds and instruments ofsecond half of 1981, further adjust- fered by depository institutions that ments for shifts into NOW accounts pay market-related interest rates have raised Ml-A by only another $6 been accounting for an increasing billion and lowered Ml-B by about proportion of M2, as such assets $2V2 billion more. While these ad- have become much more competitive justments are imprecise and based with open market instruments. Inon evidence from a variety of sources, deed, the attractiveness of small time data on the number of NOW ac- deposits was enhanced last year by counts coupled with other available the liberalization of the interest rate information confirm that the shifting ceilings on small savers certificates of funds from demand deposits to and to a limited extent by the intronew interest-bearing checking ac- duction of all savers certificates. counts tapered off considerably by Even so, three-fourths of the inthe fall. A surge in NOW account crease in the nontransaction compobalances near the end of the year nents of M2 was accounted for by and early in 1982 appeared to reflect MMMFs, which grew 140 percent primarily the precautionary savings last year. behavior already noted rather than The distortions in the aggregates shifting of funds into new accounts. resulting from the expansion in As already indicated, the growth MMMFs are difficult to quantify. of the narrow aggregates adjusted Surveys of household behavior and for shifts into NOW accounts was data on account turnover suggest low in 1981 compared with the other that most shareholders of money Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

38 Monetary Policy Reports funds have made little or no use of year. With growth of core deposits their accounts for transaction pur- weak on balance over the year, poses. Thus, the direct substitution depository institutions increased their effect of MMMFs on the growth of managed liabilities to support expan- Ml has appeared small, perhaps on sion in loans and investments. the order of 1 percentage point on Growth in bank credit accelerated the rate of growth for the year. somewhat in 1981 but stayed just However, indirect effects may have within the upper end of its annual been larger as the potential avail- target range. The pickup in bank ability of such a highly liquid asset credit growth was concentrated in may facilitate holding less funds in business loans. Growth in this catedemand and NOW accounts. gory was bolstered by the high level The direct effect of MMMFs on of corporate bond rates through most M2 appears more substantial in dol- of the year, which tended to focus lar terms. Presumably, the great bulk business credit demands on shortof the inflow of $20 billion in 1981 term borrowing such as bank loans to MMMFs catering only to institu- and commercial paper. Although tional investors was funds that other- merger activity contributed signifiwise would have been invested in cantly to the growth of loan commitassets not included in M2. In addi- ments over the year, actual taketion, it seems likely that a small downs for this purpose influenced portion of the growth of $90 billion loan growth only slightly. Real estate in other types of MMMFs also re- loans at banks in 1981 grew at about flected diversions from assets not in the same moderate pace as in 1980, M2. while consumer lending strengthened In light of the sizable distortions a little from 1980. Security holdings created by the growth of institution- at banks grew somewhat more slowly only MMMFs, such funds have been than loans in 1981. excluded from the revised M2, but The bank credit data in December they will continue to be a component were affected by the shifting of assets of M3. In addition, M2 has been to accounts in the newly authorized revised to include retail repurchase international banking facilities (IBFs). agreements (RPs). Retail RPs, which About $22 billion of loans to foreign previously had been a component customers are estimated to have only of M3, were promoted on a shifted from U.S. offices to IBFs in substantial scale in 1981, likely at- December. The data presented in tracting funds mainly from household this report are adjusted for this shift. small-denomination time deposits and Without this adjustment, the in- MMMF holdings and thus resulting crease in bank credit from the fourth in a downward bias on M2 growth. quarter of 1980 to the fourth quarter The net effect on M2 growth of of 1981 was 8!/4 percent, Vi percentreclassifying institution-only MMMFs age point less than shown by the and retail RPs, along with other adjusted data. minor revisions, was small. Broader measures of credit flows M3 increased more rapidly than reflected the slowing pace of produc- M2 last year largely because of the tion and income in 1981 and the substantial expansion in large CDs, effects of high interest rates. Houseparticularly over the first half of the holds and businesses continued to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 39 increase their borrowing over the tion by the concerted application of first three quarters, but their use of monetary, fiscal, regulatory, and other credit contracted in the fourth quarter economic policies. But quite clearly in response to the weakening of the inflation cannot persist over an execonomy. In view of the high level tended period unless financed by of long-term interest rates during excessive growth of money. Thus, a most of 1981, virtually all of the policy of restraint on the growth of increase in funds raised was in short- the monetary aggregates is a key term debt instruments. Overall, net element in an anti-inflation strategy. funds raised by nonfinancial sectors Targets for the monetary aggrerose 7 percent in 1981 and continued gates have been set with the aim of to fall relative to GNP for the third slowing the expansion of money over consecutive year. time to rates consistent with the needs of an economy growing in line with its productive potential at rea- The Federal Reserve's sonably stable prices. The speed with Objectives for the Growth which the trend of monetary growth of Money and Credit can be lowered without unduly dis- The Federal Reserve remains com- turbing effects on short-run ecomitted to restraint on the growth of nomic performance depends, in part, money and credit in order to exert on the credibility of anti-inflation continuing downward pressure on policies and their effects on price the rate of inflation. Such a policy is expectations as well as on other essential if the groundwork is to be forces influencing interest rates and laid for sustained economic expan- credit market demands, including sion. importantly the fiscal position of the A distinct slowing of inflation oc- federal government. More technicurred during 1981, and the pros- cally, financial innovation or other pects for further progress are good. factors affecting the demand for spe- Failure to persist in the effort to cific forms of money need to be maintain the improvement would have monitored. long-lasting and damaging conse- In its deliberations concerning the quences. Once again, underlying ex- target ranges for 1982, the Commitpectations would deteriorate, with tee recognized that the recent rapid potentially adverse effects on finan- increase in Ml placed the measure cial markets, particularly long-term in January well above the average rates. The result would be to embed level during the fourth quarter of inflation even more deeply into the 1981. the conventional base for the nation's economic system—with the new target. Experience has shown attendant debilitating consequences that, from time to time. Ml growth for the performance of the economy. can fluctuate rather sharply over A failure to continue on the current short periods, and these movements path would mean that the next effort may be at least partially reversed would be associated with still greater fairly quickly. The available analysis hardship. suggested that the recent increase Progress toward price stability can reflected in part some temporary be achieved most effectively and with factors of that kind, rather than the least amount of economic disrup- signaling a basic change in the amount Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

40 Monetary Policy Reports of money needed to finance growth that the relationship between growth in nominal GNP. of Ml and the rise of nominal GNP In light of all these considerations, is likely to be more normal in 1982, the FOMC reaffirmed the following and given the relatively low base for ranges of monetary expansion—ten- the range of Ml-B, the Committee tatively set out in mid-1981—for the contemplated that growth in Ml this year ending in the fourth quarter of year may well be in the upper part 1982: for ML 2Vi to 5V2 percent; for of its range. At the same time, the M2, 6 to 9 percent, and for M3, Wi FOMC elected to retain the lower to 9V2 percent.3 The FOMC also bound of 2V2 percent for growth of adopted a corresponding range of 6 Ml that was tentatively set last July to 9 percent for commercial bank in recognition of the possibility that credit. These ranges are the same as financial innovations—especially those agreed to in July and reaffirm techniques for economizing on the the Federal Reserve's commitment use of checking account balances to reduce inflationary forces. As has included in Ml—could accelerate, been typical in the past, these changes with restraining effects on growth of are measured from actual fourth- Ml. quarter levels from the previous year.4 The actual and potential effects on During 1981, Ml-B (shift-ad- Ml of ongoing changes in financial justed) rose slowly in relation to technology and the greater availabilnominal GNP.5 On the assumption ity of a wide variety of moneylike instruments and near-monies strongly 3. The objective for growth of narrowly suggest the need for also giving defined money over 1982 is set in terms of Ml only. Last February, when the FOMC set careful attention to developments its targets for narrow money, it recognized with respect to broader money meathat regulatory changes allowing for the estab- sures in the implementation of monlishment of nationwide NOW accounts would etary policy. The range for growth distort the observed behavior of Ml-A and of M2 is the same as in 1981 when Ml-B. Accordingly, the targets were set on a basis that abstracted from the shifting of funds actual growth slightly exceeded the into interest-bearing checkable deposits. Based upper bound of the range. The Comon a variety of evidence suggesting that the mittee contemplated that M2 growth bulk of the shift to NOW accounts had in 1982 would be somewhat below occurred by late 1981, the Federal Reserve reaffirmed in December its previously an- the 1981 pace, although probably in nounced intention that starting in January the upper part of the range. How- 1982 shift adjustments would no longer be ever, should personal saving, republished and only a single Ml figure would sponding to recent changes in tax be released with the same coverage as Ml-B. law or other influences, grow much 4. Because of the introduction of IBFs, the bank credit data after December 1981 are not more rapidly in relation to income comparable with earlier data. The targets for than now anticipated, or should de- 1982 are in terms of growth from an average pository institutions attract an excepof December 1981 and January 1982 to the tionally large inflow to individual average level in the fourth quarter of 1982. retirement accounts from sources 5. Ml-B velocity, before shift adjustment, rose at a rate closer to historical experience. outside measured M2, growth of M2 However, the shift of funds from savings might appropriately reach—or even accounts or other sources of funds not in- slightly exceed—the upper end of the cluded in measures of the narrow money range. The ability of depository insupply temporarily depressed that velocity figure, particularly early in the year. stitutions to compete for the public's Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 41 savings will, of course, also be af- that occurs in July will provide anfected in part by deregulatory deci- other expansionary impetus to the sions that may be made by the economy. At the same time, the Depository Institutions Deregulation deficit—particularly if expected to Committee. continue at exceptionally high levels The 1982 ranges for M3 and bank in later years—adversely influences credit were left unchanged from those current financial market conditions. for 1981. These aggregates again will The Federal Reserve's objectives be influenced importantly by the for money growth in 1982 are condegree to which credit demands tend sistent with recovery in economic to be focused on short-term borrow- activity. The expansion is likely to ing and are funded at home or be concentrated initially in consumer abroad. spending. Given the substantial margin of excess capacity, outlays for business fixed investment may re- The Outlook for the Economy main weak, particularly if long-term in 1982 interest rates continue to fluctuate Economic activity still appears to be near their current high levels. A contracting; industrial production and continuation of high levels of longemployment certainly declined fur- term rates also would inhibit the ther in January, with the extent of recovery in residential housing, althe fall worsened by exceptionally though demographic factors will conbad winter storms. Demand in the tinue to buttress demands in that key sectors that had led the decline— sector. housing and consumer spending— The effort to deal with inflation is showed some signs of leveling off as at a critical juncture. The upward the year began, and the recent cuts trend in inflation clearly has been in production likely have helped to halted and the process of reversal is relieve some of the remaining inven- under way. There are signs that price tory imbalances. Recent weather- setting, wage bargaining, and perrelated disruptions may affect the sonal spending decisions are beginincoming data for a time, but the ning to be made and that these economy appears to be in the process decisions over time will serve to of bottoming out, and a perceptible moderate, rather than to intensify, recovery in business activity seems inflationary pressures. Nonetheless, likely before midyear. the behavior of financial markets and One element supporting final de- other evidence strongly suggests the mands in the economy is the federal continued existence of considerable government. Part of the recent ex- skepticism that progress in reducing pansion in the deficit reflects the inflation will be maintained. Lasting cushioning effects of reduced taxes improvement in financial markets— and increased government expendi- particularly for longer-term instrutures that result from declining in- ments—is dependent on confidence come growth and rising unemploy- that progress against inflation will ment. In addition, however, the continue; looming federal deficits buildup in defense spending is a have served to shake that confidence. continuing source of stimulus. The Prospects for lower interest rates and second phase of the tax reductions for sustaining recovery over a long Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

42 Monetary Policy Reports period—indeed for the timing of turn, demands for credit should inrecovery—are thus tied to prospects tensify as the year progresses. In for a more stable price level. these circumstances, the recovery is How we emerge from the current likely to be somewhat restrained, recession will be crucial to curtailing with the result that unemployment inflation further. The recovery phases probably still will be substantial at that have followed recent recessions year-end. have sometimes been associated with The FOMC members' projections an acceleration of inflation. How- generally encompass those that unever, if monetary and fiscal policies derlie the administration's recent are appropriately disciplined, this budget proposals. The consensus view pattern need not recur; and recovery of the FOMC anticipates an improvefrom the current recession will be ment in inflation during 1982 comconsistent with further progress to- parable with the administration's as ward achieving sustainable growth, well as a similar outlook for the labor price stability, and lower levels of market. The administration's projecinterest rates. tion for real growth falls at the high Given the current circumstances end of the FOMC consensus. In the and in light of the objectives for the event prices and wages should remonetary aggregates for the coming spond more rapidly to anti-inflation year, the individual members of the policies than historical experience FOMC have formulated projections would suggest or should more favorfor economic performance in 1982 able productivity trends develop, then that generally fall within the ranges the recovery could be faster without indicated in the table. The members adverse pressures developing on of the FOMC expect inflation to prices, wages, and interest rates. continue to moderate in 1982. At the same time, real activity is expected Report on July 20, 1982 to accelerate with most of the growth Performance of the Economy coming in the second half of the in the First Half of 1982 year. With inflation continuing to be substantial and the prospect of the The contraction in economic activity federal budget deficit remaining large that began in mid-1981 continued even as the recovery gathers momen- into the first half of 1982, although at a diminished pace. Declines in Economic Projections for 1982 production and employment slowed, Percent while sales of automobiles improved. Real gross national product fell at an Projected for 1982 Actual annual rate of 4 percent between the Period 1981 FOMC Admini- third quarter of 1981 and the first members stration quarter of 1982. With output declin- Changes, fourth ing, the margin of unused plant quarter to capacity widened and the unemployfourth quarter Nominal GNP ... 9.3 8 to 10'/2 10.4 ment rate rose to a postwar record. Real GNP .7 1/2 to 3 3.0 By mid-1982, however, the reces- GNP deflator.... 8.6 61/2 tO 73/4 7.2 sion seemed to be drawing to a close. Average level in the fourth Inventory positions had improved quarter Unemployment substantially, home building was berate 8.3 81/4 to 91/2 8.4 ginning to revive, and consumer Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 43 spending appeared to be rising. retraced at the turn of the year as Nonetheless, business investment the demand for money bulged and showed signs of increased weakness. reserve positions tightened. After the Although final demands apparently middle of the first quarter, shortfell during the second quarter, the term rates fluctuated but generally rate of inventory liquidation slowed, trended downward, as money—parand on balance, real GNP apparently ticularly the narrow measure, Ml— changed little. If, in fact, this spring grew slowly on average and the or early summer is determined to weakness in economic activity conhave been the cyclical trough, both tinued. In mid-July, short-term rates the depth and the duration of the were distinctly below the peak levels decline in activity will have been reached in 1980 and 1981. Nonetheabout the same as in other postwar less, short-term rates were still quite recessions. high relative to the rate of inflation. The progress in reducing inflation Long-term interest rates also rethat began during 1981 continued in mained high during the first half of the first half of 1982. The greatest 1982. In part, this reflected doubts improvement was in prices of food by market participants that the imand energy—which benefited from proved price performance would be favorable supply conditions—but in- sustained over the longer run. This creases in price measures that ex- skepticism was related to the fact clude these volatile items also have that, during the past two decades, slowed markedly. Moreover, in- episodes of reduced inflation have creases in employment costs, which been short-lived, followed by reaccarry forward the momentum of celeration to even faster rates of inflation, have diminished consider- price increase. High long-term rates ably. Not only have wage increases also have been fostered by the proseased for union workers in hard- pect of huge deficits in the federal pressed industries as a result of budget even as the economy recontract concessions, but wage and covers. Fears of deepening deficits fringe benefit increases also have have affected expectations of future slowed for nonunion and white-collar credit market pressures, and perhaps workers in a broad range of indus- also have sustained inflation expectries. In addition there has been tations. The resolution on the 1983 increasing use of negotiated workrule fiscal year budget that was adopted changes as well as other efforts by by the Congress represents a beginbusiness to enhance productivity and ning effort to deal with the prospect trim costs. At the same-time, pur- of widening deficits: and the passage chasing power has been rising; real of implementing legislation should compensation per hour increased 1 work in the direction of reducing percent during 1981 and rose at an market pressures on interest rates. annual rate of about 3 percent over Domestic Credit Flows the first half of 1982. Aggregate credit flows to private Interest Rates nonfinancial borrowers increased As the recession developed in the somewhat in the first half of 1982 autumn of 1981, short-term interest from the reduced pace in the second rates moved down substantially. half of 1981, according to very pre- However, part of this decline was liminary estimates. Business borrow- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

44 Monetary Policy Reports ing rose while households reduced markets—at banks and through sales further their use of credit. Borrowing of commercial paper. The persisby the federal government increased tently large volume of business borsharply in late 1981, after the 5 rowing suggests an accumulation of percent cut in personal income tax liquid assets as well as an intensifirates, and remained near the new cation of financial pressures on at higher level on a seasonally adjusted least some firms. Signs of corporate basis during the first half of 1982. stress continue to mount, including Reflecting uncertainties about the increasing numbers of dividend refuture economic and financial envi- ductions or suspensions, a rising ronment, both lenders and borrowers fraction of business loans at commerhave shown a strong preference for cial banks with interest or principal short-term instruments. past due, and relatively frequent Much of the slackening in credit downgradings of credit ratings. flows to nonfinancial sectors in the After raising a record volume of last part of 1981 was accounted for funds in U.S. credit markets in 1981, by households, particularly by house- the federal government continued to hold mortgage borrowing. Since then, borrow at an extraordinary pace mortgage credit flows have picked during the first half of 1982 as up slightly. The advance was encour- receipts (national income and prodaged in part by the gradual decline uct accounts basis) fell while expenin mortgage rates from the peaks of ditures continued to rise. Owing to last fall. In addition, households have the second phase of the tax cut that made widespread use of adjustable- went into effect on July 1 and the rate mortgages and "creative" fi- effects on tax revenues of the recesnancing techniques—including rela- sion and reduced inflation, federal tively short-term loans made by sell- credit demands will expand further ers at below-market interest rates in the period ahead. and builder "buydowns." About twofifths of all conventional mortgage Consumption loans closed recently were adjust- Personal consumption expenditures able-rate instruments, and nearly (adjusted for inflation) fell sharply three-fourths of existing home trans- in the fourth quarter of 1981, but actions reportedly involved some sort turned up early in 1982 and apparof creative financing. ently strengthened further during the Business borrowing dropped sharply second quarter. The weakness in during the last quarter of 1981, consumer outlays during the fourth primarily reflecting reduced inven- quarter was concentrated in the auto tory financing needs. However, use sector, as total sales fell to an annual of credit by nonfinancial corpora- rate of 7.4 million units—the lowest tions rose significantly in the first quarterly figure in more than a dechalf of 1982, despite a further drop ade—and sales of domestic models in capital expenditures. The high plummeted to a rate of 5.1 million level of bond rates has discouraged units. corporations from issuing long-term Price rebates and other sales prodebt, and a relatively large share of motion programs during the early business borrowing this year has months of 1982 provided a fillip to been accomplished in short-term auto demand, and sales climbed to a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 45 rate of 8.1 million units. Auto mar- tures, business spending for new kets remained firm into the spring, equipment showed little advance boosted in part by various purchase during 1981 and weakened considerincentives. But as has generally oc- ably in the first half of 1982. Excludcurred when major promotions have ing business purchases of new cars, ended, auto purchases fell sharply in which also were buoyed by rebate June. Outside the auto sector, retail programs, real investment in producsales at most types of stores were up ers' durable equipment fell at an significantly for the second quarter annual rate of 2 percent in the first as a whole. Even purchases at furni- quarter. The decline evidently accelture and appliance outlets, which erated in the second quarter. In April had been on a downtrend since last and May, shipments of nondefense autumn, increased during the spring. capital goods, which account for Real after-tax income has contin- about 80 percent of the spending on ued to edge up, despite the sharp producers' durable equipment, averdrop in output during the recession. aged nearly 3 percent below the first- The advance reflects not only typical quarter level in nominal terms. cyclical increases in transfer pay- Moreover, sales of heavy trucks ments but also the reduction in dropped during the second quarter personal income tax rates on October to a level more than 20 percent 1. Households initially saved a siz- below the already depressed firstable proportion of the tax cut, boost- quarter average. ing the personal saving rate from 5lA Businesses liquidated inventories percent in mid-1981—about equal to at a rapid rate during late 1981 and the average of the late 1970s and in the first half of 1982. The adjustearly 1980s—to 6.1 percent in the ment of stocks followed a sizable fourth quarter of 1981. During early buildup during the summer and au- 1982, however, consumers increased tumn of last year that accompanied spending, partly to take advantage the contraction of sales. The most of price markdowns for autos and prominent inventory overhang by the apparel, and so the saving rate fell. end of 1981 was in the automobile sector as sales fell precipitously. Business Investment However, with a combination of As typically occurs during a reces- production cutbacks and sales prosion, the contraction in business fixed motions, the days' supply of unsold investment has lagged behind the cars on dealers lots had improved decline in overall activity. Indeed, considerably by spring. even though real GNP dropped sub- Manufacturers and nonauto retailstantially during the first quarter of ers also found their inventories rising 1982, real spending for fixed business rapidly last autumn. Since then, mancapital actually rose a bit. An espe- ufacturers as a whole have liquidated cially buoyant element of the invest- the accumulation that occurred durment sector has been outlays for ing 1981, although some problem nonfarm buildings—most notably, areas still exist—particularly in pricommercial office buildings, for which mary metals. Stocks held by nonauto appropriations and contracts often retailers have been brought down are set a year or more in advance. from their cyclical peak, but they In contrast to investment in struc- remain above prerecession levels. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

46 Monetary Policy Reports Residential Construction grew further. The federal deficit on Housing activity thus far in 1982 has a national income and product acpicked up somewhat from the de- count basis widened from $100 bilpressed level in late 1981. Housing lion at the end of 1981 to about $130 starts during the first five months of billion during the spring of this year. 1982 were up 10 percent on average Much of this increase in the deficit from the fourth quarter of 1981. The reflects the effects of the recession improvement in home building has on federal expenditures and receipts. been supported by strong underlying At the state and local government demand for housing services in most level, real purchases of goods and markets and by the continued adap- services fell further over the first half tation of real estate market partici- of 1982 after having declined 2 perpants to nontraditional financing cent during 1981. Most of the weaktechniques that facilitate transac- ness this year has been in constructions. tion outlays as employment levels The turnaround in housing activity have stabilized after large reductions has not occurred in all areas of the in the federally funded program country. In the south, home sales (under the Comprehensive Employincreased sharply in the first part of ment and Training Act) led to sizable 1982, and housing starts rose 25 layoffs last year. The declines in state percent from the fourth quarter of and local government activity in part 1981. In contrast, housing starts de- reflect fiscal strains associated with clined further, on average, during the withdrawal of federal support for the first five months of 1982 in both many activities and the effects of the west and the industrial north cyclically sluggish income growth on central states. tax receipts. Because of the serious revenue problems, several states have Government increased sales taxes and excise taxes Federal government purchases of on gasoline and alcohol. goods and services, measured in constant dollars, declined over the International Payments and Trade first half of 1982. The decrease oc- The weighted-average value of the curred entirely in the nondefense dollar, after having declined about area, primarily reflecting a sharp 10 percent from its peak last August, drop in the rate of inventory accu- began to strengthen sharply again mulation by the Commodity Credit around the beginning of the year, Corporation during the spring quarter. and since then it has appreciated Purchases by the Commodity Credit nearly 15 percent on balance. The Corporation had reached record lev- appreciation of the dollar has been els during the previous two quarters, associated to a considerable extent owing to last summer's large harvests with the declining inflation rate in and weak farm prices. Other nonde- the United States and the rise in fense outlays fell slightly over the dollar interest rates relative to yields first half of the year as a result of on assets denominated in foreign cuts in employment and other ex- currencies. penditures under many programs. Reflecting the effects of the Real defense spending apparently strengthening dollar, as well as the rose over the first half of the year, slowing of economic growth abroad, and the backlog of unfilled orders real exports of goods and services Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 47 have been decreasing since the begin- ment has been relatively heavy on ning of 1981. The volume of imports adult men who tend to be more other than oil, which rose fairly concentrated in these industries. At steadily throughout last year, dropped the same time, joblessness among sharply in the first half of 1982, young and inexperienced workers owing to the weakness of aggregate remains extremely high; hardest hit demand—especially for invento- have been black male teenagers who ries—in the United States. In addi- experienced an unemployment rate tion, both the volume and the price of nearly 60 percent in June 1982. of imported oil fell during the first Reflecting the persistent slack in half of the year. The current account, labor markets, most indicators of which was in surplus for 1981 as a labor supply also show a significant whole, recorded another surplus in weakening. For example, the numthe first half of this year as the value ber of discouraged workers—that is, of imports fell more than the value persons who report that they want of exports. work but are not looking for jobs because they believe they cannot find Labor Markets any—has increased nearly a half Employment has declined nearly Wi million over the past year, continuing million since the peak reached in an upward trend that began before mid-1981. As usually happens during the 1980 recession. In addition, the a cyclical contraction, the largest job labor force participation rate—the losses have been in durable goods proportion of the working-age popmanufacturing industries—such as ulation that is employed or actively autos, steel, and machinery—as well seeking jobs—has been essentially as at construction sites. The job flat for the last two years after rising losses in manufacturing and construcabout Vi percentage point annually tion during this recession follow a between 1975 and 1979. limited recovery from the 1980 recession; as a result, employment levels Prices and Labor Costs in these industries are more than 10 A slowing in the pace of inflation, percent below their 1979 highs. In which was evident during 1981, conaddition, declines in aggregate de- tinued through the first half of this mand have tempered the pace of year. During the first five months of hiring at service industries and trade 1982 (the latest data available), the establishments over the past year. consumer price index (CPI) in- As often happens near a business- creased at an annual rate of 3.5 cycle trough, employment fell faster percent, sharply lower than the 8.9 than output in early 1982 and labor percent rise during 1981. Much of productivity showed a small advance the improvement was in energy and after having declined sharply during food prices as well as in the volatile the second half of 1981. CPI measure of homeownership costs. Since mid-1981 the overall unem- But even excluding these items, the ployment rate has risen 2lA percent- annual rate of increase in consumer age points to a postwar record of 9lA prices has slowed to 5Vi percent this percent. The effects of the recession year compared with 9Vz percent last have been most severe in the durable year. goods and construction industries, The moderation of price increases and the burden of rising unemploy- also was evident at the producer Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

48 Monetary Policy Reports level. Prices of capital equipment The Growth of Money and have increased at an annual rate of Credit in the First Half of 1982 4V4 percent thus far this year—well The annual targets for the monetary below the 9lA percent pace of 1981. aggregates announced in February In addition, the decline in raw mawere chosen to be consistent with terials prices, which occurred continued restraint on the growth of throughout last year, has continued money and credit in order to exert in the first half of 1982. sustained downward pressure on in- Gasoline prices at the retail level, flation. At the same time, these which had remained virtually flat targets were expected to result in over the second half of 1981, fell sufficient money growth to support substantially during the first four an upturn in economic activity. months of 1982. Slack domestic de- Measured from the fourth quarter of mand and an overhang of stocks on 1981 to the fourth quarter of 1982, world petroleum markets precipithe growth ranges for the aggregates tated the decline in prices. However, adopted by the Federal Open Market gasoline prices began to rise again in Committee (FOMC) were as follows: May in reflection of rising consumpfor Ml, 2Vi to SVi percent; for M2, tion, reduced stocks, and lower pro- 6 to 9 percent; and for M3, 6J/2 to duction schedules by major crude oil 9V2 percent. The corresponding range suppliers. specified by the FOMC for bank The rate of increase in employ- credit was 6 to 9 percent.6 ment costs decelerated considerably When the FOMC was deliberating during the first half of 1982. The on its annual targets in February, the index of average hourly earnings, a Committee was aware that Ml almeasure of wage trends for producready had risen well above its avertion and non-supervisory personnel, age level in the fourth quarter of rose at an annual rate of 6Vi percent 1981. In light of the financial and over the first half of this year, economic backdrop against which the compared with an increase of 8V4 bulge in Ml had occurred, the Compercent during 1981. Part of the mittee believed it likely that there slowing was due to early negotiation had been an upsurge in the public's of expiring contracts and renegotiademand for liquidity. It also seemed tion of existing contracts in a number probable that this strengthening of of major industries. These wage money demand would unwind in the concessions are expected to relieve months ahead. Thus, under these cost pressures and to enhance the competitive position of firms in these industries. Increases in fringe bene- 6. Because of the authorization of internafits, which generally have risen faster tional banking facilities (IBFs) on December than wages over the years, also are 3, 1981, the bank credit data starting in December 1981 are not comparable with being scaled back. Because wage earlier data. The target for bank credit was demands, not to mention direct es- put in terms of annualized growth measured calator provisions, are responsive to from the average of December 1981 and price performance, the progress made January 1982 to the average level in the fourth quarter of 1982 so that the shift of assets to in reducing the rate of inflation IBFs that occurred at the turn of the year should contribute to further moderwould not have a major impact on the pattern ation in labor cost pressures. of growth. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 49 circumstances and given the rela- has run a bit above the FOMC's tively low base for the Ml range for annual range; from the fourth quarter 1982, it did not appear appropriate of 1981 through June, M2 increased to seek an abrupt return to the on average at an annual rate of 9.4 annual target range, and the FOMC percent. From a somewhat longer indicated its willingness to permit Ml perspective, Ml has increased at an to remain above the range for a annual rate of 4.7 percent, measuring while. At the same time, the FOMC growth from the first half of 1981 to agreed that the expansion in Ml for the first half of 1982 and abstracting the year as a whole might appropri- from the shift into NOW accounts in ately be in the upper part of its 1981; and M2 has grown at a 9.7 range, particularly if available evi- percent annual rate on a half-year dence suggested the persistence of over half-year basis. unusual desires for liquidity that had Although Ml growth has been to be accommodated to avoid undue moderate on balance thus far this financial stringency. year, that growth has considerably In setting the annual target for exceeded the pace of increase in M2, the FOMC indicated that M2 nominal GNP. Indeed, the firstgrowth for the year as a whole quarter decline in the income velocprobably would be in the upper part ity of Ml—that is, GNP divided by of its annual range and might slightly Ml—was extraordinarily sharp. Simexceed the upper limit. The Com- ilarly, the velocity of the broader mittee anticipated that demands for aggregates has been unusually weak. the assets included in M2 might be Given the persistence of high interest enhanced by new tax incentives such rates, this pattern of velocity behavas the broadened eligibility for indi- ior suggests a heightened demand for vidual retirement and Keogh ac- Ml and M2 over the first half. counts, or by further deregulation of The unusual demand for Ml has deposit rates. The Committee ex- been focused on its negotiable order pected that M3 growth again would of withdrawal account component. be influenced importantly by the After the nationwide authorization pattern of business financing and, in of NOW accounts at the beginning particular, by the degree to which of 1981. the growth of such deposits borrowing would be focused in mar- surged. When the aggregate targets kets for short-term credit. were reviewed this past February, a As anticipated—and consistent with variety of evidence indicated that the the FOMC's short-run targets—the major shift from conventional checksurge in Ml growth in December ing and savings accounts into NOW and January was followed by appre- accounts was over; in particular, the ciably slower growth. After January, rate at which new accounts were Ml increased at an annual rate of being opened had dropped off cononly 1V4 percent on average, and the siderably. As a result of that shift, level of Ml in June was only slightly however, NOW accounts and other above the upper end of the Commit- interest-bearing checkable deposits tee's annual growth range. From the had grown to account for almost 20 fourth quarter of 1981 to June, Ml percent of Ml by the beginning of increased at a 5.6 percent annual 1982. Subsequently, it has become rate. M2 growth so far this year also increasingly apparent that Ml is more Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

50 Monetary Policy Reports sensitive to changes in the public's together with the strong increase in desire to hold highly liquid assets. NOW accounts and the still substan- Ml is intended to be a measure of tial growth in money funds, suggests money balances held primarily for that stronger preferences to hold safe transaction purposes. However, in and highly liquid financial assets in contrast to the other major compo- the current recessionary environment nents of Ml—currency and conven- are bolstering the demand for M2 as tional checking accounts—NOW ac- well as for Ml. counts also have some characteristics M3 increased at an annual rate of of traditional savings accounts. Ap- 9.7 percent from the fourth quarter parently reflecting precautionary mo- of 1981 to June, just above the upper tives to a considerable degree, NOW end of the FOMC's annual growth accounts and other interest-bearing target. Early in the year, growth of checkable deposits grew surprisingly M3 was relatively moderate as a rapidly in the fourth quarter of last strong rise in large-denomination CDs year and the first quarter of this was offset by declines in term RPs year. Although growth in this com- and in money market mutual funds ponent has slowed recently, its growth restricted to institutional investors. from the fourth quarter of last year During the second quarter, however, to June has been 30 percent at an M3 showed a larger increase; the annual rate. The other components weakness in its term RP and money of Ml increased at an annual rate of fund components subsided and heavy less than 1 percent over this same issuance of large CDs continued. period. With growth of "core deposits" rel- Looking at the components of M2 atively weak on average, commercial not also included in Ml, the so-called banks borrowed heavily in the form nontransaction components, these of large CDs to fund the increase in items grew at a 103/4 percent annual their loans and investments. rate from the fourth quarter of 1981 Commercial bank credit grew at to June. General-purpose and bro- an annual rate of 8.3 percent over ker-dealer money market mutual the first half of the year, in the upper funds were an especially strong com- part of the FOMC's range for 1982. ponent of M2, increasing at an an- Bank loans have increased on avernual rate of almost 30 percent this age at an annual rate of about 9x/2 year. Compared with last year, how- percent, with loans to nonfinancial ever, when the assets of such money businesses expanding at an annual funds more than doubled, this year's rate of 14 percent. In past economic increase represents a sharp deceler- downturns, business loan demand at ation. banks has tended to weaken, but Perhaps the most surprising devel- consistently high long-term interest opment affecting M2 has been the rates in the current recession have behavior of conventional savings de- induced corporations to meet the posits. After declining in each of the bulk of their external financing needs past four years—falling 16 percent through short-term borrowing. Real last year—savings deposits have in- estate loans have increased at an creased at an annual rate of about 4 annual rate of IVA percent this year, percent thus far this year. This turn- somewhat slower than the growth in around in savings deposit flows, taken each of the past two years. Consumer Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 51 loans outstanding during the first ness equipment, and consumer duhalf of the year have grown at the rables, that depend heavily on credit same sluggish pace of 3 percent markets. experienced last year. The invest- Unfortunately, these stresses canment portfolios of banks have ex- not be easily remedied through acpanded at an annual rate of about 5 celerated money growth. The immepercent, with the rate of increase in diate effect of encouraging faster U.S. government obligations about growth in money might be lower twice as large as the growth in interest rates, especially in shortholdings of other types of securities. term markets. In time, however, the attempt to drive interest rates lower through a substantial reacceleration The Federal Reserve's of money growth would founder, for Objectives for Growth the result would be to embed inflaof Money and Credit tion and expectations of inflation There is a clear need today to even more deeply into the nation's promote higher levels of production economic system. It would mean that and employment in our economy. this recession was another wasted, The objective of Federal Reserve painful episode instead of a transition policy is to create an environment to a sustained improvement in the conducive to sustained recovery in economic environment. The present business activity while maintaining and prospective pressures on finanthe financial discipline needed to cial markets urgently need to be restore reasonable price stability. The eased not by relaxing discipline on experience of the past two decades money growth, but by adopting polhas amply demonstrated the destruc- icies that will ensure a lower and tive impact of inflation on economic declining federal deficit. Moreover, performance. Because inflation can- a return to financial health will renot persist without excessive mone- quire the adoption of more prudent tary expansion, appropriately re- credit practices on the part of private strained growth of money and credit borrowers and lenders alike. over the longer run is critical to In reviewing its targets for 1982 achieving lasting prosperity. and setting tentative targets for 1983, The policy of firm restraint on the FOMC had as its basic objective monetary growth has contributed im- the maintenance of the longer-range portantly to the recent progress to- thrust of monetary discipline in order ward reducing inflation. But when to reduce inflation further, while inflationary cost trends remain en- providing sufficient money growth to trenched, the process of slowing accommodate exceptional liquidity monetary growth can entail eco- pressures and support a sustainable nomic and financial stresses, espe- recovery in economic activity. At the cially when so much of the burden same time, the Committee recogof dealing with inflation rests on nized that regulatory actions or monetary policy. These strains—re- changes in the public's financial beflected in reduced profits, liquidity havior might alter the implications problems, and balance sheet pres- of any quantitative monetary goals sures—place particular hardships on in ways that cannot be fully preindustries, such as construction, busi- dicted. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

52 Monetary Policy Reports In light of all these considerations, sist, growth of the aggregates somethe Committee concluded that a what above their targeted ranges change in the previously announced would be tolerated for a time and targets was not warranted at this still would be consistent with the time. Because of the tendency for FOMC's general policy thrust. the demand for money to run strong Looking ahead to 1983 and beon average in the first half, and also yond, the FOMC remains committed responding to the congressional to restraining money growth in order budget resolution, careful consider- to achieve sustained noninflationary ation was given to the question of economic expansion. At this point, whether some raising of the targets the FOMC feels that the ranges now was in order. However, the available in effect can appropriately remain as evidence did not suggest that a large preliminary targets for 1983. Because increase in the ranges was justified, monetary aggregates in 1982 more and a small change in the ranges likely than not will be close to the would have represented a degree of upper ends of their ranges, or per- "fine tuning" that appeared incon- haps even somewhat above them, sistent with the degree of uncertainty the preliminary 1983 targets would surrounding the precise relationship be fully consistent with a reduction of money to other economic vari- in the actual growth of money in ables at this time. However, the 1983. Committee concluded, based on cur- In light of the unusual uncertainty rent evidence, that growth this year surrounding the economic, financial, around the top of the ranges for the and budgetary outlook, the FOMC various aggregates would be accept- stressed the tentative nature of its able. 1983 targets. On the one hand, The Committee also agreed that postwar cyclical experience strongly possible shifts in the demand for suggests that some reversal of this liquidity in current economic circum- year's unusual shift in the assetstances might require more than holding preferences of the public ordinary elements of flexibility and could be expected; with economic judgment in assessing appropriate activity on an upward trend, any needs for money in the months lingering precautionary motives for ahead. In the near term, measured holding liquid balances should begin growth of the aggregates may be to fade, thus contributing to a rapid affected by the income tax reductions rise in the velocity of money. Morethat occurred on July 1, by cost-of- over, regulatory actions by the Deliving increases in social security pository Institutions Deregulation benefits, and by the ongoing difficul- Committee that increase the competties of accurately accounting for sea- itive appeal of deposit instruments— sonal movements in the money stock. as well as the more widespread use But more fundamentally, it is unclear of innovative cash management techto what degree businesses and house- niques, such as "sweep" accounts— holds may continue to wish to hold also could reduce the demand for unusually large precautionary liquid money relative to income and interbalances. To the extent the evidence est rates. On the other hand, factors suggests that relatively strong pre- exist that should increase the attraccautionary demands for money per- tiveness of holding cash balances. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 53 The long upward trend in the velocity went into effect July 1 is boosting of money since the 1950s took place disposable personal income and in an environment of rising inflation should reinforce the growth in conand higher nominal interest rates— sumer spending. Given the improved developments that provide incentives inventory situation, any sizable infor economizing on money holdings. crease in consumer spending should, As these incentives recede, it is in turn, be reflected in new orders possible that the attractiveness of and a pickup in production. Another cash holdings will be enhanced and element supporting growth in real that more money will be held relative GNP will be the continuing rise in to the level of business activity. defense spending and the associated private investment outlays needed for the production of defense equip- The Outlook for ment. the Economy At least during the initial phase, The economy at midyear appears to the expansion is likely to be more have leveled off after sizable declines heavily concentrated in consumer last fall and winter. Consumption has spending than in past business cycles, strengthened with retail sales up as current pressures in financial marsignificantly in the second quarter. kets and liquidity strains may inhibit New and existing home sales have the recovery in investment activity. continued to fluctuate at depressed With mortgage interest rates high, levels, but housing starts nonetheless residential construction does not seem have edged up. In the business sec- likely to contribute to the cyclical tor, substantial progress has been recovery to the extent that it has in made in working off excess invento- the past. Likewise, the high level of ries, and the rate of liquidation corporate bond rates, and the cuappears to have declined. On the mulative deterioration in corporate negative side, however, plant and balance sheets resulting from reliequipment spending, which typically ance in recent years on short-term lags an upturn in overall activity, is borrowing, may restrain capital still depressed. And the trend in spending, especially given the considexport demand continues to be a erable margin of unutilized capacity drag on the economy, reflecting the that now exists. dollar's strength and weak economic The excellent price performance activity abroad. so far this year has been helped by An evaluation of the balance of slack demand and by exceptionally economic forces indicates that an favorable energy and food supply upturn in economic activity is highly developments. For that reason, the likely in the second half of 1982. recorded rate of inflation may be Monetary growth along the lines higher in the second half. However, targeted by the FOMC should ac- prospects appear excellent for concommodate this expansion in real tinuing the downtrend in the under- GNP, given the increases in velocity lying rate of inflation. As noted that typically occur early in a cyclical earlier, significant progress has been recovery and absent an appreciable made in slowing the rise in labor resurgence of inflation. The 10 per- compensation, and improvement in cent cut in income tax rates that underlying cost pressures should con- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

54 Monetary Policy Reports tinue over the balance of the year. Another crucial influence on finan- Unit labor costs also are likely to be cial markets and thus on the nature held down by a cyclical rebound in of the expansion in 1983 will be the productivity growth as output re- federal budgetary decisions that are covers. Moreover, lower inflation made in coming months. The budget will contribute to smaller cost-of- resolution that was recently passed living wage adjustments, which will by the House and the Senate is a moderate cost pressures further. constructive first step in reducing The Federal Reserve's objectives budget deficits as the economy refor money growth through the end covers. However, much remains to of 1983 are designed to be consistent be done in appropriation and revewith continuing recovery in economic nue legislation to implement this activity. A critical factor influencing resolution. How the budgetary procthe composition and strength of the ess unfolds will be an important expansion will be the extent to which factor in determining future credit pressures in financial markets mod- demands by the federal government erate. This, in turn, depends impor- and thus the extent to which deficits tantly on the progress made in fur- will preempt the net savings generther reducing inflationary pressures. ated by the private economy. A A marked decrease in inflation will strong program of budget restraint take pressure off financial markets would minimize pressures in financial in two ways. First, slower inflation markets and thereby enhance the will lead to a reduced growth in prospects for a more vigorous recovtransaction demands for money, given ery in home building, business fixed investment, and other credit-depenany particular level of real activity. dent sectors. It follows that a given target for money growth can be achieved with In assessing the economic outlook, less pressure on interest rates and the individual members of the FOMC accordingly less restraint on real have formulated projections for sevactivity, the greater is the reduction eral key measures of economic perin inflation. Second, further progress formance that fall generally within in curbing inflation will help lower the ranges in the accompanying table. long-term interest rates by reducing In addition to the monetary aggrethe inflation premium contained in nominal interest rates. The welcome Economic Projections <3f FOMC relief in inflation seen recently ap- Members parently is assumed by many to Projected represent a cyclical rather than a Item Actual 1981 1982 1983 sustained drop in inflation. But the longer that improved price perfor- Changes, fourth mance is maintained, the greater will quarter to fourth quarter, be the confidence that a decisive percent Nominal GNP ... 9.8 51/2 tO 71/2 7 to 9^2 downtrend in inflation is being Real GNP .9 1/2 tO V/2 2Vi to 4 achieved. Such a change should be GNP deflator.... 8.9 43/4 to 6 4 to 53/4 reflected in lower long-term interest A verage level in rates and stronger activity in the fourth quarter, percent interest-sensitive sectors of the econ- Unemployment omy. rate 8.3 9 to 93/4 8Vi to 91/2 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 55 gate objectives discussed earlier, these but are consistent with the monetary projections assume that the federal targets outlined in this report on the budget will be put on a course that assumption of growth in velocity over time will result in significant characteristic of the early stages of a reductions in the federal deficit. number of past recoveries. Looking Revised administration forecasts further ahead, the Committee memfor the economy were not available bers, like the administration and the at the time of the Committee's delib- Congress, foresee continued ecoeration. Our understanding, how- nomic expansion in 1983, but curever, is that the administration's rently anticipate a less rapid rate of midyear budgetary review will be price increase and somewhat slower .presented within the framework of real growth than the assumptions the economic assumptions used in underlying the budget. The monetary the first budget resolution. For the targets tentatively set for 1983, which remainder of 1982, those assump- will be reviewed early next year, tions imply somewhat more rapid would imply, under the budgetary recovery than the range now thought assumptions, relatively high growth most likely by members of the FOMC, in velocity. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Part 2 Records, Operations, and Organization Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

59 Record of Policy Actions of the Board of Governors Regulation B Regulation D (Equal Credit Opportunity) (Reserve Requirements of Depository Institutions) October 7, 1982—Interpretations and Withdrawal of Amendments March 24, 1982—Amendment The Board adopted two interpreta- The Board amended Regulation D, tions of Regulation B, effective April effective April 28, 1982, to make 1, 1983, dealing with the treatment permanent a temporary rule adopted of income in judgmental and credit- in 1981 to ensure that the phase-in scoring systems and the selection and of reserve requirements for new indisclosure of reasons for adverse stitutions was not used for reserve credit actions. The Board also with- avoidance. drew proposed amendments to pro- Votes for this action: Messrs. Volcker, visions in the regulation dealing with Wallich, Partee, Mrs. Teeters, and Mr. business credit. Rice. Votes against this action: None. Absent and not voting: Mr. Gramley.1 Votes for these actions: Messrs. Martin, Wallich, Mrs. Teeters, Messrs. In November 1981, the Board Rice, and Gramley. Votes against these actions: None. Absent and not voting: adopted a temporary amendment to Messrs. Volcker and Partee. Regulation D to change the manner in which reserve requirements of cer- One interpretation specifies how tain institutions are phased in. The creditors should treat income from regulation previously had allowed sources such as alimony, child sup- newly established institutions to phase port, part-time employment, retire- in reserve requirements over two ment benefits, or public assistance in years. This allowance was designed to order to comply with the requirement reduce the start-up problems that new not to discount or exclude such in- institutions typically experience. come when evaluating credit appli- In connection with recent actions cations. The second interpretation by Delaware and South Dakota to describes how creditors should select permit out-of-state holding compaand disclose the principal reasons for nies to establish subsidiaries in those denying credit or other adverse credit states, a number of large banking oractions. ganizations outside those states an- The Board also withdrew several nounced plans to establish such subproposed amendments to the busi- sidiaries and to transfer a significant ness credit provisions of Regulation volume of deposits to them. The Board B. The amendments related only to the mechanical requirements of the regulation and not to the prohibitions 1. On this and subsequent pages, footnote 1 against discrimination in any aspect indicates that there was a vacancy on the of a business credit transaction. Board at the time the action was taken. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

60 Board Policy Actions believed these new institutions would economic conditions, and implicanot experience the typical start-up tions for Treasury revenues. problems and should not be eligible The amendment was effective April for the two-year phase-in provision. 29, and was applicable to the reserve The Board, therefore, decided that maintenance period beginning May an institution that began operations 13, 1982. after November 17, 1981, would lose its eligibility for the phase-in provi- August 20, 1982—Amendment sion after its reservable liabilities exceeded $50 million. The Board amended Regulation D, effective September 1, 1982, to de- April 26, 1982—Amendment fine as a time deposit the new deposit instrument authorized by the Depos- The Board amended Regulation D, itory Institutions Deregulation Comeffective April 29, 1982, to establish mittee. reserve requirements for a recently authorized time deposit. Votes for this action: Messrs. Martin, Wallich, Partee, Rice, and Gramley. Votes for this action: Messrs. Volcker, Votes against this action: None. Ab- Martin, Wallich, Partee, Mrs. Teeters, sent and not voting: Mr. Volcker and and Mr. Rice. Votes against this ac- Mrs. Teeters. tion: None. Absent and not voting: Mr. Gramley. Regulation D had defined a time account as a deposit that has an initial Beginning May 1, 1982, the Depos- maturity or a notice period of 14 days itory Institutions Deregulation Com- or more; accounts with shorter mamittee (DIDC) authorized a 3!/2-year turities are considered demand detime deposit not subject to interest posits. The Depository Institutions rate ceilings. Under existing provi- Deregulation Committee authorized sions of Regulation D, nonpersonal federally insured institutions to offer time deposits with maturities of four a new deposit instrument with a mayears or more are subject to a zero turity of 7 to 31 days, a minimum balpercent reserve requirement; those ance of $20,000, and a ceiling rate tied with shorter maturities have a 3 per- to the rate on 91-day Treasury bills. cent reserve requirement, after com- The Board amended Regulation D to pletion of the phase-in periods. The define the new instrument as a time Board, therefore, amended the reg- deposit that is eligible for the lower ulation by changing from four years reserve requirements applicable to to three and one-half years the min- time deposits. imum maturity of time deposits sub- The amendment was effective Sepject to the zero percent reserve re- tember 1, and was applicable to the quirement. The Board noted, reserve maintenance period beginhowever, that this action should not ning September 9, 1982. be interpreted as a commitment to continue to shorten deposit maturi- September 29, 1982— ties in conjunction with the phase-out Amendments of interest rate ceilings proposed by the DIDC. Any subsequent decision The Board amended Regulation D, on reserve requirements will reflect effective February 2, 1984, to impleexperience, prevailing monetary and ment a contemporaneous accounting Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 61 system for assessing and maintaining lieved the benefits resulting from imreserve requirements for transaction proved monetary control would outaccounts at depository institutions. weigh the costs. The Board set February 2, 1984, as Votes for these actions: Messrs. Volcker, Martin, Wallich, Partee, and the effective date of the amendments Rice. Votes against these actions: Mrs. to ensure that the Reserve Banks and Teeters and Mr. Gramley. financial institutions would have time to adjust their procedures. Under the current system of lagged reserve accounting, an institution's October 4, November 3, and reserve requirements are assessed on December 22, 1982— the basis of deposit levels averaged Amendments over a seven-day period; required re- The Board adopted a temporary serves are maintained for a seven-day amendment to Regulation D, effecperiod two weeks later. The contemtive October 5, 1982, that defined as poraneous system for transaction aca transaction account a time deposit counts shortens to two days the lag linked to a line of credit against between the end of the reserve calwhich third-party transfers can be culation period and the beginning of made. The Board later revised the the reserve maintenance period. Rerule, and on December 22 made the serves will be computed and mainamendment permanent, effective tained, however, on the basis of de- January 22, 1983. posits averaged over a two-week period. Required reserves on non- Votes for the October and November actions: Messrs. Volcker, Martin, personal time deposits will continue Wallich, Partee, Mrs. Teeters, Messrs. to be maintained on a lagged basis. Rice, and Gramley. Votes against these The Board also adopted certain tech- actions: None. nical amendments to Regulation D to Votes for the December action: adjust the reserve maintenance pe- Messrs. Martin, Wallich, Partee, Mrs. Teeters, Messrs. Rice, and Gramley. riods of institutions that are not on a Votes against this action: None. Abweekly reserve maintenance schedule sent and not voting: Mr. Volcker. to coincide with the contemporaneous system. In October, the Board amended Governors Teeters and Gramley Regulation D to impose the reserve opposed adoption of the contempor- requirements of transaction accounts aneous accounting system. They were on any time deposit linked to a line not persuaded that the system would of credit that can be used for writing significantly improve monetary con- checks or for making other third-party trol, and they believed it would in- transfers. The Board acted to discrease the short-run volatility of in- courage the use of these complex arterest rates because institutions would rangements designed to avoid reguneed to adjust their reserve positions latory requirements. The temporary more promptly. They also thought the amendment was effective immedicost of implementing the system, both ately for time deposits issued after for the Federal Reserve and the af- October 4 and for deposits that mafected institutions, would not be off- tured and were renewed after that set by sufficient public benefits. The date. The Board also requested comother Board members, however, be- ment on the effects of its action, with Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

62 Board Policy Actions the understanding that a permanent moval of reserve requirements through rule would be adopted later. October 1985. The Board, therefore, After adoption of the temporary amended Regulation D to provide a amendment, the Board was informed phased reduction in reserve requirethat some institutions were having ments for these former member banks, difficulties terminating certain de- effective with the reserve mainteposit contracts. To ensure that those nance period beginning October 28, institutions would not be adversely 1982. affected by later Board action, and to allow a convenient transition to the November 24, 1982— new money market deposit account Amendments authorized beginning December 14, The Board adopted three amendthe Board exempted from the amendments to Regulation D that (1) ment time deposits issued before Ocincreased the amount of transaction tober 5 and renewed automatically balances to which the lower reserve before December 31, 1982. requirement applied; (2) effectively In December, the Board made the exempted small institutions from reamendment permanent, effective serve requirements; and (3) estab- January 22,1983. It also clarified that lished reserve requirements for a time deposits pledged as collateral for newly authorized money market deincidental overdrafts in a checking acposit account. count were not covered by the amendment. Votes for these actions: Messrs. Martin, Wallich, Partee, Mrs. Teeters, October 27, 1982—Amendment Messrs. Rice, and Gramley. Votes against these actions: None. Absent and The Board amended Regulation D, not voting: Mr. Volcker. effective October 28, 1982, to imple- Under the Monetary Control Act ment recent statutory changes in of 1980, depository institutions, Edge reserve requirements for former and Agreement corporations, and member banks. U.S. agencies and branches of foreign Votes for this action: Messrs. Volcker, banks are subject to reserve require- Martin, Partee, Mrs. Teeters, Messrs. ments set by the Board. The reserve Rice, and Gramley. Votes against this action: None. Absent and not voting: requirements initially imposed under Mr. Wallich. the act were 3 percent on the first $25 million of an institution's transaction The Monetary Control Act of 1980 balances and 12 percent on balances required banks that withdrew from above that level. The act further dimembership in the Federal Reserve rected the Board to adjust that level System on or after July 1, 1979, to annually to reflect changes in the level maintain reserves in amounts equal of transaction balances in the banking to the reserve requirements of mem- system nationwide. The amount was ber banks. The Garn-St Germain increased to $26 million for 1982, and Depository Institutions Act of 1982 recent growth in such balances indimodified the reserve requirements for cated that a further increase of $0.3 member banks that withdrew be- million was warranted. Accordingly, tween July 1, 1979, and March 31, the Board amended Regulation D to 1980, to provide for the gradual re- increase to $26.3 million the amount Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 63 of transaction balances subject to the Regulation Q lower reserve requirement. The (Interest on Deposits) amendment was effective December December 22, 1982— 30, 1982, and applicable to the re- Amendments serve maintenance period that begins January 13, 1983. The Board adopted technical amend- In a second action, the Board im- ments to Regulations D and Q, plemented provisions of the Garn-St effective January 5, 1983, to incor- Germain Depository Institutions Act porate changes approved by the Deof 1982 that reduced to zero percent pository Institutions Deregulation the reserve requirements on the first Committee in the rules governing the $2 million of an institution's reserv- payment of interest on deposits. able liabilities. That act also provided Votes for these actions: Messrs. Marthat, beginning in 1982, the Board shall tin, Wallich, Partee, Mrs. Teeters, increase the amount of the exemption Messrs. Rice, and Gramley. Votes annually based on deposit growth na- against these actions: None. Absent and not voting: Mr. Volcker. tionwide over a 12-month period ending June 30. Accordingly, the Board amended Regulation D, effective De- The Depository Institutions Deregcember 9, 1982, to incorporate pro- ulation Act of 1980 transferred to the visions of the Garn-St Germain act DIDC the authority to prescribe rules and to establish the exemption at $2.1 governing the payment of interest on million. deposits that previously had been held by the Board and the other federal In a third action, the Board estabregulators of financial institutions. To lished reserve requirements for a new conform to recent actions by the money market deposit account, ef- DIDC, the Board amended Regulafective December 14, 1982, the date tion D and Regulation Q as follows: on which the Depository Institutions (1) reduced to $2,500 the minimum Deregulation Committee authorized denomination of 26-week money federally insured institutions to begin market deposits, 91-day time deposoffering the new account. The Board its, and 7- to 31-day time deposits; (2) determined that money market deremoved the interest rate ceilings on posit accounts that permit no more 7- to 31-day time deposits; (3) estabthan six transfers from the account lished money market deposit acper month, of which no more than counts; and (4) removed the interest three may be by check, will have the rate ceilings on negotiable order of same reserve requirements as savings withdrawal (NOW) accounts of $2,500 accounts. Accounts that permit a deor more. positor to make more than six transfers or draw more than three checks per month are subject to the reserve Regulation E requirements on transaction ac- (Electronic Fund Transfers) counts. September 29, 1982— Amendments Regulation D The Board adopted four amend- (Reserve Requirements of ments to Regulation E, effective Depository Institutions) and October 12, 1982, relating to exemp- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

64 Board Policy Actions tions for certain preauthorized trans- quirement to provide duplicate statefers, terminal receipts, periodic state- ments when a customer transfers funds ments, and procedures for certain between two accounts at the same inforeign transactions. stitution. The fourth change liberalized the documentation requirements Votes for the preauthorized transfer and the error-resolution procedures amendment: Messrs. Volcker, Martin, Wallich, Partee, Rice, and Gramley. for electronic fund transfers initiated Vote against this action: Mrs. Teeters. in foreign countries. Votes for the other three amendments: Messrs. Volcker, Martin, Wal- Regulation G (Securities Credit lich, Partee, Mrs. Teeters, Messrs. Rice, and Gramley. Votes against these ac- by Persons Other than Banks, tions: None. Brokers, or Dealers), Regulation T (Credit by Brokers The Board amended Regulation E and Dealers), and Regulation U to exempt institutions with assets of (Credit by Banks for the $25 million or less from the require- Purpose of Purchasing or ments governing participation in Carrying Margin Stocks) preauthorized credit and debit pro- January 13, 1982—Amendments grams of the federal and private sectors. Governor Teeters opposed these The Board revised and simplified changes because she preferred that portions of Regulations G, T, and U private-sector payments not be ex- as part of its Regulatory Improveempt from the regulation. She be- ment Project. All of the changes lieved that the notices and disclosures were effective February 15, 1982, required by the regulation provided except the amendment to Regulation appropriate safeguards and that cus- U concerning collateral, which was tomers of small institutions should effective March 31, 1982. have the same protections as those of Votes for these actions: Messrs. larger institutions. Volcker, Schultz, Wallich, Partee, Rice, The other Board members noted and Gramley. Votes against these actions: None. Absent and not voting: that smaller institutions are governed Mrs. Teeters. by the operating rules of the clearinghouse associations to which they In mid-1981, the Board published belong. Moreover, institutions would for comment proposals to substanhave difficulty separating other re- tially revise the Board's margin regcurring payments from private-sector ulations. Although the rewriting of the transfers to take advantage of the ex- regulations would not be completed emption. For these reasons, the other for some time, the Board decided to Board members approved the adopt certain amendments in advance amendment. of the revisions to grant relief and Another amendment expanded an flexibility in areas in which the comexemption governing receipts given ments disclosed no significant disafor transfers initiated at electronic greement. These amendments are diterminals; it provided that institutions rected at simplifying the language, need not indicate on the terminal re- reducing regulatory burden, and acceipt the type of account involved if knowledging innovations in securities only one of the consumer's accounts markets. can be accessed at that terminal. A Among the changes adopted was third amendment eliminated the re- an amendment to Regulation G that Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 65 expanded the lending activities per- into account changing market condimissible for creditors covered by the tions and exchange practices. One of regulation and the types of collateral the revisions permitted issues of forthey may accept. The amendment also eign stock to be included on the OTC clarified the definition of an indirect list if the issuer has registered with security for a loan. the Securities and Exchange Com- Regulation T was revised to permit mission. Previously, foreign stocks brokers and dealers to provide in- were excluded because of difficulty in vestment banking services that in- obtaining financial data about issuers. clude the arranging of credit. Regu- Under the previous rules, a comlation U was revised to exempt from pany could be included on the OTC the regulation bank credit not se- list if it met the standards on two of cured by margin equity securities. In the three criteria for eligibility: price, addition, the definition of indirect se- capital, and market value. The Board curity credit was changed to parallel decided to eliminate the market-value that in Regulation G. All three reg- criterion, since it was found to be of ulations were revised to remove the limited value, and to make conformprovisions governing equity-building ance with the price and capital criteria devices, thereby giving investors with mandatory. In addition, the Board highly leveraged margin accounts changed those two criteria, as folgreater flexibility in reallocating their lows: (1) To be included initially on portfolios. the list, an issuer must have at least $4 million in capital and 400,000 shares May 12, 1982—Amendments outstanding (previously, $5 million and 500,000). (2) For continued inclusion The Board amended its margin credit on the list, a company must have $1 regulations (G, T, and U), effective million in capital and a price per share June 12, 1982, to change the criteria of at least $2 (previously, $2.5 million for including a company's shares on and $3). Stocks that are currently listed the list of stocks traded over the but do not meet the new eligibility counter that are eligible for margin standards will be retained on the OTC credit. list for two years. Votes for these actions: Messrs. Mar- The Board also announced that futin, Partee, Mrs. Teeters, Messrs. Rice, ture editions of the OTC list, which and Gramley. Votes against these acis published three times a year, will tions: None. Absent and not voting: Messrs. Volcker and Wallich. become effective two weeks after publication, rather than immediately, The Board regularly publishes a list to allow brokers and other users time of stocks traded over the counter to adjust their operations. (OTC) that are sufficiently similar to securities traded on the major exchanges as to be afforded similar treatment under the Board's margin Regulation K (International regulations. If a company meets the Banking Operations) Board's criteria for inclusion on the March 10, 1982—Amendment OTC list, its stock is eligible for trading on margin. The Board amended Regulation K, The amendments to Regulations G, effective March 12, 1982, to permit T, and U revised those criteria to take Edge corporations to provide certain Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

66 Board Policy Actions investment advisory and manage- effective October 26, 1982, to implement services in the United States. ment recent revisions in the Depository Institution Management Inter- Votes for this action: Messrs. Volcker, Partee, Mrs. Teeters, Messrs. Rice, and locks Act of 1978. Gramley. Votes against this action: Votes for this action: Messrs. Volcker, None. Absent and not voting: Mr. Wallich.1 Wallich, Partee, Mrs. Teeters, Messrs. Rice, and Gramley. Votes against this action: None. Absent and not voting: The International Banking Act of Mr. Martin. 1978 directed the Board to remove from its regulations limitations that In December, the Board further unnecessarily restrict or put Edge amended Regulation L, effective corporations at a disadvantage in February 7, 1983, to clarify the circompeting with foreign-owned bank- cumstances under which certain maning institutions in the United States. agement interlocks may be continued In keeping with that directive, the until November 10, 1988. Board amended Regulation K to permit Edge corporations to provide sev- Votes for this action: Messrs. Martin, Wallich, Partee, Mrs. Teeters, Messrs. eral types of economic and invest- Rice, and Gramley. Votes against this ment advisory and management action: None. Absent and not voting: services to their foreign customers, Mr. Volcker. including the following: (1) general economic information; (2) portfolio The act and the implementing reginvestment advice on securities, other ulations of the federal regulatory financial instruments, and real estate; agencies generally prohibited certain and (3) management of investment interlocking relationships involving portfolios, with discretionary authorofficers of unaffiliated organizations. ity to buy or sell securities. Also, Edge Interlocking relationships in exiscorporations may provide their U.S. tence when the act was passed were customers with advisory services repermitted to continue for 10 years; garding foreign investments. The that time period was to be shortened amendment does not authorize Edge if the circumstances of either intercorporations to manage real estate or locking institution changed. commercial or industrial properties. Recent amendments to the act, The amendment was expected to however, clarified congressional infurther competitive equality between tent that certain changes in circumdomestic and foreign banks in the stances—a merger, an acquisition, the United States by enabling U.S. banks, establishment of new offices, or a sizthrough their Edge subsidiaries, to able increase in assets—did not reoffer a range of financial services simquire termination of the interlocking ilar to those that may be offered by relationship. Therefore, the Board and U.S. branches of foreign banks. the other agencies amended their regulations to delete that requirement. Regulation L (Management Other amendments to Regulation L Official Interlocks) were adopted in September to conform with the statutory changes, in- September 15 and December 22, cluding one that permits a manage- 1982—Amendments ment official to continue serving at The Board amended Regulation L, both a depository and a nondeposi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 67 tory organization even if the latter be- eliminated the dollar limitations on comes a diversified savings and loan mortgage and education loans, and holding company. the Board amended Regulation O to When the Board amended Regu- remove those dollar amounts. The act lation L in September, it published also deleted the limitations on loans for comment a proposed amendment for other purposes and on the maxithat would permit a management of- mum loan amount that does not reficial who had terminated a "grand- quire board approval, and authorized fathered" interlock because of pro- each federal regulatory agency to esvisions in the existing regulation to tablish appropriate limitations for the resume the interlock for the remain- institutions under its jurisdiction. The der of the 10-year permissible period. Board decided to retain the limita- After consideration of comments re- tions currently in Regulation O for ceived, the Board amended Regula- those two purposes pending completion L in December to allow the re- tion of a review of the regulation and sumption of such an interlocking adoption of final rules to implement relationship until November 10,1988. the act. Regulation O (Loans to Executive Officers, Regulation Q Directors, and Principal (Interest on Deposits) Shareholders of Member Banks) August 20, 1982—Amendments October 22, 1982—Amendment and Interpretation The Board amended Regulation O, The Board adopted several amendeffective November 1, 1982, to con- ments to Regulation Q relating priform to the requirements of the marily to recent actions by the De- Garn-St Germain Depository Insti- pository Institutions Deregulation tutions Act of 1982 dealing with bank Committee; it also issued an interloans to officials. pretation regarding the secondary market for certificates of deposit Votes for this action: Messrs. Volcker, (CDs). Martin, Wallich, Partee, Mrs. Teeters, Messrs. Rice, and Gramley. Votes against this action: None. Votes for these actions: Messrs. Martin, Wallich, Partee, Rice, and Gramley. Votes against these actions: None. Before passage of the Depository Absent and not voting: Mr. Volcker Institutions Act of 1982, lending by a and Mrs. Teeters. member bank to its executive officers had been limited by the Federal Re- One amendment revised the rules serve Act and Regulation O to the under which member banks may offer following amounts: $60,000 for a home small-denomination repurchase mortgage, $20,000 for the education agreements. Before these amendof an officer's children, and $10,000 ments were adopted, repurchase for other purposes-. In addition, loans agreements (RPs) on U.S. governto bank officials or their interests that ment and agency securities in denomexceeded $25,000 required the prior inations of less than $100,000 and with approval of the bank's board of di- maturities of 90 days or more were rectors. considered time deposits subject to The Depository Institutions Act the interest rate ceilings of Regula- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

68 Board Policy Actions tion Q; small-denomination RPs with tion in the secondary market for maturities of less than 90 days were negotiable time deposits it had isexempt from the ceilings unless they sued. The interpretation stated that a were automatically renewable. In a member bank may assist a depositor series of actions, the DIDC author- in finding a purchaser for a negotiable ized a greater variety of deposit in- CD, as an alternative to the deposistruments for financial institutions and tor's incurring a penalty for early removed interest rate ceilings for time withdrawal. A bank also may arrange deposits with maturities of three and for unaffiliated third parties to purone-half years or longer. Because these chase deposits from its customers. A actions reduced the incentive for in- member bank may not, however, stitutions to raise longer-term funds purchase its own deposits from custhrough the issuance of RPs, the Board tomers, enter into reciprocal arrangedecided it was no longer necessary to ments with another institution to pursubject small-denomination RPs of 90 chase deposits from one another, or days or more to interest rate ceilings reimburse a third party for purchasor to restrict member banks from of- ing the bank's deposits. fering automatically renewable RPs with maturities of less than 90 days. October 4, 1982—Interpretation The Board, therefore, amended Reg- The Board adopted an interpretation ulation Q, effective August 24, 1982, of Regulation Q, effective October to exempt RPs of member banks from 18, 1982, regarding the interest rate interest rate limitations. The Federal charged on a loan for which a bor- Deposit Insurance Corporation and rower has pledged a time deposit as the Federal Home Loan Bank Board collateral. That interest rate must be had taken similar actions for RPs of at least 1 percentage point above the institutions in their jurisdictions. effective interest rate paid on the Other amendments to Regulation time deposit. Q, effective September 1, 1982, were adopted in conjunction with actions Votes for this action: Messrs. Volcker, Martin, Wallich, Partee, Mrs. Teeters, taken by the DIDC. One amendment Messrs. Rice, and Gramley. Votes changed the definition of a time de- against this action: None. posit to allow member banks to issue time deposits in book-entry form The Board had become aware of rather than as written contracts. The various deposit arrangements deremaining changes were technical signed to evade the interest rate ceilamendments to conform the regula- ings of Regulation Q or the reserve tion to actions of the DIDC. Those requirements of Regulation D. By amendments affected maximum rates adopting this interpretation—and a payable on time and savings deposits, related amendment to Regulation D— the advertisement of rates paid on the Board sought to ensure that the certain short-term deposits, penalties rules regarding interest rate ceilings for early withdrawal of time deposits, on deposits and penalties for withand treatment of obligations issued drawal of time deposits before maby a parent bank holding company. turity were not violated. The inter- The Board also issued an interpre- pretation clarifies that the minimum tation, effective August 24, 1982, re- annual rate of interest that may be garding a member bank's participa- charged on a loan for which a time Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 69 deposit is pledged as collateral is 1 effective May 17, 1982, to include as percentage point above the effective acceptable collateral in stock lending annual rate paid on the deposit. The and borrowing transactions certain loan rate must take into account the letters of credit, U.S. government effect compounding has on the inter- securities, certificates of deposit, and est paid on the deposit. The interpre- bankers acceptances. tation is applicable to loans made, ex- Votes for this action: Messrs. Martin, tended, renewed, or agreed to after Partee, Mrs. Teeters, Messrs. Rice, and October 17, 1982. Gramley. Votes against this action: None. Absent and not voting: Messrs. November 24, 1982— Volcker and Wallich. Amendment Regulation T had permitted only The Board amended Regulation Q, cash to be pledged as collateral by effective October 15, 1982, to permit brokers and dealers for borrowing or governmental units to maintain ne- lending securities. In November 1981, gotiable order of withdrawal (NOW) the Board proposed to amend the accounts at member banks. regulation so that brokers and dealers could borrow and lend against letters Votes for this action: Messrs. Martin, Wallich, Partee, Mrs. Teeters, Messrs. of credit issued by banks insured by Rice, and Gramley. Votes against this the Federal Deposit Insurance Coraction: None. Absent and not voting: poration and against U.S. govern- Mr. Volcker. ment securities. Commenters indicated that the proposal was too The Garn-St Germain Depository restrictive. After consideration of the Institutions Act of 1982, which was comments, the Board decided to enacted and became effective Octoamend the regulation by expanding ber 15, permits the deposit of public the list of acceptable collateral to infunds in NOW accounts by all doclude the following: U.S. government mestic and territorial governmental and agency securities; negotiable bank units. The Board, therefore, adopted certificates of deposit and bankers acthe amendment to conform Regulaceptances, if issued and payable in the tion Q with the provisions of the act. United States; and irrevocable letters of credit issued either by a domestic December 22, 1982— bank that is insured by the FDIC or Amendments by a foreign bank that has filed an These actions are discussed under appropriate agreement with the Board. Regulation D. May 12, 1982—Amendments Regulation T Additional actions for this date are (Credit by Brokers and Dealers) discussed under Regulation G. January 13, 1982—Amendments December 8, 1982—Amendment These actions are discussed under The Board amended Regulation T, Regulation G. effective January 17, 1983, to specify the characteristics that make private May 12, 1982—Amendment mortgage pass-through securities ac- The Board amended Regulation T, ceptable collateral for margin credit. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

70 Board Policy Actions Votes for this action: Messrs. Volcker, In conjunction with a request by a Martin, Wallich, Partee, Mrs. Teeters, bank holding company to perform Messrs. Rice, and Gramley. Votes certain management consulting servagainst this action: None. ices, the Board sought public comment on whether to permit the activ- The amendment, which is appliity generally. On the basis of comments cable to securities not guaranteed by received, the Board decided to peran agency of the federal government, mit holding companies to provide established the following criteria for consulting services to unaffiliated eligibility for margin credit: (1) the nonbank depository institutions, suboriginal issue must be at least $25 milject to the same restrictions that apply lion; (2) the issuer must have filed when such services are provided to current registration reports with the bank clients. Securities and Exchange Commis- The Board also amended the regsion; and (3) the creditor must have ulation to permit holding companies a reasonable basis for believing that to have management officials in comthe servicing agent is passing through mon with the institutions to which they the payment of mortgage interest and provide consulting services, if such inprincipal according to the terms of the terlocks are permitted by certain prooffering. visions of Regulation L (Management Official Interlocks). Regulation U (Credit by Banks for the Purpose of Purchasing or Carrying Margin Stocks) April 28, 1982—Determination on Reinsurance Activities January 13, 1982—Amendments May 12, 1982—Amendments The Board determined that the reinsurance of group mortgage life insur- These actions are discussed under ance was not an activity closely Regulation G. related to banking and that it should not be permissible for bank holding Regulation Y companies. (Bank Holding Companies and Votes for this action: Messrs. Volcker, Change in Bank Control) Martin, Partee, Mrs. Teeters, and Mr. March 10, 1982—Amendments Rice. Votes against this action: None. Absent and not voting: Messrs. Wal- The Board amended Regulation Y, lich and Gramley. effective April 20, 1982, to permit bank holding companies to provide A bank holding company proposed management consulting services to to reinsure group credit life insurance unaffiliated nonbank depository in- for real estate loans made by its substitutions and, under certain condi- sidiaries. The Board earlier had detions, to have management interlocks termined that underwriting mortgage with those institutions. life insurance was not closely related to banking and therefore was imper- Votes for these actions: Messrs. missible. Although the applicant cited Volcker, Partee, Mrs. Teeters, Messrs. distinctions between its proposed ac- Rice, and Gramley. Votes against these actions: None. Absent and not voting: tivities and those involved in under- Mr. Wallich.1 writing insurance, the Board found Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 71 those distinctions insufficient to war- case by case, and therefore it withrant reversal of its previous decision. drew the proposed amendment. Consequently, the Board decided that there was no reasonable basis for de- August 20, 1982—Amendments termining that the activity is closely The Board amended Regulation Y related to banking, and therefore that and a related interpretation, effective the activity is not permissible for bank September 25, 1982, to clarify and holding companies. expand the scope of data processing activities permissible for bank hold- June 30, 1982— ing companies. Termination of Rulemaking Votes for these actions: Messrs. Mar- The Board terminated a rulemaking tin, Wallich, Partee, Rice, and Gramproceeding that would have amended ley. Votes against these actions: None. Regulation Y to make acting as a Absent and not voting: Mr. Volcker futures commission merchant for and Mrs. Teeters. nonaffiliated customers a permissible In July 1982, after reviewing public activity for bank holding companies. comments and the results of a public Votes for this action: Messrs. Volcker, hearing on the matter, the Board ap- Martin, Wallich, Partee, Mrs. Teeters, proved the application of a bank Messrs. Rice, and Gramley. Votes holding company to engage in a broad against this action: None. range of data processing activities. At that time the Board also agreed to In December 1981, the Board pubmake those activities permissible for lished for comment a proposal to all holding companies, under certain amend Regulation Y to add to the list conditions. The Board, therefore, of activities permissible for bank amended Regulation Y to permit acholding companies acting as a futures tivities such as transmission of data, commission merchant for nonaffilprovision of data bases, and provision iated customers. Such activity would of data processing hardware in coninclude executing and clearing futures junction with the provision of percontracts covering bullion, foreign missible software. The amendment exchange, U.S. government securialso specified activities that may be ties, and money market instruments performed for the internal operations that are traded on major exchanges. of the holding company and its sub- The proposal resulted from an apsidiaries and those that may be perplication by a bank holding company formed for others. The related interto act as a futures commission merpretation explained that packaged data chant. The Board approved the approcessing and transmission facilities plication because of the holding comprovided by holding companies should pany's special expertise in that activity be limited to the performance of and because of the safeguards and banking functions. commitments to which the company had agreed. Because of the inherent risks, however, the Board preferred Regulation Z (Truth in Lending) not to make the activity generally per- February 10, 1982—Amendment missible for holding companies. Instead, the Board decided to review The Board amended Regulation Z, applications to engage in the activity effective February 19, 1982, to ex- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

72 Board Policy Actions elude from the definition of an arrang- debt securities that contain a requireer of credit those people, such as ment for future conversion to equity real estate brokers, who arrange securities qualify as primary capital. financing by sellers of real property. The guidelines were issued jointly with the Comptroller of the Cur- Votes for this action: Messrs. Schultz, rency. Wallich, Partee, Rice, and Gramley. Vote against this action: Mrs. Teeters. Votes for this action: Messrs. Volcker, Absent and not voting: Mr. Volcker. Martin, Wallich, Partee, Mrs. Teeters, Messrs. Rice, and Gramley. Votes against this action: None. The 1980 revisions to the Truth in Lending Act required disclosures from persons who are not usually consid- In December 1981, the Board and ered creditors but who routinely ar- the Comptroller of the Currency range for credit to be extended. This jointly issued guidelines for assessing requirement raised the question the capital adequacy of national and whether real estate brokers and agents state member banks and bank holdwho arrange seller-financed pur- ing companies. The guidelines estabchases of homes are required to pro- lished two measures of capital: total vide truth-in-lending disclosures, and capital and primary capital. One of a proposal was made to include such the components of primary capital is arrangers of credit in the require- mandatory convertible securities. ments of Regulation Z. Most Board After adoption of the capital ademembers, however, preferred not to quacy guidelines, several banking oramend the regulation until the Con- ganizations issued or proposed to isgress, which was expected to consider sue mandatory convertible debt that question later in the year, had securities in one of two basic types. reached a decision on the matter. Under the conditions of issuance of Governor Teeters believed real es- one type, holders of the debt instrutate brokers should be included for ments are obligated to purchase simthe protection of borrowers. The other ilar amounts of the issuer's stock by Board members believed the real es- the time the instruments mature. With tate industry should not have to incur the second type, issuers of such debt the expense and difficulty of attempt- instruments are obligated to sell stock ing to comply with a new requirement in sufficient amounts to replace the that the Congress later might make instruments at maturity. moot. The Board, therefore, ex- The revisions to the capital adecluded such brokers from the defini- quacy guidelines specify that the intion of an arranger of credit, with the struments will qualify as primary capunderstanding that it might be nec- ital only if certain conditions are met. essary to consider the matter again. The conditions are designed to assure that the instruments will be replaced Policy Statements and with permanent equity and will be is- Other Actions sued in a form consistent with sound banking principles. In adopting these May 20, 1982—Mandatory guidelines, the Board noted that if an Convertible Securities inadequately capitalized banking or- The Board issued guidelines, effec- ganization issues mandatory converttive immediately, to clarify whether ible securities, the instruments should Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 73 not serve as the basis for additional or limiting provisions to protect the leverage that would reduce its capital investment of the banking organizaratios. tion. Although the guidelines were ef- To determine whether the terms of fective immediately, the Board and equity investment agreements are the Comptroller sought comment on consistent with the Bank Holding them, with the understanding that they Company Act, the Board adopted a might be revised later. policy statement that outlines the factors it will consider. In recognition of the variety of possible arrangements, June 30, 1982—Nonvoting the Board decided not to establish rigid Equity Investments by rules for making determinations of Bank Holding Companies control but, instead, to provide general guidelines. The statement de- The Board adopted a policy state- scribes the types of arrangements that ment, effective July 8, 1982, govern- indicate that controlling interest has ing bank holding company acquisi- been acquired by the investing bank tions of nonvoting equity shares of holding company, and those arrangeother bank holding companies. ments that create the presumption that control has been acquired. In making Votes for this action: Messrs. Martin, Wallich, Partee, Mrs. Teeters, Messrs. its determinations, the Board will look Rice, and Gramley. Votes against this at all aspects of the proposed investaction: None. Absent and not voting: ment, including the amount of non- Mr. Volcker. voting stock being acquired, the existence of terms or conditions that The Bank Holding Company Act unduly restrict the operations of the prohibits a holding company from ac- banking organization in which a holdquiring control of another bank or ing company is investing, and the size bank holding company without prior and terms of any warrants or options approval of the Board and also pro- to acquire voting shares. The statehibits the acquisition of more than 5 ment also requested any company percent of the voting shares of a bank. considering such a nonvoting equity In anticipation of possible statutory investment to review the investment changes that would make interstate with the Board before entering into banking permissable, a number of the agreement. bank holding companies have made substantial equity investments in the September 13, 1982— preferred or nonvoting common stock Modification of the of banking organizations located in Policy on Mandatory other states. In the typical equity in- Convertible Securities vestment arrangement, a holding company acquires a significant por- The Board modified the criteria it tion of another holding company's uses to determine whether mandanonvoting stock, with the under- tory convertible securities issued by standing that, if interstate banking state member banks and bank holdbecomes permissible, the investing ing companies qualify as primary organization will merge with or ac- capital. The revised policy is appliquire the other holding company. cable to securities issued after Sep- Some agreements include restrictive tember 27, 1982. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

74 Board Policy Actions Votes for this action: Messrs. Volcker, The reasons for the Board's deci- Wallich, Partee, Mrs. Teeters, Messrs. sions are reviewed below. In reach- Rice, and Gramley. Votes against this ing those decisions the Board also action: None. Absent and not voting: took into account the economic and Mr. Martin. financial developments that are cov- In May, the Board adopted a policy ered in greater detail elsewhere in statement, issued jointly with the this REPORT. A listing of the Board's Comptroller of the Currency, that set discount rate actions during 1982, forth the conditions under which including the votes on the actions, mandatory convertible debt securities follows this review. qualify as primary capital for purposes of determining capital ade- January to Mid-July: quacy. Although the policy was ef- No Change in Discount Rate fective immediately, the Board sought During the latter part of 1981, intercomment on certain issues, with the est rates had declined considerably understanding that the policy might and the Board had approved reducbe revised later. tions in the basic discount rate from After consideration of the com- 14 percent in late October to 12 ments received, the Board made one percent in early December. In the substantive change in the criteria: it closing weeks of 1981 and the early established a limitation on equityweeks of 1982, relatively rapid growth commitment notes, a type of manin the monetary aggregates and widedatory convertible security. The respread discussion of large prospecvised policy limits the issuance of such tive federal deficits had fostered an notes to 10 percent of an organizaupturn in market interest rates, and tion's primary capital exclusive of by February short-term rates had mandatory convertible issues. The risen to levels well above the basic Board believed that that limitation discount rate. would encourage organizations to rely On March 1, the Board disapmore on equity notes than on equityproved a request from one Federal commitment notes. Certain other Reserve Bank to raise the discount technical changes in the policy also rate by 1 percentage point to 13 were made. percent. The other eleven Banks had The Comptroller of the Currency proposed that the current rate be adopted similar revisions to the policy maintained. The Board decided that for national banks. a higher discount rate was not warranted by conditions in financial 1982 Discount Rates markets. Short-term interest rates, The Board approved seven changes although still relatively high, had in the basic discount rate during edged down from recent peaks, and 1982. All were reductions of Vi monetary growth appeared to have percentage point and they lowered subsided in previous weeks. In reachthe rate from 12 percent in mid-July ing its decision the Board also gave to 8% percent by year-end. The weight to indications of current Board also voted on four occasions weakness in economic activity. to turn down requests for rate changes On April 12, the Board turned submitted by individual Federal Re- down a request by one Reserve Bank serve Banks. to increase the discount rate by 1 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 75 percentage point and requests by two August 13, and August 26. Apart other Banks to lower the rate by V2 from serving to bring the discount percentage point and 1 percentage rate into better alignment with shortpoint respectively. Short-term inter- term market interest rates, the reest rates had changed little during ductions were deemed appropriate previous weeks and remained consid- in view of the continued relatively erably above the basic discount rate. moderate growth in money and of The Board took note, however, of evidence of reduced credit demands the moderation in monetary growth at banks. In reaching its decisions since the early weeks of the year and the Board also took into account of key economic indicators that indications of continued relatively pointed to a decline in economic sluggish economic activity. activity during the first quarter. After The Board disapproved a pending weighing these developments, the reduction of Vi percentage point in Board concluded that on balance the discount rate on September 13 in current economic and financial con- light of prevailing conditions in finanditions argued against a change in cial markets and of the recent perthe discount rate. formance of the monetary aggre- Subsequently, on June 21, the gates. Subsequently, the Board Board disapproved a request by one approved a reduction of Vi percent- Reserve Bank to reduce the discount age point to 9Vi percent on October rate by xh percentage point to IIV2 8. Short-term market rates had depercent. The Board decided that a clined substantially just before this lower discount rate would not be action, after what proved to be a appropriate after the recent increases temporary upturn in previous weeks. in market rates. In the circumstances the Board decided that a decrease of Vi percentage point would maintain an appropriate Mid-July to Mid-December: alignment between the discount rate Reductions in Discount Rate and short-term market rates. During the first part of July, market The final discount rate actions of interest rates declined substantially, the year were reductions of Vi perespecially short-term rates. Treasury centage point approved on Novembill rates fell below the discount rate. ber 19 and December 13. These On July 19, the Board approved a actions were viewed as consistent reduction in the basic discount rate with the prevailing pattern of shortfrom 12 percent to WVi percent. The term interest rates and were taken action was taken in the context of against a background of continued the decline in market rates and was progress toward price stability and also deemed to be appropriate in indications of persisting sluggishness light of the relatively restrained growth in economic activity. The Board of money and credit over the course recognized that recent monetary of recent months. growth had been relatively rapid but Market interest rates declined also noted that such expansion was sharply further during subsequent associated with current economic and weeks, and the Board approved ad- financial uncertainties that were in ditional reductions of V2 percentage turn generating exceptional demands point in the discount rate on July 30, for liquidity. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

76 Board Policy Actions Votes on Reserve Bank March 1, 1982 Actions to Change the The Board disapproved an action Discount Rate taken by the directors of the Federal Under the provisions of the Federal Reserve Bank of St. Louis on Feb- Reserve Act, the boards of directors ruary 23, 1982, to increase the basic of the Federal Reserve Banks are discount rate from 12 percent to 13 required to establish rates on dis- percent. counts for and advances to deposi- Votes for this action: Messrs. Volcker, tory institutions at least every 14 Wallich, Partee, Mrs. Teeters, Messrs. days and to submit such rates to the Rice, and Gramley. Votes against this Board for review and determination. action: None.1 The Board votes listed below are April 12, 1982 those that involved approval or dis- The Board disapproved actions taken approval of actions to establish new by the directors of the Federal Rerates or to change existing rates. serve Bank of St. Louis on April 6 Reference is made in this report to increase the basic discount rate to to the basic discount rate, which is 13 percent, and by the directors of the rate on discounts and advances the Federal Reserve Banks of Chito depository institutions for shortcago and Dallas on April 8 to reduce term adjustment credit. Other catethe basic discount rate to IIV2 pergories of discount window credit cent and 11 percent respectively. include advances made over extended periods to depository institu- Votes for these actions: Messrs. tions that are under sustained liquid- Volcker, Martin, Wallich, Partee, Mrs. Teeters, and Mr. Gramley. Votes ity pressure. Such extended credit against these actions: None. Absent and may also be provided when excep- not voting: Mr. Rice. tional circumstances or practices adversely affect a particular depository June 21, 1982 institution. Finally, so-called sea- The Board disapproved an action sonal credit may be provided for taken by the directors of the Federal periods longer than those permitted Reserve Bank of Chicago on June under adjustment credit to assist 10 to reduce the basic discount rate smaller institutions in meeting reguto ll!/2 percent. lar needs for funds arising from certain expected movements in their Votes for this action: Messrs. Martin, deposits and loans. Wallich, Partee, Mrs. Teeters, and Mr. Rice. Votes against this action: None. As of December 31, 1982, the Absent and not voting: Messrs. Volcker structure of rates was as follows: a and Gramley. basic rate of 8V2 percent for shortterm adjustment credit; a rate for July 19, 1982 seasonal credit of 8V2 percent; and a rate on extended credit of 8V2 percent Effective July 20, 1982, the Board for the first 60 days of borrowing, approved actions taken by the direc- 9V2 percent for the next 90 days of borrowing, and IOV2 percent after 150 days. 1. This note appears on p. 59. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 77 tors of the Federal Reserve Banks of Votes for this action: Messrs. Volcker, New York, Richmond, Atlanta, Chi- Martin, Wallich, Partee, Rice, and Gramley. Votes against this action: cago, Kansas City, Dallas, and San None. Absent and not voting: Mrs. Francisco to reduce the basic dis- Teeters. count rate from 12 percent to 11V2 percent. August 26, 1982 Votes for this action: Messrs. Volcker, Effective August 27, 1982, the Board Martin, Partee, Mrs. Teeters, and Mr. approved actions taken by the direc- Rice. Votes against this action: None. tors of the Federal Reserve Banks of Absent and not voting: Messrs. Wallich and Gramley. Boston, New York, Philadelphia, Richmond, Atlanta, Chicago, St. The Board subsequently approved Louis, Minneapolis, Kansas City, similar actions taken by the directors Dallas, and San Francisco to reduce of the Federal Reserve Banks of Bosthe basic discount rate to 10 percent. ton, Cleveland, St. Louis, and Minneapolis, effective July 21, and Phil- Votes for this action: Messrs. Volcker, adelphia, effective July 23, 1982. Martin, Wallich, and Partee. Votes against this action: None. Absent and not voting: Mrs. Teeters and Messrs. Rice and Gramley. July 30, 1982 The Board subsequently approved Effective August 2, 1982, the Board a similar action taken by the directors approved actions taken by the direc- of the Federal Reserve Bank of tors of the Federal Reserve Banks of Cleveland, effective August 30, 1982. Boston, New York, Philadelphia, Richmond, Atlanta, Chicago, St. September 13, 1982 Louis, Minneapolis, Kansas City, The Board disapproved an action Dallas, and San Francisco to reduce taken by the directors of the Federal the basic discount rate to 11 percent. Reserve Bank of Chicago on Septem- Votes for this action: Mr. Volcker, Mrs. ber 9 to reduce the basic discount Teeters, Messrs. Rice, and Gramley. rate to 9Vi percent. Votes against this action: None. Absent and not voting: Messrs. Martin, Votes for this action: Messrs. Volcker, Wallich, and Partee. Wallich, Partee, Mrs. Teeters, Messrs. Rice, and Gramley. Votes against this The Board subsequently approved action: None. Absent and not voting: a similar action taken by the directors Mr. Martin. of the Federal Reserve Bank of Cleveland, effective August 3, 1982. October 8, 1982 Effective October 12, 1982, the Board approved actions taken by the direc- August 13, 1982 tors of the Federal Reserve Banks of Effective August 16, 1982, the Board Boston, New York, Philadelphia, approved actions taken by the direc- Richmond, Atlanta, Chicago, St. tors of all of the Federal Reserve Louis, Minneapolis, Kansas City, Banks to reduce the basic discount and Dallas to reduce the basic disrate to lOVi percent. count rate to 9V2 percent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

78 Board Policy Actions Effective October 11, 1982, the Messrs. Rice, and Gramley. Votes Board approved an action taken by against this action: None. the directors of the Federal Reserve Bank of San Francisco and those of The Board subsequently approved its branches that were open on that similar actions taken by the directors date to reduce the basic discount of the Federal Reserve Banks of Dalrate to 9V2 percent; the effective date las, effective November 23, and Clevefor the Salt Lake City Branch was land, effective November 26, 1982. October 12. Votes for these actions: Messrs. Volcker, Martin, Partee, Mrs. Tee- December 13, 1982 ters, Messrs. Rice, and Gramley. Votes against these actions: None. Absent and Effective December 14, 1982, the not voting: Mr. Wallich. Board approved actions taken by the directors of the Federal Reserve The Board subsequently approved Banks of Boston, Atlanta, Chicago, a similar action taken by the directors St. Louis, Minneapolis, Dallas, and of the Federal Reserve Bank of San Francisco to reduce the basic Cleveland, effective October 13,1982. discount rate to 8V2 percent. Votes for this action: Messrs. Volcker, November 19, 1982 Martin, Partee, Mrs. Teeters, Messrs. Rice, and Gramley. Votes against this Effective November 22, 1982, the action: None. Absent and not voting: Board approved actions taken by the Mr. Wallich. directors of the Federal Reserve Banks of Boston, New York, Phila- The Board subsequently approved delphia, Richmond, Atlanta, Chi- similar actions taken by the directors cago, St. Louis, Minneapolis, Kansas of the Federal Reserve Banks of New City, and San Francisco to reduce York, Cleveland, Richmond, and the basic discount rate to 9 percent. Kansas City, effective December 15, Votes for this action: Messrs. Volcker, and Philadelphia, effective Decem- Martin, Wallich, Partee, Mrs. Teeters, ber 17, 1982. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

79 Record of Policy Actions of the Federal Open Market Committee The record of policy actions of the the reasons for the particular decision Federal Open Market Committee is or as to the precise operations in the presented in the ANNUAL REPORT of open market that were called for to the Board of Governors pursuant to implement the general policy. the requirements of section 10 of the During 1982 the policy record for Federal Reserve Act. That section each meeting was released a few days provides that the Board shall keep a after the next regularly scheduled complete record of the actions taken meeting and was subsequently pubby the Board and by the Federal Open lished in the Federal Reserve Bulletin. Market Committee on all questions Policy directives of the Federal of policy relating to open market op- Open Market Committee are issued erations, that it shall record therein to the Federal Reserve Bank of New the votes taken in connection with the York as the Bank selected by the determination of open market poli- Committee to execute transactions for cies and the reasons underlying each the System Open Market Account. In such action, and that it shall include the area of domestic open market acin its ANNUAL REPORT to the Con- tivities, the Federal Reserve Bank of gress a full account of such actions. New York operates under two sepa- In the pages that follow, there are rate directives from the Open Market entries with respect to the policy ac- Committee: an Authorization for Dotions taken at the meetings of the mestic Open Market Operations and Federal Open Market Committee held a Domestic Policy Directive. (A new during the calendar year 1982, in- Domestic Policy Directive is adopted cluding the votes on the policy deci- at each regularly scheduled meeting.) sions made at those meetings as well In the foreign currency area, it opas a resume of the basis for the de- erates under an Authorization for cisions. The summary descriptions of Foreign Currency Operations and a economic and financial conditions are Foreign Currency Directive. These four instruments are shown below in based on the information that was the form in which they were in effect available to the Committee at the time at the beginning of 1982. Changes in of the meetings, rather than on data the instruments during the year are as they may have been revised later. reported in the records for the indi- It will be noted from the record of vidual meetings. policy actions that in some cases the decisions were made by unanimous vote and that in other cases dissents were recorded. The fact that a deci- Authorization for Domestic sion in favor of a general policy was Open Market Operations by a large majority, or even that it In Effect January 1, 1982 was by unanimous vote, does not necessarily mean that all members of the 1. The Federal Open Market Commit- Committee were equally agreed as to tee authorizes and directs the Federal Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

80 FOMC Policy Actions Reserve Bank of New York, to the extent within the United States of goods under necessary to carry out the most recent contract of sale or expected to move into domestic policy directive adopted at a the channels of trade within a reasonable meeting of the Committee: time and that are secured throughout (a) To buy or sell U.S. Government their life by a warehouse receipt or securities, including securities of the Fed- similar document conveying title to the eral Financing Bank, and securities that underlying goods; provided that the agare direct obligations of, or fully guar- gregate amount of bankers acceptances anteed as to principal and interest by, held at any one time shall not exceed any agency of the United States in the $100 million; open market, from or to securities deal- (c) To buy U.S. Government secuers and foreign and international ac- rities, obligations that are direct obligacounts maintained at the Federal Reserve tions of, or fully guaranteed as to prin- Bank of New York, on a cash, regular, cipal and interest by, any agency of the or deferred delivery basis, for the System United States, and prime bankers ac- Open Market Account at market prices ceptances of the types authorized for and, for such Account, to exchange purchase under l(b) above, from dealers maturing U.S. Government and Federal for the account of the Federal Reserve agency securities with the Treasury or Bank of New York under agreements for the individual agencies or to allow them repurchase of such securities, obligations, to mature without replacement; provided or acceptances in 15 calendar days or that the aggregate amount of U.S. Gov- less, at rates that, unless otherwise exernment and Federal agency securities pressly authorized by the Committee, held in such Account (including forward shall be determined by competitive bidcommitments) at the close of business on ding, after applying reasonable limitathe day of a meeting of the Committee tions on the volume of agreements with at which action is taken with respect to individual dealers; provided that in the a domestic policy directive shall not be event Government securities or agency increased or decreased by more than $4.0 issues covered by any such agreement billion1 during the period commencing are not repurchased by the dealer purwith the opening of business on the day suant to the agreement or a renewal following such meeting and ending with thereof, they shall be sold in the market the close of business on the day of the or transferred to the System Open Marnext such meeting; ket Account; and provided further that (b) When appropriate, to buy or sell in the event bankers acceptances covered in the open market, from or to accep- by any such agreement are not repurtance dealers and foreign accounts main- chased by the seller, they shall continue tained at the Federal Reserve Bank of to be held by the Federal Reserve Bank New York, on a cash, regular, or de- or shall be sold in the open market. ferred delivery basis, for the account of 2. The Federal Open Market Committhe Federal Reserve Bank of New York tee authorizes and directs the Federal at market discount rates, prime bankers Reserve Bank of New York (or, under acceptances with maturities of up to 9 special circumstances, such as when the months at the time of acceptance that New York Reserve Bank is closed, any (1) arise out of current shipment of goods other Federal Reserve Bank) (a) to lend between countries or within the United to the Treasury such amounts of securi- States, or (2) arise out of the storage ties held in the System Open Market Account as may be necessary from time to time for the temporary accommodation of the Treasury, under such condi- 1. Pursuant to an action taken by the tions as the Committee may specify; and Committee at its meeting on December 21- (b) to purchase directly from the Trea- 22, 1981, the limit on changes between Com- sury for renewable periods not to exceed mittee meetings in System Account holdings 30 days, when authorized by the Board of U.S. government and federal agency secu- of Governors of the Federal Reserve rities was set at $4.0 billion for the period System pursuant to an affirmative vote through the close of business on February 2, of not less than five members, for its 1982, at which time it reverted to $3.0 billion. own account (with discretion, in cases Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 81 where it seems desirable, to issue partic- Domestic Policy Directive ipations to one or more Federal Reserve Banks) such amounts of special short- In Effect January 1, 19822 term certificates of indebtedness as may The information reviewed at this meeting be necessary from time to time for the suggests that real GNP declined appretemporary accommodation of the Treaciably in the fourth quarter and that sury, provided that the rate charged on prices on the average rose less rapidly such certificates shall be a rate of VA of 1 than over the first three quarters of the percent below the discount rate of the year. In November industrial production Federal Reserve Bank of New York at fell more than in preceding months; the time of such purchases and provided nonfarm payroll employment, especially that the total amount of such certificates in manufacturing, declined sharply furheld at any one time by the Federal ther; and the unemployment rate rose an Reserve Banks shall not exceed $2 biladditional 0.4 percentage points to 8.4 lion. percent. The nominal value of retail sales 3. In order to ensure the effective increased, but the level was still well conduct of open market operations, the below the average for the third quarter. Federal Open Market Committee au- Housing starts remained at a depressed thorizes and directs the Federal Reserve level. The rise in the index of average Banks to lend U.S. Government securihourly earnings has been somewhat less ties held in the System Open Market rapid this year than during 1980. Account to Government securities dealers and to banks participating in Govern- The weighted average value of the ment securities clearing arrangements dollar against major foreign currencies conducted through a Federal Reserve has changed little on balance since mid- Bank, under such instructions as the November. The U.S. foreign trade deficit Committee may specify from time to in October widened substantially from time. the unusually low rate in September, and the average for the two months was 4. In order to ensure the effective about the same as that for July and conduct of open market operations, while August. assisting in the provision of short-term investments for foreign and international Ml-B (adjusted for estimated shifts accounts maintained at the Federal Re- into NOW accounts) expanded substanserve Bank of New York, the Federal tially in November and early December, Open Market Committee authorizes and but its level in November was still well directs the Federal Reserve Bank of New below the lower end of the Committee's York (a) for System Open Market Ac- range for growth over the year from the count, to sell U.S. Government securities fourth quarter of 1980 to the fourth to such foreign and international ac- quarter of 1981. Growth of M2 accelercounts on the basis set forth in paragraph ated sharply in November, raising its 1 (a) under agreements providing for the level above the upper end of its range resale by such accounts of those securities for the year. Short-term market interest within 15 calendar days on terms com- rates and bond yields continued to deparable to those available on such trans- cline in the latter part of November, but actions in the market; and (b) for New since then they have risen to levels York Bank account, when appropriate, generally higher than those of midto undertake with dealers, subject to the November; over the period since midconditions imposed on purchases and November, mortgage interest rates have sales of securities in paragraph 1 (c), declined further. On December 3 the repurchase agreements in U.S. Govern- Board of Governors announced a reducment and agency securities, and to ar- tion in Federal Reserve basic discount range corresponding sale and repurchase rates from 13 to 12 percent. agreements between its own account and The Federal Open Market Committee foreign and international accounts main- seeks to foster monetary and financial tained at the Bank. Transactions under- conditions that will help to reduce inflataken with such accounts under the provisions of this paragraph may provide 2. Adopted by the Committee at its meeting for a service fee when appropriate. on December 21-22, 1981. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

82 FOMC Policy Actions tion, promote a resumption of growth in for Committee consultation if it appears output on a sustainable basis, and con- to the Manager for Domestic Operations tribute to a sustainable pattern of inter- that pursuit of the monetary objectives national transactions. At its meeting in and related reserve paths during the early July, the Committee agreed that its period before the next meeting is likely objectives would be furthered by reaf- to be associated with a federal funds rate firming the monetary growth ranges for persistently outside a range of 10 to 14 the period from the fourth quarter of percent. 1980 to the fourth quarter of 1981 that it had set at the February meeting. These Authorization for Foreign ranges included growth of 3Vi to 6 Currency Operations percent for Ml-B, abstracting from the impact of flows into NOW accounts on a In Effect January 1, 1982 nationwide basis, and growth of 6 to 9 percent and 6^2 to 9!/2 percent for M2 1. The Federal Open Market Commitand M3 respectively. The Committee tee authorizes and directs the Federal recognized that the shortfall in Ml-B Reserve Bank of New York, for System growth in the first half of the year partly Open Market Account, to the extent reflected a shift in public preferences necessary to carry out the Committee's toward other highly liquid assets and that foreign currency directive and express growth in the broader aggregates had authorizations by the Committee purbeen running at about or somewhat suant thereto, and in conformity with above the upper end of their ranges. In such procedural instructions as the Comlight of its desire to maintain moderate mittee may issue from time to time: growth in money over the balance of the A. To purchase and sell the followyear, the Committee expected that growth ing foreign currencies in the form of in Ml-B for the year would be near the cable transfers through spot or forward lower end of its range. At the same time, transactions on the open market at home growth in the broader aggregates might and abroad, including transactions with be high in their ranges. The associated the U.S. Treasury, with the U.S. Exrange for bank credit was 6 to 9 percent. change Stabilization Fund established by The Committee also tentatively agreed Section 10 of the Gold Reserve Act of that for the period from the fourth 1934, with foreign monetary authorities, quarter of 1981 to the fourth quarter of with the Bank for International Settle- 1982 growth of Ml, M2, and M3 within ments, and with other international firanges of 2V2 to 5Vi percent, 6 to 9 nancial institutions: percent, and 61/2 to 91/2 percent respec- Austrian schillings Italian lire tively would be appropriate. Belgian francs Japanese yen In the short run, the Committee seeks Canadian dollars Mexican pesos behavior of reserve aggregates consistent Danish kroner Netherlands guilders Pounds sterling Norwegian kroner with growth of Ml and M2 from Novem- French francs Swedish kronor ber 1981 to March [1982] at annual rates German marks Swiss francs of around 4 to 5 percent and 9 to 10 percent respectively. The target for Ml B. To hold balances of, and to have no longer reflects the "shift-adjustment" outstanding forward contracts to receive for conversion of outstanding interest- or to deliver, the foreign currencies listed bearing assets into new NOW accounts, in paragraph A above. formerly estimated in the "shift-ad- C. To draw foreign currencies and justed" Ml-B series. In setting the Ml to permit foreign banks to draw dollars target, the Committee took account of under the reciprocal currency arrangethe relatively rapid growth that had ments listed in paragraph 2 below, proalready taken place through the first part vided that drawings by either party to of December; it also recognized that any such arrangement shall be fully interpretation of actual money growth liquidated within 12 months after any may need to take account of the signifi- amount outstanding at that time was first cance of fluctuations in NOW accounts, drawn, unless the Committee, because which have recently been growing rela- of exceptional circumstances, specifically tively rapidly. The Chairman may call authorizes a delay. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 83 D. To maintain an overall open ing an investment return on System holdposition in all foreign currencies not ings of foreign currencies, or for the purexceeding $8.0 billion. For this purpose, pose of adjusting interest rates paid or the overall open position in all foreign received in connection with swap drawcurrencies is defined as the sum (disre- ings, transactions with foreign central garding signs) of net positions in individ- banks may be undertaken at nonmarket ual currencies. The net position in a exchange rates. single foreign currency is defined as 4. It shall be the normal practice to arholdings of balances in that currency, range with foreign central banks for the plus outstanding contracts for future coordination of foreign currency transreceipt, minus outstanding contracts for actions. In making operating arrangefuture delivery of that currency, i.e., as ments with foreign central banks of Systhe sum of these elements with due tem holdings of foreign currencies, the regard to sign. Federal Reserve Bank of New York shall 2. The Federal Open Market Commit- not commit itself to maintain any specific tee directs the Federal Reserve Bank of balance, unless authorized by the Federal New York to maintain reciprocal cur- Open Market Committee. Any agreerency arrangements ("swap" arrange- ments or understandings concerning the ments) for the System Open Market administration of the accounts main- Account for periods up to a maximum tained by the Federal Reserve Bank of of 12 months with the following foreign New York with the foreign banks desigbanks, which are among those designated nated by the Board of Governors under by the Board of Governors of the Federal Section 214.5 of Regulation N shall be Reserve System under Section 214.5 of referred for review and approval to the Regulation N, Relations with Foreign Committee. Banks and Bankers, and with the ap- 5. Foreign currency holdings shall be proval of the Committee to renew such invested insofar as practicable, considerarrangements on maturity: ing needs for minimum working balances. Such investments shall be in liquid form, and generally have no more than 12 months Amount of arrangement remaining to maturity. When appropriate Foreign bank (millions of dollars equivalent) in connection with arrangements to provide investment facilities for foreign cur- Austrian National Bank 250 rency holdings, U.S. Government secu- National Bank of Belgium 1,000 Bank of Canada 2,000 rities may be purchased from foreign National Bank of Denmark 250 central banks under agreements for re- Bank of England 3,000 purchase of such securities within 30 cal- Bank of France 2,000 German Federal Bank 6,000 endar days. Bank of Italy 3,000 6. All operations undertaken pursuant Bank of Japan 5,000 to the preceding paragraphs shall be re- Bank of Mexico 700 Netherlands Bank 500 ported promptly to the Foreign Currency Bank of Norway 250 Subcommittee and the Committee. The Bank of Sweden 300 Foreign Currency Subcommittee consists Swiss National Bank 4,000 of the Chairman and Vice Chairman of Bank for International Settlements Dollars against Swiss francs 600 the Committee, the Vice Chairman of the Dollars against authorized European Board of Governors, and such other currencies other than Swiss francs 1,250 members of the Board as the Chairman may designate (or in the absence of mem- Any changes in the terms of existing swap bers of the Board serving on the Subcomarrangements, and the proposed terms of mittee, other Board Members designated any new arrangements that may be au- by the Chairman as alternates, and in the thorized, shall be referred for review and absence of the Vice Chairman of the approval to the Committee. Committee, his alternate). Meetings of the 3. All transactions in foreign currencies Subcommittee shall be called at the reundertaken under paragraph 1(A) above quest of any member, or at the request shall, unless otherwise expressly autho- of the Manager for Foreign Operations, rized by the Committee, be at prevailing for the purposes of reviewing recent or market rates. For the purpose of provid- contemplated operations and of consult- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

84 FOMC Policy Actions ing with the Manager on other matters ering disorderly market conditions, prorelating to his responsibilities. At the re- vided that market exchange rates for the quest of any member of the Subcommit- U.S. dollar reflect actions and behavior tee, questions arising from such reviews consistent with the IMF Article IV, and consultations shall be referred for de- Section 1. termination to the Federal Open Market 2. To achieve this end the System Committee. shall: 7. The Chairman is authorized: A. Undertake spot and forward A. With the approval of the Com- purchases and sales of foreign exchange. mittee, to enter into any needed agree- B. Maintain reciprocal currency ment or understanding with the Secretary ("swap") arrangements with selected forof the Treasury about the division of re- eign central banks and with the Bank for sponsibility for foreign currency opera- International Settlements. tions between the System and the Trea- C. Cooperate in other respects with sury; central banks of other countries and with B. To keep the Secretary of the international monetary institutions. Treasury fully advised concerning System 3. Transactions may also be underforeign currency operations, and to con- taken: sult with the Secretary on policy matters A. To adjust System balances in relating to foreign currency operations; light of probable future needs for curren- C. From time to time, to transmit cies. appropriate reports and information to the B. To provide means for meeting National Advisory Council on Interna- System and Treasury commitments in tional Monetary and Financial Policies. particular currencies, and to facilitate 8. Staff officers of the Committee are operations of the Exchange Stabilization authorized to transmit pertinent infor- Fund. mation on System foreign currency op- C. For such other purposes as may erations to appropriate officials of the be expressly authorized by the Commit- Treasury Department. tee. 9. All Federal Reserve Banks shall par- 4. System foreign currency operations ticipate in the foreign currency operations shall be conducted: for System Account in accordance with A. In close and continuous consulparagraph 3G(1) of the Board of Gov- tation and cooperation with the United ernors' Statement of Procedure with Re- States Treasury; spect to Foreign Relationships of Federal B. In cooperation, as appropriate, Reserve Banks dated January 1, 1944. with foreign monetary authorities; and C. In a manner consistent with the Foreign Currency Directive obligations of the United States in the International Monetary Fund regarding In Effect January 1, 1982 exchange arrangements under the IMF Article IV. 1. System operations in foreign currencies shall generally be directed at count- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 85 Meeting Held on Sales of new domestic automobiles February 1-2, 1982 fell to an annual rate of 4.9 million units in December, the lowest Domestic Policy Directive monthly pace in 22 years. Auto sales picked up in the first few weeks of Preliminary estimates of the Com- January, but continued at an excepmerce Department indicated that tionally low rate. real gross national product had de- Private housing starts rose 13 perclined at an annual rate of about 5]A cent in December from the depercent in the fourth quarter of 1981. pressed rate in November, but re- Average prices, as measured by the mained below an annual rate of 1 fixed-weight price index for gross million units. Nearly all of the indomestic business product, in- crease was in multifamily units. creased at an annual rate of about 7 Sales of existing homes picked up percent, much less rapidly than over somewhat in December, as had sales the first three quarters of the year. of new homes in November; never- During 1981, real GNP and nominal theless, total home sales in Novem- GNP grew about 3A percent and 9lA ber were about one-third below their percent respectively, and the price year-earlier level. index referred to above rose about 9 The producer price index for finpercent. ished goods rose 0.3 percent in De- The index of industrial production cember, compared with 0.5 percent fell 2.1 percent further in December, in November. During 1981 the index for a cumulative decline of about 7 rose 7 percent, compared with the percent over the last five months of increase of nearly 12 percent over 1981. The decline in December again 1980. Producer prices of consumer was broadly based, reflecting output foods rose only a little during 1981, reductions for nearly all major prod- and the rise in energy prices moderuct groupings, and it was particular- ated, as a surge early in the year ly sharp for durable consumer goods after decontrol of oil prices was foland both durable and nondurable lowed by some decline in the second goods materials. Available data, no- half. Producer prices of other contably for the automotive and steel sumer goods and capital equipment industries, suggested further produc- also rose less rapidly in 1981 than in tion cutbacks in January. 1980. The consumer price index rose Total nonfarm payroll employ- 0.4 percent in December; over the ment declined sharply in December year the index increased about 9 for the third consecutive month. Job percent, compared with a rise of losses in manufacturing continued about 12V2 percent over 1980. Insizable, totaling more than 700,000 creases were smaller in 1981 than in in the fourth quarter. The unemploy- 1980 for all major components of the ment rate rose an additional 0.5 per- index. centage point in December to 8.9 The rise in the index of average percent. hourly earnings slowed considerably The nominal value of retail sales in the final three months of 1981 increased somewhat further in De- from the pace earlier in the year. cember, but the level remained be- Over the year, the index rose about low the average for the third quarter. SVA percent, compared with an in- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

86 FOMC Policy Actions crease of about 9Vi percent over M2 moderated in December to an 1980. annual rate of about 73A percent, but In foreign exchange markets the picked up in January to a rate estitrade-weighted value of the dollar mated at about 11 percent; the subagainst major foreign currencies rose stantial growth over the two months about 4 percent during January, re- reflected strength in the more liquid flecting primarily responses to the of the nontransaction components as widening differential between U.S. well as in Ml.1 Some evidence sugand foreign interest rates. Foreign gested that the disproportionate monetary authorities intervened growth in NOW and similar acconsiderably to resist the deprecia- counts in recent months had resulted tion of their currencies. The U.S. at least in part from a desire of trade deficit increased in the fourth individuals to hold liquid balances quarter from the rate in the previous because of uncertainties about ecotwo quarters, as nonagricultural ex- nomic prospects and interest rates. ports declined and non-oil imports The pace of monetary growth in rose. December and January raised re- At its meeting on December 21- quired reserves and generated de- 22, 1981, the Committee had decided mands for reserves considerably in that open market operations in the excess of the volume supplied during period until this meeting should be directed toward behavior of reserve 1. The growth rates cited are based on aggregates consistent with growth of revised data for the monetary aggregates, reflecting new benchmarks and revised sea- Ml and M2 from November 1981 to sonal factors and some minor changes in the March 1982 at annual rates of around definition of M2, that were published on Feb- 4 to 5 percent and around 9 to 10 ruary 5. As redefined, M2 no longer includes percent respectively. In setting the institution-only money market mutual funds (which remain in M3) and includes retail reobjective for Ml, the Committee purchase agreements (RPs) in denominations took account of the relatively rapid of less than $100,000 (which were already in growth that had already taken place M3). through the first part of December. The monetary aggregates are defined as The intermeeting range for the feder- follows: Ml comprises demand deposits at commercial banks and thrift institutions, cural funds rate, which provides a rency in circulation, traveler's checks, negomechanism for initiating consulta- tiable order of withdrawal (NOW) and autotion of the Committee between regu- matic transfer service (ATS) accounts at larly scheduled meetings, was set at banks and thrift institutions, and credit union share draft accounts. M2 contains Ml and 10 to 14 percent. savings and small-denomination time deposits Ml grew at an annual rate of 11 !/2 at all depository institutions, overnight repurpercent in December and acceler- chase agreements (RPs) at commercial banks ated in January to a rate estimated to and retail RPs at all depository institutions, overnight Eurodollars held at Caribbean be above 20 percent. Expansion in branches of member banks by U.S. residents checkable deposits other than deother than banks, and money market mutual mand accounts (other checkable de- fund shares other than those restricted to posits, or OCDs), which accounted institutions. M3 is M2 plus large-denominafor a substantial part of the accelera- tion time deposits at all depository institutions, large-denomination term RPs at comtion of Ml growth in November and mercial banks and savings and loan December, apparently was even associations, and institution-only money marmore rapid in January. Growth of ket mutual funds. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 87 the intermeeting period through Sys- also registered sizable gains. From tem open market operations. Conse- the fourth quarter of 1980 to the quently, borrowings from Federal fourth quarter of 1981, bank credit Reserve Banks for purposes of ad- expanded S3A percent. Issuance of justing reserve positions expanded commercial paper by nonfinancial sharply; borrowings averaged nearly institutions was relatively strong in $1.3 billion in the four statement December, but slowed in early Januweeks ending January 27, compared ary. with an average of about $425 mil- Staff projections presented at this lion in the four weeks ending De- meeting suggested that real GNP cember 23. The federal funds rate would decline further in the current rose from around 121A percent in the quarter and then begin to recover in days preceding the December meet- the second quarter. The unemploying to about 14 percent in the days ment rate was expected to increase just before this meeting. to a peak in the second quarter, Against a background of contin- while inflation, as measured by the ued rapid growth in monetary aggre- fixed-weight price index for gross gates and large prospective federal domestic business product, was prodeficits, market interest rates had jected to slow further over the year. risen on balance since the Commit- Views of Committee members tee's meeting in December: short- concerning economic activity and term rates increased about Wi to 2Vi prices during 1982 generally differed percentage points and bond yields little from the staff projections. The rose about Vi to 1 percentage point. members thought that recovery in The prime rate charged by most activity most likely would begin becommercial banks on short-term fore long, although they differed business loans remained at 153/4 per- somewhat with regard to its probacent during the intermeeting inter- ble strength. Their projections of val. Average rates on new commit- growth in real GNP over the year ments for fixed-rate conventional ending in the fourth quarter of 1982 home mortgage loans increased ranged from V2 percent to 3 percent. nearly 3A of a percentage point. However, a number of members ex- Total credit at U.S. commercial pressed concern about the risk that banks, adjusted for shifts of assets the recession might be prolonged by from U.S. offices of banks to recent- greater weakness in business capital ly established international banking investment than currently anticipatfacilities (IBFs), expanded at an an- ed or by other developments. Memnual rate of about 11 percent in De- bers were unanimous in the view cember.2 Growth in business loans that the reduction in the rise in accelerated substantially, and secur- prices was likely to continue: their ity, real estate, and consumer loans projections for the increase in the GNP implicit deflator over the year ranged from 6V2 to VIA percent, com- 2. International banking facilities began op- pared with a rise of about 8V2 pererations on December 3, 1981. The adjust- cent over the year ending in the ment made in calculating growth in bank fourth quarter of 1981. credit involved adding back assets estimated At this meeting, the Committee to have been transferred from U.S. banking offices to IBFs. completed the review, begun at the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

88 FOMC Policy Actions meeting in December 1981, of the year would be near the lower bound ranges for growth of monetary ag- of its range and that growth of M2 gregates over the period from the and M3 might well be around the fourth quarter of 1981 to the fourth upper ends of their ranges. quarter of 1982 within the frame- The divergence in behavior bework of the Full Employment and tween the narrow monetary aggre- Balanced Growth Act of 1978. At its gate and the broader ones proved to meeting in July 1981, the Committee be even greater than had been exhad reaffirmed the ranges for growth pected at midyear. From the fourth over the year ending in the fourth quarter of 1980 to the fourth quarter quarter of 1981 that it had set in early of 1981, growth of Ml-B adjusted for February. These ranges were 3 to shifts into NOW accounts was about 51/2 percent for Ml-A and V/i to 6 2!/4 percent, approximately VA perpercent for Ml-B, abstracting from centage points below the lower end the impact of the introduction of of its range. Growth in this aggregate NOW accounts on a nationwide ba- over the year was slow in relation to sis; 6 to 9 percent for M2; and 6V2 to growth of nominal GNP, as financial 9!/2 percent for M3. The associated innovations and high interest rates range for growth of commercial bank induced changes in cash-managecredit was 6 to 9 percent. For the ment techniques. Growth of M2 and year ending in the fourth quarter of M3 over the year was about 9Vi 1982, the Committee had tentatively percent and 11 ]A percent respectiveagreed that growth of Ml, M2, and ly, about Vi percentage point and VA M3 within ranges of 2Vi to 5Vi per- percentage points above the upper cent, 6 to 9 percent, and 6V2 to 9Vi ends of their ranges. The relatively percent respectively would be ap- strong growth of M2 reflected in part propriate.3 shifts of funds from market instru- When the Committee reaffirmed ments to money market mutual the ranges for 1981 at its meeting in funds and the expansion of small July, it recognized that the diver- savers certificates at depository institutions in response to liberalizagence in growth of the various monetion of interest rate ceilings; M3 tary aggregates was proving to be grew more than M2 because of a considerably greater than had been substantial expansion in large-deanticipated at the beginning of the nomination CDs, as depository instiyear, even after allowance for the tutions increased their managed lieffects of shifts into NOW accounts. abilities to support expansion in Thus it was thought likely and desirloans and investments. able that growth of Ml-B over the In contemplating ranges for 1982, the Committee continued to face un- 3. In looking ahead to 1982, it had been usual uncertainties concerning the decided to abandon the compilation of Ml-A forces affecting monetary growth. It and the shift-adjusted Ml-B (that is, Ml-B seemed likely that the recent expanadjusted to exclude that portion of flows into NOW accounts in 1981 estimated to have sion in NOW accounts would prove come from other interest-bearing assets rather to be mostly a temporary aberration than from demand deposits). The remaining in individuals' liquidity preferences aggregate for Ml is the one formerly labeled and that the relationship between Ml-B, which includes the total amount of growth of money and of nominal NOW accounts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 89 GNP would be closer to historical Committee's range for last year. patterns. The ongoing changes in Such an adjustment of the base financial technology, which had re- would in effect recognize that the duced demand for Ml for most of recent burst in growth of Ml had 1981, were generally presumed to brought its level more in line with have effects in 1982 consistent with the lower end of the 1981 range and, earlier experience, unless such ar- unless the burst proved to be temporangements as "sweeps" of individ- rary, could provide a more appropriual checking accounts into money ate starting point. market funds or other instruments Members differed somewhat more became widespread. With respect to in their views concerning the broad- M2, growth could be augmented if er monetary aggregates. Most dethe scheduled reduction in federal sired to reaffirm the tentative range income taxes or other influences of 6 to 9 percent adopted last July. raised the personal saving rate or if However, a substantial number inidepository institutions attracted an tially favored specification of slightexceptionally large flow of funds into ly higher ranges, largely because of individual retirement accounts their assessments of the likely im- (IRAs) from sources not included in pact of various developments that M2. would tend to raise growth of M2 In the Committee's discussion of relative to that of Ml. One member ranges for monetary growth in 1982, suggested that in pursuit of its objecthe members were in agreement on tives during the course of the year the need to maintain the commit- the Committee give more weight to ment to the long-standing goal of M2 than to Ml, because of the volarestraining growth of money and tility of the behavior of the narrower credit, thereby contributing to a fur- aggregate in the short run reflecting, ther reduction in the rate of inflation among other things, the response of and providing the basis for restora- NOW accounts to changing liquidity tion of economic stability and sus- preferences and interest rates. More tainable growth in output. Neverthe- generally, it was felt that considerless, members differed somewhat in able weight should be given to M2 in their views concerning the particular interpreting developments during ranges most appropriate for the the year. year. At the conclusion of the discus- For Ml, most members favored sion, the Committee decided to reafreaffirming the range of 2!/2 to 5Vi firm the ranges for 1982 that had percent that had been tentatively been tentatively established in midadopted at the meeting in July 1981. 1981. Thus the Committee adopted One member advocated a somewhat the following ranges for growth of higher range, with a view to promot- the monetary aggregates from the ing more growth of real GNP and a fourth quarter of 1981 to the fourth lower rate of unemployment. In ad- quarter of 1982: for Ml, 2Vi to 5Vi dition, some sentiment was ex- percent; for M2, 6 to 9 percent; and pressed for retaining the range of 2Vi for M3, 6!/2 to 9!/2 percent. The assoto 5!/2 percent but taking the base ciated range for commercial bank level of Ml in the fourth quarter of credit was 6 to 9 percent. 1981 to be the lower end of the In setting the range for Ml, the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

90 FOMC Policy Actions Committee recognized that the re- The Committee adopted the following cent rapid increase in that aggregate ranges for growth in the monetary aggregates for the period from the fourth quarplaced it in January well above the ter of 1981 to the fourth quarter of 1982: average in the fourth quarter of 1981 Ml, Vh to 51/2 percent; M2, 6 to 9 perbut that it was too early to judge cent; and M3, 6I/2 to 9Vi percent. The conclusively the extent to which the associated range for bank credit is 6 to 9 percent. upsurge reflected temporary influences rather than a basic change in Votes for this action: Messrs. the amount of money needed to fi- Volcker, Solomon, Boehne, Boykin, Corrigan, Gramley, Keehn, Partee, nance growth of nominal GNP. On Rice, Schultz, and Wallich. Vote the assumption that the relationship against this action: Mrs. Teeters. between growth of Ml and the expansion of nominal GNP was likely Mrs. Teeters dissented from this to be closer to normal than it had action because she believed that been in 1981, the Committee consomewhat higher monetary growth templated that growth of Ml in 1982 over the year ahead was needed to might acceptably be in the upper promote adequate expansion in ecopart of its range. The lower part of nomic activity and a reduction in the the range was considered approprirate of unemployment. Specifically, ate to allow for the possibility that she favored a range for Ml that was institutional or regulatory changes at least Vi percentage point higher would speed the process of econothan that adopted by the Committee mizing on the cash balances included and a range for M2 that provided for in Ml. The Committee also contem- somewhat greater growth in the plated that growth of M2 was likely broader aggregate relative to that in to be high within its range, although Ml. growth still would be somewhat below that in 1981. However, growth In contemplating its objectives for of M2 might appropriately reach or monetary growth over the remainder even slightly exceed the upper end of the first quarter of the new year, of its range if personal savings grew the Committee took account of the much more rapidly in relation to very rapid rise in Ml in recent income than anticipated or if deposimonths, especially in January. Givtory institutions attracted an excepen the apparent persistence of slow tionally large flow of funds into IRAs growth in nominal GNP in the first from sources outside measured M2. quarter, it seemed quite likely that In light of the unusual growth of the demand for money would abate NOW accounts in recent weeks, it substantially over the months ahead. was emphasized that the Committee Even if Ml grew no further from might wish to reconsider the range January to March, its income velocifor Ml should evidence suggest a ty on the average for the first quarter more lasting change in individuals' could well decline at a postwar recliquidity preferences; in any event, it ord rate. While some decline in Ml would reconsider the ranges in July seemed desirable, the Committee within the framework of the Full did not feel that much stronger mea- Employment and Balanced Growth sures than those already in place Act of 1978. would be necessary or appropriate in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 91 the period immediately ahead to U.S. foreign trade deficit increased from force such a decline. the rate in the previous two quarters. Ml grew rapidly in December and Against this background, the January, reflecting in part rapid expan- Committee decided to seek behavior sion in checkable deposits other than of reserve aggregates associated demand accounts. Growth of M2 also with no further growth of Ml from was substantial, owing to strength in the January to March and with growth of more liquid of the nontransaction components as well as in Ml. Short-term M2 at an annual rate of around 8 market interest rates and bond yields on percent, with a view to bringing balance have risen further in recent growth of both aggregates over time weeks, and mortgage interest rates have into their longer-run target ranges also increased. for the year. It was also agreed that The Federal Open Market Committee seeks to foster monetary and financial some decline in Ml, which would be conditions that will help to reduce inflaassociated with a faster return to its tion, promote a resumption of growth in longer-run range, would be accept- output on a sustainable basis, and conable in the context of reduced pres- tribute to a sustainable pattern of intersure in the money market. The inter- national transactions. The Committee agreed that its objectives would be furmeeting range for the federal funds thered by growth of Ml, M2, and M3 rate, which provides a mechanism from the fourth quarter of 1981 to the for initiating consultation of the fourth quarter of 1982 within ranges of Committee, was set at 12 to 16 per- 2xh to 5V2 percent, 6 to 9 percent, and 6V2 to 9!/2 percent respectively. The associatcent. ed range for bank credit was 6 to 9 The following domestic policy di- percent. rective was issued to the Federal The Committee seeks behavior of re- Reserve Bank of New York: serve aggregates over the balance of the quarter consistent with bringing Ml and M2 over time into their longer-run target The information reviewed at this meetranges for the year. Taking account of ing indicates that real GNP declined apthe recent surge in growth of Ml, the preciably in the fourth quarter of 1981 Committee seeks no further growth in and that prices on the average rose much Ml for the January-to-March period and less rapidly than over the first three growth in M2 at an annual rate of around quarters of the year. In December indus- 8 percent. Some decline in Ml would be trial production and nonfarm payroll emassociated with more rapid attainment of ployment declined sharply for the third the longer-run range and would be acconsecutive month, and the unemployceptable in the context of reduced presment rate rose an additional 0.5 percentsure in the money market. The Chairman age point to 8.9 percent. The nominal may call for Committee consultation if it value of retail sales increased somewhat appears to the Manager for Domestic further, but the level was still below the Operations that pursuit of the monetary average for the third quarter. Although objectives and related reserve paths durhousing starts expanded, they remained ing the period before the next meeting is at a depressed level. The rise in the index likely to be associated with a federal of average hourly earnings was considerfunds rate persistently outside a range of ably less rapid over the fourth quarter of 12 to 16 percent. 1981 than on the average earlier in the year. The weighted average value of the Votes for this action: Messrs. dollar against major foreign currencies Volcker, Solomon, Boehne, Boykin, rose substantially during January; for- Corrigan, Gramley, Keehn, Partee, eign monetary authorities intervened Rice, Schultz, Mrs. Teeters, and Mr. considerably to resist the depreciation of Wallich. Votes against this action: their currencies. In the fourth quarter the None. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

92 FOMC Policy Actions Meeting Held on Unit sales of new domestic automo- March 29-30, 1982 biles rose to an annual rate of 6.2 million in February, buoyed by re- 1. Domestic Policy Directive bates and other price concessions; The information reviewed at this unit sales dropped in the first few meeting suggested that real GNP, weeks of March despite the continuwhich had declined at an annual rate ation of purchase-incentive proof 4!/2 percent in the fourth quarter of grams, but remained above the de- 1981, fell appreciably further in the pressed fourth-quarter rate. first quarter of this year. However, The Department of Commerce the level of final purchases in real survey of business spending plans terms was sustained, and the con- taken in January and February sugtraction in activity apparently mod- gested that current-dollar expendierated during the quarter. Average tures for plant and equipment in 1982 prices, as measured by the fixed- would be about IVA percent greater weight price index for gross domes- than in 1981. The results implied a tic business product, were estimated year-to-year decline of about 1 perto have risen much less than the cent in real terms. annual rate of 7.5 percent in the Private housing starts edged up in preceding quarter. January and February from their un- The index of industrial production usually depressed pace in the fourth rose 1.6 percent in February, after a quarter of 1981, but the annual rate decline of 2.5 percent in January that in February remained less than 1 was accounted for partly by severe million units for the seventh consecwinter weather. Although curtail- utive month. Sales of new and existments in output continued early this ing houses fell in January, reflecting year, the rate of decline in industrial the adverse weather conditions in production from December to Feb- many areas of the country in addiruary was notably smaller than in the tion to the high level of mortgage last four months of 1981. interest rates; sales of existing Like industrial production, non- homes picked up in February, but farm payroll employment in Febru- sales of new homes declined markary recovered some of its January edly further. decline. Over the two months the The rise in both producer and conaverage monthly decline amounted sumer prices moderated substantialto a little less than 100,000, com- ly in the first two months of the year. pared with an average of about The producer price index for fin- 300,000 in the fourth quarter. The ished goods declined 0.1 percent in unemployment rate in February, at February, after a rise of 0.4 percent 8.8 percent, was the same as in De- in January. Reductions in energy cember. prices and rebates on motor vehicles The nominal value of retail sales, contributed to the February decline also distorted in January by the un- in producer prices and to a decelerausually severe weather, rebounded tion in consumer prices as well. The in February to about the level in consumer price index rose only 0.3 December. Almost all categories of percent and 0.2 percent in January retail sales increased in February and February respectively. The rise after having declined in January. in the index of average hourly earn- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 93 ings over the first two months of the to March, the Committee sought no year remained at a reduced pace. further growth in Ml and growth in In foreign exchange markets the M2 at an annual rate of around 8 trade-weighted value of the dollar percent. It was also agreed that against major foreign currencies rose some decline in Ml, which would be about 4 percent further in February associated with a faster return to its and March, partly reflecting a wid- longer-run range, would be acceptening of the differential between able in the context of reduced pres- U.S. and foreign interest rates dur- sure in the money market. The intering much of the intermeeting inter- meeting range for the federal funds val. However, the differential nar- rate, which provides a mechanism rowed somewhat toward the end of for initiating consultation of the the period. Monetary authorities of Committee, was set at 12 to 16 persome foreign countries intervened cent. on a substantial scale to resist the After having grown rapidly for depreciation of their currencies. The three months, Ml declined at an U.S. foreign trade deficit in January annual rate of about 33A percent in and February was somewhat less on February and expanded only a little average than in the fourth quarter, in early March. A substantial conreflecting declines in imports of both traction in demand deposits accountoil and non-oil products. Exports ed for the decline in February, as also declined further from the flows into other checkable deposits fourth-quarter rate. continued strong. Growth of M2 At its meeting on February 1-2, slowed to an annual rate of 4lA per- 1982, the Committee had adopted cent in February, reflecting a slackthe following ranges for growth of ening of the expansion in its nonthe monetary aggregates over the transaction component as well as the period from the fourth quarter of decline in Ml, but partial data sug- 1981 to the fourth quarter of 1982: gested that growth accelerated in Ml, 2Vi to 51/2 percent; M2, 6 to 9 March. percent; and M3, 6'/2 to 91/2 percent. Nonborrowed reserves declined The associated range for bank credit substantially in February and then was 6 to 9 percent. turned up in March; in the statement At the February meeting, the week ending March 24, such re- Committee recognized that rapid serves remained somewhat below monetary growth over the recent the average for the month of Janumonths had placed both Ml and M2 ary. Borrowings from Federal Rein January above the ranges adopted serve Banks for purposes of adjustfor growth over the year. Conse- ing reserve positions averaged a quently, the Committee had also de- little less than $1.1 billion in the four cided that open market operations in statement weeks ending March 24 the period until this meeting should compared with an average of $1.2 be directed toward behavior of re- billion in four weeks ending January serve aggregates over the balance of 27, although such borrowings averthe first quarter consistent with aged nearly $1.5 billion in the interbringing growth of Ml and M2 over vening four weeks. time into their longer-run target The federal funds rate, which had ranges. For the period from January been about 14 percent in the days Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

94 FOMC Policy Actions preceding the February meeting, fered little from the staflf projections, generally fluctuated in a range of but several members emphasized the 133/4 to 15!/2 percent during the sub- unusual uncertainties that could prosequent intermeeting period. Most duce a different result. The prospecother short-term market interest tive cut in federal income taxes at rates declined Vz to 1 percentage midyear and the current expansion point on balance over the intermeet- in defense orders and outlays, toing interval and long-term yields fell gether with a reduction or a reversal about Vi to VA percentage point. The of inventory liquidation, were exprime rate charged by most commer- pected to contribute to economic cial banks on short-term business recovery before long; but whether loans, which had been raised from recovery would begin as early as in 153/4 to I6V2 percent on February 2, the second quarter was questioned, was unchanged during the remainder in part because a number of sensitive of the intermeeting period. Average indicators of activity had continued rates on new commitments for fixed- to point to weakness. Concern was rate home mortgage loans moved also expressed that continuing detedown nearly Vi percentage point to rioration in both agriculture and nonabout 17 percent. agricultural industries and regions Total credit outstanding at U.S. might dampen some types of concommercial banks, adjusted for sumer expenditures and overall outshifts of assets to IBFs, expanded at lays for plant and equipment. Morean average annual rate of about 11 over, there was a general feeling that percent in January and February, the recovery could be more rethe same as in December. Growth in strained than in earlier cycles, partly total loans picked up in February, because financial stringency and and expansion in business loans con- high interest rates had prevailed for tinued sizable in both months. Issu- so long. With respect to inflation, ance of commercial paper by nonfi- progress recently had been greater nancial institutions was quite strong than expected, and some further rein February. duction in the underlying trend of Staflf projections presented at this costs and prices was thought likely; meeting suggested that real GNP current price indicators were expectwould begin to recover in the second ed to show particularly small inquarter and would expand moderate- creases for some months. ly over the balance of 1982. The The Committee considered objecunemployment rate was expected to tives for monetary growth over the reach a peak in the second quarter, period from March to June in light of while inflation, as measured by the several circumstances bearing on the fixed-weight price index for gross recent and prospective behavior of domestic business product, was pro- the monetary aggregates. It apjected to slow somewhat further peared that growth of both Ml and over the year. M2 from January to March would be Views of Committee members close to the rates that the Committee concerning the most probable direc- had specified for that period. Contion of economic activity and the sistent with the targets established behavior of prices in the remaining for the year, however, slower three quarters of 1982 generally dif- growth than in the first quarter as a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 95 whole would be needed in the re- might be needed to foster economic maining quarters. The level of M2 in recovery. March appeared close to the upper The task of judging the trend in end of its longer-run range. Ml and of implementing monetary A staff analysis suggested that the policy in the period immediately demand for money in the three ahead would be complicated by months through June might be ex- problems involved in assessing the pected to moderate significantly pattern of monetary growth during from its growth in the first quarter. the early part of the second quarter. Growth of Ml on average in the first Calculation of seasonal adjustments quarter had been considerably great- for that part of the year is particularer than would have been predicted ly difficult because of large tax payon the basis of the actual behavior of ments, differences in the speed of nominal GNP and interest rates; the their processing, and uncertainties income velocity of Ml had declined about the size of tax refunds. The very sharply after a small decline in behavior of Ml is also affected by the last quarter of 1981. Velocity the extent to which funds accumulatdeclines of this magnitude and dura- ed in anticipation of tax payments tion have been rare in the postwar are held in Ml deposits or, for examperiod, and they were particularly ple, in money market mutual funds. unusual in the absence of declines in Seasonal factors allow for a large short-term interest rates. rise in unadjusted Ml in April. How- The great bulk of the first-quarter ever, the computation of the seasongrowth of Ml had occurred in NOW al factors for the month has been accounts, suggesting that individuals complicated by the sharp variation wished to hold increased liquid bal- in growth patterns in April for the ances in an environment of consider- past two years and by the related able uncertainty about the prospects difficulties of isolating the impact of for economic activity and interest such nonrecurring influences as the rates. That interpretation was sup- credit control program in 1980 from ported by renewed growth over re- possible shifts in the seasonal influcent months in highly liquid savings ences over time. Thus, inherent difdeposits that had relatively low ficulties in the seasonal adjustment yields. In the course of the second process as well as the usual uncerquarter, the accumulated liquidity tainties related to large tax payments balances might be drawn down to and refunds raised the possibility some extent, either for spending or that, while aiming at a second-quarfor investing in other assets, espe- ter deceleration in monetary growth, cially if the economy strengthened allowance would need to be made and uncertainties were reduced. for some bulge of growth in April. Thus at some point, relatively slow Given the uncertainties about the growth of Ml, consistent with a fair- near-term economic prospects as ly prompt return to its longer-run well as about the technical and other range, could be associated with a factors affecting the monetary aggresubstantial rise in velocity. Should gates, almost all members of the the recently increased preference for Committee felt that it would be deliquidity be more enduring, some- sirable to set a course for the second what greater growth in Ml over time quarter as a whole designed to per- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

96 FOMC Policy Actions mit modest growth of Ml, consistent stronger effort to reduce growth of with moving toward the longer-run Ml would be desirable to maintain growth objective over a period of pressure for continuation of the retime. Considerable attention was duction in the rate of inflation. paid to evaluating the significance of Considering the pattern of growth recent behavior of NOW accounts. in the period ahead and the seasonal In the Committee's decision, the uncertainties, most members bepoint was made that the growth of lieved that the behavior of Ml in Ml since October could be traced April should be evaluated partly in almost entirely to extraordinarily light of the behavior of M2. Thus, for rapid growth in NOW accounts. A example, relatively rapid growth number of factors suggested that the of Ml in April should be more readgrowth of NOW accounts, as well as ily accepted if M2 appeared to be the accompanying growth in savings growing at a pace consistent with accounts, reflected a desire of indi- the Committee's expectations for viduals to hold more highly liquid growth over the year. Should Ml assets, at least temporarily, in the growth in April be relatively rapid, light of uncertainties about econom- offsetting behavior in the ensuing ic activity and interest rates. Growth months would be expected. At the in demand deposits, which are held same time, sentiment was expressed by businesses as well as by individ- for prompt efforts to contain an unuals, had been sluggish. Moreover, due bulge in growth of Ml in April, growth of the larger M2 aggregate, on the grounds that the absence of especially since December, ap- such efforts would be interpreted as peared generally in line with the a weakening of the Committee's Committee's expectations. anti-inflationary stance and could Liquid balances accumulated in have adverse consequences in long- NOW accounts might be drawn term bond markets. upon in the second quarter, but if At the conclusion of the discusthey were not, an effort to return Ml sion, the Committee decided to seek to its longer-run range might imply a behavior of reserve aggregates assomore restrictive policy than was in- ciated with growth of Ml and M2 tended or would be desirable. It was from March to June at annual rates suggested that if individuals evi- of about 3 percent and 8 percent denced a continuing desire to hold respectively. It was understood that large liquid balances, the Committee most, if not all, of the expansion in would need to consider the implica- Ml over the period might well occur tions of such a shift in liquidity pref- in April, and within limits, an April erence for its range of growth of Ml bulge in Ml alone should not be over 1982. At the same time, it was strongly resisted. In any event, it noted that growth of Ml over a long- was agreed that deviations from er period extending back into 1981 those targets should be evaluated in understated the expansion of trans- light of the probability that over the action balances to the extent that the period, M2 would be less affected accumulation of shares in money than Ml by deposit shifts related to market mutual funds represented the mid-April tax date and by such balances. Partly for that rea- changes in the relative importance of son, some members suggested that a NOW accounts as a savings vehicle. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 97 Some shortfall in growth of Ml, con- expansion in the nontransaction composistent with progress toward the up- nent as well as to the decline in Ml. Short-term market interest rates and per part of the range for the year as a bond yields on balance have declined whole, would be acceptable in the since early February, and mortgage incontext of appreciably reduced pres- terest rates have edged down. sures in the money market and rela- The Federal Open Market Committee tive strength of other aggregates. seeks to foster monetary and financial conditions that will help to reduce infla- The intermeeting range for the federtion, promote a resumption of growth in al funds rate, which provides a output on a sustainable basis, and conmechanism for initiating further con- tribute to a sustainable pattern of intersultation of the Committee, was set national transactions. At its meeting in early February, the Committee agreed at 12 to 16 percent. that its objectives would be furthered by The following domestic policy di- growth of Ml, M2, and M3 from the rective was issued to the Federal fourth quarter of 1981 to the fourth quar- Reserve Bank of New York: ter of 1982 within ranges of 2Vi to 5!/ 2 percent, 6 to 9 percent, and 6V2 to W2 percent respectively. The associated The information reviewed at this meet- range for bank credit was 6 to 9 percent. ing suggests that real GNP declined ap- In the short run, the Committee seeks preciably further in the first quarter of behavior of reserve aggregates consis- 1982 but that final purchases were sustent with growth of Ml and M2 from tained and the contraction in activity March to June at annual rates of about 3 moderated during the quarter; prices on percent and 8 percent respectively. The the average rose much less rapidly than Committee also noted that deviations in the preceding quarter. In January from these targets should be evaluated in weakness in activity was accentuated by light of the probability that M2 would be unusually severe weather, and in Februless affected over the period than Ml by ary the nominal value of retail sales deposit shifts related to the tax date and rebounded while industrial production by changes in the relative importance of and nonfarm payroll employment recov- NOW accounts as a savings vehicle. ered part of their January declines. The Some shortfall in growth of Ml, consisunemployment rate in February, at 8.8 tent with progress toward the upper part percent, was unchanged from Decemof the range for the year as a whole, ber. Although housing starts rose further would be acceptable in the context of in the first two months of the year, they appreciably reduced pressures in the remained at a depressed level. The rise money market and relative strength of in both the consumer price index and the other aggregates. The Chairman may call producer price index for finished goods for Committee consultation if it appears moderated substantially, and the adto the Manager for Domestic Operations vance in the index of average hourly that pursuit of the monetary objectives earnings on the average remained at a and related reserve paths during the perireduced pace. od before the next meeting is likely to be The weighted average value of the associated with a federal funds rate perdollar against major foreign currencies sistently outside a range of 12 to 16 continued to rise strongly in February percent. and March; foreign monetary authorities intervened on a substantial scale to resist the depreciation of their currencies. The Votes for this action: Messrs. U.S. foreign trade deficit in January and Volcker, Solomon, Balles, Ford, February on the average was somewhat Gramley, Partee, Rice, Mrs. Teeters, less than the fourth-quarter rate. and Mr. Winn. Votes against this ac- Ml declined in February, after three tion: Messrs. Black and Wallich. months of rapid growth, and then increased moderately in early March. Growth of M2 slowed appreciably in Messrs. Black and Wallich dis- February, owing to a slackening of the sented from this action because they Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

98 FOMC Policy Actions favored specification of somewhat Votes for these actions: Messrs. lower rates for monetary growth Volcker, Solomon, Balles, Black, Ford, Gramley, Partee, Rice, Mrs. from March to June than those Teeters, Messrs. Wallich and Winn. adopted by the Committee, which Votes against these actions: None. would be associated with a relatively prompt return of Ml growth to its In reviewing the authorization for range for the year. Mr. Black bedomestic open market operations, lieved that continued growth of Ml the Committee took special note of above its longer-run range for any paragraph 3, which authorizes the extended period would adversely af- Reserve Banks to engage in the lendfect economic activity by exacerbating of U.S. government securities ing inflationary expectations and held in the System Open Market weakening markets for longer-term Account under such instructions as securities; for that reason, he felt the Committee might specify from that it was particularly important to time to time. That paragraph had resist any surge in growth of Ml that been added to the authorization on might develop in April. In Mr. Wal- October 7, 1969, on the basis of a lich's opinion, it would be desirable judgment by the Committee that to restrain the pace of the prospecsuch lending of securities was reative recovery in economic activity, sonably necessary to the effective consistent with some reduction in conduct of open market operations the unemployment rate, to sustain a and to the implementation of open degree of pressure for continuation market policies, and on the underof the reduction in the underlying standing that the authorization rate of inflation. would be reviewed periodically. At this meeting the Committee concurred in the judgment of the Manager for Domestic Operations that the 2. Review of Continuing lending activity in question remained Authorizations reasonably necessary and that the At this, the first regular meeting of authorization should remain in effect the Federal Open Market Committee on a continuing basis, with the unfollowing the election of new mem- derstanding that the manager would bers from the Federal Reserve monitor the lending operation close- Banks to serve for the year begin- ly and would recommend discontinning March 1, 1982, the Committee uing it in the event that it was no followed its customary practice of longer reasonably necessary to the reviewing all of its continuing autho- effective conduct of open market oprizations and directives. The Com- erations. mittee reaffirmed the authorization for domestic open market opera- 3. Agreement with Treasury tions, the authorization for foreign to Warehouse currency operations, the foreign cur- Foreign Currencies rency directive, and the procedural instructions with respect to foreign At its meeting on January 17-18, currency operations in the forms in 1977, the Committee had agreed to a which they were currently outstand- suggestion by the Treasury that the ing. Federal Reserve undertake to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 99 "warehouse" foreign currencies— had advised that since the March that is, to make spot purchases of meeting, large-scale net purchases of foreign currencies from the Ex- securities had been undertaken to change Stabilization Fund and counter the effects on member bank simultaneously to make forward reserves of increases in currency in sales of the same currencies at the circulation and in Treasury balances same exchange rate to the ESF. Pur- at Federal Reserve Banks. The suant to that agreement, the Com- amount of these purchases was apmittee had agreed that the Federal proaching $3 billion, leaving no lee- Reserve would be prepared to ware- way for further purchases over the house for the Treasury or for the current intermeeting interval. It ap- ESF up to $5 billion of eligible for- peared likely that sizable additional eign currencies. At this meeting the purchases would be required in the Committee reaffirmed the agreement period ahead because of a projected on the terms adopted on March 18, further rise in Treasury balances as- 1980, with the understanding that it sociated with expansion in tax rewould be subject to annual review. ceipts. On April 26-27, the Committee Votes for this action: Messrs. voted to approve an additional in- Volcker, Solomon, Balles, Black, Ford, Gramley, Partee, Rice, Mrs. crease of $1 billion, to $6 billion, in Teeters, Messrs. Wallich and Winn. the intermeeting limit on changes in Votes against this action: None. holdings of U.S. government and federal agency securities, after the 4. Authorization for Domestic Manager had advised that the rise in Open Market Operations Treasury balances at Federal Reserve Banks apparently would be On April 13-14, 1982, members of considerably larger than anticipated the Committee voted to increase earlier. from $3 billion to $5 billion the limit on changes between Committee Votes for this action: Messrs. meetings in System Account hold- Volcker, Solomon, Black, Martin, Partee, Rice, Mrs. Teeters, Messrs. ings of U.S. government and federal Wallich, Winn, Guflfey, and Roos. agency securities specified in para- Votes against this action: None. Abgraph l(a) of the authorization for sent: Mr. Gramley. Messrs. Guffey domestic open market operations, and Roos voted as alternates for Messrs. Balles and Ford respectively. effective immediately, for the period ending with the close of business on May 18, 1982. Meeting Held Votes for this action: Messrs. on May 18, 1982 Volcker, Solomon, Balles, Black, Gramley, Martin, Partee, Rice, Mrs. The information reviewed at this Teeters, Messrs. Wallich, Winn, and meeting suggested that real GNP Roos. Votes against this action: None. Mr. Roos voted as alternate for would change little in the current Mr. Ford. quarter after declining at annual rates of about 4 percent in the first This action was taken on recom- quarter, according to preliminary esmendation of the Manager for Do- timates of the Commerce Departmestic Operations. The Manager ment, and Axh percent in the fourth Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

100 FOMC Policy Actions quarter of 1981. In the current quar- Private housing starts edged up in ter, business inventory liquidation March for the fifth consecutive appeared to be moderating from the month, but at an annual rate still first quarter's extraordinary rate. below 1 million units, they remained The rise in average prices, as mea- depressed. Sales of new homes desured by the fixed-weight price in- clined further, while sales of existing dex for gross domestic business homes picked up slightly. product, appeared to be slowing The producer price index for finsomewhat further from the annual ished goods changed little in March rate of about 5Vi percent in the first and April. Prices of energy-related quarter indicated by the preliminary items declined substantially in estimates. March and fell even more sharply in The nominal value of retail sales April. Prices of other nonfood conincreased appreciably in April, ac- sumer goods and of capital equipcording to the advance report, fol- ment rose in both months, and prices lowing little change on average over of foods and food materials rose the first quarter. The advance report sharply in April following little indicated especially strong sales change in March. The consumer gains in the automotive group, at price index declined 0.3 percent in stores selling building materials and March, largely because of substanrelated items, and at furniture and tial reductions in costs of gasoline appliance stores. Unit sales of new and homeownership, but declines in domestic automobiles were at an an- food prices also had a moderating nual rate of 5.5 million units com- influence. Thus far in 1982, both the pared with a rate of nearly 6 million producer price index for finished in March and in the first quarter as a goods and the consumer price index whole; unit sales picked up apprecia- have risen at annual rates of 1 perbly in early May, buoyed by new cent or less on balance, and the purchase-incentive programs. advance in the index of average The index of industrial production hourly earnings has remained at a fell 0.6 percent in April, following a reduced pace. decline of 0.8 percent in March. In In foreign exchange markets the both months output of business trade-weighted value of the dollar equipment, construction supplies, against major foreign currencies rose and durable goods materials de- somewhat further in early April but clined substantially, while produc- then fell about VA percent over the tion of consumer durable goods rose following month, reflecting in part a markedly. In April, industrial output decline in U.S. interest rates relative was 8V2 percent below its prereces- to foreign rates and market expectasion peak in July 1981. tions of further declines. The U.S. Nonfarm payroll employment de- foreign trade deficit was about oneclined in March and April, reflecting third less in the first quarter than in continued sizable job losses in man- the preceding quarter, as imports fell ufacturing and construction and more sharply than exports. smaller losses in other major sec- At its meeting on March 29-30, tors. The unemployment rate rose an the Committee had decided that additional 0.4 percentage point in open market operations in the period April to 9.4 percent. until this meeting should be directed Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 101 toward behavior of reserve aggre- rate of 73A percent in April, about the gates consistent with growth of Ml same as in March. Banks added suband M2 from March to June at annu- stantially to their holdings of Treaal rates of about 3 percent and 8 sury securities, but expansion in percent respectively. It was under- their total loans, including business stood that most, if not all, of the loans, moderated somewhat further. expansion in Ml over the period Business borrowing from other might well occur in April, and within sources also moderated, as issuance limits, an April bulge in Ml alone of commercial paper by nonfinancial should not be strongly resisted. In businesses slowed substantially and any event, it was agreed that devi- offerings of corporate securities deations from those targets should be clined. evaluated in light of the probability Nonborrowed reserves, adjusted that over the period M2 would be to include special borrowing and less affected than Ml by deposit other extended credit from Federal shifts related to the mid-April tax Reserve Banks, changed little in date and by changes in the relative April. Virtually all of the increase in importance of NOW accounts as a total reserves associated with the savings vehicle. Some shortfall in expansion of Ml was provided growth of Ml, consistent with prog- through the discount window. Borress toward the upper part of the rowing from Federal Reserve Banks range for the year as a whole, would for purposes of adjusting reserve pobe acceptable in the context of ap- sitions (including seasonal borrowpreciably reduced pressures in the ing) rose to an average of $1.5 billion money market and the relative in the two statement weeks ending strength of other aggregates. The April 28 from a weekly average of intermeeting range for the federal about $1.2 billion in March and the funds rate, which provides a mecha- first half of April. Such borrowing nism for initiating further consulta- subsequently fell back to an average tion of the Committee, was set at 12 of about $1.1 billion in the two to 16 percent. weeks ending May 12. Growth of Ml accelerated to an The federal funds rate, which had annual rate of I PA percent in April been about 15 percent at the time of from 2!/2 percent in March. But the the March meeting, generally fluctuexpansion was concentrated in the ated in a narrow range of about 143A first half of the month and was large- to 15!/2 percent during the subsely retraced by month-end. As in oth- quent intermeeting period. Most other recent months, checkable depos- er short-term interest rates fell Vi to its other than demand deposits 1 percentage point on balance over (OCDs) posted a sizable increase. the intermeeting interval, and long- Growth of M2 moderated to an an- term yields registered similar denual rate of about 9V2 percent in clines. The prime rate charged by April from 1114 percent in March, commercial banks on short-term reflecting a slackening in the expan- business loans remained at the I6V2 sion of its nontransaction compo- percent rate that has prevailed since nent. early February. Average rates on Total credit outstanding at U.S. new commitments for fixed-rate commercial banks grew at an annual mortgage loans at savings and loan Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

102 FOMC Policy Actions associations declined slightly, to economic activity. The favorable about 163/4 percent. factors included the large tax cut at During the meeting the Committee midyear and the concurrent increase was apprised of developments in the in social security payments. In addimarket for U.S. government securi- tion, liquidation of business inventies stemming from the failure of a tories, which had been of unusual securities firm to make sizable inter- proportions in recent months, was est payments that were due on bor- likely to be reduced or reversed, rowed Treasury obligations. System thereby contributing to economic reofficials were monitoring the situa- covery. It was also suggested that tion closely and it was understood spending in interest-sensitive sectors that they would continue to do so. of the economy was likely to revive, Staff projections at this meeting perhaps more quickly than many ansuggested that real GNP would ex- ticipated, if inflation remained relapand moderately over the balance of tively moderate and interest rates 1982. Inflation, as measured by the declined. fixed-weight price index for gross It was emphasized during the disdomestic business product, was pro- cussion that a key element in the jected to remain moderate while the economic outlook would be developunemployment rate was expected to ments affecting the federal budget remain near its April level. and the size of future deficits. Signif- Views of Committee members icant progress in reducing prospecconcerning prospects for economic tive deficits would serve to improve activity and the behavior of prices business and consumer confidence generally differed little from the staff and help to achieve and maintain the projections. However, several mem- lower interest rates necessary to bers commented that the risks of a support a sustained economic recovdeviation from the projections were ery. on the downside; they noted reports It was noted during the discussion of gloomy sentiment prevailing that considerable progress had been among businessmen and consumers made in the fight against inflation. and of financial strains being experi- Although the major price indexes enced by many business firms, fi- overstated the extent of the recent nancial institutions, farmers, and improvement, the underlying rate of consumers. Reduced economic ac- inflation was down substantially and tivity and high interest rates were cost pressures in general appeared to adversely affecting profits and erod- be continuing to ease. Inflationary ing financial positions; the impact on expectations also appeared to have key sectors of the economy such as moderated somewhat further, but capital investment, housing, and they remained sensitive to developspending on consumer durables ments in the fiscal and monetary could impede the recovery. policy areas. A few members gave more empha- At its meeting on February 1-2, sis to elements of strength in the 1982, the Committee had adopted near-term outlook, which they be- the following ranges for growth of lieved reduced the risks of prolonged the monetary aggregates over the recession and enhanced the pros- period from the fourth quarter of pects for a near-term recovery in 1981 to the fourth quarter of 1982: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 103 Ml, 2V2 to 5Vi percent; M2, 6 to 9 preference on the part of individuals percent; and M3, 6V2 to 9Vi percent. to accumulate highly liquid balances The associated range for bank credit in an environment of considerable was 6 to 9 percent. uncertainty about prospects for eco- At this meeting the Committee re- nomic activity and interest rates. It viewed the short-run objectives for was thought that in the course of the monetary growth that it had estab- current quarter the strong savings or lished in late March calling for ex- precautionary demands for liquid pansion at annual rates of about 3 balances were likely to begin to percent for Ml and about 8 percent moderate, and perhaps to unwind, if for M2 over the three months from economic prospects appeared to be March to June. The Committee took improving as projected and if uncernote of a staff analysis suggesting tainties about financial conditions that, despite the bulge in April as a were reduced. While considerable whole, growth of Ml was generally uncertainties remained, the behavior consistent with the objective for the of NOW accounts in late April and three-month period, reflecting weak- early May was consistent with that ness in late April and early May. expectation. Thus the level of Ml, although still The staff analysis also suggested above a path consistent with the that continued pursuit of the second- Committee's range for growth from quarter objectives for monetary the fourth quarter of 1981 to the growth set at the preceding meeting fourth quarter of 1982, had moved and the related provision of reserves down toward that path somewhat through open market operations more rapidly than had been antici- would be consistent with at least pated earlier. Growth of M2 also modest easing in bank reserve posiappeared to be consistent with the tions. Such easing in turn could be Committee's objective for the reflected in some decline in short- March-to-June period, and the level term interest rates. Rates appeared of that aggregate remained close to high, considering the recession in the upper end of its range for 1982. activity, the slower rise in prices, As at the previous meeting, staff and more technically, the degree of analysis suggested that the demand pressure on bank reserve positions. for money, as defined by Ml, might During the Committee's review of moderate significantly in the current its second-quarter objectives, almost quarter. In the first quarter, growth all the members agreed that growth of Ml had been considerably greater rates consistent with those adopted on average than would have been at the previous meeting remained expected on the basis of the actual appropriate under current economic behavior of nominal GNP and inter- and financial conditions. Some sentiest rates; as a result, the income ment was expressed for moderately velocity of Ml had shown an unusu- faster monetary growth in the curally large decline. The great bulk of rent quarter with the objective of the growth in Ml in the first quarter, improving liquidity and easing finanand indeed in the period since Octo- cial pressures, but no member faber 1981, had occurred in its NOW vored substantially faster monetary account component. A variety of expansion. Pursuit of the latter polievidence suggested an increased cy course, it was suggested, would Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

104 FOMC Policy Actions probably exacerbate inflationary ex- roll employment continued to decline. pectations, especially in light of the The unemployment rate rose 0.4 percentage point to 9.4 percent. Although outlook for large deficits in the fedhousing starts edged up in March for the eral budget, and thereby exert upfifth consecutive month, they remained ward pressure on interest rates. at a depressed level. The rate of increase Given the uncertainties relating to in prices on the average appears to be slowing somewhat further in the current the public's demand for liquid balquarter; so far this year both the conances, notably NOW accounts, most sumer price index and the producer price members continued to believe that index for finished goods have risen little the behavior of Ml should be evalu- on balance, and the advance in the index ated partly in light of the behavior of of average hourly earnings has remained at a reduced pace. M2 over the weeks ahead. Thus, for The weighted average value of the example, somewhat more rapid dollar against major foreign currencies, growth of Ml might be accepted if it after rising somewhat further in early appeared to be associated with a April, has fallen sharply over the past continuing desire by the public to month, reflecting in part a decline in U.S. interest rates relative to foreign build up liquid balances and with rates and market expectations of further growth of M2 near its specified rate. declines. The U.S. foreign trade deficit At the conclusion of the discus- in the first quarter was one-third less sion the Committee agreed to reaf- than in the preceding quarter. firm the objectives for monetary Ml increased sharply in April, but the expansion was concentrated in the first growth established at the previous half of the month and was largely remeeting and to seek behavior of retraced later. Growth of M2 moderated serve aggregates associated with somewhat, owing to a slackening of the growth of Ml and M2 from March to expansion in the nontransaction component. Short-term market interest rates June at annual rates of about 3 perand bond yields on balance have decent and 8 percent respectively. The clined since the end of March, and mort- Committee noted that deviations gage interest rates have edged down furfrom these objectives should be ther. evaluated in light of changes in the The Federal Open Market Committee seeks to foster monetary and financial relative importance of NOW acconditions that will help to reduce inflacounts as a savings vehicle. The tion, promote a resumption of growth in intermeeting range for the federal output on a sustainable basis, and confunds rate, which provides a mecha- tribute to a sustainable pattern of internism for initiating further consulta- national transactions. At its meeting in early February, the Committee agreed tion of the Committee, was set at 10 that its objectives would be furthered by to 15 percent. growth of Ml, M2, and M3 from the The following domestic policy di- fourth quarter of 1981 to the fourth quarrective was issued to the Federal ter of 1982 within ranges of 2Vi to 5Vi percent, 6 to 9 percent, and 6V2 to 9Vi Reserve Bank of New York: percent respectively. The associated The information reviewed at this meet- range for bank credit was 6 to 9 percent. ing suggests that real GNP will change In the short run, the Committee seeks little in the current quarter after the behavior of reserve aggregates consistappreciable further decline in the first ent with growth of Ml and M2 from quarter, as business inventory liquida- March to June at annual rates of about 3 tion moderates from last quarter's ex- percent and 8 percent respectively. The traordinary rate. In April the nominal Committee also noted that deviations value of retail sales expanded, while from these targets should be evaluated in industrial production and nonfarm pay- light of changes in the relative impor- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 105 tance of NOW accounts as a savings 3.7 percent in the first quarter, as vehicle. The Chairman may call for business inventory liquidation mod- Committee consultation if it appears to erated from an extraordinary rate. the Manager for Domestic Operations The rise in average prices, as meathat pursuit of the monetary objectives and related reserve paths during the peri- sured by the fixed-weight price inod before the next meeting is likely to be dex for gross domestic business associated with a federal funds rate per- product, appeared to have slowed sistently outside a range of 10 to 15 somewhat from the annual rate of percent. about 43/4 percent in the first quarter. Votes for this action: Messrs. The nominal value of retail sales Volcker, Balles, Black, Ford, Gramrose Wi percent further in May, acley, Mrs. Horn, Messrs. Martin, Parcording to the advance report. Sales tee, Rice, Wallich, and Timlen. Vote against this action: Mrs. Teeters. (Mr. gains were widespread and were es- Timlen voted as alternate for Mr. pecially strong at automotive, gener- Solomon.) al merchandise, and apparel outlets. Unit sales of new domestic automo- Mrs. Teeters dissented from this biles rose about I6I/2 percent to an action because she favored specifi- annual rate of 6.4 million units. Auto cation of somewhat higher rates of sales dropped sharply in the first 20 monetary growth from March to days of June, however, following the June with the objective of improving termination of most purchase-incenliquidity and easing financial pres- tive programs. sures. In her opinion, the time had The index of industrial production come to foster lower and less variedged down 0.2 percent in May, able interest rates in order to enfollowing declines of 0.8 percent in hance prospects for significant reeach of the two preceding months. covery in output and employment. Output of business equipment continued to drop sharply, and production of durable goods materials also Meetings Held on declined further. But production of June 30-July 1, 1982, consumer durable goods rose markand on July 15, 19821 edly for the second month in a row, Domestic Policy Directive reflecting primarily an appreciable increase in automobile assemblies. The information reviewed at this Nonfarm payroll employment was meeting suggested that real GNP had essentially unchanged in May, after changed little in the second quarter, having declined substantially in after declining at an annual rate of March and April. In manufacturing, job losses were appreciably less in 1. At its meeting on June 30-July 1, 1982, May than in the earlier months, and in accordance with the Full Employment and Balanced Growth Act of 1978 (the Humphrey- Hawkins Act), the Committee reviewed its deferred until July 15, 1982, owing to the long ranges for growth of the monetary and credit interval before the date of Chairman aggregates for the period from the fourth Volcker's testimony in conjunction with the quarter of 1981 to the fourth quarter of 1982 Board's midyear report under the act, which and gave preliminary consideration to the was scheduled for July 20 before the Senate objectives for monetary growth that might be Committee on Banking, Housing, and Urban appropriate for 1983. The conclusion of the Affairs. The Board's report also was transmit- Committee's consideration of the ranges was ted to the Congress on July 20. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

106 FOMC Policy Actions the average workweek edged up 0.1 creases in the volatile homeownerhour to 39.1 hours. In contrast to the ship and energy components of the payroll data, the survey of house- index and a considerable rise in food holds indicated a substantial in- prices. Through May, the rise in the crease in employment; but growth in index of average hourly earnings the civilian labor force was even was at a significantly less rapid pace greater, and the unemployment rate than during 1981. edged up 0.1 percentage point to 9.5 In foreign exchange markets the percent. trade-weighted value of the dollar The Department of Commerce against major foreign currencies had survey of business spending plans risen about 7 percent over the period taken in late April and May suggest- since the last FOMC meeting, to its ed that current-dollar expenditures highest level since early 1971. The for plant and equipment would rise strength of the dollar reflected a rise only 2lA percent in 1982, compared in U.S. interest rates relative to forwith 7lA percent reported in the Feb- eign rates as well as heightened conruary survey and an actual expan- cerns because of hostilities in the sion of about 83/4 percent in 1981. Middle East. The U.S. foreign trade The survey results implied a year-to- deficit in the first five months of 1982 year decline of about 2V2 percent in was at a rate substantially less than real terms. that in the fourth quarter of last year, Private housing starts rose appre- as imports declined more than exciably in May to an annual rate of 1.1 ports. million units, exceeding a rate of 1 At its meeting on May 18, the million units for the first time since Committee had reaffirmed the objeclast July. Most of the May increase tives for monetary growth estabwas in the more volatile multifamily lished at its meeting at the end of sector: multifamily starts rose nearly March; thus, it had decided to seek 50 percent, compared with an in- behavior of reserve aggregates assocrease of about 9 percent in single- ciated with growth of Ml and M2 family starts. Sales of new homes from March to June at annual rates increased substantially in May, of about 3 percent and 8 percent while sales of existing homes were respectively. The Committee had unchanged; total home sales were also agreed that deviations from nearly 25 percent below the level of these objectives should be evaluated a year earlier. in light of changes in the relative The producer price index for fin- importance of NOW accounts as a ished goods changed little in May, as savings vehicle. The intermeeting sharp declines in prices of energy- range for the federal funds rate, related items about offset increases which provides a mechanism for iniin prices of food and other consumer tiating further consultation of the goods and capital equipment. Over Committee, was set at 10 to 15 perthe first five months of the year, the cent. index was virtually stable. The con- Ml declined at an annual rate of sumer price index, which had regis- about 2 percent in May, following tered a small net increase over the expansion at an annual rate of about first four months of the year, rose 1 103/4 percent in April. The contracpercent in May, reflecting sharp in- tion was attributable to a sizable Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 107 decline in other checkable deposits, The failure of one dealer in U.S. which had exhibited extraordinary government securities and difficulgrowth over the preceding six ties being experienced by another months. M2 grew at an annual rate dealer heightened concerns about of about IOI/2 percent in May, a little credit risks throughout the securities above the rate in April. markets and induced some widening Total credit outstanding at U.S. of risk premiums.2 The prime rate commercial banks grew at an annual charged by most commercial banks rate of about 8Vi percent in May, on short-term business loans redown slightly from the pace in April. mained at 16V2 percent. Average Growth in business loans, at an an- rates on new commitments for fixednual rate of nearly 19 percent, ac- rate mortgage loans at savings and counted for much of the rise in bank loan associations edged up slightly. credit, as most other categories of The staff projections presented at loans and investments registered this meeting suggested that real GNP only moderate growth or contrac- would grow at a moderate pace over tion. Business demands for credit, the year ahead but that the unemespecially short-term credit, were ployment rate would remain near its exceptionally strong in May, as non- recent high level. The rise in prices, financial businesses also issued a as measured by the price index for sizable volume of commercial paper. gross domestic business product, Nonborrowed reserves, adjusted was expected to pick up somewhat to include extended credit from Fed- in the second half of 1982 from the eral Reserve Banks, expanded sub- substantially reduced rate in the first stantially in May, after having half, but continued improvement in changed little in April. Total re- the underlying trend was anticipatserves grew moderately, however, ed. as borrowing from Federal Reserve Views of Committee members Banks for purposes of adjusting re- concerning prospects for economic serve positions (including seasonal activity and the behavior of prices borrowing) declined appreciably. In generally were similar in character the two statement weeks ending to the staff projections. Consump- June 23, such borrowing averaged tion seemed likely to rise in response about $875 million, compared with to the 10 percent reduction in federal an average of about $940 million in income taxes at midyear, the con- May. current cost-of-living increase in so- The federal funds rate averaged cial security payments, and other about WA percent in the two state- factors; and the extraordinary rate of ment weeks ending June 23, com- liquidation of business inventories in pared with around 14!/2 percent in the first half of 1982 also seemed the days immediately preceding the likely to contribute to some econom- Committee meeting on May 18. The ic growth. rate moved toward 15 percent in the days just before this meeting, influenced by the approach of the June 30 2. Neither of these firms was on the Federstatement date. Most other interest al Reserve Bank of New York's list of primary dealers in U.S. government securities rates rose about Vi to 1 Vi percentage that file reports on their operations with the points over the intermeeting period. Bank's Market Reports Division. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

108 FOMC Policy Actions As had been the case at the May as for later years, although the remeeting of the Committee, however, cent congressional action on a budseveral members commented that get resolution for the coming fiscal the principal risks of a deviation year represented progress toward a from the projection of moderate more restrained fiscal policy. To imgrowth in real GNP were on the plement the resolution, a great deal downside, and some expressed con- remained to be done in legislating cern that any recovery could falter. appropriations and additional reve- Business and consumer sentiment nues. Several Committee members was reported to have deteriorated observed, moreover, that the deficit further, reflecting, among other would be considerably larger than things, greater uneasiness about the that contained in the resolution, only effects of high interest rates, in- in part because the latter was based creased bankruptcies, and difficul- on relatively optimistic assumptions ties affecting certain financial and concerning the performance of the industrial institutions. In these cir- economy. The degree of progress in cumstances, business and consumer reducing prospective federal deficits demands for liquidity might in- would have a major impact on prescrease, rather than decline as many sures in financial markets and thus expected, extending the contraction on the performance of such creditin business capital expenditures and sensitive sectors as homebuilding limiting consumer outlays for hous- and business fixed investment. In ing and durable goods. Concerning the absence of significant progress, the prospective behavior of consum- private investment outlays of all ers, most statistical measures sug- types would be less than otherwise. gested that their liquidity was im- With respect to prices, the memproving. The point was made, bers noted that considerable prohowever, that rapidly rising prices of gress had been made in reducing the existing houses and readily available rate of increase but that the risks of mortgages, which were characteris- exacerbating inflationary expectatic of earlier years, were no longer tions remained serious. In any case, providing stimulus for spending. the underlying rate of inflation was Starting in 1983, a significant volume not so low as might be inferred from of balloon payments on earlier the recent behavior of major indexes house-purchase loans would mature. of prices, and the rise in those index- Moreover, the recovery in activity es was generally expected to pick up could be impeded by weak expan- somewhat from the substantially resion abroad, by import-financing duced pace of 1982 to date. problems of some major trading At its meeting on February 1-2, partners of the United States, and by 1982, the Committee had adopted the deterioration in the competitive- the following ranges for growth of ness of U.S. exports associated with the monetary aggregates over the the sharp rise in the foreign-ex- year from the fourth quarter of 1981 change value of the dollar. to the fourth quarter of 1982: for Ml, It was stressed during the meeting 2!/2 to 5Vi percent; for M2, 6 to 9 that considerable uncertainty re- percent; and for M3, 6V2 to W2 permained about the size of the federal cent. The associated range for bank budget deficit for fiscal 1983, as well credit was 6 to 9 percent. In setting Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 109 the range for Ml, the Committee of nominal GNP; in the first quarter, recognized that the level of that ag- the decline in the income velocity of gregate in January was well above Ml was extraordinarily sharp. Simithe average in the fourth quarter of larly, the income velocity of the 1981 but that it was too early to broader monetary aggregates was judge conclusively the extent to unusually weak in the first half. Givwhich the recent upsurge in growth en the persistence of relatively high reflected temporary influences rath- interest rates, the behavior of velocier than a basic change in the amount ty in the first half suggested a heightof money needed to finance growth ened demand for Ml and M2. of nominal GNP. On the assumption The unusual demand for Ml in the that the relationship between growth first half was concentrated in NOW of Ml and the expansion of nominal accounts and other interest-bearing GNP was likely to be closer to nor- checkable deposits, which have mal than it had been in 1981, and some characteristics of traditional given the relatively low base in the savings deposits. The enlarged share fourth quarter of 1981, the Commit- of these accounts in Ml had made tee contemplated that growth of Ml this aggregate more sensitive to in 1982 might acceptably be in the changes in the public's desire to hold upper part of its range. The Commit- highly liquid assets. tee also contemplated that growth of Growth of M2 as well as that of M2 was likely to be high within its Ml appeared to have been bolstered range. in the first half of 1982 by increased At this meeting, the Committee preferences for holding highly liquid reviewed its ranges for growth of the financial assets. Conventional savmonetary and credit aggregates for ings deposits actually increased, afthe period from the fourth quarter of ter having contracted in the preced- 1981 to the fourth quarter of 1982 ing four years, and money market and gave preliminary consideration mutual funds continued to expand to objectives for monetary growth strongly, although less so than in that might be appropriate for 1983. 1981. Altogether, the nontransaction With respect to the current year, the component of M2 (M2 less Ml) grew Committee noted that the levels of at an annual rate of IOV2 percent the monetary aggregates in June from the fourth quarter of 1981 to were slightly above the upper ends June. of their ranges for 1982. The upsurge In reconsidering the ranges for in Ml in January was followed by 1982, Committee members remained quite slow growth on average over in agreement on the need to maintain the next five months, and from the the commitment to the long-standing fourth quarter of 1981 to June, Ml goal of restraining growth of money had increased at an annual rate of 5.7 and credit in order to contribute to a percent. Over the same period, M2 further reduction in the rate of inflaand M3 had grown at annual rates of tion and provide the basis for resto- 9.4 percent and 9.7 percent respec- ration of economic stability and sustively. tainable growth in output. At the Although the growth of Ml was same time, the Committee took acmoderate over the first half of 1982, count of the need to provide suffiit considerably exceeded the growth cient monetary growth to encourage Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

110 FOMC Policy Actions recovery in economic activity over degree of precision with which monthe months ahead. Growth consis- etary growth could be controlled and tent with the current longer-run might not be sufficient in any case to ranges, quite possibly around the allow for a temporary bulge related upper end, was thought to be ade- to exceptional demands for liquidity, quate in view of the sizable rise in should they develop. the velocity of money that generally With respect to 1983, most memdeveloped in the early stages of a bers felt that the current ranges for cyclical recovery in economic activi- 1982 could appropriately be rety. Still, the members recognized tained; but they recognized that, in that regulatory actions and changes light of all the current uncertainties in the public's preferences for vari- surrounding the economic, financial, ous assets, as well as shifts in liquid- and federal budgetary outlook, ity demands generally, would tend to ranges adopted at this time would be affect the velocity of money and especially tentative. The current would need to be taken into account ranges would be consistent with a in evaluating the behavior of the reduction in monetary growth in monetary aggregates. To the extent 1983 if, as seemed likely, growth of that precautionary demands for the monetary aggregates in 1982 was money remained strong, for exam- around the upper ends of their ple, growth of the major monetary ranges. Some sentiment was exaggregates near, or possibly some- pressed for a reduction in the ranges what above, the upper ends of their for 1983, particularly if those for ranges for 1982 might well be con- 1982 were raised, in line with the sistent with the Committee's general general objective of reducing monepolicy objectives. tary growth gradually over time. In the Committee's discussion at The implications for monetary this meeting, almost all members policy of the recent congressional preferred retention of the previously action on a budget resolution were established ranges for growth of the considered at some length. Commitmonetary aggregates in 1982, with tee members generally felt that a the understanding that growth fifrn follow-through in current efforts around the upper ends of the ranges to reduce budgetary deficits should would be acceptable, but some senti- \contribute to easing financial market ment was expressed for small up- strains within the context of the curward adjustments in the ranges. Sev- rent ranges for monetary growth; to eral members observed that any help assure that result, in their view, increase in the ranges might well be it was important that action beyond misinterpreted as a relaxation of the the magnitude incorporated in the Committee's commitment to the first budget resolution be taken aflong-run objective of restraining mon- fecting future years. It was not etary growth and contributing to a thought that the budgetary effort itfurther reduction in the rate of infla- self would warrant even greater tion, thereby adversely affecting in- growth in the monetary aggregates flationary expectations and long- than was being contemplated. Exterm interest rates. It was also noted cessive monetary growth would tend that minor adjustments in the ranges to work against the benefits of an might seem to suggest an unrealistic improved budgetary outlook in curb- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 111 ing inflation and inflationary expec- income velocity of money, was antations. The Committee concluded ticipated over the months ahead, but its discussion and reached a decision the public's liquidity preferences on the longer-run ranges during a could not be predicted with much telephone conference on July 15, confidence, especially in the current 1982. environment of financial strains. The Committee considered policy Given these problems, most memfor the period from June to Septem- bers stressed the need for flexibility ber in light of the apparent consen- in interpreting the behavior of the sus for retaining the previously esmonetary aggregates in the period tablished ranges for growth of the ahead. Thus, while still aiming to monetary aggregates over the year, provide moderate monetary growth with the understanding that growth consistent with the objectives for near, or for a time somewhat above, growth over the year, those memthe upper ends of those ranges bers would be willing to tolerate a would be acceptable depending on bulge early in the period to the exemerging strength of liquidity detent that it appeared to be a tempomands in a period of economic unrary effect of the tax reduction and certainty. The data becoming availincreased social security payments, able at the time of the meeting perhaps compounded by seasonal indicated that growth of Ml had adjustment problems. They would weakened appreciably after midalso accept somewhat faster growth June and that growth of both Ml and over the quarter as a whole if it M2 over the whole period from appeared that demands for liquidity March to June apparently had been and precautionary balances were not in line with the Committee's objeceasing as anticipated. In general, tives for growth over that period at they wished to guard against the annual rates of about 3 percent and 8 possibility that short-term aberrapercent respectively. The levels of tions in the behavior of money or Ml and M2 in June, as noted earlier, exceptional demands for liquidity in were just slightly above the upper ends of their ranges for 1982. circumstances of unusual uncertainty would generate financial market Evaluating the behavior of Ml and pressures that would impede the implementing policy in the period prospective recovery in output. immediately ahead would be complicated by a number of special influ- A few members of the Committee ences. The midyear reduction in were concerned that accommodawithholding rates for federal income tion of much of a bulge in monetary taxes and the cost-of-living increase growth in July or a relatively rapid in social security payments were expansion over the summer months generally expected to lead to some as a whole might jeopardize prosbulge in monetary growth in July. It pects for achieving the monetary obwas also expected, however, that jectives for the year and thus would any such bulge would be offset in risk exacerbating inflationary expecensuing months. More fundamental- tations. Accordingly, they believed ly, some easing in demands for li- that tendencies toward such monequidity and precautionary balances, tary growth rates in the months and a concomitant increase in the ahead should be met by increased Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

112 FOMC Policy Actions pressures on bank reserve positions sultation of the Committee, was conand in the money market. tinued at 10 to 15 percent. On the other hand, one member The following domestic policy diadvocated a strategy directed to- rective was transmitted to the Federward a prompt easing of money mar- al Reserve Bank of New York: ket conditions with a view to promoting reductions in short-term The information reviewed at this meetinterest rates. It was also suggested ing suggests that real GNP changed little by one member that the Committee in the second quarter, after the appreciable further decline in the first quarter, as adopt an effective ceiling of 15 perbusiness inventory liquidation moderatcent for fluctuations in the federal ed from an extraordinary rate. In May funds rate over the weeks until the the nominal value of retail sales continnext scheduled meeting, in an effort ued to pick up, while industrial production declined only a little further and to avoid any significant backing up nonfarm payroll employment was essenof interest rates in the current envitially unchanged. The unemployment ronment and to strengthen prospects rate edged up 0.1 percentage point to 9.5 for the anticipated recovery in eco- percent. Housing starts rose appreciably nomic activity. Several members ob- from a depressed level. The price index for gross domestic served, however, that such a stratebusiness product appears to have risen at gy was more likely to be viewed as a a relatively slow rate in the second quarfundamental change in the Commit- ter. Over the first five months of this tee's approach to targeting monetary year the producer price index for fingrowth and would have adverse mar- ished goods was virtually stable, and the advance in the index of average hourly ket reactions because of its potential earnings remained at a reduced pace. for producing an unduly rapid ex- The consumer price index rose sharply pansion in bank reserves and mon- in May, after a small net increase over ey. the preceding four months. The weighted average value of the At the conclusion of the discusdollar against major foreign currencies sion, the Committee agreed to seek has risen sharply over the past month, behavior of reserve aggregates asso- reaching its highest level since early ciated with growth of Ml and M2 1971, in response to a rise in U.S. interest rates relative to foreign rates as well from June to September at annual as to hostilities in the Middle East. The rates of about 5 percent and about 9 U.S. foreign trade deficit in the first five percent respectively. It decided that months of 1982 was at a rate substantialsomewhat more rapid growth would ly less than in the fourth quarter of last be acceptable depending on evi- year, as imports declined more than exports. dence that economic and financial Ml declined somewhat in May, after uncertainties were leading to excep- its sharp rise in April, while growth of tional liquidity demands. It was also M2 remained substantial. Business denoted that seasonal uncertainties, to- mands for credit, especially short-term credit, were exceptionally strong. Shortgether with increased social security term market interest rates and bond payments and the initial impact of yields generally have risen since late the tax cut on cash balances, might May, and mortgage interest rates have lead to a temporary bulge in the increased. monetary aggregates, particularly The Federal Open Market Committee seeks to foster monetary and financial Ml. The intermeeting range for the conditions that will help to reduce inflafederal funds rate, which provides a tion, promote a resumption of growth in mechanism for initiating further con- output on a sustainable basis, and con- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 113 tribute to a sustainable pattern of inter- the year and thus would risk exacernational transactions. At its meeting in bating inflationary expectations. Acearly February, the Committee agreed cordingly, they believed that tendenthat its objectives would be furthered by growth of Ml, M2, and M3 from the cies toward rapid monetary exfourth quarter of 1981 to the fourth quar- pansion in the months immediately ter of 1982 within ranges of 2!/ 2 to 5Vi ahead should be met by greater prespercent, 6 to 9 percent, and 6V2 to W2 sures on bank reserve positions and percent respectively. The associated in the money market. range for bank credit was 6 to 9 percent. These ranges were under review at this Mrs. Teeters dissented from this meeting. action because she favored specifi- In the short run, the Committee seeks cation of somewhat higher rates for behavior of reserve aggregates consistmonetary growth during the third ent with growth of Ml and M2 from June to September at annual rates of about 5 quarter along with an approach to percent and about 9 percent respective- operations early in the period that ly. Somewhat more rapid growth would would clearly signal an easing in be acceptable depending on evidence policy. In her opinion, policy at this that economic and financial uncertainties are leading to exceptional liquidity de- point should be directed toward exmands and changes in financial asset erting downward pressure on shortholdings. It was also noted that seasonal term interest rates in order to prouncertainties, together with increased mote recovery in output and social security payments and the initial employment. impact of the tax cut on cash balances, might lead to a temporary bulge in the monetary aggregates, particularly Ml. At a telephone meeting on July 15, The Chairman may call for Committee the Committee concluded its review consultation if it appears to the Manager of the ranges for growth of the monefor Domestic Operations that pursuit of tary aggregates in 1982 and the tentathe monetary objectives and related reserve paths during the period before the tive ranges for 1983 and took the next meeting is likely to be associated following actions. with a federal funds rate persistently outside a range of 10 to 15 percent. The Committee reaffirmed the following ranges for growth of the monetary Votes for this action: Messrs. aggregates over the year from the fourth Volcker, Solomon, Balles, Gramley, quarter of 1981 to the fourth quarter of Martin, Partee, Rice, and Keehn. 1982 that it had adopted in early Febru- Votes against this action: Messrs. ary: for Ml, 2!/ to 5Vi percent; for M2, 6 2 Black, Ford, Mrs. Teeters, and Mr. to 9 percent; and for M3, 6V2 to 9Vi Wallich. Mr. Keehn voted as alter- percent. The associated range for bank nate for Mrs. Horn. credit was 6 to 9 percent. At the same time, the Committee agreed that growth in the monetary and credit aggregates Messrs. Black, Ford, and Wallich around the top of the indicated ranges dissented from this action because would be acceptable in the light of the they favored a policy for the period relatively low base period for the Ml immediately ahead that was firmly target and other factors, and that it would tolerate for some period of time directed toward bringing growth of growth somewhat above the target range Ml down to its range for 1982 by the should unusual precautionary demands end of the year. They were con- for money and liquidity be evident in the cerned that accommodation of rela- light of current economic uncertainties. tively rapid growth over the summer Votes for this action: Messrs. months might jeopardize achieve- Volcker, Solomon, Balles, Black, ment of the monetary objectives for Ford, Mrs. Horn, Messrs. Martin, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

114 FOMC Policy Actions and Partee. Vote against this action: The Federal Open Market Committee Mrs. Teeters. Absent and not voting: seeks to foster monetary and financial Messrs. Gramley, Rice, and Wallich. conditions that will help to reduce inflation, promote a resumption of growth in output on a sustainable basis, and con- Mrs. Teeters dissented from this tribute to a sustainable pattern of interaction because she favored an ex- national transactions. At its meeting in plicit statement that growth of Ml early February, the Committee had agreed that its objectives would be furabove the upper end of the Committhered by growth of Ml, M2, and M3 tee's range for 1982 by 1 percentage from the fourth quarter of 1981 to the point, or even as much as VA per- fourth quarter of 1982 within ranges of centage points, might be acceptable. 2V2 to 5!/2 percent, 6 to 9 percent, and 6V2 to W2 percent respectively. The associat- In her opinion, it was important to ed range for bank credit was 6 to 9 indicate the acceptable degree of percent. The Committee began a review growth of Ml above the range in of these ranges at its meeting on June 30order to foster market behavior that July 1, and at a meeting on July 15, it would lower interest rates and en- reaffirmed the targets for the year set in February. At the same time the Commithance the prospects for sustaining tee agreed that growth in the monetary recovery in output and employment. and credit aggregates around the top of the indicated ranges would be acceptable in the light of the relatively low base The Committee indicated that for 1983 period for the Ml target and other facit was tentatively planning to continue tors, and that it would tolerate for some the current ranges for 1982, but would period of time growth somewhat above review that decision carefully in the light the target range should unusual precauof developments over the remainder of tionary demands for money and liquidity 1982. be evident in the light of current economic uncertainties. The Committee also in- Votes for this action: Messrs. dicated it was tentatively planning to Volcker, Solomon, Balles, Black, continue the current ranges for 1983, but Ford, Mrs. Horn, Messrs. Martin, would review that decision carefully in Partee, and Mrs. Teeters. Votes the light of developments over the reagainst this action: None. Absent and mainder of 1982. not voting: Messrs. Gramley, Rice, and Wallich. Meeting Held on August 24, 1982 Shortly afterwards, Messrs. 1. Domestic Policy Directive Gramley, Rice, and Wallich, who had been unable to attend the meet- The information reviewed at this ing on July 15 but who had been meeting suggested that real GNP present for the main discussion of would advance only a little further in the longer-run ranges for monetary the current quarter, following an ingrowth held at the meeting on June crease at an annual rate of about 1XA 30-July 1, associated themselves percent in the second quarter. Averwith the Committee in its actions age prices, as measured by the fixedwith respect to the ranges for both weight price index for gross domes- 1982 and 1983. tic business product, were contin- Following the Committee's ac- uing to rise more slowly than in tions on July 15, the next to last 1981. paragraph of the domestic policy di- The nominal value of retail sales rective adopted at its meeting on rose 1 percent in July, according to June 30-July 1 read as follows: the advance report, recovering only Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 115 part of the 3lA percent decline re- permits for single-family dwellings corded in June. Sales of new domes- declined slightly and were at about tic automobiles, which had dropped the same pace as in the second quarto an annual rate of 4.8 million units ter as a whole. Combined sales of in June, rose a little in July and early new and existing homes in June con- August. tinued about 25 percent below those The index of industrial production of a year earlier. was about unchanged in July, fol- The producer price index for finlowing a cumulative decline of more ished goods and the consumer price than 10 percent from the prereces- index both rose 0.6 percent in July, sion level in July 1981. Production of following increases of 1.0 percent in business equipment continued to June. At the producer level, prices drop at its recent pace of 2 to 3 of energy-related items increased percent per month, while output of sharply in both months and in July defense and space equipment contin- accounted for nearly all of the rise in ued to expand. Output of consumer the index; prices of food and food goods picked up, reflecting mainly materials fell substantially in July. an increase in automobile assem- At the consumer level, food prices blies, but automobile output in July edged down in July, while increases was at a rate substantially above the in energy prices and homeownership sales pace of June and July, and costs moderated from the rapid rates production schedules for August recorded in June. Over the first sevwere cut back. en months of the year, the producer Nonfarm payroll employment, af- price index for finished goods and ter declining sharply in June, was the consumer price index rose at essentially unchanged in July, as annual rates of about 3 percent and continued job losses in manufac- 5!/2 percent respectively, compared turing were about offset by gains in with increases of about 7 percent trade and service industries. The un- and 9 percent in 1981. The advance employment rate rose 0.3 percentage in the index of average hourly earnpoint to 9.8 percent, as the civilian ings also was considerably less rapid labor force expanded and total civil- through July than during 1981. ian employment was unchanged. In foreign exchange markets the Private housing starts rose 34 per- trade-weighted value of the dollar cent in July, more than reversing the against major currencies, while flucdecline in June; but at an annual rate tuating over a wide range, had of 1.2 million units, starts remained changed little on balance since late low by historical standards. All of June despite a sharp decline in U.S. the July increase was in multifamily interest rates relative to foreign units; starts of such units more than rates. The strength of the dollar in doubled, in part because of an up- the face of narrowing interest rate surge in those qualifying for rental differentials apparently reflected subsidies under a federal govern- concerns of market participants ment program terminating on Sep- about economic and financial diffitember 30. That impending termina- culties abroad. The U.S. foreign tion also apparently contributed to a trade deficit in the second quarter substantial rise in July in newly is- was somewhat below the first-quarsued permits for multifamily units; ter deficit, reflecting primarily a sub- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

116 FOMC Policy Actions stantial drop in petroleum imports; year. Growth in business loans the total of other imports rose some- slowed in July, but generally strong what and exports were about un- business demands for short-term changed. credit were reflected in an increase At its meeting on June 30-July 1, in loans booked at foreign branches the Committee had agreed to seek of U.S. banks and in a sharp accelbehavior of reserve aggregates asso- eration in issuance of commercial ciated with growth of Ml and M2 paper by nonfinancial businesses. Isfrom June to September at annual suance of publicly offered bonds rates of about 5 percent and about 9 rose in July. percent respectively. It had also de- Nonborrowed reserves expanded cided that somewhat more rapid relatively rapidly in July. However, growth would be acceptable depend- with the demand for reserves weak, ing on evidence that economic and in part reflecting the sluggishness of financial uncertainties were leading Ml, adjustment borrowing by deposto exceptional liquidity demands. itory institutions (including seasonal Moreover, the Committee had noted borrowing) declined from an average that seasonal uncertainties, together of about $1.1 billion in June to about with increased social security pay- $330 million in the two statement ments and the initial impact of the weeks ending August 18. tax cut on cash balances, might lead Market interest rates had declined to a temporary bulge in the monetary sharply over the period since the aggregates, particularly Ml. The in- last Committee meeting. Short-term termeeting range for the federal market rates fell 4 to 6 percentage funds rate, which provides a mecha- points. The federal funds rate, for nism for initiating further consulta- example, declined from around 141/2 tion of the Committee, was set at 10 percent at the end of June to about to 15 percent. 10 percent in the statement week Ml in fact declined slightly in ending August 18 and to around 9 July, following declines in May and percent in the days immediately pre- June, as demand deposits continued ceding this Committee meeting. to contract and growth in currency Bond yields declined about PA to 2 slowed further. Growth of M2, after percentage points. A substantial part moderating in June from a rapid pace of the decline in long-term rates ocin previous months, accelerated curred in an unusually strong rally in again in July. Small-denomination debt markets around mid-August, time deposits increased sharply dur- when record price increases also ocing the month, and shares in money curred in the stock market. The market mutual funds continued to strength of the downward movement expand at a relatively strong pace; in in interest rates apparently reflected contrast, savings deposits at all de- a shift in market sentiment about the pository institutions declined sub- outlook for interest rates against the stantially after growing moderately background of strains in financial during earlier months of the year. markets, relatively weak economic Total credit outstanding at U.S. indicators, and legislative action on commercial banks grew at an annual the federal budget. Over the interrate of about 6V2 percent in July, well meeting interval, the prime rate below the pace in the first half of the charged by commercial banks on Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 117 short-term business loans was low- depressed, particularly in the event ered from 16'/2 percent to W/i per- of renewed upward pressure on cent. In conjunction with the decline long-term interest rates. On the othin short-term market rates, the Fed- er hand, it was observed, continued eral Reserve discount rate was re- success in the fight against inflation duced in three steps from 12 percent would over time ease pressures in to 10^2 percent over the period. In long-term debt markets, improve home mortgage markets, average business confidence, and strengthen rates on new commitments for fixed- business capital spending. rate conventional loans at savings Some members commented that and loan associations declined about to date the midyear reduction in fed- !/2 percentage point on balance. eral income taxes and the concurrent The staff projections presented at cost-of-living increase in social sethis meeting suggested that real GNP curity payments appeared to have would grow at a moderate pace over had little impact on consumer spendthe year ahead but that the unem- ing. The view was expressed, howployment rate would remain near its ever, that the midyear tax actions recent high level. Inflation, as mea- were likely to exert a positive influsured by the fixed-weight price in- ence on a delayed basis. It was also dex for gross domestic business noted that the recently reduced levproduct, was expected to pick up els of interest rates, if they were somewhat over the months ahead sustained, would help to relieve fifrom the substantially reduced pace nancial pressures throughout the in the first half of 1982, but contin- economy and thereby contribute to ued improvement in the underlying improvement in economic activity trend was anticipated. over the months ahead. In the Committee's discussion of At its meeting on June 30-July 1, the economic situation and outlook, the Committee had begun a review several members commented that of the monetary growth objectives the timing of an economic recovery for the period from the fourth quarwas subject to considerable uncer- ter of 1981 to the fourth quarter of tainty, but no member expressed 1982 that it had set in early Februdisagreement with the general char- ary. Subsequently, at a meeting on acter of the staff projection. As at July 15, the Committee had reafother recent meetings, some Com- firmed those objectives, which inmittee members suggested that the cluded ranges of 2!/2 to 5!/2 percent principal risks of a deviation from for Ml, 6 to 9 percent for M2, and the projection were on the down 6!/2 to 9Vi percent for M3. The assoside. Reference was made to the ciated range for bank credit was 6 to growing expressions of concern in 9 percent. At the same time the the business community and to fi- Committee agreed that growth in the nancial strains being experienced by monetary and credit aggregates many business firms, financial insti- around the top of the indicated tutions, and others. In this situation, ranges would be acceptable in the spending might well remain weak in light of the relatively low base period key sectors of the economy. Busi- for the Ml target and other factors, ness capital spending was cited as and that it would tolerate for some especially vulnerable to remaining period of time growth somewhat Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

118 FOMC Policy Actions above the target range should unusu- movements in either direction over al precautionary demands for money the near term might have damaging and liquidity be evident in the light consequences. Some members emof current economic uncertainties. phasized that a pronounced increase The Committee also indicated that it from current levels would aggravate was tentatively planning to continue financial strains and inhibit recovery the current ranges for 1983 but that it in interest-sensitive sectors of the would review that decision carefully economy. Some members also sugin the light of developments over the gested that a large further decline remainder of 1982. might foster a resurgence of infla- At this meeting the Committee re- tionary expectations and could viewed the short-run objectives that prove to be unsustainable and thereit had established at the previous fore unsettling to financial markets. meeting calling for expansion at an- Several members expressed the nual rates of about 5 percent for Ml view that the Committee should reand about 9 percent for M2 over the view its policy if reserve provision to three months from June to Septem- meet monetary growth objectives ber. Data available through mid-Au- was fostering a substantial change in gust indicated that growth in Ml was pressures on bank reserve positions running below the Committee's ob- and in credit markets. jective, while partial data suggested Reference was made to the relathat growth in M2 had moved above tive strength in M2 over the course the objective for the three-month of recent weeks that appeared to be period. In relation to the Commit- related in part to unusual demands tee's objectives for the year as a for liquid investments, such as monwhole, the latest staff estimates indi- ey market funds, at comparatively cated that the expansion of Ml was attractive yields. The members within its longer-run range, while agreed that under prevailing circumthat of M2 was somewhat above its stances, growth in M2 somewhat 1982 range. above its short-run target would be During the Committee's discus- acceptable over the period immedision, most of the members agreed ately ahead. that the short-run growth objectives At the conclusion of the discusadopted at the previous meeting re- sion the Committee agreed to reafmained appropriate under current firm the objectives for monetary economic and financial conditions growth established at the June 30and should be retained. The view July 1 meeting for the June to Sepwas expressed that the substantial tember period. The Committee derecent decline in interest rates, cided that somewhat more rapid which in part reflected growing pub- growth in the monetary aggregates lic awareness of the progress that would be acceptable depending upon had been made in curbing inflation, evidence that economic and finanprovided welcome relief in easing cial uncertainties were fostering unfinancial strains throughout the usual liquidity demands for moneeconomy. A number of members ex- tary assets and were contributing to pressed concern, however, about substantial volatility in interest the volatility of interest rates and rates. The intermeeting range for the some commented that further sharp federal funds rate, which provides a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 119 mechanism for initiating further con- output on a sustainable basis, and consultation of the Committee, was set tribute to a sustainable pattern of international transactions. At its meeting in at 7 to 11 percent. early February, the Committee had The following domestic policy di- agreed that its objectives would be furrective was issued to the Federal thered by growth of Ml, M2, and M3 Reserve Bank of New York: from the fourth quarter of 1981 to the fourth quarter of 1982 within ranges of 2!/2 to 5Vi percent, 6 to 9 percent, and 6V2 The information reviewed at this meetto 91/2 percent respectively. The associating suggests only a little further advance ed range for bank credit was 6 to 9 in real GNP in the current quarter, folpercent. The Committee began a review lowing a relatively small increase in the of these ranges at its meeting on June 30second quarter, while prices on the aver- July 1, and at a meeting on July 15, it age are continuing to rise more slowly reaffirmed the targets for the year set in than in 1981. In July the nominal value of February. At the same time the Commitretail sales rose somewhat from a sharptee agreed that growth in the monetary ly reduced June level; housing starts and credit aggregates around the top of increased substantially, though from a the indicated ranges would be acceptable relatively low rate; and industrial proin the light of the relatively low base duction and nonfarm payroll employperiod for the Ml target and other facment were essentially unchanged. The tors, and that it would tolerate for some unemployment rate rose 0.3 percentage period of time growth somewhat above point to 9.8 percent. Over the first seven the target range should unusual precaumonths of the year the advance in the tionary demands for money and liquidity index of average hourly earnings was be evident in the light of current economconsiderably less rapid than during 1981. ic uncertainties. The Committee also in- The weighted average value of the dicated that it was tentatively planning to dollar against major foreign currencies, continue the current ranges for 1983 but while fluctuating over a wide range, has that it would review that decision carechanged little on balance since late June fully in the light of developments over despite a sharp decline in U.S. interest the remainder of 1982. rates relative to foreign rates. Demand In the short run, the Committee confor dollars appeared to reflect concern tinues to seek behavior of reserve aggreabout economic and financial difficulties gates consistent with growth of Ml and abroad. The U.S. foreign trade deficit in M2 from June to September at annual the second quarter was somewhat below rates of about 5 percent and about 9 the first-quarter deficit, with petroleum percent respectively. Somewhat more imports down substantially. rapid growth would be acceptable de- Ml declined slightly in June and July, pending on evidence that economic and while growth of M2 moderated somefinancial uncertainties are leading to exwhat from its average pace earlier in the ceptional liquidity demands and changes year. Business demands for credit, espein financial asset holdings. The Chaircially short-term credit, remained generman may call for Committee consultaally strong. Market interest rates have tion if it appears to the Manager for declined sharply since around midyear, Domestic Operations that pursuit of the reflecting a shift in market sentiment monetary objectives and related reserve about the outlook for interest rates paths during the period before the next against the background of strains in fimeeting is likely to be associated with a nancial markets, relatively weak ecofederal funds rate persistently outside a nomic indicators, and legislative action range of 7 to 11 percent. on the federal budget. The Federal Reserve discount rate was reduced in three steps from 12 percent to IOV2 percent Votes for this action: Messrs. during the period. Volcker, Solomon, Balles, Black, The Federal Open Market Committee Ford, Mrs. Horn, Messrs. Martin, seeks to foster monetary and financial Partee, Rice, and Mrs. Teeters. Vote conditions that will help to reduce infla- against this action: Mr. Wallich. Abtion, promote a resumption of growth in sent and not voting: Mr. Gramley. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

120 FOMC Policy Actions Mr. Wallich dissented from this an economic stabilization program action because he favored an ap- that the Government of Mexico had proach to operations early in the announced was being developed. period that would lessen the chances The Committee authorized Federal of short-term interest rates remain- Reserve participation in the proing below the prevailing discount posed multilateral financing package rate or falling further below it. He through the temporary establishwas concerned that such interest ment of a special swap arrangement rate behavior would tend to accel- of $325 million with the Bank of erate monetary expansion and that Mexico in addition to the regular the necessary restraint of reserve arrangement of $700 million. Acgrowth to curb such expansion might cordingly, paragraph 2 of the Comlead to a sizable rebound in short- mittee's authorization for foreign term rates with adverse implications currency operations was amended, for business and consumer confi- effective August 28, 1982, for the dence. period through August 23, 1983, to read as follows: 2. Authorization for Foreign Currency Operations 2. The Federal Open Market Committee directs the Federal Reserve Bank of At this meeting Committee members New York to maintain reciprocal currenwere apprised of the status of ongo- cy arrangements ("swap" arrangements) for the System Open Market Account for ing discussions with the Government periods up to a maximum of 12 months of Mexico regarding short-term fi- with the following foreign banks, which nancing arrangements to support are among those designated by the Board Mexico's efforts to strengthen its of Governors of the Federal Reserve System under Section 214.5 of Regulaeconomic and financial position. At tion N, Relations with Foreign Banks its meeting on June 30-July 1, the and Bankers, and with the approval of Committee had agreed, in response the Committee to renew such arrangeto a request by officials of the Bank ments on maturity: of Mexico, that it would stand ready to provide to the Bank of Mexico up Amount of arrangement to the full $700 million available un- Foreign bank (millions of der the Federal Reserve System's dollars equivalent) existing swap arrangement with that Austrian National Bank 250 Bank. Subsequently, on August 4, National Bank of Belgium 1,000 1982, the Bank of Mexico, which Bank of Canada 2,000 National Bank of Denmark 250 had drawn on its swap line on an Bank of England 3,000 Bank of France 2,000 overnight basis on a few occasions in German Federal Bank 6,000 recent months, drew $700 million for Bank of Italy 3,000 Bank of Japan 5,000 a period of three months. Bank of Mexico At the time of this meeting, negoti- Regular 700 Special 325 ations were under way among Mexi- Netherlands Bank 500 co, the U.S. Treasury, major central Bank of Norway 250 Bank of Sweden 300 banks, and other lenders to provide Swiss National Bank 4,000 Bank for International Settlements multilateral financial support to Dollars against Swiss francs 600 Mexico. The purpose of the support Dollars against authorized European currencies other than Swiss francs 1,250 was to effect an orderly transition to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 121 Any changes in the terms of existing sured by the fixed-weight price inswap arrangements, and the proposed dex for gross domestic business terms of any new arrangements that may product, were continuing to rise be authorized, shall be referred for remore slowly than in 1981. view and approval to the Committee. The nominal value of retail sales Votes for this action: Messrs. fell nearly 1 percent in August, ac- Volcker, Solomon, Balles, Black, cording to the advance report, re- Ford, Mrs. Horn, Messrs. Martin, Partee, Rice, Mrs. Teeters, and Mr. turning to the sharply reduced June Wallich. Votes against this action: level. Sales declines were particular- None. Absent and not voting: Mr. ly marked at automotive outlets and Gramley. at general merchandise, apparel, and furniture and appliance stores. Sales On August 30, 1982, the U.S. of new domestic automobiles in- Treasury and the Federal Reserve creased slightly in August to an anannounced that they were participatnual rate of 5.3 million units; sales ing with central banks of other rose further to an annual rate of 6 Group of Ten countries, Spain, and million units in the first 20 days of Switzerland, under the aegis of the September, apparently in response Bank for International Settlements, to purchase incentives offered by in making available to the Bank of manufacturers in an effort to reduce Mexico short-term financing totaling excess stocks of 1982 models. $1.85 billion. The Treasury would After having changed little in July, provide $600 million though the Exthe index of industrial production change Stabilization Fund, in condeclined 0.5 percent in August to a junction with the $325 million that level about 1 percent below its secthe Federal Reserve was making ond-quarter average and more than available through its additional swap 10 percent below its prerecession arrangement. The multilateral filevel in July 1981. Production of nancing program provided that consumer goods fell in August, foldrawings by Mexico would be made lowing a sizable advance over the in line with progress toward agreepreceding four months, and output ment between the Mexican Governof business equipment continued to ment and the International Monetary drop at a rapid rate. Output of de- Fund (IMF) on an economic adjustfense and space equipment expandment program that will permit Mexied further. Limited information curco to qualify for drawings under the rently available for September was IMF's Extended Fund Facility. generally indicative of some further decline in production. Nonfarm payroll employment fell Meeting Held on October 5, 1982 further in August, mainly reflecting sizable job losses in the manufac- Domestic Policy Directive turing and trade sectors. In contrast The information reviewed at this to the payroll data, the survey of meeting suggested that real GNP had households indicated an increase in changed little in the third quarter, employment, and the unemployment following an increase at an annual rate was unchanged at 9.8 percent. rate of about 2 percent in the second But initial claims for unemployment quarter. Average prices, as mea- insurance rose to a new high in mid- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

122 FOMC Policy Actions September, suggesting further dete- The dollar's strength reflected in rioration in the labor markets. part a continuing concern in the mar- The Department of Commerce ket about economic and financial survey of business spending plans difficulties abroad and also some taken in late July and August sug- firming of U.S. interest rates relative gested that businesses had again re- to foreign rates after a considerable duced their spending plans for 1982. drop earlier. The U.S. foreign trade The survey results indicated that deficit rose sharply in August, recurrent-dollar expenditures for plant flecting primarily a substantial reand equipment would rise only 3A of bound in nonpetroleum imports. The a percent in 1982, compared with an deficit on average in July and August estimated 2lA percent in the May was at a rate well above that for the survey and 7 lA percent in the Febru- first half of the year, mainly because ary survey. Actual expansion in 1981 of increased imports of oil. was about 83/4 percent. At its meeting on August 24, the Private housing starts fell in Au- Committee had agreed to continue gust to an annual rate of 1.0 million seeking behavior of reserve aggreunits, reversing much of the substan- gates consistent with growth of Ml tial increase in July. While starts in and M2 from June to September at August were above the average in annual rates of about 5 percent and the second quarter, they remained about 9 percent respectively. It had quite low by historical standards. also agreed that somewhat more rap- Sales of existing homes declined 5 id growth in the monetary aggregates percent in August to the lowest would be acceptable depending upon monthly pace since 1970, while sales evidence that economic and finanof new homes continued at the slug- cial uncertainties were leading to exgish pace of recent months. ceptional liquidity demands and The producer price index for fin- changes in holdings of financial asished goods rose 0.6 percent in Au- sets. The intermeeting range for the gust, the same as in July. The con- federal funds rate, which provides a sumer price index rose only 0.3 mechanism for initiating further conpercent in August; food prices de- sultations of the Committee, was set clined for the second consecutive at 7 to 11 percent. month and energy prices leveled off Following three months of weakafter increasing sharply over the pre- ness, Ml grew at an annual rate of ceding three months. So far this year about IOV2 percent in August and the producer price index and the appeared to have grown more rapidconsumer price index had risen at ly in September. Much of the annual rates of about 33A percent and strength of Ml was accounted for by 5 percent respectively. In recent rapid growth in other checkable demonths the advance in the index of posits, but demand deposits also exaverage hourly earnings had re- panded in both months, after conmained considerably less rapid than tracting on average since early in the during 1981. year. The expansion in checkable In foreign exchange markets the deposits may have reflected in part trade-weighted value of the dollar the early impact on take-home pay had risen about 5 percent over the of the tax cut as well as unusual period since the last FOMC meeting. liquidity demands in the face of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 123 continued economic uncertainties. declined substantially over the pre- Moreover, the lower level of short- ceding two months, and decreases term market interest rates had re- were particularly marked around the duced the earnings disadvantage of time of the August 24 meeting of the keeping funds in checkable ac- Committee, when expectations of counts. Growth in M2 accelerated to continued declines in short-term an annual rate of about 14!/4 percent market rates were strong. Effective in August, but was estimated to have August 27, the Federal Reserve disslowed substantially in September as count rate was reduced from lOVi to expansion in its nontransaction com- 10 percent. Subsequently federal ponent decelerated markedly. funds traded at rates somewhat Total credit outstanding at U.S. above the discount rate, as comcommercial banks grew at an annual pared with a trading level of around rate of about 6!/2 percent in August, 9 percent in the last statement week the same as in July but well below of August, and rates on private the pace in the first half of the year. short-term instruments also rose by Partial data for September suggested about 1 to 2 percentage points from that growth slowed somewhat de- their late August lows. At the same spite a pickup in growth of business time, rates on Treasury bills moved loans from the sharply reduced Au- up only slightly, partly reflecting the gust pace; a significant part of the increased preference for quality on strengthening in business loans ap- the part of investors. The well-publipeared to have been associated with cized problems in recent months of a merger activity. Other short-term few banks here and abroad, the borrowing by nonfinancial busi- acute external financing difficulties nesses generally was weak: the vol- of Mexico, and emerging financing ume of commercial paper outstand- problems in other developing couning edged down in August and tries led to a more cautious atmodropped further in September. How- sphere in private credit markets and ever, the weakness in short-term a widening of yield spreads between borrowing was largely offset by in- U.S. government securities and creased long-term financing in the some private credit instruments. bond market. Bond yields continued to decline Total reserves expanded quite over the intermeeting period, falling rapidly in September, after having !/4 to 3A percentage point. Average grown relatively little on average rates on new commitments for fixedover the preceding several months. rate conventional home mortgage A little less than half of the Septem- loans declined about 1 percentage ber growth in total reserves was sup- point. plied by nonborrowed reserves, and The staff projections presented at adjustment borrowing (including this meeting suggested that real GNP seasonal borrowing) by depository would grow moderately in the institutions increased from an aver- course of 1983, but that any recovage of about $420 million in August ery in economic activity in the to about $815 million in September. months just ahead was likely to be Most short-term market interest quite limited. The projections for the rates rose somewhat on balance over year ahead also suggested that unthe intermeeting interval. Rates had employment would remain at a high Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

124 FOMC Policy Actions level. The rise in prices, as measured over, further moderation in labor by the fixed-weight price index for cost and price pressures and also in gross domestic business product, inflationary expectations was a reawas expected to slow gradually from sonable anticipation, given an envia rate in the third quarter of 1982 that ronment of moderate expansion in was estimated to be somewhat high- output and employment, relatively er than that in the first half of the low levels of resource utilization, year. and prospects for improvement in In the Committee's discussion of productivity. the economic situation and policy, it Domestic problems were being inwas generally agreed that growth in tensified because the recession in real GNP over the next year at about economic activity was worldwide; it the relatively restrained pace pro- had affected every major industrial jected by the staff was a reasonable country and, through its impact on expectation. Expansion in output at foreign trade and commodity prices, a somewhat faster pace might occur, the developing countries as well. if consumer and business confidence Many of the latter countries had in the outlook improved during the accumulated large external debts next few months. So far, however, over a number of years, and they the widely held expectations of re- now faced difficult financing and adcovery beginning in the spring or justment problems. Altogether, summer had been disappointed, and these circumstances had been conthere were still no signs of a tributing to an atmosphere of nerstrengthening in the economy. The vous uncertainty, which was reflectprojected expansion in consumer de- ed in, among other things, the mands associated with the midyear foreign exchange value of the dollar. cut in federal income taxes had not Over recent months, the dollar had yet developed; prospects for busi- risen against other major currencies ness plant and equipment spending even when dollar interest rates were and for commercial construction had declining relative to foreign rates, deteriorated; and agricultural in- and the high exchange value currentcome and expenditures had re- ly had serious implications both for mained depressed. In September in- U.S. export industries and for efforts dustrial output and employment abroad to pursue flexible monetary most likely had declined further, and policies. the unemployment rate had almost The U.S. banking system had surely risen from the July-August been subjected to pressures, owing level of 9.8 percent. Against that in part to well-known problems of background, it was recognized that particular institutions but also to a there were risks of a shortfall from more general uneasiness about the the projection of moderate growth in possibility of further credit problems real GNP over the quarters ahead. domestically or internationally. An At the same time, progress in re- unusually cautious attitude in priducing the rate of inflation had been vate credit markets had led to a substantial, exceeding expectations widening of risk premiums, with the of many, even after allowance for result that private interest rates had the influence of volatile prices of declined less than rates on Treasury energy products and foods. More- securities since midsummer, and in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 125 recent weeks private short-term defined Ml as it drew money from market rates had tended to move up. NOW accounts, the direction of the Altogether, these circumstances ap- overall effect was in some doubt peared to have been associated with since that would depend in part on business efforts to generate and con- the exact characteristics of the inserve cash, with market partici- strument or instruments authorized pants' concerns about the quality of by the DIDC. The new instrument credit, and with a general increase in could include even more transaction precautionary demands for money features than the account specificaland liquidity. In financial markets ly provided for in the legislation. The and elsewhere, a sense of disarray new instrument could also be excould develop, which could increase pected to affect the composition of the atmosphere of uncertainty. M2 and perhaps in some degree its With respect to the period ahead, total as well. It seemed clear, howthe Committee continued to face un- ever, that the new instrument would certainties about the interpretation affect the behavior of M2 and other of the behavior of the monetary ag- broader aggregates to a much smallgregates in general, arising from the er extent than that of Ml. impact of the current economic envi- Because of these difficulties in inronment on precautionary demands terpreting the behavior of Ml during for money and liquidity. Moreover, the fourth quarter, the Committee the behavior of Ml in particular dur- decided that it would place much ing the final three months of the year less than the usual weight on that would inevitably be distorted by two aggregate's movements during this institutional developments. First, a period and that it would not set a very large volume of all savers cer- specific objective for its growth. In tificates would mature in the first the view of most members, against part of October, and disposition of the background of prevailing ecothe proceeds could be expected to nomic and financial developments, induce temporary bulges in both the added pressures on bank reserve podemand deposit and NOW account sitions and money markets in recomponents of Ml. Second, later in sponse to a bulge in Ml related to the quarter, as the Depository Insti- the maturing of all saver certificates tutions Deregulation Committee were not justified; indeed, some eas- (DIDC) implemented recent legisla- ing of the pressures of recent weeks tion, depository institutions would in some sectors of the private credit be authorized to offer a new account markets would be desirable, if that (or accounts) that would be free could be consistent with growth in from interest rate ceilings, would be the broader aggregates in line with usable to some degree for transac- longer-term objectives. tion purposes, and would be compet- The Committee agreed that in all itive with money market mutual the circumstances, it would seek to funds. The new account was likely maintain expansion in bank reserves to have a substantial impact on the needed for an orderly and sustained behavior of Ml, but no basis existed flow of money and credit, consistent for predicting its magnitude. While with growth of M2 (and M3) from the new account seemed likely to September to December at an annual have a depressing effect on currently rate in a range of around 8V2 to 9Vi Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

126 FOMC Policy Actions percent, and taking account of the industrial production and nonfarm paydesirability of somewhat reduced roll employment also declined. Housing starts fell, reversing much of the subpressures in private credit markets stantial July increase. The unemployin the light of current economic conment rate was unchanged at 9.8 percent ditions. Growth of M2 from the in August, but claims for unemployment fourth quarter of 1981 to the fourth insurance have risen further in recent weeks and there are indications of some quarter of 1982 might be somewhat further decline in production. In recent above the range for the year that the months the advance in the index of aver- Committee had reaffirmed in July; age hourly earnings has remained conthe Committee had also agreed then siderably less rapid than during 1981. that for a time it would tolerate The weighted average value of the growth somewhat above the target dollar against major foreign currencies has risen strongly further over the past range, in the event of unusual premonth, reflecting in part a continuing cautionary demands for money and concern in the market about economic liquidity, and that such growth and financial difficulties abroad and also would be consistent with longer- some firming of U.S. interest rates relaterm objectives. Recent and pro- tive to foreign rates after a considerable drop earlier. The U.S. merchandise spective market and economic contrade deficit rose sharply in August and ditions appeared consistent with that on average in July and August the deficit approach. Somewhat slower growth rate was well above that for the first half. over the period from September to After three months of weakness, Ml December, bringing those aggre- grew rapidly in August and September; growth in M2 accelerated in August from gates around the upper part of the an already rapid pace but appears to ranges for the year ending in the have slowed markedly in September. fourth quarter of 1982, would be Following large declines over the preacceptable and desirable in a context ceding two months, short-term market interest rates have risen somewhat on of declining interest rates. Should balance since late August, while bond economic and financial uncertainties yields and mortgage rates have continlead to still stronger liquidity de- ued to decline. The Federal Reserve mands, somewhat more rapid discount rate was reduced from IOV2 growth in the broader aggregates percent to 10 percent in late August. Meanwhile, reflecting some well-publiwould be tolerated. The intermeetcized problems in recent months of a few ing range for the federal funds rate, banks here and abroad and the financing which provides a mechanism for ini- difficulties of Mexico, a more cautious tiating further consultation of the atmosphere in private credit markets has been reflected in wider spreads between Committee, was set at 7 to 10!/2 U.S. government and some private credpercent. it instruments. The following domestic policy di- The Federal Open Market Committee rective was issued to the Federal seeks to foster monetary and financial Reserve Bank of New York: conditions that will help to reduce inflation, promote a resumption of growth in output on a sustainable basis, and con- The information reviewed at this meet- tribute to a sustainable pattern of intering suggests that real GNP changed little national transactions. In July, the Comin the third quarter, following a small mittee agreed that these objectives increase in the second quarter, while would be furthered by reaffirming the prices on the average continued to rise monetary growth ranges for the period more slowly than in 1981. In August the from the fourth quarter of 1981 to the nominal value of retail sales fell back to fourth quarter of 1982 that it had set at the sharply reduced June level, while the February meeting. These ranges Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 127 were 2Vi to 5'/ percent for Ml, 6 to 9 the Manager for Domestic Operations 2 percent for M2, and 6'/2 to 9V2 percent that pursuit of the monetary objectives for M3. The associated range for bank and related reserve paths during the pericredit was 6 to 9 percent. The Committee od before the next meeting is likely to be agreed that growth in the monetary and associated with a federal funds rate percredit aggregates around the top of the sistently outside a range of 7 to 10'/2 indicated ranges would be acceptable in percent. the light of the relatively low base period for the Ml target and other factors, and Votes for this action: Messrs. that it would tolerate for some period of Volcker, Solomon, Balles, Gramley, time growth somewhat above the target Martin, Partee, Rice, Mrs. Teeters, range should unusual precautionary de- and Mr. Wallich. Votes against this mands for money and liquidity be evi- action: Messrs. Black and Ford and dent in the light of current economic Mrs. Horn. uncertainties. The Committee also indicated that it was tentatively planning to continue the current ranges for 1983 but Mr. Black dissented from this acthat it would review that decision care- tion because he preferred to direct fully in the light of developments over operations in the period immediately the remainder of 1982. ahead toward restraining monetary Specification of the behavior of Ml growth. Although he was mindful of over the balance of the year is subject to unusually great uncertainties because it the current difficulties of interpreting will be substantially affected by special the behavior of Ml, he was concircumstances—in the very near term by cerned that the recent strength in Ml reinvestment of funds from maturing all might be followed by still more rapid savers certificates and later by the public's response to the new account direct- growth in lagged response to the ly competitive with money market funds substantial decline in short-term inmandated by recent legislation. The terest rates that had occurred in the probable difficulties in interpretation of summer, which could require even Ml during the period suggest much less more restrictive operations later. than usual weight be placed on movements in that aggregate during the cur- Mr. Ford dissented from this acrent quarter. These developments are tion because he preferred a policy expected to affect M2 and other broader for the period immediately ahead aggregates to a much smaller extent. that was more firmly directed to- In all the circumstances, the Commitward restraining monetary growth, tee seeks to maintain expansion in bank reserves needed for an orderly and sus- although he recognized that the betained flow of money and credit, consis- havior of Ml in particular would be tent with growth of M2 (and M3) in a difficult to interpret. He was conrange of around SVi to 9!/2 percent at an cerned that the Committee's policy annual rate from September to December, and taking account of the desirabil- directive might be misinterpreted in ity of somewhat reduced pressures in ways that could adversely affect purprivate credit markets in the light of suit of the System's longer-run anticurrent economic conditions. Somewhat inflationary objectives, particularly slower growth, bringing those aggregates in the context of a highly expansive around the upper part of the ranges set for the year, would be acceptable and fiscal policy program. desirable in a context of declining inter- Mrs. Horn dissented from this acest rates. Should economic and financial tion because she preferred to continuncertainties lead to exceptional liquidue setting a specific objective for ity demands, somewhat more rapid growth in the broader aggregates would growth of Ml, as well as for M2, be tolerated. The Chairman may call for over the current quarter, notwith- Committee consultation if it appears to standing the problems of interpreting Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

128 FOMC Policy Actions its behavior. In setting a target for 1981. Output of business equipment Ml, she would tolerate faster growth fell substantially further in October, early in the period, owing to the and as in other recent months, deuncertain impact of the proceeds fense and space equipment was the from maturing all savers certificates, only major category of final products and would give greater weight to the showing strength. Capacity utilizabehavior of M2 for some weeks after tion in manufacturing fell 0.8 perthe introduction of the new instru- centage point to 68.4 percent, the ment at depository institutions. lowest level in the postwar period. Nonfarm payroll employment fell further in October, declining slightly more than the average over the pre- Meeting Held vious four months. Cutbacks in emon November 16, 1982 ployment were widespread and were especially marked in durables manu- 1. Domestic Policy Directive facturing. The unemployment rate The information reviewed at this rose an additional 0.3 percentage meeting suggested that real GNP point to 10.4 percent, with the rise would change little in the fourth concentrated among adult workers. quarter, after increasing at an annual In recent weeks, moreover, initial rate of 3A percent in the third quarter claims for unemployment insurance according to preliminary estimates remained exceptionally high. of the Commerce Department. Aver- Private housing starts rose in Sepage prices, as measured by the fixed- tember and in the third quarter as a weight price index for gross do- whole were nearly 17 percent higher mestic business product, were than in the second quarter. Most of continuing to rise at a much less the third-quarter increase was in the rapid pace than in 1981. multifamily sector and was attribut- The nominal value of retail sales able mainly to a surge in federally rose 0.6 percent in October, but the subsidized rental units at the end of level was little higher than in the the fiscal year. In September, newly second and third quarters. Sales in- issued permits for both single-family creased at automotive outlets and and multifamily dwellings rose subfurniture and appliance stores, but stantially. Sales of new homes also edged down at nondurable goods advanced appreciably, exceeding stores. Unit sales of new domestic the 1981 average rate for the first automobiles fell back to an annual time this year; sales of existing rate of 5.3 million units, after having homes, however, remained at the increased to an annual rate of 6.2 reduced August pace. million units in September in re- The producer price index for finsponse to special promotions aimed ished goods rose 0.5 percent in Octoat reducing excess stocks of 1982 ber, following a decline of 0.1 permodels. cent in September. Most of the The index of industrial production October increase was attributable to declined 0.8 percent in October, a higher prices for motor vehicles, little more than in both August and which had been reduced in Septem- September, and was about HVi per- ber by end-of-year liquidation allowcent below its recent peak in July ances and discounts on 1982 models. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 129 Prices of consumer foods and ener- gates around the upper part of gy-related items edged down in Oc- the ranges set for the year, would tober. Over the first ten months of be acceptable and desirable in a conthe year the index rose at an annual text of declining interest rates. rate of about VA percent, less than Should economic and financial unhalf the pace in 1981. The consumer certainties lead to exceptional liquidprice index rose 0.2 percent in Sep- ity demands, somewhat more rapid tember, as the homeownership com- growth would be tolerated. The ponent declined and most other cate- Committee had also decided that it gories registered relatively small would place much less than the usual increases. Over the first nine months weight on the movements of Ml of the year the index rose at an during the period from September to annual rate of about 43/4 percent, December and would not set a specompared with an increase of about cific objective for its growth, be- 9 percent in 1981. In recent months cause its behavior would be subthe advance in the index of average stantially affected by special circumhourly earnings had remained con- stances. The intermeeting range for siderably less rapid than it was dur- the federal funds rate, which proing 1981. vides a mechanism for initiating fur- In foreign exchange markets the ther consultation of the Committee, trade-weighted value of the dollar was set at 7 to W/i percent. against major foreign currencies Growth of M2 and M3, which had continued to appreciate from the end been sluggish in September, picked of September to mid-November. up to annual rates of about 8 percent The dollar strengthened further de- and 9 percent respectively in Octospite somewhat greater declines, on ber; still, growth remained below the balance, in U.S. interest rates than brisk pace of earlier in the year. in foreign interest rates over the pe- Growth of Ml surged to an annual riod. Moreover, release of data indi- rate of a little over 20 percent, influcating that the U.S. merchandise enced by shifts of funds in connectrade deficit in the third quarter was tion with the large volume of maturmore than double the rate in the first ing all savers certificates. two quarters of the year apparently Total credit outstanding at U.S. had little impact on exchange rates. commercial banks grew at an annual At its meeting on October 5, the rate of about 7 percent in October, Committee had agreed that it would up somewhat from the reduced Sepseek to maintain expansion in bank tember pace. Banks acquired a sizreserves needed for an orderly and able volume of U.S. Treasury secusustained flow of money and credit, rities, but growth in loans generally consistent with growth of M2 (and remained relatively weak. Total M3) from September to December at short-term borrowing by nonfinanan annual rate in a range of around cial businesses slowed further, as %Vi to 9Vi percent, and taking ac- growth in business loans at banks count of the desirability of some- moderated and the volume of comwhat reduced pressures in private mercial paper outstanding contractcredit markets in the light of current ed substantially for the second economic conditions. Somewhat month in a row. However, the weakslower growth, bringing those aggre- ness in short-term borrowing was Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

130 FOMC Policy Actions offset in part by an increase in long- this meeting, like those of early Octerm financing in the bond market. tober, suggested that real GNP The demand for reserves was rela- would grow moderately during 1983, tively strong in October, reflecting but that any recovery in economic particularly the rapid growth of Ml. activity in the months just ahead was Nonborrowed reserves grew rapid- likely to be quite limited. The projecly, and adjustment borrowing (in- tions for the year ahead also suggestcluding seasonal borrowing) fell to ed that unemployment would remain an average of $337 million in Octo- at a high level. The rate of increase ber from an average of $815 million in prices, as measured by the fixedin September. weight price index for gross domes- Short-term market interest rates tic business product, was expected on private instruments declined to drift down. about 1 Vi percentage points on bal- In the Committee's discussion of ance over the intermeeting interval, the economic situation and outlook, after a temporary reversal in Sep- several members commented that tember. Yields on short-term U.S. the staff projection of moderate Treasury securities declined less, by growth over the year ahead reabout 3A to 1 percentage point, and mained a reasonable expectation and the rate on three-month Treasury the view was expressed that the probills actually rose somewhat. Quali- jected growth could be exceeded. ty spreads in the money markets, However, many members continued after widening in September, had to stress that there were substantial narrowed in recent weeks as con- risks of a shortfall from the projeccerns about private credit risks ap- tion. Considerable emphasis was parently lessened. On October 8 the given to the widespread signs of Federal Reserve announced a re- weakness in economic activity and duction in the discount rate from to the continuing absence of evi- 10 percent to 9!/2 percent. Shortly dence that an economic recovery thereafter, and over the balance of might be under way. In the view of the intermeeting interval, federal some members, a number of indicafunds traded at rates close to the tors of economic activity were in new discount rate, compared with a fact consistent with a further detrading level somewhat above 10 cline, at least over the near term. percent in September and early Oc- Reference was also made to the untober. In the long-term capital mar- usually sharp impact of the drop in kets, bond yields continued to de- exports—the consequence of worldcline over the period, falling about 1 wide recession and of the very high to VA percentage points; common foreign exchange value of the dolstock prices advanced sharply, with lar—and to expectations of a very many indexes touching new highs in slow recovery abroad. Moreover, early November. In home mortgage the prospects for worldwide recovmarkets, average rates on new com- ery were complicated by the financmitments for fixed-rate conventional ing difficulties of many developing home mortgage loans declined about countries. VA percentage points further to Although widely held expectations around 137s percent. of a domestic recovery had been re- The staff projections presented at peatedly disappointed, the members Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 131 noted that the large decline in interest 8V2 to 9!/2 percent for the period from rates over recent months had eased September to December. No speciffinancial strains in the economy, fos- ic objective had been set for Ml tered some recovery in housing and growth in the fourth quarter because related industries, and appeared in of the anticipated difficulty of interrecent weeks to have improved confi- preting the behavior of that aggredence somewhat among businessmen gate during the quarter. and consumers. One indicator of the In their discussion the Committee less bearish sentiment was the decline members agreed that the behavior of in risk premiums in securities markets Ml would continue to be distorted as rates on private credit instruments by institutional developments. The had fallen in recent weeks relative to first involved the large buildup of those on U.S. government obliga- checkable deposits associated with tions. The improvement in attitudes the maturing of a very large volume was also reflected in the sharp rise of of all savers certificates, especially prices in the stock market. Several in early October. The resulting bulge members commented, however, that in Ml growth had persisted somethe apparent easing of concerns was what longer than some members had still quite tentative and could easily anticipated; but, according to a staff be reversed, with highly adverse analysis, Ml growth could be exconsequences for the economy, if pected to decelerate over the balinterest rates were to rise significant- ance of the quarter as the transaction ly from current levels. balances built up from maturing all Some Committee members, while savers certificates were invested or acknowledging the absence of evi- drawn down. Growth of Ml and also dence of an imminent upturn in eco- M2 could be positively affected in nomic activity, nonetheless viewed the near term, however, by a possithe prospects for recovery as rela- ble buildup of balances for eventual tively favorable. They emphasized placement in the short-term deposit that fiscal policy and monetary poli- account that had recently been cy tended to exert their impacts with authorized by the Depository Instia lag and that the sharp turn toward tutions Deregulation Committee, fiscal stimulus and the easing of con- effective December 14, 1982. It was ditions in financial markets were rel- generally expected that the new acatively recent developments. In this count, which would be free from connection, concern was expressed interest rate ceilings and could be that an overly expansive combina- used to a limited extent for transaction of fiscal and monetary policies tion purposes, would draw funds would stimulate inflationary expec- from regular transaction accounts, tations, foster a rise in long-term thereby tending to reduce Ml after interest rates, and limit or abort the its introduction. In view of these economic recovery. institutional distortions, the Com- Turning to policy, the Committee mittee decided that it would continreviewed the short-run objectives ue to give much less than the usual for monetary growth that it had es- weight to Ml and that it would not tablished at its meeting on October 5 set a specific objective for its growth calling for expansion in M2 (and M3) over the fourth quarter. at an annual rate in a range of around The behavior of M2 and M3, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

132 FOMC Policy Actions though not of their components, ap- continuing large deficits as the econpeared to have been affected only omy recovered. Several members marginally by the maturing of all commented that further declines in savers certificates, and these broad- interest rates would be welcome for er aggregates were also expected to both domestic and international reabe affected much less than Ml when sons, but concern was also exthe new deposit account was intro- pressed that any sizable declines in duced in mid-December. In review- association with unduly rapid moneing the growth objectives for M2 and tary growth could prove to be unsus- M3 that had been set for the fourth tainable, with unsettling effects on quarter, most of the Committee financial markets and adverse consemembers endorsed the view that quences for inflationary expectamonetary growth running somewhat tions and the economy. above the Committee's target ranges At the conclusion of its discussion set early in the year was appropriate the Committee agreed that, against given the indications of continuing the background of prevailing ecostrong demands for liquidity during a nomic and financial conditions and period of relatively weak economic current liquidity demands, it would activity. In that connection, empha- seek to maintain expansion in bank sis was placed by some members on reserves needed for an orderly and the evidence that velocity trends sustained flow of money and credit, over the past year or so seemed to consistent with growth of M2 (and suggest a distinct break from earlier M3) from September to December at postwar experience. While ques- an annual rate of around 9Vi percent. tions could be raised about the per- The Committee also decided that sistence of the slowdown in velocity, somewhat slower growth in M2 and available evidence suggested that M3, to the extent of reducing their unusual economic and financial un- expansion for the year to nearer the certainties, as well as lower interest upper part of the ranges for 1982, rates, were inducing a greater desire would be acceptable and desirable if to hold liquid assets than had been such growth were associated with assumed in setting the annual tar- declining interest rates. On the other gets. hand, somewhat more rapid growth With regard to the choice of spe- would be tolerated if continuing ecocific objectives for the broader ag- nomic and financial uncertainties gregates in the fourth quarter, all of should appear to be reflected in exthe members favored growth rates ceptional liquidity demands. The inthat were within or slightly above termeeting range for the federal the range adopted at the October 5 funds rate, which provides a mechameeting. It was suggested that such nism for initiating further consultagrowth rates would balance the de- tion of the Committee, was set at 6 sirability of meeting current liquidity to 10 percent. needs and fostering economic recov- The following domestic policy diery against the risk of creating ex- rective was issued to the Federal cess liquidity that might later com- Reserve Bank of New York: plicate the achievement of sustained progress toward price stability, par- The information reviewed at this meetticularly in light of the prospect of ing suggests little change in real GNP in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 133 the fourth quarter and continuation of were 2!/2 to 5Vi percent for Ml, 6 to 9 the rise in prices at a much less rapid percent for M2, and 6V2 to 9XA percent pace than in 1981. In October the nomi- for M3. The associated range for bank nal value of retail sales edged up, but credit was 6 to 9 percent. The Committee was little higher than in the second and agreed that growth in the monetary and third quarters; industrial production and credit aggregates around the top of the nonfarm payroll employment continued indicated ranges would be acceptable in to decline; and the unemployment rate the light of the relatively low base period rose another 0.3 percentage point to 10.4 for the Ml target and other factors, and percent. Initial claims for unemployment that it would tolerate for some period of insurance have remained exceptionally time growth somewhat above the target high. In September and the third quarter range should unusual precautionary deas a whole, housing starts had strength- mands for money and liquidity be eviened. In recent months the advance in dent in the light of current economic the index of average hourly earnings has uncertainties. The Committee also indiremained considerably less rapid than cated that it was tentatively planning to during 1981. continue the current ranges for 1983 but that it would review that decision care- The weighted average value of the fully in the light of developments over dollar against major foreign currencies the remainder of 1982. continued to appreciate from the end of September to mid-November. The U.S. Specification of the behavior of Ml merchandise trade deficit in the third over the balance of the year remains subject to substantial uncertainty bequarter was more than double the rate in cause of special circumstances in conthe first two quarters of the year. nection with the reinvestment of funds Growth of M1, already rapid in August from maturing all savers certificates and and September, accelerated sharply in the public's response to the new account October in association with the maturing directly competitive with money market of a large volume of all savers certifi- funds mandated by recent legislation. cates. Growth of M2 and M3 picked up The difficulties in interpretation of Ml from sluggish rates in September, but continue to suggest that much less than remained below the brisk pace of earlier usual weight be placed on movements in in the year. Most short-term market in- that aggregate during the current quarterest rates have declined on balance ter. since early October, after a reversal in In all the circumstances, the Commit- September, and bond yields and morttee seeks to maintain expansion in bank gage rates have declined further. On reserves needed for an orderly and sus- October 8 the Federal Reserve antained flow of money and credit, consisnounced a reduction in the discount rate tent with growth of M2 (and M3) of from 10 percent to 9Vi percent. Quality around 9Vi percent at an annual rate spreads in the money markets, which from September to December. Somehad widened, have narrowed in recent what slower growth, bringing those agweeks as interest rates have declined, gregates around the upper part of the and common stock prices have advanced ranges set for the year, would be acceptsharply. able and desirable in a context of declin- The Federal Open Market Committee ing interest rates. Should economic and seeks to foster monetary and financial financial uncertainties lead to exceptionconditions that will help to reduce infla- al liquidity demands, somewhat more tion, promote a resumption of growth in rapid growth in the broader aggregates output on a sustainable basis, and con- would be tolerated. The Chairman may tribute to a sustainable pattern of inter- call for Committee consultation if it apnational transactions. In July, the Com- pears to the Manager for Domestic Opermittee agreed that these objectives ations that pursuit of the monetary obwould be furthered by reaffirming the jectives and related reserve paths during monetary growth ranges for the period the period before the next meeting is from the fourth quarter of 1981 to the likely to be associated with a federal fourth quarter of 1982 that it had set at funds rate persistently outside a range of the February meeting. These ranges 6 to 10 percent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

134 FOMC Policy Actions Votes for this action: Messrs. the course of today's operations to Volcker, Solomon, Balles, Black, provide reserves to meet increased Gramley, Mrs. Horn, Messrs. Martin, seasonal needs. Partee, Rice, Mrs. Teeters, and Mr. Wallich. Vote against this action: Mr. Ford. Meeting Held on December 20-21, 1982 Mr. Ford dissented from this action because he believed that it ran 1. Domestic Policy Directive the risk of complementing very large budget deficits with substantial in- The information reviewed at this creases in the supply of money. In meeting suggested that real GNP, his view the result would be an over- which had increased at an annual ly stimulative combination of poli- rate of 0.7 percent in the third quarcies that could rekindle inflation and ter, declined in the fourth quarter, drive up interest rates during 1983. although final sales apparently were maintained. The rise in average 2. Authorization for Domestic prices, as measured by the fixed- Open Market Operations weight price index for gross domestic business product, remained much At this meeting the Committee voted less rapid than in 1981. to increase from $3 billion to $4 The nominal value of retail sales billion the limit on changes between rose about 2]A percent in November, Committee meetings in System Acafter having increased IV2 percent count holdings of U.S. government over the preceding two months. Aland federal agency securities specithough gains in November were refied in paragraph l(a) of the authoricorded for all major categories of zation for domestic open market opstores, the rise was attributable erations, effective immediately, for mainly to a sharp increase in sales at the period from October 6, 1982, automotive outlets. Unit sales of through the close of business on new domestic automobiles increased November 16, 1982. to an annual rate of 63A million, as Votes for this action: Messrs. buyers responded to interest rate Volcker, Solomon, Balles, Black, concessions and other special pro- Ford, Gramley, Mrs. Horn, Messrs. motions offered primarily on 1982 Martin, Partee, Rice, Mrs. Teeters, and Mr. Wallich. Votes against this models. In the first 10 days of Deaction: None. cember, however, sales fell back to an annual rate of 53A million units. This action was taken on the rec- Private housing starts, both singleommendation of the Manager for family and multifamily, rose sub- Domestic Operations. The Manager stantially in November, and at an had advised that substantial net pur- annual rate of 1.4 million units, were chases of securities in recent weeks nearly 500 thousand units higher had reduced to about $500 million than the rate in the first half of the the leeway for further purchases year. Newly issued permits for residuring the intermeeting period end- dential construction also strengthing with the close of business today. ened, rising 6 percent in November Purchases of securities in excess of after increasing 17 percent in Octothat leeway seemed desirable during ber. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 135 Business fixed investment spend- was attributable to sharp increases ing appeared to be continuing the in prices of energy-related items; downtrend that began in mid-1981 as prices of consumer foods declined shipments and orders for nondefense somewhat, while prices of other concapital goods declined in October, sumer goods rose moderately. Over the latest month for which data were the first 11 months of the year the available. According to the Depart- index increased at an annual rate of ment of Commerce survey taken in about 33/4 percent. The consumer late October and November, plant price index edged up only 0.1 perand equipment spending would rise cent in November, as homeowneronly 2 percent in the first half of 1983 ship costs declined and price infrom the level in the second half of creases for most other major this year; in real terms, the survey expenditure categories slowed. Thus results implied a decline of more far in 1982 the index had risen at an than 2 percent. Along with capital annual rate of about Axh percent, half spending, inventory investment was the pace in 1981. The advance in the exerting a dampening influence on index for average hourly earnings economic activity, as businesses slowed appreciably to an annual rate continued their efforts to reduce in- of 4!/2 percent from June to Novemventories. ber, compared with an annual rate of The index of industrial production 6!/ percent over the first half of 1982 2 fell again in November, but the de- and about 8V2 percent during 1981. cline of 0.4 percent was half that in In foreign exchange markets the each of the preceding two months. trade-weighted value of the dollar Most major sectors registered reduc- against major foreign currencies had tions in output, with cutbacks espe- declined about 4!/2 percent from cially pronounced in durable goods peaks reached in early November. A industries. Defense and space equip- major factor in the decline apparentment continued to be the only major ly was the market's reassessment of category of final products showing prospects for the U.S. foreign trade strength. Capacity utilization in and current accounts. In October the manufacturing declined to 67.8 per- U.S. foreign trade deficit rose sharpcent, a new postwar low. ly further: agricultural exports de- Nonfarm payroll employment fell clined somewhat from the reduced 165,000 in November, about the third-quarter rate, and nonagriculsame as the average monthly decline tural exports fell substantially while earlier in the year. Job losses were imports rose. concentrated in the manufacturing At its meeting on November 16, sector, particularly durable goods the Committee had agreed that it manufacturing. The unemployment would seek to maintain expansion in rate rose 0.4 percentage point to 10.8 bank reserves needed for an orderly percent. Initial claims for unemploy- and sustained flow of money and ment insurance, although down from credit, consistent with growth of M2 the peaks in early autumn, remained (and M3) from September to Decemrelatively high. ber at an annual rate of around 9!/2 The producer price index for fin- percent. The Committee also decidished goods rose 0.6 percent in No- ed that somewhat slower growth in vember. More than half of the rise M2 and M3, to the extent of reducing Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

136 FOMC Policy Actions their expansion for the year to of funds associated with the maturnearer the upper part of the ranges ing in early October of a large volset for 1982, would be acceptable ume of all savers certificates and and desirable if such growth were possibly with the recent and proassociated with declining interest spective introduction of new deposit rates. On the other hand, somewhat accounts at depository institutions. more rapid growth would be tolerat- Expansion in total credit outstanded if continuing economic and finan- ing at U.S. commercial banks cial uncertainties should appear to slowed to an annual rate of 1 Vi perbe reflected in exceptional demands cent in November. Banks again acfor liquidity. The Committee had quired a sizable volume of U.S. also decided that it would continue Treasury securities, but their total to place much less than the usual loans outstanding fell. Business weight on the movements of Ml loans contracted at an annual rate of during the period from September to nearly 8 percent and security loans December and would not set a spe- declined markedly, while real estate cific objective for its growth over the and consumer loans remained slugfourth quarter. The intermeeting gish. The outstanding volume of range for the federal funds rate, commercial paper of nonfinancial which provides a mechanism for ini- businesses contracted substantially tiating further consultation of the for the third successive month, as Committee, was set at 6 to 10 per- firms continued to raise funds in the cent. longer-term capital markets. The demand for reserves re- Short-term market interest rates mained strong in November, reflect- declined about Vs to 3A percentage ing particularly the continuing rapid point on balance over the intermeetgrowth of transaction balances. ing period, while bond yields rose a Nonborrowed reserves grew rapid- little in response to unusually heavy ly, although less so than in October, borrowing by businesses and govand adjustment borrowing (including ernments. The Federal Reserve anseasonal borrowing) rose to an aver- nounced reductions in the discount age of $433 million in November rate from W2 to 9 percent on Novemfrom an average of $337 million in ber 19 and to 8V2 percent on Decem- October. ber 13. In recent weeks federal funds M2 grew at annual rates of about had traded in the area of 8!/2 to 9 8V4 percent and IVA percent in Octo- percent, compared with about 9Vi ber and November respectively, and percent over the previous intermeet- M3 grew at an annual rate of about ing interval. The prime rate charged 9VApercent in both months. On aver- by most commercial banks on shortage, expansion in these broader ag- term business loans was reduced Vi gregates had remained at about or percentage point to 11 Vi percent in somewhat below the rates of earlier late November. Average rates on in the year. On the basis of partial new commitments for fixed-rate data, however, it was estimated that conventional home mortgage loans expansion in M2 and M3 had slowed had edged down further in recent substantially in recent weeks. weeks. Growth of Ml had remained rapid in The staff projections presented at recent months, influenced by shifts this meeting continued to suggest Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 137 that real GNP would grow moderate- As in mid-November, it was noted ly during 1983. The projections also that financial market conditions had suggested that unemployment would eased significantly since midyear, remain at a high level. The rate of and fiscal policy over the second half increase in prices, as measured by of 1982 had become highly stimulathe fixed-weight price index for tive. In fact, some members contingross domestic business product, ued to express concern that an overwas expected to drift down. ly expansive combination of fiscal The views of Committee members and monetary policies might reinvigwith respect to the economic situa- orate inflationary expectations, tion and outlook had changed little in thereby fostering a rise in long-term the period since the Committee interest rates that would limit or meeting in mid-November. Moder- abort the expected recovery. ate growth in real GNP over the year At a meeting in July 1982, the ahead accompanied by some further Committee had reaffirmed the moneimprovement in the performance of tary growth ranges for the period prices continued in general to be from the fourth quarter of 1981 to the regarded as a reasonable expecta- fourth quarter of 1982 that it had set tion. at its meeting in early February. Since mid-November, it was ob- These ranges were V/i to 5!/2 percent served, additional signs of a near- for Ml, 6 to 9 percent for M2, and term strengthening in activity had 6V2 to 9!/2 percent for M3. The assoappeared, particularly in markets for ciated range for bank credit was 6 to housing and consumer goods, and 9 percent. The Committee had there were indications of some im- agreed that growth in the monetary provements in business confidence and credit aggregates around the top in many parts of the country. At the of the indicated ranges would be same time, conditions in the indus- acceptable in the light of the relativetrial sector remained severely de- ly low base period for the M1 target pressed, reflecting the sustained and other factors, and that it would downtrend in business fixed invest- tolerate for some period of time ment, the ongoing efforts to pare growth somewhat above the target business inventories, and the contin- range should unusual precautionary ued weakness in export markets. In demands for money and liquidity be some industries, the expansion in evident in the light of current uncerorders for defense equipment was tainties. The Committee had also providing at least a partial offset to indicated in July that it was tentathe weakness in demands for nonde- tively planning to continue the curfense equipment, but the translation rent ranges for 1983. That decision of such orders into production and will be reviewed at the Committee employment often involved extend- meeting scheduled for February 8-9, ed lags. On balance, an upturn in 1983, taking into account the latest economic activity appeared to be in economic developments and instituthe offing, although the evidence tional changes associated with the was not conclusive and some Com- new deposit accounts authorized by mittee members stressed that there the Depository Institutions Dereguwere substantial risks of a shortfall lation Committee (DIDC). from the staff projection. In the Committee's discussion of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

138 FOMC Policy Actions policy for the near term, the period shifted funds, including those from from December 1982 to March 1983, deposits in Ml, retarding the growth the members considered objectives of Ml if not actually reducing its for monetary growth against the level. background of the tentative ranges The shifts of funds would clearly for 1983 as a whole. In the discuswork in the direction of expanding sion, it was recognized that the be- M2, although the magnitude of the havior of the aggregates would coneffect was very uncertain. A large tinue to be distorted by institutional part of the shifts would probably developments relating to deregularepresent a redistribution of funds tion of interest rates on deposits. among the components of M2, but in Depository institutions had begun to addition funds would shift into M2 offer the new money market deposit from market instruments and from account that had been authorized by large-denomination certificates of the DIDC, effective December 14, deposit. Growth in M3 was expected 1982. This account had limited transto be affected the least because deaction features and, while included pository institutions would probably in M2, was excluded from Ml. The curtail their issuance of large-de- DIDC had also authorized a mininomination certificates of deposit in mum balance NOW account free of response to the availability of funds interest rate ceilings, effective Januthrough the new accounts. The timary 5, 1983, which would be included ing of the various shifts was also in Ml. subject to a great deal of uncertain- The impact of the new accounts ty, although earlier experience with on the behavior of the monetary the introduction of NOW accounts aggregates was highly uncertain, essuggested that a large part of the pecially in the case of Ml for which transition to the new accounts would even the direction of the impact was be concentrated in a relatively short currently unclear. A staff analysis period of time. referred to the large pool of liquid At its meetings held in October assets that could be shifted into the and November, the Committee had new accounts, possibly during a reldecided to place much less weight atively short period of time. The than usual on Ml in the fourth quarmagnitude of such shifts and the ter and not to set a specific objective allocation of funds between the two for its growth, because of the diffinew accounts would depend on the culties of interpreting its behavior in competitive pricing and promotion a period of major institutional of the accounts by depository instichanges. At this meeting, the memtutions and on the response of debers generally favored continuance positors to interest rate relationships of that reduced attention to Ml durand to the elements of convenience. ing the first quarter. Thus, the Com- At one extreme, shifts of funds mittee focused on setting objectives could be dominated by flows into the for growth of M2 and M3. new NOW accounts, thereby causing Ml to rise sharply during some Reference was made to the fact transition period. At the other ex- that, despite some evidence of a treme, money market deposit ac- deceleration in the growth of these counts might attract most of the broader aggregates most recently, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 139 their expansion over the year ending be affected by strong liquidity dein the current quarter would be mands was open to question. somewhat above the growth ranges At the conclusion of the discusthat had been set by the Committee. sion, the Committee decided to seek At recent meetings, however, most to maintain expansion in bank re- Committee members had endorsed serves consistent with growth of M2 the view that monetary growth at an annual rate of around W2 persomewhat above those ranges was cent and growth of M3 at an annual appropriate in light of the indications rate of about 8 percent for the period of strong demands for liquidity dur- from December to March. The obing a period of relatively weak eco- jective for M2 would allow for a nomic activity. The income velocity modest amount of growth resulting of the broader aggregates, and also from shifts into the newly authorized of Ml, appeared to have declined at money market deposit accounts an unusually sharp rate over the from large-denomination certificates year. of deposit or market instruments. With respect to M2, most Com- For both M2 and M3, the Committee mittee members indicated a prefer- indicated that greater growth would ence for setting a first-quarter be acceptable if analysis of incoming growth rate that would allow for data and other evidence from banksome modest shift of funds into com- ing and market reports indicated that ponents of that aggregate from mar- the new money market deposit acket instruments and large-denomina- counts were generating more subtion certificates of deposit. They stantial shifts of funds into these were prepared, however, to accept broader aggregates from market ingreater growth if analysis of incom- struments. The intermeeting range ing data and other evidence from for the federal funds rate, which depository institutions and market provides a mechanism for initiating reports indicated that the new mon- further consultation of the Commitey market accounts were generating tee, was set at 6 to 10 percent. substantial shifts of funds into those The following domestic policy diaggregates from outside sources. rective was issued to the Federal During the Committee's discus- Reserve Bank of New York: sion, the observation was made that the uncertainties that had generated The information reviewed at this meeting suggests that real GNP declined in unusual demands for liquidity in rethe fourth quarter, although final sales lation to GNP during 1982—and the apparently were maintained, and that the accompanying decline in the veloci- rise in prices remained much less rapid ty of the monetary aggregates— than in 1981. Retail sales and housing could be expected to abate as eco- activity have strengthened in recent months, but business fixed investment nomic activity strengthened and apparently has weakened further and efconsumer and business confidence forts to reduce inventories have continimproved. Thus, abstracting roughly ued. In November industrial production from the impact of the new deposit and nonfarm payroll employment deaccounts, the velocity of money clined further, and the unemployment rate rose 0.4 percentage point to 10.8 could be expected to show much less percent. Initial claims for unemployment weakness in 1983 than in 1982, insurance, although down from the early though whether it might continue to autumn peaks, have remained relatively Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

140 FOMC Policy Actions high. In recent months the advance in Specification of the behavior of Ml the index of average hourly earnings has over the months ahead remains subject slowed appreciably further. to substantial uncertainty because of The weighted average value of the special circumstances in connection with dollar against major foreign currencies the public's response to the new deposit has declined from peaks reached in early accounts available at depository institu- November. The U.S. merchandise trade tions. The difficulties in interpretation of deficit rose sharply further in October. Ml continue to suggest that much less than usual weight be placed on move- Growth of Ml has remained rapid in ments in that aggregate during the comrecent months, while growth of M2 and ing quarter. The institutional changes M3 has continued at about or somewhat also add a degree of uncertainty to the below the rates of earlier in the year. On behavior of the broader monetary aggrebalance short-term market interest rates gates. have declined since mid-November, while bond yields have risen somewhat In all the circumstances, the Commitin response to unusually heavy borrow- tee seeks to maintain expansion in bank ing by businesses and governments; reserves consistent with growth of M2 of mortgage rates have edged down further. around 9Vi percent at an annual rate, and The Federal Reserve announced reduc- of M3 at about an 8 percent rate, from tions in the discount rate from 9Vi per- December to March, allowing in the case cent to 9 percent on November 19 and to of M2 for modest shifting into the new 8!/2 percent on December 13. money market accounts from large-denomination CDs or market instruments. The Federal Open Market Committee The Committee indicated that greater seeks to foster monetary and financial growth would be acceptable if analysis of conditions that will help to reduce inflaincoming data and other evidence from tion, promote a resumption of growth in bank and market reports indicate that the output on a sustainable basis, and connew money market accounts are generattribute to a sustainable pattern of intering more substantial shifts of funds into national transactions. In July, the Combroader aggregates from market instrumittee agreed that these objectives ments. The Chairman may call for Comwould be furthered by reaffirming the mittee consultation if it appears to the monetary growth ranges for the period Manager for Domestic Operations that from the fourth quarter of 1981 to the pursuit of the monetary objectives and fourth quarter of 1982 that it had set at related reserve paths during the period the February meeting. These ranges before the next meeting is likely to be were 2Vi to 5Vi percent for Ml, 6 to 9 associated with a federal funds rate perpercent for M2, and 6I/2 to 9 Vi percent sistently outside a range of 6 to 10 perfor M3. The associated range for bank cent. credit was 6 to 9 percent. The Committee agreed that growth in the monetary and Votes for this action: Messrs. credit aggregates around the top of the Volcker, Solomon, Balles, Gramley, indicated ranges would be acceptable in Mrs. Horn, Messrs. Martin, Partee, the light of the relatively low base period Rice, Mrs. Teeters, and Mr. Wallich. for the Ml target and other factors, and Votes against this action: Messrs. that it would tolerate for some period of Black and Ford. time growth somewhat above the target should unusual precautionary demands for money and liquidity be evident in the Mr. Black dissented because he light of current economic uncertainties. preferred to direct policy in the The Committee had also earlier indicated weeks immediately ahead toward that it was tentatively planning to continue the current ranges for 1983, but it will ensuring that the growth of Ml, abreview that decision carefully at its Feb- stracting from temporary effects of ruary 1983 meeting in light of economic the introduction of new money mardevelopments and institutional changes ket deposit accounts, would moderassociated with the new deposit accounts authorized by the Depository In- ate from the extremely rapid rate of stitutions Deregulation Committee. recent months. While recognizing Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 141 the difficulties in interpreting Ml ing data as well as various reports on currently, he was concerned that ex- sources of MMDA inflows—sugcessive underlying growth in that gested it was possible that virtually aggregate might reverse the progress all of the greater M2 growth might be achieved in reducing inflation and attributed to unexpectedly large inflationary expectations and lead to shifts into MMDAs out of instrusubstantially weaker markets for ments not included in M2. Effects on long-term securities. M3 were more problematical, but Mr. Ford dissented from this ac- actual growth of this aggregate in tion because he continued to prefer a December and January on average policy for the current period that appeared to have been modest. Exwas more firmly directed toward re- pansion of Ml had remained on the straining monetary growth, after al- strong side; while there may have lowance for the short-run impact of been some diversion from Ml to the introduction of the new money MMDAs, its growth very recently market deposit accounts. He re- had been raised by the introduction mained concerned that rapid expan- of Super NOW accounts. It was the sion in the supply of money together Committee consensus for the time with very large budget deficits would being to maintain the existing degree produce an overly stimulative com- of reserve restraint but not to inbination of policies that could rekin- crease this restraint further in redle inflation and inflationary expec- sponse to the recent reported overtations and lead to higher interest target growth of the broader rates during 1983 and 1984. monetary aggregates because that growth appeared to be primarily re- The Committee subsequently, on lated to the massive redistribution of several occasions, discussed the ex- funds currently under way. The situtraordinarily rapid growth in money ation will be reviewed at the FOMC market deposit accounts (MMDAs) meeting on February 8-9. that had taken place since they became available in mid-December and 2. Authorization for Domestic the implications of this growth for Open Market Operations behavior and interpretation of the monetary aggregates. At a telephone At this meeting the Committee voted conference on January 28, 1983, it to increase from $3 billion to $4 was noted that these accounts had billion the limit on changes between risen to a level of about $185 billion Committee meetings in System Acon average by the week ending Janucount holdings of U.S. government ary 19, leading to a very sharp exand federal agency securities specipansion in M2. Estimates of sources fied in paragraph l(a) of the authoriof MMDA inflows at this time were zation for domestic open market opinevitably subject to considerable erations, effective immediately, for uncertainty. Growth of M2 seemed the period ending with the close of clearly to be on a track well above business on February 9, 1983. the 9V2 percent annual rate for the December to March period set at the Votes for this action: Messrs. Volcker, Solomon, Balles, Black, December meeting, but staff analy- Ford, Gramley, Mrs. Horn, Messrs. sis—based on assessment of incom- Martin, Partee, Rice, Mrs. Teeters, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

142 FOMC Policy Actions and Mr. Wallich. Votes against this of U.S. government and federal action: None. agency securities, effective immediately, for the period ending with the This action was taken on the recclose of business on February 9, ommendation of the Manager for 1983. This action was taken after the Domestic Operations. The Manager Manager had advised that the seahad advised that substantial net sales sonal need to absorb reserves in of securities were likely to be reassociation with the return flow of quired during January in order to currency would be greater than anabsorb reserves that had been proticipated earlier. vided over recent weeks to meet seasonal needs for currency in circulation. Votes for this action: Messrs. Volcker, Solomon, Balles, Black, On January 25-26, 1983, the Com- Ford, Gramley, Mrs. Horn, Messrs. mittee voted to approve an addition- Martin, Partee, Rice, Mrs. Teeters, al increase to $5.5 billion in the inter- and Mr. Wallich. Votes against this meeting limit on changes in holdings action: None. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

143 Consumer and Community Affairs During 1982, the Board continued changes, changes in the marketplace, its efforts to reduce the costs of and new comparisons of the burdens compliance with its consumer regu- of compliance with the benefits to lations, while maintaining the protec- consumers. Interpretations of Regutions for consumers that the under- lation B were adopted, and official lying statutes provide. These efforts staff commentaries of Regulation M followed a complete rewriting in 1981 (Consumer Leasing) and Regulation of Regulation Z (Truth in Lending) Z were issued. and Regulation C (Home Mortgage Disclosure) to ease the burdens of Arranger of Credit compliance and to simplify and clar- In October 1981, the Board pubify regulatory provisions. lished for comment a proposed The Board used several apamendment under which Regulation proaches during 1982 to carry out Z would apply to real estate brokers these efforts. It amended several who arrange financing by the seller. consumer regulations to reduce or This proposal was motivated both by eliminate costly requirements that statutory changes and by issues arisfailed to provide proportionate bening from the more frequent use of efits to consumers; unified interpreseller financing in the mortgage martations of consumer regulations by ket. One of the original provisions providing commentaries that are upof the Truth in Lending Simplificadated periodically; distributed aids tion and Reform Act required that to help smaller institutions comply disclosures be given by persons who with the regulatory requirements; regularly arrange for consumer credit and gathered and analyzed informato be extended by someone who is tion to assist in rulemaking and not a creditor. However, neither the enforcement activities. All these acstatutory amendment nor the formal tions are discussed in this report. legislative history defined "arrangers The report also examines the exof credit" or clearly indicated the tent of compliance in 1982 with type of person intended to be cov- Regulation Z (Truth in Lending), ered. The commenters raised issues Regulation B (Equal Credit Opporthat called for a difficult balancing tunity), and Regulation E (Elecof benefits to consumers against burtronic Fund Transfers); legislative dens on brokers. Supporters argued, recommendations; the activities of for example, that without truththe Consumer Advisory Council; and in-lending disclosures, a consumer the Federal Reserve System's activimight not be alerted to a large ties relating to the Community Reinballoon payment due after a few vestment Act. years. Moreover, the act would impose no greater responsibilities on Regulatory Actions real estate brokers than on others it Regulation Z and Regulation E were covered. Opponents of the proposal amended in 1982 to reflect statutory argued that it would impose a burden Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

144 Consumer and Community Affairs without really assisting buyers be- ments of the amount of seller's points cause the principal purpose of the being charged; a notice in disclosure disclosure is to assist buyers in shop- statements and advertisements of the ping for credit, and seller financing possible effect of seller's points on is usually arranged only when other the accuracy of APRs; and such a kinds of financing are unobtainable notice in advertisements only. and thus shopping for credit is to no Half of the commenters urged the avail. They also pointed out opera- Board not to take any action. The tional problems, and argued that no Board found that the advantages of new burdens should be laid on a real the disclosures to consumers would estate industry already experiencing be uncertain and that the disclosures serious problems. would involve costs and other bur- In February, the Board amended dens that appeared to outweigh their the definition of "arranger of credit" benefits. Accordingly, the Board dein Regulation Z to exclude persons, cided in September not to amend such as real estate brokers, who Regulation Z at that time to require arrange for seller financing of real disclosure of seller's points. property. In making this decision, the Board noted that the Congress Preauthorized Electronic was considering the issue and that if Transfers the Board covered brokers and they In October, the Board amended were later excluded by the Congress, Regulation E to exempt financial the industry would incur needless institutions with assets of $25 million expense in preparing to comply. or less from its requirements con- In fact, the Garn-St Germain Decerning preauthorized electronic pository Institutions Act of 1982, entransfers. Many such institutions were acted in October, amended the Truth subject to those requirements only in Lending Act to exclude all arrangbecause they receive electronically ers of credit (including real estate initiated social security transfers for brokers) from the definition of credtheir customers, and the Board found itor and, therefore, from the coverthat most were unduly burdened by age of the act. the requirements. In relieving such institutions of that burden, the Board Seller's Points hoped that more banks would undertake to provide electronic transfers The Board also considered amending and thus that consumers would ben- Regulation Z to require the annual efit from the safety, certainty, and percentage rate (APR) to include earlier availability of funds that the seller's points (an amount a lender service makes possible. requires the seller to pay to provide financing to the buyer). Because the Other Amendments to exclusion of seller's points from the Regulation E finance charge might have created a disclosure loophole, the Board in In 1982, Regulation E was amended July proposed several alternatives: in these other ways to reduce reguinclusion of seller's points in the latory burdens without sacrificing calculation of finance charges and of consumer protection: annual percentage rates; an entry in • An exemption was provided from disclosure statements and advertise- the requirement to disclose, on ter- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 145 minal receipts, the type of account general rule against asking for an involved in an automated teller ma- applicant's marital status. The withchine transaction, when only a single drawal of the proposals does not account can be accessed. affect the substantive provisions of • An exemption was provided from the Equal Credit Opportunity Act the requirement to provide a periodic and Regulation B, which prohibit statement for each account when a discrimination on the basis of sex, transfer is made between accounts of marital status, race, and certain other the same consumer in the same protected characteristics in any asinstitution. pect of a credit transaction. • Modifications were made to the requirements for documentation and State Exemptions for procedures to resolve errors for transfers initiated outside the United In 1982, the Board granted exemp- States. tions from certain parts of the Truth in Lending Act to the states of Maine, Connecticut, Massachusetts, Interpretations Oklahoma, and Wyoming. That act In October, the Board adopted inter- directs the Board to exempt from its pretations of Regulation B to clarify provision transactions that are subprocedures for compliance. The ject to state laws that meet certain interpretations, effective April 1, requirements. Under the act, con- 1983, address the application of Reg- sumer credit transactions may be ulation B. The first discusses the exempted from chapter 2 (credit ways a creditor can comply with the transactions) if the applicable state regulation's prohibition against dis- law is substantially similar to the counting or excluding "protected in- federal act and if the state demoncome" while using judgmental and strates adequate provision for encredit-scoring systems in consider- forcement. The act sets the same ing a credit application. Protected exemption standards for chapter 4 income is income derived from ali- (credit billing) and chapter 5 (consumony, child support, separate main- mer leases) respectively, but also ditenance, part-time employment, re- rects the Board to consider whether tirement benefits, or public assis- the state law is more protective of the tance. The second interpretation deals consumer. with the rules on the selection and The Board also renewed the exdisclosure of the principal reasons emptions of Connecticut, Massachufor adverse action. setts, New Jersey, and New York Also in October, the Board with- from the disclosure requirements of drew proposed amendments to the the federal Home Mortgage Disclobusiness credit provisions of the reg- sure Act, as amended in 1980, and ulation because the costs and bur- the Board's Regulation C, which dens appeared to outweigh limited implements the act. These exempbenefits of the proposals. The tions are based on the determination amendments would have affected the that state law provides for substanrequirements for recordkeeping and tially similar disclosures and that it notification of adverse action in cer- contains adequate provision for entain loan transactions, and would forcement. Finally, the Board terhave subjected business credit to the minated the exemption granted to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

146 Consumer and Community Affairs state-licensed savings and loan asso- Compliance Aids ciations in California in 1976. Such Even the most exhaustive efforts to associations must comply with the simplify regulations cannot eliminate federal act and Regulation C beginall the burdens of compliance. The ning with the reporting of data on difficulties include mastering the deloans made in calendar year 1982. tails of the law and figuring out the effect of the rules on the institution's Consolidation of Interpretations operations. In 1982, to make compli- In May, the Board published an ance easier, the Board distributed official staff commentary on Regu- two aids: a booklet and a videotape. lation M (Consumer Leasing). Like The Board developed the booklet, the commentaries on Regulations Z "A Guide to HMDA Reporting," to and E, this one, CL-1, consolidates help smaller institutions use census all regulatory interpretations and tools and identify properties by cenprovides for additions and changes sus tract numbers in the course of to be grouped and issued periodi- complying with the Home Mortgage cally. The commentary, which mod- Disclosure Act (HMDA). The 14ifies the staffs previous approach of page booklet, distributed to all finanproviding interpretations one by one cial institutions subject to the act, in response to specific inquiries, also was developed in consultation with provides interpretations of more gen- the U.S. Bureau of the Census. It eral application. The changes in lan- explains the steps in the HMDA guage, distribution, and organization reporting process and how to use should help institutions keep abreast census tract maps and indexes. It of the official interpretations. also contains sample reporting forms, In September, the Board pub- compliance checklists, and a direclished the first revision of its official tory of the regional offices of the staff commentary on Regulation Z. Bureau of the Census. The changes generally provide more The two-hour videotape, "Reguflexibility in compliance without lation Z: The Simplified Rules," compromising basic consumer pro- which provides an overview of the tection. The Board plans to amend revised regulation, helped instituthe commentary only when necessary tions comply with the simplified Truth to respond to significant questions or in Lending rules by October 1, 1982, to clarify language. The revision the mandatory compliance date. The addresses the following issues: Federal Reserve Banks lent copies • Use of the creditor's commercial of the tape without charge to finanlending rate as the base rate in cial institutions, mortgage lenders, variable-rate, open-end credit plans. retailers, and others. This service • Application of the rules about proved to be an effective and comfinance charges to the offering of paratively inexpensive way of educash discounts in the sale of motor- cating institutions in advance. About vehicle fuel. 12,000 people viewed the tape in • Disclosures for several types of 1982; smaller institutions appear to mortgage financing plans, including have been the heaviest users. growth equity mortgages and gradu- To help consumers understand their ated-payment, adjustable-rate mort- rights and responsibilities, the Board gages. and the Federal Reserve Banks con- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 147 tinued distribution of a range of search Center will start interviewing popular pamphlets, films, and teach- in 5,000 households. ing aids; added "Your Credit Rights," a curriculum on credit laws produced Compliance Cost Survey by the Federal Reserve Bank of In 1981 and 1982, the Board's Reg- Minneapolis; continued a series of ulatory Improvement Project group nationwide workshops for teachers surveyed approximately 100 banks to on credit issues; and provided techgather data on the incremental startnical assistance to the media and to up and on-going costs of complying private organizations preparing conwith Regulations B (Equal Credit sumer education materials. Opportunity), E (Electronic Fund Transfers), and Z (Truth in Lending). The banks were asked to fur- Collection and Use of Data nish cost data for the following func- In 1982, the Board compiled, ana- tional categories: administration, lyzed, and applied various data to training, legal services, changes in strengthen its enforcement and rule- data processing systems, labor, postwriting efforts. age, statements, disclosures, and premises and equipment. The survey Consumer Survey questions also gave the banks an opportunity to comment on the use- To improve administration of confulness, effectiveness, and burden of sumer protection regulations to supspecific regulatory provisions and to port monetary policy, the Board has indicate which disclosures and docujoined with the Office of the Compmentation they would continue to troller of the Currency (OCC), the provide in the absence of regulatory Federal Deposit Insurance Corporarequirements. The Board will use the tion (FDIC), the Federal Trade results of this study to weigh compli- Commission (FTC), and the Departance costs against consumer benefits ments of Health and Human Serand to determine the need for any vices, Labor, and the Treasury in changes in the regulations. sponsoring a comprehensive consumer survey in 1983. The survey, Consumer Complaints which will be conducted by the University of Michigan's Survey Re- The Federal Reserve System investisearch Center, will be the first in six gates and resolves complaints against years to correlate household balance state member banks; it also forwards sheets with consumer financial deci- to the appropriate enforcement agensions, and the first in more than cies any complaints it receives that twenty years to collect comprehen- involve other creditors or businesses. sive data on consumers' assets. It In 1982, the Federal Reserve's comshould help the Board determine the puterized logging system registered benefits to the consumer of the Truth 2,840 complaints: 1,891 by letter, 908 in Lending Act, the Equal Credit by telephone, and 41 in person. Opportunity Act, and other con- In 1982, the System responded to sumer laws. After the survey is 228 written inquiries concerning concleared by the Office of Management sumer credit laws and banking poliand Budget (under the Paperwork cies and procedures. In responding Reduction Act), the Survey Re- to both inquiries and complaints, the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

148 Consumer and Community Affairs staff provides consumers with indi- not resolved in their favor. Many of vidualized explanations of laws, reg- those cases involved practices that ulations, and banking practices, and are permissible for banks but that with printed material relevant to consumers find objectionable or hard their needs. to understand. The Board's Division of Consumer The accompanying table summaand Community Affairs assists the rizes the nature and resolution of the Reserve Banks in handling consumer complaints against state member banks complaints. Members of the Board's that were received in 1982. About staff regularly evaluate a sample of 53 percent of the complaints against the complaints resolved by the Re- state member banks concerned serve Banks for adherence to System lending functions; of these, about 13 procedures and guidelines. Because percent alleged discrimination on a the results of the review are then prohibited basis. The other 40 perdiscussed with the Bank, the Board cent alleged improper notices, funcbelieves this program is successful in tions not related to discrimination, strengthening the complaint-han- improper disclosures of credit costs, dling system by providing feedback discrimination on other than the speand suggestions. cifically prohibited bases, and other In 1982, the Board revised ques- problems with the lending functions. tionnaires that are directed to con- Approximately 27 percent involved sumers whose complaints against state interest on deposits and general pracmember banks were handled by the tices concerning deposit accounts. System. The revisions allow the Board The System received 1,397 comto assess more accurately consumer plaints about unregulated bank pracattitudes about its system for han- tices, 14 percent fewer than in 1981. dling complaints. A high percentage The Board continued to monitor conof the respondents report favorable sumer complaints about unregulated reactions to the treatment of com- practices to identify those that may plaints by the Federal Reserve Sys- be unfair or deceptive and adopted tem. Approximately 63 percent found additional procedures for such monthe explanation they received clear itoring. The Board also surveyed conand understandable; 70 percent were sumers about the practice of assessing satisfied with the promptness with fees on inactive accounts, testified bewhich the complaint was handled; 95 fore a congressional subcommittee percent were treated courteously by concerning delayed funds availabil- Federal Reserve staff; 54 percent ity, and discussed the system for hanbelieved the Federal Reserve was dling complaints with the Consumer complete and thorough in handling Advisory Council. the problem; and 79 percent would As in the past, the Board identified contact the Federal Reserve again if practices that are not subject to regthey should encounter another prob- ulations, about which the System relem with a bank. Forty-six percent ceives 15 or more complaints per of the respondents found the resolu- quarter, or 50 annually. Of the 1,397 tion of their complaint acceptable. complaints, 435 fell into this cate- Those numbers suggest that many gory. They were of six types: compeople were satisfied with the Sys- plaints about disputed deposits (99, tem's handling of their complaints or 7.1 percent of all complaints about even though those complaints were unregulated practices); discrepancies Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 149 Consumer Complaints Received by the Federal Reserve System, by Function and Resolution, 1982 Type of complaint Total Loan functions Elec- Type of resolution com- Deposit tronic Trust plaints c D rim is- i- Other function t f r u a n n d s- services Other nation fers Total complaints 2,840 282 1,121 812 75 26 524 Total concerning state member banks 1.226 162 487 326 38 15 198 Insufficient information1 33 10 7 4 0 0 12 Information furnished2 219 28 79 62 2 4 44 Bank legally correct No accommodation 357 68 156 85 9 3 36 Accommodation made3 148 16 65 35 7 3 22 Clerical error, corrected 177 11 67 55 8 1 35 Factual dispute4 41 0 13 21 2 0 5 Bank violation, resolved5 25 3 12 4 3 2 1 Possible bank violation, unresolved6 18 1 6 7 1 0 3 Customer error 14 2 5 6 1 0 0 Pending, December 31 194 23 77 47 5 2 40 1. The staff has been unable, after follow-up cor- sumers wishing to pursue the matter may be advised respondence with the consumer, to obtain sufficient to seek legal counsel or legal aid, or to use small information to process the complaint. claims courts. 2. When it appears that the complainant does not 5. In these cases a bank appears to have violated understand the law and that there has been no vio- a law or regulation and has taken corrective measures lation on the part of the bank, the Federal Reserve voluntarily or as requested by the Federal Reserve System explains the law in question and provides the System. complainant with other pertinent information. 6. When a bank appears to have violated a law or 3. In these cases the bank appears to be legally regulation, customers are advised to seek civil remedy correct but chooses to make an accommodation. through the courts. Cases that appear to involve crim- 4. These cases involve factual disputes not resolv- inal irregularity are referred to the appropriate law able by the Federal Reserve System and contractual enforcement agency. disputes that can be resolved only by the courts. Conin accounts (95, or 6.8 percent); The Board formalized procedures charges and procedures concerning for gathering additional information insufficient funds (81, or 5.8 percent); concerning complaints about unregdebt-collection tactics (59, or 4.2 per- ulated practices to enhance the cent); bond redemption (51, or 3.7 Board's ability to fulfill its responsipercent); and excessive time to clear bilities under section 18f of the Fedchecks (50, or 3.6 percent). eral Trade Commission Act. These The two largest categories of com- procedures stipulate that the Board plaints received (disputed deposits and will continue to identify the types discrepancies in accounts) involve and numbers of complaints received factual disputes between the con- by the System and to review periodsumer and the bank in which no faulty ically the complaints handled by the practice is clearly identified. Each of Reserve Banks. The Board will, in these categories, however, accounts appropriate cases, enlist the aid of for only a small fraction (6 percent or examiners to investigate practices of less) of all consumer complaints re- banks that these procedures reveal ceived. The table on the next page as especially problematic. The Board identifies by subject the consumer may also request data or summaries complaints received by the Federal from other banking agencies regard- Reserve System in 1982. ing similar types of practices in the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

150 Consumer and Community Affairs Consumer Complaints Received by the consumers with inactive and active Federal Reserve System, by Subject, accounts reported receiving written 1982 disclosure statements and informa- Subject Number tion about inactivity fees. Thus consumers with inactive accounts did not Regulation B (Equal Credit Opportunity) 544 appear less aware of the terms of de- Regulation C (Home Mortgage Disclosure) 2 posit accounts than those with active Regulation E (Electronic Fund deposit accounts. Transfers) 63 Regulation Q (Interest on Deposits) .... 174 In March, the Board's Staff Direc- Regulation X (Securities Credit) 0 tor for Federal Reserve Bank Activ- Regulation Z (Truth in Lending) 500 Regulation BB (Community ities testified for the Board on the is- Reinvestment) 1 sue of delayed funds availability be- Regulation CC (Consumer Credit Restraint) 0 fore the Senate's Subcommittee on Consumer Affairs of the Committee Fair Credit Reporting Act 63 Fair Debt Collection Practices Act 27 on Banking, Housing, and Urban Fair Housing Act 0 Holder in due course 5 Affairs. The Board acknowledged Transfer agents 4 that the practice by some depository Municipal securities dealer regulation ... 2 Unregulated bank practices 1,397 institutions of delaying the availabil- Other1 58 ity of funds deposited by check has Total 2,840 caused difficulties for consumers. 1. "Other" refers primarily to miscellaneous com- Given the wide variety of circumplaints against business entities. stances inherent in the check-clearing process, however, the Board believes institutions they supervise. The pro- that an attempt to deal with the cedures call for the Board's inquiry practice of delayed funds by regulation to continue only until the Board has would be costly to banks and, ultisufficient information to determine mately, to consumers themselves. whether regulatory action is neces- The Board continues to review the sary. The Board believes these pro- situation and to consider several cedures enhance the present program nonregulatory alternatives for imand ensure access to necessary infor- proving the situation. First, the Board mation in areas of concern. is undertaking a study of possible In July 1982, as part of the Survey improvements in its check-collection of Consumer Attitudes conducted by procedures that would speed hanthe Survey Research Center of the dling of return items or confirmation University of Michigan, the Board of payment or nonpayment of checks. asked consumers about their experi- In addition, the Board is working ences with fees charged on inactive with the American Bankers Associchecking and savings accounts. Of the ation on ways to encourage banks to respondents who had inactive ac- disclose their policy on the availabilcounts (22 percent of the total) 13 ity of funds, and will continue to percent indicated that the financial monitor consumer problems and atinstitution had charged a fee on their titudes in this area. accounts because too few deposits or withdrawals were made during the Aggregated Home Mortgage year. These data indicate that fees for Disclosure Act Data inactivity on deposit accounts were relatively infrequent. Federal Reserve examiners now use Digitized forI nF RaAdSdEiRti on, equal proportions of HMDA data, aggregated by the Fedhttp://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 151 eral Financial Institutions Examina- than 80 percent. Examiners may, for tion Council (FFIEC), to prepare example, compare this information themselves for examinations of state with that for low- and moderatemember banks. For each census tract income tracts with a minority popuin a standard metropolitan statistical lation of less than 5 percent. Such area (SMS A), and for each SMS A comparisons may suggest hypotheses as a whole, the HMD A tables show about compliance with the Equal the number and the principal amount Credit Opportunity and Fair Housing of various kinds of residential loans: Acts that can be tested during the government-insured, conventional, compliance examination. home improvement, and home purchase loans; loans on multifamily Regulation E—Economic dwellings; and loans made to non- Impact Analysis occupant owners. The tables also include the percentage of minority One of the provisions of the Elecpopulation, the median family in- tronic Fund Transfer Act directs the come, the median age of the housing Board to monitor the costs and stock, and the number of owner- benefits that such transfers have for occupied units in each census tract. financial institutions and consumers. The aggregated data, which are The economic impact of the act available at central repositories, give increased during 1982 as more finanexaminers a clearer picture of the cial institutions offered electronic housing and income characteristics fund transfers (EFTs) and more conof a bank's community. For example, sumers used them. Over 76 percent the data can help identify census of commercial and mutual savings tracts that have predominantly older banks and over 16 percent of all housing units. For each SMSA, the other depository institutions now data also show the number of tracts provide EFT services that are covby three income categories (low and ered by the statute's compliance moderate income, middle income, requirements. A large percentage of and upper income, defined by the banks in all size classes offer autorelation of the median income in the mated clearinghouse transfers and tract to the median income in the access to automated teller machines SMSA as a whole) and the dollar (ATMs), among other forms of EFT. amount and number of housing- While larger banks are more likely related loans in census tracts in each to offer a full range of consumer of those categories. These data help EFT services than smaller ones, examiners prepare questions for in- shared networks and joint ventures terviews with community represen- are rapidly making the more sophistatives during examinations for com- ticated EFT services accessible to pliance with the Community Rein- smaller banks as well. Because nearly vestment Act (CRA). all banks now use computers, the The aggregated data also are bro- proportion of institutions offering ken down by income and racial regulated consumer EFT services uncharacteristics. For instance, they doubtedly will increase. show the total principal amount and Consumer demand for EFT sernumber of loans extended in low- vices continued to grow during 1982, and moderate-income census tracts as more transactions were conducted with minority populations greater through ATMs, telephone bill-pay- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

152 Consumer and Community Affairs ment systems, and automated clear- act are difficult to quantify because inghouses. More households had ac- it is hard to know how the industry counts at financial institutions that would have evolved without the statoffered access to EFT services, and utory requirements. Direct evidence the number of consumers using ATMs on the compliance costs and benefits and authorizing automatic direct to financial institutions was obtained credits and debits to their accounts from a survey conducted by the increased. Additionally, the devel- Board in 1981 and 1982. The survey opment of point-of-sale EFT and asked for incremental start-up and home banking systems is accelerat- ongoing compliance costs—that is, ing. costs that were incurred above and The benefits to consumers from beyond operating expenses in the the Electronic Fund Transfer Act are absence of the act's requirements. difficult to measure because they Some institutions found it difficult cannot be isolated from consumer to identify the procedures that they protections that would have been would not have adopted in the abprovided otherwise. Some evidence sence of federal regulation—that is, that comes from compliance statistics those attributable to Regulation E. in examination reports suggests, Some found it difficult to allocate however, that there are no wide- joint costs. For example, if a complispread compliance problems or vio- ance officer is employed by an instilations of the consumer rights estab- tution to deal with all regulatory lished by the act. One of the five requirements, for what part of that federal agencies that regulate finan- salary and overhead does Regulation cial institutions reported no signifi- E account? Institutions generally cant change from the previous year prorated such expenses according to in the percentage of institutions not the percentage of employee time in full compliance; the others re- spent on the regulation. They folported only a moderate increase in lowed a similar procedure with capinoncompliance. The increase may be tal equipment, such as computers, explained largely by the substan- furniture, and telephones. tial increase in the number of insti- Responding institutions were asked tutions becoming subject to the act: to estimate only those expenses that new entrants into the EFT market they could attribute directly to Regare likely to need time to adjust to ulation E. Information was requested the act's many compliance require- for seven categories of start-up costs, ments. for nine categories of ongoing costs, Further evidence that consumers and for overhead and fringe benefits. have no serious problems with EFT In general, when a cost category lies in data from the Board's Con- could not be estimated by a responsumer Complaint Control System. dent, it went unreported. In analyz- Only 75 of the 2,840 complaints ing the cost data, the Board staff processed in 1982 involved EFTs. estimated missing data using reports The Board forwarded 37 of these from similar institutions. complaints to other agencies for res- Start-up and ongoing costs of comolution; of the remaining 38, only 4 pliance per reporting institution are involved a violation of the regula- shown in the accompanying table. tion. The table shows that larger institu- Similarly, costs associated with the tions generally spent more than Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 153 Costs of Complying with Regulation E, by Deposit Size of Respondents Dollars Size of deposits (millions of dollars) Type of cost Less than 500- 1,000- 3,000 or All 100-500 100 1,000 3,000 respondents A. Average start-up costs per institution (dollars) Administration 2,333 3,361 18,808 17,275 75,663 Training 1,102 2,421 6,010 10,521 28,374 Legal services 3,255 17,248 15,035 23,960 Changes in data processing 684 systems 7,257 37,846 83,082 173,681 Premises, furniture, supplies, 572 and equipment 687 464 9,047 5,804 Statement forms and disclosure 450 documents 1,698 3,769 15,187 50,836 Other 634 417 949 6,745 14,387 432 Total 6,206 19,096 85,094 156,893 372,704 B. Average ongoing costs per institution (dollars) Administration 2,992 7,143 42,995 4,107 23,282 Labor 6,351 7,370 39,197 15,787 80,310 Training 446 1,077 4,332 2,366 12,786 Legal services 168 1,017 1,676 1,550 9,891 Printing or purchase of statements 1,306 951 3,134 22,662 16,747 Postage 753 1,427 13,145 17,633 40,281 Premises, furniture, supplies, and equipment 393 1,520 144 0 21,418 Telephone 122 909 485 385 468 Other 264 526 0 1,095 18,702 Total 12,794 21,940 105,108 65,588 223,886 C. Average start-up and ongoing costs per EFT transaction (dollars) Average total start-up costs . .116 .092 .109 .124 .068 .077 Average total ongoing costs . .217 .090 .126 .049 .035 .047 Total average compliance costs for first year .333 .182 .235 .173 .103 .124 smaller institutions to comply with elements of ongoing compliance. As the act. with start-up costs, the act's docu- The functions in which start-up mentation requirements proved the was most costly included changes in most costly (panel B). Labor costs data processing systems, administra- were associated with preparation of tion, and statements and disclosures statements and with the error-resorelated to the act's requirements for lution procedures. Because of their documentation and disclosures (pan- nature, labor costs are likely to el A of the table). Many institutions increase relative to other costs as the made extensive changes in systems volume of EFT transactions expands. to provide the detailed statements The compliance costs reported by required by the act. Increasing the individual institutions varied accordfrequency of periodic statements for ing to many factors, such as the certain savings accounts was partic- degree to which data processing sysularly costly. tems needed modification and the Labor, administration, and post- way in which institutions chose to age were among the three most costly comply. One important determinant Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

154 Consumer and Community Affairs of costs was the number of EFT compliance with the consumer regutransactions processed. The smallest lations mainly through periodic exinstitutions had the highest costs per aminations. The other agencies transaction, and the largest institu- charged with enforcing these laws tions the lowest (panel C). Although monitor compliance primarily through that relation was not consistent across investigating consumer complaints or the size categories, on balance these other monitoring procedures (except results suggest scale economies in for the Farm Credit Administration, compliance with Regulation E: larger which enforces Regulations Z and B institutions and those with higher through examination). This section volumes of transactions incur rela- summarizes the information protively lower compliance costs per vided by the enforcing agencies on transaction. compliance in 1982 with the Truth in Three-fourths of the responding Lending Act, the Equal Credit Opinstitutions reported that the act did portunity Act, and the Electronic not cause them to abandon any Fund Transfer Act. The reports cover existing or planned consumer ser- the period July 1, 1981, to June 30, vices; those that indicated some re- 1982. duction in services mentioned a ban on EFT transactions for savings ac- Regulation Z (Truth in Lending) counts, an end to payment of utility The Board of Governors, the Fedbills at ATMs, and the delay of eral Deposit Insurance Corporation planned EFT services until compli- (FDIC), the National Credit Union ance could be achieved. Practically Administration (NCUA), and the no institutions reported that operat- Office of the Comptroller of the ing costs were reduced or eliminated Currency (OCC) reported that comby the act, or that they enjoyed pliance with "old" Regulation Z benefits from the act or Regulation continued to improve in 1982. About E, though almost all reported that one-third of all institutions examined consumers might benefit. Respondwere found to have no violations at ing institutions were about equally all, evidence of an improvement in divided in their perceptions of how compliance. Moreover, of those that the act and the regulation had afdid have violations, roughly half had fected the payments system: a third only a small number (one to five). found a net benefit from standardiza- Thus, in the aggregate, about 75 tion; a third perceived an increase in percent of the financial institutions overall payment system costs; and the were in substantial compliance with rest detected no appreciable effect. Regulation Z. The Federal Home A complete summary of the survey Loan Bank Board (FHLBB), on the findings will be published as a Board other hand, reported a 13 percent staff study. Further information on decrease in the number of instituthe benefits of Regulation E will be tions with no violations. generated by a major consumer sur- The following were the most frevey, to be conducted in early 1983. quent violations of the "old" Regulation Z: Compliance with • Failure to disclose accurately the Consumer Regulations number, amount, due dates, or pe- The five federal agencies that regu- riods of scheduled payments on the Digitizedl faotre F RAfiSnEaRnc ial institutions enforce indebtedness. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 155 • Failure to disclose the annual and those in the Truth in Lending percentage rate (APR) with suffi- Act for advertising as they relate to cient accuracy. television and the Consumer Leasing • Failure to disclose the total Act. The FTC has investigated sevamount of the finance charge using eral companies for inaccurate APR the term "finance charge," and the and finance charges, and has monisum of payments using the term tored compliance with the Cash Dis- "total of payments." count Act of 1981 and with the • Failure to identify with the term advertising provisions for closed-end "balloon payment" any payment that credit in connection with consent is more than twice the amount of a judgments that were filed against 12 regularly scheduled equal payment. firms in 1981. According to the FTC, • Failure to include, when appro- compliance with requirements for priate, charges or premiums for cred- credit advertising and cash discounts it insurance covering life, accident, remains problematic. health, or loss of income in the The other agencies with responsifinance charge disclosed. bilities for enforcement of the Truth The FDIC issued ten cease-and- in Lending Act are the Packers and desist orders, and the FHLBB issued Stockyards Administration of the two, that cited Regulation Z viola- Department of Agriculture and the tions. Both agencies, as well as the Farm Credit Administration. The OCC and the Board, also issued former reported no truth in lending memoranda of understanding and complaints or enforcement actions in other administrative enforcement ac- 1982; the latter reported only two tions that included provisions requir- minor complaints. ing compliance with Regulation Z. The five member agencies of the Regulation B Federal Financial Institutions Exam- (Equal Credit Opportunity) ination Council reported that in 1982 approximately 1,450 institutions reim- All the federal agencies responsible bursed a total of $5.5 million on for regulating financial institutions about 105,000 accounts under the reported improved compliance with Regulation Z enforcement policy. the Equal Credit Opportunity Act Although this total is somewhat higher (ECOA) and Regulation B. About than the 1981 figure of $4.7 million, 67 percent of the institutions examthe dollar volume of restitutions ined had no violations, up from 51 decreased 55 percent from the rate percent in 1981; and most institutions in the last two quarters of 1981 to with violations had fewer than five. the first two quarters of 1982. This The following were the most fremarked decline indicates that com- quent violations of Regulation B in pliance with provisions on the APRs 1982: and finance charges of Regulation Z • Failure to provide or properly was improving over that period. complete a written notice of adverse The Federal Trade Commission action. (FTC) reported that it is inquiring • Failure to provide the name and into compliance with provisions of address of the federal supervisory two acts: those in the Fair Credit agency on an adverse action notice. Billing Act, for resolution of disputes • Failure to observe time limits on and unauthorized use of credit cards, sending out adverse action notices. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

156 Consumer and Community Affairs • Failure to provide the required one to five violations. On the other notice concerning "other income." hand, the OCC reported a slight The federal regulators issued eight increase in compliance. cease-and-desist orders in 1982 that The following were the most frecited violations of Regulation B, and quent violations of Regulation E in seven agreements or memoranda of 1982: understanding, most of which in- • Failure to provide initial disclovolved that regulation. sures, or failure to provide correct The FTC took formal enforcement initial disclosures, when a consumer action against two creditors for vio- contracts for EFT service or before lations of Regulation B: one for fail- the first electronic transfer on the ure to give written notices of adverse account. action and accurate reasons for de- • Failure to provide a notice of nial, and the other for failure to retain error-resolution procedure at least copies of rejected applications for 25 once each calendar year. months. • Failure to include on the peri- Although most creditors seem to odic disclosure the address and telebe complying, the FTC staff contin- phone number for inquiries or notiues to find serious problems: some fication of an error. creditors are illegally requiring a • Failure to include in the periodic spouse's signature on a promissory disclosure statement the name of any note, failing to consider applications third party to or from whom funds from consumers who rely on alimony were transferred. and other forms of protected income, • Failure to provide notice by one illegally discouraging elderly appli- of the allowed means when a concants from filing credit applications, sumer's account is credited by "rouand failing to retain rejected appli- tine" preauthorized transfers. cations as required by Regulation B. The FTC encountered no problem The other regulatory agencies re- severe enough to justify enforcement ported satisfactory compliance. The action, and the CAB and the Secu- Farm Credit Administration had only rities and Exchange Commission rea few ECO A complaints, none of ported that organizations subject to which involved illegal discrimination. their jurisdiction engage in no activ- The Civil Aeronautics Board (CAB) ities covered by the Electronic Fund received 21 complaints, and none Transfer Act. warranted formal action. Legislative Recommendations Regulation E The FDIC, the FTC, and the OCC (Electronic Fund Transfers) have recommended several changes The Board, FDIC, FHLBB, and in the Truth in Lending, Equal Credit NCUA reported that about 26 per- Opportunity, and Electronic Fund cent of the institutions failed to Transfer Acts. The FDIC, which comply with some provisions of Reg- believes that truth in lending requireulation E and the Electronic Fund ments are complex and unmanagea- Transfer Act in 1982, up from about ble, calls for a "complete overhaul" 20 percent in 1981. The majority of of the act and regulation. The FDIC these institutions, however, had only suggested that exemptions from dis- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 157 closure for simple interest loans with regard to a financial institution's identical annual percentage and sim- burden of proof in a dispute about ple-interest rates and with a finance authorization of a transfer. The OCC charge that is "entirely a function of pointed out that Regulation E rethe amount of credit extended and quires merely a good-faith investigathe time it was outstanding." tion of the institution's records in The FTC recommended that the resolving the dispute. As a result, Congress remove the prohibition on the financial institution does not bear credit surcharges imposed by the so heavy a burden of proof of unau- Cash Discount Act (section 167 of thorized use as the act intended. In the Truth in Lending Act). Accord- addition, the OCC wants the Coning to the FTC, the widespread gress to clarify whether the requireconfusion of businesses and con- ment about the burden of proof sumers stems from the lack of prac- applies only in a judicial procedure tical difference between a cash dis- or in the pretrial stages of a consumer count and a credit surcharge. The dispute as well. FTC also said that the ban against credit surcharges has spurred many corporate policies and state regula- Consumer Advisory Council tions that not only fail to benefit the In 1982, the Consumer Advisory public but also harm retailers by Council (CAC) met quarterly to imposing unnecessary compliance advise the Board with regard to its costs and causing the loss of customer responsibilities under the consumer goodwill. credit protection laws and to discuss The OCC favors further simplifi- other issues relating to consumer cation of the Truth in Lending Act, finances. The council has 30 membut prefers that no changes be made bers, representing a wide spectrum until the full effects of simplification of consumer and creditor interests. and the recent update of the Regu- The CAC invited public comment lation Z commentary are known. in March on several questions related The OCC recommended that the to the availability and affordability Congress reconsider certain provi- of credit for consumers, neighborsions of the Electronic Fund Transfer hood reinvestment projects, and Act. It criticized the three-tier sched- community programs in the current ule for determining consumer liabil- economic environment. The council ity (which may be $50, $500, or received nearly 60 letters; those from unlimited, depending on the circum- financial institutions generally said stances). These provisions, according that the high cost of funds and the to the OCC, make it unnecessarily inability of consumers to afford credit complicated to establish consumer have led to an "overall reduction in liability because financial institutions credit." Some of the industry commust prove when the consumer ments said that these factors have learned of the loss or theft and, in had the greatest negative impact in some instances, whether the losses low- and moderate-income neighborwould have occurred if the consumer hoods. had notified the institution. Most of the other comments came The OCC also recommended that from local nonprofit community orthe Congress clarify its intent with ganizations. These commenters be- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

158 Consumer and Community Affairs lieved that the main obstacles to mended that IRA advertisements obtaining credit to meet community should disclose the following: needs were high interest rates, cuts • The penalties for early within federal programs, unemployment, drawal. and the recession in general. They • The basis for projected longsaid that high interest rates have term earnings (together with a warncaused problems for the credit pro- ing as to the effect of inflation) and grams that benefit the low-income the extent to which the sponsor is consumers who have been hit espe- committed to maintain the underlycially hard by the recession. ing rates. The solutions to these problems, • If applicable, the term of the according to the creditors, lay in a account, the simple rate of interest, lower inflation rate; more commu- and the yield. nity services, such as credit counsel- • The amounts or rates of all ing; bond programs to help the thrift charges imposed on the account. industry; an end to usury ceilings; • The type of investment or instrurevisions of bankruptcy laws; reduc- ment and whether insured. tions in compliance costs; and more • The way the consumer can get education for consumers. The com- additional advance information. munity organizations stressed federal The recommendations also stated programs, such as the block grant that IRA advertisements should not program for community develop- use "scare tactics" by warning about ment; job training; and funds for the inadequacy of pensions or other nonprofit housing corporations and benefits. for home improvement loans. These The council also discussed conorganizations called on the Board to sumer needs for disclosure of fees make credit available to banks for and reduced earnings on inactive loans for housing low- and moderate- accounts, the advantages and disadincome people, for small businesses, vantages of surcharges and cash disand for farmers. counts on credit-card transactions, In 1982, the CAC also discussed and the effect of the prime rate on practices in the financial services consumer credit rates. Some memindustry that may be deceptive or bers of the council suggested that the unfair to consumers—for example, disclosure practices relating to varithe advertising of individual retire- able-rate loans should be monitored ment accounts (IRAs). Some council carefully. members expressed concern that many At the request of Chairman advertisements give consumers the Volcker, the CAC established in impression that investments and 1982 a committee to review the earnings in IRAs are tax-free for- Board's policies and procedures under ever, and say nothing about with- the Community Reinvestment Act drawal penalties, maintenance fees, (CRA). The CRA Review Commitor cancellation periods. The council tee is evaluating the System's examformed a special committee to inves- ination activity, procedures for aptigate IRA advertising and to for- plications and complaints, training of mulate recommendations. At its Oc- personnel, and community affairs tober meeting, the CAC adopted the and public information functions recommittee's report, which recom- lating to the CRA. The committee Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 159 plans to present its report in early commitments by the applicant to the 1983. Board or the community groups. In the 1982 reporting period, Fed- Community Reinvestment Act eral Reserve System personnel examined 854 state member banks for The Board of Governors, the Federal CRA compliance, using the Uniform Deposit Insurance Corporation, the Interagency Community Reinvest- Federal Home Loan Bank Board, ment Act Assessment Rating Sysand the Office of the Comptroller of tem. This system ranks financial the Currency are required by the institutions on a scale of 1 through Community Reinvestment Act (CRA) 5, with 5 representing the lowest to encourage the institutions under level of performance and 3, less than their jurisdiction to help meet the satisfactory performance. About 79 credit needs in their communities, percent of the state member banks including low- and moderate-income received a rating of 2; 12 percent, a neighborhoods, consistent with the rating of 1; 13 percent, a rating of 3; safety and soundness of the instituand less than 1 percent, a rating of tions. The act requires the agencies 4. No bank received a 5. to assess the record of institutions in To assure a balanced perspective meeting the needs of their commuin determining community credit nities and to take that record into needs and assessing the CRA peraccount in deciding certain applicaformance, Federal Reserve examtions that the institution may file. iners often interview community rep- Most applications to the Federal resentatives outside the financial Reserve are considered by the Fedinstitution. In the 1982 reporting eral Reserve Banks acting on behalf period, 1,271 such interviews were of the Board. The Board itself conconducted with government officials, siders applications that raise significommunity-based organizations, trade cant legal or policy questions and associations, community developthose from institutions that have ment corporations, and civil rights unsatisfactory CRA records. and consumer advocates. Also, to In 1982, the Board processed eight assist the Board in encouraging state applications protested by community member banks to help meet the groups challenging the applicant's credit needs of their communities, record of meeting community credit each Reserve Bank has appointed a needs, and eighteen unprotested cases Community Affairs Officer, who fathat involved applicants with CRA cilitates communication between ratings that were less than satisfacbankers and community groups. tory. One of the protested cases was approved following a negotiated Federal Financial Institutions agreement between the applicant and Examination Council the protestant. One of the unprotested applications was withdrawn to In 1982, the Federal Financial Instiallow the applicant time to improve tutions Examination Council (FFIEC) its CRA performance. The remain- approved uniform examination proing applications were approved on cedures for the Truth in Lending, the basis of additional information Fair Debt Collection, and Home about the applicant's performance or Mortgage Disclosure Acts. It also Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

160 Consumer and Community Affairs sponsored the production of a video- condition and the credit needs of the tape course for examiners, entitled bank's community. This information "Outside Contact Interviews: Inter- should help examiners assess the viewing for Information from the CRA performance of a financial Community." The purpose of the institution; it may also be helpful in course is to teach examiners how to examinations relating to the Fair interview community representatives Housing and Equal Credit Opportufor information about the economic nity Acts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

161 Litigation During 1982, the Board of Gover- denied petitioner's petition for cernors was named in 34 lawsuits, com- tiorari (102 S. Ct. 2958). pared with 43 in 1981. Of the 19 Litigation was completed in the actions filed in 1982, 6 raised ques- suits filed by Option Advisory Sertions under the Bank Holding Com- vice, Inc. In Option Advisory Serpany Act, compared with 5 in 1981. vice, Inc. v. Board of Governors, no. As of December 31, 1982, 17 cases 81-4174 (2d Circuit, filed September were pending, 4 of which involve the 24, 1981), petitioner sought review Bank Holding Company Act. A brief of the Board's order approving the description of each of these cases application of Midland Bank, Ltd., and of those disposed of in 1982 London, England, to acquire Crocker follows. National Bank, San Francisco, California (Federal Reserve Bulletin, volume 67, September 1981, page 729). Bank Holding Companies— On December 28, 1.981, the court of Antitrust Action appeals dismissed the petition for In 1982, the U.S. Department of review on the ground that petitioner Justice filed no challenges under the lacked standing. On February 18, antitrust laws of the United States to 1982, the court of appeals awarded acquisitions or mergers by bank hold- court costs to Midland Bank. On ing companies that had been ap- June 28, 1982, the Supreme Court proved by the Board, and as of the denied petitioner's petition for cerend of the year, no such cases were tiorari (50 U.S.L.W. 3998.20). pending from previous years. In Option Advisory Service, Inc. v. Board of Governors, no. 81-4176 (2d Circuit, filed September 24, 1981), Bank Holding Companies— petitioner sought judicial review of a Review of Board Actions Board order approving the applica- In Wilshire Oil Company of Texas v. tion of Credit and Commerce Amer- Board of Governors, no. 81-1560 ica Holdings, N.V., Willemstad, (3rd Circuit, filed April 9, 1981), Netherlands Antilles, to acquire Fipetitioner sought judicial review of a nancial General Bankshares, Inc., Board order determining that peti- Washington, D.C. (Federal Reserve tioner continued to be subject to the Bulletin, volume 67, September 1981, Bank Holding Company Act and page 737). On December 28, 1981, directing it to terminate its status as the court of appeals dismissed the a bank holding company. On Decem- petition for review on the ground ber 31, 1981, the court of appeals that petitioner lacked standing. Peaffirmed the Board's order (668 F.2d titioner then filed a petition for 732). On February 1, 1982, the court certiorari, which was denied by the of appeals denied petitioner's request Supreme Court on May 17, 1982 (102 for a rehearing en bane, and on June S. Ct. 2242). 21, 1982, the U.S. Supreme Court In Option Advisory Service, Inc. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

162 Litigation v. Board of Governors, no. 81-4248 the application of Raymondville State (2d Circuit, filed December 21, 1981), Bancshares, Inc., Raymondville, petitioner sought judicial review of a Texas, to acquire Raymondville State Board order approving the applica- Bank, Raymondville, Texas, purtion of J.P. Morgan & Co., Inc., suant to authority delegated by the New York, New York, to acquire Board of Governors (Federal Reserve Morgan Bank (Delaware), Wilming- Bulletin, volume 68, April 1982, page ton, Delaware (Federal Reserve Bul- 260). The case has been fully briefed letin, volume 67, December 1981, and is awaiting argument. page 917). The action was dismissed In First Bancorporation v. Board for lack of standing on January 26, of Governors, no. 82-1401 (10th 1982. Circuit, filed April 9, 1982), peti- In First Lakefield Bancorporation tioner seeks judicial review of a et al. v. Board of Governors, no. 4- Board order approving petitioner's 82-8 (D. Minn., filed January 6, application to acquire an industrial 1982), plaintiff sought a declaratory loan company, providing the acjudgment that its application for quired company does not simultane- Board approval to acquire First Trust ously offer negotiable order of with- Bank in Lakefield, Lakefield, Min- drawal (NOW) accounts and also nesota, had been approved by oper- engage in the business of commercial ation of law because the Board had lending, and that any NOW accounts failed to act within 91 days of receipt offered be subject to reserve requireof the complete record of the appli- ments and federal limitations on cation, as required by the Bank interest rates (Federal Reserve Bul- Holding Company Act. By stipula- letin, volume 68, April 1982, page tion of the parties, the action was 253). The case has been fully briefed dismissed with prejudice on June 8, and is awaiting argument. 1982. In Florida National Banks of Flor- In C.A. Cavendes, Sociedad Fi- ida, Inc. v. Board of Governors, nos. nanciera v. Board of Governors, no. 82-1483 (D.C. Circuit) and 82-1048 82-1030 (D.C. Circuit, filed January (D.D.C., both filed April 15, 1982), 8, 1982), petitioner sought judicial petitioner sought review of a Board review of the Board's order approv- order, dated April 5, 1982, that ing an application by Florida Na- determined not to disapprove—under tional Banks of Florida, Inc., Jack- the Change in Bank Control Act— sonville, Florida, to merge with the acquisition of petitioner's shares Alliance Corporation, Jacksonville, by C.A. Cavendes, Sociedad Finan- Florida (Federal Reserve Bulletin, ciera, Caracas, Venezuela, and that volume 68, January 1982, page 49). after such acquisition, Cavendes The Board's order was affirmed with- would not be considered to be conout opinion on March 29, 1982 (675 trolling petitioner for purposes of the F.2d 1339). Bank Holding Company Act. By In Gustafson v. Board of Gover- stipulation of the parties, both acnors, nos. 82-4113 and 82-4213 (5th tions were dismissed with prejudice Circuit, filed March 24 and June 4, on June 11, 1982. 1982), petitioner seeks judicial re- In Wyoming Bancorporation v. view of an order of the Federal Board of Governors, no. 82-1634 Reserve Bank of Dallas approving (10th Circuit, filed May 20, 1982), Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Litigation 163 petitioner seeks judicial review of plaintiff is ineligible to qualify for the Board's order dated April 22, the phasing-in of reserve require- 1982 (Federal Reserve Bulletin, vol- ments on deposits, which is permitume 68, May 1982, page 313), dis- ted for nonmember banks under the approving petitioner's application to Monetary Control Act. The parties' acquire the American National Bank cross-motions for summary judgment of Powell, Powell, Wyoming. Peti- or dismissal are pending. tioner challenges the Board's defini- In Bank Stationers Association et tion of the relevant geographic mar- al. v. Board of Governors, no. C81ket for assessing the competitive 1417A (N.D. Ga., filed July 27, impact of this proposal. The case has 1981), plaintiffs seek declaratory and been fully briefed and is awaiting injunctive relief from the fee schedargument. ule for automated clearinghouse In Association of Data Processing services that was adopted by the Service Organizations, Inc., et al. v. Board pursuant to the Monetary Board of Governors, nos. 82-1910 Control Act. By order dated Decemand 82-2108 (D.C. Circuit, filed ber 22, 1981, the district court dis- August 6 and September 20, 1982), missed plaintiffs' complaint for lack petitioners seek judicial review of of standing. On January 21, 1982, Board orders approving an applica- plaintiffs filed an appeal in the U.S. tion by Citicorp, New York, New Court of Appeals for the Eleventh York, to engage through a subsidiary Circuit (no. 82-8058). The case has in certain data processing activities been fully briefed and is awaiting (Federal Reserve Bulletin, volume 68, decision. August 1982, page 505), and amending the Board's Regulation Y to Financial Institutions designate those activities as closely Supervisory Act of 1966 related to banking and thus permissible for bank holding companies in In Hall v. Board of Governors, no. general (Federal Reserve Bulletin, C81-1786A (N.D. Ga., filed Septemvolume 68, September 1982, page ber 28, 1981), plaintiff sought declar- 552). The actions are pending. atory and injunctive relief and compensatory damages in connection with Other Litigation Involving an order issued by the Board pur- Challenges to Board suant to the Financial Institutions Procedures and Regulations Supervisory Act. On March 10, 1982, the case was transferred to the U.S. The following cases are arranged either District Court for the Middle District according to the act under which they of Florida. By stipulation of the were filed or under the category Emparties, the case was dismissed with ployment Actions. prejudice on November 10, 1982. In Wolfson v. Board of Governors, Monetary Control Act of 1980 no. 81-913 CWTK (M.D. Fla., filed In First Bank & Trust Co. v. Board September 28, 1981), plaintiff seeks of Governors, no. 81-38 (E.D. Ky., declaratory and injunctive relief and filed February 24, 1981), plaintiff compensatory damages in connection seeks declaratory and injunctive re- with the Board's issuance of an order lief from a Board determination that pursuant to the Financial Institutions Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

164 Litigation Supervisory Act. The Board's mo- bia Circuit reversed the action of the tion for summary judgment is pend- district court and upheld the Board's ing. statement under the Glass-Steagall In Gabriel v. Board of Governors, Act. Petitions for rehearing, filed by no. 82-7190 (9th Circuit, filed April the Securities Industry Association 6, 1982), petitioner sought judicial and by A.G. Becker, Inc., are pendreview of an order of removal and ing. prohibition issued by the Board pursuant to the Financial Institutions Freedom of Information Act Supervisory Act. By stipulation of In 9 to 5 Organization for Women the parties, the petition for review Office Workers v. Board of Goverwas dismissed on July 30, 1982. nors, no. 80-2905-C (D. Mass., filed December 30, 1980), plaintiff sought Glass-Steagall Act under the Freedom of Information Act, records from a wage survey In A.G. Becker Inc. v. Board of conducted by a consortium of em- Governors et al., no. 80-2614 ployers in Massachusetts and used (D.D.C., filed October 14, 1980), by the Board in approving salaries and Securities Industry Association v. for the Federal Reserve Bank of Board of Governors et al, no. 80- Boston. By orders dated December 2730 (D.D.C., filed October 24, 21, 1981, and June 17, September 1980), plaintiffs seek review of a 30, and December 2, 1982, the dis- Board statement, dated September trict court partially granted and par- 26, 1980, denying in part plaintiffs' tially denied each of the parties' petition that the Board prohibit cross-motions for summary judg- Bankers Trust Company, a state ment. member bank, from selling third- In Flagship Banks, Inc. v. Board party commercial paper as an agent of Governors, no. 82-2920 (D.D.C., of the issuer. Plaintiffs also filed filed October 12, 1982), plaintiff petitions for review of the Board's seeks disclosure of Board records statement in the Court of Appeals pertaining to a notice filed pursuant for the District of Columbia Circuit to the Change in Bank Control Act. (nos. 80-2258 and 80-2314, filed The Board filed an answer to the October 14 and 24, 1980 respeccomplaint on November 12, 1982. tively). In an opinion and order dated July 28, 1981 (519 F. Supp. Government in the Sunshine Act 602), the district court declined to order the Board to initiate enforce- In A.G. Becker, Inc. v. Board of ment proceedings against Bankers Governors, no. 80-2175 (D.D.C., Trust, but invalidated the legal con- filed August 25,1980), plaintiff seeks clusions in the Board's statement. declaratory and injunctive relief under The Board and A.G. Becker ap- the Government in the Sunshine Act pealed the judgment of the district with respect to the Board's determicourt (nos. 81-2070, 81-2058, and nation to exclude the public from a 81-2096). meeting at which plaintiffs petition In an opinion and order dated for initiation of enforcement pro- November 2, 1982, the U.S. Court ceedings was discussed. In an order of Appeals for the District of Colum- and opinion dated November 26, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Litigation 165 1980 (502 F. Supp. 378), the district motion for summary judgment. In court granted in substantial part the an opinion and order dated July 13, Board's motion for summary judg- 1981 (650 F.2d 1093), the U.S. Court ment, holding that the Board had of Appeals for the Ninth Circuit acted properly in closing the meeting affirmed the district court's judgment to the public, but had not given in favor of the Reserve Bank. On public notice of the meeting at the February 22, 1982, plaintiffs petition earliest practicable time. for certiorari was denied by the Plaintiff appealed the action (no. Supreme Court (102 S. Ct. 1449). 81-1493, D.C. Circuit, filed May 4, In Hilliard v. Volcker et al., no. 1981). The appeal was consolidated 76-1655 (D.D.C., filed December 8, with Board of Governors v. A.G. 1976), the district court, after re- Becker, Inc., no. 80-2258 (see the mand from the Court of Appeals discussion of cases under the Glass- (659 F.2d 1125), found no grounds Steagall Act); and in an opinion and for plaintiffs claim of discrimination order dated November 2, 1982, the and rendered judgment for the Board U.S. Court of Appeals upheld the on January 12, 1982. Board's action on the merits. Plain- In Hilliard v. Cooper, no. CA tiff's petition for a rehearing is pend- 0950-82 (D.C. S. Ct., filed January ing. 25, 1982), removed to the U.S. District Court for the District of Columbia (no. 82-0355), and Hil- Administrative Procedure Act liard v. Langley, no. CA 1322-82 In Philadelphia Clearing House As- (D.C. S. Ct., filed February 2,1982), sociation et al. v. Board of Gover- removed to the U.S. District Court nors, no. 82-3245 (E.D. Pa., filed for the District of Columbia (no. 82- July 27, 1982), plaintiffs seek injunc- 0454), the court dismissed plaintiffs' tive and other relief under the Ad- complaints of discrimination by orministrative Procedure Act with re- ders dated June 4, 1982, on grounds spect to a Board determination to of collateral estoppel based on the set a uniform deadline of 12 noon prior decision of the district court in for presentment of "city items" by Hilliard v. Volcker et al. (discussed Federal Reserve Banks to depository in previous paragraph). institutions for clearing and settlement. The case is pending. Other Actions In Berkovitz et al. v. Government of Employment Actions Iran, no. C80-0097-WWS (N.D. Cal., In Bollow v. Board of Governors et filed June 13, 1980), plaintiffs seek al, no. C76-977 (N.D. Cal., filed to impose a trust on the assets of the May 12, 1976), a former employee government of Iran and to recover of the Federal Reserve Bank of San damages in connection with the death Francisco sought damages and other of Martin Berkovitz, a U.S. citizen. relief against the Board and the In September 1981, the court entered Reserve Bank in connection with the a stipulated stay of all proceedings termination of his employment. By pending further order of the court. order dated September 23, 1977, the In Gordon v. Heimann et al., nos. district court granted the Board's C8O-1265A (N.D. Ga., filed July 25, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

166 Litigation 1980) and 81-288A (N.D. Ga., filed tiff seeks damages and other relief in February 15, 1981), plaintiff sought connection with the alleged uncondamages from 44 defendants in con- stitutionally of the Federal Reserve nection with alleged violations of the Act. The district court dismissed the Securities Act of 1933, the Securities complaint for lack of standing. Plain- Exchange Act of 1934, and the Rack- tiff filed notices of appeal (D.C. eteer Influenced and Corrupt Organ- Circuit: nos. 82-1504, 82-1505, 82izations Act (RICO). The two ac- 1506, and 82-1510), and the appeals tions were dismissed by the district are stayed pending the filing of court, by orders dated December 2, plaintiffs motion to proceed in forma 1980, and May 28, 1981 respectively. pauperis in the district court. By orders dated September 25, 1981, In Richter v. Board of Governors the district court awarded attorneys' etal, no. 82-C-3150 (N.D. 111., filed fees to certain defendants in both May 21, 1982), plaintiff seeks injunccases and denied them to certain tive relief in connection with the defendants in no. C8O-1265A. Board's conduct of national mone- Plaintiffs appeals from the district tary policy. The Board's motion to court's orders of September 25, 1981 dismiss is pending. (nos. 81-8017 and 81-8018) were In Montgomery v. State of Utah et consolidated before the U.S. Court al., no. C82-1504 W (D. Utah, filed of Appeals for the Eleventh Circuit May 3, 1982), plaintiff sought declarwith cross-appeals from the defen- atory and other relief with respect to dants denied attorneys' fees (no. the issuance of Federal Reserve notes C80-1265A). The case is pending. as legal tender. Following a hearing In Public Interest Bounty Hunters on the Board's motion to dismiss, v. Board of Governors; no. C81- the district court dismissed the com- 1184A (N.D. Ga., filed June 25, plaint. 1981), plaintiff alleges that various In Bowler v. Treasurer of the Board actions violate the Bank Hold- United States et al no. 82-0151-B 9 ing Company Act and the Glass- (D. Me., filed July 15, 1982), plain- Steagall Act. On November 29, 1982, tiff seeks relief in connection with plaintiff appealed the district court's the alleged unconstitutionality of isorders dated June 23, 1982, dismiss- suance of Federal Reserve notes as ing the action, and September 30, legal tender. The district court granted 1982, awarding attorneys' fees to the the Board's motion to dismiss by defendant. order dated November 17, 1982. In Christian Educational Associa- Plaintiffs appeal from the order is tion , Inc. v. Federal Reserve System, pending in the U.S. Court of Appeals no. 82-88 CIV-T-H (M.D. Fla., for the First Circuit (no. 82-1879). filed January 29, 1982), plaintiff In Hay ton v. State of Utah et al. y sought declaratory and other relief no. C82-6595 (D. Utah, filed Sepin connection with the issuance of tember 10, 1982), plaintiff seeks Federal Reserve notes as legal tender. declaratory, injunctive, and compen- The Board's motion to dismiss, filed satory relief in connection with the March 29, 1982, was granted by the alleged unconstitutionality of issucourt on June 11, 1982. ance of Federal Reserve notes as In Vick v. Volcker, no. 82-0592 legal tender. The Board's motion to (D.D.C., filed March 2,1982), plain- dismiss is pending. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

167 Legislation Enacted Export Trading Company Act dures for the Secretary of Commerce, with the concurrence of the Public Law 97-290, approved Octo- Attorney General, to issue certifiber 8, 1982, consists of four titles. cates of review to export trading 1. Title I, the Export Trading companies. Such a certificate pro- Company Act of 1982, encourages tects its holder from criminal and the formation and operation of excivil antitrust actions for conduct that port trading companies to promote is specified in, and complies with the exports. terms of, the certificate. 2. Title II, the Bank Export Ser- 4. Title IV, the Foreign Trade vices Act of 1982, amends section 4 Antitrust Improvements Act of 1982, of the Bank Holding Company Act amends the Sherman Act and the to permit bank holding companies Federal Trade Commission Act to and bankers' banks, and Edge and supplement the antitrust certification Agreement corporations that are provisions in Title III. subsidiaries of bank holding companies, to invest in export trading Garn-St Germain companies pursuant to Federal Reserve regulation.1 Investment by Depository Institutions Act banking institutions in export trading Public Law 97-320, the Garn-St companies generally is subject to a Germain Depository Institutions Act prudential limit of 5 percent of the of 1982, approved October 15, 1982, institution's consolidated capital and consists of eight titles. surplus. Title I, the Deposit Insurance Title II also increases the statutory Flexibility Act, expands the authority ceiling on eligible bankers accep- of the Federal Deposit Insurance tances to 150 percent of a member Corporation (FDIC) and the Federal bank's capital and surplus without Savings and Loan Insurance Corpoprior Board approval and to 200 ration (FSLIC) to deal with the percent with Board approval. These unusual financial pressures that many ceilings apply also to U.S. branches depository institutions now face. and agencies of foreign banks that Among other things, the Deposit are covered by section 7 of the Insurance Flexibility Act does the International Banking Act of 1978. following: 3. Title III (Export Trade Certifi- 1. Permits the FDIC and the FSLIC cates of Review) establishes proce- to provide capital assistance to insured commercial banks or savings banks and to insured savings and loan associations respectively when 1. Under this act bankers' banks are defined as depository institutions that are organized severe financial conditions threaten solely to do business with other financial the stability of a number of insured institutions; that are owned primarily by the institutions or of insured institutions financial institutions with which they do busiwith significant resources. The agenness; and that do not do business with the cies may provide such assistance if it general public. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

168 Legislation Enacted would lessen the risk of loss to the tablish, within 60 days of enactment, insurance funds. an account that is "directly equiva- 2. Expands the forms of permissi- lent to and competitive with money ble capital assistance. market mutual funds." 3. Expands the powers of the 4. Preempts state laws prohibiting regulatory agencies to facilitate enforcement of due-on-sale provimergers between depository institu- sions, except for a limited period of tions through the conversion of mu- time specified in the law. tual organizations to stock form. Title IV amends various statutes 4. Under certain conditions, per- relating to national and state member mits the acquisition by out-of-state banks. It includes the following prothrift institutions or bank holding visions, among others: companies of insured savings and 1. Increases the lending limit for a loan associations, closed insured single borrower for national banks commercial banks with assets of $500 from 10 to 15 percent of unimpaired million or more, and insured savings capital and surplus, with an addibanks with assets of $500 million or tional 10 percent if the loan is fully more that have failed or are in secured by marketable collateral. The danger of failing. new limits are subject to a number Certain provisions of Title I expire of exceptions. three years after the date of enact- 2. Revises section 23A of the ment. Federal Reserve Act, governing loans Title II, the Net Worth Certificate to affiliates of member banks and Act, authorizes the FDIC and the other FDIC-insured institutions, to FSLIC to increase or maintain the do the following, among other things: capital of troubled, qualified deposi- (a) Limit the aggregate amount tory institutions through the pur- of "covered transactions" between a chase of net worth certificates. The bank and any one affiliate to 10 authority to purchase additional net percent of the bank's capital and worth certificates expires three years surplus (20 percent in the case of all from the date of enactment. affiliates). Title III, the Thrift Institutions (b) Require that covered trans- Restructuring Act, expands the lend- actions between a bank and its affiling, investment, and liability powers iates be on terms and conditions of federally chartered thrift institu- consistent with safe and sound banktions. This title includes the following ing practices. provisions, among others: (c) Eliminate restrictions on 1. Authorizes federal savings and transactions among most bank subloan associations and savings banks sidiaries of a holding company, exto invest up to 10 percent of assets cept for the restriction on the purin commercial loans and expands chase of low-quality assets. their consumer lending authority. (d) Expand the definition of 2. Requires the elimination of the "affiliate" to include, among other differential on deposit interest rate things, any organization sponsored ceilings in favor of thrift institutions and advised on a contractual basis on or before January 1, 1984. by a bank or its affiliates and any 3. Directs the Depository Institu- investment company advised by a tions Deregulation Committee to es- bank or its affiliates. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legislation Enacted 169 (e) Expand the types of collat- unions and for the National Credit eral permitted on bank loans and Union Administration. extensions of credit to affiliates, while Title VI amends the Bank Holding requiring that these new types of Company Act to prohibit bank holdcollateral have a high value relative ing companies from providing insurto the loan. ance as underwriter, agent, or bro- 3. Exempts all depository institu- ker. Exceptions to the general tions from reserve requirements on prohibition include the following, the first $2 million of liabilities on among other things: which reserves are required. The 1. Any insurance agency activity exemption is indexed and will in- engaged in by a bank holding comcrease annually by a dollar amount pany with consolidated assets of less calculated by applying to the $2 than $50 million. million 80 percent of the percentage 2. Any insurance agency activity increase in the total liabilities of all engaged in by a bank holding comdepository institutions that are sub- pany before May 1, 1982, and certain ject to reserves. expansions of those activities. 4. Amends the Financial Institu- 3. Any insurance agency activity tions Regulatory and Interest Rate in communities of less than 5,000 or Control Act of 1978 to do the follow- in any place in which the bank ing, among other things: holding company demonstrates that (a) Eliminate the statutory limi- insurance agency facilities are inadtations on loans by member banks to equate. their executive officers for purchas- 4. Activity as underwriter, agent, ing their own homes and for their or broker with respect to credit life, children's education. The $10,000 credit disability, and involuntary unlimit on loans for any other purpose employment insurance in connection is replaced by authority to bank with an extension of credit. regulators to set an appropriate limit. 5. Sale of property insurance on (b) Replace the $25,000 limit loan collateral by finance company above which loans to insiders must subsidiaries. The insurance must be be approved by the board of direc- limited to repayment of the outstandtors with an authorization for bank ing balance on the loan and may not regulators to set an appropriate limit. exceed $10,000 ($25,000 if the loan (c) Authorize the bank regula- is for the purchase of a mobile tors to develop alternative reporting home). and disclosure requirements for bank Title VII contains miscellaneous loans to insiders. When the new re- changes to various statutes that, quirements are effective, the existing among other things, do the following: requirements will be repealed. 1. Exempt certain student loans 5. Extends the deadline for bank from the Truth in Lending Act and holding companies to divest real exclude arrangers of credit, including estate or interests in real estate from real estate brokers and loan brokers, December 31, 1982, to December from the definition of "creditor" in 31, 1984. the Truth in Lending Act. Title V amends the Federal Credit 2. Authorize negotiable order of Union Act to provide greater oper- withdrawal accounts for all federal, ating flexibility for federal credit state, and local public units. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

170 Legislation Enacted 3. Permit bank service corpora- Title VIII, the Alternative Morttions to engage in certain nonbanking gage Transaction Parity Act of 1982, activities, with the prior approval of authorizes nonfederally chartered the Board of Governors. housing creditors to offer alternative 4. Designate the Federal Reserve types of mortgages in order to achieve Board building as the Marriner S. parity with federally chartered insti- Eccles Federal Reserve Board Build- tutions. ing. 5. Require each of the federal deposit insurance agencies to con- Continuing Appropriations duct a study of the current system of federal deposit insurance and trans- Public Law 97-377, the Further Conmit a report to the Congress within tinuing Appropriations Act, apsix months of the date of enactment. proved December 21, 1982, contains The studies are to include, among a provision declaring it to be the other things, the feasibility of the sense of the Congress that the Fedfollowing: eral Reserve, with due regard for (a) Offering depositors the op- controlling inflation, should continue tion to purchase additional deposit to take such actions as are necessary insurance. to achieve and maintain a level of (b) Basing deposit insurance interest rates low enough to generate premiums on risk. significant economic growth and (c) Consolidating the three sep- thereby reduce the current intoleraarate insurance funds. ble level of unemployment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

171 Banking Supervision and Regulation One of the Federal Reserve's prin- and (4) a review for compliance with cipal responsibilites is the supervision applicable laws and regulations.1 and regulation of commercial bank- State Member Banks ing organizations. In carrying out its The Federal Reserve is the primary duties, the Federal Reserve superfederal supervisor and regulator of vises and regulates state member state-chartered commercial banks that banks; bank holding companies and are members of the System. At the their nonbank subsidiaries; the interend of 1982, there were 1,040 state national activities of banks and bank member banks, accounting for about holding companies; and the U.S. 7 percent of all insured commercial banking and nonbanking activities of banks. Because these banks typically foreign banks. Many of these superwere larger than the average, they visory activities are conducted in held around 18 percent of total assets coordination with other federal and of insured commercial banks. state regulatory agencies. A descrip- State member banks are examined tion of how the System fulfilled these every 18 months, except when signifresponsibilities during 1982 follows. icant weaknesses or other conditions call for more frequent examination. Supervision for In 1982, System personnel conducted Safety and Soundness 809 examinations, many jointly or The Federal Reserve conducts three concurrently with examiners from main types of supervisory activities state regulatory agencies. to ensure the safety and soundness Bank Holding Companies of financial institutions: on-site ex- During 1982, the number of bank aminations and inspections, surveilholding companies increased by 853 lance and monitoring activities, and to a total of 4,557. These organizaenforcement and other supervisory tions control commercial banks that actions. hold about 84 percent of the total assets of insured commercial banks Examinations and Inspections in the United States. The on-site review of operations is the primary mechanism for ensuring 1. The Board's Division of Consumer and the safety and soundness of financial Community Affairs handles compliance with institutions. Examinations or inspec- consumer and civil rights laws through the use tions of these operations entail (1) of specially trained examiners at the Federal Reserve Banks. These regulatory responsibilan appraisal of the quality of the ities are covered in the "Consumer and institution's assets; (2) an evaluation Community Affairs" section of this REPORT. of management, along with internal Compliance with other statutes and regulaoperations, policies, and procedures; tions, which is treated in this section, is the (3) an assessment of the key financial responsibility of the Board's Division of Banking Supervision and Regulation and of the factors of capital, earnings, asset and Reserve Bank examiners, who check for safety liability management, and liquidity; and soundness. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

172 Banking Supervision and Regulation Most large bank holding compa- U.S. activities of foreign banks. In nies, as well as small companies with recent years, foreign entities have significant nonbank assets, are in- rapidly expanded their operations in spected at least every eighteen the United States; today they are a months, others at least every three significant element in the U.S. bankyears. The inspection focuses on the ing system. As of December 31, operations of the parent holding 1982, 205 foreign banks operated 338 company and its nonbank subsid- state-licensed uninsured branches and iaries; the subsidiary banks are ex- agencies, 31 state-licensed branches amined by their federal banking reg- insured by the Federal Deposit Inulatory agency. During the year, surance Corporation, and 53 branches System staff conducted 1,273 inspec- and agencies licensed by the Office tions of bank holding companies. of the Comptroller of the Currency (of which 2 have FDIC insurance). International Activities Foreign banks also owned a control- Edge and Agreement corporations. ling interest in 69 U.S. subsidiary Edge corporations are chartered by banks. Altogether, these foreign the Board to conduct an interna- banks controlled 14.4 percent of U.S. tional banking business to provide banking assets as of June 30, 1982. all segments of the U.S. economy The Federal Reserve has broad with a means of financing interna- residual and oversight authority for tional trade, in particular exports. the supervision and regulation of Agreement corporations are state- foreign banks that engage in banking chartered companies that enter into in the United States through branches, an agreement with the Board to limit agencies, commercial lending comtheir operations to international panies, and subsidiary banks. In banking. During 1982, the Federal fulfilling this responsibility, the Fed- Reserve conducted 112 examinations eral Reserve relies on examinations of Edge and Agreement corporations conducted by the appropriate federal and their branches. regulatory agency for insured branches Overseas operations of U.S. bank- and for federally licensed branches ing organizations. Examinations of and agencies, or commercial bank the international operations of state subsidiaries; and by the appropriate member banks, Edge corporations, state authority for state-licensed and bank holding companies are branches and agencies. Although the conducted at the banking organiza- states have primary authority for tion's head office in the United examining state-licensed uninsured States, where the ultimate responsi- branches and agencies, the Federal bility for overseas facilities lies. To Reserve participated in the examiverify and supplement the results of nation of 118 such offices in 1982. the head-office examinations, on-site reviews of important overseas facilities are performed at least every 3 Specialized years. In 1982, the Federal Reserve Examinations examined 12 foreign branches of state member banks and 10 overseas The Federal Reserve conducts spesubsidiaries of Edge corporations and cialized examinations in the followbank holding companies. ing areas of bank activity. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 173 Electronic Data Processing keeping entries. The three agencies The Federal Reserve examines the registered with the Board were exelectronic data processing (EDP) ac- amined in 1982; one examination tivities of state member banks, as was conducted jointly with the Sewell as independent centers that curities and Exchange Commission. provide EDP services to these banks. Transfer Agents During the year, System EDP ex- System examiners conduct separate aminers conducted 296 on-site rereviews of state member banks and views of state member banks and bank holding companies that act as independent data centers. In additransfer agents. Transfer agents tion, the Federal Reserve reviewed countersign and monitor the issuance 96 EDP examination reports of inof securities, register the transfer of dependent centers providing EDP securities, and exchange or convert services to state member banks that securities. During 1982, the Board were prepared by other federal agenexamined 137 such banks and bank cies under the Interagency EDP Exholding companies. amination Program. Trust Activities The Federal Reserve examines trust Improvements to departments of state member banks, Examinations and Inspections trust companies that are members of During the year, the Federal Reserve the Federal Reserve System, and took a number of steps to enhance certain nondepository trust-company its examination and inspection prosubsidiaries of bank holding compa- grams. nies. These examinations review the New Examination Report trust functions to ensure they are for Commercial Banks conducted in accordance with applicable fiduciary principles and with In recent years, it has become evident that a new format for reports laws and regulations. During the was required to respond to developyear, the Board examined 305 instiments in the banking industry. To tutions that exercise trust powers under its supervision. meet that need, in 1982 the Federal Reserve adopted a new report for Municipal Securities Dealers commercial bank examinations conand Clearing Agents ducted after January 1, 1983. Under the Securities Acts Amend- The report was designed to rements of 1975, the Board is respon- spond to changing banking practices, sible for supervising state member particularly with respect to funding banks and bank holding companies and asset-liability management, and that act as municipal securities deal- to place additional emphasis on the ers or as clearing agencies. In 1982, evaluation of management policies, the Board examined 34 of the 50 procedures, and internal systems and state member banks registered with controls. Each examination report the Board as dealing in municipal makes extensive use of data from securities for their trading accounts. reports of condition and income filed A clearing agency acts as a custo- by state member banks and from the dian of securities for the settlement uniform bank performance report, of securities transactions by book- as well as information obtained di- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

174 Banking Supervision and Regulation rectly from the bank under exami- bank's condition. Another, "Comnation. The report balances the pre- mitments and Contingencies," prosentation of these data with written vides information that will help exanalyses of important aspects of the aminers assess the potential impact bank's management, loan quality, that off-balance-sheet items—such as and financial condition. In addition loan commitments, foreign exchange to asset quality and liquidity, the contracts, interest rate futures conreport emphasizes the analysis of tracts, and letters of credit might interest rate sensitivity and off-bal- have on a bank's financial condition. ance-sheet items of banks, and incor- The FFIEC also developed and porates the revised definition and guide- implemented a quarterly schedule on lines relating to capital adequacy past-due, nonaccrual, and renegothat were implemented in 1982. tiated loans and leases, which bear Because the report makes extensive on the quality of a bank's loan use of readily available data, it will portfolio. In carrying out these result in more efficient examinations changes, the regulatory agencies atand will free examiners to devote tempted to balance the needs for more time to the review of problem better and more timely supervisory areas requiring supervisory attention. information and for minimizing the reporting burden. Supervisory Reporting Requirements Definition of Bank Capital and During the year, the Federal Reserve Capital Adequacy Guidelines participated with the other federal Nineteen eighty-two marked the first banking regulators under the aus- full year of applying the broadened pices of the Federal Financial Insti- definition of bank capital in detertutions Examination Council (FFIEC) mining its adequacy in state member in developing quarterly schedules to banks. The FFIEC recommended the be completed by commercial banks definition to promote uniformity in conjunction with the reports of among federal bank regulators and condition and income.2 These reports to provide guidance to commercial will be of particular importance to banks. Under the new definition, the supervisory and examination bank capital consists of primary capprocesses. One such schedule, ''Re- ital and secondary capital. Primary pricing Opportunities for Selected capital comprises common and per- Balance Sheet Categories," provides petual preferred stock, surplus and information that will assist examiners undivided profits, contingency and in analyzing the interest rate sensitiv- other capital reserves, mandatory ity of banks' earning assets and convertible instruments, and 100 perinterest-bearing liabilities, and the cent of the funds set aside as reserves effect of interest rate changes on a for possible loan losses. Secondary capital comprises limited-life preferred stock, and subordinated notes 2. The Federal Financial Institutions Examination Council is composed of the Comp- and debentures; however, there are troller of the Currency, the Federal Deposit restrictions upon the amount of these Insurance Corporation, the Federal Home less permanent funds that may be Loan Bank Board, the National Credit Union counted as part of a bank's capital Administration, and the Board of Governors structure. of the Federal Reserve System. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 175 This was also the first full year of The criteria adopted to evaluate implementing the new ratio guide- these securities include provisions lines issued by the Federal Reserve that ensure the issuance of equity and the Office of the Comptroller of capital within a certain period of the Currency (OCC) for assessing time and that limit the total amount the adequacy of capital in the exam- of such securities an organization ination and supervision of national may include in its primary capital. banks, state-chartered banks that are Coordination of Examinations members of the Federal Reserve of Large Banks and Their System, and bank holding compa- Parent Holding Companies nies. The guidelines address the long- In December 1981, the Federal Reterm decline in capital ratios, particserve and the OCC agreed to conduct ularly those of certain large multicertain examinations concurrently, national banks; introduce greater and in 1982 the Federal Deposit uniformity in the supervisory assess- Insurance Corporation (FDIC) enment of capital adequacy; provide tered the agreement. The Federal banks and holding companies with Reserve, the OCC, and the FDIC direction for capital and strategic plan to implement the new agreeplanning; and permit some reduction ment in 1983. Under the agreement, of the disparities in capital ratios bank holding companies with more between banking organizations of than $1 billion in consolidated assets different size. In general, the guideand their lead national or state nonlines apply to sound, well-managed member bank subsidiaries are to be organizations and will be applied so examined concurrently on an annual as to allow for differences in the basis by the Federal Reserve and the risks assumed by institutions. OCC when a lead national bank is involved, and by the Federal Reserve Criteria for Determining and the FDIC when the lead bank is Primary Capital Status of a state nonmember bank. The pur- Mandatory Convertible Securities pose of the program is to strengthen In 1982, the Federal Reserve and the coordination and consistency in the OCC jointly adopted criteria for supervision of large banking organidetermining whether debt securities zations. The program is also exthat require conversion to, or the pected to enhance cooperation among issuance of, equity can qualify as the federal banking agencies, to elimpart of the primary capital of a inate duplication, and to reduce the banking organization in an assess- burden of multiple examinations on ment of that organization's compli- commercial banks and their parent ance with the capital adequacy guide- companies. lines. Two types of these securities were issued during the year, equity New Manual on Bank Use of notes and equity commitment notes. Certain Financial Contracts Equity notes require the holder to In 1982, the Board's Division of buy the common stock or perpetual Banking Supervision and Regulation preferred stock of the issuer. Equity developed and implemented a new commitment notes require the issuer manual for examiners, ''Manual for to sell sufficient equity over the life Examination of Bank and Bank of the security to liquidate the debt. Holding Company Use of Interest Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

176 Banking Supervision and Regulation Rate Futures and Forward Con- Examination Guidelines for tracts." The manual contains proce- Retail Repurchase Agreements dures for verifying compliance with In light of the increased use by the Board's policy statements gov- banking organizations of retail repurerning bank and bank holding com- chase agreements (RPs) involving pany activities in futures and forward U.S. government or agency securicontracts. The policy and manual are ties, the Federal Reserve developed designed to ensure that the involve- guidelines concerning this activity to ment of banks and holding compa- be used in the examination of state nies in interest rate futures and member banks. In addition, the Fedforward transactions is in accordance eral Reserve sent a letter to each with safe and sound banking prac- state member bank addressing the tices and is undertaken for the pur- issues and risks associated with retail pose of limiting or hedging banking RPs, as well as setting forth certain risks. disclosure guidelines and requirements to ensure that retail RPs are Revised Examination not misconstrued or misrepresented Report and Manual, as insured bank deposits. and New Rating System, for Edge Corporations EDP Examinations During 1982, the Federal Reserve In 1982, the Federal Reserve, in revised its examination report for conjunction with the other agencies Edge corporations and the accomof the FFIEC, issued a statement to panying manual to reflect changes in all financial institutions emphasizing the structure of these organizations the importance of obtaining and resulting from branching. In addianalyzing financial data on their intion, a new system for rating the stitution's independent data processfinancial condition and management ing servicers. In addition, each agency performance of Edge corporations adopted a uniform examination proinvolved in banking activities was gram for multiregional data processimplemented. The rating system ing servicers (MDPS). Under the closely parallels the CAMEL system program, major data processing serused in rating commercial banks, but vicers with centers across the country places special emphasis on rating the are examined on a nationwide, conquality of assets, earnings, and management.3 These components are solidated basis. The program eliminates duplication of effort, fosters rated on a scale of 1 through 5, in cooperation and uniformity, and redescending order of performance, duces the burden of multiple examiand a composite rating is also calcunations on data processing servicers. lated. The new rating system will In addition, the Federal Reserve summarize important information and the FDIC adopted new guideabout the financial condition of Edge lines and procedures for the supercorporations and will help focus suvision of electronic fund transfer pervisory efforts on companies with systems (EFTS) of state-chartered financial deficiencies. banks. The banking industry's rapid expansion of retail and wholesale 3. CAMEL refers to the rating system used EFTS services necessitated the reviby the federal supervisory agencies to assess sion of previous guidelines. the financial condition of commercial banks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 177 Surveillance and Board may also assess civil money Monitoring Program penalties for violations of a ceaseand-desist order, of the Bank Hold- The Federal Reserve System pering Company Act, or of certain forms computer surveillance of memprovisions of the Federal Reserve ber banks on a quarterly basis and Act. of large bank holding companies on In 1982, the Reserve Banks reca semiannual basis. Current financial ommended or initiated 44 enforcereports of banks and bank holding ment actions, most dealing with uncompanies are screened periodically safe or unsound banking practices; at the Board and sent to the Reserve 30 were completed by year-end. In Banks, which do the financial analyconnection with the completed acsis and take any corrective action. tions, the Board issued 15 cease-and- If surveillance indicates that a desist orders and entered into 23 bank or bank holding company is in written agreements: 17 involved good financial condition and that banks; 13, bank holding companies there is no trend toward serious or their subsidiaries; and 8, individdeterioration in its key financial rauals participating in the affairs of the tios, then the time between on-site financial institutions. examinations of these organizations In 1982, the Board collected ten may be lengthened. On the other civil money penalties totaling $540,900 hand, if surveillance suggests a poor and assessed, but did not fully coland deteriorating financial condition, lect, an additional civil money penthe banking organization is likely to alty. Of the total, one was paid by a have its examination date accelerbank, two were paid by or assessed ated. During 1982, the Board revised against bank holding companies, and its bank holding company perforeight were paid by individuals. mance report (BHCPR) and devel- The Board made available to the oped a user's guide to conform to public a description of all formal the FFIEC's uniform bank perforsupervisory actions completed during mance report. Since its introduction, the year and the reasons for them. the BHCPR has been successfully This action was taken to achieve the used by the federal regulatory agenfullest public disclosure of informacies as well as some state banking tion consistent with valid concerns of regulatory agencies. confidentiality. Enforcement Actions and Civil Money Penalties Staff Training Under the Financial Institutions Su- System training continued to emphapervisory Act of 1966, the Board of size analytical and supervisory themes Governors has the authority to enter common to the four areas of superinto written agreements or cease- vision and regulation—examinations, and-desist actions with state member inspections, applications, and surbanks, bank holding companies, and veillance—and to stress areas of inpersons associated with such organi- terdependence. During 1982, the zations that engage in unsafe or Federal Reserve conducted fourteen unsound practices or that violate schools, seven of which offered core applicable laws or regulations. The banking courses—two introductory, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

178 Banking Supervision and Regulation three intermediate, and two ad- state banking activities of these forvanced. Other schools included two eign banks and for foreign banks dealing with credit analysis—a new that control a U.S. subsidiary comsubject—two with bank holding com- mercial bank. pany applications, two with consumer compliance, and one with a Bank Holding Company Act financial analysis program for senior By law, a company must obtain the examiners. The two credit analysis Board's approval to form a bank schools were held in Washington and holding company by securing control were followed by regional programs of one or more banks. Moreover, at four Reserve Banks for 115 stuonce formed, a bank holding comdents. Additional training programs pany must receive the Board's apin specialized areas, including trusts, proval before acquiring more banks international banking, electronic data or related nonbanking companies. processing, activities of municipal In reviewing an application filed securities dealers, management, and by a bank holding company, the instructor training, were conducted Board considers the convenience and by the FFIEC. needs of the community, the appli- In 1982, 516 employees completed cant's financial and managerial re- System training programs and 214 sources, the prospects of both the completed FFIEC courses. As in applicant and the firm to be acprevious years, staff from state bankquired, and the likely effects of the ing departments and several foreign proposal on competition. central banks also attended the Sys- In 1982, the Board—and, under tem schools. delegated authority, the Federal Reserve Banks, the Director of the Regulation of Board's Division of Banking Super- U.S. Banking Structure vision and Regulation, and the Board's Office of the Secretary— The Board of Governors administers acted on 2,401 bank holding comthe Bank Holding Company Act, the pany applications. The System ap- Bank Merger Act, and the Change proved 1,086 proposals to organize in Bank Control Act. In doing so, holding companies and denied 3; the Federal Reserve acts on a variety approved 418 bank acquisitions by of proposals that directly or indiexisting bank holding companies and rectly affect U.S. banking structure denied 4; and approved 839 requests at the local, regional, and national to acquire nonbank companies that levels. The Board also has primary are closely related to banking and responsibility for regulating the inrejected 3. Data on holding company ternational operations of domestic decisions are shown in the accompabanking organizations and of the nying table. U.S. operations of foreign banks that engage in banking in the United Bank Merger Act States, either directly through a branch or agency, or indirectly through a The Bank Merger Act requires that subsidiary commercial lending com- all proposed bank mergers receive pany. In addition, the Board has the prior approval of the appropriate established regulations for the inter- federal bank regulatory agency. If Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 179 Bank Holding Company Decisions by the Federal Reserve, Domestic Applications, 1982 Direct action Delegated authority Office of Proposal Board of Division Director1 the Federal Total Governors Secretary Reserve Banks Approved | Denied Approved Denied Approved Approved Permitted Formation of holding company 47 3 ... ... 8 1,031 . . . 1,089 Retention of bank. 1 ... 1 Acquisition Bank 26 4 ... ... 53 339 ... 422 Nonbank 60 3 ... ... 6 111 662 842 Merger of holding company 12 1 ... ... 2 17 ... 32 Other 5 1 7 2 ... ... ... 15 Total 150 12 7 2 69 1,499 662 2,401 1. This heading refers to decisions approved or denied by the Director of the Division of Banking Supervision and Regulation. the bank surviving the merger is a the antimonopoly provisions of the state member bank, the Federal Re- act. serve has primary jurisdiction. On behalf of the Board, the Re- Before approving a bank merger, serve Banks submitted 736 reports the Federal Reserve considers the on competitive factors to the Compcommunity's convenience and needs, troller of the Currency and the FDIC. the financial and managerial re- The Board and those agencies have sources and prospects of the existing adopted standard terminology for and proposed institution, and the assessing competitive factors in bank competitive effects of the proposal. merger cases to assure consistency in The Board must also consider the administering the Bank Merger Act. views of certain other agencies on the competitive factors involved in Change in Bank Control Act the transaction. During 1982, the Federal Reserve The Change in Bank Control Act of approved 52 merger applications: 3 1978 gave the federal banking agenwere approved by the Board, 2 by cies the authority to disapprove the Secretary of the Board under changes in the control of banks and delegated authority, and 47 by the bank holding companies. The Fed- Reserve Banks under delegated au- eral Reserve is the agency responsithority. As required by law, each ble for changes in the control of state merger is described in table 18 in the member banks and bank holding Statistical Tables section of this RE- companies. Factors to be considered PORT. in determining whether a transfer of When the Comptroller of the Cur- control should be denied include the rency or the Federal Deposit Insur- financial condition, competence, exance Corporation has jurisdiction perience, and integrity of the acquirover a merger, the Board is asked to ing person, and the effect on comcomment on the competitive factors petition. to assure comparable enforcement of In 1982, 152 changes in ownership Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

180 Banking Supervision and Regulation of the stock of state member banks and Q to permit the establishment and holding companies were re- of international banking facilities ported; all but four were processed (IBFs) in the United States. Subject by the Reserve Banks. There was to conditions specified by the Board, only one denial. IBFs may be established by U.S. depository institutions, by Edge and Agreement corporations, and by U.S. International Activities of branches and agencies of foreign U.S. Banking Organizations banks. The Board has three principal statu- An IBF is essentially a set of asset tory responsibilities in supervising and liability accounts that is segrethe international operations of U.S. gated from other accounts of the banking organizations: to issue licen- establishing office. In general, deses for foreign branches of member posits from and credit extended to banks and regulate the scope of their foreign residents or other IBFs can activities; to charter and regulate be booked at these facilities free Edge corporations and their invest- from domestic reserve requirements ments; and to authorize and regulate and interest rate limitations. By the overseas investments by member end of 1982, 430 offices had estabbanks, Edge corporations, and bank lished IBFs. holding companies. Edge and Agreement Corporations Foreign Branches of Member Banks Under sections 25 and 25(a) of the Under provisions of the Federal Re- Federal Reserve Act, Edge and serve Act and Regulation K, member Agreement corporations may engage banks may establish branches in forin international banking and foreign eign countries subject, in most cases, financial transactions. These corpoto the Board's prior approval. In rations, which are usually subsidireviewing proposed foreign branches, aries of member banks, provide their the Board considers the requireowner organizations with additional ments of the governing statute, the powers in two areas: (1) they may condition of the bank, and the bank's conduct a deposit and loan business experience in international business. in states other than that of the In 1982, the Board approved the parent, provided that the business is opening of 43 foreign branches. strictly related to international trans- By the end of 1982, 163 member actions; and (2) they have somewhat banks were operating 877 branches broader foreign investment powers in foreign countries and overseas than member banks, being able to areas of the United States, a net invest in foreign financial organizaincrease of 36 from the revised figure tions, such as finance companies and for 1981. One hundred twenty-nine leasing companies, as well as in national banks were operating 744 of foreign banks. In 1982, the Board these branches, while 34 state memapproved the establishment of 9 Edge ber banks were operating the remaincorporations and 1 Agreement coring 133 branches. poration, and the operations of 25 International Banking Facilities branches by established Edge cor- Effective December 3, 1981, the porations. The Board requires each Board amended its Regulations D Edge corporation that is engaged in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 181 banking to maintain a ratio of equity and to the Board's Division of Bankto risk assets of at least 7 percent. ing Supervision and Regulation and At midyear, half of the banking Office of the Secretary. corporations had ratios that were In September 1979, the Board more than twice this minimum. issued revised rules that delegated additional authority to the Reserve Foreign Investments Banks to approve applications for Under authority of the Federal Rebank holding companies and bank serve Act and the Bank Holding mergers. During 1980, the first full Company Act, in 1982 the Board year under expanded delegation, 89 authorized 118 foreign investments percent of all holding company and by member banks, Edge and Agreemerger applications were acted on ment corporations, and bank holding under delegated authority while the companies. Most were for additional proportion during 1982 increased to investments in financially related 93 percent. In contrast, only 78 companies. percent were processed by the Re- Export Trading Companies serve Banks in 1978, the last full In 1982, the Bank Export Services year before expanded delegation. In Act amended section 4 of the Bank 1982, the Board delegated to the Holding Company Act to permit Reserve Banks authority to approve bank holding companies, their sub- domestic branches of Edge corporasidiary Edge or Agreement corpora- tions and foreign "shell" branches of tions, and bankers' banks to invest member banks. In addition, the Board in export trading companies subject reduced from 60 to 45 days the to certain limitations and after Board notification period for foreign investreview. The purpose of the act is to ments by U.S. banking organizaallow for meaningful and effective tions. The benefits that were exparticipation by bank holding com- pected from broadened delegation panies in the financing and develop- continue to be achieved: routine ment of export trading companies. cases have been removed from the The Board has proposed regulations Board's agenda to allow more effito achieve the objectives set forth in cient use of staff of both the Board the law: to facilitate the export of and the Reserve Banks. goods and services produced in the United States and to help avoid adverse effects on the subsidiary Timely Processing banks of the bank holding companies of Applications involved. Although the number of applications by holding companies increased 27 percent from 1981 to 1982, the Sys- Delegation of Applications tem still acted on 97 percent of these In exercising its responsibility to proposals within 90 days of the filing formulate policies and procedures in of a complete application. the applications area, the Board has In 1982, 48 of the 52 applications delegated certain regulatory func- for bank mergers were processed tions—including the authority to ap- within 90 days; the 4 that took longer prove, but not deny, certain types of involved protest proceedings. The applications—to the Reserve Banks System also prepared 736 reports on Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

182 Banking Supervision and Regulation the competitive factors of proposed an order or announcement. Orders mergers for the other two banking set forth the essential facts of the agencies; all but a few were com- application, the basis for the decipleted within 30 days. Of the 152 sion, and the decision. Announcechange-of-control notices, 148 were ments state merely the action taken handled within 90 days. by the Federal Reserve. All orders The System also measures its per- and announcements are released imformance in processing international mediately to the public and are applications against a 90-day stan- reported in the Board's weekly H.2 dard. During 1982, the Federal Re- statistical release, "Actions of the serve acted on 244 international ap- Board; applications and reports" and plications, 95 percent of which were the monthly Federal Reserve Bulletin. decided in 90 days or less. Announcements of applications and During 1982, several changes in notices received by the System but procedures were instituted to expe- not yet acted on are also made in dite still further the processing of the H.2 release. applications so as to reduce the burden on applicants and to make Board Policy Decisions more efficient use of Board and and Developments Reserve Bank staff. These changes in Bank-Related Activities included the revision of application forms and the further streamlining During 1982, the Board expanded of certain internal procedures. the list of permissible bank holding company activities contained in Reg- Pamphlet on ulation Y to include additional data Processing Applications processing and transmission services to third parties, and management The Board issued a pamphlet, "Proconsulting advice to nonaffiliated cessing Bank Holding Company and nonbank depository institutions. The Merger Applications," to facilitate Board also approved by order two the filing of an application by those other activities: acting as a futures without experience in this area. The commission merchant for nonaffilpamphlet, designed as a compact iated persons in the execution and reference, not only assists an appliclearance of certain financial futures cant in preparing and filing an applicontracts, and arranging equity fication, but also explains the steps in nancing for commercial and indusprocessing and outlines the factors trial income-producing properties. the System must consider when re- Certain restrictions on the way these viewing an application. activities are to be offered are outlined either in Regulation Y or in Public Notice the related Board order. The condiof Board Decisions tions are intended to ensure that Each action by the Board or its these activities by bank holding comdelegated representative on a case panies are conducted in a manner involving a bank holding company, consistent with the public interest. bank merger, change in control, or In recognition of its supervisory international banking is effected by responsibilities, the Board also ap- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 183 proved the acquisitions of savings statutory responsibilities for the suand loans associations by two bank pervision of bank safety and soundholding companies. The Board had ness and the regulation of banking previously stated that it preferred to structure. This section describes the defer to the Congress the question enforcement of other laws, rules, of whether a bank holding company and regulations. should be permitted to operate a savings and loan association. In ap- Financial Disclosure proving the two acquisitions, the by State Member Banks Board took note of the distressed The Board's Regulation F deals with financial condition of the two acthe disclosure requirements for state quired associations, the lack of any member banks that have securities viable alternative, and the condition registered under the Securities Exof the thrift industry in general. In change Act of 1934. Seventy-three each instance, the Board determined state member banks, most of which that substantial public benefits would are of small or medium size, were result from preserving these instituregistered with the Board under this tions as competitors in the thrift regulation. These institutions must industry. file certain materials, such as finan- Subsequent to approval of the cial reports and proxy statements, acquisition of the two institutions, that are of interest to investors. The the Congress passed the Garn-St Board's staff reviews these filings for Germain Depository Institutions Act compliance with the regulation. of 1982. Among the important pro- The disclosure rules under Reguvisions of this act, the Congress lation F are substantially similar to established specific criteria for perthose issued by the Securities and mitting a bank holding company to Exchange Commission. acquire a federally insured thrift institution when severe financial conditions threaten the stability of a Loans to Executive Officers number of such institutions or of Under section 22(g) of the Federal such institutions with significant re- Reserve Act, state member banks sources. must include with their quarterly report of condition a list of loans to Enforcement of Other executive officers. The table sum- Laws and Regulations marizes these data for the last quarter The preceding sections discussed the of 1981 and the first three quarters Board's activities in carrying out its of 1982. Total loans to executive officers Range of Period interest rates Number Amount (dollars) charged (percent) October 1—December 31, 1981 1,074 6,866,599 6-26 January 1—March 31, 1982 778 5,459,960 6-27 April 1—June 30, 1982 971 7,016,053 7-21 July 1—September 30, 1982 989 5,365,086 6-21 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

184 Banking Supervision and Regulation Applications by Securities Regulation State Member Banks Under the Securities Exchange Act The Board's authority over state of 1934 (1934 Act), the Board is member banks covers permission to responsible for regulating credit used open new branches, to make investto purchase or carry securities. In ments in bank premises that exceed fulfilling its responsibility under the 100 percent of capital stock, to add 1934 Act, the Board limits the amount to the capital base from sales of of credit that may be provided by subordinated debt, and the waiver of securities brokers and dealers (Regthe six months' notice of intention to ulation T), by banks (Regulation U), withdraw from membership in the and by other lenders (Regulation G). System. The Federal Reserve em- Regulation X extends these credit ploys the application or notification limitations, or margin requirements, process to administer these statutory to certain borrowers and certain provisions. credit extensions, such as credit ob- With few exceptions, these matters tained from foreign lenders by U.S. are handled under delegated authorcitizens. ity by the Federal Reserve Banks or, The SEC, the National Associain the case of proposed sales of tion of Securities Dealers, and the subordinated debt, by the Director national securities exchanges examof the Board's Division of Banking ine brokers and dealers for compli- Supervision and Regulation. ance with Regulation T. The three bank supervisory agencies examine Stock Repurchases by banks for compliance with Regula- Bank Holding Companies tion U, with the Board being respon- A bank holding company sometimes sible for state member banks that purchases its own shares from exist- extend stock-secured credit for the ing shareholders. Often such stock purpose of buying margin stock. repurchases are financed through The Board, the National Credit borrowings, so that the net effect of Union Administration, and the Farm the transaction is to increase the debt Credit Administration examine other of the bank holding company at the lenders under their respective jurisvery time that its equity is decreased. dictions for compliance with Regu- Because relatively large repurchases lation G. At the end of 1982, there may adversely affect the financial were 536 such lenders, 296 of which condition of a bank holding company were subject to the Board's superviand its bank subsidiary, the Board, sion. During the year, Federal Reby regulation, requires holding com- serve examiners inspected 99 lenders panies to provide advance notice of that were subject to Regulation G repurchases that retire 10 percent or (these lenders are inspected on a more of their consolidated equity biennial basis) for compliance with capital. the Federal Reserve's margin re- The Federal Reserve reviewed 150 quirements. such notifications during 1982, all Regulations G and U, in general, but 2 of which were acted on by the impose credit limitations on banks Reserve Banks on the Board's be- and other lenders only when a loan half. is for the purpose of purchasing or Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 185 carrying publicly held equity securi- Regulation U bank credit that was ties and is secured by such securities. not secured by margin equity securi- Regulation T limits the amount of ties and simplified the definition of credit that brokers and dealers may indirect security. The latter change extend based on the value of securi- was also made in Regulation G. At ties serving as collateral. This collat- the same time, the Board relaxed eral must consist of stocks and bonds restrictions on the arranging of credit traded on national securities ex- by brokers and dealers to permit changes or certain over-the-counter them to engage in investment bankstocks and bonds that the Board ing services that had been previously designates as having characteristics prohibited. similar to those of stocks listed on In another area, on February 25, national exchanges. The latter cate- the Board proposed a regulatory gory of stocks appear on the Board's framework for establishing margin "List of OTC Margin Stocks." requirements on contracts for stock- The Board published revised lists index futures. As of December 31, of OTC stocks subject to its margin 1982, the Board had not imposed regulations on March 1, July 26, and formal margin requirements on these October 18, 1982. In March, the list contracts. consisted of 1,576 stocks. The Board's On March 25, as part of its Regu- Division of Banking Supervision and latory Improvement Project, the Regulation monitors the market ac- Board proposed for public comment tivity of all OTC stocks to determine a total revision of Regulation T. The what stocks to place on this list. new proposal would incorporate Stocks must meet certain criteria, amendments already adopted on Janestablished by the Board, before they uary 18 (mentioned above). can be eligible for the OTC margin On April 19, the Board filed a stock list. On May 12, 1982, the brief as amicus curiae in support of Board changed those criteria (1) to the U.S. Securities and Exchange allow foreign issuers to be eligible Commission in Board of Trade of the for listing, (2) to replace certain City of Chicago vs. SEC, 611 F.2d alternative criteria with mandatory 1137 (7th Cir. 1982); vacated as requirements, and (3) to relax finan- moot, 51 U.S.L.W. 3418 (U.S. Sup. cial requirements to make them com- Ct., November 29, 1982); a case in parable to those of major stock which the U.S. Court of Appeals for exchanges. the Seventh Circuit ruled that op- In 1982, there were other signifi- tions on securities of the Governcant amendments to the margin reg- ment National Mortgage Association ulations and further proposals to (GNMA) were not securities upon amend them. On January 18, the which margin requirements apply. If Board adopted several amendments the court's decision were left standto relax certain restrictions in Regu- ing, the Board's regulation governing lations G, T, and U. Lenders subject options on GNMA and other governto Regulation G now have broader ment securities, adopted on October lending powers and greater flexibility 5, 1981, would be invalidated. The as to the types of collateral for loans Board also believed that the sweepthey may accept. The January ing nature of the Seventh Circuit's amendments also exempted from decision could challenge its authority Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

186 Banking Supervision and Regulation to set margins on a wide variety of Exchange Commission and appear to other options, which have consis- be meeting material obligations under tently been treated as securities over the terms of the offering. which the Board has margin author- Under section 8 of the 1934 Act, a ity. broker or dealer may not borrow from This decision was effectively re- a bank on the collateral of registered versed by the enactment of legisla- securities unless the bank is either a tion (in October 1982) that specifi- member of the Federal Reserve Syscally makes GNMA options securities tem or one that files an agreement for purposes of the federal securities with the Board undertaking to comlaws. On November 29, the Supreme ply with all statutes, rules, and reg- Court vacated the judgment of the ulations applicable to member banks Seventh Circuit on the basis that the with respect to their securities credit litigation was mooted by the new activities. Domestic and foreign nonamendments to the federal securities member banks must file these agreelaws. ments, designated T-l and T-2 re- On May 12, the Board amended spectively, before they engage in the Regulation T to permit brokers and business of lending to brokers and dealers who are authorized to borrow dealers on the collateral of registered and lend securities for certain pur- securities. During the year, the Board poses to accept letters of credit, U.S. processed four T-l and T-2 agreegovernment securities, bank certifi- ments. cates of deposit, and bankers accept- During 1982, the Board's Securities ances as collateral. Before the Regulation Section of the Division of amendment, brokers and dealers were Banking Supervision and Regulation permitted to borrow and lend secu- issued 36 interpretations of the marrities only against a deposit of cash. gin regulations that presented suffi- The Board's amendment also permits ciently important or novel issues to foreign banks to issue letters of credit be published in the Securities Credit in stock lending and borrowing trans- Transactions Handbook, which is part actions if they have filed with the of the Federal Reserve Regulatory Board agreements to comply with Service. These interpretations, which the same rules and regulations appli- were published monthly, serve as a cable to member banks in securities guide to compliance with the margin credit transactions. regulations. On December 9, the Board amended Regulation T to permit brokers and Federal Reserve Membership dealers to extend credit on private At the end of 1982, 5,619 banks mortgage pass-through securities. The were members of the Federal Reamendment added a provision to the serve System, a net increase of 145 definition of an over-the-counter from the previous year. Member margin bond, on which brokers and banks operated 26,953 branches on dealers may extend good-faith credit. December 31, 1982, a net increase In order for brokers and dealers to of 1,192 for the year.4 extend credit on private mortgage passthrough securities, the securities must have an original issue size of at least $25 million. The issuer must file cur- 4. This figure includes 1,818 automatic teller rent reports with the Securities and machine branches. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 187 Member banks accounted for 38 ber of banks and banking offices by percent of all commercial banks in charter class are provided in table 17 the United States, and for 64 percent in the Statistical Tables section of of commercial banking offices. Com- this REPORT. plete figures on changes in the num- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

188 Regulatory Simplification Action taken by the Board of Gov- $2 million. In 1982, the Congress ernors in 1982 to comply with the enacted legislation that would per- Financial Regulation Simplification manently exempt the first $2 million Act of 1980 is reported here, as of a depository institution's reservarequired by section 805 of that act. ble liabilities from reserve require- Also discussed are the Board's efforts ments, thereby exempting almost under the Regulatory Flexibility Act 25,000 institutions. and the Board's Statement of Pol- Whenever it could do so consistent icy Regarding Expanded Rulemaking with the needs of monetary policy, Procedures. These acts and the the Board attempted to ease the Board's policy statement are in- regulatory burden. Thus, before subtended to improve the regulatory stituting a contemporaneous reserve process. accounting system for lagged reserve The Financial Regulation Simpli- accounting, the Board sought estification Act (Title VIII of the De- mates of the cost and complications pository Institutions Deregulation and institutions would incur in altering Monetary Control Act of 1980) re- their systems for collecting and requires that each federal financial porting information on deposits and regulatory agency assure that its in managing a contemporaneous sysregulations impose no more burdens tem. Moreover, the Board delayed than are necessary, that they are the change until February 1984, to adopted only after interested persons permit institutions to make the necare heard, and that they are written essary adjustments in their adminissimply and clearly. The act also trative and data processing procerequires each agency to establish a dures. program of periodic review of its regulations to determine whether the Collection of Checks regulations meet these objectives. and Other Items and The following are examples of Wire Transfers of Funds steps the Board has recently taken (Regulation J) to meet statutory objectives and to carry out its policy statement. The Board proposed to amend Regulation J to reduce float by changing Monetary Policy and the schedule for payment of cash Payments System items on midweek closing days and nonstandard holidays. It also adopt- Reserve Requirements of ed an amendment to extend the times Depository Institutions during which checks may be depos- (Regulation D) ited for collection, in order to Since passage of the Monetary Con- improve the speed and efficiency of trol Act, the Board has deferred the nation's payments mechanism. reserve and reporting requirements Institutions of all sizes will benefit for nonmember depository institu- substantially from the better funds tions with total deposits of less than availability that the program affords. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Regulatory Simplification 189 Interest on Deposits Management Official Interlocks (Regulation Q) (Regulation L) To implement the Garn-St Germain The Board reviewed its experience Depository Institutions Act of 1982, under the new Regulation L and the Board amended Regulation Q in decided to take additional steps to several ways. Banks were permitted lighten the regulatory burdens. to offer money market deposit ac- Among other things, the proposed counts, with a limit of three checks amendments would aid depository per month, and Super NOW accounts, institutions, including small ones, with unlimited transfers, both with- that face a disruptive loss of manageout interest rate ceilings provided that ment because of the Depository Inbalances exceed $2,500. In addition, stitutions Management Interlocks Act. all governmental units may maintain They also would relieve institutions NOW accounts. of the need to apply for the statutory Another amendment permitted maximum grace period of 15 months member banks to issue all time in which to terminate any interlock deposits in book-entry form as an that becomes prohibited because of alternative to issuing certificates of changes in circumstances; the grace deposit in definitive form, a change period is automatically granted to all that should yield cost savings to affected institutions. The Board also depositors and institutions. implemented a statutory change preserving grandfather rights of current Banking Structure and management officials for 10 years Supervision despite a change in circumstances. International Banking Operations Bank Holding Companies and (Regulation K) Change in Bank Control (Regulation Y) Recently, the Board amended Regulation K to permit Edge corpora- The Board has added to the list of tions in the United States to offer permissible nonbanking activities in certain investment advisory and man- which bank holding companies may agement services, and thereby to engage. The new activities are proremove a barrier to entry into new viding expanded data processing; actbusiness fields. This change contin- ing as a futures commission merues the policy established with the chant; offering securities discount International Banking Act of 1978 of brokerage (approved in early 1983); enhancing the organizational and op- arranging equity financing with instierational flexibility with which U.S. tutional lenders for income-producbanks can conduct international ac- ing property; consulting on managetivities; that policy has emphasized ment to thrift institutions; acquiring upgrading the competitive capabili- a troubled or failing savings and loan ties of Edge corporations at home institution in another state; and ofand abroad. fering information, advice, and trans- The Board also changed the proce- actions in connections with foreign dures for establishing a U.S. branch exchange (approved in early 1983). of an Edge corporation and short- Staff work is continuing on a ened certain investment notification complete revision of Regulation Y periods from 60 to 45 days. under the Board's Regulatory Im- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

190 Regulatory Simplification provement Project. This work has EFT services. One amendment elimfocused on eliminating applications inates duplicate periodic statements whenever possible and improving for certain intrainstitutional trans- System processing of applications fers; a second exempts small instituthat are still required. The redrafted tions from provisions regulating preregulation will incorporate essential authorized electronic transfers; and statutory material and a number of the others lift certain burdens from Board rulings to make it self-con- institutions that are members of debtained and more useful. it-credit card networks. The Board proposed guidelines, in the form of a policy statement, to be Truth in Lending (Regulation Z) used to assess competitive factors under the Bank Holding Company The Board updated the Official Staff Act and the Bank Merger Act. Such Commentary of Regulation Z, which guidelines should aid applicants by has replaced 1,500 individual staff fostering greater certainty and gen- interpretations. The commentary is erally expediting the application revised on a regular schedule to process. answer significant questions that The Board published criteria for have arisen during the preceding determining the primary capital sta- six months. tus of mandatory convertible securi- As indicated in the ANNUAL REties, to be used in connection with PORT for 1981, the Board declined capital adequacy guidelines issued in February 1982 to adopt a proposed jointly by the Board and the Comp- amendment that would have redetroller of the Currency in 1981. fined "arranger of credit" so as to require real estate brokers to provide truth in lending disclosures to buyers Consumer and Community of residential property when sellers Affairs Regulations are providing some or all of the Equal Credit Opportunity financing. The Board asked the Con- (Regulation B) gress to clarify the matter, and the Congress amended the Truth in In response to industry requests for Lending Act to exclude all arrangers clarification, the Board adopted interof credit from disclosure requirepretations concerning the use of inments. Thus the Board did not need come from various sources in creditto define ''arranging," and real estate scoring systems and the disclosure of brokers and sales persons involved creditors' reasons for adverse deciwith seller-financed transactions are sions. Also, the Board withdrew spared the expense of complying with proposed amendments that would the regulation. have subjected some business-credit The Board also considered altertransactions to all requirements renative disclosure requirements to lated to adverse actions and retention deal with seller's points. The points of records. paid by a seller to a creditor became an issue because of the widespread Electronic Fund Transfers use and advertising of reduced-rate (Regulation E) plans for financing purchases of homes The Board adopted four amend- and automobiles. The Board subsements to grant relief to providers of quently declined to amend the regu- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Regulatory Simplification 191 lation because of doubts about the Credit by Brokers and Dealers benefits to consumers and because (Regulation T) of practical difficulties—notably, en- As separate matters, the Board suring compliance in advertising and adopted two proposals that affect determining the influence of points regulation of brokers and dealers. on negotiated prices. One permits brokers and dealers to use irrevocable letters of credit and Securities Credit and other instruments as collateral when, Securities Activities in the ordinary course of business, Securities Credit Regulations they borrow or lend securities. This (Regulations G, T, U, and X) type of transaction arises from the need to complete short sales or to As indicated in last year's ANNUAL settle customer transactions when the REPORT, in January 1982 the Board broker has not yet received delivery adopted amendments to simplify and of expected securities. Both brokers modernize Regulations G, T, and U. and customers view the use of letters These actions should foster compeof credit favorably, and such use can tition between banks and brokerbe expected to reduce the net cost dealers, reduce the compliance burof credit used by brokers and dealers den for brokers and dealers, and in clearing transactions. expand flexibility in making invest- The other proposal that the Board ment decisions. Proposals are under adopted as an amendment to Regudevelopment to reorganize the aclation T permits private mortgage count structure required at brokerpass-through certificates to be used age firms, among other things, and as collateral for margin credit. By the regulations are being redrafted treating these certificates as analoto embody terminology the industry gous to OTC bonds, the amendment now uses. These changes simplify should promote regulatory equality and clarify various complex provibetween broker-dealers and comsions and together with changes almercial banks. This amendment is ready made should save more than not expected to have a significant one million reporting hours. Public adverse economic impact on a subcomment has been received on the stantial number of small entities. completely rewritten Regulation T that incorporates these proposed changes, and the redrafting of Reg- Stock Index Futures ulations G, U, and X is proceeding. The Board amended these regula- The Board published advance notice tions to revise the criteria that over- of a proposal to establish a regulatory the-counter stocks must meet initially framework for imposing margin reand the criteria that they must con- quirements for futures contracts based tinue to meet to remain on the on stock indexes under Regulations Board's "List of OTC Margin Stocks." G, T, and U. The notice solicited The amendments involved a mixture information helpful in designing a of relaxing and tightening changes, regulatory framework that presents but none of the comments received the fewest operational problems, indicated that the changes would should federal regulation become have a significant economic impact necessary. The comments will be on firms, whatever their size. taken into consideration in the cur- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

192 Regulatory Simplification rent joint agency study of federal mission and the Commodities Fumargin regulations. tures Trading Commission. Federal authority in this area needs reexam- Membership of State Banking ination because the structure of fi- Institutions in the nancial markets has changed since Federal Reserve System margins were first regulated in 1934. (Regulation H) The Board has noted that most contracts for financial futures and The Board, in conjunction with the options, which have been introduced other banking agencies and the Seand grown rapidly in recent years, curities and Exchange Commission, are bought and sold under a regularevised form TA-1 for transfer agents tory framework different from that for securities transactions to reduce in the cash markets, although the substantially the information renew instruments are partial substiquired. tutes for one with another and prices are related across markets. The Board has solicited public comment on spe- Regulatory Impact Studies cific areas in the study. The Board is engaged in a number of projects to assess the costs and Regulatory Service and burdens of regulations. Other Informational Services 1. Working through the Survey Research Center of the University of The Board continues to update the Michigan, the Board conducted ad- Federal Reserve Regulatory Service. ditional surveys of consumers' expe- A significant step in 1982 was the rience with depository institutions collection and publication of major and prepared the questionnaire for a Board and staff rulings under Regusurvey of the financial affairs of 5,000 lation Y (Bank Holding Companies consumers. Analysis of the results is and Change in Bank Control). Preexpected to help guide Federal Re- viously, these rulings were not readiserve regulatory actions. ly available. 2. The Board sponsored a collo- The Board also continues to pubquium on the deregulation of product lish new educational materials. For lines in banking that brought to- example, a pamphlet, "Processing gether representatives from financial Bank Holding Company and Merger institutions and the banking agen- Applications," tells a holding comcies. The proceedings of the collo- pany how to prepare and file an quium are available from the Board. application with the System and ex- 3. The Board has undertaken a plains the processing steps and timing joint agency study regarding the once the application is filed. The scope and effectiveness of federal pamphlet also outlines the factors regulation of margin requirements. that the Board considers in acting on The other participating agencies are holding company and merger applithe Securities and Exchange Com- cations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

193 Federal Reserve Banks Developments in the over, depository institutions sought Payments Mechanism ways that were more cost-effective and in the Pricing of to clear checks through the Federal Federal Reserve Services Reserve—for example, by taking advantage of the generally lower prices The pricing environment mandated for collection of checks that are by the Monetary Control Act of 1980 completely sorted as to payor bank. continued to have a significant im- Because these shifts in volume were pact on the activities of the Federal greater than anticipated, revenues Reserve Banks in 1982. One of the were not so large as expected. basic goals of the act was a less After six months of experience costly, more effective payments with charging for check collection mechanism. To achieve that goal the services, several adjustments in prices act required the Board to establish were made. Effective April 1, 1982, fee schedules for services provided the fee for completely sorted checks by Reserve Banks to depository inwas separated into two components: stitutions. In the process, incentives a fee for each item and a fee for the have changed, and resources are deposit as a whole. In addition, being used more efficiently by both prices were raised for nonmachinable the Reserve Banks and private deitems and for deposits of unsorted pository institutions. checks. During 1982, the Federal Reserve The Federal Reserve also sought concentrated on (1) adjusting the in 1982 to accelerate the collection structure and level of fees to reflect of checks. In August the Board more accurately the cost of resources published for comment a proposed devoted to providing services, and program designed to improve funds (2) providing incentives for more availability to institutions that deefficient use of resources in payments posit checks for collection through services. the System. After careful consideration of the issues raised in the comments it received, the Board in Commercial Check Collection December adopted a program that The total volume of commercial was revised, among other reasons, checks cleared by the Federal Re- to take into account the concerns of serve Banks declined approximately depository institutions of all sizes. 12 percent from 1981 to 1982. The Under this program, which was reduction was attributable largely to scheduled to become effective in the re-emergence and expansion of February 1983, institutions may delocal clearing arrangements following posit checks for collection later in the advent of pricing, and to chang- the day at Federal Reserve offices, ing deposit patterns. Further, the and the Reserve Banks will phase in business recession may have damp- a schedule for presentment of checks ened check volume growth. More- to payor institutions later in the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

194 Federal Reserve Banks business day. The later deadlines tration transfers. The Banks also should facilitate faster collection of will cooperate with the private sector checks, especially those that are de- to facilitate electronic payments posited at institutions some distance among corporations through ACHs. away from the institution on which These enhancements to the ACH they are drawn. service will promote efficiency in the payments mechanism by encouraging more rapid and less costly methods Wire Transfer of Funds and of payment. Net Settlement When it adopted the initial fee The volume of wire transfers of funds schedule, effective August 1981, the grew 15 percent in 1982; it averaged Board recognized that the full potenmore than 2.9 million transfers per tial for an ACH service had not been month. The installation of terminals realized. To encourage the use of at depository institutions to originate the ACH service, the Board set a and receive wire transfers through fee schedule that assumed a mature the Federal Reserve continued dur- volume of transactions, which was ing the year. This spread of terminals expected to be achieved in about five is expected to improve further the years. efficiency of the system. In April 1982, the Board an- The initial schedules of fees for nounced a plan for ending its incenwire transfers and net settlement tive pricing policy for the ACH became effective early in 1981. After service. Support for ACH prices will considerable review of alternative fee be reduced gradually over several structures and of the costs of provid- years so that the fees established in ing the service, the Board revised 1985 should fully recover the producthose fee schedules, effective April tion costs of the service plus the 29, 1982. The principal change im- private sector adjustment factor posed fees on the receivers, as well (PSAF). This adjustment is the imas on the originators, of all wire puted cost that accounts for the taxes transfers. Previously, receivers paid that would have been paid and the fees only for transfers on which they return on capital that would have requested notice. been provided had the services been furnished by a private-sector firm. A revised schedule announced in No- Automated Clearinghouse vember 1982 set fees designed to Service recover 40 percent of costs plus the The volume of transactions through PSAF, in accordance with the supautomated clearinghouses (ACHs) port program announced earlier in expanded approximately 16 percent the year. In addition, the structure during 1982, mostly because of the of fees was altered to set (1) separate increase in commercial transactions. fees for day-cycle and night-cycle In their efforts to enhance the com- processing in recognition of cost mercial ACH service, the Reserve differentials, and (2) higher day-cycle Banks plan to expand the night-cycle fees for credits than for debits in service during 1983 to accommodate recognition of the benefits that acapplications other than cash-concen- crue to receivers of credits. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Banks 195 Coin and Currency Services analyzing the response to explicit pricing, to considering potential ser- The initial fee schedule for the cash vice enhancements, and to reviewing transportation service became effeccosts. tive on January 28, 1982. To ease The Board published a proposed the burden of adjustment to full-cost fee schedule for book-entry services pricing of cash transportation for for comment late in 1982, before institutions in remote areas, the Board acting on a revised fee schedule established maximum fees to be expected to become effective in the charged to individual institutions. It second quarter of 1983. The proalso determined to review this priceposed fees were higher than those support program at year-end, and if contained in the initial schedule. Part it were to extend the program at that of the proposal was the establishment time, to do so for no longer than one of a fee per issue. year. In that review, on December During 1982, improvements were 27, the Board increased the maximade in the schedule of credit availmum fees for the cash transportation ability for past-due items in the nonservice and affirmed its commitment cash collection service. Several acto terminate the program of support tions were also taken to expedite the at the end of 1983, in view of the collection process for definitive secushifts in transportation arrangements rities, and to contain the costs of and new efforts in the private sector providing the service. Despite these toward more efficient distribution of improvements, which appeared to coin and currency. The Board also make the services more attractive, endorsed a uniform accounting apthroughout 1982 the System continproach for cash shipments, effective ued to experience declines in volume July 1, 1983, and revised guidelines for most of the definitive securities for the structure of cash transportaservices offered by the Reserve Banks. tion fees, effective January 27, 1983. After adjustment for the drop in The initial fee schedule for the volume, however, the float associcoin wrapping service also became ated with definitive securities sereffective on January 28, 1982. At vices declined markedly as a result that time, only two Reserve Banks of the service improvements. offered the service. During the year, however, three more Banks began offering it, and others were expected Float to participate in 1983. Continuing the trend that began in 1980, Federal Reserve float declined to a daily average of $2.3 billion in Securities Services 1982, primarily because of further The initial fee schedule for all secu- operational improvements at the Rerities services offered by Federal serve Banks. Those improvements Reserve Banks to depository institu- were part of a program announced tions became effective October 1, by the Board in 1980, whose purpose 1981. Since that time, in anticipation was to reduce Federal Reserve float, of repricing the services, the System through operational improvements, has devoted considerable effort to before its pricing. Since the inception Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

196 Federal Reserve Banks of the program, nearly two-thirds of over the long run, are based on (1) System float has been eliminated. all the direct and indirect costs of In November 1982, the Board providing services, and (2) an impublished for comment three propos- puted cost (represented by the PSAF) als related to the remaining float: (1) that accounts for the taxes that would changes in crediting procedures that have been paid and the return on Reserve Banks use for interterritory capital that would have been procheck shipments; (2) a charge to the vided had the services been furnished Reserve Bank account of the depos- by a private-sector firm. iting institution for a returned inter- For 1982, the total revenue from territory check in the amount of pricing of services was $421.6 million $50,000 or more on the day the and the total expense of providing Federal Reserve gives credit to the them was $456.8 million. Thus exreturning payor institution; and (3) penses exceeded revenue by $35.2 the explicit pricing of intraterritory million. Including the PSAF, the float. The Board will review com- expenses exceeded revenue by $90.9 ments on these proposals and expects million. Two adjustments can be to take final action during the first made to the 1982 results: (1) for the quarter of 1983. incentive pricing program for the Work is under way on proposals ACH service, which anticipated refor the most cost-effective ap- covery of only 20 percent of producproaches to eliminating or pricing tion costs plus the PSAF through the remaining Federal Reserve float. pricing; and (2) for the price support The Board expects to review such program in the cash transportation proposals in 1983. service. After the effect of these programs, pro forma net revenue Administrative Matters after the private sector adjustment was -$78.8 million. Table 10 in the On November 22, 1982, the Board Statistical Tables section of this REannounced changes in the Federal PORT shows the revenue and expense Reserve's procedures for administerby major categories of priced sering clearing balances. The changes, vices. which were to take effect in early The revenues for Federal Reserve 1983, permit any depository instituservices tend to be sensitive to the tion to establish a clearing balance. volume of use because most of the Other changes adopted by the Board services are priced per item or per simplify requirements for clearing transaction. In contrast, the costs of balances for smaller institutions. providing services do not respond On December 17, 1982, the Board readily to changes in volume. Early adopted a private sector adjustment in 1982, projected revenue for the factor of 16 percent for 1983 pricing year fell short of projected costs plus purposes. Although based on more the PSAF by a considerable margin, recent data, the new PSAF is the because the actual volume fell short same as that in 1982. of expectations, especially in some of the check and securities services, Financial Performance and because the redistribution of The Monetary Control Act directs volume across services was not fully the Federal Reserve to set fees that, anticipated. Changes in the fee Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Banks 197 schedules for wire transfers, net set- the 12 Reserve Banks and their 25 tlement, and some check services, branches during 1982, as required by announced before mid-1982, miti- section 21 of the Federal Reserve gated the revenue shortfall some- Act. what. The fee schedules for other In conjunction with the examinaservices were not revised so readily tion of the Federal Reserve Bank of because of the complexities of the New York, the Board's examiners issues associated with such revisions. audited the accounts and holdings Through efforts to contain costs and related to the Federal Reserve Systo improve their services, however, tem Open Market Account and the the Federal Reserve Banks made foreign currency operations consubstantial progress in reducing the ducted by that Bank in accordance shortfall over the course of 1982 so with policies formulated by the Fedthat by the fourth quarter, the pro- eral Open Market Committee, and duction costs of providing services furnished copies of these reports to were recovered through pricing rev- the Committee. The procedures that enues, although not the full PSAF. were followed by the Board's exam- Initiatives are well under way to iners were surveyed and appraised eliminate the remaining shortfall; by a private firm of certified public and the Board expects that by the accountants, pursuant to the policy end of 1983, the second full year of of having such reviews made anexperience with pricing services, pro nually. forma net revenue adjusted for the programs that support the ACH and Income and Expenses cash transportation services will re- The accompanying table summarizes flect the recovery of direct and indithe income, expenses, and distriburect costs, including the private section of net earnings of the Federal tor adjustment. Reserve Banks for 1982 and 1981. Current income, at $16,517 million in 1982, was $1,009 million higher Examination than in 1981. The principal change The Board's Division of Federal was an increase of $942 million in Reserve Bank Operations examined income on U.S. government obliga- Income, Expenses, and Distribution of Net Earnings of Federal Reserve Banks, 1982 and 1981 Thousands of dollars Item 1982 1981 Current income 16,517,385 15,508,350 Operating expenses 1,024,475 901,120 Current net income 15,492,910 14,607,230 Net deduction from current net income 68,833 368,873 Assessments for expenditures of Board of Governors 61,813 63,163 Net income before payments to U.S. Treasury 15,362,264 14,175,194 Dividends paid 79,352 74,574 Payments to U.S. Treasury (interest on Federal Reserve notes) 15,204,591 14,023,723 Transferred to surplus 78,320 76,897 1. Operating expenses include $4 million and $29 cost of earnings credits was reported as a deduction million in earnings credits granted to depository in- from current net income. stitutions in 1981 and 1982 respectively. In 1981, the NOTE. Details may not add to totals because of rounding. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

198 Federal Reserve Banks tions. Income from priced services A detailed statement of the income amounted to $387 million. and expenses of each Federal Re- Operating expenses were $1,024 serve Bank during 1982 is shown in million, including $28 million of table 7, and a condensed historical earnings credits granted to deposi- statement appears in table 8, in the tory institutions. Assessments for Statistical Tables section of this REexpenditures of the Board of Gov- PORT. A detailed statement of asernors totaled $62 million. sessments and expenditures of the The profit and loss account showed Board of Governors appears in "Fia net deduction of $69 million, prin- nancial Statements," pages 201-06. cipally because of an unrealized loss of $150 million on assets denominated in foreign currencies related to Federal Reserve revaluation to market exchange rates, Bank Premises and a gain of $85 million on sales of U.S. government obligations. During 1982, the Baltimore Branch Statutory dividends to member occupied its new quarters and sold banks totaled $79 million, $4 million the vacated building and property. more than in 1981. This rise reflected With the approval of the Board of an increase in the capital and surplus Governors, the Omaha Branch acof member banks and a consequent quired property for a future building increase in the paid-in capital stock site; and the Birmingham Branch of the Federal Reserve Banks. acquired adjacent property for pro- Payments to the U.S. Treasury as jected expansion. interest on Federal Reserve notes Table 6, in the Statistical Tables totaled $15,205 million for the year, section of this REPORT, shows the compared with $14,024 million in cost and book values of premises 1981. This amount consists of all net owned or occupied by the Federal income after dividends and the Reserve Banks and branches, and of amount necessary to bring surplus to real estate acquired for future bankthe level of paid-in capital. ing-house purposes. Securities and Loans of Federal Reserve Banks, 1980-82 Millions of dollars except as noted U.S. Item and year Total government Loans Accepsecurities1 tances Average daily holdings 2 1980 129,750 128,196 1,420 134 1981 132,238 130,754 1,363 121 1982 140,968 139,772 1,047 149 Earnings 1980 . 12,673 12,479 176 18 1981 14,766 14,551 196 19 1982 15,697 15,504 175 18 Average interest rate (percent) 1980 9.77 9.73 12.39 13.43 1981 11.17 11.13 14.38 15.70 1982 11.14 11.09 16.71 12.08 1. Includes federal agency obligations. 2. Based on holdings at opening of business. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Banks 199 and Loans The average rates of interest on holdings decreased from 11.13 to The accompanying table presents 11.09 percent on U.S. government holdings, earnings, and average insecurities; increased from 14.38 to terest rates on securities and loans 16.71 percent on loans; and deof the Federal Reserve Banks during creased from 15.70 to 12.08 percent the past three years. on acceptances. Average daily holdings of securities and loans during 1982 amounted Volume of Operations to $140,968 million, an increase of $8,730 million over 1981. Holdings Table 9 in the Statistical Tables of U.S. government securities in- section of this REPORT shows the creased $9,018 million; loans de- volume of operations in the principal creased $316 million; and accep- departments of the Federal Reserve tances increased $28 million. Banks for 1979-82. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

201 Board of Governors Financial Statements The financial statements of the Board amined by Arthur Andersen & Co., for the years 1982 and 1981 were ex- independent public accountants. AUDITORS' REPORT To the Board of Governors of the Federal Reserve System: We have examined the balance sheets of the Board of Governors of the Federal Reserve System as of December 31, 1982 and 1981, and the related statements of assessments and expenditures and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the financial statements referred to above present fairly the financial position of the Board of Governors of the Federal Reserve System as of December 31, 1982 and 1981, and the results of its operations and the changes in its financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. f Washington, D.C., February 18, 1983. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

202 Financial Statements BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM BALANCE SHEETS As of December 31, ASSETS 1982 1981 OPERATING FUND Cash $ 4,613,805 $ 6,164,961 Receivables and advances 554,928 634,532 Stockroom and cafeteria inventories at lower of cost (first-in, first-out) or market 257,495 240,040 Deferred publication costs (Note 3) — 334,562 Total operating fund 5,426,228 7,374,095 PROPERTY FUND, at cost (Note 1) Land and improvements 1,301,314 1,301,314 Buildings 61,056,512 60,787,084 Furniture and equipment 8,636,512 8,085,073 Computer equipment 6,845,572 5,893,872 Total property fund 77,839,910 76,067,343 $ 83,266,138 $ 83,441,438 LIABILITIES AND FUND BALANCES OPERATING FUND Liabilities Accounts payable $ 4,328,675 $ 2,484,847 Accrued payroll and related taxes 1,466,018 1,372,466 Accrued annual leave (Note 1) 3,074,671 2,694,966 8,869,364 6,552,279 Commitments and contingencies (Notes 2 and 4) Fund balance (Note 1) Balance, beginning of year 821,816 (2,809,658) Assessments (under) over funded expenditures and unfunded accrued annual leave (4,264,952) 3,631,474 Balance, end of year (3,443,136) 821,816 Total operating fund 5,426,228 7,374,095 PROPERTY FUND (Note 1) Fund balance Balance, beginning of year 76,067,343 75,262,877 Additions—at cost 1,808,096 852,955 Disposals—at cost (35,529) (48,489) Total property fund 77,839,910 76,067,343 $ 83,266,138 $ 83,441,438 The accompanying notes are an integral part of these balance sheets. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Statements 203 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM STATEMENTS OF ASSESSMENTS AND EXPENDITURES For the years ended December 31, 1982 1981 ASSESSMENTS LEVIED ON FEDERAL RESERVE BANKS (Note 1) For Board expenses and property additions $ 61,813,400 $ 63,162,700 For expenditures made on behalf of the Federal Reserve Banks for printing, issuance, and redemption of Federal Reserve notes 85,766,269 84,859,336 Total assessments 147,579,669 148,022,036 FUNDED EXPENDITURES (Note 1) Board expenses Salaries 43,874,292 41,014,846 Retirement and insurance contributions (Note 2) 7,598,440 6,227,869 Travel 1,765,093 1,591,343 Contractual services 1,316,441 1,179,604 Printing and binding 1,289,216 1,791,588 Heat, light, and power 1,268,450 1,273,657 Equipment, office space, and other rentals (Note 4) 1,228,791 867,466 Telephone and telegraph 1,038,630 862,981 Repairs and maintenance 982,601 788,394 Postage 906,766 655,030 Stationery, office, and other supplies 626,559 560,350 Cafeteria operations, net 476,168 442,897 Professional fees 386,917 347,152 Books and subscriptions 248,829 173,693 Other 889,123 690,950 63,896,316 58,467,820 Board property additions, net of recoveries on disposals of $5,765 in 1982 and $4,893 in 1981 (Note 1) 1,802,331 848,062 Expenditures for printing, issuance, and redemption of Federal Reserve notes on behalf of the Federal Reserve Banks (Note 1) 85,766,269 84,859,336 Total funded expenditures 151,464,916 144,175,218 Assessments (under) over funded expenditures (3,885,247) 3,846,818 UNFUNDED ACCRUED ANNUAL LEAVE (Note 1) . 379,705 215,344 ASSESSMENTS (UNDER) OVER FUNDED EXPENDITURES AND UNFUNDED ACCRUED ANNUAL LEAVE $ (4,264,952) $ 3,631,474 The accompanying notes are an integral part of these statements. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

204 Financial Statements BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM STATEMENTS OF CHANGES IN FINANCIAL POSITION For the years ended December 31, 1982 1981 SOURCES OF FUNDS Assessments levied for Board expenses and property additions $ 61,813,400 $ 63,162,700 Assessments levied for expenditures made on behalf of the Federal Reserve Banks 85,766,269 84,859,336 Recoveries from disposals of property 5,765 4,893 Increase in accounts payable, accrued payroll and related taxes 1,937,380 836,495 Decrease in receivables, inventories, and deferred costs 396,711 570,458 Total sources 149,919,525 149,433,882 APPLICATIONS OF FUNDS Board expenses 63,896,316 58,467,820 Expenditures for printing, issuance, and redemption of Federal Reserve notes on behalf of the Federal Reserve Banks 85,766,269 84,859,336 Additions to property Land and improvements — 3,485 Buildings 269,428 451,216 Furniture and equipment 586,968 397,224 Computer equipment 951,700 1,030 Total applications 151,470,681 144,180,111 (DECREASE) INCREASE IN CASH (1,551,156) 5,253,771 CASH BALANCE, beginning of year 6,164,961 911,190 CASH BALANCE, end of year $ 4,613,805 $ 6,164,961 The accompanying notes are an integral part of these statements. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Statements 205 NOTES TO FINANCIAL STATEMENTS contributions for active employees are actuarially determined and are funded in the current period. DECEMBER 31, 1982 AND 1981 The Board's contributions to the retirees' Cost-of- Living Adjustment (COLA) totaled $1,937,000 in 1982 and $878,000 in 1981. The increase in the level of (1) SIGNIFICANT ACCOUNTING POLICIES these contributions was primarily attributed to a change In preparing its financial statements, the Board of in policy. Consistent with federal government action Governors of the Federal Reserve System (the Board) taken in 1981, the Board changed its method of comhas applied accounting principles which, in manage- puting the retirees' COLA from a semiannual basis ment's opinion, best reflect its financial position and to an annual basis. Because it was the year of tranresults of operations. These accounting principles in- sition, however, the 1981 COLA only reflected the clude certain principles which are generally accepted change in the consumer price index that occurred durfor organizations in the private sector and also certain ing the six months ended December 31,1980. In 1982, principles which are generally accepted for govern- the COLA reflected the change in the consumer price mental units. A summary of significant accounting index that occurred during the twelve months ended policies is shown below. December 31, 1981. Assessments, Board Expenses, and Property Ad- Additionally, employees of the Board participate ditions—Assessments made on the Federal Reserve in the Federal Reserve System's Thrift Plan. Under Banks for Board expenses and additions to property this plan, the Board contributes a fixed percentage of are calculated based upon expected cash needs. As- allowable employee savings to employee savings acsessments, Board expenses, and property additions counts. are recorded on the accrual basis of accounting. Board contributions to the retirement plans and the Assessments and Expenditures Made on Behalf of Thrift Plan totaled approximately $6,384,000 in 1982 the Federal Reserve Banks—Assessments and ex- and $5,338,000 in 1981. penditures made on behalf of the Federal Reserve As of January 1, 1982 and 1981 (the dates of the Banks for the printing, issuance, and redemption of most recent actuarial reviews), the accumulated plan Federal Reserve notes are recorded on the cash basis. benefits for the Federal Reserve Board Plan were as This treatment produces results which are not ma- follows. terially different from those which would have been produced using the accrual basis of accounting. As of January 1, Property—The Board does not charge depreciation 1982 1981 as an operating expense. Property additions are charged to expense in the Operating Fund in the year of ac- Actuarial present value quisition; recoveries on the disposal of property are of accumulated recorded as a reduction of expense in the Operating plan benefits Fund in the year of disposal. When property is ac- Vested $44,679,000 $43,931,000 quired or sold, the property asset accounts and the Nonvested 2,550,000 2,791,000 balance in the property fund account are increased $47,229,000 $46,722,000 or decreased at cost. Employee Annual Leave—In accordance with The assumed rate of return used in determining the Statement of Financial Accounting Standards No. 43, present value of accumulated plan benefits was 10 "Accounting for Compensated Absences," the Board percent in 1982 and 9 percent in 1981. records the liability for employees' rights to receive As of January 1,1982 and 1981, net assets available compensation for annual leave in the accompanying for plan benefits exceeded the actuarial present value Balance Sheets. In addition, the incremental expense of accumulated plan benefits. for this liability is separately presented in the accompanying Statements of Assessments and Expenditures since it is not funded currently by assessments levied (3) FEDERAL RESERVE REGULATORY SERVICE on the Federal Reserve Banks. The Board began publication of the Federal Reserve Regulatory Service in 1981. This monthly looseleaf (2) RETIREMENT PLANS service contains Board regulations, interpretations, There are two major retirement plans for employ- staff rulings, and other regulatory materials. The serees of the Board. Approximately 83 percent of the vice is distributed without charge throughout the Fedemployees are covered by the Federal Reserve Board eral Reserve System. It is also sold to depository in- Plan. Substantially all new members of the staff who stitutions, legal firms, and others. Subscription revenues do not come directly from a position in the federal in the amount of $844,000 and $711,000 were gengovernment are covered by this plan. The second plan, erated in 1982 and 1981, respectively. These revenues the Civil Service Retirement Plan, covers all new em- were used to offset prior year's deferred publication ployees who come directly from federal government costs and current year publication costs. service. Employee contributions are the same percentage of salary under both plans, and benefits are similar, being based upon the Civil Service Plan. (4) COMMITMENTS AND CONTINGENCIES Under the Civil Service Plan, the Board's contri- The Board leases office and computer equipment butions directly match employee payroll deductions. and office and storage space under leases which may Under the Federal Reserve Board Plan, the Board's generally be terminated within one year. At Decem- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

206 Financial Statements ber 31, 1982, fixed future rental commitments were (5) FEDERAL FINANCIAL INSTITUTIONS approximately $1,252,000 for 1983. EXAMINATION COUNCIL The Board has been named as a defendant in liti- The Board is one of five member agencies of the gation involving challenges to, or appeals from, ac- Federal Financial Institutions Examination Council tions or proposed actions of the Board pursuant to (the Council). During 1982 and 1981, the Board paid statutory requirement or authorization. Such lawsuits $175,000 and $114,000, respectively, in assessments generally seek injunctive or declaratory relief against for operating expenses of the Council. the Board rather than monetary awards. It is the opin- The Board serves as custodian for the Council's ion of Board counsel that lawsuits involving monetary cash. (This cash is not reflected in the accompanying awards do not represent a material liability to the financial statements.) It also processes accounting Board. transactions, including payroll for most employees, The Board is self-insured with regard to (1) a group and performs other administrative services for the term life and accident insurance plan for Board of- Council which are reimbursed. ficers and (2) losses of its building and equipment The Board is not reimbursed for the costs of perfrom fire or other casualties. Coverage for other cussonnel who serve on the Council and on the various tomarily insured risks, such as workers' compensation task forces and committees of the Council. The costs and comprehensive general liability, is carried by the associated with these contributed services are in- Board. cluded in the accompanying financial statements. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statistical Tables Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

208 Tables 1. Detailed Statement of Condition of All Federal Reserve Banks Combined, December 31, 1982 Thousands of dollars ASSETS Gold certificate account 11,147,909 Special drawings rights certificate account 4,618,000 Coin 439,297 Loans and securities Loans to depository institutions 714,833 Acceptances held under repurchase agreement 1,479,978 Federal agency obligations Bought outright 8,936,836 Held under repurchase agreement 587,795 U.S. government securities Bought outright Bills 54,425,660 Notes 62,625,895 Bonds 18,555,734 Total bought outright 135,607,289 Held under repurchase agreement 3,704,305 Total U.S. government securities 139,311,594 Total loans and securities 151,031,036 Cash items in process of collection Transit items 11,295,950 Other cash items 1,694,151 Total cash items in process of collection 12,990,101 Bank premises Land 90,322 Buildings (including vaults) 350,982 Building machinery and equipment 131,762 Construction account 128,676 Total bank premises 611,420 Less depreciation allowance 152,960 458,460 Bank premises, net 548,782 Other assets Furniture and equipment 275,679 Less depreciation 96,729 Total furniture and equipment, net 178,950 Denominated in foreign currencies1 5,764,470 Interest accrued 2,315,022 Premium on securities 386,759 Due from Federal Deposit Insurance Corporation 285,333 Overdrafts 64,504 Prepaid expenses 59,123 Suspense account 139,683 Real estate acquired for banking-house purposes 14,832 All other..... 137,167 Total other assets 9,345,844 Total assets 190,120,970 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 209 !.,--• Continued LIABILITIES Federal Reserve notes Outstanding (issued to Federal Reserve Banks) 159,979,052 Less held by Federal Reserve Banks 17,989,453 Total Federal Reserve notes, net 141,989,599 Deposits Depository institutions 26,491,873 U.S. Treasury—general account 5,033,451 Foreign—official accounts 328,280 Other deposits Collected funds due to other Federal Reserve Banks 1,438,718 Officers' and certified checks 55,681 International organizations 109,498 All other2 874,047 Total other deposits 2,477,944 Deferred availability cash items 8,813,035 Other liabilities Exchange-translation account - 171,901 Unearned discount 1,412 Discount on securities 2,060,878 Sundry items payable 38,528 Suspense account 338,080 All other 4,893 Total other liabilities . 2,271,890 Total liabilities 187,406,071 CAPITAL ACCOUNTS Capital paid in 1,357,449 Surplus 1,357,449 Other capital accounts3 Total liabilities and capital accounts 190,120,970 1. Of this amount, $1,404.0 million was invested in securities 3. During the year, this item includes undistributed net inissued by foreign governments, and the balance was invested with come, which is closed out on Dec. 31; see table 7 in the Staforeign central banks and the Bank for International Settlements. tistical Tables section of this REPORT. Amount shown includes $1,291.8 million in foreign currencies warehoused for U.S. Treasury. NOTE. Amounts in boldface type indicate items in the Board's 2. In closing out the other capital accounts at year-end, the weekly statement of condition of the Federal Reserve Banks. Reserve Bank earnings that are payable to the Treasury are included in this account pending payment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

2. Statement of Condition of Each Federal Reserve Bank, December 31, 1982 and 1981 Millions of dollars Total Boston New York Philadelphia Cleveland Richmond Item 1982 1981 1982 1981 1982 1982 1982 1981 1982 1981 1982 1981 ASSETS Gold certificate account 11,148 11,151 570 1,017 3,212 3,160 554 531 744 805 967 1,147 Special drawing rights certificate account 4,618 3.318 241 165 1,335 951 225 141 302 253 408 288 (Join 438 377 26 20 32 18 13 19 48 38 51 46 Loans To depository institutions 717 1,604 15 77 90 559 101 212 19 19 108 102 Other 0 0 0 0 0 0 0 0 0 0 0 0 Acceptances held under repurchase agreements. 1,480 195 0 0 1,480 195 0 0 0 0 0 0 Federal agency obligations Bought outright 8,937 9,125 413 388 2,811 2,657 298 327 590 662 758 729 Held under repurchase agreements 588 269 0 0 588 269 0 0 0 0 0 0 U.S. government securities Bought outright1 135,607 127,738 6,265 5,437 42,656 37,188 4,519 4,571 8,950 9,274 11,506 10,198 Held under repurchase agreements 3,705 3,216 0 0 3,705 3,216 0 0 0 0 0 0 Total loans and securities 151,034 142,147 6,693 5,902 51,330 44,084 4,918 5,110 9,559 9,955 12,372 11,029 Cash items in process of collection 13,000 10,636 345 313 1,630 705 299 397 497 383 1,723 1,730 Bank premises 549 498 97 98 25 23 51 52 27 27 110 99 Other assets Denominated in foreign currencies2 5,764 5,129 150 141 1,436 1,386 236 191 432 397 300 256 All other 3,577 3,592 144 125 1,358 1,296 107 140 191 197 259 222 Interdistrict Settlement Account 0 0 + 101 + 287 + 871 + 656 + 364 -256 -1,322 -1,066 -307 + 562 Total assets 190,128 176,848 8,367 8,068 61,229 52,279 6,767 6,325 10,478 10,989 15,883 15,379 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

LIABILITIES Federal Reserve notes .. . . 141,990 131,906 7,191 6,995 44,812 39,633 5,560 5,287 8,823 8,972 12,411 12,046 Deposits Depository institutions 26,489 25,228 676 602 8,882 5,075 816 664 1,051 1,259 1,322 1,301 U.S\ Treasury—General account 5,033 4,301 0 0 5,033 4,301 0 0 0 0 0 0 Foreign—Official accounts 328 505 5 9 170 267 9 12 16 25 11 16 Other 2,484 791 25 12 587 540 21 10 41 20 65 31 Total deposits 34,334 30,825 706 623 14,672 10,183 846 686 1,108 1,304 1,398 1,348 Deferred-availability cash items 8,814 8,800 306 278 485 949 173 159 215 339 1,478 1,656 Other liabilities and accrued dividends3 2,272 2,759 94 106 596 876 68 89 134 182 452 197 187,410 174,290 8,297 8,002 60,565 51,641 6,647 6,221 10,280 10,797 15,739 15,247 Total liabilities CAPITAL ACCOUNTS Capital paid in 1 1 , , 3 3 5 5 9 9 1 1 , , 2 2 7 7 9 9 3 3 5 5 3 3 3 3 3 3 3 3 2 2 3 3 1 1 9 9 6 6 0 0 5 5 2 2 9 9 9 9 9 9 6 6 7 7 2 2 6 6 6 6 Surplus 0 0 0 0 0 0 0 0 0 0 0 0 Other capital accounts Total liabilities and capital accounts 190,128 176,848 8,367 8,068 61,229 52,279 6,767 6,325 10,478 10,989 15,883 15,379 FEDERAL RESERVE NOTE STATEMENT Federal Reserve notes outstanding (issued to Bank) 159,979 151,033 8,050 7,885 47,896 43,654 7,546 7,374 9,463 9,882 13,708 13,348 LESS: Held by Bank4 17,989 19,127 859 890 3,084 4,021 1,986 2,087 640 910 1,297 1,302 Federal Reserve notes, net5 141,990 131,906 7,191 6,995 44,812 39,633 5,560 5,287 8,823 8,972 12,411 12,046 Collateral for Federal Reserve notes Gold certificate account 11,148 11.151 570 1,017 3,212 3,160 554 531 744 805 967 1,147 Special drawing rights certificate account 4,618 3,318 241 165 1,335 951 225 141 302 253 408 288 Other eligible assets 107 0 0 0 0 0 0 0 0 0 0 0 U.S. government and agency securities 126,717 117,437 6,380 5,813 40,265 35,522 4,781 4,615 7,777 7,914 11,036 10,611 Total collateral 141,990 131,906 7,191 6,995 44,812 39,633 5,560 5,287 8,823 8,972 12,411 12,046 For notes see end of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

2. Statement of Condition of Each Federal Reserve Bank, December 31, 1982 and 1981—Continued Millions of dollars Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Item 1982 1981 1982 1981 1982 1981 1982 1981 1982 1981 1982 1981 1982 ASSETS Gold certificate account 402 Special drawing rights certificate account 161 Coin 44 Loans To depository institutions Other Acceptances held under repurchase agreements Federal agency obligations Bought outright Held under repurchase agreements U.S. government securities Bought outright1 Held under repurchase agreements Total loans and securities Cash items in process of collection Bank premises Other assets Denominated in foreign currencies2 All other Interdistrict Settlement Account Total assets ooo 436 1,476 1,171 418 450 154 189 675 534 743 628 1,233 1,083 98 646 519 170 129 61 48 241 154 310 192 518 380 43 26 23 25 29 19 17 44 31 32 26 78 67 44 83 399 88 49 9 11 33 60 160 57 3 15 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 227 290 1,268 1,393 301 338 113 136 422 417 606 571 1,130 1,217 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3,452 4,059 19,246 19,501 4,565 4,734 1,709 1,911 6,406 5,842 9,192 7,992 17,141 17,031 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3,687 4,393 20,597 21,293 4,954 5,121 1,831 2,058 6,861 6,319 9,958 8,620 18,274 18,263 1,664 1,571 923 1,011 til 632 688 451 1,366 1,212 1,404 1,528 1,784 703 34 34 19 17 15 14 27 28 24 22 16 14 104 70 438 377 813 738 167 151 213 161 259 216 375 306 945 809 117 151 4346 4686 99 135 62 52 165 141 203 254 438 411 -278 -434 -158 -930 + 742 -730 -275 -211 + 873 + 767 + 91 + 1,542 -702 -187 6,269 6,669 24,776 24,310 7,267 5,931 2,780 2,793 10,508 9,396 13,132 13,110 22,672 21,599 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

LIABILITIES Federal Reserve notes 3,295 3,142 20,612 19,534 4,630 4,532 1.463 7,851 6,652 9,317 8,666 15,730 14,984 Deposits Depository institutions 1.647 1,842 2,854 3.358 477 662 414 764 1,224 1,422 2,408 2,930 4,718 5,349 U.S. Treasury—General account 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Foreign—Official accounts 16 24 30 47 6 10 8 10 9 14 14 20 34 51 Other 31 8 114 78 1,408 17 22 3 36 15 46 22 88 35 Total deposits 1,694 1,874 2,998 3,483 1,891 689 444 777 1,269 1,451 2,468 2,972 4,840 5,435 Deferred-availability cash items 1,007 1,360 508 554 603 544 452 420 1,168 1,064 1,024 1,149 1,395 328 Other liabilities and accrued dividend3 55 99 288 379 67 92 28 39 96 115 135 155 259 430 Total liabilities . . 6,051 6,475 24,406 23,950 7,191 5,857 2,682 2,699 10,384 9,282 12,944 12,942 22,224 21,177 CAPITAL ACCOUNTS Capital paid in 109 97 185 180 38 37 49 47 62 57 94 84 224 211 Surplus 109 97 185 180 38 37 49 47 62 57 94 84 224 211 Other capital accounts 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Total liabilities and capital accounts. . . 6,269 6,669 24,776 24,310 7,267 5,931 2,780 2,793 10,508 9,3% 13,132 13,110 22,672 21,599 FEDERAL RESERVE NOTE STATEMENT Federal Reserve notes outstanding (issued to Bank).. . 5,522 5,270 22,048 21,111 5,440 5,546 2,206 1,995 8,974 7,891 11,047 10,121 18,079 16,956 LESS: Held by Bank4 2,227 2,128 1,436 1,577 810 1,014 448 532 1,123 1,239 1,730 1,455 2,349 1,972 Federal Reserve notes, net5 3,295 3.142 20,612 19,534 4,630 4,532 1,758 1,463 7,851 6,652 9,317 8,666 15,730 14,984 Collateral notes for Federal Reserve notes Gold certificate account 402 436 1,476 1,171 418 450 154 189 675 534 743 628 1,233 1,083 Special drawing rights certificate account 161 98 646 519 170 129 61 48 241 154 310 192 518 380 Other eligible assets 0 0 0 0 0 0 0 0 107 0 0 0 0 0 U.S. government and agency securities 2,732 2,608 18.490 17.844 4,042 3,953 1,543 1,226 6,828 5,964 8,264 7,846 13,979 13,521 Total collateral 3,295 3,142 20,612 19,534 4,630 4,532 1,758 1,463 7,851 6,652 9,317 8,666 15,730 14,984 1. Includes securities loaned—fully guaranteed by U.S. government securities pledged with Federal 4. Beginning September 1980, Federal Reserve notes held by the Reserve Banks are exempt from Reserve Banks— and excludes (if any) securities sold and scheduled to be bought back under matched the collateral requirement. sale-purchase transactions. 5. Includes Federal Reserve notes held by U.S. Treasury and by Federal Reserve Banks other 2. Includes U.S. government securities held under repurchase agreement against receipt of foreign than the issuing Bank. currencies and foreign currencies warehoused for the U.S. Treasury. Assets shown in this line are 6. Includes special investment account at Chicago of Treasury bills maturing within 90 days. revalued monthly at market exchange rates. 3. Includes exchange-translation account reflecting the monthly revaluation at market exchange NOTE. Data for 1982 in tables 1 and 2 may differ because of rounding or closing adjustments, rates of foreign-exchange commitments. which are not included in table 2. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

214 Tables 3. Federal Reserve Open Market Transactions, 1982 Millions of dollars Type of transaction Jan. Feb. Mar. Apr. U.S. GOVERNMENT SECURITIES Outright transactions (excluding matched transactions) Treasury bills Gross purchases 0 Gross sales 2,756 Exchange 0 Redemptions 600 Others within 1 year Gross purchases 0 Gross sales 0 Maturity shift 542 Exchange 0 Redemptions 0 1 to 5 years Gross purchases 0 Gross sales 0 Maturity shift -542 Exchange 0 J to 10 years Gross purchases Gross sales Maturity shift Exchange Over 10 years Gross purchases Gross sales Maturity shift Exchange All maturities Gross purchases Gross sales Redemptions Matched transactions Gross sales Gross purchases Repurchase agreements Gross purchases Gross sales Net change in U.S. government securities FEDERAL AGENCY OBLIGATIONS Outright transactions Gross purchases Gross sales Redemptions Repurchase agreements Gross purchases Gross sales Net change in federal agency obligations BANKERS ACCEPTANCES Repurchase agreements, net Total net change in System Open Market Account . oooo oooo 1,017 474 868 995 0 0 0 600 20 0 0 0 2,633 900 -940 -1,479 0 0 50 0 0 0 -974 -900 765 1,479 0 0 -1,659 100 0 0 0 75 0 1,087 2,756 868 600 0 51,132 28,033 51,717 28,258 12,962 18,656 12,914 21,919 oooo oooo 4,149 0 0 0 132 0 333 -525 0 570 0 -333 525 81 0 0 0 52 0 0 0 474 4,984 995 0 600 0 38,946 44,748 38,650 44,759 8,595 18,396 6,998 14,724 -2,724 -2,820 179 8,667 0 0 0 0 0 0 68 32 13 800 872 554 2,033 935 1,006 471 1,119 -203 -166 70 909 402 -597 488 280 -2,524 -3,583 737 9,856 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 215 May July Aug. Sept. Oct. Nov. Dec. Total 595 519 0 400 0 0 1,498 - 2,541 0 oo II 1,559 1,905 1.721 425 774 2,552 1,897 17,067 0 1,175 651 674 0 0 731 8,369 200 -200 0 0 0 0 0 0 0 200 600 400 0 0 200 3,000 0 71 0 0 0 88 0 312 0 0 0 0 0 0 0 0 988 382 4,938 733 623 2,819 906 17,295 - 1.249 0 -3,914 -650 0 - 1,924 -943 -14,164 0 0 0 0 0 0 0 0 0 691 0 0 0 485 0 1,797 0 0 0 0 0 0 0 0 -988 -382 -4,938 -733 -623 -2,204 -906 - 14,524 1.049 200 3,078 650 0 1,515 943 11,804 0 113 0 () 0 194 0 388 0 0 0 0 0 0 -498 0 601 0 0 -616 0 -2,172 941 0 0 837 0 250 0 2,128 0 123 0 132 0 307 0 0 0 0 0 0 0 () 0 -601 0 0 0 -601 () 0 0 0 0 159 0 234 595 1,559 2,903 1,721 425 774 3,452 1.897 19,870 519 0 1.175 651 674 0 0 731 8,369 400 0 200 600 400 () 200 3,0(X) 36.047 41,509 54.646 39,403 51.983 45.655 39,579 72.123 543.804 36.790 37,548 58,753 37.962 51.554 46.370 41,724 69.088 543,173 10.155 5,332 18,267 3.755 9.649 5.618 4,161 15,229 130.774 15.424 5.332 18,267 2.567 7.035 9,420 4.161 11,525 130,286 -2.402 1.535 1,636 8,358 0 0 0 0 0 0 0 0 0 0 0 0 () 0 0 0 0 0 1 6 1 46 5 6 6 189 1,305 831 4,389 1.095 1,997 1,776 739 2.566 18.957 2,301 831 4.389 866 1,225 2.778 739 1,978 18,638 183 -1,008 582 -768 0 0 565 248 -813 0 1,480 1.285 -6,615 -2,408 5,634 966 2,550 -4,134 5,5% 3,697 9,773 *Less than $500,000. increase such holdings. Details may not add to totals because NOTE. Sales, redemptions, and negative figures reduce hold- of rounding. ings of the System Open Market Account; all other figures Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

216 Tables 4. Federal Reserve Bank Holdings of U.S. Government and Federal Agency Securities, December 31, 1980-82 Millions of dollars December 31 Increase or decrease (-) Description 1982 | 1981 1980 1982 1981 U.S. government securities—Total 139,312 130,954 121,328 8,358 9,626 1-15 days1 4,3% 3,935 4,780 461 -845 16-90 days 31,088 25,190 23,499 5,898 1,691 91 days to 1 year 40,057 37,417 30,187 2,640 7,230 1-5 years 35,102 36,025 34,505 -923 1,520 5-10 years 12,095 11,752 13,354 343 -1,602 Over 10 years 16,574 16,634 15,002 -60 1,632 Held outright2 Treasury bills 54,426 49,359 43,688 5,067 5,671 Treasury notes 62,626 59,978 58,718 2,648 1,260 Treasury bonds 18,556 18,401 16,893 155 1,508 Held under RPs 3,704 3,216 2,029 488 1,187 Federal agency obligations—Total 9,525 9,394 9,264 131 130 1-15 days 730 530 705 200 -175 16-90 days 564 631 426 -67 205 91 days to 1 year 1,954 1,443 1,519 511 -76 1-5 years 4,780 5,256 4,838 -476 418 5-10 years 979 962 1,092 17 -130 Over 10 years 518 573 685 -55 -112 Held outright Banks for Cooperatives 21 21 35 0 -14 Export-Import Bank 0 16 16 -16 0 Federal Farm Credit Banks 2,174 1,960 1,459 214 501 Federal Home Loan Banks 2,494 2,500 2,426 -6 74 Federal Home Loan Mortgage Corporation 5 5 0 0 5 Federal Intermediate Credit Banks 50 59 75 -9 -16 Federal Land Banks 613 840 988 -227 -148 Farmers Home Administration 147 163 187 -16 -24 Federal National Mortgage Association 3,198 3,312 3,305 -114 7 Government National Mortgage Association—PCs . 67 83 83 -16 0 U.S. Postal Service 37 37 37 0 0 Washington Metropolitan Area Transit Authority .. 117 117 117 0 0 General Services Administration 14 14 14 0 0 Held under RPs 588 269 525 319 -256 1. Includes securities held under repurchase agreements. securities held under repurchase agreements. 2. Excludes securities sold under matched agreements, and NOTE. Details may not add to totals because of rounding. 5. Number and Salaries of Officers and Employees of Federal Reserve Banks, December 31, 1982 President Other officers Employees Total F B e a d n e k r a ( l i n R c e lu s d e i r n v g e Annual Num- Annual Number Annual Num- Annual branches) salary ber salaries Full- Part- salaries ber salaries (dollars) (dollars) time time (dollars) (dollars) Boston 111,000 50 2,477,500 1,267 172 26,863,227 1,490 29,451,727 New York 145,000 150 8,716,000 3,946 93 87,266,680 4,190 96,127,680 Philadelphia 82,000 42 2,085,000 1,026 73 19,428,094 1,142 21,595,094 Cleveland 92,000 40 1,808,000 1,214 62 22,251,700 1,317 24,151,700 Richmond 97,000 71 3,325,300 1,873 95 30,786,903 2,040 34,209,203 Atlanta 106,000 67 3,194,600 2,063 44 37,586,333 2,175 40,886,933 Chicago 117,000 84 3,975,600 2,871 105 52,705,239 3,061 56,797,839 St. Louis 94,000 46 2,177,980 1,184 75 21,248,033 1,306 23,520,013 Minneapolis 90,000 40 1,849,000 992 2 18,441,700 1,035 20,380,700 Kansas City 87,000 54 2,435,500 1,560 45 26,960,797 1,660 29,483,297 Dallas 82,000 47 2,232,600 1,367 30 24,809,561 1,445 27,124,161 San Francisco 122,000 91 4,414,101 2,066 84 42,206,872 2,242 46,742,973 Total 1,225,000 782 38,691,181 21,429 880 410,555,139 23,103 450,471,320 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 217 Bank Premises of Federal Reserve Banks and Branches, December 31, 1982 Dollars o R r F B e e B d s a r e e n a r r k n v a c e l h Land ( B i v n u a c i u l l d u lt i d s n i ) g n 1 s g Cost B c e u h q i i l u n d i e i p r n y m g e a m n n t d a- Total2 v b N a o l e o u t k e e O s r t t e a h a t e l e r 3 BOSTON 21,635,436 79,855,836 5,425,128 106,916,400 96,872,789 Annex 27,840 89,202 44,538 161,580 138,291 NEW YORK . 3,436,277 12,561,757 21,427,695 37,425,729 20,817,670 Annex 477,862 1,136,219 745,855 2,359,936 945,657 Buffalo 887,844 3,010,752 1,661,223 5,559,819 2,994,507 PHILADELPHIA 1,876,601 52,360,009 5,253,502 59,490,112 51,170,428 CLEVELAND ... 1,074,281 5,802,520 4,439,911 11,316,712 3,704,841 1,224,363 Cincinnati 1,997,249 13,541,212 7,521,727 23,060,188 15,496,563 Pittsburgh 1,658,376 5,113,033 3,064,907 9,836,316 7,757,737 RICHMOND 3,912,575 55,679,289 14,314,313 73,906,179 65,989,168 Annex 522.733 3,725,466 3,616,991 7,865,190 4,421,545 Baltimore 3,880,302 35,036,673 38,916,975 38,698,750 Charlotte 347,071 1,075,116 946,943 2,369,130 1,219,698 1,675,944 ATLANTA 1,202,255 6,565,323 3,558,580 11,326,159 6,293,027 Birmingham 2,361,070 1,905,770 1,046,244 5,313,084 3,603,775 166,845 Jacksonville 164,004 1,706,794 778,505 2,649,303 875,565 951,793 Annex 107,925 76,236 15,843 200,003 155,826 Miami 3,547,571 11,776,944 2,116,440 17,440,955 16,598,408 Nashville 592,342 1,474,678 1,175,891 3,242,912 1,546,874 New Orleans 3,087,693 2,754,272 1,476,257 7,318,222 5,053,452 283,753 CHICAGO 4,511,942 16,439,102 11,448,225 32,399,268 15,289,180 Annex 53,066 302,249 136,878 492,193 457,478 Detroit 797.734 3,137,976 1,972,024 5,907,734 2,779,316 ST. LOUIS 700,378 4,944,833 3,823,399 9,468,610 3,724,513 Little Rock 1,148,492 2,067,898 1,023,475 4,239,865 2,979,025 Louisville 700,075 2,865,319 1,131,238 4,696,632 2,442,333 Memphis 1,135,623 4,239,761 2,126,755 7,502,139 5,483,003 MINNEAPOLIS... 1,394,384 26,664,805 7,692,189 35,751,378 26,749,830 Helena 289,619 104,184 61,906 455,709 343,588 KANSAS CITY ... 1,338,737 12,059,988 5,813,699 19,212,423 12,929,195 5,323,439 Denver 2,997,746 3,646,679 2,374,384 9,018,808 5,998,423 Oklahoma City 646,386 2,370,476 1,717,342 4,734,204 3,473,865 Omaha 1,030,226 1,550,902 817,215 3,398,342 1,848,063 479,076 DALLAS 3,729,268 5,388,345 3,653,592 12,771,205 8,222,787 El Paso 262,477 1,048,617 393,301 1,704,395 1,498,073 Houston 2,049,064 1,994,423 791,229 4,834,716 4,114,724 San Antonio 448,596 1,782,893 570,846 2,802,335 2,179,935 SAN FRANCISCO 12,436,775 83,288,534 2,174,233 97,899,542 92,806,072 Annex 247,201 131,114 62,078 440,393 340,809 Los Angeles 644,238 4,711,365 2,426,971 7,782,575 4,423,713 4,726,662 Portland 207,381 1,678,512 649,432 2,535,324 1,956,146 Salt Lake City 480,222 1,974,295 1,036,376 3,490,893 2,380,543 Seattle 274,772 2,018,722 1,234,879 3,528,373 2,006,517 Total 90,321,708 479,658,092 131,762,159 701,741,959 548,781,704 14,831,874 1. Includes expenditures for construction at some offices 3. Includes acquisitions for banking-house purposes, and pending allocation to appropriate accounts. Bank premises formerly occupied and being held pending sale. 2. Excludes charge-offs of $17,698,968 before 1952. NOTE Details may not add to totals due to rounding. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

218 Tables 7. Income and Expenses of Federal Reserve Banks, 1982 Dollars Item Total Boston New York Philadelphia Cleveland CURRENT INCOME Loans 174,599,512 4,815,638 72,915,122 10,790,342 7,476,261 Acceptances 18,282,868 18,282,868 U.S. government securities 15,492,891,505 694,660,256 4,828,055,401 524,668,313 1,047,056,094 Foreign currencies 432,541,731 11,216,663 109,322,456 17,608,710 32,333,016 Priced services 386,732,282 23,845,933 58,982,951 14,867,390 23,999,246 All other 12,337,230 532,768 5,947,971 241,276 318,797 Total 16,517,385,129 734,271,258 5,093,506,769 568,176,031 1,111,183,414 CURRENT EXPENSES Salaries and other personnel expenses 469,307,979 29,834,881 101,388,988 23,633,374 26,945,680 Retirement and other benefits 128,075,979 8,361,765 25,199,077 6,625,349 8,121,877 Fees 8,317,808 449,229 1,706,982 391,748 538,624 Travel 14,414,464 810,832 1,751,510 487,997 1,030,710 Postage and other shipping costs 100,095,196 4,793,726 12,862,222 4,098,033 6,622,762 Communications 19,358,575 1,361,436 4,253,849 945,646 856,872 Materials and supplies .... 37,449,670 2,435,555 7,351,488 1,938,790 2,036,381 Building expenses Taxes on real estate 16,696,319 3,186,972 2,775,275 1,340,142 911,821 Property depreciation... 14,819,043 2,299,705 1,399,008 1,494,875 953,867 Utilities 20,973,887 2,093,546 3,858,868 1,973,677 1,371,834 Rent 12,797,242 461,151 6,189,509 40,014 250,947 Other 10,014,647 486,324 1,545,422 992,314 395,686 Equipment Rentals 53,111,250 1,876,321 9,918,295 1,568,091 3,974,531 Depreciation 32,686,112 1,581,050 6,627,483 2,105,343 1,382,311 Repairs and maintenance 19,788,408 996,542 4,280,130 1,328,987 838,717 Cost of Federal Reserve currency 98,441,027 5,454,292 22,400,628 4,524,085 6,628,954 Cost of earnings credits1 .. 28,261,201 2,806,545 1,930,562 1,392,678 1,996,859 All other 27,137,096 2,302,334 4,402,408 1,161,926 1,952,888 Shared costs, net2 0 187,686 -172,581 227,777 -408,380 Recoveries -4,109,109 -310,360 -929,720 -409,478 -66,884 Expenses capitalized3 -2,840,279 -92,201 -7,223 0 -163,438 Total4 1,100,277,278 71,377,331 218,732,180 55,861,368 66,172,619 Reimbursements ... / -75,802,294 -6,788,241 -17,592,132 -4,435,281 -5,066,172 Net expenses 1,024,474,984 64,589,090 201,140,048 51,426,087 61,106,447 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 219 —Continued Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco 10,511,320 3,236,546 17,978,090 6,129,624 5,719,762 11,211,220 15,125,041 8,690,546 1,283,449,216 421,329,511 2,235,496,829 534,237,701 204,995,294 720,536,314 1,019,659,201 1,978,747,375 22,369,054 32,699,165 60,766,531 12,495,072 15,911,316 19,343,250 27,925,967 70,550,531 28,019,258 44,695,757 61,051,781 19,113,403 21,180,961 28,565,313 26,088,093 37,122,196 624,751 874,700 1,321,170 442,936 276,880 216,183 621,310 918,489 1,344,973,599 502,835,679 2,376,614,401 572,418,737 248,084,213 779,872,280 1,089,419,612 2,096,029,138 35,501,997 39,248,272 59,495,404 24,015,714 20,737,835 31,245,710 28,233,617 49,026,507 10,148,260 10,921,503 16,811,432 6,523,239 5,370,653 8,457,956 7,512,907 14,021,961 511,661 543,532 1,107,989 568,350 378,621 442,820 491,067 1,187,185 1,190,997 1,228,466 2,245,578 688,040 820,755 1,304,750 1,013,983 1,840,846 10,039,965 10,400,429 13,748,988 6,178,235 4,998,600 7,590,579 7,394,045 11,367,612 1,416,153 2,001,465 2,303,212 705,674 1,003,036 1,206,278 1,285,382 2,019,572 3,561,839 3,681,688 4,211,219 2,276,020 1,393,603 2,879,994 2,518,135 3,164,958 1,352,197 1,033,949 1,784,092 402,122 1,808,307 514,805 667,569 919,068 2,937,441 905,828 639,016 530,443 957,600 810,918 663,518 1,226,824 1,929,376 1,744,942 2,037,457 1,133,923 817,877 1,147,115 1,285,565 1,579,707 934,038 107,127 1,873,096 284,084 76,638 46,473 767,275 1,766,890 1,142,517 869,558 1,717,288 399,492 625,524 586,590 627,232 626,700 5,842,954 6,159,046 9,425,786 2,003,530 1,927,345 2,204,446 3,148,144 5,062,761 2,710,779 1,993,281 2,488,330 1,791,311 1,577,600 3,007,295 3,012,638 4,408,691 1,553,834 1,474,999 1,788,136 1,252,165 904,671 1,650,394 1,466,867 2,252,966 10,400,382 7,987,997 12,131,492 3,433,409 1,631,364 5,915,811 4,755,151 13,177,462 2,740,820 4,379,560 8,068,853 498,783 1,829,799 519,795 806,271 1,290,676 1,470,755 1,962,581 4,942,415 1,028,173 1,331,593 1,219,361 2,085,616 3,277,046 239,011 603,069 -462,706 558,990 440,632 -224,193 -986,975 -2,330 -918,531 -379,954 -68,889 -518,924 -84,794 -276,895 -116,829 -27,851 -231,247 -184,515 -637,614 -106,573 -68,666 -759,478 -476,456 -112,868 89,955,9614 96,682,823 145,650,574 53,646,200 48,478,593 69,490,524 66,154,722 118,074,383 -6,115,873 -5,491,944 -9,323,489 -3,282,981 -2,188,905 -3,970,062 -3,786,618 -7,760,596 83,840,088 91,190,879 136,327,085 50,363,219 46,289,688 65,520,462 62,368,104 110,313,787 For notes see end of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

220 Tables 7. Income and Expenses of Federal Reserve Banks, 1982—Continued Dollars Item Total Boston New York Philadelphia Cleveland PROFIT AND LOSS Current net income 15,492,910,149 669,682,167 4,892,366,721 516,749,946 1,050,076,967 Additions to current net income Profits on sales of U.S. government securities 85,240,779 3,989,431 27,142,214 2,806,247 5,533,135 All other 1,162,530 311 18,637 606 706 Total additions 86,403,309 3,989,742 27,160,851 2,806,853 5,533,841 Deductions from current net income Losses on foreign currency transactions5 . 149,612,214 3,889,918 37,253,441 6,134,101 11,220,916 All other 5,624,246 43,557 1,239,217 46,663 43,094 Total deductions ... 155,236,460 3,933,475 38,492,658 6,180,764 11,264,010 Net additions to or deductions (-) from current net income -68,833,150 56,267 -11,331,807 -3,373,911 -5,730,169 Assessment for expenditures of Board of Governors6 61,813,400 1,605,700 15,383,800 2,579,800 4,639,900 Net income before payments to U.S. Treasury 15,362,263,601 668,132,734 4,865,651,114 510,796,235 1,039,706,899 Dividends paid 79,352,304 2,039,198 19,582,450 3,393,997 5,891,495 Payments to U.S. Treasury (interest on Federal Reserve notes) 15,204,590,947 664,574,836 4,833,139,264 500,598,188 1,031,120,404 Transferred to surplus 78,320,350 1,518,700 12,929,400 6,804,050 2,695,000 Surplus, January 1 1,279,128,350 33,434,500 318,683,300 52,986,600 96,451,300 Surplus, December 31 1,357,449,200 34,953,200 331,612,700 59,790,650 99,146,300 1. In 1981, earnings credits were classified as a deduction other Federal Reserve Banks for operation of the Federal from current net income. Reserve Communications System. 2. Includes distribution of costs for projects performed by 5. This item consists of unrealized net losses related to reone Bank for the benefit of one or more other Banks. valuation of assets denominated in foreign currencies to mar- 3. This item includes expenses for labor and materials tem- ket exchange rates. porarily capitalized and charged to activities when the products 6. For additional details, see the last three pages of the are consumed. section "Board of Governors, Financial Statements." 4. The total expense for Richmond has been adjusted to NOTE. Details may not add to totals because of rounding. exclude $4,519,237, which was allocated to the expenses of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 221 7—Continued Richmomid Atlanta Chicago St. Louis Minneapolis 1 Kansas City Dallas | San Francisco 1,261,133,511 411,644,801 2,240,287,316 522,055,518 201,794,525 714,351,818 1,027,051,508 1,985,715,351 7,303,207 2,080,775 11,946,614 2,822,073 1,040,924 4,047,928 5,851,259 10,676,972 844,771 18,418 8,155 1,410 29,883 1,648 40,300 197,685 8,147,978 2,099,193 11,954,769 2,823,483 1,070,807 4,049,576 5,891,559 10,874,657 7,779,835 11,370,528 21,095,322 4,338,754 5,535,652 6,732,550 9,724,794 24,536,403 60,625 129,006 508,627 23,094 9,845 176,117 688,177 2,656,224 7,840,460 11,499,534 21,603,949 4,361,848 5,545,497 6,908,667 10,412,971 27,192,627 307,518 -9,400,341 -9,649,180 -1,538,365 -4,474,690 -2,859,090 -4,521,412 -16,317,970 3,173,400 4,745,200 8,649,500 1,802,800 2,251,600 2,759,800 4,074,500 10,147,400 1,258,267,629 397,499,260 2,221,988,635 518,714,354 195,068,235 708,732,928 1,018,455,596 1,959,249,982 4,116,116 6,237,573 10,926,469 2,285,427 2,888,870 3,568,966 5,368,824 13,052,919 1,248,471,813 379,625,737 2,206,444,016 515,818,077 190,038,015 700,300,061 1,002,595,672 1,931,864,864 5,679,700 11,635,950 4,618,150 610,850 2,141,350 4,863,900 10,491,100 14,332,200 65,866,900 97,228,900 180,055,100 37,468,800 46,842,850 57,044,550 83,766,500 209,299,550 71,546,600 108,864,850 184,673,250 38,079,650 48,984,200 61,908,450 94,257,600 223,631,750 1. In 1981, earnings credits were classified as a deduction other Federal Reserve Banks for operation of the Federal from current net income. Reserve Communications System. 2. Includes distribution of costs for projects performed by 5. This item consists of unrealized net losses related to reone Bank for the benefit of one or more other Banks. valuation of assets denominated in foreign currencies to mar- 3. This item includes expenses for labor and materials tem- ket exchange rates. porarily capitalized and charged to activities when the products 6. For additional details, see the last three pages of the are consumed. section "Board of Governors, Financial Statements." 4. The total expense for Richmond has been adjusted to NOTE. Details may not add to totals because of rounding. exclude $4,519,237, which was allocated to the expenses of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

222 Tables 8. Income and Expenses of Federal Reserve Banks, 1914—82 Dollars Pe R ri e o s d e , r v o e r B Fe a d n e k ral Current income e C x u pe rr n e s n e t s d N ed e u t c a ti d o o d r n i s ti o (— ns ) A ex s p s B e e s n o s d a m i r t e d u n r o t e s f s f o o f r Governors All Banks 1914-15 . 2,173,252 2,018,282 5,875 302,304 1916 .... 5,217,998 2,081,722 -193,001 192,277 1917 .... 16,128,339 4,921,932 -1,386,545 237,795 1918 .... 67,584,417 10,576,892 -3,908,574 382,641 1919 .... 102,380,583 18,744,815 -4,673,446 594,818 1920 .... 181,296,711 27,548,505 -3,743,907 709,525 1921 ... 122,865,866 33,722,409 -6,314,796 741,436 1922 .... 50,498,699 28,836,504 -4,441,914 722,545 1923 .... 50,708,566 29,061,539 -8,233,107 702,634 1924 .... 38,340,449 27,767,886 -6,191,143 663,240 1925 .... 41,800,706 26,818,664 -4,823,477 709,499 1926 .... 47,599,595 26,628,458 -3,637,668 721,724 1927 .... 43,024,484 26,739,327 -2,457,792 779,116 1928 .... 64,052,860 26,207,133 -5,026,029 697,677 1929 .... 70,955.496 28,909,469 -4,861,642 781,644 1930 .... 36,424,044 27,533,141 -93,136 809,585 1931 .... 29,701.279 26,322,110 311,451 718,554 1932 .... 50,018.817 25,562,571 -1,413,192 728,810 1933 .... 49,487.318 28,422,677 -12,307,074 800,160 1934 .... 48,902.813 27,869,374 -4,430,008 1,372,022 1935 .... 42,751.959 30,171,545 -1,736,758 1,405,898 1936 .... 37,900.639 28,194,457 485,817 1,679,566 1937 .... 41,233,135 27,052,234 -1,631,274 1,748,380 1938 .... 36,261,428 27,186,684 2,232,134 1,724,924 1939 .... 38,500,665 27,025,391 2,389,555 1,621,464 1940 .... 43,537,805 27,461,466 11,487,697 1,704,011 1941 .... 41,380,095 31,123,609 720,636 1,839,541 1942 .... 52,662,704 36,877,718 -1,568,208 1,746,326 1943 .... 69,305,715 41,129,934 23,768,282 2,415,630 1944 .... 104,391,829 46,879,564 3,221,880 2,296,357 1945 ... 142,209,546 46,376,762 -830,007 2,340,509 1946 ... 150,385,033 54,975,323 -625,991 2,259,784 1947 .... 158,655,566 62,753,308 1,973,001 2,639,667 1948 ... 304,160,818 69,466,518 -34,317,947 3,243,670 1949 ... 316,536,930 74,235,176 -12,122,274 3,242,500 1950 ... 275,838,994 77,138,071 36,294,117 3,433,700 1951 ... 394,656,072 91,373,589 -2,127,889 4,095,497 1952 ... 456,060,260 100,572,489 1,583,988 4,121,602 1953 ... 513,037,237 109,415,220 -1,058,993 4,099,800 1954 ... 438,486,040 105,558,331 -133,641 4,174,600 1955 ... 412,487,931 105,865,923 -265,456 4,194,100 1956 ... 595,649,092 115,842,696 -23,436 5,339,800 1957 ... 763,347,530 124,306,103 -7,140,914 7,507,900 1958 ... 742,068,150 131,804,455 124,175 5,917,200 1959 ... 886,226,116 138,232,106 98,247,253 6,470,600 1960 ... 1,103,385,257 147,348,575 13,874,702 6,533,700 1961 ... 941,648,170 155,009,475 3,481,628 6,265,100 1962 ... 1,048,508,335 169,481,234 -55,779 6,654,900 1963 ... 1,151,120,060 179,700,557 614,835 7,572,800 1964 ... 1,343,747,303 188,740,689 725,948 8,655,200 1965 ... 1,559,484,027 195,713,790 1,021,614 8,576,396 1966 ... 1,908,499,896 198,379,526 996,230 9,021,600 1967 ... 2,190,403,752 209,351,250 2,093,876 10,769,596 1968 ... 2,764,445,943 228,152,172 8,519,996 14,198,198 1969 ... 3,373,360,559 259,953,236 -557,553 15,020,084 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 223 8.—-Continued Payments to U.S. Treasury Transferred Transferred Div p i a d i e d nds Fran ta c x hise sec U ti n o d n e r 13b Fed In er te a r l e R st e s o e n rve (s t e o c t s io u n rp l 1 u 3 s b) ( t s o e c s t u io rp n l u 7 s ) notes 217,463 1,742,775 6,804,186 1,134,234 1,134,234 5,540,684 48,334,341 5,011,832 2,703,894 70,651,778 5,654,018 60,724,742 82,916,014 6,119,673 59,974,466 15,993,086 6,307,035 10,850,605 -659,904 6,552,717 3,613,056 2,545,513 6,682,496 113,646 -3,077,962 6,915,958 59,300 2,473,808 7,329,169 818,150 8,464,426 7,754,539 249,591 5,044,119 8,458,463 2,584,659 21,078,899 9,583,911 4,283,231 22,535,597 10,268,598 17,308 -2,297,724 10,029,760 -7,057,694 9,282,244 2,011,418 11,020,582 8,874,262 -916,855 8,781,661 -60,323 6,510,071 8,504,974 297,667 27,695 607,422 7,829,581 227,448 102,880 352,524 7,940,966 176,625 67,304 2,616,352 8,019,137 119,524 -419,140 1,862,433 8,110,462 24,579 -425,653 4,533,977 8,214,971 82,152 -54,456 17,617,358 8,429,936 141,465 -4,333 570,513 8,669,076 197,672 49,602 3,554,101 8,911,342 244,726 135,003 40,237,362 9,500,126 326,717 201,150 48,409,795 10,182,851 247,659 262,133 81,969,625 10,962,160 67,054 27,708 81,467,013 11,523,047 35,605 75,223,818 86,772 8,366,350 11,919,809 166,690,356 18,522,518 12,329,373 193,145,837 21,461,770 13,082,992 196,628,858 21,849,490 13,864,750 254,873,588 28,320,759 14,681,788 291,934,634 46,333,735 15,558,377 342,567,985 40,336,862 16,442,236 276,289,457 35,887,775 17,711,937 251,740,721 32,709,794 18,904,897 401,555,581 53,982,682 20,080,527 542,708,405 61,603,682 21,197,452 524,058,650 59,214,569 22,721,687 910,649,768 -93,600,791 23,948,225 896,816,359 42,613,100 25,569,541 687,393,382 70,892,300 27,412,241 799,365,981 45,538,200 28,912,019 879,685,219 55,864,300 30,781,548 1,582,118,614 -465,822,800 32,351,602 1,296,810,053 27,053,800 33,696,336 1,649,455,164 18,943,500 35,027,312 1,907,498,270 29,851,200 36,959,336 2,463,628,983 30,027,250 39,236,599 3,019,160,638 39,432,450 For notes see end of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

224 Tables 8. Income and Expenses of Federal Reserve Banks, 1914-82—Continued Dollars Pe R ri e o s d e , r v o e r F B e a d n e k ral Current income e C x u p r e r n e s n e t s d N ed e u t c a ti d o o d r n i s ti o ( n — s ) A ex s p se B e s n o s d a m i r t d e u n r o t e s f s f o o f r Governors 1970 3,877,218,444 300,145,586 11,441,829 21,227,800 1971 3,723,369,921 344,550,798 94,266,075 32,634,002 1972 . .. 3,792,334,523 379,371,852 -49,615,790 35,234,499 1973 5,016,769,328 450,705,676 -80,653,488 44,411,700 1974 6,280,090,965 506,424,874 -78,487,237 41,116,600 1975 6,257,936,784 551,488,714 -202,369,615 33,577,201 1976 6,623,220,383 606,948,264 7,310,500 41,827,700 1977 6,891,317,498 623,859,582 -177,033,463 47,366,100 1978 8,455,390,401 652,617,206 -633,123,486 53,321,700 1979 10,310,148,406 693,559,531 -151,148,220 50,529,700 1980 . . . .. 12,802,319,335 791,157,259 -115,385,855 62,230,800 1981 15,508,349,653 897,114,405 -372,879,185 63,162,700 1982 16,517,385,129 1,024,474,984 -68,833,150 61,813,400 Total, 1914-82 131,617,347,653 11,941,561,317 -1,744,668,964 776,352,508 Aggregate for each Bank,1914-82 Boston 6,219,194,588 805,778,799 -65,166,284 31,092,986 New York 35,041,576,438 2,494,053,832 -395,917,147 205,010,786 Philadelphia 6,386,381,559 640,596,889 -74,921,868 38,844,018 Cleveland 10,147,608,805 848,275,126 -150,509,181 67,086,390 Richmond 10,040,897,126 954,600,118 -103,566,012 40,293,476 Atlanta 5,970,651,606 968,125,662 -122,907,176 52,964,060 Chicago 20,534,656,054 1,579,807,163 -286,247,684 114,355,372 St. Louis 5,061,525,611 657,424,414 -63,638,446 25,415,872 Minneapolis 2,669,821,755 479,465,553 -48,484,094 21,420,615 Kansas City 5,605,914,743 725,096,486 -75,208,478 32,422,509 Dallas 6,757,109,021 633,222,519 -104,680,109 43,216,073 San Francisco 17,182,010,349 1,155,114,754 -253,422,486 104,230,351 Total 131,617,347,653 11,941,561,317 -1,744,668,964 776,352,508 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 225 -Continued Payments to U.S. Treasury Dividends Fran ta c x hise sec U ti n o d n er 13b Fed In er te n al r o e t R s e t s e s o e n rve ( T s t e r o c a t n s i s o u f n r e p r l 1 r u e 3 s d b) T ( t s r o a e n c s t s u i f o r e p n r l r u 7 e s d ) 41,136,551 3,493,570,636 32,579,700 43,488,074 3,356,559,873 40,403,250 46,183,719 3,231,267,663 50,661,000 49,139,682 4,340,680,482 51,178,300 52,579,643 5,549,999,411 51,483,200 54,609,555 5,382,064,098 33,827,600 57,351,487 5,870,463,382 53,940,050 60,182,278 5,937,148,425 45,727,650 63,280,312 7,005,779,497 47,268,200 67,193,615 9,278,576,140 69,141,200 70,354,516 11,706,369,955 56,820,950 74,573,806 14,023,722,907 76,896,650 79,352,304 15,204,590,947 78,320,350 1,526,526,198 149,138,300 2,188,893 113,990,793,736 -3,657 1,486,121,399' 69,634,479 7,111,395 280,843 5,194,946,365 135,411 45,048,025 425,946,071 68,006,262 369,116 31,083,837,366 -433,412 368,869,271 86,855,954 5,558,901 722,406 5,464,469,990 290,661 74,120,872 137,110,589 4,842,447 82,930 8,827,331,955 -9,906 112,380,093 75,522,467 6,200,189 172,493 8,783,187,479 -71,517 77,426,408 93,222,820 8,950,561 79,264 4,610,265,182 5,491 114,131,390 214,302,447 25,313,526 151,045 18,114,465,130 11,682 200,002,004 50,597,141 2,755,629 7,464 4,218,513,883 -26,515 43,199,278 40,004,409 5,202,900 55,615 2,022,262,284 64,874 52,861,413 62,278,088 6,939,100 64,213 4,637,866,142 -8,674 66,048,400 80,740,837 560,049 102,083 5,795,996,936 55,337 98,535,078 190,310,896 7,697,341 101,421 15,237,651,024 -17,089 233,499,167 1,526,526,198 149,138,300 2,188,893 113,990,793,736 -3,657 1,486,121,399! l.The $1,486,121,399 transferred to surplus was reduced by elimination of sec. 13b surplus (1958); and was increased by direct charges of $500,000 for charge-off on Bank premises $11,131,013 transferred from reserves for contingencies (1945), (1927), $139,299,557 for contributions to capital of the Federal leaving a balance of $1,357,449,198 on Dec. 31, 1982. Deposit Insurance Corporation (1934), and $3,657 net upon NOTE. Details may not add to totals because of rounding. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

226 Tables 9. Volume of Operations in Principal Departments of Federal Reserve Banks, 1979-82 Operation 1982 1981 1980 1979 Millions of pieces Loans 0) Currency received and counted 10,679 8,839 Currency verified and destroyed 4,147 3,510 3,197 2,969 Coin received and counted 16,859 17,023 17,700 18,756 Checks handled U.S. government checks 655 683 705 718 Postal money orders 126 126 117 117 All other2 13,971 15,880r 15,721r 15,067 Issues, redemptions, and exchanges of U.S. government securities 156 188 301 335 Transfers of funds3 58 54 43 35 Food stamps redeemed 2,565 2,625 2,541 1,730 Amounts (millions of dollars) Loans 184,997 236,532 267,957 220,628 Currency received and counted 128,802 117,901 104,333 93,119 Currency verified and destroyed 31,258 24,912 20,183 22,638 Coin received and counted 2,714 3,184 2,703 2,765 Checks handled U.S. government checks 628,639 611,403 598,569 511,044 Postal money orders 6,645 6,030 6,164 6,323 All other 8,722,369 9,454,638r 9,365,649r 8,514,670 Issues, redemptions, and exchanges of U.S. government securities 26,550,780 12,728,458 10,326,013r 8,186,706r Transfers of funds 121,239,371 93,968,246 78,594,862 64,231,109 Food stamps redeemed 9,869 9,547 9,268 7J79 1. Number handled (in thousands): 1982, 24; 1981, 36; 1980, Before 1980, the volume of these items was insufficient to 25; and 1979, 38. warrant separate reporting. 2. Includes checks processed in pre-sorted bundles (fine sort 3. Includes the volume processed at both sending and reitems) as follows (mTirlillilioonnss ooff bbuunnddlleess)):: 11998P0, 4.5, with a value ceiving offices of Federal Reserve Banks. The number of priced of $1,314,925 million; 1981, 8.3 with a value of $1,715,552 wire transfers in 1982 was 35 million. million; and 1982, 10.0, with a value of $1,383,735 million. r Revised. 10. Revenue and Expense of Priced Services at Federal Reserve Banks, 1982 Thousands of dollars Service Item R S F y e e s d s t e e e r r m v a e l 1 W se a i t r n t e l d f e e t m r r n a e e n t n s t - C A om c C ia m H l e 2 r- C c o o m c ll h m e e c c e t k r io c n ial Book-entry a s n a D c d f o e e l f k l n i e n e o c e i n t t p i i c o v i a n n e s g n tr t a a C n t a i s o s p h n o 3 r- wr C ap o p in ing Revenue 421,571 49,251 1,302 283,034 13,326 14,503 24,149 1,167 Expense 456,824 47,922 9,620 304,004 16,117 20,349 29,457 1,094 Net revenue -35,253 1,329 -8,318 -20,970 -2,791 -5,846 -5,308 73 Private sector adjustment4 55,672 7,662 1,510 40,646 2,575 2,944 226 109 Net revenue after private sector adjustment... -90,925 -6,333 -9,828 -61,616 -5,366 -8,790 -5,534 -36 MEMO: Pro forma net revenue after private sector adjustment, after effect of the ACH and cash transportation programs -78,796 -924 -2,309 1. Total System revenue comprises $386.7 million of income concluded at the end of 1983, for the cash transportation service, from fees for services and $34.8 million of income related to and anticipated that expenses plus the private sector adjustclearing balances established by depository institutions. Total ment would exceed revenue for the duration of the program. System expense includes $28.3 million of earnings credits granted 4. This adjustment is an imputed cost intended to reflect to depository institutions on clearing balances. Details may the taxes that would have been paid and the return on capital not add to totals because revenue and expense data shown by that would have been provided had a private sector firm furservice do not reflect the income and expense related to clear- nished the services. In 1982, a PSAF of 16 percent was applied ing balances. to Bank expenses for priced services, except certain shipping 2. The Board established an incentive pricing program for expenses. the commercial automated clearinghouse service that provides NOTE. Revenue and expenses of priced services offered by for fee structures designed to recover an increasing share of the Federal Reserve Banks are derived from the income and expenses over a period of several years. For 1982, revenue for expense data shown in table 7. Expenses for priced services the commercial ACH service was expected to represent ap- are based primarily on the Federal Reserve Planning and Conproximately 20 percent of expenses plus the private sector trol System, which provides for the allocation of expenses to Digitizeda fdojurs tFmRenAt SfaEctRor . the principal areas of operation of the Banks. 3. The Board adopted a transitional support program, to be http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 227 11. Federal Reserve Bank Interest Rates, December 31, 1982 Percent per annum Loans to depository institutions Federal Reserve Short-term Extended credit2 Bank adjustment credit and seasonal First 60 days Next 90 days After 150 credit1 of borrowing of borrowing days Boston 81/2 91/2 10V5 New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco 8V* 8V* 9Vi 10V* 1. Rates applied to short-term advances for the purpose of 2. Applicable to advances when exceptional circumstances meeting temporary funding requirements and to longer-term or practices involve only a particular depository institution and advances made to smaller institutions for the purpose of meet- to advances when an institution is under sustained liquidity ing seasonally recurring needs for funds. See sections 201.3(a) pressures. See section 201.3(b)(2) of Regulation A. and 201.3(b)(l) of Regulation A. 12. Reserve Requirements of Depository Institutions Percent of deposits Through July13, 1966 Net demand deposits2 Time deposits Effective date1 Central reserve Reserve city Country (all classes city banks banks banks of banks) 1917—June 21 13 10 7 3 1936—Aug 16 l9Vi 15 10V* 41/2 1937_Mar. 1 223/4 17V* 12V4 51/4 May 1. 26 20 14 6 1938_Apr. 16 223/4 17V* 12 5 1941—Nov. 1 26 20 14 6 1942—Aug. 20 24 Sept 14 22 Oct. 3 20 194g_Feb 27 22 June 11 24 Sept. 24, 16 26 22 16 71/2 1949—-May 5 1 24 21 15 7 June 30, July 1 20 14 6 Aug 1 13 11, 16 23V2 19V* 12 5 18 23 19 25 22 V* 18V5 Sept. 1 22 18 1951—jan ii 16 23 19 13 6 25, Feb. 1 24 20 14 1953—July 9, 1 22 19 13 1954—june 24 16 21 5 July 29, Aug. 1 20 18 12 1958—Feb. 27, Mar. 1 19V* YIVi 11V* Mar. 20, Apr. 1 19 17 11 Apr. 17 18V* 24 . 18 16V* I960—Sept. 1 17V* Nov 24 12 Dec. 1 \Vi 1962—July 28 (3) Oct. 25, Nov 1 4 For notes see end of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

228 Tables 12. Reserve Requirements of Depository Institutions—Continued Percent of deposits July 14, 1966, through Nov. 8, 1972 (deposit intervals in millions of dollars) Net demand Time deposits4 deposits2 (all classes of banks) Effective date1 Reserve Country Other city banks banks Savings time 0-5 | Over 5 0-5 | Over 5 0-5 | Over 5 1966-July 14, 21 \6Vi5 125 45 45 5 Sept. 8, 11 .... .... .... .... .... .... 6 1967-Mar. 2 .... .... .... 3Vi 3V4 16 .... 3 3 1968-Jan. 11, 18 16V5 17 12 12Vi .... .... .... 1969-Apr. 17 17 17V4 12Vi 13 .... 1970-Oct. 1 .... .... .... 5 Nov. <I 1972, 1hrough Nov. 12, 1980 (deposit intervals in millions ()f dollars Net demand deposits26 Time and savings deposits4 Time7 0-5, by Over 5, by Effective date 10- 100- Over Sav- maturity maturity 0-2 2-10 100 400 400 ings d 3 1 a 0 7 y - 9 s 4 d y 1 t a 8 o r y 0 s s . 4 m y o o r r r s e . d 3 1 a 0 7 y - 9 s 4 d 1 t a y 8 o y r 0 s s . 4 m y o o r r r s e . 1972-Nov. 9 8 10 12 16VS8 17V5 35 35 55 16 ... 13 1973-July 19 10V5 12VS 13VS 18 1974-Dec. 12 17V4 ' 6' 3 1975-Feb. 13 7V2 id \2 13 16V>> Oct 30 . ... 3 I9 3 I9 1976-Jan. 8 3 2VS9 2Vz9 Dec. 30 ' Y Mi 113/4 123/4 Beginning Nov. 13, 1980 Depository institution requirements Ty d p e e p o o s f i t d e in p t o e s r i v t, a l a 10 nd af M ter o n im et p ar le y m C en on ta tr ti o o l n A o c f t 1 t 1 he Percent Effective date Net-transaction accounts1213 $0-$26.3 million 3 12/30/82 Over $26.3 million 12 12/30/82 Nonpersonal time deposits14 By original maturity Less than 3Vi 3 4/29/82 3V2 years or more 0 4/29/82 Eurocurrency liabilities All types 3 11/13/80 1. Reserves required during the period from inception of net demand deposits effective Dec. 1,1959, and Aug. 25,1960, the Federal Reserve System until June 20, 1917, were not respectively; central reserve city and reserve city banks—in strictly comparable with later requirements; they were based excess of 2 and 1 percent effective Dec. 3, 1959, and Sept. 1, on aggregate amounts of deposits, and reserve balances with 1960, respectively. All institutions were allowed to count all the Reserve Banks were increased in stages. vault cash as reserves effective Nov. 24, 1960. When two dates are shown, the first applies to the change In graduated requirement schedules, each deposit interval at central reserve or reserve city banks and the second to the applies to that part of the deposits of each bank. change at country banks. Beginning Oct. 16, 1969, Regulation M required reserves 2. Demand deposits subject to reserve requirements, begin- against (a) net balances due from domestic offices to their ning Aug. 23, 1935, were total demand deposits minus cash foreign branches and (b) foreign-branch loans to U.S. resiitems in process of collection and demand balances due from dents; Regulation D imposed a similar requirement against (c) domestic banks (also minus war loan and Series E bond ac- borrowings from foreign banks by domestic offices of a memcounts during the period Apr. 13, 1943—June 30, 1947). ber bank. Limited reserve-free base amounts were originally All required reserves were held on deposit with Federal permitted under Regulation M but were eliminated for (b) Reserve Banks from June 21,1917, until late 1959. Since then, effective June 21,1973, and were lowered in steps for (a) and member banks were allowed to count vault cash as reserves, (c) until eliminated effective Mar. 4,1974. Beginning June 21, as follows: country banks—in excess of 4 and 2Vi percent of 1973, loans aggregating $100,000 or less to any U.S. res- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 229 12.—Continued ident were excluded from computations, as were total loans the greater of (a) $100 million or (b) the average amount of of a bank to U.S. residents if not exceeding $1 million. The the managed liabilties held by a member bank, Edge corpoapplicable reserve percentage, which was originally 10 percent, ration, or family of U.S. branches and agencies of a foreign was increased to 20 percent on Jan. 7, 1971; reduced to 8 bank for the two reserve computation periods ending Sept. 26, percent on June 21, 1973, to 4 percent on May 22, 1975, and 1979. For the computation period beginning Mar. 20, 1980, to zero on Aug. 24, 1978. Effective Dec. 1, 1977, the reserve the base was lowered by (a) 7 percent or (b) the decrease in required against deposits that foreign branches of U.S. banks an institution's U.S. office gross loans to foreigners and gross use for lending to U.S. residents was reduced to 1 percent, balances due from foreign offices of other institutions between and on Aug. 24, 1978, it was reduced to zero. For details see the base period (Sept. 13-26, 1979) and the week ending Mar. Regulations D and M as described in "Record of Policy Ac- 12, 1980, whichever was greater. For the computation period tions of the Board of Governors," in previous ANNUAL RE- beginning May 29, 1980, the base was increased IVi percent PORTS. above the base used to calculate the marginal reserve in the 3. Authority of the Board of Governors to classify or re- statement week of May 14-21, 1980. In addition, beginning classify cities as central reserve cities was terminated effective Mar. 19, 1980, the base was reduced to the extent that foreign July 28, 1962. loans and balances declined. 4. Time deposits such as Christmas and vacation club ac- 8. The 16V^ percent requirement applied only for one week counts became subject to the same requirements as savings and solely to former reserve city banks. For other banks, the deposits, effective Jan. 5,1967. Negotiable order of withdrawal 13 percent requirement was continued in this deposit interval. (NOW) accounts were defined in the Board's Regulation Q 9. The average of reserves on savings and other time deposits as savings deposits beginning Jan. 1, 1974. Effective with the had to be at least 3 percent, the legal minimum at that time. reserve computation period beginning Nov. 16,1978, domestic 10. The Garn-St Germain Depository Institutions Act of deposits of Edge corporations were subject to the same reserve 1982 (P.L. 97-320) provides that $2 million of reservable lirequirements as deposits of member banks. abilities (transaction accounts, nonpersonal time deposits, and 5. This rate had been established in the earlier structure. It Eurocurrency liabilities) of each depository institution are subremained the same in the new structure established this date. ject to a reserve requirement of zero percent. Each year the 6. Effective Nov. 9, 1972, a new criterion was adopted to Board will adjust the amount of reservable liabilities subject designate reserve cities, and on the same date requirements to the zero percent requirement 80 percent of the percentage for reserves against net demand deposits of member banks increase in the total reservable liabilities of all depository inwere restructured to provide that each member bank maintain stitutions as of June 30; no adjustment is made in the event reserves related to the size of its net demand deposits. The of a decrease. new reserve city designations were as follows: A bank having Effective Dec. 9, 1982, the amount of the exemption was net demand deposits of more than $400 million was considered established at $2.1 million. In determining the reserve requireto have the character of business of a reserve city bank, and ments of a depository institution, the exemption applies in the the presence of the head office of such a bank constituted following order: (1) net negotiable order of withdrawal (NOW) designation of that place as a reserve city. Cities in which there accounts (that is, NOW accounts less allowable deductions); were Federal Reserve Banks or branches were also reserve (2) net other transaction accounts; and (3) nonpersonal time cities. Any bank, wherever located, having net demand de- deposits or Eurocurrency liabilities, starting with those with posits of $400 million or less was considered to have the char- the highest reserve ratio. With respect to NOW and to other acter of business of banks outside of reserve cities and was transaction accounts, the exemption applies only to the acpermitted to maintain reserves at ratios set for banks not in counts that would be subject to a 3 percent reserve requirereserve cities. ment. 7. Beginning Nov. 2, 1978, a supplementary reserve re- 11. For nonmember banks and thrift institutions that were quirement of 2 percent was added to the existing requirements not members of the Federal Reserve System on or after July for time deposits of $100,000 or more and for certain other 1, 1979, a phase-in period ends September 3, 1987. For banks liabilities. This supplementary requirement was eliminated with that were members on or after July 1, 1979, but withdrew on the maintenance period beginning July 24, 1980. or before Mar. 31, 1980, the phase-in period established by From June 21,1973, through Dec. 11, 1974, member banks, P.L. 97-320 ends on Oct. 24,1985. For existing member banks except as noted below, were subject to a marginal reserve the phase-in period is about three years, depending on whether requirement against increases in the aggregate of the following their new reserve requirements are greater or less than the old types of obligations: (a) outstanding time deposits of $100,000 requirements. All new institutions will have a two-year phaseor more, (b) outstanding funds obtained by the bank through in beginning with the date that they open for business, except issuance by a bank's affiliate of obligations subject to the ex- for those institutions that have total reservable liabilities of isting reserve requirements on time deposits, and (c) beginning $50 million or more. July 12, 1973, funds from sales of finance bills. For the period 12. Transaction accounts include all deposits on which the June 21 through Aug. 29, 1973, (a) included only single-ma- account holder is permitted to make withdrawals by negotiable turity time deposits. The requirement applied to balances above or transferable instruments, payment orders of withdrawal, a specified base, but was not applicable to banks having ob- and telephone and preauthorized transfers (in excess of three ligations of these types aggregating less than $10 million. In- per month) for the purpose of making payments to third percluding the basic requirement (5 percent during the entire sons or others. However, money market deposit accounts period), requirements were as follows: 8 percent for (a) and (MMDAs) authorized under 12 CFR 1204.122, and similar (b) from June 21 through Oct. 3, 1973, and for (c) from July accounts offered by institutions not subject to the rules of the 12 through Oct. 3, 1973; 11 percent from Oct. 4 through Dec. Depository Institutions Deregulation Committee that permit 26, 1973; and 8 percent from Dec. 27, 1973, through Sept. 18, up to six preauthorized, automatic, or other transfers per month, 1974. Beginning Sept. 19, the 8 percent requirement applied of which no more than three can be checks, are not transaction only to those obligations in (a), (b), and (c) with initial ma- accounts. Such accounts are savings deposits subject to the turities of less than 120 days, and effective Dec. 12, 1974, the reserve requirements for time deposits. remaining marginal reserve was removed on this type of ob- 13. The Monetary Control Act of 1980 requires that the ligation issued to mature in less than 4 months. For details, amount of transaction accounts against which the 3 percent see "Record of Policy Actions of the Board of Governors" in reserve requirement applies be modified annually 80 percent 1973 and 1974 ANNUAL REPORTS. of the percentage change in transaction accounts held by all Effective with the reserve maintenance period beginning depository institutions, as of June 30 each year. Effective Dec. Oct. 25, 1979, a marginal reserve requirement of 8 percent 31, 1981, the amount was increased from $25 million to $26 was added to managed liabilities in excess of a base amount. million; and effective Dec. 30, 1982, to $26.3 million. This marginal requirement was increased to 10 percent begin- 14. In general nonpersonal time deposits are time deposits, ning Apr. 3, 1980, was decreased to 5 percent beginning June including savings deposits, that are not transaction accounts 12,1980, and was eliminated beginning July 24,1980. Managed and in which the beneficial interest is held by a depositor that liabilities are defined as large time deposits, Eurodollar bor- is not a natural person. Also included are all transferable time rowings, repurchase agreements against U.S. government and deposits and certain obligations issued to depository institution federal agency securities, federal funds borrowings from non- offices located outside the United States. For details, see secmember institutions, and certain other obligations. In general, tion 204.2 of Regulation D. the base for the marginal reserve requirement was originally Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

230 Tables 13. Maximum Interest Rates Payable on Time and Savings Deposits at Federally Insured Institutions1 Percent per annum Savings and loan associations and Commercial banks mutual savings banks (thrift institutions) Type and maturity of deposit In effect Previous In effect Previous Dec. 31, 1982 maximum Dec. 31, 1982 maximum Percent Eff d e a c t t e ive Percent Eff d e a c t t e ive Percent Eff d e a c t t e ive Percent Effective Savings 5V4 7/1/79 7/1/73 5V5 7/1/79 51/4 (2) Negotiable order of withdrawal accounts 3 5V4 12/31/80 1/1/74 51/4 12/31/80 5 1/1/74 Time accounts 4 Fixed ceiling rates by maturity 5 14-89 days * 5V4 8/1/79 7/1/73 90 days to 1 year 53/4 1/1/80 5Vi 7/1/73 1/1/80 () 2 1 t t o o 2 2 X A ye y a e rs a r 8 s 8 6 7/1/73 5 5 3 V /4 i 1 1 / / 2 2 1 1 / / 7 7 0 0 61/2 6 53/4 1 1 / / 2 2 1 1 / / 7 7 0 0 2Vi to 4 years 8 6Vi 7/1/73 53/4 1/21/70 63/4 () 6 1/21/70 4 to 6 years 9 11/1/73 71/2 11/1/73 (10) 6 to 8 years 9 71/4 12/23/74 ii/1/73 73/4 12/23/74 71/2 ' ii/1/73' 8 years or more 9 6/1/78 6/1/78 7 Issued to governmental units 73/4 (all maturities) n 6/1/78 73/4 12/23/74 6/1/78 73/4 12/23/74 IRAs and Keogh (H.R. 10) plans (3 years or more)1112 6/1/78 73/4 7/6/77 6/1/78 73/4 7/6/77 1. For the history of interest rate ceilings before 1982, see 10. Between July 1, 1973, and Oct. 31, 1973, certificates previous editions of the ANNUAL REPORT. maturing in 4 years or more with minimum denominations of 2. July 1, 1973, for mutual savings banks; July 6, 1973, for $1,000 had no ceiling; however, the amount of such certificates savings and loan associations. that an institution could issue was limited to 5 percent of its 3. Federally insured commercial banks, savings and loan total time and savings deposits. Sales in excess of that amount, associations, cooperative banks, and mutual savings banks in as well as certificates of less than $1,000, were limited to the Massachusetts and New Hampshire were first permitted to 6V2 percent ceiling on time deposits maturing in 2V!2 years or offer negotiable order of withdrawal (NOW) accounts on Jan. more. Effective Nov. 1, 1973, ceilings were reimposed on cer- 1, 1974. Authorization to issue NOW accounts was extended tificates maturing in 4 years or more with minimum denomito similar institutions throughout New England on Feb. 27, nation of $1,000. There is no limitation on the amount of these 1976, in New York State on Nov. 10, 1978, New Jersey on certificates that banks can issue. Dec. 28, 1979, and to similar institutions nationwide effective 11. Accounts subject to fixed-rate ceilings. See footnote 8 Dec. 31, 1980. for minimum denomination requirements. 4. For exceptions with respect to certain foreign time de- 12. Effective Jan. 1, 1980, commercial banks are permitted posits see the Federal Reserve Bulletin for October 1962 (p. to pay the same rate as thrift institutions on IRA and Keogh 1279), August 1965 (p. 1084), and February 1968 (p. 167). accounts and accounts of governmental units when such de- 5. Effective Nov. 10, 1980, the minimum notice period for posits are placed in 2Vi-year-or-more variable-ceiling certifipublic unit accounts at savings and loan associations was de- cates or in 26-week money market certificates regardless of creased to 14 days and the minimum maturity period for time the level of the Treasury bill rate. deposits at savings and loan associations in excess of $100,000 NOTE. Before Mar. 31, 1980, the maximum rates that could was decreased to 14 days. Effective Oct. 30, 1980, the mini- be paid by federally insured commercial banks, mutual savings mum maturity or notice period for time deposits was decreased banks, and savings and loan associations were established by from 30 to 14 days at mutual savings banks. the Board of Governors of the Federal Reserve System, the 6. Effective Oct. 30, 1980, the minimum maturity or notice Board of Directors of the Federal Deposit Insurance Corpoperiod for time deposits was decreased from 30 to 14 days at ration, and the Federal Home Loan Bank Board under the commercial banks. provisions of 12 CFR 217, 329, and 526 respectively. Title II 7. No separate account category. of the Depository Institutions Deregulation and Monetary 8. No minimum denomination. Until July 1, 1979, a mini- Control Act of 1980 (P.L. 96-221) transferred the authority of mum of $1,000 was required for savings and loan associations, the agencies to establish maximum rates of interest payable except in areas where mutual savings banks permitted lower on deposits to the Depository Institutions Deregulation Comminimum denominations. This restriction was removed for mittee. The maximum rates on time deposits in denominations deposits maturing in less than 1 year, effective Nov. 1, 1973. of $100,000 or more with maturities of 30-89 days were sus- 9. No minimum denomination. Until July 1, 1979, the min- pended in June 1970; the maximum rates for such deposits imum denomination was $1,000 except for deposits repre- maturing in 90 days or more were suspended in May 1973. senting funds contributed to an individual retirement account For information regarding previous interest rate ceilings on all (IRA) or a Keogh (H.R. 10) plan established pursuant to the types of accounts, see earlier issues of the Federal Reserve Internal Revenue Code. The $1,000 minimum requirement Bulletin, the Federal Home Loan Bank Board Journal, and was removed for such accounts in December 1975 and No- the Annual Report of the Federal Deposit Insurance Corpovember 1976 respectively. ration. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 231 13.—Continued TIME DEPOSITS SUBJECT TO any variable ceiling nonnegotiable time deposit with an original VARIABLE CEILING RATES maturity of 2Vi years to less than 4 years at a rate not to exceed V4 of 1 percent below the average 2Vi-year yield for U.S. 7- to 31-day time deposits. Effective Sept. 1,1982, depository Treasury securities as determined and announced by the Treainstitutions are authorized to issue nonnegotiable time deposits sury Department immediately before the date of deposit. Efof $20,000 or more with a maturity or required notice period fective May 1, 1982, the maximum maturity for this category of 7 to 31 days. The maximum rate of interest payable by thrift of deposits was reduced to less than 3Vi years. Thrift instituinstitutions is the rate established and announced (auction av- tions may pay interest on these certificates at a rate not to erage on a discount basis) for U.S. Treasury bills with matur- exceed the average 2^2-year yield for Treasury securities as ities of 91 days at the auction held immediately before the determined and announced by the Treasury Department imdate of deposit or renewal ("bill rate"). Commercial banks mediately before the date of deposit. If the announced average may pay the bill rate minus 25 basis points. The interest rate 2Vi-year yield for Treasury securities is less than 9.50 percent, ceiling is suspended when the bill rate is 9 percent or below commercial banks may pay 9.25 percent and thrift institutions for the four most recent auctions held before the date of de- 9.50 percent for these deposits. These deposits have no reposit or renewal. quired minimum denomination, and interest may be compounded on them. The ceiling rates of interest at which they 91-day time deposits. Effective May 1, 1982, depository in- may be offered vary biweekly. stitutions were authorized to offer time deposits that have a Between Jan. 1, 1980, and Aug. 1, 1981, commercial banks minimum denomination of $7,500 and a maturity of 91 days. and thrift institutions were authorized to offer variable ceiling The ceiling rate of interest on these deposits is indexed to the nonnegotiable time deposits with no required minimum dediscount rate (auction average) on most recently issued 91-day nomination and with maturities of 2l/2 years or more. Effective Treasury bills for thrift institutions and the discount rate min- Jan. 1, 1980, the maximum rate for commercial banks was 3/4 imum 25 basis points for commercial banks. The rate differ- percentage point below the average yield on 2V£-year U.S. ential ends 1 year from the effective date of these instruments Treasury securities; the ceiling rate for thrift institutions was and is suspended at any time the Treasury bill discount rate J/4 percentage point higher than that for commercial banks. is 9 percent or below for four consecutive auctions. Effective Mar. 1, 1980, a temporary ceiling of H3/4 percent was placed on these accounts at commercial banks and 12 Six-month money market time deposits. Effective June 1, percent on these accounts at savings and loans. Effective June 1978, commercial banks and thrift institutions were authorized 2,1980, the ceiling rates for these deposits at commercial banks to offer time deposits with a maturity of exactly 26 weeks and and savings and loans were increased Vi percentage point. The a minimum denomination requirement of $10,000. The ceiling temporary ceiling was retained, and a minimum ceiling of 9.25 rate of interest on these deposits is indexed to the discount percent for commercial banks and 9.50 percent for thrift inrate (auction average) on most recently issued 26-week U.S. stitutions was established. Treasury bills. Interest on these certificates may not be compounded. Effective for all 6-month money market certificates TIME DEPOSITS NOT SUBJECT TO issued beginning Nov. 1,1981, depository institutions may pav INTEREST RATE CEILINGS, BY MATURITY rates of interest on these deposits indexed to the higher of (1) the rate for 26-week Treasury bills established immediately Money Market Deposit Accounts. Effective Dec. 14, 1982, before the date of deposit (bill rate) or (2) the average of the depository institutions are authorized to offer a new account four rates for 26-week Treasury bills established for the 4 with a required initial balance of $2,500 and an average mainweeks immediately before the date of deposit (4-week average tenance balance of $2,500 not subject to interest rate restricbill rate). Ceilings are determined as follows: tions. No minimum maturity period is required for this account, but depository institutions must reserve the right to Bill rate or 4-week Commercial bank require seven days' notice for withdrawals. When the average average bill rate ceiling balance is less than $2,500, the account is subject to the max- 7.50 percent or below 7.75 percent imum ceiling rate of interest for NOW accounts; compliance Above 7.50 percent lA of 1 percentage point plus with the average-balance requirement may be determined over the higher of the bill a period of one month. Depository institutions may not guarrate or 4-week average antee a rate of interest for this account for a period longer bill rate than one month or condition the payment of a rate on a requirement that the funds remain on deposit for longer than Thrift ceiling one month. No more than six preauthorized, automatic, or 7.25 percent or below 7.75 percent other third-party transfers are permitted per month, of which Above 7.25 percent, but l/i of 1 percentage point plus no more than three can be checks. Telephone transfers to third below 8.50 percent the higher of the bill parties or to another account of the same depositor are rerate or 4-week average garded as preauthorized transfers. bill rate 8.50 percent or above, but 9 percent IRAs and Keogh (H.R.10) plans (18 months or more). Efbelow 8.75 percent fective Dec. 1, 1981, depository institutions are authorized to 8.75 percent or above VA of 1 percentage point plus offer time deposits not subject to interest rate ceilings when the higher of the bill the funds are deposited to the credit of, or in which the entire rate or 4-week average beneficial interest is held by, an individual pursuant to an IRA bill rate agreement or Keogh (H.R.10) plan. Such time deposits must have a minimum maturity of 18 months, and additions may 12-month all savers certificates. Effective Oct. 1, 1981, de- be made to the time deposit at any time before its maturity pository institutions are authorized to issue all savers certifi- without extending the maturity of all or a portion of the balance cates (ASCs) with a 1-year maturity and an annual investment of the account. yield equal to 70 percent of the average investment yield for 52-week U.S. Treasury bills as determined by the auction of 52-week Treasury bills held immediately before the calendar week in which the certificate is issued. A maximum lifetime nonnegotiable ti exclusion of $1,000 ($2,000 on a joint return) from gross in- of 3V2 years or more that are not subject to interest rate ceilcome is generally authorized for interest income from ASCs. ings. Such time deposits have no minimum denomination, but must be made available in a $500 denomination. Additional 2l/2-year to less than 31/2-year time deposits. Effective Aug. deposits may be made to the account during the first year 1, 1981, commercial banks are authorized to pay interest on without extending its maturity. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

232 Tables 14. Margin Requirements1 Percent of market value For credit extended under Regulation T (brokers and dealers), U (banks), G (others than brokers, dealers, or banks), and X (borrowers) Effective date Margin Convertible Short sales, Writing options, stocks bonds Tonly Tonly2 1934—Oct. 1 25-45 (3) 1936—Feb. 1 25-55 Q Apr. 1 55 $ 1937—Nov. 1 40 50 1945—Feb. 5 50 50 July 5 75 75 1946—Jan. 21 100 100 1947_Feb. 1 75 75 1949—Mar. 3 50 50 1951—Jan. 17 75 75 1953—Feb. 20 50 50 1955—Jan. 4 60 60 Apr. 23 70 70 1958—Jan. 16 50 50 Aug. 5 70 70 Oct. 16 90 90 1960—July 28 70 70 1962—July 10 50 50 1963—Nov. 6 70 70 1968— Mar. 11 70 50 70 June 8 80 60 80 1970—May 6 65 50 65 1971—Dec. 6 55 50 55 1972—Nov. 24 65 50 65 1974—Jan. 3 50 50 50 1977—Jan. 1 50 50 50 30 1. Regulations T, U, G, and X, adopted by the Board of Oct. 15,1934; Regulation U, effective May 1,1936; Regulation Governors pursuant to the Securities Exchange Act of 1934, G, effective Mar. 11, 1968; and Regulation X, effective limit the amount of credit to purchase and carry "margin se- Nov. 1, 1971. curities" and "margin stock" (as defined in the regulations) 2. The margin is expressed as a percent of the current market when such credit is collateralized by securities. Margin re- value of the stock underlying the option. quirements are the difference between the market value (100 3. The requirement was the margin "customarily required" percent) and the maximum loan value of collateral as pre- by the brokers and dealers. scribed by the Board. Regulation T was adopted effective Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 233 15. Principal Assets and Liabilities, and Number of Insured Commercial Banks, by Class of Bank, June 30, 1982 and 1981 ' Asset and liability items shown in millions of dollars Insured commercial banks Insured Item Member banks nonmember Total banks Total National State June 30, 1982 Loans and investments, total 1,396,530,061 1,009,655,435 780,667,097 228,988,338 396,874,626 Loans Gross 1,064,111,055 796,524,833 614,070,085 182,454,748 267,586,222 Net 1,032,708,466 774,416,606 597,080,537 177,336,069 258,291,860 Investments 332,419,006 213,130,602 166,597,012 46,533,590 119,288,404 U.S. Treasury securities. 102,647,217 62,982,045 48,580,474 14,401,571 39,665,172 Other2 229,771,789 150,148,557 118,016,538 32,132,019 79,623,232 Cash assets, total 188,303,129 149,397,441 111,754,636 37,642,805 38,905,688 Deposits, total 1,292,282,619 916,428,968 720,651,972 195,776,996 375,853,651 Interbank 60,588,650 57,215,839 37,924,377 19,291,462 3,372,811 Other demand 307,125,361 226,028,487 172,186,397 53,842,090 81,096,874 Other time 924,568,557 633,184,631 510,541,202 122,643,429 291,383,926 Total equity capital... 123,326,781 88,705,972 68,614,684 20,091,288 34,620,809 Number of banks 14,414 5,538 4,506 1,032 8,876 June 30, 1981 Loans and investments, total 1,254,421,202 896,060,439 698,551,950 197,508,489 1,254,421,202 Loans Gross 935,344,629 688,185,284 536,702,702 151,482,582 935,344,629 Net 906,046,456 668,064,557 521,110,004 146,954,553 906,046,456 Investments 319,076,573 207,875,155 161,849,248 46,025,907 319,076,573 U.S. Treasury securities. 104,364,322 66,055,466 50,423,955 15,631,511 104,364,322 Other2 214,712,251 141,819,689 111,425,293 30,394,396 214,712,251 Cash assets, total 205,148,743 169,096,631 115,756,522 53,340,109 205,148,743 Deposits, total 1,210,720,048 861,723,042 664,475,770 197,247,272 1,210,720,048 Interbank 75,300,099 72,030,999 40,427,802 31,603,197 75,300,099 Other demand ... 332,030,778 244,334,669 182,377,437 61,957,232 332,030,778 Other time 803,389,126 545,357,350 441,670,516 103,686,834 803,389,126 Total equity capital. 113,279,656 81,288,763 62,996,277 18,292,486 113,279,656 Number of banks... 14,443 5,472 4,453 1,019 8,971 1. All insured commercial banks in the United States. NOTE. Details may not add to totals because of rounding. 2. Includes trading accounts for banks with assets of less than $100 million. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

234 Tables 16. Reserves of Depository Institutions, Federal Reserve Bank Credit, and Related Items—Year-End 1918-82, and Month-End 1982 Millions of dollars Factors supplying reserve funds Federal Reserve Bank credit outstanding U.S. government Treasecurities draw- sury Period Total B r o o i u u g g h t- t ht r a u c H e g n h p r e a d u e l s e d e r e r - - Loans Float1 ot A h l e l r2 R F O e e d s th e e r e r v a r e l s G to o c l k d 4 c c r i i e o c i a g n r a c u h t - g t i n t e f s t - s r t c o e i a n u n u n g r c t d - - 5 y ment 1918 .. 239 239 0 1,766 199 294 0 2,498 2,873 0 1,795 1919 .. 300 300 0 2,215 201 575 0 3,292 2,707 0 1,707 1920 .. 287 287 0 2,687 119 262 0 3,355 2,639 0 1,709 1921 .. 234 234 0 1,144 40 146 0 1,563 3,373 0 1,842 1922 .. 436 436 0 618 78 273 0 1,405 3,642 0 1,958 1923 .. 134 80 54 723 27 355 0 1,238 3,957 0 2,009 1924 .. 540 536 4 320 52 390 0 1,302 4,212 0 2,025 1925 .. 375 367 643 63 378 0 1,459 4,112 0 1,977 1926 .. 315 312 3 637 45 384 0 1,381 4,205 0 1,991 1927 . 617 560 57 582 63 393 0 1,655 4,092 0 2,006 1928 . 228 197 31 1,056 24 500 0 1,809 3,854 0 2,012 1929. 511 488 23 632 34 405 0 1,583 3,997 0 2,022 1930 . 739 686 43 251 21 372 1,373 4,306 0 2,027 1931. 817 775 42 638 20 378 1,853 4,173 0 2,035 1932. 1,855 1,851 4 235 14 41 2,145 4,226 0 2,204 1933. 2,437 2,435 2 15 137 2,688 4,036 0 2,303 1934. 2,430 2,430 0 5 21 2,463 8,238 0 2,511 1935 . 2,431 2,430 1 5 12 38 2,486 10,125 0 2,476 1936. 2,430 2,430 0 3 39 28 2,500 11,258 0 2,532 1937. 2,564 2,564 0 10 19 19 2,612 12,760 0 2,637 1938. 2,564 2,564 0 4 17 16 2,601 14,512 0 2,798 1939. 2,484 2,484 0 7 91 11 2,593 17,644 0 2,963 1940. 2,184 2,184 0 3 0 2,274 21,995 0 3,087 1941. 2,254 2,254 0 3 94 10 0 2,361 22,737 0 3,247 1942. 6,189 6,189 0 6 471 14 0 6,679 22,726 0 3,648 1943. 11,543 11,543 0 5 681 10 0 12,239 21,938 0 4,094 1944. 18,846 18,846 0 815 4 0 19,745 20,619 0 4,131 1945. 24,262 24,262 0 249 578 2 0 15,091 20,065 0 4,339 1946. 23,350 23,350 0 163 580 1 0 24,093 20,529 0 4,562 1947. 22,559 22,559 0 85 535 1 0 23,181 22,754 0 4,562 1948. 23,333 23,333 0 223 541 1 0 24,097 24,244 0 4,589 1949. 18,885 18,885 0 78 534 2 0 19,499 24,427 0 4,598 1950. 20,778 20,725 53 67 1,368 3 0 22,216 22,706 0 4,636 1951. 23,801 23,605 196 19 1,184 5 0 25,009 22,695 0 4,709 1952. 24,697 24,034 663 156 967 4 0 25,825 23,187 0 4,812 1953. 25,916 25,318 598 28 935 2 0 26,880 22,030 0 4,894 1954. 24,932 24,888 44 143 1 0 25,885 21,713 0 4,985 1955. 24,785 24,391 394 108 1,585 29 0 26,507 21,690 0 5,008 1956. 24,915 24,610 305 50 1,665 70 0 26,699 21,949 0 5,066 1957. 24,238 23,719 519 55 1,424 66 0 25,784 22,781 0 5,146 1958. 26,347 26,252 95 64 1,2% 49 0 27,755 20,534 0 5,234 1959. 26,648 26,607 41 458 1,590 75 0 28,771 19,456 0 5,311 1960. 27,384 26,984 400 33 1,847 74 0 29,338 17,767 0 5,398 1961. 28,881 30,478 159 130 2,300 51 0 31,362 16,889 0 5,585 1962. 30,820 28,722 342 38 2,903 110 0 33,871 15,978 0 5,567 1963. 33,593 33,582 11 63 2,600 162 0 36,418 15,513 0 5,578 1964. 37,044 36,506 538 186 2,606 94 0 39,930 15,388 0 5,405 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 235 16.—Continued Factors absorbing reserve funds Deposits, other r c C e t c u i i n u o i n l r c a r n - y - - T h i c s n o r u a g e l s r d a s h y 6 - - T s r u e F r a y e - t d h e a r n a l r e R s F e e e i o s g r e r v n - r e v s e , w B i a th n O k t s her R F c O o e e a d u s t c h e e n - r e r t v a s r e 3 l R F c b O a e e i a l p l d s t i i n h e a i e t t d i r - e r a e v a r l s e l 3 R F W e e s d e i e t r r h v a e l r C M e a n n u e c d r r m - y es b e e r r v e b q s a u R n i k r e e - d8 c E e x ss - 8 Banks coin7 4,951 288 51 96 25 118 0 1,636 0 1,585 51 5,091 385 31 73 28 208 0 1,890 0 1,822 68 5,325 218 57 5 18 298 0 1,781 0 0 0 4,403 214 96 12 15 285 0 1,753 0 1,654 99 4,530 225 11 3 26 276 0 1,934 0 0 0 4,757 213 38 4 19 275 0 1,898 0 1,884 14 4,760 211 51 19 20 258 0 2,220 0 2,161 59 4,817 203 16 8 21 272 0 2,212 0 2,256 -44 4,808 201 17 46 19 293 0 2,194 0 2,250 -56 4,716 208 18 5 21 301 0 2,487 0 2,424 63 4,686 202 23 6 21 348 0 2,389 0 2,430 -41 4,578 216 29 6 24 393 0 2,355 0 2,428 -73 4,603 211 19 6 22 375 0 2,471 0 2,375 96 5,360 222 54 79 31 354 0 1,961 0 1,994 -33 5,388 272 8 19 24 355 0 2,509 0 1,933 576 5,519 284 3 4 128 360 0 2,729 0 1,870 859 5,536 :*,029 121 20 169 241 0 4,096 0 2,282 1,814 5,882 :2,566 544 29 226 253 0 5,587 0 2,743 2,844 6,543 2,376 244 99 160 261 0 6,606 0 4,622 1,984 6,550 3,619 142 172 235 263 0 7,027 0 5,815 1,212 6,856 :2,706 923 199 242 260 0 8,724 0 5,519 3,205 7,598 ;2,409 634 397 256 251 0 11,653 6,444 5,209 8,732 2,213 368 1,133 599 284 0 14,026 0 7,411 6,615 11,160 ;2,215 867 774 586 291 0 12,450 0 9,365 3,085 15,410 :2,193 799 793 485 256 0 13,117 0 11,129 1,988 20,499 :2,303 579 1,360 356 339 0 12,886 0 11,650 1,236 25,307 ;2,375 440 1,204 394 402 0 14,373 0 12,748 1,625 28,515 :2,287 977 862 446 495 0 15,915 0 14,457 1,458 28,952 :2,272 393 508 314 607 0 16,139 0 15,577 562 28,868 1,336 870 392 569 563 0 17,899 0 16,400 1,499 28,224 1,325 1,123 642 547 590 0 20,479 0 19,277 1,202 27,600 1,312 821 767 750 106 0 16,568 0 15,550 1,018 27,741 1,293 668 895 565 714 0 17,681 0 16,509 1,172 29,206 1,270 247 526 363 746 0 20,056 0 19,667 389 30,433 1,270 389 550 455 111 0 19,950 0 20,520 -570 30,781 761 346 423 493 839 0 20,160 0 19,397 763 30,509 796 563 490 441 907 0 18,876 0 18,618 258 31,158 767 394 402 554 925 0 19,005 0 18,903 102 31,790 775 441 322 426 901 0 19,059 0 19,089 -30 31,834 761 481 356 246 998 0 19,034 0 19,091 -57 32,193 683 358 272 391 1,122 0 18,504 0 18,574 -70 32,591 391 504 345 694 841 0 18,174 310 18,619 -135 32,869 377 485 217 533 941 0 17,081 2,544 18,988 637 33,918 422 465 279 320 1,044 0 17,387 2,544 18,988 % 35,338 380 597 247 393 1,007 0 17,454 3,262 20,071 645 37,692 361 880 171 291 1,065 0 17,049 4,099 20,677 471 39,619 612 820 229 321 1,036 0 18,086 4,151 21,663 574 For notes see last two pages of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

236 Tables 16. Reserves of Depository Institutions, Federal Reserve Bank Credit, and Related Items—Year-End 1918-82, and Month-End 1982—Continued Millions of dollars Factors supplying reserve funds Federal Reserve Bank credit outstanding Spe- U.S. government cial Treasecurities9 draw- sury Period Total B ri o o g u u h g t t - 1 h 0 t r u c H e h n p e a d u l s e d r e r - Loans Float1 ot A h H er2 R F O e e d s th e e r e r v a r e l Total s G to o c l k d 4 c r i i e c i a g r n a c h t g t - i t e f s - s r t o c e i a n u n u n g r c t d - - 5 y agree- count ment 1965. 40,768 40,478 290 137 2.248 187 0 43,340 13,733 0 5,575 1966. 44,316 43,655 661 173 2.495 193 0 47,177 13,159 0 6,317 1967. 49,150 48,980 170 141 2,576 164 0 52,031 11,982 0 6,784 1968. 52,937 52,937 0 186 3.443 58 0 56,624 10,367 0 6,795 1969. 57,154 57,15410 0 183 3.440 64 2,743 63,584 10,367 0 6,852 1970 ... 62,142 62,142 0 335 4.261 57 1,123 67,918 10,732 400 7,149 1971 .. 70,804 69,481 1,323 39 4.343 261 1,068 76,515 10,132 400 7,710 1972 .. 71,230 71,119 111 1,981 3.974 106 1,260 78,551 10,410 400 8,313 1973 .. 80,495 80,395 100 1,258 3.099 68 1,152 86,072 11,567 400 8,716 1974 .. 85,714 84,760 954 299 2.001 999 3,195 92,208 11,652 400 9,253 1975 .. 94,124 92,789 1,335 211 3.688 1,126 3,312 102,461 11,599 500 10,218 1976 .. 104,093 100,062 4,031 25 2.601 991 3,182 110,892 11,598 1,200 10,810 1977 .. 111,274 108,922 2,352 265 3.810 954 2,442 118,745 11,718 1,250 11,331 1978 .. 118,591 117,374 1,217 1,174 6,432 587 4,543 131,327 11,671 1,300 11,831 1979 .. 126,167 124,507 1,660 1,454 6,767 704 5,613 140,705 11,172 1,800 13,083 1980 .. 130,592 128,038 2,554 1,809 4.467 776 8,739 146,383 11,160 2,518 13,427 1981 .. 140,348 136,863 3.485 1,601 1.762 195 9,230 153,136 11,151 3,318 13,687 1982 .. 148,837 144,544 4,293 717 2.735 1,480 9,890 163,659 11,148 4,618 13,786 1982 Jan. 137,422 134,025 3,397 2,217 1,635 597 9,689 151,560 11,151 3,318 14,523 Feb. 134,436 134,436 0 1,180 2,959 0 9,043 147,618 11,150 3,568 14,579 Mar. 134,684 133,005 1,679 2,646 1,882 488 9,029 148,729 11,150 3,568 13,734 144,261 137,996 6,265 1,799 1.507 768 10,394 158,729 11,149 3,818 13,756 May 138.415 138,415 0 1,058 1.776 0 8,635 149,884 11,149 3,818 13,767 June 136,007 136,007 0 1,638 2,545 0 8,813 149,003 11,149 3,818 13,781 July 141,641 141,641 0 458 1,713 0 9,956 153,768 11,149 4,018 13,786 Aug. 142,042 140,624 1,418 449 1,446 565 9,141 153,643 11,148 4,018 13,786 Sept. 144,343 139,540 4,803 1,123 550 813 9,673 156,502 11,148 4,218 13,786 Oct. 141,023 141,023 0 438 1.168 0 10,131 152,760 11,148 4,218 13,786' Nov. 146,619 146,619 0 374 2,401 0 9,685 159,079 11,148 4,418 13,786 Dec. 148,837 144,544 4,293 717 2,735 1,480 9,890 163,659 11,148 4,618 13,786 1. Beginning with 1960, figures reflect a minor change in 6. This category consists of the coin and paper currency held concept; see Federal Reserve Bulletin, vol. 47 (February 1961), by the Treasury, as well as any gold in excess of the gold p. 164. certificates issued to the Reserve Bank. 2. Data consist principally of acceptances and, until Aug. 7. Between Dec. 1, 1959, and Nov. 23, 1960, part of the 21, 1959, industrial loans, authority for which expired on that amount was allowed as reserves; thereafter all was allowed. date. 8. These figures are estimated through 1958. Before 1929, 3. Before Apr. 16, 1969, this category includes the total of they were available only on call dates (in 1920 and 1922, the Federal Reserve Bank capital paid in, surplus, other capital call dates were Dec. 29). Beginning Sept. 12,1968, the amount accounts, and other liabilities and accrued dividends less the is based on close-of-business figures for the reserve period 2 sum of bank premises and other assets, and was reported as weeks previous to the report date. "Other Federal Reserve accounts"; thereafter, "Other Federal 9. Beginning Dec. 1, 1966, these securities include federal Reserve assets" and "Other Federal Reserve liabilities and agency obligations held under repurchase agreements and becapital" are shown separately. ginning Sept. 29, 1971, federal agency issues bought outright. 4. Before Jan. 30, 1934, data include gold held in Federal 10. Includes, beginning 1969, securities loaned—fully guar- Reserve Banks and in circulation. anteed by U.S. government securities pledged with Federal 5. These figures include currency and coin (other than gold) Reserve Banks—and excludes (if any) securities sold and issued directly by the Treasury. The largest components are scheduled to be bought back under matched sale-purchase fractional and dollar coins. For details see the regular table, transactions. "Currency and Coin in Circulation," in the Treasury Bulletin. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 237 16.—Continued Factors absorbing reserve funds Deposits, other than reserves, with Member bank Cur- Federal Reserve Banks Other Re- F O ed th er e a r l reserves11 rency sury Federal quired Reserve in cash Reserve clear- liacir- hold- ac- bilities With Curc t u io la n - ings6 T s r u e r a y - F ei o g r n - Other counts3 a & nces ca a p n it d al3 R Fe e d se e r r v a e l r a en n c d y qu R ir e e - d8 cessX8*,12 Banks coin7 42,056 760 668 150 355 211 0 0 18,447 4,163 22,848 -238 44,663 1,176 416 174 588 -147 0 0 19,779 4,310 24,321 -232 47,226 1,344 1,123 135 653 -773 0 0 21,092 4,631 25,905 -182 50,961 695 703 216 747 -1,353 0 0 21,818 4,921 27,439 -700 53,950 596 1,312 134 807 0 0 1,919 22,085 5,187 28,173 -901 57,093 431 1,156 148 1,233 0 0 1,986 24,150 5,423 30,033 -460 61,068 460 2,020 294 999 0 0 2,131 27,788 5,743 32,496 1,035 66,516 345 1,855 325 840 0 0 2,143 25,647 6,216 32,044 98 12 72,497 317 2,542 251 1,41913 0 0 2,669 27,060 6,781 35,268 -1,360 79,743 185 3,113 418 1,27513 0 0 2,935 25,843 7,370 37,011 -3,798 86,547 483 7,285 353 1,090 0 0 2,968 26,052 8,036 35,197 -1,103 14 93,717 460 10,393 352 1,357 0 0 3,063 25,158 8,628 35,461 -1,535 103,811 392 7,114 379 1,187 0 0 3,292 26,870 9,421 37,615 -1,265 114,645 240 4,196 368 1,256 0 0 4,275 31,152 10,538 42,694 -893 125,600 494 4,075 429 1,412 0 0 4,957 29,792 11,429 44,217 -2,835 136,829 441 3,062 411 617 0 0 4,671 27,456 13,654 40,558 675 144,774 443 4,301 505 781 0 117 5,261 25,111 15,576 42,145 -1,442 154,908 429 5,033 328 1,033 0 436 4,990 26,053 16,666 41,391 1,328 140,475 462 8,285 333 393 0 135 5,539 24,931 16,341 42,300 -1,028 140,525 470 3,835 416 414 0 139 6,291 24,825 15,007 40,542 -710 141,673 484 2,866 421 425 0 167 4,955 26,190 14,914 38,824 2,280 143,044 491 12,239 966 450 0 176 5,561 24,526 15,888 40,115 299 145,523 477 2,540 308 523 0 189 5,784 23,274 15,441 38,922 -207 147,134 460 4,099 586 437 0 213 4,837 19,985 15,872 39,804 -3,947 147,051 418 3,275 982 663 0 221 5,359 24,752 16,040 39,701 1,091 148,310 418 3,234 348 502 0 247 4,791 24,745 15,814 40,066 493 148,093 423 10,975 396 405 0 300 5,047 20,015 16,752 39,737 - 2,970 148,922 444 2,309 327 450 0 356 4,783 24,321 16,877 40,701 497 152,895 444 2,247 387 717 0 408 5,209 26,124 17,103 41,355 1,872 154,908 429 5,033 328 1,033 0 436 4,990 26,053 16,666 41,391 1,328 11. Beginning November 1979, includes reserves of member System's program of credit restraint. banks, Edge Act corporations, and U.S. agencies and branches As of Dec. 12, 1974, the amount of voluntary nonmember of foreign banks. Beginning Nov. 13, 1980, includes reserves bank and foreign-agency and branch deposits at Federal Reof all depository institutions. serve Banks that are associated with marginal reserves are no 12. Beginning with the week ending Nov. 15, 1972, figures longer reported. However, two amounts are reported: (1) deinclude $450 million of reserve deficiencies on which Federal posits voluntarily held as reserves by agencies and branches Reserve Banks are allowed to waive penalties for a transition of foreign banks operating in the United States, and (2) Euperiod in connection with bank adaptation to Regulation J as rodollar liabilities. amended, effective Nov. 9, 1972. Allowable deficiencies (be- 14. Beginning with the week ending Nov. 19, 1975, figures ginning with first statement week of quarter) included are (in are adjusted to include waivers of penalties for reserve defimillions): 1973—Ql, $279; Q2, $172; Q3, $112; Q4, $84; and ciencies, in accordance with change in Board policy that be- 1974—Ql, $67, and Q2, $58. The transition period ended after came effective Nov. 19, 1975. the second quarter of 1974. 13. Beginning July 1973, this item includes certain deposits NOTE. For a description of figures and discussion of their of domestic nonmember banks and foreign-owned banking significance, see "Member Bank Reserves and Related Items," institutions held with member banks and redeposited in full Section 10 of Banking and Monetary Statistics, 1941-1970 (Board with Federal Reserve Banks in connection with voluntary par- of Governors of the Federal Reserve System, Sept. 1, 1976), ticipation by nonmember institutions in the Federal Reserve pp. 507-23. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

238 Tables 17. Changes in Number of Banking Offices in the United States, 1982 Commercial banks (including stock savings banks and nondeposit trust companies) Mutal T a y n p d e o ch f a o n f g fi e ce ba A n l k l s Member Nonmember s b a a v n in k g s s Total Total ti N on a a - l State Insured in N su o r n e - d Insured in N su o r n e - d Banks, Dec. 31, 1981 15,323 14,882 5,474 4,454 1,020 8,927* 481r» 330 111 Changes during 1982 New banks 378 378 240 199 41 77 61 Ceased banking operation -1 -1 -1 -1 Voluntary liquidation -4 -4 -4 Suspensions -1 -1 -1 Placed in receivership -6 -6 -1 -1 -3 -2 Banks converted into branches -262 -246 -116 -87 -29 -130 -15 -1 Other -45 -42 -16 -15 -1 -18 ''' 1'g'' -2 -1 Interclass changes Nonmember to national 36 36 -36 Nonmember to state member II2 II2 -10 State member to national ... 9 -9 State member to nonmember -3 -3 3 National to state member ... -8 g National to nonmember -9 -9 9 Noninsured national to national 1 1 1 Noninsured mutual to insured mutual 6 -6 Noninsured nonmember to state member 2 2 -2 Noninsured to insured -1 Noninsured state member to noninsured l 1 1 Noninsured nonmember to insured 1 1 I3 Insured mutual to insured nonmember 2 2 _ 2 Insured mutual to federal mutual -2 -2 Net change 60 83 145 125 20 -106 44 -15 -8 Dec. 31, 1982 15,383 14,965 5,619 4,579 1,040 8,821 525 315 103 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 239 17,—Continued Commercial banks (incuding stock savings Mutual banks and nondeposit trust companies) savings banks Type of office All and change banks Member Nonmember Total Total Na- State Insured Non- Insured in N su o r n e - d tional insured Branches and additional offices, Dec. 31, 19816 43,547 40,405 25,761 20,598 5,163 14,584 60 2,872 270 Changes during 1982 De novo 1,666 1,575 847 691 156 727 1 86 5 Banks converted 264 247 174 140 34 73 17 Discontinued -443 -393 -274 -229 -45 -119 -48 -2 Sale of branch -5 -1 5 -6 -4 5 Interclass changes Nonmember to national 383 383 -383 Nonmember to state member 463 463 104 104 -58 Nonmember to insured mutual -2 -2 2 State member to national ... 184 -184 State member to nonmember -14 -14 14 National to state member ... -160 160 National to nonmember . . -26 -26 26 Noninsured mutual to insured mutual. 27 -27 Insured mutual to federal mutual -25 -25 Insured mutual to insured nonmember .... 37 37 -37 Insured mutual to national 2 2 2 -2 ... Other -4 -4 -3 -3 1 -2 -2 2 Discontinued ATM branches5 . -2,888 -2,429 -1,818 -1,423 "'-395' -611 -459 Net change -1,384 -926 -626 -436 -190 -299 -1 -436 -22 Dec. 31, 19826 42,163 39,479 25,135 20,162 4,973 14,285 59 2,436 248 Banking facilities Dec. 31, 19817 154' 154r 117' 25 Changes during 1982 Interclass changes State member to national . .. 1 -1 Other -4 -4 -4 -4 Net change -4 -4 -4 -3 Dec. 31, 19827 150 150 125 114 11 25 1. As of Dec. 1982, includes 13 state member noninsured 5. The Board no longer maintains ATMs. and 1 noninsured national trust companies. 6. Figures exclude banking facilities. 2. Reflects 1 insured nonmember bank in Puerto Rico that 7. Data include facilities provided at military and other govwas admitted to Federal Reserve membership. ernment establishments through arrangements made by the 3. Reflects 1 noninsured nonmember bank in Puerto Rico Treasury. that became insured by the FDIC. r Revised. 4. Branches of insured nonmember bank in Puerto Rico that was admitted to Federal Reserve membership. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

240 Tables 18. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1982 United Jersey Bank/Southwest, Camden, New Jersey, to acquire certain assets and assume the deposit liabilities of a branch of The Bank of New Jersey, Camden, New Jersey SUMMARY REPORT BY THE ATTORNEY GENERAL (2/19/82) The proposed transaction would not be significantly adverse to competition. BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (2/4/82) United Jersey Bank/Southwest (Applicant), with assets of $106 million, proposes to acquire certain assets and assume the deposit liabilities of the Pine Hill office (Branch), with assets of $7 million, of The Bank of New Jersey. The relevant market in this proposal is the Philadelphia-Camden market, in which Applicant ranks twenty-third among forty-five commercial banks, with 0.5 percent of the area's commercial bank deposits. The proposed merger would not alter Applicant's rank in the market and would not substantially increase Applicant's share of market deposits. The proposal would have no significant effect on competition. The proposal would not alter the generally satisfactory condition of Applicant, and it would allow continued operation of an office that The Bank of New Jersey had intended to discontinue in carrying out a decision to curtail retail operations. Thus the proposal would have a positive effect on the convenience and needs of the area immediately surrounding Branch. Michigan Bank-Port Huron, Port Huron, Michigan, to merge with Marine Bank & Trust, Marine City, Michigan SUMMARY REPORT BY THE ATTORNEY GENERAL (No report received.) BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (2/19/82) Michigan Bank-Port Huron (Applicant), a proposed state member bank, with assets of $239 million, proposes to merge Marine Bank & Trust (Bank), with assets of $44 million. Applicant is a subsidiary of Michigan National Corporation, Bloomfield Hills, Michigan (MNC), which ranks second among Michigan's commercial banking organizations, with about 12 percent of the deposits held by banking offices in the state. The relevant market in this proposal is the Detroit area, in which MNC ranks fourth among forty-nine commercial banking organizations, with 11.5 percent of area deposits. If the proposed merger took place, MNC would continue to rank fourth in the market and would increase its share of market deposits by 0.2 percentage point. The two closest commercial banking offices to the sole office of Bank are both branches of Applicant. Two savings and loan associations, with organizational deposits of $167 million and $449 million, operate offices in Marine City. Overall, the competitive effect of the proposal would not be sufficiently adverse to warrant disapproval. Both Applicant and Bank are in satisfactory condition, and the condition of the resulting bank would be satisfactory. The proposal would improve the services at the Bank's current office. Among the new services that would be offered are automatic payrolls, a foreign department, issuance of credit cards, and electronic funds transfers. Further, trust services would be expanded, interest rates on passbook savings accounts raised, and Saturday lobby hours would be expanded. The convenience and needs of the community to be served are such as to outweigh any adverse competitive effects. Accordingly, consummation of the proposal is consistent with the public interest. The Toledo Trust Company, Toledo, Ohio, to merge with The Peoples Bank, Carey, Ohio SUMMARY REPORT BY THE ATTORNEY GENERAL (2/19/82) The proposed transaction would not be significantly adverse to competition. BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (2/24/82) The Toledo Trust Company (Applicant), with assets of $1 billion, proposes to merge The Peoples Bank (Bank), with assets of $23 million. Applicant is a subsidiary of Toledo Trustcorp, Inc. (TTI), which ranks thirteenth among Ohio's commercial banking organizations, with 2 percent of the deposits. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 241 18.—-Continued Bank ranks third among five commercial banks in the Wyandot County banking market, with 13.6 percent of total deposits. Neither Applicant nor any banking affiliate of TTI is represented in the Wyandot market. The proposal would not have a significant effect on competition. The proposal would add trust powers and leasing services to the banking services available in the Wyandot County market. The convenience and need factors, including those relating to the Community Reinvestment Act, are consistent with approval. The financial and managerial resources of Applicant are satisfactory, and the banking factors are consistent with approval. Guardian State Bank, Salt Lake City, Utah, to merge with Empire State Bank, Salt Lake City, Utah SUMMARY REPORT BY THE ATTORNEY GENERAL (4/2/82) The proposed transaction would not be significantly adverse to competition. BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (3/30/82) Guardian State Bank (Applicant), with assets of $5 million, proposes to merge Empire State Bank (Bank), with assets of $14 million. In view of the financial condition of Bank, the Utah Commissioner of Financial Institutions has recommended expeditious action by the Federal Reserve System to prevent the failure of Bank. Thus the Reserve Bank requested that reports about competitive factors be furnished within 10 days. The convenience and need factors, as well as the competitive factors, are consistent with approval. Peoples Bank of Danville, Danville, Virginia, to acquire certain assets and assume substantially all of the liabilities of Aquia Bank and Trust Company, Stafford, Virginia SUMMARY REPORT BY THE ATTORNEY GENERAL (No report received. Requests for reports on the competitive factors were dispensed with, as authorized by the Bank Merger Act, to permit the Reserve Bank to act immediately to safeguard depositors of Aquia Bank and Trust Company.) BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (4/5/82) Peoples Bank of Danville (Applicant), with assets of $32 million, proposes to acquire certain assets and assume substantially all of the liabilities of Aquia Bank and Trust Company (Bank), with assets of $14 million. On the basis of information before the Reserve Bank, an emergency situation clearly exists so that, pursuant to the provisions of the Bank Merger Act, the Reserve Bank is required to act immediately to safeguard Bank's depositors. Bank has experienced financial and managerial problems that have reduced its competitiveness. The financial and managerial resources and prospects of the proposed organization would benefit the operations at the office now occupied by Bank without diminishing Applicant's prospects. The financial and managerial resources and prospects of Applicant are satisfactory, and, as a result of this proposal, Bank's customers would be served by a stronger organization. First Virginia Bank-Highlands, Covington, Virginia, to merge with The Bath County National Bank, Hot Springs, Virginia SUMMARY REPORT BY THE ATTORNEY GENERAL (5/14/82) The proposed transaction would not be significantly adverse to competition. BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (5/20/82) First Virginia Bank-Highlands (Applicant), with assets of $54 million, proposes to merge The Bath County National Bank (Bank), with assets of $19 million. Applicant is a subsidiary of First Virginia Bank, Inc., Falls Church, Virginia, which ranks seventh among Virginia's commercial banking organizations, with about 7 percent of the deposits held by banking offices in the state. The relevant market in the proposal is the Bath County area, in which Bank is the only bank. The merger would have no significant adverse effects on competition, and would improve the services available at the offices now operated by Bank. The financial and convenience and need Digitized ffaocrt oFrRs AaSreE cRo nsistent with approval. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

242 Tables 18. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1982—Continued The Connecticut Bank and Trust Company, Hartford, Connecticut, to merge with Orange National Bank, Orange, Connecticut SUMMARY REPORT BY THE ATTORNEY GENERAL (5/28/82) The proposed transaction would not be significantly adverse to competition. BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (8/13/82) The Connecticut Bank and Trust Company (Applicant), with assets of $3.6 billion, proposes to merge Orange National Bank (Bank), with assets of $35 million. Applicant is the sole banking subsidiary of CBT Corporation, Hartford, which is the largest commercial banking organization in the state, holding 20.0 percent of the deposits. If the proposed merger took place, CBT Corporation would hold 20.2 percent of the deposits held by commercial banking offices in Connecticut. The closest offices of the participating banks are 1.2 miles apart. The relevant market in this case is the New Haven banking market, in which Applicant ranks fourth among fourteen commercial banking organizations, with 12.2 percent of the area's commercial bank deposits. If the proposed merger were consummated, Applicant would continue to rank fourth in the New Haven market and would hold 14.1 percent of area deposits. However, mutual savings banks control 73 percent of time and savings deposits at offices of commercial and mutual savings banks in the New Haven market; and the town of Orange would no longer have home office protection after this merger. Applicant proposes to offer the following new services at the Orange office of the resulting bank: automated teller machines, negotiable order of withdrawal accounts, trust services, and international services. Convenience and need factors lend weight to approval. Bank has experienced problems that have reduced its competitiveness. The resources and prospects of the proposed organization would benefit the operations at the offices now occupied by Bank without diminishing Applicant's prospects. The financial and managerial resources and prospects of Applicant are satisfactory and, as a result of this proposal, Bank's customers would be served by a stronger organization. United Virginia Bank, Richmond, Virginia, to merge with The First National Bank of Martinsville and Henry County, Fieldale, Virginia SUMMARY REPORT BY THE ATTORNEY GENERAL (8/6/82) The proposed transaction would not be significantly adverse to competition. BASIS FOR APPROVAL BY THE SECRETARY OF THE BOARD OF GOVERNORS (9/7/82) United Virginia Bank (Applicant), with assets of $3.9 billion, proposes to merge The First National Bank of Martinsville and Henry County (Bank), with assets of $203 million. Applicant is a subsidiary of United Virginia Bankshares Incorporated, Richmond (UVB),which ranks first among banking organizations in Virginia, with about 13.6 percent of deposits in the state. The closest offices of the participating banks are about 40 miles apart. Applicant is not represented in the Henry County market, in which Bank, with 39.1 percent of area deposits, ranks first among six banks. The proposed merger would not have a significant effect on competition. Applicant proposes to expand the trust services available to Bank's customers. Business and commercial interests in the Henry County market should benefit from higher loan limits. The banking factors are consistent with approval. United Virginia Bank, Richmond, Virginia, to merge with Citizens National Bank, New Market, Virginia SUMMARY REPORT BY THE ATTORNEY GENERAL (No report received.) BASIS FOR APPROVAL BY THE SECRETARY OF THE BOARD OF GOVERNORS (9/7/82) United Virginia Bank (Applicant), with assets of $3.9 billion, proposes to merge Citizens National Bank (Bank), with assets of $36 million. The closest offices of the participating banks are 20 miles apart. Applicant does not now operate offices in the relevant Shenandoah County market, in which Bank ranks third among Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 243 18.-—Continued commercial banks, with 17.3 percent of market deposits. The proposal would not have a significant effect on competition. With respect to convenience and need factors, Applicant plans to provide at the offices now operated by Bank several new or enhanced services, such as industrial development assistance, investment advisory services, and a wide array of trust services. The banking factors are consistent with approval. St. Joseph Valley Bank, Elkhart, Indiana, to merge with First National Bank of Goshen, Goshen, Indiana SUMMARY REPORT BY THE ATTORNEY GENERAL (5/14/82) St. Joseph Valley Bank (Applicant) is the only banking subsidiary of SJV Corporation and is the second largest bank in Elkhart County, with total deposits of $286 million including $57 million in demand deposits of individuals, partnerships, and corporations (IPCs), and net income for 1981 of $2 million. Applicant has fourteen banking offices, twelve located in various parts of Elkhart City, and one office each in Nappanee and Bristol. Applicant also has five electronic funds transfer units in Elkhart City and offices of affiliated corporations in Elkhart City and Goshen, Indiana, and Decatur, Illinois. First National Bank of Goshen (Bank) is an independent bank with five offices, all in Goshen. As of December 31, 1981, Bank had total deposits of $72 million, including $13 million in IPC demand deposits. For the year ending December 31, 1981, Bank had net income of $912,000. Both Applicant and Bank are in Elkhart County, which is in northern Indiana, bordering on Michigan to the north, St. Joseph County (where South Bend is located) on the west, and the primarily rural counties of LaGrange on the east and Kosciusko on the south. In 1970, Elkhart County had a population of 126,529 and had experienced a growth rate of 4.9 percent over the previous decade; population in St. Joseph County had declined 7 percent during the same period. Population estimates for 1978 indicated that the city and county of Elkhart continued their growth, whereas South Bend and St. Joseph County lost population. In 1979, Elkhart County was designated as a standard metropolitan statistical area (SMSA). Goshen, the second largest city in the county, is approximately 10 miles from Elkhart, the largest city. That city has about 93 separate companies with 50 or more employees and several large employers with over 1,000 employees. Its industrial development is primarily on the east side. Goshen has four companies with 300 or more employees and an industrial park south of the city with 2,500 employees. The largest shopping center in Elkhart County, outside of downtown Elkhart, is the Concord Mall, located southeast of Elkhart about halfway to Goshen. Adjacent to the Elkhart SMSA is the South Bend SMSA, which consists of St. Joseph and Marshall Counties and includes the cities of South Bend and Mishawaka. While Elkhart and St. Joseph Counties are contiguous and the distance between Elkhart City and South Bend is relatively short (about 13.5 miles), the true travel distances may be longer because of the way industry is located in the various areas. The South Bend SMSA has substantial industrial development to the west and southwest of South Bend and toward the south of Mishawaka. The statistics from the 1970 census (the latest available) indicate that only a few people commute between Elkhart County and St. Joseph County. Furthermore, both counties have high unemployment at present (over 12 percent), so that commuting may be substantially lower than in 1970. The nearest major shopping area in St. Joseph County for Elkhart County residents is downtown Mishawaka. Another shopping center is located just west of downtown Mishawaka. Another significant factor in determining the geographic market is the very restrictive branching and bank holding company laws of Indiana. Branching is permitted only within the county of a bank's home office and only single bank holding companies are permitted. Thus banks in neither county have the opportunity to compete with banks in the other by establishing branches there. [Because of federal and state law the same conclusion holds for Michigan banks north of Elkhart County. There may be some commuting between Michigan and Elkhart County.] Therefore, we believe that the relevant geographic market for analyzing this acquisition is Elkhart County. Applicant and Bank compete in the relevant geographic market. The nearest offices of Applicant and Bank are a little over five miles apart, at the Concord Mall on U.S. Route 33 south Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

244 Tables 18. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1982—Continued of Elkhart and at U.S. Route 33 west and Bashor Road, on the northwest end of Goshen respectively. Twelve of Applicant's offices are within 10 miles of one of Bank's offices. Applicant is the second largest bank and depository institution in the market, with total deposits of $286 million, accounting for 26.5 percent of the total deposits of all depository institutions in the market. [All commercial bank data are as of June 30, 1981; savings and loan association data are as of September 30, 1980; and credit union data are as of January 1,1981.] Bank is the fourth largest bank and fifth largest financial institution, with total deposits of $72 million, accounting for 6.9 percent of total deposits in the market. The four-firm concentration ratio is 80.7 percent, and the Herfindahl Index is 2067 (including savings and loan associations and assuming 1 percent market shares for each of the 24 credit unions in the market). The resulting bank would be the largest financial institution in the market, with total deposits of $358 million, or 33.4 percent of total deposits. The four-firm concentration ratio would increase to 87.6 percent and the Herfindahl Index would increase almost 400 basis points, to 2433. The proposed transaction would eliminate direct competition and substantially increase concentration levels in the relevant geographic market, and thus would have a significantly adverse effect on competition. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (9/28/82) St. Joseph Valley Bank (Applicant), with assets of $356 million, proposes to merge First National Bank of Goshen (Bank), with assets of $85 million. Applicant has concurrently applied for membership in the Federal Reserve System. All offices of Applicant are at least five miles from any office of Bank. Applicant and Bank are in the "South Bend Ranally Metro Area," as defined by the Rand McNally Commercial Atlas, in which Applicant ranks fourth among twenty-two commercial banking organizations, controlling 11 percent of market deposits. Upon consummation of the proposed merger, Applicant would become the market's second largest commercial banking organization and would control 13.9 percent of the total deposits in commercial banks in this market, which has a relatively low level of concentration. The Board concludes that the proposed merger would not have a significant adverse effect on existing or potential competition. With respect to convenience and need factors, Applicant plans to provide at the offices now operated by Bank several new or enhanced services such as industrial development assistance, investment advisory services, and a wide array of trust services. The financial and managerial resources of Applicant, its parent, and Bank are regarded as generally satisfactory and their prospects appear favorable. As a result, the banking factors are consistent with approval. First Colbert National Bank, Sheffield, Alabama, to merge with Bank of Florence, Florence, Alabama SUMMARY REPORT BY THE ATTORNEY GENERAL (12/17/82) The proposed transaction would not be significantly adverse to competition. BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (10/18/82) First Colbert National Bank (Applicant), with assets of $59 million, proposes to merge Bank of Florence (Bank), with assets of $15 million. Applicant proposes to convert to a state-chartered institution, and has also applied for membership in the Federal Reserve System. Applicant ranks fourth among eight banking organizations in the Florence banking market, with 10.2 percent of total deposits. The bank resulting from the proposed merger would rank third in the Florence market, with 12.7 percent of the area's commercial bank deposits. This merger would increase the four-bank concentration to 88.3 percent; but, in fact, the two banks have been affiliated by virtue of common ownership and director interlocks since the establishment of Bank in 1975. Thus initial control of Bank did not eliminate any existing competition or increase market concentration; the relationship between Bank and Applicant appears to be such that little if any meaningful competition has ever developed between the two banks. In this light, the Board does not regard the effects of the proposed acquisition on competition in the relevant banking market as significant. The financial and managerial resources of Applicant, its parent, and Bank are regarded as Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 245 18.-—Continued generally satisfactory, and their prospects appear favorable. The banking factors thus are consistent with approval. The convenience and needs factors of the community to be served are also consistent with approval. Accordingly, the Board has determined that consummation of the transaction would be consistent with the public interest and that the application should be approved. First Virginia Bank-Franklin County, Rocky Mount, Virginia, to merge with Farmers and Merchants Bank, Boones Mill, Virginia SUMMARY REPORT BY THE ATTORNEY GENERAL (10/29/82) The proposed transaction would not be significantly adverse to competition. BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (11/9/82) First Virginia Bank-Franklin County (Applicant), with assets of $60 million, proposes to merge Farmers and Merchants Bank (Bank), with assets of $17 million. Applicant is a subsidiary of First Virginia Bank, Inc., Falls Church, Virginia (FVB), which ranks seventh among Virginia's commercial banking organizations, with about 7 percent of the deposits held by banking offices in the state. The relevant market in this proposal is the Roanoke market, in which FVB ranks fifth among fourteen banking organizations, with 8.7 percent of the area's commercial bank deposits. Following the proposed merger, FVB would rank fourth in the Roanoke market, with 9.9 percent of area deposits. The proposal would not have a significant effect on competition. Bank has had financial and managerial problems that have reduced its competitiveness. The financial and managerial resources and prospects of the proposed organization would benefit the operations at the offices now occupied by Bank without diminishing Applicant's prospects. The financial and managerial resources and prospects of Applicant are satisfactory and, as a result of this proposal, Bank's customers would be served by a stronger organization. Mergers Approved Involving Wholly Owned Subsidiaries of the Same Bank Holding Company The following transactions involve banks that are subsidiaries of the same bank holding company. In such case, the Summary Report by the Attorney General indicates that because the banks are wholly owned subsidiaries of the same bank holding company, their proposed merger is essentially a corporate reorganization and therefore will have no effect on competition. The Board of Governors, the Federal Reserve Bank, or the Secretary of the Board of Governors, whichever approved the application, determined that the competitive effects of the proposed transaction, the financial and managerial resources, and the prospects of the banks concerned, as well as the convenience and needs of the community to be served, were consistent with approval. Nam a e n o d f o b t a h n e k r , b t a y n p k e s o i f n v t o ra lv n e sa d c 1 tion, (m A i s l s li e o ts ns ap B D p o r a a o t r v e d a o l o f b r y of dollars) Reserve Bank Fidelity Union Bank, Newark, New Jersey 1,349 3-1-82 Merger Fidelity Union Bank, N.A., Red Bank, New Jersey 498 Fidelity Union Bank, N.A., Garden State, Paramus, New Jersey 828 The Toledo Trust Company, Toledo, Ohio 1,018 3-23-82 Merger Northwest Ohio Bank, Bowling Green, Ohio 42 The Oak Harbor State Bank Company, Oak Harbor, Ohio 34 National Bank of Fulton County, Delta, Ohio 23 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

246 Tables 18. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1982—Continued Nam a e n o d f o b th an er k , b t a y n p k e s o in f v t o ra lv n e s d a 1 ction, (m A i s l s li e o t n s s ap B D p o r a a o t r v e d a o l o f b r y of dollars) Reserve Bank First Virginia Bank, Falls Church, Virginia 680 4-7-82 Merger First Virginia Bank-Loudoun, Leesburg, Virginia 29 First Virginia Bank-Eastern, Warrenton, Virginia 7 The Bank of New Jersey, Camden, New Jersey 550 4-8-82 Merger Prospect Park National Bank, Wayne, New Jersey 285 First Virginia Bank-Shenandoah Valley, Woodstock, Virginia... 69 5-4-82 Merger Bank of Frederick County, Stephens City, Virginia 11 Central Bank of the South, Birmingham, Alabama 2,231 5-27-82 Merger Central Bank, N.A., Mobile, Alabama 83 AmeriTrust Company, Cleveland, Ohio 4,662 6-23-82 Merger AmeriTrust Company of Toledo, Toledo, Ohio 6 Royal Trust Bank of Tampa, Tampa, Florida 17 7-1-82 Merger Royal Trust Bank of St. Petersburg, Gulfport, Florida 58 Royal Trust Bank of Orlando, Orlando, Florida 21 American Bank and Trust Company, Lansing, Michigan 373 8-11-82 Merger American Bank of Perry, Perry, Michigan 16 First Virginia Bank of the Southwest, Christiansburg, Virginia .. 48 10-21-82 Merger First Virginia Bank-Bland County, Bland, Virginia 15 1. Each proposed transaction was to be effected under the charter of the first-named bank. The table is in chronological order of approval. Mergers Approved Involving a Nonoperating Institution with an Existing Bank The following transactions have no significant effect on competition; they merely facilitate the acquisition of the voting shares of a bank (or banks) by a holding company. In such cases, the Summary Report by the Attorney General indicates that the transaction will merely combine an existing bank with a nonoperating institution; in consequence, and without regard to the acquisition of the surviving bank by the holding company, the merger would have no effect on competition. The Board of Governors, the Federal Reserve Bank, or the Secretary of the Board of Governors, whichever approved the application, determined that the proposal would, in itself, have no adverse competitive effects, and that the financial and convenience and need factors were consistent with approval. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 247 18,—Continued Name a n o d f o b t a h n e k r , b t a y n p k e s o i f n v tr o a lv n e sa d c 1 tion, o ( f m A d i s l o s l l i e l o t a s n r s s) R a e p B s D p e o r r a a o v t r v e e d a o l B o f a b r n y k DB Banking Co., Youngstown, Ohio 1-7-82 Merger The Dollar Savings and Trust Company, Youngstown, Ohio 572 The Interim Dime Bank of Marietta, Marietta, Ohio 2-12-82 Merger The Dime Bank of Ross County, N.A., Adelphi, Ohio 9 The Dime Bank, Marietta, Ohio 30 The FTB Fifth Bank, Russellville, Ohio 2-17-82 Merger The Bank of Russellville, Russellville, Ohio 21 The FTB Sixth Bank, Fairborn, Ohio (2) 3-4-82 Merger The Farmers and Merchants Bank, Fairborn, Ohio 41 Whitley Banking Co., Columbia City, Indiana (2) 3-22-82 Merger The Farmer's Loan and Trust Company, Columbia City, Indiana 45 Cullman County Bank, Cullman, Alabama (2) 3-29-82 Merger Parker Bank and Trust Company, Cullman, Alabama 36 Indiana Southern Bank of Sellersburg, Sellersburg, Indiana 41 4-16-82 Merger Indiana Sointerim Bank of Sellersburg, Sellersburg, Indiana (2) City Bank and Trust Company, Dixon, Illinois 47 4-16-82 Merger Third Bank of Dixon, Dixon, Illinois (2) The Scott County State Bank, Scottsburg, Indiana 47 4-16-82 Merger Scottsburg Bank, Scottsburg, Indiana (2) New Valley Bank of Nevada, Las Vegas, Nevada (2) 6-4-82 Merger Valley Bank of Nevada, Las Ve*gas, Nevada 915 Bank One of Geauga County, Chardon, Ohio (2) 6-11-82 Merger The Chardon Savings Bank Company, Chardon, Ohio 94 The DeKalb Bank, DeKalb, Illinois 78 7-8-82 Merger The DeKalb Interim Bank, DeKalb, Illinois Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

248 Tables 18. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1982—Continued Name of bank, type of transaction, Assets ap D pr a o t v e a o l f by and other banks involved1 (millions Board or of dollars) Reserve Bank First Virginia Bank-Tazewell, Tazewell, Virginia 7-8-82 Merger Tazewell National Bank, Tazewell, Virginia 52 Brownsburg Service Bank, Brownsburg, Indiana (2) 7-28-82 Merger Hendricks County Bank and Trust Company, Brownsburg, Indiana 45 American Bank Company, Princeton, West Virginia (2) 8-2-82 Merger Princeton Bank & Trust Company, Princeton, West Virginia.... 140 The Union Bank & Savings Company, Bellevue, Ohio . 59 8-12-82 Merger Bellevue Interim Bank, Bellevue, Ohio (2) Bank of Pontiac, Pontiac, Illinois 62 8-25-82 Merger Pontiac State Bank, Pontiac, Illinois . (2) HC State Bank, Harbor Beach, Michigan (2) 8-30-82 Merger Huron County Bank, Harbor Beach, Michigan 25 Elliott State Bank, Jacksonville, Illinois. 128 8-31-82 Merger ES Bank, Jacksonville, Illinois (2) State Bank of Waupun, Waupun, Wisconsin 39 9-30-82 Merger Waupun Interim Bank, Waupun, Wisconsin. First Peoples State Bank, Cedar Rapids, Iowa 10-19-82 Merger Peoples Bank and Trust Company, Cedar Rapids, Iowa. 150 First Trust & Savings Bank of Kankakee, Kankakee, Illinois.... 135 11-23-82 Merger Midwest Trust and Savings Bank of Kankakee, Kankakee, Illinois The New Bank, Vienna, Virginia (2) 12-9-82 Merger The Business Bank of the United States, Vienna, Virginia. 6 Peoples Liberty Bank and Trust Company, Covington, Kentucky 128 12-10-82 Merger Plibco Bank, Inc., Covington, Kentucky 1. Each proposed transaction was to be effected under the charter of the first-named bank. The table is in chronological order of approval. Digitized fo2r. TFhRisA isS aE nRew ly organized bank, not in operation. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

249 The Federal Reserve System Boundaries of Federal Reserve Districts and their Branch Territories d, HAWAII © Legend Boundaries of Federal Reserve Districts Boundaries of Federal Reserve Branch Territories o Board of Governors of the Federal Reserve System ® Federal Reserve Bank Cities • Federal Reserve Branch Cities • Federal Reserve Bank Facilities Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Directories and Meetings Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

252 Directories and Meetings Board of Governors of the Federal Reserve System December 31, 1982 Term expires PAUL A. VOLCKER of New Jersey, Chairman 1 January 31, 1992 PRESTON MARTIN of California, Vice Chairman l January 31, 1996 NANCY H. TEETERS of Indiana January 31, 1984 J. CHARLES PARTEE of Virginia January 31, 1986 HENRY C. WALLICH of Connecticut January 31, 1988 EMMETT J. RICE of New York January 31, 1990 LYLEE. GRAMLEY of Missouri January 31, 1994 OFFICE OF BOARD MEMBERS OFFICE OF STAFF DIRECTOR JOSEPH R. COYNE, Assistant to the FOR FEDERAL RESERVE BANK Board ACTIVITIES DONALD J. WINN, Assistant to the THEODORE E. ALLISON, Staff Director Board FRANK O'BRIEN, JR., Deputy Assistant OFFICE OF THE SECRETARY to the Board ANTHONY F. COLE, Special Assistant to WILLIAM W. WILES, Secretary the Board BARBARA R. LOWREY, Associate Secretary WILLIAM R. JONES, Special Assistant to the Board JAMES MCAFEE, Associate Secretary WILLIAM R. MALONI, Special Assistant to the Board LEGAL DIVISION NAOMI P. SALUS, Special Assistant to MICHAEL BRADFIELD, General Counsel the Board ROBERT E. MANNION, Deputy General Counsel OFFICE OF STAFF DIRECTOR J. VIRGIL MATTINGLY, JR., Associate FOR MONETARY AND General Counsel FINANCIAL POLICY GILBERT T. SCHWARTZ, Associate General Counsel STEPHEN H. AXILROD, Staff Director EDWARD C. ETTIN, Deputy Staff RICHARD M. ASHTON, Assistant General Counsel Director MURRAY ALTMANN, Assistant to the NANCY P. JACKLIN, Assistant General Counsel Board STANLEY J. SIGEL, Assistant to the MARYELLEN A. BROWN, Assistant to the General Counsel Board NORMAND R.V. BERNARD, Special Assistant to the Board DIVISION OF RESEARCH AND STATISTICS OFFICE OF STAFF DIRECTOR JAMES L. KICHLINE, Director FOR MANAGEMENT JOSEPH S. ZEISEL, Deputy Director JOHN M. DENKLER, Staff Director MICHAEL J. PRELL, Associate Director EDWARD T. MULRENIN, Assistant Staff JARED J. ENZLER, Senior Deputy Associate Director Director JOSEPH W. DANIELS, SR., Federal DONALD L. KOHN, Senior Deputy Associate Director Reserve System EEO Program Adviser ELEANOR J. STOCKWELL, Senior Deputy Associate Director HELMUT F. WENDEL, Deputy Associate Director 1. The designations as Chairman and Vice Chairman expire on August 6, 1983, and March 30, 1986, respectively unless the services of these members of the Board shall have terminated sooner. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 253 DIVISION OF RESEARCH DIVISION OF BANKING AND STATISTICS—Continued SUPERVISION AND REGULATION MARTHA BETHEA, Assistant Director JOHN E. RYAN, Director JOE M. CLEAVER, Assistant Director FREDERICK R. DAHL, Associate ROBERT M. FISHER, Assistant Director Director DAVID E. LINDSEY, Assistant Director DON E. KLINE, Associate Director LAWRENCE SLIFMAN, Assistant Director WILLIAM TAYLOR, Associate Director FREDERICK M. STRUBLE, Assistant JACK M. EGERTSON, Assistant Director Director ROBERTA. JACOBSEN, Assistant STEPHEN P. TAYLOR, Assistant Director Director PETER A. TINSLEY, Assistant Director ROBERTS. PLOTKIN, Assistant Director LEVON H. GARABEDIAN, Assistant THOMAS A. SIDMAN, Assistant Director Director (Administration) SIDNEY M. SUSSAN, Assistant Director SAMUEL H. TALLEY, Assistant Director LAURA M. HOMER, Securities Credit DIVISION OF INTERNATIONAL Officer FINANCE EDWIN M. TRUMAN, Director ROBERT F. GEMMILL, Associate DIVISION OF CONSUMER Director AND COMMUNITY AFFAIRS CHARLES J. SIEGMAN, Associate GRIFFITH L. GARWOOD, Director Director JERAULD C. KLUCKMAN, Associate LARRY J. PROMISEL, Senior Deputy**- Director Associate Director GLENN E. LONEY, Assistant Director DALE W. HENDERSON, Deputy DOLORES S. SMITH, Assistant Director Associate Director SAMUEL PIZER, Staff Adviser MICHAEL P. DOOLEY, Assistant Director DIVISION OF PERSONNEL RALPH W. SMITH, JR., Assistant DAVID L. SHANNON, Director Director JOHN R. WEIS, Assistant Director CHARLES W. WOOD, Assistant Director DIVISION OF FEDERAL RESERVE BANK OPERATIONS DIVISION OF SUPPORT SERVICES CLYDE H. FARNSWORTH, JR., Director DONALD E. ANDERSON, Director LORIN S. MEEDER, Associate Director ROBERT E. FRAZIER, Associate Director DAVID L. ROBINSON, Associate Director WALTER W. KREIMANN, Associate Director C. WILLIAM SCHLEICHER, JR., Associate Director WALTER ALTHAUSEN, Assistant Director OFFICE OF THE CONTROLLER CHARLES W. BENNETT, Assistant GEORGE E. LIVINGSTON, Controller Director ANNE M. DEBEER, Assistant Director JACK DENNIS, Assistant Director DIVISION OF DATA PROCESSING RICHARD B. GRE,EN, Assistant Director CHARLES L. HAMPTON, Director EARL G. HAMILTON, Assistant Director BRUCE M. BEARDSLEY, Deputy ELLIOTT C. MCENTEE, Assistant Director Director ULYESS D. BLACK, Associate Director GLENN L. CUMMINS, Assistant Director NEAL H. HILLERMAN, Assistant Director ELIZABETH A. JOHNSON, Assistant Director WILLIAM C. SCHNEIDER, JR., Assistant Director ROBERT J. ZEMEL, Assistant Director Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

254 Directories and Meetings Federal Open Market Committee December 31, 1982 Members PAUL A. VOLCKER, Chairman (Board of Governors) ANTHONY M. SOLOMON, Vice Chairman (elected by Federal Reserve Bank of New York) JOHN J. BALLES (elected by Federal Reserve Banks of Minneapolis, Kansas City, and San Francisco) ROBERT P. BLACK (elected by Federal Reserve Banks of Boston, Philadelphia, and Richmond) WILLIAM F. FORD (elected by Federal Reserve Banks of Atlanta, St. Louis, and Dallas) LYLE E. GRAMLEY (Board of Governors) KAREN N. HORN (elected by Federal Reserve Banks of Chicago and Cleveland) PRESTON MARTIN (Board of Governors) J. CHARLES PARTEE (Board of Governors) EMMETT J. RICE (Board of Governors) NANCY H. TEETERS (Board of Governors) HENRY C. WALLICH (Board of Governors) Officers STEPHEN H. AXILROD, RICHARD G. DAVIS, Staff Director Associate Economist MURRAY ALTMANN, EDWARD C. ETTIN, Secretary Associate Economist NORMAND R.V. BERNARD, MICHAEL W. KERAN, Assistant Secretary Associate Economist NANCY M. STEELE, DONALD L. KOCH, Deputy Assistant Secretary Associate Economist MICHAEL BRADFIELD, JAMES PARTHEMOS, General Counsel Associate Economist JAMES H. OLTMAN, MICHAEL J. PRELL, Deputy General Counsel Associate Economist ROBERT E. MANNION, CHARLES J. SIEGMAN, Assistant General Counsel Associate Economist JAMES L. KICHLINE, EDWIN M. TRUMAN, Economist Associate Economist JOHN M. DAVIS, JOSEPH S. ZEISEL, Associate Economist Associate Economist PETER D. STERNLIGHT, Manager for Domestic Operations, System Open Market Account SAM Y. CROSS, Manager for Foreign Operations, System Open Market Account During 1982, the Federal Open Market of the Federal Open Market Committee" Committee held eight regularly scheduled in this REPORT.) meetings. (See "Record of Policy Actions Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 255 Federal Advisory Council December 31, 1982 Members District No. 1—WILLIAM S. EDGERLY, Chairman of the Board and President, State Street Bank and Trust Company, Boston, Massachusetts District No. 2—DONALD C. PLATTEN, Chairman of the Board, Chemical Bank, New York, New York District No. 3—JOHN H. WALTHER, Chairman of the Board, New Jersey National Corporation and New Jersey National Bank, Trenton, New Jersey District No. 4—JOHN G. MCCOY, Chairman, Bane One Corporation, Columbus, Ohio District No. 5—VINCENT C. BURKE, JR., Chairman of the Board, The Riggs National Bank of Washington, D.C., Washington, D.C. District No. 6—ROBERT STRICKLAND, Chairman, Trust Company of Georgia, Atlanta, Georgia District No. 7—ROBERT M. SURDAM, Chairman, National Bank of Detroit, Detroit, Michigan District No. 8—RONALD TERRY, Chairman of the Board, First Tennessee Bank, N.A., Memphis, Tennessee District No. 9—CLARENCE G. FRAME, Vice Chairman, First Bank System, Inc., Minneapolis, Minnesota District No. 10—GORDON E. WELLS, Chairman of the Board, First National Bank of Kansas City, Kansas City, Missouri District No. 11—T.C. FROST, JR., Chairman, Cullen/Frost Bankers, Inc., San Antonio, Texas District No. 12—JOSEPH J. PINOLA, Chairman and Chief Executive Officer, First Interstate Bancorporation, Los Angeles, California Officers DONALD C. PLATTEN, President ROBERT M. SURDAM, Vice President HERBERT V. PROCHNOW, Secretary WILLIAM J. KORSVIK, Associate Secretary Directors WILLIAM S. EDGERLY CLARENCE G. FRAME JOHN H. WALTHER Meetings of the Federal Advisory Council sentatives of the banking industry, one from were held on February 4-5, May 20-21, each Federal Reserve District, is required September 16-17, and November 4-5, by law to meet in Washington at least four 1982. The Board of Governors met with times a year and is authorized by the Fedthe council on February 5, May 21, Sep- eral Reserve Act to consult and advise the tember 17, and November 5, 1982. The Board on all matters within the jurisdiccouncil, which is composed of 12 repre- tion of the Board. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

256 Directories and Meetings Consumer Advisory Council December 31, 1982 CHARLOTTE H. SCOTT, Charlottesville, Virginia, Chairman MARGARET REILLY-PETRONE, Upper Montclair, New Jersey, Vice Chairman ARTHUR F. BOUTON, SHIRLEY T. HOSOI, Little Rock, Arkansas Los Angeles, California JULIA H. BOYD, GEORGE S. IRVIN, Alexandria, Virginia Denver, Colorado ELLEN BROADMAN, HARRY N. JACKSON, Washington, D.C. Minneapolis, Minnesota GERALD R. CHRISTENSEN, F. THOMAS JUSTER, Salt Lake City, Utah Ann Arbor, Michigan JOSEPH N. CUGINI, ROBERT J. MCEWEN, S.J., Westerly, Rhode Island Chestnut Hill, Massachusetts RICHARD S. D'AGOSTINO, STAN L. MULARZ, Wilmington, Delaware Chicago, Illinois SUSAN PIERSON DE WITT, WILLIAM J. O'CONNOR, JR., Springfield, Illinois Buffalo, New York JOANNE S. FAULKNER, WlLLARD P. OGBURN, New Haven, Connecticut Boston, Massachusetts MEREDITH FERNSTROM, JANET J. RATHE, New York, New York Portland, Oregon ALLEN J. FISHBEIN, RENE REIXACH, Washington, D.C. Rochester, New York E.C.A. FORSBERG, SR., PETER D. SCHELLIE, Atlanta, Georgia Washington, D.C. LUTHER R. GATLING, NANCY Z. SPILLMAN, New York, New York Los Angeles, California VERNARD W. HENLEY, CLINTON WARNE, Richmond, Virginia Cleveland, Ohio JUAN J. HINOJOSA, FREDERICK T. WEIMER, MMeee Atilnlegns, bTeetxwaesen the Consumer Ad- poCsehdi coafg cor,e Idliltionrosi,s consumers, and others, visory Council and members of the Board was established pursuant to the Equal of Governors were held on January 27- Credit Opportunity Act to advise the Board 28, April 28-29, July 28-29, and October on consumer-related matters. 27-28, 1982. The council, which is com- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 257 Federal Reserve Banks, Branches, and Offices December 31, 1982 FEDERAL RESERVE Chairman1 President Vice President BANK, branch Deputy Chairman First Vice President in charge of branch BOSTON2 Robert P. Henderson Frank E. Morris Thomas I. James A. Atkins Mclntosh NEW YORK2 Robert H. Knight, Anthony M. Solomon Esq. Thomas M. Boris Yavitz Timlen Buffalo Frederick D. John T. Keane Berkeley III PHILADELPHIA Jean A. Crockett Edward G. Boehne Robert M. Richard L. Landis Smoot CLEVELAND2 J.L. Jackson Karen N. Horn William H. William H. Knoell Hendricks Cincinnati Clifford R. Meyer Robert E. Showalter Pittsburgh Milton G. Hulme, Jr. Harold J. Swart RICHMOND2 Steven Muller Robert P. Black Paul E. Jimmie R. Reichardt Monhollon Baltimore Edward H. Covell Robert D. McTeer, Jr. Charlotte Naomi G. Albanese Stuart P. Fishburne Culpeper3 Albert D. Tinkelenberg ATLANTA William A. Fickling, William F. Ford Jr. Robert P. John H. Forrestal Weitnauer, Jr. Birmingham William H. Martin Fred R. Herr III Jacksonville Copeland D. Charles D. East Newbern Miami Eugene E. Cohen Patrick K. Barron Nashville Cecelia Adkins Jeffrey J. Wells New Orleans Leslie B. Lampton James D. Hawkins Atlanta Delmar Harrison CHICAGO John Sagan Silas Keehn Stanton R. Cook Daniel M. Doyle Detroit Russell G. Mawby William C. Conrad ST. LOUIS Armand C. Stalnaker Lawrence K. Roos W.L. Hadley Donald W. Griffin Moriarty, Jr. Little Rock Richard V. Warner John F. Breen Louisville James F. Thompson Donald L. Henry Memphis Donald B. Weis Randall C. Sumner MINNEAPOLIS William G. Phillips E. Gerald Corrigan John B. Davis, Thomas E. Jr. Gainor For notes see last page of listing. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

258 Directories and Meetings FEDERAL RESERVE Chairman1 President Vice President BANK, branch Deputy Chairman First Vice President in charge of branch Helena Ernest B. Corrick Robert F. McNellis KANSAS CITY Paul H. Henson Roger Guffey Doris M. Drury Henry R. Czerwinski Denver James E. Nielson Wayne W. Martin Oklahoma City Christine H. Anthony William G. Evans Omaha Robert G. Lueder Robert D. Hamilton DALLAS Gerald D. Hines. Robert H. Boykin John V. James William H. Wallace El Paso A.J. Losee Joel L. Koonce, Jr. Houston Jerome L. Howard J.Z. Rowe San Antonio Lawrence L. Crum Thomas H. Robertson SAN FRANCISCO . Caroline L. John J. Balles Ahmanson John B. Williams Alan C. Furth Los Angeles Bruce M. Schwaegler Richard C. Dunn Portland John C. Hampton Angelo S. Carella Salt Lake City Wendell J. Ashton A. Grant Holman Seattle John W. Ellis Gerald R. Kelly 1. The Chairman of a Federal Reserve Bank, by South Carolina; Charleston, West Virginia; Des statute, also serves as Federal Reserve Agent. Moines, Iowa; Indianpolis, Indiana; and Milwaukee, 2. Additional offices of these Banks are located at Wisconsin. Lewistown, Maine; Windsor Locks, Connecticut; 3. Culpeper Communications and Records Center Cranford, New Jersey; Jericho, New York; Utica at is a facility. Oriskany, New York; Columbus, Ohio; Columbia, Conference of Chairman Conference of Presidents The chairmen of the Federal Reserve The presidents of the Federal Reserve Banks are organized into a Conference of Banks are organized into a Conference Chairmen that meets to consider matters of Presidents that meets periodically to of common interest and to consult with consider matters of common interest and and advise the Board of Governors. Such to consult and advise the Board of meetings, attended also by the deputy Governors. At a meeting held September chairmen, were held in Washington on 14-15, 1981, Lawrence K. Roos, Presi- May 23-24 and December 2-3, 1982. dent of the Federal Reserve Bank of St. The Executive Committee of the Con- Louis, was elected Chairman, and Anference of Chairmen during 1982 com- thony M. Solomon, President of the prised John Sagan, Chairman, William A. Federal Reserve Bank of New York, was Fickling, Vice Chairman, and Paul H. elected Vice Chairman for 1982. Lynn Henson, member. A. David of the Federal Reserve Bank On December 2, 1982, Robert P. Hen- of St. Louis was appointed Secretary, derson was elected chairman of the con- and Thomas J. Campbell of the Federal ference and of its Executive Committee Reserve Bank of New York was apto serve for the succeeding year; William pointed Assistant Secretary. Bradley K. G. Phillips was elected vice chairman of Sabel of the Federal Reserve Bank of the conference and a member of the Ex- New York replaced Mr. Campbell as ecutive Committee; and Steven Muller was Assistant Secretary on October 6, 1982. elected as the other member of the Executive Committee. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 259 Conference of year. Directors are chosen without dis- First Vice Presidents crimination as to race, creed, color, sex, or national origin. The Conference of First Vice Presidents The Class A directors are chosen as of the Federal Reserve Banks was orgarepresentatives of member banks and, as nized in 1969 to meet periodically for the a matter of practice, are active officers consideration of operational and other of member banks. Class B and Class C matters. On October 8, 1981, Donald directors represent the public and are W. Moriarty, Jr., First Vice President of selected with due, but not exclusive, the Federal Reserve Bank of St. Louis, consideration to the interests of agriculwas elected Chairman, and Thomas M. ture, commerce, industry, services, la- Timlen, First Vice President of the Fedbor, and consumers. Class B and Class eral Reserve Bank of New York, was C directors may not be officers, directors, elected Vice Chairman of the conference or employees of any bank, nor may Class for 1982. Lynn A. David and Thomas J. C directors be stockholders of any bank. Campbell were appointed Secretary and Annually, the Board of Governors des- Assistant Secretary respectively. Mr. ignates one Class C director of each Campbell was replaced by Bradley K. Reserve Bank to serve as chairman of Sabel on October 6, 1982. the Bank and one to serve as deputy chairman. Branches of Federal Reserve Banks have either five or seven directors, of Directors whom a majority are appointed by the Class A and Class B directors are elected board of directors of the parent Federal by the member banks of a Federal Reserve Bank. The others are appointed Reserve District. Class C directors are by the Board of Governors of the Federal appointed by the Board of Governors of Reserve System. The chairmen of branch the Federal Reserve System. One term boards are selected from among directors in each class of directors expires each appointed by the Board of Governors. Term expires District 1—BOSTON Dec. 31 Class A H. Alan Timm President, Bank of Maine, N.A., Augusta, Maine 1982 Henry S. Woodbridge, Jr..Chairman of the Board and Chief Executive Officer, Rhode Island Hospital Trust National Bank, Providence, Rhode Island 1983 James Stokes Hatch President and Chief Executive Officer, The Canaan National Bank, Canaan, Connecticut 1984 Class B Carol R. Goldberg Senior Vice President, The Stop & Shop Companies, Inc., Boston, Massachusetts 1982 Joseph A. Baute Chairman and Chief Executive Officer, Markem Corporation, Keene, New Hampshire 1983 George N. Hatsopoulos....President, Thermo Electron Company, Waltham, Massachusetts 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

260 Directories and Meetings Term expires Class C Dec. 31 Thomas I. Atkins General Counsel, National Association for the Advancement of Colored People, New York, New York 1982 Michael J. Harrington Harrington Company, Peabody, Massachusetts 1983 Robert P. Henderson Chairman and Chief Executive Officer, Itek Corporation, Lexington, Massachusetts .... 1984 District 2—NEW YORK Class A Gordon T. Wallis Chairman of the Board, Irving Trust Company, New York, New York 1982 Peter D. Kiernan Chairman and President, Norstar Bancorp Inc., Albany, New York 1983 Robert A. Rough President, The National Bank of Sussex County, Branchville, New Jersey 1984 Class B William S. Cook President, Union Pacific Corporation, New York, New York 1982 John R. Opel President and Chief Executive Officer, International Business Machines Corporation, Armonk, New York 1983 Edward L. Hennessy, Jr. ..Chairman of the Board, Allied Chemical Corporation , Morristown, New Jersey 1984 Class C Boris Yavitz Paul Garrett Professor of Public Policy and Business Responsibility, Columbia University, New York, New York 1982 Robert H. Knight Senior Partner, Shearman and Sterling, Attorneys, New York, New York 1983 Gertrude G. Michelson ....Senior Vice President, R.H. Macy & Company, Inc., New York, New York 1984 BUFFALO BRANCH Appointed by Federal Reserve Bank M. Jane Dickman Partner, Touche Ross & Co., Buffalo, New York 1982 Arthur M. Richardson Chairman of the Board and Chief Executive Officer, Security Trust Company, Rochester, New York 1982 Carl F. Ulmer President, The Evans National Bank of Angola, Angola, New York 1983 Edward W. Duffy Chairman of the Board, Marine Midland Bank, N.A., Buffalo, New York 1984 Appointed by Board of Governors Frederick D. Berkeley III .Chairman of the Board and President, Graham Manufacturing Company, Inc., Bata- Digitized for FRASER via, New York 1982 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 261 Term expires John R. Burwell President, Rollins Container Corporation, Dec. 31 Rochester, New York 1983 George L. Wessel President, Buffalo AFL/CIO Council, Buffalo, New York 1984 District 3—PHILADELPHIA Class A Donald J. Seebold President, The First National Bank of Danville, Danville, Pennsylvania 1982 Roger S. Hillas Chairman and President, Provident National Bank, Philadelphia, Pennsylvania 1983 Douglas Eugene Johnson..President, Ocean County National Bank, Point Pleasant Beach, New Jersey 1984 Class B Eberhard Faber, IV Chairman of the Board and Chief Executive Officer, Eberhard Faber, Inc., Wilkes-Barre, Pennsylvania 1982 Harry A. Jensen President and Chief Executive Officer, Armstrong World Industries, Inc., Lancaster, Pennsylvania 1983 Richard P. Hauser Chairman and Chief Executive Officer, John Wanamaker, Philadelphia, Pennsylvania... 1984 Class C Jean A. Crockett Chairman, Department of Finance, Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 1982 Robert M. Landis Partner, Dechert Price & Rhoads, Philadelphia, Pennsylvania 1983 George E. Bartol III Chairman of the Board, Hunt Manufacturing Company, Philadelphia, Pennsylvania 1984 District 4—CLEVELAND Class A John W. Alford Chairman of the Board and Chief Executive Officer, The Park National Bank, Newark, Ohio 1982 J. David Barnes Chairman of the Board, Mellon Bank, N.A., Pittsburgh, Pennsylvania 1983 Raymond D. Campbell Director, The Oberlin Savings Bank Co., Oberlin, Ohio 1984 Class B John W. Kessler President, John W. Kessler Company, Columbus, Ohio 1982 E. Mandell de Windt Chairman of the Board, Eaton Corporation, Cleveland, Ohio 1983 Richard D. Hannan Chairman of the Board and President, Mercury Instruments, Inc., Cincinnati, Ohio... 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

262 Directories and Meetings Term expires Class C Dec. 31 John D. Anderson Senior Partner, The Andersons, Maumee, Ohio 1982 William H. Knoell President and Chief Executive Officer, Cyclops Corporation, Pittsburgh, Pennsylvania 1983 J.L. Jackson Executive Vice President and President, Coal Unit, Diamond Shamrock Corporation, Lexington, Kentucky 1984 CINCINNATI BRANCH Appointed by Federal Reserve Bank Oliver W. Birckhead Chairman of the Board and Chief Executive Officer, The Central Trust Company, N.A., Cincinnati, Ohio 1982 O.T. Dorton President, Citizens National Bank, Paintsville, Kentucky 1983 Richard Fitton President and Chief Executive Officer, First National Bank of Southwestern Ohio, Hamilton, Ohio 1984 Sherrill Cleland President, Marietta College, Marietta, Ohio. 1984 Appointed by Board of Governors Sister Grace Marie Hiltz...President, Sisters of Charity Health Care Systems, Inc., Cincinnati, Ohio 1982 Clifford R. Meyer Executive Vice President, Cincinnati Milacron Inc., Cincinnati, Ohio 1983 Don Ross Owner, Dunreath Farm, Lexington, Kentucky 1984 PITTSBURGH BRANCH Appointed by Federal Reserve Bank William D. McKain President, Wheeling National Bank, Wheeling, West Virginia 1982 Ernest L. Lake President, The National Bank of North East, North East, Pennsylvania 1983 Robert C. Milsom President, Pittsburgh National Bank, Pittsburgh, Pennsylvania 1984 James S. Pasman, Jr Executive Vice President of Finance, Aluminum Company of America, Pittsburgh, Pennsylvania 1984 Appointed by Board of Governors Robert S. Kaplan Dean, Graduate School of Industrial Administration, Carnegie-Mellon University, Pittsburgh, Pennsylvania 1982 Milton G. Hulme, Jr President and Chief Executive Officer, Mine Safety Appliances Company, Pittsburgh, Pennsylvania 1983 Quentin C. McKenna President and Chief Executive Officer, Kennametal Inc., Latrobe, Pennsylvania 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 263 Term expires District 5—RICHMOND Dec. 31 Class A William M. Dickson President and Senior Trust Officer, The First National Bank in Ronceverte, Ronceverte, West Virginia 1982 J. Banks Scarborough Chairman and President, Pee Dee State Bank, Timmonsville, South Carolina 1983 Joseph A. Jennings Chairman and Chief Executive Officer, United Virginia Bankshares Inc. and United Virginia Bank, Richmond, Virginia 1984 Class B James A. Chapman, Jr Chairman of the Board and Chief Executive Officer, Inman Mills, Inman, South Carolina 1982 Leon A. Dunn, Jr Chairman, President, and Chief Executive Officer, Guardian Corporation and Subsidiaries, Rocky Mount, North Carolina 1983 Paul G. Miller Chairman of the Board and Chief Executive Officer, Commercial Credit Company, Baltimore, Maryland 1984 Class C Paul E. Reichardt Chairman of the Board and Chief Executive Officer, Washington Gas Light Company, Washington, D.C 1982 Steven Muller President, The Johns Hopkins University, Baltimore, Maryland 1983 William S. Lee III Chairman of the Board and Chief Executive Officer, Duke Power Company, Charlotte, North Carolina 1984 BALTIMORE BRANCH Appointed by Federal Reserve Bank Hugh D. Shires Senior Vice President, First National Bank of Maryland, Cumberland, Maryland 1982 A.R. Reppert President, The Union National Bank of Clarksburg, Clarksburg, West Virginia 1982 Joseph M. Gough, Jr President, The First National Bank of St. Mary's, Leonardtown, Maryland 1983 Pearl C. Brackett Deputy Manager, Baltimore Regional Chapter of the American Red Cross, Baltimore, Maryland 1984 Appointed by Board of Governors Edward H. Co veil Vice President for Governmental and Industry Affairs, Country Pride Foods Limited, Easton, Maryland 1982 Robert L. Tate Chairman, Tate Industries, Baltimore, Maryland 1983 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

264 Directories and Meetings Term expires Thomas H. Maddux Executive Vice President and Chief Operating Dec. 31 Officer, Easco Corporation, Baltimore, Maryland 1984 CHARLOTTE BRANCH Appointed by Federal Reserve Bank W.B. Apple, Jr President, First National Bank of Reidsville, Reidsville, North Carolina 1982 Marvin D. Trapp President and Chief Executive Officer, The National Bank of South Carolina, Sumter, South Carolina 1982 Nicholas W. Mitchell Chairman of the Board, Piedmont Federal Savings and Loan Association, Winston- Salem, North Carolina 1983 Hugh M. Chapman Chairman of the Board, The Citizens & Southern National Bank of South Carolina, Columbia, South Carolina 1984 Appointed by Board of Governors Naomi G. Albanese Dean, School of Home Economics, University of North Carolina at Greensboro, Greensboro, North Carolina 1982 Wallace J. Jorgenson President, Jefferson-Pilot Broadcasting Co., Charlotte, North Carolina 1983 Henry Ponder President, Benedict College, Columbia, South Carolina . 1984 District 6—ATLANTA Class A Dan B. Andrews President, First National Bank, Dickson, Tennessee 1982 Hugh M. Willson President, Citizens National Bank, Athens, Tennessee 1983 Guy W. Botts Chairman of the Board, Barnett Banks of Florida, Inc., Jacksonville, Florida 1984 Class B Jean McArthur Davis President, McArthur Dairy, Inc., Miami, Florida 1982 Harold B. Blach, Jr President, Blach's Inc., Birmingham, Alabama 1983 Horatio C. Thompson President, Horatio Thompson Investment, Inc., Baton Rouge, Louisiana 1984 Class C John H. Weitnauer, Jr Chairman and Chief Executive Officer, Richway, Atlanta, Georgia 1982 William A. Fickling, Jr Chairman and Chief Executive, Charter Medical Corporation, Macon, Georgia 1983 Jane C. Cousins President and Chief Executive Officer, Merrill Lynch Realty/Cousins, Miami, Florida 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 265 Term expires BIRMINGHAM BRANCH Dec- 31 Appointed by Federal Reserve Bank C. Gordon Jones President and Chief Executive Officer, First National Bank of Decatur, Decatur, Alabama 1982 Martha A. Mclnnis Executive Vice President, Alabama Environmental Quality Association, Montgomery, Alabama 1982 Henry A. Leslie President and Chief Executive Officer, Union Bank and Trust Company, Montgomery, Alabama 1983 William M. Schroeder Chairman and President, Central State Bank, Calera, Alabama 1984 Appointed by Board of Governors William H. Martin III President and Chief Executive Officer, Martin Industries, Inc., Florence, Alabama 1982 Samuel R. Hill, Jr President, University of Alabama in Birmingham, Birmingham, Alabama 1983 Louis J. Willie Executive Vice President, Booker T. Washington Insurance Co., Birmingham, Alabama 1984 JACKSONVILLE BRANCH Appointed by Federal Reserve Bank Whitfield M. Palmer, Jr. ..Chairman, Mid-Florida Mining Company, Ocala, Florida 1982 Billy J. Walker President, Atlantic Bancorporation, Jacksonville, Florida 1982 Gordon W. Campbell President and Chief Executive Officer, Exchange Bancorporation, Inc., Tampa, Florida 1983 Lewis A. Doman President, The Citizens and Peoples National Bank, Pensacola, Florida 1984 Appointed by Board of Governors Copeland D. Newbern Chairman of the Board, Newbern Groves, Inc., Tampa, Florida 1982 Joan W. Stein Chairman, Regency Square Properties, Inc., Jacksonville, Florida 1983 Jerome P. Keuper President, Florida Institute of Technology, Melbourne, Florida 1984 MIAMI BRANCH Appointed by Federal Reserve Bank M.G. Sanchez President and Chief Executive Officer, First Bankers Corporation of Florida, Pompano Beach, Florida 1982 Daniel S. Goodrum Senior Executive Vice President, Sun Banks of Florida, Ft. Lauderdale, Florida 1983 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

266 Directories and Meetings Term expires E. Llwyd Ecclestone, Jr. ..President and Chief Executive Officer, Na- Dec. 31 tional Investment Co., West Palm Beach, Florida 1984 Stephen G. Zahorian President, Barnett Bank of Fort Myers, N.A., Fort Myers, Florida 1984 Appointed by Board of Governors Sue McCourt Cobb Attorney, Greenberg, Traurig, Askew, Hoffman, Lipoff, Quentel, and Wolff, P.A., Miami, Florida 1982 Eugene E. Cohen Chief Financial Officer and Treasurer, Howard Hughes Medical Institute, Coconut Grove, Florida 1983 Roy Vandegrift, Jr President, Vandegrift-Williams Farms, Inc., Pahokee, Florida 1984 NASHVILLE BRANCH Appointed by Federal Reserve Bank Charles J. Kane Chairman and Chief Executive Officer, Third National Bank in Nashville, Nashville, Tennessee 1982 John R. King President, The Mason and Dixon Lines, Inc., Kingsport, Tennessee 1982 James F. Smith, Jr Chairman and Chief Executive Officer, Park National Bank, Knoxville, Tennessee 1983 Michael T. Christian President and Chief Executive Officer, First National Bank of Greeneville, Greeneville, Tennessee 1984 Appointed by Board of Governors Cecelia Adkins Executive Director, Sunday School Publishing Board, Nashville, Tennessee 1982 Robert C.H. Mathews, Jr. Managing General Partner, R.C. Mathews, Contractor, Nashville, Tennessee 1983 C. Warren Neel Dean, College of Business Administration, The University of Tennessee, Knoxville, Tennessee 1984 NEW ORLEANS BRANCH Appointed by Federal Reserve Bank Patrick A. Delaney Chairman and President, Whitney National Bank of New Orleans, New Orleans, Louisiana 1982 Ben M. Radcliff President, Ben M. Radcliff Contractor, Inc., Mobile, Alabama 1982 Paul W. McMullan Chairman and Chief Executive Officer, First Mississippi National Bank, Hattiesburg, Mississippi 1983 Jerry W. Brents President and Chief Executive Officer, First Digitized for FRASER National Bank, Lafayette, Louisiana 1984 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 267 Term expires Appointed by Board of Governors Dec. 31 Sharon A. Perlis Attorney, Metairie, Louisiana 1982 Leslie B. Lampton President, Ergon, Inc., Jackson, Mississippi . 1983 Roosevelt Steptoe Professor, Southern University, Baton Rouge Campus, Baton Rouge, Louisiana 1984 District 7—CHICAGO Class A Patrick E. McNarny President, First National Bank of Logansport, Logansport, Indiana 1982 Ollie Jay Tomson President, The Citizens National Bank of Charles City, Charles City, Iowa 1983 Roger E. Anderson Chairman of the Board, Continental Illinois National Bank and Trust Company of Chicago, Chicago, Illinois 1984 Class B Mary Garst Manager of Cattle Division, Garst Company, Coon Rapids, Iowa 1982 Leon T. Kendall Chairman of the Board and Chief Executive Officer, Mortgage Guaranty Insurance Corp., Milwaukee, Wisconsin 1983 Dennis W. Hunt President, Hunt Truck Lines, Inc., Rockwell City, Iowa 1984 Class C Stanton R. Cook President, Tribune Company, Chicago, Illinois 1982 John Sagan Vice President-Treasurer, Ford Motor Company, Dearborn, Michigan 1983 Edward F. Brabec Business Manager, Chicago Journeymen Plumbers, Local Union 130, U. A., Chicago, Illinois 1984 DETROIT BRANCH Appointed by Federal Reserve Bank Dean E. Richardson Chairman, Manufacturers National Bank of Detroit, Detroit, Michigan 1982 Lawrence A. Johns President, Isabella Bank and Trust, Mount Pleasant, Michigan 1983 James H. Duncan Chairman and Chief Executive Officer, First American Bank Corporation, Kalamazoo, Michigan 1984 Thomas R. Ricketts Chairman and President, Standard Federal Savings and Loan Association, Troy, Michigan 1984 Appointed by Board of Governors Russell G. Mawby President and Trustee, W.K. Kellogg Foundation, Battle Creek, Michigan 1982 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

268 Directories and Meetings Term expires Karl D. Gregory Professor; Management and Economic Con- Dec. 31 sultant, School of Economics and Management, Oakland University, Rochester, Michigan 1983 Robert E. Brewer Executive Vice President, Finance, K Mart Corporation, Troy, Michigan 1984 District 8—ST. LOUIS Class A Donald L. Hunt President, First National Bank of Marissa, Marissa, Illinois 1982 Clarence C. Barksdale Chairman and Chief Executive Officer, Centerre Bank National Association, St. Louis, Missouri 1983 George M. Ryrie President, First National Bank & Trust Co., Alton, Illinois 1984 Class B Mary P. Holt President, Clothes Horse, Little Rock, Arkansas 1982 Frank A. Jones, Jr President, Dietz Forge Company, Memphis, Tennessee 1983 Jesse M. Shaver Consultant, Allis-Chalmers Corporation, Louisville, Kentucky 1984 Class C Armand C. Stalnaker Chairman of the Board, General American Life Insurance Co., St. Louis, Missouri.... 1982 Vacancy 1983 W.L. Hadley Griffin Chairman of the Board, Brown Group, Inc., St. Louis, Missouri 1984 LITTLE ROCK BRANCH Appointed by Federal Reserve Bank William H. Bowen Chairman and Chief Executive Officer, The Commercial National Bank of Little Rock, Little Rock, Arkansas 1982 William H. Kennedy, Jr. ..Chairman of the Board, National Bank of Commerce of Pine Bluff, Pine Bluff, Arkansas 1983 Gordon E. Parker Chairman of the Board and President, The First National Bank of El Dorado, El Dorado, Arkansas 1984 Shirley J. Pine Department of Communicative Disorders, University of Arkansas at Little Rock, Little Rock, Arkansas 1984 Appointed by Board of Governors E. Ray Kemp, Jr Vice Chairman of the Board and Chief Administrative Officer, Dillard Department Digitized for FRASER Stores, Inc., Little Rock, Arkansas 1982 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 269 Term expires Richard V. Warner Group Vice President, Wood Products Group, Dec- $1 Potlatch Corporation, Warren, Arkansas .. 1983 Sheffield Nelson Chairman of the Board, President, and Chief Executive Officer, Arkla, Inc., Little Rock, Arkansas 1984 LOUISVILLE BRANCH Appointed by Federal Reserve Bank Howard Brenner Vice Chairman of the Board, Tell City National Bank, Tell City, Indiana 1982 Frank B. Hower, Jr Chairman and Chief Executive Officer, Liberty National Bank and Trust Company, Louisville, Kentucky 1983 R.I. Kerr, Jr President and Managing Officer, Greater Louisville First Federal Savings and Loan Association, Louisville, Kentucky 1984 John E. Darnell, Jr Chairman of the Board, President, and Chief Executive Officer, The Owensboro National Bank, Owensboro, Kentucky 1984 Appointed by Board of Governors James F. Thompson Professor of Economics, Murray State University, Murray, Kentucky 1982 William C. Ballard, Jr Executive Vice President-Finance and Administration, Humana, Inc., Louisville, Kentucky 1983 Sister Eileen M. Egan President, Spalding College, Louisville, Kentucky 1984 MEMPHIS BRANCH Appointed by Federal Reserve Bank Earl L. McCarroll President, The Farmers Bank & Trust Co., Blytheville, Arkansas 1982 Wayne W. Pyeatt President, Memphis Fire Insurance Company, Memphis, Tennessee 1983 Edgar H. Bailey Chairman and President, Leader Federal Savings and Loan Association, Memphis, Tennessee 1984 William M. Matthews, Jr. .Chairman of the Board and Chief Executive Officer, Union Planters National Bank of Memphis, Memphis, Tennessee 1984 Appointed by Board of Governors Patricia W. Shaw Executive Vice President, Universal Life Insurance Company, Memphis, Tennessee... 1982 Donald B. Weis President, Tamak Transportation Corp., West Memphis, Arkansas 1983 G. Rives Neblett Attorney, Neblett, Bobo & Chapman, Shelby, Mississippi 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

270 Directories and Meetings Term expires District 9—MINNEAPOLIS Dec. 31 Class A Henry N. Ness Senior Vice President, The Fargo National Bank, Fargo, North Dakota 1982 Vern A. Marquardt President, Commercial National Bank of L'Anse, L'Anse, Michigan 1983 Dale W. Fern President and Chairman of the Board, The First National Bank of Baldwin, Wisconsin, Baldwin, Wisconsin 1984 Class B Joe F. Kirby Chairman, Western Surety Company, Sioux Falls, South Dakota 1982 Harold F. Zigmund President and Chief Executive Officer, Blandin Paper Company, Grand Rapids, Minnesota 1983 William L. Mathers President, Mathers Land Co., Inc., Miles City, Montana 1984 Class C Sister Generose Gervais ...Administrator, St. Mary's Hospital, Rochester, Minnesota 1982 William G. Phillips Chairman and Chief Executive Officer, International Multifoods, Minneapolis, Minnesota 1984 John B. Davis, Jr President, Macalester College, St. Paul, Minnesota •. 1984 HELENA BRANCH Appointed by Federal Reserve Bank Jase O. Norsworthy President, The N.R.G. Company, Billings, Montana 1982 Harry W. Newlon President, First National Bank, Bozeman, Montana 1982 Roger H. Ulrich President, The First State Bank of Malta, Malta, Montana 1983 Appointed by Board of Governors Ernest B. Corrick Vice President and General Manager, Champion International Corporation, Timberlands-Rocky Mountain Operation, Missoula, Montana 1982 Gene J. Etchart Past President, Hinsdale Livestock Company, Glasgow, Montana 1983 District 10—KANSAS CITY Class A Howard K. Loomis President, The Peoples Bank, Pratt, Kansas. 1982 Wayne D. Angell President, Council Grove National Bank, Ot- Digitized for FRASER tawa, Kansas 1983 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 271 Term expires John D. Woods Chairman and Chief Executive Officer, The Dec- 31 Omaha National Bank, Omaha, Nebraska 1984 Class B Charles C. Gates President and Chairman of the Board, Gates Rubber Company, Denver, Colorado 1982 James G. Harlow, Jr President and Chief Executive Officer, Oklahoma Gas and Electric Co., Oklahoma City, Oklahoma 1983 Duane Acker President, Kansas State University, Manhattan, Kansas 1984 Class C Paul H. Henson Chairman, United Telecommunications, Inc., Kansas City, Missouri 1982 John F. Anderson President and Chief Executive Officer, Farmland Industries, Inc., Kansas City, Missouri 1983 Doris M. Drury Professor of Economics; Director of Public Affairs Program, University of Denver, Englewood, Colorado 1984 DENVER BRANCH Appointed by Federal Reserve Bank Delano E. Scott President and Chairman, The Routt County National Bank of Steamboat Springs, Steamboat Springs, Colorado 1982 George S. Jenks Chairman and Chief Executive Officer, Albuquerque National Bank, Albuquerque, New Mexico 1982 Kenneth C. Naramore President, Stockmen's Bank & Trust Company, Gillette, Wyoming 1983 Donald D. Hoffman Chairman, Central Bank of Denver, Denver, Colorado 1984 Appointed by Board of Governors Alvin F. Grospiron Denver, Colorado 1982 Ralph F. Cox Executive Vice President and Director, Atlantic Richfield Company, Denver, Colorado 1983 James E. Nielson President and Chief Executive Officer, J.N., Inc., Cody, Wyoming 1984 OKLAHOMA CITY BRANCH Appointed by Federal Reserve Bank Marcus R. Tower Vice Chairman of the Board; Chairman of the Credit Policy Committee, Bank of Oklahoma, Tulsa, Oklahoma 1982 W.L. Stephenson, Jr Chairman and Chief Executive Officer, Central National Bank and Trust Company, Enid, Digitized for FRASER Oklahoma 1982 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

272 Directories and Meetings Term expires William H. Crawford President and Chief Executive Officer, First Dec- 31 National Bank and Trust Company, Frederick, Oklahoma 1983 Appointed by Board of Governors Samuel R. Noble Chairman of the Board, Noble Affiliates, Inc., Ardmore, Oklahoma 1982 Christine H. Anthony Oklahoma City, Oklahoma 1983 OMAHA BRANCH Appointed by Federal Reserve Bank Donald J. Murphy Chairman and Chief Executive Officer, United States National Bank of Omaha, Omaha, Nebraska 1982 Joseph J. Huckfeldt President, Gering National Bank and Trust Company, Gering, Nebraska 1983 William W. Cook, Jr President, Beatrice National Bank and Trust Company, Beatrice, Nebraska 1983 Appointed by Board of Governors Robert G. Lueder President, Lueder Construction Company, Omaha, Nebraska 1982 Gretchen S. Velde Chairman of the Board, Swanson Enterprises, Inc., Omaha, Nebraska 1983 District 11—DALLAS Class A John P. Gilliam President and Chief Executive Officer, First National Bank in Valley Mills, Valley Mills, Texas 1982 Miles D. Wilson Chairman of the Board and President, The First National Bank of Bellville, Bellville, Texas 1983 Lewis H. Bond Chairman of the Board and Chief Executive Officer, Texas American Bancshares Inc., Ft. Worth, Texas 1984 Class B Robert D. Rogers President, Texas Industries, Inc., Dallas, Texas 1982 Kent Gilbreath Associate Dean, Hankamer School of Business, Baylor University, Waco, Texas 1983 J. Wayland Bennett Professor of Agricultural Finance and Associate Dean, College of Agricultural Sciences, Texas Tech University, Lubbock, Texas 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 273 Term expires Class C Dec. 31 Margaret S. Wilson Chairman of the Board and Chief Executive Officer, Scarbroughs Stores, Austin, Texas 1982 John V. James Chairman of the Board, Dresser Industries, Inc., Dallas, Texas 1983 Gerald D. Hines Owner, Gerald D. Hines Interests, Houston, Texas 1984 EL PASO BRANCH Appointed by Federal Reserve Bank Stanley J. Jarmiolowski ....Chairman of the Board and President, First International Bank in El Paso, N. A., El Paso, Texas 1982 Claude E. Leyendecker... .President, Mimbres Valley Bank, Deming, New Mexico 1983 Ernest M. Schur Chairman of the Executive Committee, The First National Bank of Odessa, Odessa, Texas 1984 Gerald W. Thomas President, New Mexico State University, Las Cruces, New Mexico 1984 Appointed by Board of Governors A.J. Losee Shareholder, Losee, Carson, & Dickerson, Professional Association, Artesia, New Mexico 1982 Chester J. Kesey C.J. Kesey Enterprises, Pecos, Texas 1983 Mary Carmen Saucedo Associate Superintendent, Central Area, El Paso Independent School District, El Paso, Texas 1984 HOUSTON BRANCH Appointed by Federal Reserve Bank Will E. Wilson Chairman of the Board and Chief Executive Officer, First Security Bank of Beaumont, N.A., Beaumont, Texas 1982 Raymond L. Britton Labor Arbitrator, and Professor of Law, University of Houston, Houston, Texas 1983 Ralph E. David President, First Freeport National Bank, Freeport, Texas 1984 Thomas B. McDade Vice Chairman, Texas Commerce Baneshares, Inc., Houston, Texas 1984 Appointed by Board of Governors Jerome L. Howard Chairman of the Board and Chief Executive Officer, Mortgage & Trust, Inc., Houston, Texas 1982 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

274 Directories and Meetings Term expires Paul N. Howell Chairman of the Board and President, Howell Dec- 31 Corporation, Houston, Texas 1983 George V. Smith, Sr President, Smith Pipe & Supply, Inc., Houston, Texas 1984 SAN ANTONIO BRANCH Appointed by Federal Reserve Bank George Brannies Chairman of the Board and President, The Mason National Bank, Mason, Texas 1982 John H. Garner President and Chief Executive Officer, Corpus Christi National Bank, Corpus Christi, Texas 1983 Charles E. Cheever, Jr President, Broadway National Bank, San Antonio, Texas 1984 Joe D. Barbee President and Chief Executive Officer, Barbee-Neuhaus Implement Company, Weslaco, Texas 1984 Appointed by Board of Governors Pat Legan Owner, Legan Properties, San Antonio, Texas 1982 Lawrence L. Crum Professor of Banking and Finance, The University of Texas at Austin, Austin, Texas.. 1983 Carlos A. Zuniga Partner, Zuniga Freight Services, Inc., Laredo, Texas 1984 District 12—SAN FRANCISCO Class A Frederick G. Larkin, Jr. ...Chairman of the Executive Committee, Security Pacific National Bank, Los Angeles, California 1982 Ole R. Mettler President and Chairman, Farmers & Merchants Bank of Central California, Lodi, California 1983 Robert A. Young Chairman and President, Northwest National Bank, Vancouver, Washington 1984 Class B Clair L. Peck, Jr Chairman of the Board, C.L. Peck Contractor, Los Angeles, California 1982 J.R. Vaughan Senior Member, Richards, Watson, Dreyfuss & Gershon, Los Angeles, California 1983 George H. Weyerhauser...President and Chief Executive Officer, Weyerhauser Company, Tacoma, Washington . 1984 Class C Caroline L. Ahmanson Chairman of the Board, Caroline Leonetti, Ltd., Hollywood, California 1982 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 275 Term expires Fred W. Andrew President and Chief, Operating Officer, Su- Dec. 31 perior Farming Company, Bakersfield, California 1983 Alan C. Furth President, Southern Pacific Company, San Francisco, California 1984 LOS ANGELES BRANCH Appointed by Federal Reserve Bank Bram Goldsmith Chairman of the Board, City National Bank, Beverly Hills, California 1982 William L. Tooley Managing Partner, Tooley and Company, Investment Builders, Los Angeles, California 1982 James D. McMahon President, Santa Clarita National Bank, Valencia, California 1983 Robert R. Dockson Chairman and Chief Executive Officer, California Federal Savings, Los Angeles, California 1984 Appointed by Board of Governors Togo W. Tanaka President, Gramercy Enterprises, Los Angeles, California 1982 Lola M. McAlpin-Grant ...Assistant Dean, Loyola Law School, Los Angeles, California 1983 Bruce M. Schwaegler President, Bullock's-Bullocks Wilshire, Los Angeles, California 1984 PORTLAND BRANCH Appointed by Federal Reserve Bank Herman C. Bradley, Jr President and Chief Executive Officer, Tri- County Banking Company, Junction City, Oregon 1982 William S. Naito Vice President, Norcrest China Company, Portland, Oregon 1983 Jack W. Gustavel President and Chief Executive Officer, The First National Bank of North Idaho, Coeur d'Alene, Idaho 1984 John A. Elorriaga Chairman of the Board and Chief Executive Officer, United States National Bank of Oregon, Portland, Oregon 1984 Appointed by Board of Governors Phillip W. Schneider Former Northwest Regional Executive, National Wildlife Federation, Portland, Oregon 1982 John C. Hampton Chairman and President, Willamina Lumber Company, Portland, Oregon 1983 Carolyn S. Chambers Executive Vice President and Treasurer, Liberty Communications, Inc., Eugene, Oregon 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

276 Directories and Meetings Term expires SALT LAKE CITY BRANCH Dec. 31 Appointed by Federal Reserve Bank Fred H. Stringham President, Valley Bank and Trust Company, South Salt Lake, Utah 1982 Albert C. Gianoli President and Chairman of the Board, First National Bank of Ely, Ely, Nevada 1983 Spencer F. Eccles President and Chief Executive Officer, First Security Corporation, Salt Lake City, Utah 1984 Lela M. Ence Executive Director, University of Utah Alumni Association, Salt Lake City, Utah 1984 Appointed by Board of Governors Robert A. Erkins Geothermal Agri/Aquaculturist, White Arrow Ranch, Bliss, Idaho 1982 J.L. Terteling President,TheTertelingCompany, Inc.,Boise, Idaho 1983 Wendell J. Ashton Publisher, Deseret News, Salt Lake City, Utah 1984 SEATTLE BRANCH Appointed by Federal Reserve Bank Donald L. Mellish Chairman of the Board, National Bank of Alaska, Anchorage, Alaska 1982 Lonnie G. Bailey Chief Operating Officer and Executive Vice President, Farmers & Merchants Bank of Rockford, Spokane, Washington 1983 John N. Nordstrom Co-Chairman of the Board, Nordstrom, Inc., Seattle, Washington, 1984 G. Robert Truex, Jr Chairman, Rainier Bancorporation and Rainier National Bank, Seattle, Washington .... 1984 Appointed by Board of Governors Merle D. Adlum President, Puget Sound District Council, Maritime Trades Department, AFL/CIO, Seattle, Washington 1982 Virginia L. Parks Vice President for Finance, and Treasurer, Seattle University, Seattle, Washington 1983 John W. Ellis President and Chief Executive Officer, Puget Sound Power & Light Company, Bellevue, Washington 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

279 Index Acceptances, bankers {See Bankers ac- Board of Governors— ceptances) Continued Administrative Procedure Act, 165 Financial statements, 201-06 Assets and liabilities Interpretations {See Interpretations) Banks, by class, 233 Legislation recommended, 156 Board of Governors, 202 Litigation, 161-66 Federal Reserve Banks, 208-13 Members and officers, 252 Policy actions and statements, 59-78 Balance of payments, review of 1982, Publications {See Publications) 24-29 Regulations {See Regulations) Bank capital, definition, 174 Regulatory improvement and simplifi- Bank holding companies cation, 64, 147-50, 188-92 Control of, changes, 179-80 Salaries, 203 Equity investments, acquisitions by, Training {See Training) 73 Branch banks Examination, inspection, and regula- Changes in number, 239 tion, 171-83 Federal Reserve International banking operations, Bank premises, 198, 217 65-66, 172, 180 Directors, 259-76 Litigation, 161-63 Vice presidents in charge, 257 Number and assets, 171 Foreign, of U.S. banking organiza- Regulation Y {See Regulations) tions, 172, 180 Stock repurchases, 184 Foreign banks, 172 Bank Holding Company Act, 73, 166, 167, 169, 177, 178, 181 Bank mergers and consolidations, Capital, bank, definition, 174 178-79, 182, 240-48 Capital accounts Bankers acceptances Banks, by class, 233 Authority to purchase and enter into Federal Reserve Banks, 209, 211, 213 repurchase agreements, 79-80 Capital adequacy guidelines, 72, 73, Collateral in stock lending and bor- 174, 175 rowing transactions, 69 Cash Discount Act, 157 Federal Reserve Banks Certificates of deposit, 67, 68, 69 Earnings, 198, 199, 218 Check clearing and collection {See Holdings, 198, 199, 208, 210, 212 Transfers of funds) Legislation enacted, 167 Commercial banks Open market transactions, 214 Assets and liabilities, 233 Repurchase agreements, 208, 210, Banking offices, changes in number, 212, 214 238 Banking offices, changes in number, 238 Number, by class, 233 Banking supervision and regulation by Supervision and regulation by Federal Federal Reserve System, 171-87 Reserve System, 171-87 Board of Governors {See also Federal Transfers of funds {See Transfers of Reserve System) funds) Consumer Advisory Council, 157, 256 Community Reinvestment Act, 151, 158 Delegated authority, 178, 181, 184 Comptroller of the Currency, 72, 74 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

280 Index Condition statement of Federal Reserve Equal Credit Opportunity Banks, 208-13 Act, 156 Consumer Advisory Council, 157, 256 Regulation B, 59, 145, 155, 190 Consumer and community affairs, Examinations and inspections 143-60 Bank holding companies, 171 Consumer leasing, 146 Federal Reserve Banks, 197 Consumer survey, 147 Improvements, 173-77 Credit (See also Loans) International activities, 172 Equal Credit Opportunity (See Equal Specialized, 172 Credit Opportunity) Staff training, 177 Stocks, 64, 69, 184-86 State member banks, 171 Truth in Lending (See Truth in Lend- Expenses ing) Board of Governors, 201-06 Federal Reserve Banks, 197, 218, 222, 224 Deposit Insurance Flexibility Act, 167 Export trading companies, 167, 181 Depository Institution Management Interlocks Act of 1978, 66 Federal Advisory Council, 255 Depository institutions Federal agency securities Interest on deposits (See Interest on Authority to purchase and enter into deposits) repurchase agreements, 79-81, Legislation enacted, 168 99, 134, 141 Reserve requirements, 59-63, 227 Federal Reserve Bank holdings and Depository Institutions Act of 1982, 67 earnings, 198, 208, 210, 212, 216 Depository Institutions Deregulation Federal Reserve open market transacand Monetary Control Act of 1980, tions, 214 62, 63, 67, 163, 188 Repurchase agreements, 208, 210, Depository Institutions Deregulation 212, 214, 216 Committee, 60, 63, 68, 168 Federal Deposit Insurance Corporation, Deposits 68 Banks, by class, 233 Federal deposit insurance studies, 170 Federal Reserve Banks, 209, 211, Federal Financial Institutions Examina- 213, 235, 237 tion Council, 150-51, 159, 176, 178 Interest rates (See Interest on Federal Financing Bank, 80 deposits) Federal Home Loan Bank Board, 68 Reserve requirements (See Reserve Federal Open Market Committee requirements) Audit of System Open Market Ac- Directors, Federal Reserve Banks and count, 197 branches, 259-76 Continuing authorizations, review, 98 Discount rates at Federal Reserve Meetings, 79, 254 Banks (See Interest rates) Members and officers, 254 Discounts and advances (See Federal Policy actions, 79-142 Reserve Banks) Federal Reserve Act, 67, 79, 168 Dividends, Federal Reserve Banks, 197, Federal Reserve Agents, 257-58 220, 223, 225 Federal Reserve Banks Assessments for expenses of Board of Earnings of Federal Reserve Banks (See Governors, 203, 220, 222, 224 Income of Federal Reserve Banks) Bank premises, 198, 208, 210, 212, Economy in 1982, 5-13 217 Educational activities, 177-78 Branches (See Branch banks) Electronic fund transfers (See Transfers Capital accounts, 209, 211, 213 of funds) Chairmen, deputy chairmen, 257, 258 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index 281 Federal Reserve Banks— Financial markets and monetary policy, Continued 14-23 Condition statement, 208-13 Financial Regulation Simplification Act Delegated authority, 178, 181, 184 of 1980, 188 Directors, 259-76 Foreign banks, 62, 66, 69, 167, 172, 180 Discounts and advances, 208, 210, Foreign currencies 212, 218, 234, 236 Authorization and directive for oper- Dividends, 197, 220, 223, 225 ations, 79, 82-84, 98, 120 Examination or audit, 197 Federal Reserve earnings, 218 Income and expenses, 197, 218, 222, Review, 98 224 Foreign stocks, 65 Interest rates, 227 Freedom of Information Act, 164 Officers and employees, number and Futures commission merchants, 71 salaries, 216 Operations, volume, 226 Garn-St Germain Depository Institu- Presidents and vice presidents, 257 tions Act of 1982, 61, 63, 67, 69, Pricing of System services and devel- 144, 167-70 opments in payments mechanism, Glass-Steagall Act, 164, 166 193-97, 226 Gold certificate accounts of Reserve Profit and loss, 220 Banks and gold stock, 208, 210, Securities and loans, holdings and 211,212,213, 234, 236 earnings, 198 Government in the Sunshine Act, 164 Training, 177-78 U.S. government securities (See U.S. government securities) Home mortgage disclosure, 146, 150 Federal Reserve notes Condition statement data, 208-13 Income of Federal Reserve Banks, 197, Cost of printing, issue, and redemp- 218, 222, 224 tion, 203 Individual retirement accounts, 158 Interest paid to U.S. Treasury, 197, Insured commercial banks 220, 223, 225 Assets and liabilities, 233 Litigation, 166 Banking offices, changes in number, Federal Reserve System (See also Board 238 of Governors) Interest on deposits (See also Interest Banking supervision and regulation rates) by, 171-87 Maximum rates payable on time and Consumer affairs (See Consumer and savings deposits, table, 230 community affairs) Regulation Q, 63, 67 Foreign currency operations (See Interest rates (See also Interest on Foreign currencies) deposits) Map of Federal Reserve Federal Reserve Banks Districts, 249 Changes, 74-78 Membership, 62, 187 Table on rates, 227 Pricing of System services and devel- Legislation enacted, 170 opments in payments mechanism, Interlocking relationships, 66, 70 193-97, 226 International Banking Act of 1978, 66, Training (See Training) 167 Financial Institutions Regulatory and International banking facilities, 180 Interest Rate Control Act of 1978, International banking operations, 65-66, 169 172, 180 Financial Institutions Supervisory Act International developments, review, of 1966, 163, 177 24-29 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

282 Index Interpretations, 59, 67, 68, 71, 145, 146 Member banks—Continued Investments Transfers of funds (See Transfers of Banks, by class, 233 funds) Federal Reserve Banks, 208, 210, 212 Mergers and consolidations, 178-79, Foreign, by U.S. banking organiza- 182, 240-48 tions, 181 Monetary Control Act (See Depository Institutions Deregulation and Mon- Labor market developments, 10 etary Control Act of 1980) Leasing, consumer, 146 Monetary policy Legislation (See also specific act) Financial markets relative to, 14-23 Enacted, 167-70 Reports to Congress, 30-55 Recommended, 156 Review of 1982, 3-13 Litigation Money market deposits, 62, 63 Bank holding companies, 161-63 Mortgage loans, 170 Board procedures and regulations, Mutual savings banks, 238 challenges, 163-66 Loans (See also Credit) National banks (See also Member Affiliates of member banks, legisla- banks) tion enacted, 168 Assets and liabilities, 233 Banks, by class, 233 Banking offices, changes in number, Executive officers of member banks, 238 67, 169, 183 Capital adequacy guidelines, 72, 73, Federal Reserve Banks 174, 175 Discounts and advances, 208, 210, Legislation enacted relating to, 168 212, 218, 234, 236 Number, 233 Holdings and earnings, 198, 218 Negotiable order of withdrawal ac- Interest rates, 227 counts, 63, 69, 169 Volume, 208, 210, 212, 226, 234, Nonmember depository institutions 236 Assets and liabilities, 233 Banking offices, changes in number, Margin requirements 238 Securities credit, 64, 65, 69-70, 185 Number, 233 Table, 232 Member banks (See also National Over-the-counter stocks, 65, 185 banks) Affiliates, legislation enacted, 168 Payments mechanism, developments, Assets, liabilities, and capital ac- 193-97, 226 counts, 233 Policy actions Banking offices, changes in number, Board of Governors 238 Discount rates at Federal Reserve Borrowings from Federal Reserve Banks, 74^78 Banks (See Loans) Regulations (See Regulations) Branches (See Branch banks) Statements and other actions, 59-78 International banking operations, Federal Open Market Committee 65-66, 172, 180 Authority to effect transactions in Loans to executive officers, 67, 169 System Open Market Account Number, 233 Domestic operations, 79-82, 85, Reserve requirements (See Reserve 92, 99, 105, 114, 121, 128, requirements) 134, 141 Reserves and related items, 242-45 Foreign currency operations, 79, State member banks (See State mem- 82-84, 98, 120 ber banks) Review, 98 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index 283 Presidents and vice presidents of Fed- Regulations—Continued eral Reserve Banks Y, Bank Holding Companies and Conference of Presidents and Confer- Change in Bank Control, 70-71, ence of First Vice Presidents, 182, 189, 192 258, 259 Z, Truth in Lending, 71-72, 144, 146, List, 257 154, 190 Salaries of presidents, 216 Regulatory improvement and simplifica- Prices, 12 tion, 64, 147-50, 185, 188-92 Pricing of System services and develop- Repurchase agreements ments in payments mechanism, Authority to purchase and to enter 193-97, 226 into, 79-81 Profit and loss, Federal Reserve Banks, Bankers acceptances, 79-80, 208, 210, 220 212, 214 Publications Federal agency securities, 79-81, 208, Bank holding company and merger 210, 212, 214, 216 pamphlets, 182, 192 Regulation Q, amendment, 67 Consumer aids, 146 Retail, examination guidelines for, Examination manuals, 175, 176 176 Federal Reserve Regulatory Service, U.S. government securities, 79-81, 192, 198 208, 210, 212, 214, 216, 234 Reserve requirements, depository insti- Regulations (See also Regulatory im- tutions provement and simplification) Changes, 59-63 B, Equal Credit Opportunity, 59, Table, 227 145, 155, 190 Reserves and related items, 234-37 D, Reserve Requirements of Deposi- Retirement accounts, 158 tory Institutions, 59-63, 188 E, Electronic Fund Transfers, 63, Salaries 144, 151-54, 156, 190 Board of Governors, 203 G, Securities Credit by Persons Other Federal Reserve Banks, 216 than Banks, Brokers, or Dealers, Schools (See Training) 64, 191 Securities (See also specific types) H, Membership of State Banking In- Credit transactions, 64, 69, 184-86 stitutions in the Federal Reserve Mandatory convertible securities, 72, System, 192 73, 175 J, Collection of Checks and Other Special drawing rights, 208, 210, 212, Items and Wire Transfers of 234, 236 Funds, 188 State member banks (See also Member K, International Banking Operations, banks) 65, 189 Applications by, 184 L, Management Official Interlocks, Assets and liabilities, 233 66 Banking offices, changes in number, M, Consumer Leasing, 146 238 O, Loans to Executive Officers, Di- Control of, changes, 179-80 rectors, and Principal Sharehold- Examination, 171-77 ers of Member Banks, 67 Executive officers, loans to, 67, 169, Q, Interest on Deposits, 63, 67, 69 183 T, Credit by Brokers and Dealers, 64, Financial disclosures, 183 69, 191 Legislation enacted relating to, 168 U, Credit by Banks for the Purpose Mergers and consolidations, 178, 179, of Purchasing or Carrying Margin 182, 240-48 Stocks, 64, 191 Number, 171, 233 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

284 Index Stock index futures, 191 Transfers of funds—Continued Stock market credit, 64, 69, 184-86 Pricing of System services and devel- Supervision and regulation (See Banking opments in payments mechanism, supervision and regulation by Fed- 193-97, 226 eral Reserve System) Truth in Lending System Open Market Account Act, 72, 145, 156, 157, 169 Audit, 197 Regulation Z, 71-72, 144, 146, 154 Authority to effect transactions Domestic operations, 79-82, 85, 92, U.S. balance of payments, review, 24-29 99, 105, 114, 121, 128, 134, 141 U.S. government securities Foreign currency operations, 79, Authority to buy, to enter into repur- 82-84, 98, 120 chase agreements, and to lend, Review, 98 79-81, 99, 134, 141 Bank holdings, by class of bank, 233 Thrift Institutions Restructuring Act, Collateral in stock lending and bor- 168 rowing transactions, 69 Training, 111-IS Federal Reserve Banks Transfers of funds Authority to buy directly from U.S. Check collection, 188, 193 Treasury, 80-81 Electronic fund transfers, 63, 144, Earnings, 198-99, 218 151-54, 156, 190 Holdings, 198-99, 208, 210, 212, Federal Reserve operations, volume, 216, 234, 236 226 Open market transactions, 214 Negotiable order of withdrawal ac- Repurchase agreements, 208, 210, counts, 63, 69, 169 212, 214, 216, 234, 236 FRB 1—11,500—0483 C Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis