Annual Report of the Federal Reserve Board, 1983

1983 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 12, 1984 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 Seventieth Annual Report of the Board of Governors of the Federal Reserve System. This report covers operations of the Board during calendar year 1983. 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 1983 3 INTRODUCTION 5 THE ECONOMY IN 1983 5 Household sector 7 Business sector 8 Foreign sector 8 Government sector 9 Labor markets 10 Prices 12 MONETARY POLICY AND FINANCIAL MARKETS 13 Financial markets 15 Monetary aggregates 18 Aggregate credit flows 22 INTERNATIONAL DEVELOPMENTS 23 U.S. international transactions 26 Foreign currency operations 28 MONETARY POLICY REPORTS TO CONGRESS 28 Report on February 16, 1983 45 Report on July 20, 1983 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Part 2 Records, Operations, and Organization 65 RECORD OF POLICY ACTIONS OF THE BOARD OF GOVERNORS 65 Regulation D (Reserve Requirements of Depository Institutions) 67 Regulation G (Securities Credit by Persons Other than Banks, Brokers, or Dealers) and Regulation U (Credit by Banks for the Purpose of Purchasing or Carrying Margin Stocks) 68 Regulation K (International Banking Operations) 69 Regulation L (Management Official Interlocks) 69 Regulation O (Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks) 70 Regulation Q (Interest on Deposits) 71 Regulation T (Credit by Brokers and Dealers) 72 Regulation X (Borrowers of Securities Credit) 72 Regulation Y (Bank Holding Companies and Change in Bank Control) 73 Regulation Z (Truth in Lending) 74 Policy statements and other actions 76 1983 discount rates 79 RECORD OF POLICY ACTIONS OF THE FEDERAL OPEN MARKET COMMITTEE 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 8-9, 1983 94 Meeting held on March 28-29, 1983 104 Meeting held on May 24, 1983 112 Meeting held on July 12-13, 1983 122 Meeting held on August 23, 1983 128 Meeting held on October 4, 1983 135 Meeting held on November 14-15, 1983 142 Meeting held on December 19-20, 1983 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

150 CONSUMER AND COMMUNITY AFFAIRS 150 Simplification of Regulation Z 151 Simplification of the Consumer Leasing Act 152 Review of Regulation B 152 Regulatory actions 154 Enforcement of consumer protection laws 155 Responsibilities under the Federal Trade Commission Act 159 Compliance with consumer regulations 161 The economic impact of Regulation E 162 Community Reinvestment Act 163 Consumer Advisory Council 164 Legislative recommendations 166 LEGISLATIVE RECOMMENDATIONS 166 Bank holding company legislation 167 Increasing the number of Class C directors 167 Amendments to the Consumer Leasing Act 168 Federal Reserve Bank branches 168 Amendments to the International Banking Act 170 LITIGATION 170 Bank holding companies—Antitrust action —Review of Board actions 172 Other litigation involving challenges to Board procedures and regulations 176 LEGISLATION ENACTED 176 Bretton Woods agreement 177 International lending supervision 178 BANKING SUPERVISION AND REGULATION 178 Supervision for safety and soundness 185 Regulation of the U.S. banking structure 190 Enforcement of other laws and regulations 194 Federal Reserve membership 195 REGULATORY SIMPLIFICATION 195 Monetary policy and payments system 195 Securities credit and securities activities 196 Banking structure and supervision 197 Consumer and community affairs 199 FEDERAL RESERVE BANKS 199 Developments in the payments mechanism and in the pricing of Federal Reserve services 203 Examination 203 Income and expenses 204 Federal Reserve Bank premises 205 Holdings of securities and loans 205 Volume of operations Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

206 BOARD OF GOVERNORS 206 Financial statements 213 STATISTICAL TABLES 214 1. Detailed statement of condition of all Federal Reserve Banks combined, December 31, 1983 216 2. Statement of condition of each Federal Reserve Bank, December 31, 1983 and 1982 220 3. Federal Reserve open market transactions, 1983 222 4. Federal Reserve Bank holdings of U.S. government and federal agency securities, December 31, 1981-83 222 5. Number and salaries of officers and employees of Federal Reserve Banks, December 31, 1983 223 6. Bank premises of Federal Reserve Banks and Branches, December 31, 1983 224 7. Income and expenses of Federal Reserve Banks, 1983 228 8. Income and expenses of Federal Reserve Banks, 1914-83 232 9. Revenue and expense of priced services at Federal Reserve Banks, 1983 and 1982 234 10. Volume of operations in principal departments of Federal Reserve Banks, 1980-83 235 11. Federal Reserve Bank interest rates, December 31, 1983 236 12. Reserve requirements of depository institutions 239 13. Maximum interest rates payable on time and savings deposits at federally insured institutions 240 14. Margin requirements 241 15. Principal assets and liabilities, and number of insured commercial banks, by class of bank, June 30, 1983 and 1982 242 16. Reserves of depository institutions, Federal Reserve Bank credit, and related items—Year-end 1918-83, and month-end 1983 246 17. Mergers, consolidations, acquisitions of assets or assumptions of liabilities approved by the Board of Governors, 1983 259 MAP OF FEDERAL RESERVE SYSTEM—DISTRICTS 261 FEDERAL RESERVE DIRECTORIES AND MEETINGS 262 Board of Governors of the Federal Reserve System 264 Federal Open Market Committee 265 Federal Advisory Council 266 Consumer Advisory Council 267 Thrift Institutions Advisory Council 268 Federal Reserve Banks, Branches, and Offices 289 INDEX Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Part 1 Monetary Policy and the U.S. Economy in 1983 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Introduction Conditions in the national economy the year as the economic recovery took a decided turn for the better in progressed, interest rates on average 1983. Real gross national product were substantially lower in 1983 than rose 6 percent over the four quarters in 1982. For example, rates on levelof the year, close to the experience payment home mortgages averaged during the first years of past cyclical nearly 3 percentage points below their recoveries but well above earlier pro- 1982 levels; business borrowing costs jections. Rising production spurred also declined significantly. gains in employment large enough to But success cannot be measured by reduce the unemployment rate by 2Vi performance during any one year, percentage points over the course of and in some respects the first year of the year. At the same time, most broad recovery, which began in the context measures of prices and wages showed of excess capacity and high unemployfurther progress toward lower infla- ment, provided the most favorable tion. In short, the performance of the environment for combining economic economy in 1983 suggested attain- growth with progress toward price ment of the immediate objective of stability. The more stringent and the Federal Reserve: permitting suffi- meaningful test will come as we seek cient growth in monetary and credit to maintain the momentum of expanaggregates to foster a solid economic sion and the progress toward stability recovery without encouraging devel- while the margin of unemployed reopments that would rekindle infla- sources diminishes further. tionary pressures. Several areas of concern remained Each of the monetary and credit at the close of 1983. Despite the aggregates finished the year within or marked improvement in labor market close to the ranges set by the Federal conditions, unemployment continued Open Market Committee. Achieve- to be unacceptably high. In addition, ment of these growth rates and the the federal deficit showed a sharp and broader goals of the Federal Reserve worrisome increase in 1983. The borwas brought about by relatively small rowing necessary to finance the defichanges in the reserve position of the cit, combined with continuing huge banking system and was accompanied prospective credit demands by the by generally stable conditions in fi- federal government, exerted pressures nancial markets. Interest rates fluctu- on market interest rates. These presated far less than in the previous few sures offset the effects of lower inflayears. Moreover, although most in- tion and other factors, and thereby terest rates rose moderately during tended to temper the expansion of interest-sensitive private sectors of the NOTE. This discussion of economic and fi- economy. nancial developments in 1983 is adapted from The large federal deficit and assothe Monetary Policy Report to the Congress ciated high domestic interest rates pursuant to the Full Employment and Balanced Growth Act of 1978 (Board of Governors, Feb- helped induce sizable inflows of forruary 1984). eign capital into the United States Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

4 Introduction throughout the year and contributed The international debt situation reto a further rise in the exchange value mained a major concern in 1983. of the dollar. The strong dollar, in Some countries with serious debt turn, put pressures on industries fac- problems made considerable progress ing competition from imports and, in in formulating and implementing inan environment of sluggish economic ternal adjustment policies, and they growth in other countries, made it continued to receive a moderate flow difficult for U.S. industries to sell of new financing. Nonetheless, histheir products abroad. Consequently, torically high interest rates in the imports increased dramatically rela- United States placed heavy burdens tive to exports; this shift significantly on the many developing countries moderated the growth in domestic with outstanding debt concentrated in output. dollars. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Economy in 1983 Output and employment registered against inflation. The relation besharp gains in 1983, lifting the econ- tween supply and demand in the oil omy out of the most severe recession market suggests that another inflasince World War II. These gains tionary shock from that source is unbrought a considerable reduction in likely, and indicators of inflation exthe unemployment rate, which fell to pectations have remained at reduced 8.2 percent by year-end. The first year levels thus far in the recovery. These of recovery was marked by broadly factors all provide favorable portents based increases in spending by con- for the future, but they will be tested sumers and businesses; these advances as economic expansion continues. The were stronger than generally antici- firmer labor and product markets that pated, considering the low confidence normally appear in the second year of and historically high credit costs that an economic recovery could cause prevailed as the year began. some cyclically sensitive prices to rise; The impressive progress in reducing an increase in social security taxes for inflation in 1982 extended into 1983. employers will boost labor costs; and In the smallest increase in more than food prices will probably be higher a decade, the consumer price index than they otherwise might have been rose 3VA percent. Continued reduction because of the effects of last in inflation was aided by favorable summer's drought on meat prices. price developments in energy markets, If associated with other factors, by the damping effect of abundant these latter forces could tend to insupplies of livestock products on food crease inflation expectations and genprices, and by further appreciation of erate broader pressures on prices and the dollar. Moreover, the broader wages. One of the possibilities is that forces affecting prices and wages also the competitive forces associated with improved in 1983. Business and labor the appreciation of the dollar and involved in key contract settlements the ample availability of goods from seemed to be adapting constructively abroad, which have been exerting to the less inflationary environment. downward pressures on the rate of in- Overall, wage and compensation in- flation, could recede. More fundament creases were considerably smaller tally, as margins of excess capacity than during the previous year; never- diminish—to the vanishing point in a theless, because inflation declined few industries—and as experienced even more sharply, real incomes rose. labor is reabsorbed, there is a risk of At the same time, the underlying trend a return to the patterns of pricing and in productivity growth appeared to be wage bargaining characteristic of tilting up, thereby helping to limit earlier years of rapid inflation. increases in labor costs. Better productivity performance, more realistic wage bargaining, and a Household Sector more competitive environment for price decisions have improved the Most households experienced finanprospects for sustained progress cial and economic gains in 1983. With Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

6 The Economy in 1983 Indicators of Economic Performance Percent change, Q4 to Q4 Percent change from end of previous period 40 RealGNP Real business fixed investment Producers' durable equipment 20 n Structures lit i i 20 Percent change, Q4 to Q4 Billions of 1972 dollars Change in real business inventories 10 C ex o p n e s n u d m it p u t r i e o s n Di:so spp moossaabe hleie rIjI~ -Ii income 1 + Ifl 1 0 10 it I 1 I I • I I I 0 Index. 1967 = 100 Annual rate, millions of units Total private housing starts 2.0 Percent Percent change, Dec. to Dec. 12 i Consumer prices 8 1 I" Producer prices 4 sb_ 0 1979 1981 1983 1979 1981 1983 All data are seasonally adjusted, and those that in- change in business inventories, and housing starts volve dollar amounts are in 1972 dollars. The descrip- (annual rates) are from the U.S. Department of Comtion and sources of the data are as follows: GNP, merce; industrial production is from the Federal income (disposable personal income), consumption Reserve; the unemployment rate and prices are from (personal consumption expenditures), investment, the U.S. Department of Labor. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Economy in 1983 7 unemployment down and gains in em- and services also strengthened, paced ployment sizable, growth in personal by large gains in housing-related items income rebounded. Further easing of such as furniture and appliances as inflation, lower interest rates, and the well as by brisk advances in general cumulative 25 percent reduction in merchandise and apparel sales. federal tax rates on personal income Demand for housing surged in 1983, during the past three years all helped as early in the year long-term mortraise the purchasing power of house- gage interest rates fell below 13 perhold income. In addition, household cent for the first time since the sumnet worth rose substantially in 1983, mer of 1980. The sharpness of the upreflecting primarily the surge in stock turn reflected the considerable volmarket prices that began in 1982 and ume of demand postponed from the extended into 1983. preceding few years of high credit These gains no doubt helped boost costs and uncertain economic condiconsumer confidence, which surveys tions. New housing construction rose indicated rose sharply last year to its considerably in response to rising highest level in a decade. In this im- sales during the first three quarters of proved mood, households felt freer to the year. The rate of housing starts finance major purchases by borrow- remained at a relatively high level in ing and to devote a larger proportion the final quarter, despite the renewed of current income to consumption rise in mortgage interest rates during rather than saving. As a result, the the second half of the year, as the personal saving rate fell from 5.8 per- lower initial cost of adjustable-rate cent of disposable income in 1982 to mortgage financing became increas- 4.9 percent in 1983. ingly attractive to homebuyers. For the year as a whole, total private The improved economic and finanhousing starts rose 60 percent, the cial status of households fostered a sharpest annual increase in almost 40 substantial upswing in consumer years. The construction activity genspending. Much of the strength came erated by the increase in starts was an in the automobile sector, as sales important factor in GNP growth, a recovered from several years of slugpattern typical of the first year of an gish performance. Sales of domestic economic recovery. models quickened in the first half of the year, spurred by financing incentives from dealers and reduced rates on bank loans. Lower gasoline prices Business Sector and the introduction of new and better American products apparently Economic activity in the business secalso helped. Despite the withdrawal tor also rebounded in 1983. Sales and of financing incentives, the recovery production rose sharply, bringing in domestic automobile sales contin- greater capacity utilization and proued through the second half of the ductivity in their wake. These gains year. Sales of imported models, still helped spur before-tax profits, which constrained by export restrictions on had been depressed in the early 1980s, Japanese models, edged up in 1983, to an increase unusually rapid for the regaining the level they enjoyed in first year of an economic expansion. 1980 before the imposition of quotas. Because effective tax rates were lower, Consumer spending for other goods businesses were able to retain a larger Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

8 The Economy in 1983 proportion of their profits than in tained that reduced pace during the previous recoveries. second half of the year, in response to A marked shift in inventory invest- continuing high vacancy rates. ment from liquidation to accumulation took place in 1983, further boost- Foreign Sector ing GNP. Firms had undertaken mas- The U.S. trade deficit worsened sigsive reductions in stocks during 1982 nificantly in 1983. The deterioration and early 1983. With final demands reflected both a pace of recovery that strengthening, inventory reduction was much more vigorous for the slowed markedly in the second quar- United States than for most of its mater of the year; and, after midyear, jor trading partners and the impact of firms began to rebuild their inventothe further appreciation of the dollar ries. But sales and shipments were from a level at the end of 1982 that strong enough during the second half was already high. Thus developments of the year that the actual stocks of in the foreign sector damped the rate inventories remained quite lean, and of growth of domestic output in 1983. inventory-sales ratios fell to histori- Real exports of goods and services cally low levels. rose 5 percent during the year, but the Business spending on plant and increase in foreign demand for U.S. equipment did not reach its cyclical goods and services was outweighed by trough until the first quarter of 1983, a strong rise in U.S. expenditures for but such expenditures grew rapidly foreign goods and services. As a rethroughout the rest of the year. Oversult, net exports of goods and services all, business fixed investment in- (in volume terms) declined $17 billion creased 13 percent in real terms bebetween the fourth quarter of 1982 tween the fourth quarter of 1982 and and the fourth quarter of 1983, as part the fourth quarter of 1983. At year- of the strong advance in U.S. spendend, a rising volume of new orders, ing was satisfied by foreign output. and surveys showing that businesses planned higher investment spending, Government Sector suggested that the recovery in investment had developed momentum that Government purchases of goods and would extend into 1984. services were lower in real terms over Early in 1983, the strength in invest- 1983. However, this decline stemmed ment spending was concentrated in largely from a reduction in crop inthe equipment sector, especially in ventories held by the Commodity motor vehicles, high-technology of- Credit Corporation (CCC), associfice equipment, and computing ma- ated in part with the payment-in-kind chinery. The recovery in equipment (PIK) program. Excluding CCC, real spending became more broadly based federal purchases in 1983 were up 4Vi as the year progressed, spreading to percent, led by a 5 VA percent increase traditional heavy equipment. Expend- in defense spending. Purchases by itures for new structures also turned state and local governments picked up in the second half of the year, led up slightly after two years of weakby investment in stores and ware- ness induced by the recession and cuthouses. In contrast, construction of backs in federal support. new office buildings declined sharply An especially important developduring the first half of 1983 and main- ment in the government sector in 1983 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Economy in 1983 9 Government Surpluses and Deficits At the state and local level, by con- Billions of dollars trast, operating budgets (excluding social insurance funds) moved dra- Federal government matically from deficit into surplus. LJ L This shift resulted largely from the combination of tax increases and costcutting efforts adopted during the recession as well as from an unanticipated increase in the tax base associated with the surprisingly rapid expansion in the economy. State and local government Labor Markets The recovery of production in 1983 was translated into an impressive improvement in labor markets. Three million workers were added to nonagricultural payrolls in 1983. The 197<> 1981 1983 most rapid gains were registered in The data on tne tederal government deficit are for durable goods manufacturing and in fiscal years and are on a unified budget basis; they are construction, the sectors hardest hit from the U.S. Department of the Treasury. The data on state and local governments are for during the recession; service jobs also operating budgets. They are on a national income ac- contributed importantly to overall counts basis, and they come from the U.S. Department of Commerce. employment growth during the year. Nevertheless, at year-end several key was the shifting fiscal positions of manufacturing industries were opergovernments. In the fiscal year end- ating well below peak capacity, and ing in September 1983, the federal jobs at contract construction sites deficit (not including off-budget pro- were still 400,000 below their 1979 grams) ballooned to $195 billion, peak. nearly twice as large as the previous Despite the rapid expansion in job year's record deficit and about 6 per- opportunities, the rise in the labor cent of gross national product; in the force was relatively moderate, damped previous three decades, the highest by the long-term slowing in the growth ratio of the deficit to GNP had been 4 of the young adult population and by percent in 1976. In part, the increase stability in labor force participation in the deficit in fiscal year 1983 re- rates. As a result, the first year of the flected the lagged effects of the reces- recovery was marked by an unusual sion on receipts and transfer pay- concentration of hiring from the pool ments, but other factors were impor- of experienced workers, many of tant also. Revenue growth was limit- whom had been out of work for exed by the cumulative effects of three tended periods. years of sizable tax reductions, while Nominal wages continued to decelspending was buoyed by increases in erate in 1983. Hourly compensation outlays for defense, social insurance in the nonfarm business sector rose at expenditures, and interest payments a rate of less than 5 percent over the on the national debt. four quarters of 1983, the slowest Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

10 The Economy in 1983 Employment, Compensation, Nonetheless, wage gains in 1983 exand Productivity ceeded price increases on average, so Millions of persons that workers as a group experienced improved purchasing power. Rising Payroll employment real wages mirrored underlying improvements in labor productivity. Although a good deal of the gain in output per hour worked was attributable to the pickup that is normal during the early stages of an economic recovery, qualitative reports sugi i i i Percent change, Q4 to Q4 gest that longer-run improvements also were in train. Revisions in work Compensation per hour rules at many establishments during 12 the recession likely contributed to efficiency, and in 1983 business and 1 1—1 labor appeared to be cooperating in efforts to trim costs and improve quality. Reflecting wage and productivity developments, unit labor costs 1 rose only 1 VA percent in 1983, the best Output per hour performance since the mid-1960s. Prices u Despite the strong recovery in economic activity, the wage-price spiral in evidence throughout the 1970s continued to unwind in 1983. Household 1979 1981 1983 surveys revealed that, even though expectations about inflation increased Data on employment cover the total nonfarm sec- somewhat in the second half of the tor; the other data cover the nonfarm business sector. All data are from the U.S. Department of Labor. year, throughout 1983 they remained lower than they had been in some pace since 1965. The easing of wage time. Ample productive capacity and increases reflected slack in labor mar- a strong dollar also contributed to kets in general as well as adjustments further progress in reducing the rate in several major collective bargaining of inflation. agreements. Nearly 40 percent of That progress was apparent in most workers who negotiated major union key price measures. Increases in the settlements during 1983 accepted consumer price index remained in a wage freezes or outright pay cuts for much lower range in 1983. In part, the first year of their new contracts. the brighter inflation picture reflected As a result, the "new settlements" developments in the energy and food component of union wage increases markets. Slack demand and large was cut to less than 1 percent. At the worldwide inventories caused a sharp same time, cost-of-living adjustments decline in petroleum prices early in were smaller because of continued 1983, and prices of food at the conmoderation in consumer prices. sumer level rose only moderately. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Economy in 1983 11 However, the outlook for agricultural ergy. The consumer price index exprices turned less favorable in the cluding those sectors rose less than 5 wake of the summer drought. The re- percent, about half the pace of just sulting depletion of grain stocks, two years earlier. Moreover, proalong with the federal government's ducer prices in general were little PIK program to reduce agricultural changed in 1983. For finished goods, production, put upward pressures on price increases of capital equipment the prices of many agricultural com- as well as of consumer goods slowed modities in the latter part of the year markedly. And, despite the cyclical that will probably affect consumer rebound in prices of sensitive indusfood prices in 1984. In addition, trial materials, the producer price insevere December weather is likely to dex for intermediate materials (excurtail the supply of fresh fruits and cluding food and energy), which comvegetables in early 1984. prises a broad range of inputs into But the easing of price increases in production, rose less than 3 percent 1983 was not limited to food and en- in 1983. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

12 Monetary Policy and Financial Markets In its reports to the Congress in Feb- likely to be smaller and more predictruary and July 1983, the Federal Re- able for the broader aggregates than serve indicated that monetary policy for Ml. during that year would be conducted In the case of M2, the FOMC estabwith the aim of fostering a recovery in lished an annual target range of 7 to economic activity and encouraging 10 percent. It believed that the perfurther progress toward price stabili- formance of this aggregate would be ty. Establishing specific objectives for measured most appropriately over a growth in the monetary aggregates period when it would be less influwas fraught with difficulties, how- enced by the initial, highly aggressive ever. Beginning in 1982, the behavior marketing of MMDAs. Thus the of Ml in relation to economic activity Committee chose the average level of had diverged sharply from historical February and March 1983 as the base trends, raising doubts about the use- for measuring growth, rather than the fulness of that aggregate as a policy fourth quarter of 1982, the period target, at least over the near term. that would have been consistent with The effects of newly introduced past practice. The range for M2, "super" negotiable order of with- which was 1 percentage point higher drawal accounts (Super NOWs) and than the range for 1982, was expected money market deposit accounts to allow for some residual shifting of (MMDAs) on the behavior of Ml also funds to MMDA accounts over the were subject to considerable uncer- remainder of the year. tainty. In addition, early in 1983 M2 The range for M3, to be measured was clearly being swelled by massive as usual from the fourth quarter to shifts of funds from outside that ag- the fourth quarter, was established at gregate into MMDAs, but it was im- 6Vi to 9Vi percent. Although this possible to predict the precise timing range was the same as that established and volume of such shifts. in the previous year, it encompassed In light of these special factors and growth below the actual outcome in uncertainties, the Federal Open Mar- 1982. In adopting this range, the ket Committee departed in early 1983 Committee assumed that any net shift from past practices for establishing of funds during the year into the new monetary objectives. The Committee types of deposit accounts from maragreed that the uncertainties regard- ket instruments would be largely offing Ml continued to warrant the prac- set by reductions in managed liabilitice, begun in October 1982, of plac- ties (such as large certificates of ing principal weight on the broader deposit) that are included in M3. monetary aggregates—M2 and M3— Because of difficulties in gauging in the implementation of monetary the relation between transaction balpolicy. Although the demands of the ances and economic activity, the range public for those aggregates might be for Ml was set in February at 4 to 8 affected by shifts in asset preferences percent, a band that was 1 percentage that were rooted in regulatory changes point wider than usual. As noted or other causes, such effects seemed above, the Committee agreed that, in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets 13 Monetary Aggregates, Nonfinancial implementing monetary policy, less Sector Debt, and Reserves than customary weight would be as- Billions of dollars signed to Ml, at least until that aggregate had exhibited more regular and Range and actual M2 predictable behavior. Moreover, the 2200 Committee emphasized that the significance it attached to movements in the various monetary measures necessarily would depend on evidence about the strength of economic recovery, the outlook for prices and inflation expectations, and emerging conditions in domestic and international financial markets. The Committee also set forth for the first time its expectations for growth of the total debt of domestic nonfinancial sectors, indicating that a Range and actual M1 range of %Vi to IIVi percent, mea- 520 sured from December 1982 to December 1983, would be appropriate. This range was thought to be in line with expected growth in nominal GNP, reflecting the historically similar growth trends of the two. The Com- Range and actual total domestic mittee recognized that, early in other nonfinancial sector debt postwar recoveries, growth in GNP had appreciably exceeded growth in debt. But in the current circumstances —including the financial condition of the private sector as the recession ended and the prospective huge volume of federal borrowing—expansion in the debt aggregate might run in the upper half of the stated range during 1983. Financial Markets '82 1983 Partly because of the ready availabil- The FOMC adopted the range for M2 for the period from February-March 1983 to 1983:4; for M3, for the ity of funds from abroad, financial period from 1982:4 to 1983:4; and for total debt of the markets absorbed without undue domestic nonfinancial sector, for the period from December 1982 to December 1983. For Ml, the range stress the increase in demand for was initially adopted for the period 1982:4 to 1983:4, credit associated with the financing of but at midyear the period was revised to 1983:2 to the record federal deficit and with the 1983:4. The reserve aggregates have been adjusted to upturn in the economy in 1983. In remove discontinuities associated with changes in fact, interest rates were both less varireserve requirements. Nonborrowed reserves include able and lower on average in 1983 extended credit. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

14 Monetary Policy and Financial Markets Interest Rates Percent per annum Short-term Long-term A-rated utility bonds Recently offered State and local government bonds U.S. government bonds 1979 1981 1983 All the data are monthly averages. Their descrip- averages of recently offered, 30-year investment-grade tions and sources are as follows: Federal funds, from bonds adjusted to an A-rated basis by the Federal the Federal Reserve; three-month Treasury bills, Reserve; U.S. government bonds, market yields admarket rate on three-month issues, on a discounted justed to 30-year constant maturity by the U.S. basis, from the U.S. Department of the Treasury; con- Treasury; state and local government bonds, index ventional mortgages, weighted averages of 30-year, based on 25 issues of 30-year revenue bonds of mixed fixed-rate, level-payment mortgages at savings and quality, from the Bond Buyer (data are not available loan associations from the Federal Home Loan Mort- before September 1979). gage Corporation; A-rated utility bonds, weighted than during the preceding few years, Spreads between interest rates on prialthough most rates were somewhat vate and federal government debt higher at the end of the year than at obligations narrowed dramatically, as its outset. did spreads between yields on lower- Other indicators attested to a great- and higher-rated private securities. er degree of stability and confidence Short-term yields were relatively in financial markets and in the econ- stable early in 1983, after a marked omy. Broad measures of stock prices decline during the second half of 1982. increased about 20 percent. The bal- In late spring, economic activity acance of bond downgradings and up- celerated sharply, and the monetary Digitizedg forra FdRinAgSsE bRy the principal rating agen- aggregates, as a whole, were continuhttp://frasceier.ss tlobueiscfaemd.oer gm/ uch more favorable. ing to grow at a relatively rapid pace. Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets 15 In those circumstances, the Federal demands for liquid balances relative Reserve began to restrain somewhat to the rate of spending on goods and its provision of reserves to depository services; the lagged effects of earlier institutions, and short-term interest declines in interest rates also contribrates rose moderately during the sum- uted to increased demands for money. mer. For the remainder of the year, Ml expanded rapidly through late most short-term rates fluctuated in a spring; growth was dominated by the generally narrow range, ending 1983 component consisting of highly liqabout 1 percentage point higher than uid, interest-earning other checkable they had been a year earlier. deposits (OCDs). Growth in OCDs The decline in long-term interest during the first half of the year acrates that had commenced in mid- counted for more than half of the ex- 1982 continued through early 1983. pansion in Ml, a contribution well out These rates also began moving up in of proportion to the importance of the spring, and climbed fairly steadily this component. In turn, inflows into through August. Thereafter, they Super NOW accounts, which had been fluctuated in a range somewhat above authorized in early January, exceeded that of the first half of the year; and growth in OCDs during the year as a at the end of 1983, they were general- whole. Even so, the introduction of ly 1 to Wi percentage points above the new deposit accounts appears in their levels of a year earlier. Excep- retrospect to have had little effect on tions to this pattern were mortgage the overall growth rate of Ml, as inrates and yields on municipal bonds, flows from outside Ml into Super which were down on balance from NOWs probably were roughly offset their levels at year-end 1982. Long- by outflows from Ml into MMDAs. term interest rates remained quite In light of the rapid expansion in high relative to the current rate of in- Ml through midyear and referring flation throughout 1983; continuing back to its recognition that appropriuncertainties regarding the speed of ate growth rates for the aggregates the economic expansion and its possi- would depend on judgment about unble implications for future inflation, folding economic and financial develas well as concerns about the outlook opments, the FOMC in July estabfor federal deficits, were factors. lished a new monitoring range for Ml for the second half of 1983. This range of 5 to 9 percent was based on Monetary Aggregates the average for the second quarter, The behavior of Ml in early 1983 rather than that for the fourth quarcontinued to diverge from precedent.1 ter of 1982. The decision to adopt a As apparently was the case during the new base for monitoring Ml growth second half of 1982, precautionary reflected a judgment that the recent motives stemming from highly uncer- rapid growth of Ml would appropritain employment and income pros- ately be treated as a one-time phepects evidently continued to swell nomenon that was expected to be neither reversed nor extended. It ap- 1. The analysis here, as elsewhere in this sec- peared, in retrospect, that the surge in tion, is based on revised data for the monetary Ml might largely have reflected an aggregates that became available early in 1984, adjustment by the public of its cash but the data that were available during 1983 balances in response to the prosupport the same finding. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

16 Monetary Policy and Financial Markets Reserves, Money Stock, and Debt Aggregates Annual rate of change based on seasonally adjusted data unless otherwise noted,percent ' 1982 1983 Item 1981 1982 1983 Q4 Ql Q2 Q3 Q4 Depository institution reserves2 Total 3.2 5.9 6.1 14.0 5.5 11.8 6.0 0.5 Nonborrowed 6.4 6.9 5.4 16.0 4.9 5.2 2.9 8.0 Required 3.6 5.6 5.8 12.9 5.1 12.0 5.9 -0.1 Monetary base3 4.8 7.6 9.2 8.2 9.3 10.2 8.1 7.8 Concepts of money4 Ml 5.13 8.7 10.0 15.4 12.8 11.6 9.5 4.8 Currency and travelers checks . 6.0 8.2 10.4 7.3 10.4 11.1 8.6 9.9 Demand deposits -12.6 1.0 2.4 10.4 1.7 4.2 4.0 -0.5 Other checkable deposits 179.5 33.9 27.7 39.9 42.3 28.5 21.2 9.6 M2 9.3 9.5 12.1 10.6 20.5 10.6 6.9 8.5 Non-Mi component 10.7 9.8 12.8 9.0 23.0 10.2 6.1 9.6 MMDAs (n.s.a.), savings, and small-denomination time deposits6 3.9 6.6 18.1 6.9 34.0 15.0 9.7 9.7 General-purpose and broker/dealer money market mutual fund assets (n.s.a.)7 131.9 31.1 -26.3 18.5 -56.3 -44.4 -13.4 -0.9 Overnight RPs and Eurodollars (n.s.a.) 20.1 31.7 24.9 24.6 30.3 48.0 -8.1 23.4 M3 12.3 10.5 9.7 10.0 10.8 9.3 7.4 10.0 Non-M2 component 26.5 14.6 0.5 7.7 -27.1 3.8 9.8 17.1 Large-denomination time deposits 21.1 10.4 -3.6 1.6 -39.2 -0.3 11.9 15.5 Institution-only money market mutual fund assets (n.s.a.) 111.3 46.1 -18.1 40.4 -32.6 -41.7 -17.8 16.6 Large term RPs (n.s.a.) 7.4 9.1 32.7 34.2 12.2 40.4 15.2 50.9 Term Eurodollars (n.s.a.) • 41.7 21.3 11.5 -3.8 15.5 28.9 -1.7 2.2 Domestic nonfinancial sector debt 9.6 9.2 10.8 9.3 8.8 12.1 10.1 10.6 Federal 11.8 19.4 18.8 24.0 19.4 25.9 15.2 10.1 Nonfederal 9.1 6.7 8.7 5.5 5.9 8.2 8.7 10.8 1. Changes are calculated from the average amounts draft accounts, and demand deposits at thrift instituoutstanding in each quarter, except for debt figures, tions. M2 is Ml plus overnight (and continuingwhich are based on data for the last month of each contract) repurchase agreements (RPs) issued by comquarter. mercial banks; overnight Eurodollars issued to U.S. 2. Data on reserves and the monetary base incorpo- residents by foreign branches of U.S. banks worldrate adjustments for discontinuities associated with wide; taxable and tax-exempt general-purpose and the implementation of the Monetary Control Act and broker/dealer money market mutual funds; money other regulatory changes to reserve requirements. market deposit accounts; and savings and small time 3. The monetary base consists of total reserves plus deposits (including retail RPs) at all depository institurequired clearing balances and adjustments to com- tions. M3 is M2 plus large-denomination time deposits pensate for float at Federal Reserve Banks plus the at all depository institutions; large term RPs issued by currency component of the money stock less the commercial banks and thrift institutions; term Euroamount of vault cash holdings of thrift institutions dollars held by U.S. residents in Canada and the that is included in the currency component of the United Kingdom and at foreign branches of U.S. money stock plus, for institutions not having required banks elsewhere; and assets of institution-only money reserve balances, the excess of current vault cash over market mutual funds. the amount applied to satisfy current reserve require- 5. After adjustment for the effects of shifts from ments. non-Mi sources into newly authorized NOW ac- 4. Ml consists of currency in circulation; travelers counts, the rate of growth of Ml in 1981 is estimated checks of nonbank issuers; demand deposits at all to have been 2.5 percent. commercial banks other than those due to domestic 6. Balances in individual retirement accounts (IRAs) banks, the U.S. government, and foreign banks and and Keogh accounts at commercial banks and thrift official institutions, less cash items in the process of institutions are subtracted from small time deposits. collection and Federal Reserve float; and other check- 7. Excludes balances in IRA and Keogh accounts. able deposits (OCDs). OCDs consist of negotiable 8. Held by U.S. residents in Canada and the United orders of withdrawal and automatic transfer service Kingdom and at foreign branches of U.S. banks accounts at depository institutions, credit union share elsewhere. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets 17 nounced drop in the opportunity cost thorization of MMDAs substantially of holding low-yielding demand de- boosted M2. Competition for these posits and regular NOW accounts. funds was intense: promotional ac- The FOMC emphasized that it still re- tivity was heavy, and in some regions garded the behavior of Ml as subject introductory interest rates were far to substantial uncertainties, and it re- above yields on market investments. affirmed its decision to place princi- Inflows into MMDAs in January alone pal weight on the broader aggregates totaled $147 billion, and by March in the implementation of monetary outstanding balances had reached policy. $321 billion. However, most of the After midyear, precautionary de- inflow into MMDAs appears to have mands for liquid balances apparently come from other instruments includbegan to abate, with the improvement ed in M2. Analysis by the Board's in confidence arising from the recov- staff suggests that as much as fourery. A moderate rise in interest rates, fifths of that inflow may have been which had begun in late spring, also transferred from savings deposits, curbed demands for money. Demand small time deposits, and money mardeposits peaked in July and edged ket mutual funds (over the course of down, on balance, during the second the year, assets of money market half of the year, while the growth of mutual funds dropped 25 percent). OCDs fell to a fraction of its rapid Still, a sizable volume of funds came first-half pace. Thus Ml entered its from outside M2 and had an obvious newly established monitoring range in impact on growth in that aggregate. late summer and finished the year in In the face of the heavy deposit inthe middle of that range. flows and relative sluggishness of During the first quarter of 1983, business loan demand at commercial the velocity of Ml continued to banks, institutions dropped their agdecline at nearly the extraordinary gressive promotion of MMDAs. The rate of 1982. These declines exceeded aggregate level of MMDAs barely inthose implied by models of past be- creased after June because interest havior, even taking into account the rates offered on those accounts effects of the large reduction in the dropped sharply. At the same time, opportunity cost of holding money the less liquid small time deposits inbalances brought about by sharp cluded in M2 increased quite rapidly drops in market rates and the intro- over the second half of the year, in reduction of ceiling-free Super NOW sponse to the steepening yield curve accounts. As the year progressed, the and more attractive rates on such develocity of Ml began to increase, posits. However, the removal on Ocslowly at first but more rapidly by the tober 1 of all remaining restrictions fourth quarter. Even with this accel- on small time deposits with original eration, growth in Ml velocity in the maturities or notice periods longer full year after the business cycle than 31 days had little noticeable imtrough in the fourth quarter of 1982 pact on deposit flows. was well below the experience typical Reflecting MMDA inflows, M2 in a recovery. grew 12 percent from the fourth quar- As was evident when the target ter of 1982 through the fourth quarter ranges were first established early in of 1983. However, from the February- 1983, the dramatic response to the au- March period used by the FOMC as Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

18 Monetary Policy and Financial Markets Trends in Velocity down advances from the Federal Percent change, Q4 to Q4 Home Loan Banks. On balance, M3 moved on a track near the upper end MJ of its target range during 1983; growth from fourth quarter to fourth quarter was 93A percent, just outside the target range.2 Aggregate Credit Flows The debt of the domestic nonfinancial sector increased 103/4 percent from December 1982 to December 1983, a pace 1963 1968 1973 1978 1983 that was a bit faster than that over the The velocities of Ml and M2 are calculated by previous year and slightly above the dividing GNP by Ml and M2 respectively. midpoint of the range adopted by the the base for its target growth range, FOMC. The outstanding debt of the expansion through the fourth quarter federal government grew almost 20 was at an 8!4 percent annual rate, percent, about matching its growth in well within its range. 1982; this expansion accounted for After having declined at a record close to 40 percent of the increase in rate in the first quarter, M2 velocity all domestic nonfinancial debt in 1983. rose somewhat during the rest of the Financing activity of state and local year; over the year as a whole, it fell governments in long-term markets slightly. As was the case for Ml, the surged to a new record; some of the velocity of M2 failed by a wide mar- borrowing reflected efforts by the gin to keep pace with the average in- issuers to market debt before the imcrease during the first year of a busi- position of anticipated constraints, ness recovery. However, correction including requirements for bond regfor the volume of funds thought to istration and proposed limits on issuhave been attracted to MMDAs from ance of revenue bonds. A stepped-up outside M2 suggests that velocity pace of investment in housing and movements corresponded reasonably consumer durables led to a near douwell with experience. bling of borrowing by the household Growth in M3 picked up a bit in the sector. But issuance of nonfinancial first quarter from its late 1982 pace business debt remained relatively low, because of the explosion in M2. But as internal cash flows of corporations until the closing months of the year, exceeded capital expenditures for expansion in this aggregate was re- much of the year and relatively high strained by sharp runoffs in managed stock prices encouraged offerings of liabilities, especially large CDs, in re- new equity. sponse to the rapid buildup early in the year of MMDA balances and to 2. M3 has been redefined to include term the limited loan demand at commer- Eurodollars held by U.S. residents, previously cial banks. Yet thrift institutions con- included only in the aggregate L. For the data before the early 1984 revisions to take account tinued to issue large CDs at a rapid of new benchmarks, seasonal factors, and defipace in response to robust mortgage nitions, M3—as well as Ml and M2—was well demands and a cost incentive to pay within its range at the end of 1983. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets 19 Net Funds Raised and Supplied in Credit Markets Billions of dollars 1983' Sector HI H2P Net funds raised Total, all sectors. 490 480 617 590 645 U.S. government 87 161 187 231 142 State and local government. 10 36 36 50 22 Foreign 27 16 19 19 20 Private domestic nonfinancial 281 198 287 216 359 Business 160 112 123 87 159 Household 121 86 164 128 199 Domestic financial 85 69 89 74 103 Private intermediaries 38 4 20 6 34 Sponsored credit agencies. 32 15 2 -2 6 Mortgage pool securities .. 15 50 67 70 63 Net funds supplied Total, all sectors. 490 480 617 590 645 U.S. government 24 17 10 8 11 State and local government. 8 27 43 46 39 Foreign 16 18 25 40 10 Private domestic nonfinancial 79 72 91 67 116 Business 5 15 22 18 26 Household 74 57 69 49 89 Domestic financial 363 346 448 429 468 Private intermediaries 305 272 368 348 389 Commercial banks 104 109 135 128 143 Thrift institutions 27 31 129 130 127 Insurance and pension funds 79 94 102 107 97 Other2 95 38 3 -18 23 Sponsored credit agencies . 33 16 2 -1 6 Mortgage pool securities.. 15 50 67 70 63 Federal Reserve System ... 9 10 11 12 10 1. Seasonally adjusted annual rates. security brokers and dealers, 2. Includes finance companies, money market p Includes preliminary data for the fourth quarter. funds, real estate investment trusts, mutual funds, and The share of credit intermediated Attracted by relatively high U.S. inby depository institutions grew sub- terest rates, funds advanced by the stantially, rising from less than 30 foreign sector also increased substanpercent in 1982 to more than 40 per- tially during 1983. cent in 1983. This increase reflected The financing needs of the U.S. both the MMDA inflows and the surge government were the dominant factor in mortgage and consumer demands. in credit markets again in 1983, a de- Funds advanced by thrift institutions, velopment unusual for the first year in particular, rose sharply from a de- of a recovery. Net borrowing by the pressed 1982 pace. Commercial bank Treasury in credit markets totaled apcredit also expanded more rapidly in proximately $187 billion to finance 1983; purchases of government secu- the record combined deficits of the rities accounted for more than one- federal government and off-budget third of net credit extended by banks. agencies. Commercial banks, thrift Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

20 Monetary Policy and Financial Markets institutions, and state and local gov- year, stimulated by attractive financernments acquired much of the in- ing terms from dealers and lenders, crease in the issuance of Treasury and it continued to expand rapidly in debt. Acquisitions by foreign inves- later months. Other types of consumtors also rose. In contrast, households er credit also expanded briskly in reduced their purchases of govern- association with the fast pace of rement and other market securities, tail sales—especially sales of durable channeling funds to new, deregulated goods and housing-related items. deposit accounts instead. And money The strength in consumer credit acmarket mutual funds, faced with large companied an extremely rapid rise in withdrawals after the introduction of residential mortgage borrowing. As the MMDA, allowed their holdings of private housing starts recorded their Treasury bills to shrink. largest increase in four decades, Activity in municipal long-term growth in home mortgage debt exmarkets rose to record levels last year, ceeded $106 billion, almost double its buoyed by favorable market condi- 1982 volume. The expansion in morttions and by concern about pending gage activity in 1983 was supported legislative changes that would affect by increased lending by depository inthe tax-exempt status of some private- stitutions and by continued growth of purpose issues. As long-term interest secondary mortgage markets. rates fell early in the year, the mar- The gains also reflected the popukets received a sizable volume of ad- larity of financing techniques that vance-refunding issues, proceeds from provided homebuyers with initial inwhich were invested temporarily in terest rates lower than those quoted Treasury securities. Housing revenue for fixed-rate, conventional loans. bonds were issued in heavy volume as The record volume of tax-exempt revthe year progressed and as the Con- enue bonds issued by states and localgress failed to act on legislation that ities last year to finance single-family would have extended the tax-exempt mortgages provided many homebuyauthority for single-family issues be- ers with reduced-cost mortgage fiyond 1983. Issuers of industrial rev- nancing. Further, as market rates enue and student loan bonds also rose during the year, homebuyers inrushed to market debt before year- creasingly switched to adjustable-rate end in anticipation of new legislated mortgages. Many such instruments restrictions. The volume of general- offered an initial rate advantage of 2 obligation issues by state and local percentage points or more. By yeargovernments, in contrast, changed lit- end, 55 percent of all conventional tle from 1982. mortgage loans closed had a variable- The household sector increased its rate feature of some kind. When borrowing sharply in 1983 compared mortgage rates were at their rewith the relatively depressed levels in cent low point in the spring of 1983, the previous year. With greatly im- only 30 percent of conventional loans proved financial positions and pros- closed were adjustable. In addition, pects for strong income growth, con- such interest-reducing mechanisms as sumers demonstrated unusual willing- builders' buydowns and seller financness to finance increased outlays with ing remained important features of borrowed funds. Credit financing of housing finance during the year. automobile sales surged early in the Nonfinancial businesses continued Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets 21 to rely to only a moderate extent on energy-related businesses, and the ficredit markets in 1983; instead, they nancial condition of a number of fortook advantage of much improved eign borrowers remained troubling. A cash flows and rising equity prices to widespread increase, relative to hisstrengthen financial positions and re- torical experience, occurred in loanbuild capital. During the first half of loss provisions. A sizable number of the year, firms strengthened their bal- banks—mostly small ones—experiance sheets by shifting borrowing to- enced credit-quality problems so seward debt with longer maturities and vere that they were closed or merged paying down bank loans and open into other institutions. Nonetheless, market paper. However, historically the earnings of commercial banks in high interest rates limited this adjust- general appear to have been well ment, and rising credit costs later in maintained in 1983. the year sharply reduced the volume The condition of the thrift industry of long-term debt financing. Stock began to improve last year as lower offerings proceeded at a record pace, average interest rates significantly renonetheless, as the strong stock duced operating losses. As a result of market not only enabled many large the MMDA, these institutions enfirms to strengthen their capital posi- joyed a substantial increase in core tions but also allowed many young deposits, and their improved profit companies to make initial public of- position enabled them to expand large ferings of their shares. time deposits at reasonable cost. In Commercial banks adapted to im- contrast to commercial banks, thrift portant changes in their environment institutions faced heavy demands for in 1983. The new deposit accounts loans last year. In 1983, for the first were successful in attracting funds to time, a large proportion of the mortboth banks and thrift institutions. At gages they made carried adjustablethe same time, banks experienced rela- rate features, thus repairing some of tively soft demand for business loans, the severe mismatch in the duration especially in the first half of the year, of assets and liabilities. Nevertheless, and hence invested heavily in govern- profit positions remain marginal and ment securities, other market instru- highly sensitive to changes in interest ments, and loans to consumers. How- rates. ever, credit problems intensified in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

22 International Developments The economic recovery that began kets. From the fourth quarter of 1982 in 1982 in industrial countries was to the fourth quarter of 1983, the sustained through 1983, though the trade-weighted average value of the pace of the advance varied consider- U.S. dollar appreciated 6Vi percent; ably among countries. Activity in the from the fourth quarter of 1980 the United States rose at a rapid rate gen- rise was nearly 50 percent. There are erally in line with earlier cyclical up- various explanations for this extraturns, but aggregate activity in other ordinary performance, but the susindustrial countries progressed much tained, relatively high level of real inmore slowly. Indeed, among other in- terest rates in the United States was dustrial countries, only Japan and certainly an important ingredient. Canada registered substantial gains; Other industrial countries probably in Europe the rate of growth of real would have maintained relatively firm GNP over the year was only about monetary policies in any case, but 1 Vi percent, not sufficient to generate they were also influenced to do so by significant reductions in unemploy- the pressure on their exchange rates ment rates. Slow growth was also the exerted by the attractive interest rates experience of many of the larger developing countries, reflecting their efforts to reduce their external financing GNP and Prices requirements as well as the depressing 1970 = 100 effect of relatively slow growth in Gross national product many of their foreign markets. United States As a consequence of the weakness of the recovery in foreign industrial countries and the persistence of a high degree of idle capacity, inflation slowed further abroad, though not so rapidly on average as in the United States. The reduction in the rate of in- Percent change from previous year flation reflected in part the absence of a strong exogenous shock, but in the Consumer price index main it was the result of a general ef- 15 fort among foreign industrial countries to reduce fiscal deficits and maintain firm monetary conditions. A prominent feature of the year was the contrast between the decline in fiscal deficits abroad as a fraction of GNP and the expansion of the U.S. 1977 1979 1981 1983 budget deficit. Foreign data are multilaterally weighted averages Another major feature of the year for the Group of Ten (G-10) countries plus Switzerwas the further appreciation of the land, using 1972-76 total trade weights. Data for the United States are from the U.S. U.S. dollar in foreign exchange mar- Departments of Commerce and Labor. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

International Developments 23 prevailing in the United States. Those Weighted Average Exchange Value and rates, in turn, reflected the uniquely Interest Rate Differential expansionary stance of U.S. fiscal Percent per annum March 1973 = 100 policy. A third feature of the economic Interest rate differential scene in 1983 was the stabilization, at least for a time, of the international debt situation. In November the Congress approved the increase in the U.S. quota in the International Monetary Fund (IMF) and the revised and expanded General Arrangements to Borrow, in the total amount of SDR Weighted average exchange 7.56 billion (about $8 billion at year- value of the dollar *end exchange rates). In that legislation the Congress also adopted sev- 1980 1981 1982 1983 eral provisions intended to improve Exchange value of U.S. dollar is the index of the supervision of foreign lending by weighted average exchange value of the U.S. dollar U.S. banks. These provisions were against currencies of the other G-10 countries plus Switzerland, using 1972-76 total trade weights. generally in line with recommenda- Interest rate differential is the interest rate on threetions made by the regulatory agen- month U.S. certificates of deposit minus the weighted cies in April. During the year several average three-month interest rate for other G-10 countries plus Switzerland using 1972-76 total trade major debtors operated under ecoweights. nomic stabilization programs agreed with the IMF and commercial bank creditors. Three large debtors (Argen- in 1983, as both deficits rose sharply tina, Brazil, and Mexico) reduced from their 1982 rates. At the same their combined current account deficit time recorded private capital flows from more than $20 billion in 1982 to were sharply reversed, from a net outan estimated $3 billion in 1983, mainly flow of $23 billion in 1982 to an estithrough a drastic decline in imports. mated net inflow of $40 billion in Lending by banks to developing 1983. Any evaluation of this reversal countries outside the Organization of is hampered by the behavior of the Petroleum Exporting Countries also statistical discrepancy in the overall declined rapidly from a net amount of accounts, which dropped from net re- $31 billion in 1982 to less than $15 bil- ceipts of more than $40 billion in 1982 lion in 1983. While the groundwork apparently to a negligible amount in has been laid for the maintenance of 1983. If the residual were attributed bank lending at a moderate rate to de- to private capital flows, the combined veloping countries, adherence to sta- amount would be a net inflow of bilization programs agreed with the about $20 billion in 1982 and the 1983 IMF will be difficult as long as eco- amount would be nearly $40 billion. nomic growth worldwide is below po- The rise in the U.S. trade deficit tential. from $36 billion in 1982 to $61 billion in 1983 resulted from a small yearover-year decline in the value of ex- U.S. International Transactions ports combined with a large rise in Unprecedented deficits were recorded imports. Exports reached a low point in the U.S. trade and current accounts late in 1982 and recovered only slight- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

24 International Developments U.S. International Trade trade picture was the continuation of marketing agreements or quotas that Billions of dollars tended to restrict imports of a num- U.S. balances on trade and ber of important products. Pressure currrent account Current account for additional limitations on imports intensified during the year. Such impediments to trade (apart from those clearly targeted on unfair trade prac- 40 tices by competitors) will ultimately shrink U.S. and world trade, and they are especially harmful to developing Ratio scale, billions of 1972 dollars countries that need to expand exports U.S. merchandise trade to maintain economic and political stability. An enormous swing in bank-reported capital flows was the main factor in the shift in recorded private capital 80 transactions from a large net outflow in 1982 to a record net inflow in 1983. Total imports Banking offices located in the United I ! I States increased their claims on non- 1977 1979 1981 1983 OPEC developing countries by a much smaller amount than in 1982. Most of Data are seasonally adjusted at annual rates and are from the U.S. Department of Commerce. the shift in the net foreign position of U.S. banking offices, however, rely thereafter, held back by the slow- flected rising U.S. credit demands, inness of the economic recovery in most cluding greater offerings of U.S. govmajor trading partners and by the ernment issues, and the more favorpersistently high level of the exchange able terms on which banks could raise value of the dollar. In the course of funds in the Euromarkets. Net forthe year exports to Canada and Japan eign purchases of U.S. securities were increased somewhat, but the value of up moderately, including record purshipments to Western Europe and to chases of U.S. corporate equities in developing countries declined. the period when U.S. equity prices The increase in imports for the year were rising strongly. Flows reported was widespread across commodities for U.S. direct foreign investments other than petroleum, and largely re- registered a moderate outflow, reversflected the strength of the pickup in ing the unusual net inflow that oc- U.S. economic activity. By area, the curred in 1982. According to the availincrease in non-oil imports came both able data and estimates for some from the developing countries (partic- items, the very large positive residual ularly those in Asia) and the indus- that appeared in 1982 was eliminated trial countries (particularly Japan and in 1983. This change suggests a reduc- Canada). Oil imports declined in 1983, tion in capital inflows through chanlargely because of lower prices as weak nels that escape reporting, possibly world demand and ample supplies put indicating a reduction in inflows of downward pressure on prices in world flight capital. oil markets. Another factor in the Capital flows related to official re- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

International Developments 25 serve transactions were moderate in used to retire the remaining part of 1983. Foreign official reserve hold- the German mark and Swiss franc ings in the United States increased bonds (Carter bonds) issued between somewhat; reductions in OPEC hold- December 1978 and January 1980. ings, and in holdings of some Euro- The U.S. reserve position in the IMF pean countries that were intervening increased when that institution used to support their currencies, were off- dollars to provide financing for memset by increased holdings by other ber countries, and also when the Treacountries. U.S. official international sury paid the reserve-asset part of the reserves increased by a relatively small U.S. subscription to the quota inamount in 1983, partly because $1.3 crease, using existing holdings of rebillion equivalent of reserves was serve assets. U.S. International Transactions1 Billions of dollars Quarter Year Transaction 1982 1983 1982 19832 Q4 Ql Q2 Q3 Current account3 -11.2 -38.0 -6.6 -3.6 -9.7 -12.0 -12.7 Merchandise trade balance . -36.4 -60.6 -11.4 -8.9 -14.7 -18.2 -18.8 Exports 211.2 200.0 48.3 49.4 48.8 50.4 51.5 Imports -247.6 -260.6 -59.7 -58.2 -63.5 -68.7 -70.3 Investment income (net)4 27.3 24.7 6.0 5.1 5.7 6.9 7.0 Other services 5.6 1.2 1.1 1.3 1.5 Unilateral transfers, private 5.9 1.7 and government -7.8 -2.4 -1.8 -2.1 -2.4 -8.0 -1.6 Private capital flows 39.6 -6.8 9.5 16.0 17.5 Bank-reported capital, net -22.7 -3.4 (outflows, -) 32.6 -14.7 6.1 15.8 16.0 U.S. net purchases (-) of foreign -45.1 -5.3 securities -6.7 -3.5 -3.2 -1.1 -.6 Foreign net purchases (+) of -8.0 -1.8 U.S. Treasury securities 8.6 2.3 3.1 1.1 1.5 Foreign net purchases of other 7.0 2.9 U.S. securities 6.1 8.6 2.0 3.0 2.6 1.9 U.S. direct investment abroad4.... 3.0 -7.9 2.0 0.2 -1.0 -4.1 Foreign direct investment in United States4 10.4 9.2 2.8 2.1 2.2 2.4 2.5 Other corporate capital flows, net . 3.9 -4.8 2.4 -4.5 -.3 Foreign official assets in United States (increase, +)... 3.2 5.8 1.7 2.0 -3.2 7.0 U.S. government foreign assets, net (increase, -) -10.7 6.1 -2.9 -1.8 -1.1 -0.7 -2.5 Reserve position in IMF 4.4 -.7 -2.0 Convertible currencies and other -2.6 -2.1 -.2 -.1 reserve assets 3.2 -1.2 1.0 U.S. government foreign credits -2.4 1.4 .2 .6 and other claims, net -4.9 - .9 -1.5 -5.7 -1.1 -1.2 -1.2 Seasonal adjustment discrepancy . 1.0 .8 -1.4 .8 Statistical discrepancy 41.4 -1.2 13.6 -1.4 1.3 -10.1 1. Details may not add to totals because of round- 4. Includes reinvested earnings. ing. * Less than $50 million. 2. Data for the fourth quarter are partial and pre- SOURCE. U.S. Department of Commerce, Bureau of liminary, and include Federal Reserve staff estimates. Economic Analysis. 3. The current account is seasonally adjusted; other accounts are not seasonally adjusted. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

26 International Developments Foreign Currency Operations of which was in marks. The foreign exchange translation loss for 1983 The weighted-average exchange value was $456 million, resulting mainly of the dollar continued to rise in 1983 from the depreciation of the mark. but at a slower rate than in 1982. The Mexico had $483 million outstanding further rise in the dollar occurred on its regular swap line with the Syswhile U.S. real interest rates remained tem at the beginning of 1983; this firm relative to foreign rates. Safeamount was repaid during the year in haven considerations and the fall in two installments, one of $110 million the U.S. inflation rate probably conin January and the other of $373 miltinued to play significant roles in the lion in February. An additional $257 dollar's appreciation. The downward million was outstanding on Mexico's pressure on the dollar exerted by the special System swap line at the start large and growing U.S. current acof the year; this amount was repaid count deficit was evidently overby the end of August. At the beginwhelmed by these other factors. ning of 1983 the Federal Reserve, On a bilateral basis the dollar apunder warehousing agreement, held preciated during 1983 against every major currency except the yen. The yen appreciated strongly against the Indexes of Selected Exchange Rates dollar in late 1982, and since then has December 1979 = 100 appreciated considerably against other currencies as Japan's current account Weighted average exchange position has strengthened. The German mark displayed particular weakness, depreciating 15 percent against the dollar during 1983, and the pound Dollar/mark also depreciated significantly against the dollar. However, both currencies depreciated less against an average of Weighted average exchange^ foreign currencies. value of Japanese ; Major foreign central banks sold nearly $9 billion in 1983, far less than the $40 billion they had sold in 1982 to support their currencies against the 100 dollar. U.S. monetary authorities intervened on seven days during the year, selling $233 million to purchase marks and $100 million to purchase Weignieu average exchange 120 yen. A large part of the sales came in rvalue of U.K. pound August, when upward pressure on the 100 dollar was strong and other countries intervened heavily. The U.S. purchases of marks and yen were evenly Dollar/pound split between the accounts of the Federal Reserve and the Treasury. 1980 1981 1982 1983 The Federal Reserve held $3,688 The weighted average value for each currency is its million equivalent of foreign curren- exchange value against the currencies of the other G-10 countries plus Switzerland using 1972-76 total cies at year-end, about three-quarters trade weights. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

International Developments 27 about $1,300 million equivalent of sisted of about $900 million of U.S. foreign currencies for the Treasury. Treasury debt denominated in marks These funds were used to retire the and $400 million of U.S. Treasury last of the Carter notes, which con- debt denominated in Swiss francs. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

28 Monetary Policy Reports to Congress Given below are reports submitted to considerably in late 1979, the inflathe Congress by the Federal Reserve tion rate remained quite high through on February 16,1983, and on July 20, 1980 and slowed only a little in 1981. 1983, pursuant to the Full Employ- In this past year, however, the ment and Balanced Growth Act of progress against inflation has been 1978. more dramatic. The rate of increase in most price measures in 1982 was Report on February 16, 1983 only a third to a half the peak inflation rates of 1979 and 1980, a much The Performance faster deceleration than had generally of the Economy in 1982 been thought possible when the year The recession that began in mid-1981 began. The slowdown was attributcontinued through 1982, bringing the able to temporary influences to some cumulative decline in real gross na- extent, but there also has been more tional product over that period to 2Vi fundamental progress. In particular, percent. Unemployment reached a expectations of inflation are being postwar high, while industrial capaci- scaled down, productivity is improvty utilization fell to a postwar low. At ing, and indications of business and the same time, however, inflationary labor adapting their price and wage pressures were greatly reduced; and practices to the competitive realities while some potential obstacles to of a new, less inflationary environgrowth clearly need attention, an ment are widespread. economic environment conducive to Reflecting both the sharp decelerasustainable recovery and expansion tion of price inflation and the cutseemed to be emerging by year-end. backs in economic activity, nominal To a considerable extent, the reces- gross national product grew only 3 VA sion and its attendant economic and percent over the four quarters of financial stresses have reflected the 1982, little more than a third the rate difficulties inherent in reversing an of growth in 1981. Nevertheless, the inflationary trend that had been gain- demands for money remained quite ing momentum for more than a dec- strong, as exceptional economic and ade. By the late 1970s, the underlying financial uncertainties bolstered ininflation rate had accelerated to near vestors' desires to hold liquid the double-digit level, and expecta- balances, and as the attractiveness of tions of rising wages and prices had depository accounts was enhanced by become deeply embedded in the be- the progressive liberalization of havior of consumers, businesses, and deposit rate regulations. investors. Growing financial disloca- The growth in aggregate debt outtions and economic imbalances made standing also was quite strong, with a it plain that inflation was having a particularly steep increase in the debilitating effect on our economic credit needs of the federal governperformance. Although policies to ment. Federal borrowing was extraorcurb the inflation were strengthened dinarily large in the second half of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 29 1982, when the federal sector absorbed growth through the early part of the nearly half of the funds raised by all summer reduced the demand for domestic nonfinancial borrowers. bank reserves, easing pressures in State and local governments, too, money markets. With market rates issued substantial amounts of new falling and the economy still quite debt in 1982, especially late in the sluggish, the Federal Reserve reduced year. Private credit demands, how- its discount rate 2>Vi percentage ever, were curtailed sharply as points over the second half of the economic activity weakened. year in seven separate steps, thereby Interest rates fell appreciably in accommodating the downward move- 1982, primarily in the second half. By ment in money market rates. During the end of the year, short-term rates this period, the broader monetary agwere about half the peak levels of gregates were running at or just above 1981, and long-term rates also had the annual target ranges, but this did declined considerably. In turn, the not seem inappropriate in light of declines in rates helped trigger an im- prevailing economic and financial provement in activity toward year- conditions. By December short-term end in the credit-sensitive sectors of rates had fallen around 5 percentage the economy. In particular, automo- points from their average levels in bile sales have perked up in recent June. months, and an upturn in the housing Long-term interest rates also regissector gained momentum as the year tered substantial declines in the second progressed. Following an excep- half of the year, responding not only tionally rapid liquidation of business to the easing in money markets, but inventories in the fourth quarter, the also to the sustained moderation of pressures to reduce stocks appeared inflation and to the weakness in to be easing early in 1983 as both pro- economic activity. On balance, yields duction and employment increased in on bonds and conventional mortgages January. All told, these and other re- fell 3 to 4 percentage points between cent data provide strong indications June and December. The decline in that recessionary forces are dissi- long-term yields and the promise of a pating and that the economy may be sustained pickup in economic activity entering the initial phases of a new helped to maintain a sharp rise in expansion. stock prices beginning in the summer, with several broad market indexes Interest Rates reaching historic peaks late in the A year ago, as 1982 began, interest year and rising to still higher levels in rates were moving higher in associa- early 1983. tion with stronger demands for In addition to the general cyclical money and credit, reversing a portion factors affecting interest rates, the of the decline that occurred as the structure of rates across different economy slipped into recession in the markets this past year reflected, to an second half of 1981. However, the unusual degree, investor concerns rise in rates was soon halted. Short- about the financial health of borrowterm interest rates showed little net ers. Severe stress was evident in a high change from late January through level of bankruptcies, as well as in June, and then fell sharply in the other difficulties experienced by third quarter, as sluggish money many businesses and financial institu- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

30 Monetary Policy Reports tions in the United States and abroad. fourth quarter, sales of both new and In these circumstances, lenders began existing homes rose to their highest to assess credit risks more carefully, levels since the recession began in demanding larger returns for extend- mid-1981. Because the inventory of ing credit to potentially troubled bor- unsold new homes had been drawn rowers. Later in the year, however, down to a low level, the improvement these risk premiums dropped to more in sales in the second half provided a normal levels as an easing of overall direct impetus for new construction credit conditions and anticipations of activity. Starts of new single-family a pickup in economic activity relieved dwellings in the fourth quarter were some of the anxieties in financial up almost 50 percent from depressed markets. year-earlier levels, with most of that Even with the sharp declines of gain coming in the second half of the 1982, interest rates remain at high year. Starts of new multifamily units levels relative both to their historical rose through most of the year, suplevels and to current inflation rates. A ported in part by federal subsidies. major factor propping up long-term rates especially is the prospective size Consumer Spending of federal government deficits, which Consumers continued to exhibit cauthreaten to remain massive even as tious spending patterns through most the economy recovers, thereby com- of 1982. Despite sharp reductions in peting with the rising demands of pri- personal tax liabilities at midyear, vate borrowers for available savings. real after-tax income rose only 0.6 Moreover, although inflation moder- percent during the year, as reductions ated substantially in 1982, many in employment cut deeply into wage potential investors, scarred by the and salary payments. At the same experience of the 1970s, remained time, consumers were reluctant to cautious about the longer-range out- finance purchases by taking on new look—and about the government's debt. Domestic auto sales remained commitment to maintain forceful depressed through most of the year, anti-inflationary policies. with the pace for 1982 as a whole the worst in more than two decades. Residential Construction Foreign car sales also fell, but much So far, the housing sector has been less than sales of domestic makes. the main beneficiary of falling in- Nevertheless, the economic situaterest rates. A gradual upturn in tion in the consumer sector appeared housing activity that began in late to be improving as the year ended. 1981 gained momentum in the second With liquidity up and debt burdens half of 1982 as mortgage rates moved down, consumers' financial posisharply lower. By last month the in- tions, in the aggregate, have improved terest rate on commitments for con- considerably from the overextended ventional fixed-rate mortgages had positions of the late 1970s. Consumer dropped to 13 percent from a high of confidence began to perk up in the I8V2 percent in the fall of 1981, and second half of 1982 as inflation rerates on many types of variable-rate mained moderate and as interest rates loans had declined even more. on consumer loans began gradually to Homebuyers responded favorably decline. Spending, most notably on to the rate reductions, and in the durable goods, started to grow more Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 31 rapidly toward year-end. Sales of financial strains, many business firms domestic autos rose significantly in moved aggressively in 1982 to trim in- November and have been maintained ventories and curtail capital spendat a higher level into early 1983, ap- ing. In real terms, total fixed investparently reflecting financing conces- ment expenditures in the business secsions as well as changes in manufac- tor fell more than 8 percent over the turers' design and pricing policies. four quarters of 1982. Cutbacks in Retail sales excluding autos also rose spending for equipment accounted a little in late 1982, and in the fourth for nearly all of the decline; purquarter, total consumer spending reg- chases fell especially rapidly for istered its strongest gain, in real heavy industrial machinery such as terms, since late 1980. engines, construction equipment, farm machinery, and transportation Business Sector equipment. The persistent weakness of economic Business investment spending on activity in 1982 led to considerable nonresidential structures slowed in stress in the private business sector. the first half of 1982 and then turned Among nonfarm businesses, low down in the second half. Much of the operating rates depressed corporate decline was concentrated in outlays profits, and the financial condition of for oil and gas drilling, which fell many firms weakened under the sharply over the year as drilling incenburden of reduced availability of in- tives weakened in response to worldternal funds, heavy short-term in- wide reductions in energy demand debtedness, and high interest charges. and declines in petroleum prices. In Credit ratings deteriorated for many contrast, business spending for new businesses, the incidence of dividend buildings was well maintained reductions or suspensions increased, through 1982, although part of this and business bankruptcies rose to a strength probably reflected the conpostwar high. tinuation of projects started some Signs of growing financial distress time ago. Forward-looking indialso were evident in the farm sector of cators, such as the constant-dollar the economy. Because of weak de- value of new construction contracts, mand and exceptionally large crop fell substantially during the year harvests in 1982, farm prices slumped while vacancy rates for office buildand income was low for the third year ings climbed sharply. These and other in a row. Land prices in the farm sec- indicators suggest that capital spendtor have fallen substantially in some ing by businesses, especially for conareas since mid-1981, farm proprie- struction, could continue to weaken tors' equity has declined, and debt-to- for some months. asset ratios have risen noticeably in Depressed aggregate demand also the past two years. Difficulties in ser- caused businesses to liquidate invenvicing debt have increased, especially tories at a rapid pace in 1982. The among those farmers who came to rely weakening of final sales in the second more heavily on credit financing in half of 1981 had led to an unintended earlier years, and farm bankruptcies buildup of inventories, and in early and foreclosures have become more 1982 businesses began liquidating numerous. those excess stocks at a rapid pace. Confronted with weak demand and However, the runoff of inventories Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

32 Monetary Policy Reports halted around midyear, possibly be- financial sectors of the economy. cause businesses generally anticipated Federal borrowing from the public a midyear upturn in sales. When no rose from $87 billion in 1981 to $161 such upturn occurred, a second round billion in 1982, as the federal deficit of inventory liquidation began, and widened in response to weak growth stocks were reduced at a particularly in taxable incomes, reductions in tax rapid pace in the fourth quarter. By rates, the further rise in government year-end many industries had reduced purchases, and a recession-induced inventories to below prerecession increase in unemployment compensalevels, but stocks in some sectors still tion and other transfer payments. appeared large relative to the prevail- Real purchases of goods and sering sales pace. vices by state and local governments Reflecting the reductions in inven- were little changed over the four quartories and capital spending, businesses ters of 1982. Faced with a recessionreduced their credit usage appreciably induced shrinkage in tax revenues and in 1982. The strong rally in the stock cutbacks in federal support, many market that began during the summer state legislatures enacted increases in also helped reduce borrowing, as sales, income, or corporate taxes to firms started relying more heavily on help maintain service levels. In addiequity financing and relatively less on tion, state and local borrowing innew debt issuance. Falling long-term creased substantially, not only to interest rates enabled businesses to finance traditional functions but also, accomplish some lengthening of their in a number of cases, to support mortdebt maturities toward the end of gage lending in local communities. A 1982, but even so, business balance surge in new bond issues in the fourth sheets at year-end were heavily laden quarter was in part an attempt by with short-term debt. state and local governments to raise funds before a requirement to register Government Sector all new issues of tax-exempt securities Total government purchases of goods after year-end (later postponed to and services rose 2Vi percent in real mid-1983) was scheduled to take terms during 1982, about the same as effect. in the previous year. At the federal level, real outlays for national de- International Payments and Trade fense expanded rapidly for the second Following a steep advance in 1981, year in a row. Spending also rose con- the weighted-average value of the siderably for agricultural programs, dollar appreciated another 20 percent as the federal government accumu- from the beginning of 1982 through lated farm inventories under pro- early November. The strengthening grams designed to keep farm prices apparently was in large part a and farm incomes from falling fur- response to the progress made in rether. Federal purchases of other ducing inflation and the sense of a goods and services, on balance, were continuing commitment of U.S. aucut back sharply. thorities to ensure greater economic The credit demands of the federal stability. Moreover, during a period government rose steeply in 1982, and of major strains in the international accounted for almost 40 percent of financial system and considerable total credit flows to the domestic non- economic uncertainty, there evidently Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 33 was a view that dollar assets, especial- nal and external adjustment. As a ly U.S. assets, would provide a "safe result, debtor countries have reduced haven." Since early November the their demand for exports from major foreign exchange value of the dollar industrial countries, particularly the has fallen a little, on net, as market United States because of its close ties participants have reacted to the pros- to Latin America. pect of very large deficits in 1983 in the U.S. merchandise trade and cur- Labor Markets rent accounts. Employment in the United States fell A movement toward deficit in the steadily throughout 1982, and by U.S. current account was already evi- year-end total nonfarm payroll emdent in 1982. Reflecting the effects of ployment was more than 2% million the strong dollar, as well as sluggish below its July 1981 peak. As is typical economic growth abroad, real exports in recessions, the largest job losses of goods and services decreased 13 were in the cyclically sensitive manupercent over the four quarters of 1982. facturing and construction industries. The volume of imports of goods and In addition, employment fell in the services also declined during 1982, oil- and gas-drilling industries, and but the decline was smaller than for trade employment suffered an unexports; the increasing price competi- usually sizable decline. Employment tiveness of foreign goods, which re- in the service sector continued to sulted in part from the strong dollar, grow in 1982, but at a slower pace helped support import demand. As a than in recent years. result of these trade patterns, net ex- The back-to-back recessions of the ports, in real terms, fell $15 billion early 1980s were accompanied by a over the four quarters of 1982; the rise in total unemployment of about trade sector thus made an atypically 5Vi million, and by the end of 1982, large contribution to the recession. the unemployment rate, at 10.8 per- The U.S. current account, which was cent, was nearly 2 percentage points in small surplus for 1981 as a whole, above its previous postwar peak. Inrecorded surpluses in the first half of creases in unemployment were espethe year but then swung into deficit in cially large among adult men, who the second half as exports weakened. hold a disproportionate number of The external financial position of jobs in the cyclically sensitive indusseveral large borrowing countries— tries. As the recession persisted notably Argentina, Brazil, and Mexico through 1982, the number of workers —worsened in 1982. These financing unemployed for longer than a halfproblems have placed severe strains year increased to more than 2Vi milon the banking system and on inter- lion. In order to support the incomes national markets generally, as the of these long-term unemployed, the need arose to refinance or reschedule period of eligibility for unemployexisting debt. During the year, bor- ment benefits was lengthened twice, rowers and private and official lend- to as much as 55 weeks for some ing institutions made repeated co- workers. operative efforts to address these Nevertheless, a little improvement problems, and the debtor countries, in labor demand began to be evident to gain control of rising debt burdens, around the turn of the year. The inare adopting strong policies of inter- cidence of layoffs appeared to be Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

34 Monetary Policy Reports moderating toward the end of 1982; that business output was still declinunemployed workers have been re- ing cyclically; normally, productivity called in some industries. And in tends to slump in the contraction January of this year, the civilian un- phase of the business cycle as firms employment rate declined to 10.4 reduce output by more than the hours percent. worked. Wages and Labor Costs Prices The falloff in labor demand in 1982, In 1982, all major price indexes adalong with the general unwinding of vanced at considerably slower rates inflation, led to a sharp slowing in the than in 1981, and for some price rise of wages and labor costs. The measures, the increases in 1982 were wage rates of production workers in- the smallest in more than a decade. creased about 6 percent during 1982, The consumer price index rose 3.9 the smallest advance in 15 years. The percent over the year, compared with moderation in wage increases was es- 121/2 percent just two years earlier. pecially striking among new contracts Capital goods prices were up less than negotiated under major collective half as much as in 1981, and prices bargaining agreements; in 1982, first- were little changed for a broad range year wage increases under these of materials used in manufacturing agreements averaged 33/4 percent, less and construction. than half the average increases reached In many ways the slowing of inflawhen these workers last negotiated. tion this past year has reflected the In some particularly hard-pressed in- pervasive influence of the recession dustries, workers agreed to new con- on product and labor markets. In adtracts that eliminated altogether the dition, the strength of the dollar has fixed wage increases that had been helped to hold down the prices of customary in past wage agreements, U.S. imports; bountiful harvests have and in some cases there were outright contributed to declines in agricultural wage reductions. Nevertheless, with prices; and the worldwide recession price inflation slowing even more has depressed the prices of oil and rapidly than nominal wages, real other commodities. Although these wage rates in the nonfarm business influences themselves may prove to sector actually rose faster than in be temporary, the foundation is now most recent years. in place for more lasting gains against Labor costs per unit of output were inflation. In particular, the wageup only AYi percent over the four price interactions that served to quarters of 1982, as an improved pro- perpetuate inflation through the ductivity performance reinforced the 1970s appear to have lost much of impact of slower nominal increases in their momentum. Workers generally wages and benefits. Qualitative re- are agreeing to smaller pay increases ports throughout the year suggested than in earlier years, and in some secthat business firms, many of them tors in which long-term wage agreehard-pressed financially, were en- ments are prevalent, the settlements gaged in aggressive efforts to cut costs concluded in 1982 will help ensure and bolster efficiency. Productivity diminished labor cost pressures in gains in the second half of the year coming years. Lower labor costs are were particularly noteworthy, given relieving pressures on prices, and, in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 35 turn, an improved price performance uncertainties fostered unusual desires is reducing expectations of inflation for liquidity. Such desires had already and thus leading to a further slowing been indicated by a surge in growth of labor costs. This cumulative pro- around year-end 1981, at which time cess of disinflation still appeared to it was believed that vigorous efforts have momentum at year-end, thereby to bring money back within target providing solid grounds for continu- ranges rapidly would not be appropriing better price performance in 1983. ate when the economy was still quite weak. In addition, the demand for Ml was seen as likely to demonstrate The Growth of Money and a continuing sensitivity to changing Credit in 1982 financial technology and the prolifer- The Federal Reserve has been seeking ation of new money- and near-moneyto provide enough liquidity to facili- type instruments. The Committee tate an early upturn in economic ac- also anticipated that the broader agtivity, while maintaining the mone- gregates, M2 and M3, might be aftary discipline needed to sustain the fected by legislative and regulatory progress toward lower rates of infla- changes, such as broadened eligibility tion—a crucial element in satisfactory for individual retirement accounts economic performance over the (IRAs) and Keogh accounts and the longer run. The specific monetary ongoing deregulation of deposit target ranges chosen by the Federal rates, as well as unusual desires for Open Market Committee (FOMC) liquidity. In July, while the Commitlast February and reaffirmed in July tee decided to retain the ranges were as follows, with growth mea- adopted earlier for monetary growth, sured from the fourth quarter of 1981 it underscored in its report to the to the fourth quarter of 1982: for Ml, Congress its willingness to accom- 2Vi to 5Vi percent; for M2, 6 to 9 per- modate any unusual precautionary cent; and for M3, 61/2 to 9Vi percent. demands for liquidity that might be The associated range for bank credit associated with unsettled economic was 6 to 9 percent at an annual rate, and financial conditions. measured from the average level of The behavior of the aggregates over December 1981 and January 1982 to the year indeed diverged substantially the fourth quarter of 1982; the base from normal historical patterns. Preperiod for bank credit was selected to cautionary motives evidently boosted minimize distortions from the shift- demands for money and other highly ing of assets to newly established in- liquid assets relative to the expansion ternational banking facilities, first of nominal GNP, which remained authorized in late 1981. quite sluggish. Ml expanded 8V2 per- It was recognized when selecting cent on a fourth-quarter to fourththese ranges that several factors could quarter basis, 3 percentage points affect the relationship of monetary above the FOMC's target range, and credit growth to income and ex- largely reflecting relatively rapid penditure in the economy. In particu- growth over the course of the year in lar, the Committee contemplated that interest-bearing checking accounts Ml might deviate for periods of time that also serve a savings function. In from expected patterns of growth in addition, Ml growth was boosted by the event that economic and financial special developments late in the year Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

36 Monetary Policy Reports in connection with the large amounts measures of money—defined as the of maturing all savers certificates. ratio of gross national product to The broader aggregates, M2 and measures of money—fell sharply in M3, expanded at rates of 9.2 and 10.1 1982. The velocity of Ml dropped 4VA percent respectively, much closer to— percent and that of M2 5Vi percent, though still somewhat above—the up- from the fourth quarter of 1981 to the per limits of their ranges. These fourth quarter of 1982. For Ml, this growth rates for M2 and M3 are was the largest four-quarter decline in lower than those observed before the postwar period, and in fact there some recent changes in money stock have been very few four-quarter definitions, the previous figures being spans in which Ml velocity declined 9.8 and 10.3 percent respectively. To at all. In the case of M2, no parallels maintain consistency in the treatment for the steep velocity decline of last of various kinds of financial assets, year are to be found since the 1950s. M2 and M3 now include balances in Although declines in velocity of M2 tax-exempt money market mutual have not been uncommon during pefunds, which have attributes very riods of recession, in past periods similar to those of the highly liquid they were explainable largely in terms taxable money funds, and exclude of reflows of funds from securities inbalances in IRAs and Keogh ac- to M2-type balances when market counts, which closely resemble pen- rates of interest fell below deposit sion funds and consequently are rate ceilings—a factor of much remuch less like money balances. The duced importance in the present regutable shows figures for growth of M2 latory environment and with the emerand M3 in recent years under both the gence of money market mutual funds old and the new definitions. as an important investment outlet. The income velocity of various The recent weakness in velocity more Growth of Money and Credit1 Percentage change Outstanding debt New Old New Old Bank of domestic Period Ml M2 M2 M3 M3 credit2 nonfinancial sectors Fourth quarter to fourth quarter 1978 . . .. 8.2 8.0 8.2 11.1 11.3 13.3 12.9 1979 7.4 8.1 8.4 9.6 9.8 12.6 12.1 1980 7.2 9.0 9.2 9.7 10.0 8.0 9.9 1981 5.1 (2.5) 9.4 9.5 11.7 11.4 8.1 9.9 1982P 8.5 9.2 9.8 10.1 10.3 7.1 9.5 Annual average to annual average 1978 8.2 8.5 8.8 11.5 11.7 12.4 12.2 1979 7.7 8.2 8.5 10.2 10.3 13.6 13.1 1980 6.2 8.0 8.3 9.0 9.3 8.6 12.3 1981 7.2(4.8) 9.5 9.8 11.6 11.6 9.4 10.0 1982P 6.5 9.4 9.8 10.5 10.5 5.8 10.0 1. Ml and the new M2 and M3 figures incorporate 2. Bank credit data are not adjusted for shifts to inminor effects of benchmark and seasonal adjustment ternational banking facilities in 1981 and 1982. The revisions. New M2 and M3 incorporate definitional 1982 growth rate, however, is calculated from a changes as well. December 1981 and January 1982 base to minimize Ml figures in parentheses are adjusted for shifts to distortions owing to such shifts. NOW accounts in 1981. p Preliminary. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 37 probably reflects strong demands for ings vehicles. By contrast, inflows to relatively safe, liquid assets on the longer-maturity time deposits were part of the public because of uncer- moderate. tainties in the business and financial The apparent strong desire for lioutlook. quidity, and the associated shifting in Further evidence of strong precau- asset demands, had an important tionary demands is to be found in the bearing on the FOMC's assessment of particular types of monetary assets the behavior of the aggregates as the that the public chose to acquire last year progressed. The Committee felt year. Interest-bearing negotiable order that some growth in the aggregates of withdrawal (NOW) accounts— above the longer-run target ranges which are included in Ml—continued could be tolerated in the prevailing to expand rapidly, though growth economic conditions, which appeared was, of course, less rapid than in 1981 to be giving rise to greater precautionwhen they first became available na- ary demands for money than might tionwide. Such deposits, while serv- be anticipated in normal circuming the transaction needs of holders, stances. The lengthening recession have many of the characteristics of and associated economic dislocations savings accounts, which in the past prompted more cautious financial have tended to grow during periods management on the part of houseof economic adversity. Indeed, dur- holds and businesses, and this attiing the first half of last year, when in- tude of caution in financial markets terest rates on other investments were was intensified from time to time by still relatively high, individuals began concerns about strains on some finanonce again to add to their savings cial institutions and about the ability balances following a long downtrend of private and governmental borrowin such deposits; growth in savings ers in a number of foreign countries deposits surged once more in the final to meet their debt-service obligations. months of 1982, apparently buoyed The latter part of the year, moreover, in part by deposits of proceeds from brought a number of institutional dematuring all savers certificates. The velopments that further complicated attractiveness of NOW and savings the interpretation of the movements accounts no doubt was enhanced in the money supply, necessitating a after midyear as lower interest rates more than ordinary degree of flexireduced the earnings disadvantage of bility in responding to incoming data keeping funds in such highly liquid on monetary growth. form. Other types of liquid assets in- Recognized in the early fall was cluded in the aggregates also grew that the behavior of Ml during the rapidly in 1982. A sizable buildup of final three months of the year would balances occurred in the 7- to 31-day very likely be distorted by special facaccounts and 91-day accounts at de- tors. In particular, an extremely large pository institutions, soon after these volume of all savers certificates accounts were authorized in May and matured beginning in early October, September respectively. Shares of and this volume was expected to have money market mutual funds also in- sizable temporary effects on Ml. creased substantially, albeit much less Also of potential importance was the rapidly than in 1981, when many peo- introduction (mandated by the Garnple were first attracted to these sav- St Germain Depository Institutions Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

38 Monetary Policy Reports Act of 1982) of new deposit instru- more on the broader aggregates, M2 ments for banks and thrift institu- and M3. It anticipated in this decision tions that were to be competitive with that the special factors affecting money market mutual funds. In the growth of Ml in the fourth quarter event, the Depository Institutions would have a much smaller impact on Deregulation Committee authorized, M2 and M3 because a major portion beginning December 14, depository of the shifts of funds would occur institutions to offer a money market among assets contained in these deposit account (MMDA), which broader aggregates; for example, procould be used to a limited extent for ceeds from maturing all savers certifitransaction purposes and would be cates (a component of M2) that were free from interest rate ceilings, and deposited in transaction balances authorized Super NOW accounts free would remain part of M2. However, of interest rate ceilings beginning it was recognized that the advent of January 5. the MMDA might boost expansion of MMDAs, because of their more M2 late in the year. limited transaction feature, are in- In late December, growth of M2 in cluded only in the broader aggregates, fact was raised by sizable inflows to while Super NOWs, which have MMDAs from sources outside M2— unlimited transaction features but such as market instruments and large also include a savings element, are in- certificates of deposit—and growth cluded in Ml. These distinctions are continued at an extraordinarily rapid not clear-cut, and they illustrate the pace into the early weeks of 1983. The increasing fuzziness of the dividing new accounts were heavily advertised line between Ml- and non-Ml-type by the depository institutions and balances. In fact, in making this often were offered initially at interest definitional decision, the Federal rates that were exceptionally high Reserve Board noted that it would be relative to prevailing rates on commonitoring carefully the behavior of parable investments. By year-end, the new accounts to determine MMDAs outstanding had risen to a whether some alteration in their treat- level of about $87 billion, and by the ment might be advisable. end of January 1983 were about $230 The sizable shifts of funds that billion. Growth of Super NOW acmight result from these developments counts was much slower, reaching in the fourth quarter—and, in the about $18 billion by the end of case of the new accounts, possibly January. even shifts in anticipation of their Commercial bank credit grew 7.1 availability—seemed likely to have percent in 1982, near the midpoint of direct and indirect effects on Ml that the FOMCs range. The pace of bank would be large in magnitude and loan growth during the year was conwould, particularly in the case of the siderably affected by changes in the new accounts, affect the underlying pattern of business financing. During behavior of narrow money as the the first half, when the persistence of public reallocated transaction and high long-term interest rates encoursavings funds. As a result, the FOMC aged firms to concentrate their borat its October meeting decided that it rowing in short-term markets, busiwould give considerably less weight to ness loans at banks expanded rapidly. Ml in the conduct of policy and rely But as interest rates moved lower over Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 39 the second half, corporations increas- picks up. An improvement in producingly shifted their financing to long- tivity should bolster growth in real interm debt and equity markets; in the come and profitability during recovthird quarter, business loan growth ery and can be a factor in sustaining slowed sharply, and in the fourth better price performance. Diminishquarter these loans showed no net in- ing inflation and a lowering of inflacrease, as corporations used the pro- tion expectations, in turn, should ceeds from bond sales to avoid in- promote further declines in interest creasing bank indebtedness. Real rates. estate loans at banks also slowed as Against this backdrop, monetary the year progressed and, for the year policy has been, and will continue to as a whole, increased only 5l/2 percent be, concerned with fostering a lasting —a rate below that of recent years. expansion in business economic activ- Consumer loans continued weak, ex- ity in a framework of continuing panding only 3 Vi percent. While loan progress against inflation. Monetary growth slowed, banks greatly ex- expansion and liquidity should be panded their holdings of U.S. Trea- adequate to support the moderate sury obligations during the year, ac- recovery that appears to be starting. quiring close to $13 billion in the final At the same time, although the recent quarter alone. gains that have been made against inflation are highly encouraging, clearly the test of the success of our antiinflationary effort is still ahead. The Federal Reserve's Thus, the Federal Reserve remains Objectives for the Growth committed to a course of monetary of Money and Credit discipline that is essential to avoid a The economy over the past year and a resurgence of inflationary pressures half has passed through a most diffi- as economic expansion proceeds. cult period, one of high unemploy- In setting guidelines for monetary ment, depressed incomes, and severe growth consistent with these goals, distortions in financial markets. There the Federal Open Market Committee is substantial evidence that the reces- recognized that the relationship besion is ending. Forces seem to be in tween growth ranges and ultimate place that are consistent with recovery economic objectives had deviated in economic activity. One positive substantially from past patterns durfactor is the improvement in financial ing 1982. As noted earlier, monetary market conditions in the past six growth was quite rapid relative to inmonths, which is stimulating activity come, and by year-end exceeded the in major credit-sensitive sectors of the targets set by the Committee for 1982. economy. A better balance is being This growth, however, appeared fully established between inventories and consistent with the needs of the econfinal demands. Inflationary expecta- omy and progress against inflation, tions, while still sensitive, have given the indications of unusual deabated. Substantial progress toward mands for monetary assets that perrestoring price stability has been sisted during the past year. With made and there is good reason to be- velocity declining sharply, rigid lieve that further progress can be adherence to the 1982 targets would achieved even as business activity have produced a much more restric- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

40 Monetary Policy Reports tive economic effect than was appro- accounts will continue to influence priate. the behavior of the aggregates, though The atypical behavior of velocity the effect of such shifts on the growth last year will likely prove at least in rates of the different monetary meapart temporary, to be followed by an sures clearly cannot be determined unwinding of the exceptional liquid- with a high degree of confidence. ity demands this year; appreciable in- While the effects of these new decreases in Ml velocity, in particular, posit instruments on Ml seemed are common during the early stages smaller than might have been exof economic recovery. It may well be pected to date, the rapidly changing that the experience of 1982 reflected composition of Ml since the inin part a more basic shift in under- troduction of nationwide NOW aclying demands for money, at least as counts at the beginning of 1981 seems now defined. Institutional changes to have altered and made less prehave led to the increased availability dictable the behavior of that aggreof transaction accounts that pay in- gate. The NOW accounts appear to terest tied to market rates, and this behave partly like savings accounts availability is likely to affect the trend and partly like transaction accounts. growth of money. The deceleration of Thus, the pattern of Ml movements prices may increase the incentives to has come to be influenced by individhold money over time, especially as uals' attitudes toward saving as well the reduced inflation is reflected fully as by transaction needs and interest in market interest rates. These con- rates. As a result, the relationship of siderations suggest that velocity in this aggregate to income may well be 1983 may well follow a pattern differ- in the process of change that, by the ent from that of past recoveries. In nature of things, can be accurately setting targets for 1983, account had determined only as new behavior patto be taken of the experience of 1982, terns are reflected over time in the past cyclical behavior, and the possi- data. Though they have not grown ble alteration of underlying relation- rapidly in the early weeks of the year ships between money and ultimate when depository institutions were economic objectives. promoting MMDAs so aggressively, The members of the FOMC also Super NOW accounts, which can be recognized that the introduction of offered free of interest rate ceilings, new deposit instruments very recently have the potential for further disturbhas affected, and would continue to ing Ml behavior relative to historical affect for a time, the growth rates and tendencies. behavioral characteristics of the vari- All of these factors contributed to ous aggregates. The extremely rapid the complexity of setting target buildup of money market deposit ac- ranges for 1983, and the Committee counts, in particular, already has recognized that an unusual degree of resulted in a substantial flow of funds judgment would be necessary in interinto M2 from market instruments, preting the growth of money and greatly inflating the growth of this ag- credit in coming months. Some flexigregate in the current quarter. Antici- bility in reassessing the ranges could pations are that the redistribution of be important. The Committee decided funds associated with the MMDAs to continue setting target ranges for and, to a lesser extent, Super NOW all three measures of money, but with Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 41 some departures from past practice to For Ml, a growth range of 4 to 8 deal with the special uncertainties it percent was specified for the period faces currently. from the fourth quarter of 1982 to the In the case of M2, the Committee fourth quarter of 1983. This range, felt that performance of this aggre- while pointing to slower actual growth gate would be most appropriately than in 1982, is both wider and higher measured from a base period that than the range tentatively set last July. would be less affected by the initial, The new range reflects allowance for highly aggressive marketing of a possible change in cyclical behavior MMDAs. Thus, the expected growth as well as for the evolving character of M2 is 7 to 10 percent, measured of Ml as a more important repository from the average level of February for savings, especially in an environand March 1983 to the average level ment of lower inflation and lower inof the fourth quarter of this year. terest rates. The comparatively wide This range is 1 percentage point range set for Ml also reflects the Comhigher than that set for M2 last year, mittee's judgment that some allowbut it makes allowance for some fur- ance should be made in this fashion ther shifting of funds into MMDAs for the uncertainties introduced by from non-M2 sources over the re- the existence of the new deposit acmainder of the year, although at a counts. greatly reduced pace from what evi- An associated range for total dently has occurred to date. domestic nonfinancial debt was esti- The range for M3 was set at 6V2 to mated at %Vi to 11 Vi percent over the 9Vi percent, measured in accordance four quarters of 1983. This range enwith past convention from fourth compasses growth about in line with quarter to fourth quarter. This range expected growth of nominal GNP, in is identical to that set for 1982, but accordance with long-term trends; the Committee contemplates growth however, Committee analysis of the below the actual outcome last year. In outlook suggested that, in the paradopting the range, the Committee ticular circumstances of 1983, someassumed that any net shifts of funds what more rapid growth of credit also over the year into the new types of might be consistent with its overall deposit accounts from market in- objectives. Owing to the extraordistruments would be moderate. M3 nary size of the federal budget deficit, was expected to be less affected by the the share of credit flowing to the new accounts because many deposi- private sector is expected to be lower tories have the option of reducing than that experienced generally in the their issuance of large CDs if sizable past. The commercial bank share of inflows of MMDAs and other core total debt expansion is also expected deposits satisfy their needs for funds. to put bank credit growth at between Whether this in fact turns out to be 6 and 9 percent this year. the case will depend in part on the The Committee members agreed public's perceptions of the risks en- that the monetary ranges should be tailed in uninsured investments and reviewed in the spring in light of the on the ability and desire of depository accumulated evidence available at institutions to use their new liability that time regarding the behavior of powers to expand their market shares the aggregates and their relationship in financial intermediation. to other economic variables. For the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

42 Monetary Policy Reports time being, in implementing mone- progress against inflation in the past tary policy, the Committee agreed that year or so. substantial weight would be placed on Indications that the economy is the behavior of the broader aggre- turning up have been apparent in regates—M2 and M3—in anticipation cent weeks. The housing sector apthat current distortions from the ini- pears to be well along in the recovery tial adjustment to the new deposit ac- process, as both house sales and new counts will abate. The behavior of construction have registered signifi- Ml will be monitored, with the degree cant advances. Retail sales also of emphasis given to that aggregate picked up toward the end of 1982 and over time dependent on evidence that held steady in January; auto sales in velocity behavior is resuming a more particular have been at improved predictable pattern. Debt expansion, levels in recent months. In the busiwhile not targeted directly, will be ness sector, inventory liquidation evaluated in assessing the behavior of apparently has become less of a dethe money aggregates and the impact pressant of real activity, as both inof monetary policy. dustrial production and employment The Committee emphasized that showed appreciable gains in January. policy implementation in 1983 neces- To be sure, because of the length of sarily will involve a continuing ap- the recession and the stresses and praisal of the relationships between uncertainties it has generated, coneach of the measures of money and sumers and businesses may follow credit and economic activity and cautious economic strategies in comprices, particularly in the aftermath ing quarters. In the business sector a of the unusual behavior of the veloci- high degree of unused industrial ties of both money and credit aggre- capacity probably will discourage ingates last year. This appraisal will in- vestment spending for some time, as volve taking account of patterns of firms boost the operating rates for saving behavior and cash manage- existing plant and equipment, rather ment among businesses and house- than investing in new physical capital; holds and of indications of changing commercial construction in the office conditions in domestic and interna- building area may be particularly tional credit markets and in foreign weak for a while. The export sector exchange markets. may well continue to be a drag on U.S. economic activity well into 1983. Exports fell sharply in the second half The Outlook for the Economy of last year, and given the widespread There are encouraging signs that the weakness in foreign economies and economy will soon be in the early the still high value of the dollar, a stages of an economic upturn, if in- quick turnaround in export demand is deed the expansion has not already not likely. begun. In its initial phases, the eco- Although the January employment nomic recovery may be less robust report provided encouraging signs of than the average postwar expansion, improved labor demand, the gains in but, at the same time, the chances coming months, on balance, may be that the recovery can be sustained relatively moderate in view of the over the long run have been consider- uncertainties still present in the busiably enhanced by the significant ness environment. As demands pick Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 43 up initially, businesses appear likely indeed, recent developments in the into boost output in part by lengthening ternational oil market seem to porwork schedules or improving efficien- tend quite favorable price movements cy, rather than by committing them- for this key commodity. selves fully to higher levels of employ- There still are, however, reasons ment. Therefore, during the early for concern about the longer-run stages of the recovery, the unemploy- outlook for the economy. One major ment rate probably will be slow to source of concern is the prospect that retrace the increases sustained during federal deficits will continue to be the past recession. The difficulties of massive in the years ahead, even as bringing unemployment down quick- the economy is well along in the exly may be compounded by structural pansion. This prospect suggests a changes now apparent in the U.S. serious risk that pressures on credit economy; although the service sector markets will mount as the credit deand industries in the forefront of mands of private borrowers grow technology will be adding employees, with the recovery. In addition, the job opportunities in some traditional prospective deficits tend to cast doubt industries may be trending lower over on the commitment of economic a long period, and legitimate concern policy to gain control of inflation exists about the ability of displaced over the long run. For these reasons, workers to find new employment the budgetary picture continues to readily in the expanding sectors. have an unsettling influence on finan- Nevertheless, once the recovery is cial markets, and lenders remain hesiunder way, the chance that it can be tant to commit funds for a long perisustained appears good. Fiscal policy od, except at interest rates that are is providing significant near-term high relative to the current pace of support for the economy through a inflation. continued rise in defense spending, Overcoming the still deep skepticountercyclical transfer payments, cism about the anti-inflation effort is and further tax cuts. The current crucial in other ways to the achievemonetary policy, too, is consistent ment of strong and sustained ecowith an expansion: barring some un- nomic growth. Generally recognized expected reemergence of serious in- is that periods of slowing inflation in flationary pressures in 1983, the the past two decades have proved to monetary growth targets established be temporary, and unless the commitby the FOMC should provide the ment to see the present effort through liquidity needed to support a recovery is made fully credible by the actions in real activity. of the fiscal and monetary authori- A resurgence of inflation seems un- ties, there will be a danger that as likely in the near term, even though markets improve with recovery we some commodity prices may rebound will see a reversion to aggressive patfrom cyclically depressed levels as the terns of wage and price behavior. If recovery takes hold. The underlying this came to pass, the viability of the trend in labor costs appears to have economic expansion would be severemoved down. In addition, the current ly jeopardized. supply situations in agricultural and We need, too, to deal with the energy markets appear conducive to strains existing in the international continuing progress against inflation; financial arena. Timely action to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

44 Monetary Policy Reports enhance the resources of the Interna- coming years, thereby diminishing tional Monetary Fund is essential. the threat those deficits would other- But more generally, we must main- wise pose to long-run price stability tain the spirit of cooperation among and sustainable economic growth. No borrowers, lenders, and governmen- specific allowance was made for a tal authorities that has been the hall- large decline in oil prices; also, the mark to date of the effort to resolve special restraining influence on prices the difficult problems confronting us. exerted by the appreciation of the The members of the Federal Open dollar in 1982 is not expected to be Market Committee, together with repeated in 1983. other Federal Reserve Bank presi- The ranges of growth in money and dents who alternate as Committee credit specified by the Committee for members, believe that the economic 1983 would appear compatible with expansion that now appears to be some further decline in market rates starting will result in a solid gain in of interest as inflation abates. Howreal GNP over the four quarters of ever, the direction of fiscal policy 1983. The increases expected are decisions will play a major role. Decimoderate in comparison with the first sive action to reduce the Treasury's year of most past recoveries, and the demands on the credit markets in the consensus is that these gains can be years ahead would be well received by achieved without a resurgence in in- investors and would contribute greatflationary pressures, especially in ly to a relaxation of the continuing light of the favorable underlying pressures on interest rates. Of critical trend of unit labor costs. importance to the interest rate out- In formulating these projections look—and one certainly not divorced for 1983, members of the FOMC and from the budget picture—is the bethe presidents of the Reserve Banks havior of inflation and expectations took account of the target ranges of inflation. Lower rates of inflation established for the various monetary contribute directly to the reduction of and credit aggregates, and assumed demands for money and credit, and that the Congress and the administra- sustained progress in slowing the adtion will make progress in the months vance of wages and prices would do ahead in reducing federal deficits for much to relieve the concerns of in- Economic Projections for 1983 FOMC members and other Bank presidents Admin- Item CBO istration Range Central tendency Change, fourth quarter to fourth quarter, percent Nominal GNP IVAXOWA 8.0 to 9.0 8.8 8.9 Real GNP 3to5!/2 3.5 to 4.5 3.1 4.0 GNP deflator IViXoSVi 4.0 to 5.0 5.6 4.7 Average level in the fourth quarter, percent Unemployment rate1 9Vi to 10^2 9.9 to 10.4 10.4 n.a. 1. Percent of total labor force, including persons in n.a. Not available. the Armed Forces stationed in the United States. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 45 vestors as to the future course of in- Behavior of Domestic Nonfinancial terest rates. Sector Debt Projections of the majority of the Changes in percent, fourth quarter to fourth quarter Committee members (and other presi- Change in ratio dents of Reserve Banks) for growth Year of debt to in the real GNP from the fourth quar- GNP ter of 1982 to the fourth quarter of 1960 5.2 3.1 1983 were in a range of VA to just 1961 5.7 -1.6 1962 6.7 .9 over 4 percent, a little higher than the 1963 6.9 .3 recent forecast of the administration, 1964 7.2 1.2 and similar to the projection of the 1965 7.2 -3.0 Congressional Budget Office in the 1966 6.9 -1.1 1967 6.8 .5 accompanying table. Several expected 1968 8.4 -.9 1969 7.1 .3 significantly more growth. Nearly all believed that prospects were excellent 1970 6.9 1.9 1971 9.3 -.3 for less inflation than the 5.6 percent 1972 10.0 -1.4 increase in the GNP deflator pro- 1973 11.3 -.2 1974 9.3 2.1 jected by the administration, with the majority expecting an increase of 4.5 1975 8.9 -1.0 1976 10.7 1.3 percent or less. The combination of 1977 12.3 .1 real growth and inflation resulted in a 1978 12.9 -1.6 1979 12.3 2.4 central tendency of 8 to 9 percent in 1980 9.9 .4 nominal GNP growth. Unemploy- 1981 10.1 .4 ment was expected to remain high 1982 9.1 5.7 during the first year of recovery. MEMO: average annual change 8.7 Appendix Note on Credit Aggregate with less comprehensive totals such as The specific measure of aggregate aggregate private borrowing or financredit used by the FOMC in establish- cial assets other than equities held by ing a range for growth is the total nonfinancial sectors. In these comdebt of domestic nonfinancial sec- parisons, which involved examining tors, as derived from the Board's the stability and predictability of relaflow of funds accounts. This measure tionships to GNP and other economic includes borrowing by private domes- variables, the domestic nonfinancial tic nonfinancial sectors and by the debt total generally performed as well federal and state and local govern- as or better than the other series conments in U.S. markets and from sidered. The private borrowing aggreabroad; it excludes borrowing by for- gate clearly performed least well. eign entities in the United States. Various statistical tests were used to compare this measure with other Report on July 20, 1983 potential credit aggregates—such as The Outlook for the Economy totals that included borrowing by foreign entities or by financial institu- When the year began, an economic tions, or that were augmented by equi- expansion was under way, but it was ties. Comparisons also were made expected that the recovery, at least in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

46 Monetary Policy Reports its initial phases, would be signifi- turn are laying the groundwork for cantly less rapid than the average further advances in consumer spendpostwar cyclical upswing. The eco- ing. And business spending on equipnomic recessions of the early 1980s ment appears to be turning up. The and inflation that was more moderate cumulative forces of economic expanthan anticipated had exposed serious sion thus appear to be well estabfinancial strains both at home and lished. abroad—strains that in part grew out Real GNP growth in the second of practices that developed during half as a whole may not match the years of inflation. Consumer confi- rapid second-quarter pace, which dence was still at a low ebb, and a partly reflected the sharp swing in inhigh degree of caution was apparent ventory positions. In addition, given in the business community. Interest the level of housing starts reached in rates, despite having declined sub- the second quarter, and with mortstantially, were still at levels that ap- gage interest rates no longer falling, peared likely to inhibit strong growth outlays for residential construction of activity in interest-sensitive sec- seem unlikely to continue rising at the tors, and a weak demand for U.S. ex- extraordinary pace of early 1983. ports was expected to damp the pace Business spending for structures may of economic expansion. still be sluggish in the second half, By the second quarter, however, particularly with office space in amthe recovery had gained vigor, and ple supply in most cities. The foreign was following in most respects a sector, too, will exert a restraining intypical cyclical pattern. Advances in fluence on growth of output in the residential construction were excep- United States, owing to a strong tionally large during the first half, dollar, relatively slow growth in the and there were sustained increases in other industrial nations, and financial consumer spending, particularly for difficulties besetting many developing durable goods. Businesses continued countries. to liquidate inventories at a rapid Employment is likely to continue pace through the first quarter, but expanding as the recovery in output then apparently began rebuilding progresses, with gradual declines in stocks in the second quarter as final the unemployment rate. If past exdemands strengthened. Employment perience is any guide, however, the gains became substantial as the recov- strengthening economy will itself ery gathered speed, and the unem- prompt more job seekers to enter the ployment rate in June—while still labor force, thereby reinforcing the high historically—was V* of a percent inertia of the unemployment rate. below the earlier peak. Consequently, unemployment will re- Given the momentum of the recov- main high, relative to the earlier postery—and the added stimulus of an- war period, for some time. other reduction in personal taxes at The near-term outlook for inflamidyear—there is a strong likelihood tion continues to be reasonably favorthat real gross national product will able. Wage pressures have moderated continue growing at a healthy pace further into 1983; productivity is imthrough the second half of 1983. proving; and the continued strength Gains in employment have generated of the dollar is limiting increases in sizable increases in income, which in the prices of imported goods. A par- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 47 tial rebound in energy prices during at midyear also has underscored the the early spring, following the pro- potential problems associated with nounced weakness earlier in the year, federal budget deficits that will reappeared to be abating by midyear. A main massive in the years ahead spurt in some food prices resulting unless there are decisive actions to from bad weather does not appear to reduce expenditures or—absent such be cumulating into a major price ad- action—to increase revenues. Prosvance. Given these considerations, as pects for interest rates are related to a well as the favorable first-half price number of factors, including imporperformance, the chances appear ex- tantly the actual and perceived trend cellent that inflation rates for 1983 as in inflation. In 1982, when the econa whole will be as low as, or even omy was mired in recession and the lower than, those of 1982. inflation rate was falling, record At the same time that the general large government deficits were consistrend of price increase is still slowing, tent with declining interest rates. there are indications that some of the However, should public credit decyclical influences that helped reduce mands remain at or near record highs inflation during the recession have while private credit demands are exwaned. With demands for goods and panding rapidly in response to rising services strengthening, price discount- business activity, the outlook for ining is diminishing; and the downward terest rates would clearly be affected. pressures on prices and wages in some The difficulties of controlling fedmarkets will lessen as orders and eral deficits are evident in the legislalabor demand rise. Such develop- tive developments of recent months, ments are to some extent inevitable. during which there have been exten- What is of critical importance is that sive and laborious efforts to arrive at these cyclical influences not impair a workable budget resolution. These more lasting progress toward reduc- difficulties notwithstanding, unless tion in the underlying rate of infla- there is further progress in reducing tion, as reflected in the interactions of deficits, the risk of strains in credit wages, productivity, and costs. markets intensifying is apparent, im- Recently, the concerns on that score pairing the prospects for a balanced have been heightened somewhat by economic recovery. several factors. Preliminary indications are that growth in nominal GNP Economic Projections approached 11 percent in the second of FOMC Members quarter. That high rate of spending growth is a welcome development in- Members of the Federal Open Market sofar as it has come about in the con- Committee believe that the current text of accelerated growth of real out- economic recovery will be well mainput and moderating prices. However, tained over the remainder of 1983 and growth in some measures of money on through 1984. The central tendenand credit also has been relatively cy of forecasts of the FOMC memlarge recently, and growth in nominal bers shows this year's growth in real spending at the present rate over a GNP ranging between 5 and 53A persustained period would suggest re- cent—a significantly stronger rate of newed inflationary pressures. growth than in the projections previ- The vigor of the private economy ously submitted to the Congress in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

48 Monetary Policy Reports the Monetary Policy Report of last from increased payroll taxes, and the February. Real growth in 1984 is ex- possibility of some weakening in the pected to be about 1 percent slower foreign exchange value of the dollar. than in 1983, and the unemployment The central-tendency projections of rate is projected to trend lower the FOMC members, for prices as through the end of next year. well as for real GNP and unemploy- Most FOMC members expect this ment, are closely in line with the ecoyear's increase in the GNP implicit nomic assumptions prepared by the price deflator to range between 4!4 administration for its midsession reand AVA percent—about the same as view of the budget. last year's increase and in line with While most FOMC members are the projections of the February Mon- relatively optimistic about the prosetary Policy Report. There is less con- pects for maintaining economic sensus about the inflation outlook for growth and containing inflation over 1984, with some concerned that infla- the next year and a half, they also are tion is likely to accelerate. However, mindful of potential difficulties that most FOMC members feel that, with could disrupt the outlook and cause appropriate policies, prices overall the nation's economic performance are likely to rise in the same range as, to be less favorable than is now exor only a shade more rapidly than, in pected. There is, as already noted, the 1983. The cyclical strengthening of prospect that federal budget deficits demand associated with the recovery will remain extremely large into the is one factor in this inflation projec- indefinite future; as the private tion, but price developments next recovery lengthens, the dangers year will also reflect a number of associated with those deficits are likespecial factors, such as policies to ly to increase, posing a threat to both reduce farm product supplies and the inflation outlook and the sustainraise farm incomes, cost pressures ability of a balanced expansion. Economic Projections for 1983 and 1984 FOMC members Admini- Item Central stration Range tendency Percent change, fourth quarter to fourth quarter, 1983 Nominal GNP 914 to 103/4 93/4 to 10 10.4 Real GNP AVA to 6 5 to 53/4 5.5 Implicit deflator for GNP 4 to 5VA AVA to AVA 4.6 Average level in the fourth quarter, percent Unemployment rate 9 to 9% About 9Vi 9.6 Percent change, fourth quarter to fourth quarter, 1984 Nominal GNP 7 to 101* 9 to 10 9.7 Real GNP 3 to 5 4 to AVi 4.5 Implicit deflator for GNP 3»/4to6!/2 AVA to 5 5.0 Average level in the fourth quarter, percent Unemployment rate 81/4to91/4 8!4to83/i 8.6 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 49 There also are some broader risks, This country's budgetary problems not specifically related to the budget, also are manageable, provided the that some of the progress against in- Congress and the administration take flation could be reversed as the pri- action. The Federal Reserve, for its vate economy strengthens. The per- part, remains committed to monetary sistence of inflationary expectations policies that will provide enough is evident both in recent surveys of money and credit to support ecoprivate opinion and in the behavior of nomic growth in a context of containfinancial markets in which borrowers ing inflation; without reductions in remain willing to pay high nominal future fiscal deficits, the goal of rates of return on long-term debt in- maintaining a balanced recovery struments. As the recovery progresses, while at the same time holding down wage and price development must be inflation could prove elusive. monitored with great care to make sure that these still present expecta- The Federal Reserve's tions of inflation are not undergirding Objective for Growth a new round of acceleration in actual of Money and Credit wage and price increases. More generally, the United States The Committee reviewed its target has become much more integrated ranges for 1983 and established tentainto the world economy than it was a tive ranges for 1984 in light of its decade ago, and our economic for- basic objectives of encouraging sustunes have become closely linked with tained economic recovery while conthose of other nations. Because of tinuing to make progress toward stathose close linkages, the economic bility in the average level of prices. In difficulties of many foreign nations, setting these ranges, the Committee particularly the serious financial recognized that the relationships problems still plaguing many de- among the money and credit aggreveloping countries, could affect this gates and economic activity in the nation's economic performance in the period ahead are subject to considerperiod ahead. able uncertainty; consequently, it was To some extent, these risks in the emphasized that, in implementing economic outlook can be moderated policy, the significance to be attached by appropriate policies. For example, to movements in the various aggrethe risk of a further deterioration in gates would depend on evidence about the economic prospects facing the de- the strength of economic recovery, veloping nations can be lessened if the outlook for prices and inflationlenders, borrowers, national authori- ary expectations, and emerging conties, and international organizations ditions in domestic and international maintain the high degree of coopera- financial markets. tion that has become evident in the With respect to the ranges for the past year. Prompt action by the broader monetary aggregates—M2 United States to bolster the resources and M3—-the Committee reaffirmed of the International Monetary Fund the 1983 ranges of 7 to 10 percent and and of the multilateral development 6Vi to 9Vi percent respectively that banks is an essential element in man- had been established earlier in the aging successfully a difficult adjust- year. The tentative ranges for next ment process. year set for these aggregates were Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

50 Monetary Policy Reports reduced Vi percentage point to 6V2 to fleeting in part the fact that interest- 9Vi percent and 6 to 9 percent respec- bearing, negotiable order of withtively, measured in both cases from drawal (NOW) accounts have become the fourth quarter of 1983 to the an important component of Ml. fourth quarter of 1984. These accounts, which have both sav- It was expected, in setting these ten- ings and transaction characteristics, tative ranges, that shifts into money appear to have increased the response market deposit accounts (MMDAs) of Ml demand to changes in market would not significantly distort growth interest rates, which may explain a in the broader aggregates, particular- good part of the acceleration of ly M2, in contrast to the experience in growth in Ml that began last sumthe early part of this year. However, mer. Also, particularly in the course it was also recognized that the greater of 1982, demand for Ml may have inflexibility in liability management for creased because savers sought to hold banks and thrift institutions resulting funds in highly liquid forms in light from the availability of MMDAs, to- of various economic and financial gether with the recent decision of the uncertainties. Depository Institutions Deregulation Recent evidence suggests that the Committee to eliminate ceiling rates decline in the velocity of Ml may be on time deposits by October 1 of this abating. The income velocity of Ml year,1 would be a factor encouraging evidently declined only modestly in somewhat more rapid growth in M2 the second quarter of this year. As the relative to M3, as banks and thrifts upward impact on Ml demand of earmay rely relatively less on large CDs lier interest rate declines has faded and other money market liabilities and a sizable buildup in liquid in funding credit expansion. With balances has taken place, it seems greater growth in real (and nominal) probable that some pickup in the GNP than anticipated earlier—but in velocity of Ml will develop over the the context of moderating inflation- quarters ahead, in closer conforactual growth in M2 and M3 may rea- mance with cyclical and secular patsonably be higher in the ranges than terns of earlier years. was thought likely earlier. Whether any rise in velocity would The FOMC also agreed that princi- be as strong as in earlier decades of pal weight would continue to be the post-World-War-II period remains placed on the broader monetary ag- uncertain. Experience to date with a gregates in the implementation of measure of Ml that reflects to a monetary policy, in view of the con- greater extent the savings propensities tinuing uncertainties that attach to of the public, as well as transaction the behavior and trend of Ml over demands, has been relatively limited, time. As discussed in the section en- which makes it difficult to assess its titled "The Growth of Money and behavior under varying economic cir- Credit in the First Half of 1983," an cumstances. Moreover, it is not clear unusual, sizable decline in the veloci- how responsive Ml demand will be to ty of Ml has been experienced over market interest rates over the period the past several quarters, likely re- ahead if Super NOW accounts, which yield a market return to holders, become a more important element in 1. Except for accounts of less than $2,500 maturing in 31 days or less. the aggregate. (If the authority to pay Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 51 interest on transaction balances were fying conflict between sustained large extended beyond currently eligible ac- government requirements and growcounts, this too would affect Ml be- ing private sector credit demands is a havior, presumably in the short run serious concern. increasing the demand for the aggregate. No specific allowance has been The Performance of made for that possibility.) the Economy in the Taking account of these various First Half of 1983 uncertainties, for the purpose of monitoring Ml behavior, the Com- The economic expansion that began mittee established a growth range of 5 at the end of 1982 gathered momento 9 percent (annual rate) for the tum over the first half of 1983. After period from the second quarter to the increasing moderately in the first fourth quarter of this year. The deci- quarter, real gross national product sion to establish a new base for moni- registered a strong advance in the sectoring Ml reflected a judgment that ond quarter, as production and emthe rapid growth over the past several ployment rose in a broad range of inquarters should be treated as a one- dustries. An apparent completion of time phenonemon, to be neither re- the recession-induced inventory liquitraced nor long extended. A monitor- dation accounted for much of the ing range of 4 to 8 percent was ten- second-quarter growth; but domestic tatively established for the period final sales also strengthened considerfrom the fourth quarter of 1983 to the ably, and forward-looking indicators fourth quarter of 1984. These ranges point to further output gains in the anticipate no further decline in the months ahead. velocity of Ml during a period of To be sure, a number of serious relatively strong growth in economic economic problems remain. The ecoactivity and allow for the likelihood nomic recovery is far from complete. of some rebound in velocity. Ml At midyear, 10 percent of the civilian growth would be expected to move labor force was still unemployed. lower in these ranges as and if veloc- Many companies continue to face ity strengthens. major adjustments in an effort to stay The Committee reaffirmed the competitive in their industries here range of SlA to 11 Vi percent used for and abroad. Some domestic energy monitoring the behavior of domestic producers remain in financial diffinonfinancial sector debt in 1983. culty, as do many producers in the That range was reduced to 8 to 11 agricultural sector. The nation's expercent for 1984. The federal govern- ternal sector continues to be a weak ment next year is expected to continue link in the recovery, as exports are absorbing an unusually large share of being limited by a strong dollar, the overall credit supplies. The Commit- sluggishness of a number of other intee's range would encompass the dustrialized economies, and the possibility of growth of total debt in severe adjustment problems of much excess of likely GNP growth (and the of Latin America; the international long-term trend of credit in relation indebtedness and related economic to GNP) in light of the analysis of var- difficulties of a number of developing ious factors bearing on credit growth. countries remain matters of particu- Nevertheless, the prospect of intensi- lar concern. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

52 Monetary Policy Reports This country's period of moderat- pace than in 1982. Debt grew faster in ing inflation lengthened in the first the second quarter than in the first. half of 1983. In 1982, many price Money holdings also increased measures recorded the smallest in- rapidly in the first half of 1983, as a creases in a decade, and price devel- strengthening of private spending opments so far this year have been bolstered the demand for transaction even more favorable. Transitory ele- balances and as lower interest rates ments clearly have played a part in led many individuals and businesses this improving price performance, to hold a larger portion of their finanbut there also continue to be indica- cial assets in the form of money tions of more lasting progress. In par- balances. In addition, money growth ticular, productivity has been improv- was affected by portfolio shifts arising ing and increases in compensation from the progressive liberalization of continue to moderate, so that the in- regulations on deposit rates; these teractions between costs and prices, shifts were especially important in which imparted a stubborn momen- boosting growth of the broader monetum to inflation through the 1970s, tary aggregates early in the year. are still working to reduce the underlying or trend rate of inflation. Interest Rates However, even though prices have Short-term interest rates had fallen slowed dramatically, concerns persist sharply in the second half of 1982, that inflation will reaccelerate as the when the recession was deepening; recovery progresses. To a considerable and by the end of last year, rates were extent, these concerns arise from the only about half the peak levels of experience of past business cycles and 1981. Yields then fluctuated in a from an expectation that the federal relatively narrow range through most government's budget deficits will re- of the first half of 1983, before movmain massive in the years ahead, ing a little higher around midyear as making more difficult the sustained the recovery strengthened. At midapplication of a noninflationary year, short-term yields were generally monetary policy. Because of such 50 to 125 basis points above their concerns about the future, as well as December levels; the Federal Reserve the present high level of actual gov- discount rate remained unchanged ernment borrowing, short- and long- over the first half of the year. term interest rates in the first half of Long-term rates eased further into 1983 continued to be quite high, rela- early 1983, extending the decline that tive both to historical experience and began in mid-1982. The further reducto the current pace of inflation. tion in long-term yields resulted from As had been true during the reces- beliefs that the recovery might be sion, government debt rose rapidly in relatively weak, thereby limiting prithe first half of 1983; in addition, vate credit needs and, at the same household borrowing picked up as time, enhancing the prospects for a the expansion accelerated. Even continued moderation of price inflathough the growth in business bor- tion. In the second quarter, however, rowing remained relatively low, total long-term rates turned up slightly as debt outstanding in the domestic non- economic activity strengthened furfinancial sectors grew at an annual ther and as market participants began rate of about lOVi percent—a faster to focus more directly on the poten- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 53 tial effects of heavy federal borrow- With income growth accelerating, ing and the implications of continued economic prospects brightening, and rapid money growth. interest rates lower than in 1982, consumers became more willing to take Consumer Spending on new debt in the first half of 1983. Much of the vigor of the current ex- In addition, lenders showed a greater pansion has arisen from increases in interest in making consumer loans, income and spending in the household partly—in the case of depository insector. Throughout the recession, the stitutions—as an outlet for investing nominal disposable incomes of con- the large inflows to new accounts. sumers had been unusually well main- Thus, after rising only 4 percent in tained by a combination of counter- 1982, installment debt rose at more cyclical transfer payments, rising than a 7 percent annual rate in the interest income, and reductions in tax first quarter, and still faster growth rates. A rapid decline in inflation en- appears to have occurred in the second hanced the purchasing power of these quarter. nominal income gains, and by the end of 1982, real disposable personal in- Business Spending come was about 2 percent above its Economic conditions in the business prerecession level of mid-1981. sector also have improved. Reduced Households have strengthened their interest rates, the elimination of unbalance sheets considerably in recent wanted inventories, and an expanding years by acquiring large amounts of economy have relieved some of the liquid assets and holding down the ac- financial strains brought on by the cumulation of new indebtedness. In recession and, at the same time, have addition, a sharp, sustained rise in created a better climate for investstock prices added considerably to ment spending. Business cash flows household wealth after mid-1982. improved in the first half, as profit Thus, when aggregate wage and salary margins widened considerably. Buoyed income began rising with the upturn by rising investor confidence, stock in activity, consumers were well posi- prices rose to new highs, enabling tioned to boost spending on goods businesses to rely heavily on equity and services. financing while limiting the growth in After a period of sluggish growth indebtedness. In addition, encourthrough most of 1982, consumer aged by bond yields that were well spending improved toward the end of below earlier peaks, firms strengthlast year and strengthened further in ened their balance sheets by shifting the first half of 1983. Second-quarter their borrowing toward longer-term spending, in particular, was quite maturities. These general trends notvigorous, as purchases of autos and withstanding, many firms that were other big-ticket items increased mark- weakened by the recession continued edly. Sales of domestic autos were at to face financial difficulties in the an annual rate of about 63A million first half of 1983, and the number of units in the second quarter, the best business bankruptcies—though dequarterly sales pace since mid-1981; clining—remained high. sales of foreign models were main- Business investment spending, tained at a rate of about 2VA million which fell nearly 8 percent in real units. terms during the recession, turned up Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

54 Monetary Policy Reports in the first half of 1983, as real outlays ences, home sales turned up in 1982 for equipment rose in both the first and rose rapidly through the first half and second quarters. In contrast to of 1983. By the second quarter of equipment, spending for structures 1983, sales were up nearly a third fell appreciably during the first half from the final quarter of 1982; both of 1983, led by reduced outlays for new and existing homes shared in the commercial and industrial buildings. sales gains. With the inventory of un- With office and industrial vacancy sold new homes quite low, rising sales rates now quite high, it may be some have supported a strong advance in time before the expanding economy new construction activity. Continuing generates a sustained increase in the uptrend evident in 1982, starts of outlays for these types of facilities. new single-family homes in the first Businesses had liquidated inven- five months of 1983 rose to a level tories at a rapid pace during the reces- about three-fourths above a year earsion in an effort to bring stocks more lier—a sharper rebound than many in line with the recession-reduced analysts had expected in light of sales levels, and the momentum of prevailing mortgage rates. Starts of that liquidation carried into early multifamily units also have been quite 1983. More recently, with final sales strong so far in 1983, partly reflecting continuing to rise, businesses appear enhanced profitability in the markets to have begun a cautious rebuilding for rental property. Low levels of of stocks. In the second quarter, a housing construction over the past move from sizable inventory liquida- few years clearly left a sizable pent-up tion to an apparent small accumula- demand that has provided strong suption of stocks provided a strong im- port for new construction activity. petus for increased production, resulting in a rise in second-quarter Government Sector GNP much larger than the advance in Federal spending declined moderately final sales. during the first half of 1983, but the drop resulted mainly from transitory Residential Construction factors, particularly a reduced rate of Responding to lower interest rates, accumulation of farm inventories by activity in the housing sector rose the Commodity Credit Corporation sharply in late 1982 and increased fur- (CCC). Abstracting from these inventher in the first half of this year. At tory swings, federal expenditures the end of last year, mortgage rates were still trending up in the first half. were about 5 percentage points below Excluding outlays of the CCC, fedthe peak rates reached in the fall of eral purchases of goods and services, 1981, and they continued to trend in current dollars, appear to have ingradually lower before firming in the creased at an annual rate of more past two months. Mortgage credit than 10 percent from the fourth flows increased strongly in the first quarter of 1982 to the second quarter half—especially at thrift institutions, of this year. whose fund availability was enhanced The federal budget deficit was exby the advent of new deposit instru- tremely large in the first half of 1983. ments. Because of changes in tax laws and, In response to the drop in financing until recently, slow growth in taxable costs, as well as demographic influ- incomes, receipts have increased only Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 55 moderately from the levels of two bond issues that were sold when boryears ago. During the same period, rowing costs had been higher. spending has increased considerably, The International Sector owing to increased defense purchases, As in 1982, net exports continued to recession-induced transfer payments, exert a negative influence on U.S. and, on average, relatively high payeconomic activity in early 1983; slow ments to support farm incomes. As a growth in foreign industrial econoresult, the combined federal deficit mies and a strong dollar have both (unified plus off-budget) accumuconstrained export sales. At the same lated to about $95 billion over the time, the vigorous expansion in the first half of 1983, three times the level U.S. domestic economy pushed imof a year earlier. During the first half, ports higher, so that the trade acdirect federal borrowing (which does count showed an increasing deficit not include federally guaranteed over the first half of the year. loans or the debt of sponsored credit An additional element limiting proagencies) absorbed more than twospects for U.S. exports is the serious fifths of all funds raised in credit external financing problems facing a markets by the domestic nonfinancial number of developing countries, insectors. cluding some that are major trading Real estate and local government partners of the United States. Among purchases edged lower in the first half these nations, reduced trade volume of 1983, extending the gradual decline and depressed commodity prices have evident over the preceding two years. limited export earnings and—-in the Real outlays for employee compensaface of high world interest ratestion and new construction spending made debt repayment difficult. So were held down by the budget confar, these repayment problems have cerns still apparent among many been contained through an extraordistates and localities. As in 1982, a nary degree of cooperation among number of governmental units raised borrowers, private creditors, national taxes to relieve pressing financial difauthorities, and international organificulties. By midyear, however, some zations; in many instances, existing of the budgetary strains began to debts have been restructured and new ease, as rising economic activity exfunds have been raised, and the borpanded the state and local tax base, rowing nations are implementing proboosting the sector's overall operatgrams to restore internal financial ing budget back into surplus. stability, to increase their debt- Borrowing by state and local govservicing capacity, and to convince ernments also increased rapidly, international lenders of their creditthough part of the rise probably worthiness. Nevertheless, the process reflected a rush to market debt inof adjustment is still far from comstruments in advance of a new replete. quirement that securities be issued in registered, rather than bearer, form; Labor Markets the requirement took effect on July 1, Labor markets began to strengthen after having been postponed from around the turn of the year, and by January 1. In addition, tax-exempt June, payroll employment had inborrowers took advantage of lower creased 1.1 million from its December interest rates to refund or prerefund trough, regaining more than one- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

56 Monetary Policy Reports third of the losses sustained during The slowing of nominal wage inthe recession. Job gains have been creases has been broad based, affectwidespread over the past six months, ing nearly all major industrial and ocwith especially large advances in ser- cupational groups. With inflation vices and manufacturing. In manufac- easing, workers in general are feeling turing, increases in employment dur- less pressure to catch up with past ining the past six months have retraced flation or to try to stay ahead of annearly a fifth of the 2 million jobs lost ticipated future inflation. In addition, during the 1981-82 recession. Em- in industries particularly hard hit by ployment growth in the services in- recession, as well as by heightened dustry, which had slowed during the domestic or foreign competition, recession, appears to be showing re- workers have agreed to contract adnewed vigor as the expansion has justments calling for wage freezes or taken hold. outright wage reductions. The total number of unemployed Unit labor costs also moderated workers declined almost a million further in the first half of 1983, as during the first half of 1983, and the strong productivity gains reinforced civilian unemployment rate fell to 10 the impact of smaller wage increases. percent, VA of a percentage point be- In the nonfarm business sector, labor low the postwar peak reached last costs rose at only a 1 VA percent rate in December. Layoffs had begun easing the first quarter, and evidently the late last year, and with labor demands second-quarter advance also was quite strengthening through the first half, moderate. many firms have started rehiring. The sizable productivity gains of Despite these gains, jobless rates at recent quarters have been an especialmidyear remained far above the levels ly encouraging development because of late 1979, before the two back-to- they may reflect not only the custoback recessions that added greatly to mary cyclical patterns of an economic labor market slack in the early 1980s. expansion, but also some improvement in the trend rate of productivity Wages and Labor Costs growth. Work rules in many establish- The falloff of labor demand during ments are being revised to enhance efthe recession, along with the general ficiency, and qualitative reports from unwinding of inflation, led to a sharp the business sector point to strong slowing in the rate of wage and labor efforts to trim costs and improve cost increases, and that slowdown has market competitiveness. continued into the first half of 1983. From the fourth quarter of last year Price Developments to the second quarter of 1983, the Price developments continued to be average hourly earnings of produc- favorable in the first half of 1983. tion workers rose at about a 4lA per- The consumer price index rose at an cent annual rate, the slowest rate of annual rate of only 3 percent from nominal wage increase since the mid- December to May, and over the first 1960s. But, because the rise in con- half the producer price index for sumer prices has slowed even faster, finished goods actually declined. An the slower nominal wage gain has acceleration of prices from the first to been consistent with increases in real the second quarter resulted mainly purchasing power. from swings in energy prices that ap- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 57 pear to be temporary and from the and economic activity had deviated transitory effects of adverse weather from the usual historical relationships on the prices of some foods. The during 1982, and looking ahead, acprices of raw industrial materials re- count had to be taken of the possibounded from depressed levels early bility that past patterns might be in the year, but have leveled off in re- shifting in some respects. cent months. In other markets, in- Specifically, during 1982, monetary cluding those for both consumer growth had been quite rapid relative goods and capital equipment, price to income; the velocities of both Ml inflation in the second quarter still and M2 had registered exceptionally seemed to be trending lower. large declines over the year. Although Price increases during the past year these declines in velocity were thought have been the smallest since the early likely to be in part temporary—Ml 1970s, and the period of moderating velocity in particular commonly has inflation has now extended over two increased appreciably in the early and one-half years. Still, the recent stages of a recovery—it also was beperiod of slower price increases has lieved that the experience of 1982 by no means erased the memories of might well be indicative of a more accelerating inflation during the basic shift in the underlying demands previous two decades. The recent for money. Institutional changes have deceleration in prices occurred during led to the increased availability of a business recession, and there re- transaction accounts that bear intermains a deep-seated skepticism about est, which would be likely to increase whether the gains against inflation the public's willingness to hold can be maintained as the period of Ml-type accounts. These accounts economic expansion is extended. The are used partly as repositories for savtask of economic policy is to over- ings, as well as to support transaccome that skepticism by preserving tions, and this tendency was expected the gains already won against infla- to be reinforced by the introduction tion while sustaining the economic ex- of Super NOW accounts. pansion that took hold in the first The Committee also recognized half of 1983. that the introduction of new deposit instruments had affected, and would continue to affect, the behavior of the The Growth of broader aggregates. A very substan- Money and Credit tial inflow of funds into money in the First Half of 1983 market deposit accounts (MMDAs) The 1983 ranges for the monetary and from market instruments had greatly credit aggregates announced in Feb- inflated growth of M2 at the end of ruary were chosen by the Federal 1982 and in the early weeks of 1983. Open Market Committee with the ob- It was anticipated that further flows jective of providing sufficient liquid- into these accounts, and to a lesser exity to support economic recovery tent into Super NOW accounts, while continuing to encourage prog- would continue to affect the aggreress toward price stability. In setting gates for some time, although the imthose guidelines, the Committee rec- pact could not be determined with a ognized that the relationship between high degree of accuracy. the growth of the monetary aggregates In implementing policy, Commit- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

58 Monetary Policy Reports tee members agreed that, for the time panded through June at a 9 percent being, primary emphasis would be annual rate from the February-March placed on the broader aggregates. It base period, a little above the midwas expected that distortions re- point of its range. M3 growth was sulting from the initial adjustment to somewhat stronger and, at Wi pernew deposit instruments would cent from the fourth quarter of 1982 lessen. The behavior of Ml would be through June, was at the upper end of monitored, with any increase in the its target growth path. In contrast, emphasis placed on that aggregate Ml continued to surge, with growth dependent on evidence that its veloc- averaging 14 percent at an annual rate ity behavior was assuming a more from the fourth quarter of last year. predictable pattern. Debt expansion, In setting the annual target range although not targeted directly, would for M2, the Committee selected the be reviewed in assessing the behavior February-March base period to reof the monetary aggregates and the duce the distortions resulting from stance of monetary policy. The Com- the massive inflows to MMDAs after mittee emphasized that, given the the introduction of these accounts in above uncertainties, policy imple- December. Moreover, the range of 7 mentation in 1983 would require a to 10 percent was 1 percentage point greater degree of judgment, involving higher than that set for 1982, to allow crucially the evaluation of the rela- for some residual shifting from outtionship of monetary growth to side M2 into these accounts through movements in income and prices, the remainder of the year. There is until such time as the aggregates re- growing evidence that the stock adturned to more predictable behavior. justment to MMDAs is abating; in- The specific target ranges an- flows to these new instruments slowed nounced in February were the follow- from around $17 billion per week in ing: for M2, an annual rate of 7 to 10 February to an average of about $1 percent for the period from February- billion weekly in June. Thus, it ap- March of 1983 to the fourth quarter pears that the distorting effects of of 1983; and for M3, 6V4 to 9V4 per- these instruments have, as expected, cent for the period from the fourth become relatively minor as time has quarter of 1982 to the fourth quarter progressed. The interest rates offered of 1983. Also for the latter period, a on these deposits—in absolute level tentative range was established for and relative to other short-term rates Ml of 4 to 8 percent, with the width —have fallen considerably from the of this range reflecting the relative extraordinary yields posted immediuncertainty about the behavior of this ately after the introduction of this acaggregate. An associated range of count. Since March, the average rates growth for total domestic nonfinan- on MMDAs have been below rates cial debt was estimated to be %Vi to available on virtually all market in- 11 Vi percent, December to December, struments, although they remain while bank credit growth was expect- somewhat above the returns on ed to be between 6 and 9 percent for money market mutual funds. the year. The recent behavior of other com- Growth in M2 and M3 appears to ponents of M2 also appears to reflect be broadly consistent with the target the waning of the public's initial adranges adopted in February. M2 ex- justment to the availability of MMDAs. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 59 Runoffs of small-denomination time lied largely on asset adjustments to deposits and M2-type money market MMDA inflows. These institutions funds, which were substantial during showed a sharp acceleration in their the first quarter, have slowed consid- holdings of cash and investment secuerably, and in fact small time deposits rities over the first quarter of 1983, registered a slight increase in June. and only moderate declines in large Savings deposits, which likewise had time deposits. In the second quarter, declined by record amounts earlier in with slower inflows into the new acthe year, increased at a moderate rate counts and an apparent pickup in in May and June. mortgage lending, issuance of large For M3, the range selected of 6 to 9 time deposits by savings and loans percent was identical to that for 1982. registered a sizable increase. It was believed that M3 would be less The impacts on Ml of portfolio affected by the new accounts because shifts into the new accounts are diffisome of the funds flowing into them cult to assess, but appear to have been would come directly from large de- largely offsetting. Funds shifted into posits and, in any case, many deposi- Super NOWs from outside Ml likely tories have the option of reducing were about equal in magnitude to their issuance of large certificates of the outflow of funds from Ml into deposit in response to greater inflows MMDAs. Nevertheless, Ml has been to MMDAs or other core deposits. growing at a rate well above the range However, the extent to which this of 4 to 8 percent that was set in Febwould occur depended in part on ruary and much faster relative to changes in the public's perceptions of nominal GNP than has been normal the desirability of insured deposit ac- during periods of economic recovery, counts relative to open market instru- when velocity has tended to rise at ments and the willingness of deposi- above-average rates. In fact, the intories to make use of their new deposit come velocity of Ml continued to deauthority to increase the extent of cline during the first half of the year, their financial intermediation. In the although the second-quarter decline event, large CDs in the aggregate was modest. declined sharply in the months after The decreases in Ml velocity may the introduction of the new accounts, reflect in substantial part the changbut have tended to pick up recently as ing nature of Ml. With interestinflows to MMDAs have slowed. bearing regular NOW accounts and Besides running off large CDs, Super NOWs making up a growing commercial banks responded to the share of Ml, this aggregate is becominflux of MMDA funds by increasing ing increasingly influenced by compotheir holdings of liquid assets, prin- nents that bear interest and thereby cipally Treasury securities: commer- may attract "savings" as well as cial bank holdings of Treasury securi- transaction balances. Indeed, there ties expanded at an annual rate of is evidence that the introduction of more than 50 percent during the first NOW accounts nationwide at the behalf of the year. Small banks in par- ginning of 1981 has made Ml more ticular, which rely less on managed responsive to fluctuations in market liabilities than do large banks, invest- rates. With market rates registering ed heavily in these assets. Savings and large declines in the latter half of loan associations appear to have re- 1982, the opportunity cost of holding Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

60 Monetary Policy Reports NOW accounts—which carry a ceil- has been very rapid in recent quarters, ing rate of 514 percent—fell sharply. averaging in excess of 20 percent at an As money demand usually responds annual rate over the last four quarto falling rates with a lag, this would ters. Residential mortgage financing help explain the strong growth of Ml and consumer credit have picked up in the latter half of 1982 and early since last year, reflecting the strength- 1983. More recently, however, some ening of these sectors. Business borof the strength likely reflected grow- rowing has remained moderate due to ing transaction needs accompanying reduced needs for external financing the pickup in economic activity. and has been concentrated mainly Given the limited experience with in longer-maturity debt: short- and NOW and Super NOW accounts, un- intermediate-term business borrowing certainty surrounding Ml behavior has been weak since the fourth quarremains substantial, but account ter of last year. Borrowings by state should be taken of the possibility that and local governments were strong more normal cyclical patterns may be during the first half, as noted earlier, returning. partly reflecting heavy issuance of Full data are not yet available for tax-exempt bonds in advance of the the second quarter, but preliminary July 1 registration date and borrowing indications are that the aggregate for future refunding of higher-cost debt of domestic nonfinancial sectors debt. grew over the first half at a rate some- Commercial bank credit, boosted what above the midpoint of the range by heavy acquisitions of Treasury of SVi to IIV2 percent projected by securities, has expanded at an annual the FOMC, with a marked increase in rate of IOV2 percent since December. the second quarter. This aggregate Reflecting the general weakness in was swollen by federal borrowing, business demand for short-term which has accounted for more than credit, business loans at commercial 40 percent of total credit flowing to banks were about flat over the first domestic nonfinancial sectors since half, while bank mortgage and con- December. As indicated in the accom- sumer lending has picked up. Some of panying table, growth in federal debt the buildup of Treasury securities Domestic Nonfinancial Sector Debt Annual rates of growth, in percent1 U.S. Non- State and Period Total govern- House- financial local govment holds business ernment Annually2 1979 12.1 6.0 15.1 13.5 7.4 1980 9.9 11.9 8.7 10.1 9.3 1981 9.9 11.8 8.2 11.3 7.0 1982 9.5 19.4 5.6 7.4 13.4 Quarterly3 1982*3 10.2 24.5 4.9 8.1 9.2 1982:4 .. 9.8 24.5 5.9 3.7 18.2 1983:1 9.6 19.1 7.4 5.3 13.5 1983:2P 11.4 23.0 8.5 5.4 19.1 1. Based on end-of-period data. 3. End-of-quarter to end-of-quarter. 2. December to December. p Preliminary. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 61 could be a temporary response to rose appreciably over the first half of strong inflows into MMDAs; these this year: about 40 percent of domessecurities could be held as a hedge tic nonfinancial credit was extended against possible withdrawals as rates by depositories during the first half, on MMDAs remain below market compared with an average of less yields. On the other hand, since some than 30 percent from 1980 through investors evidently shifted funds to 1982. During the first half, acquisiinsured MMDA accounts from open tions of Treasury securities by commarket instruments, the increase in mercial banks helped to absorb the investment holdings could mark a massive increase in Treasury financpermanent increase in overall in- ing, but, as private demands for termediation by commercial banks, credit pick up in response to rising thereby raising bank credit above its business activity, such an absorption normal range. Indeed, as thrift in- of Treasury debt may be more diffistitutions likewise have become more cult within the context of noninflacompetitive with the introduction of tionary growth of the monetary ag- MMDAs, the share of total credit ex- gregates. tended by all depository institutions 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

65 Record of Policy Actions of the Board of Governors Regulation D On January 12, 1983, however, (Reserve Requirements of Senate Joint Resolution 271, which Depository Institutions) exempted money market deposit accounts from the phase-in of reserve January 7, 1983—Amendments requirements, became effective. The The Board amended Regulation D to revision makes all covered instituimplement congressional action that tions subject to reserve requirements exempted money market deposit ac- of zero percent on personal money counts from the phase-in of reserve market deposit accounts and 3 perrequirements specified in the Mone- cent on nonpersonal accounts. The tary Control Act of 1980. In a related Board amended Regulation D to imaction, the Board also modified the plement that change. procedure for allocating the $2.1 The Monetary Control Act of 1980 million exemption from reserve re- provided for an exemption from quirements. reserve requirements on the first $2.1 million of an institution's reservable Votes for these actions: Messrs. Volcker, Martin, Wallich, Partee, Mrs. Teeters, liabilities. To provide institutions Messrs. Rice, andGramley. Votes against with the maximum benefit from the these actions: None. recent congressional action, the Board revised the procedure for Beginning December 14, 1982, allocating the $2.1 million so that the federally insured depository institu- base amount would apply first to tions were authorized to offer money nonpersonal money market deposit market deposit accounts, which are accounts. deposit instruments having initial and For member institutions, these acaverage balance requirements of tions were effective December 14, $2,500, no interest ceiling, no mini- 1982; for nonmember institutions, mum maturity, and limited transac- they were effective January 13, 1983, tion capabilities. If the accounts were and applicable to the reserve maintesubject to the reserve requirements nance period beginning January 27. specified in the Monetary Control Act, personal money market deposit March 16, 1983—Amendment accounts at nonmember institutions would have a zero percent reserve re- The Board amended Regulation D, quirement, and member banks would effective March 31,1983, to eliminate be phasing down reserve require- reserve requirements on personal time ments to that level until 1984. On deposits with maturities of 2Vi years nonpersonal accounts, nonmember or longer. institutions would be phasing up to a Votes for this action: Messrs. Volcker, 3 percent reserve requirement; mem- Martin, Wallich, Partee, Mrs. Teeters, ber institutions already are subject to Messrs. Rice, andGramley. Votes against that ratio. this action: None. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

66 Board Policy Actions Beginning April 1,1983, the Deposi- Eligible acceptances are exempt tory Institutions Deregulation Com- from reserve requirements if they mittee authorized a reduction in the arise from transactions involving the minimum maturity for time deposits exporting, importing, or domestic that are not subject to interest rate shipment or storage of goods, and ceilings from 3Vi years to 2lA years. have an original maturity of less than Regulation D had provided that non- six months. Ineligible acceptances do personal time deposits issued in not meet those criteria. maturities of 2Vi years to 3Yi years Under previous provisions of Reguwould have a reserve requirement of 3 lation D, an ineligible bankers acceppercent, while those with maturities tance was subject to reserve requireof more than 3 Vi years would have no ments only if the institution that reserve requirements. Because such a created it also discounted and resold reserve structure would present a it. The Board had become aware of disincentive for offering personal arrangements between banks and time deposits in maturities of 2Vi to brokers or other third parties where- 3V4 years, the Board amended Regu- by a broker would discount and resell lation D so that reserve requirements ineligible acceptances created by the on nonpersonal time deposits with bank. Because the Board regarded maturities of 2Vi years or longer such arrangements primarily as dewould have a zero percent reserve re- vices for avoiding reserve requirequirement, after completion of the ments, and because of the difficulty phase-in periods. of proving the existence of such de- In taking this action, Board mem- vices, the Board decided that any inbers expressed concern that continued eligible acceptance created after June adjustment of the reserve structure 20, 1983, would be subject to reserve could impair monetary control, and requirements. they indicated that this amendment should not be regarded as a commit- September 30,1983—Amendments ment to continue adjusting reserve re- The Board amended Regulation D quirements in line with actions by the (1) to reduce reserve requirements on Depository Institutions Deregulation certain nonpersonal time deposits to Committee to eliminate interest rate zero percent, effective October 6, ceilings. 1983, and (2) to reduce the minimum maturity of time deposits to 7 days, effective October 1, 1983. June 15, 1983—Amendment Votes for these actions: Messrs. Volcker, The Board amended Regulation D, Martin, Partee, Mrs. Teeters, Messrs. effective June 20, 1983, to impose re- Rice, and Gramley. Votes against these serve requirements on ineligible bank- actions: None. Absent and not voting: Mr. Wallich. ers acceptances, regardless of whether they subsequently are discounted and In June 1983, the Depository Instiresold. tutions Deregulation Committee re- Votes for this action: Messrs. Volcker, moved interest rate restrictions on Wallich, Partee, Rice, and Gramley. most time deposits issued after Sep- Votes against this action: None. Absent and not voting: Mr. Martin and Mrs. tember 30, 1983, and also authorized Teeters. institutions to issue time deposits in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 67 negotiable form with original maturi- percent on balances above that level. ties or required notice periods of 7 to The act directed the Board to adjust 31 days. Existing provisions of Regu- annually the amount subject to the 3 lation D established reserve require- percent requirement to reflect changes ments of 3 percent for nonpersonal in the amount of transaction balances time deposits with maturities shorter in the banking system nationwide; by than 2x/2 years; such time deposits the beginning of 1983 the amount had with longer maturities carried a zero been raised to $26.3 million. Recent percent reserve requirement. The growth in such balances indicated Board decided to amend Regulation D that a further increase of $2.6 million to reduce to 18 months the minimum was warranted. The Board, therefore, maturity of nonpersonal time depos- amended Regulation D to increase to its that carry a zero percent reserve re- $28.9 million the amount of transacquirement. tion balances to which the lower re- In a related action, the Board also serve requirement applies. amended Regulation D and made a The Garn-St Germain Depository conforming amendment to Regula- Institutions Act of 1982 established a tion Q (Interest on Deposits), to re- zero percent reserve requirement on duce to 7 days the minimum maturity the first $2 million of an institution's or required notice period for time reservable liabilities. It also provided deposits. This action also reflected re- for annual adjustments to that exempvisions authorized by the Depository tion based on nationwide growth in Institutions Deregulation Committee. deposits. Recent growth in deposits indicated that the amount subject to November 30,1983—Amendments the zero percent reserve requirement should be increased from $2.1 million The Board amended Regulation D, to $2.2 million, and the Board amendeffective January 12, 1984, (1) to ined Regulation D accordingly. crease the amount of transaction balances to which the lower reserve requirement applies; and (2) to increase the amount of reservable liabilities Regulation G (Securities Credit subject to a zero percent reserve re- by Persons Other than Banks, quirement. Brokers, or Dealers) and Regulation U Votes for these actions: Messrs. Volcker, (Credit by Banks for the Martin, Wallich, Partee, Rice, and Gramley. Votes against these actions: Purpose of Purchasing or None. Absent and not voting: Mrs. Carrying Margin Stocks) Teeters. July 27, 1983—Revisions Under the Monetary Control Act The Board adopted revised and simof 1980, depository institutions, Edge plified Regulations G and U, effective and Agreement corporations, and August 31, 1983, pursuant to its Reg- U.S. agencies and branches of foreign ulatory Improvement Project. banks are subject to reserve requirements set by the Board. Initially, Votes for these actions: Messrs. Volcker, Martin, Wallich, Mrs. Teeters, Messrs. reserve requirements were set at 3 per- Rice, and Gramley. Votes against these cent of an institution's first $25 milactions: None. Absent and not voting: lion in transaction balances and 12 Mr. Partee. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

68 Board Policy Actions As part of the general effort to im- Votes for this action: Messrs. Volcker, prove and simplify regulations, the Martin, Wallich, Partee, Mrs. Teeters, Messrs. Rice, andGramley. Votes against Board proposed revisions to its secuthis action: None. rities credit regulations early in the year. The Board revised Regulation T The Bank Export Services Act per- (Credit by Brokers and Dealers) in mits investments in export trading May and Regulations G and U in July companies by bank holding compato reorganize them, remove unnecesnies, Edge and Agreement corporasary and obsolete provisions, and retion subsidiaries of bank holding duce regulatory and reporting burcompanies, and bankers' banks. The dens. new regulations, which were adopted One of the changes in Regulation G as amendments to Regulation K, deamends certain registration requirefine an export trading company as ments for lenders other than banks or one that is engaged exclusively in acbroker-dealers. The revised regulativities related to international trade tion allows a lender to extend more and that derives more than half of its credit before registration is required revenue from exporting or from faciland exempts from registration those itating exports of goods or services who arrange credit but do not extend produced in the United States by perit. Also, the new regulation deletes sons other than the export trading the prohibition against lending to company or its subsidiaries. The new brokers or dealers on an unsecured regulations provide criteria for deterbasis. mining whether a company is engaged The changes to Regulation U inexclusively in international trade. In clude the elimination of certain filing addition, the regulations implement and reporting requirements. Also provisions in the act that require the eliminated are the special filing and filing of a notice by organizations collateral requirements for loans to proposing to invest in an export tradover-the-counter market makers, ing company or to expand the activithird-market makers, and block posities of such a company. tioners. Bank loans to qualified em- The Board indicated that after some ployee stock-ownership plans are now experience with the regulations, it will exempt from margin requirements. determine whether expedited proce- Also, a new section, similar to one in dures would be appropriate for cer- Regulation T, has been added to notitain types of investments in export fy nonmember banks that they are retrading companies. quired by statute to comply with laws and regulations that govern member institutions. December 16,1983—Amendments The Board amended Regulation K, Regulation K (International effective December 20, 1983, (1) to Banking Operations) clarify when a bank holding company must provide subsequent notice for June 1, 1983—Amendments certain investments, and (2) to permit The Board amended Regulation K, the foreign subsidiaries of U.S. bank effective July 8, 1983, to implement holding companies and Edge and provisions of the Bank Export Ser- Agreement corporations to operate vices Act. travel agencies abroad. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 69 Votes for these actions: Messrs. Martin, Regulation L (Management Wallich, Partee, Mrs. Teeters, Messrs. Official Interlocks) Rice, and Gramley. Votes against these actions: None. Absent and not voting: August 31, 1983—Amendments Mr. Volcker. The Board amended Regulation L, effective November 30, 1983, to im- Regulation K had permitted an plement recent amendments to the eligible banking organization to in- Depository Institutions Management vest in an export trading company 60 Interlocks Act. days after notifying the Board of its Votes for this action: Messrs. Martin, intention to make the investment if Partee, Mrs. Teeters, and Mr. Gramley. the Board raised no objection to the Votes against this action: None. Absent proposal. However, it had required and not voting: Messrs. Volcker, Walan organization to provide a second lich, and Rice. notice if the export trading company The Depository Institutions Mansubsequently intended to take title to agement Interlocks Act generally progoods and had not described that ac- hibits interlocking relationships betivity in the original notice. The Board tween management officials of amended Regulation K to eliminate depository institutions in the same the need for the subsequent notice if community. It also authorizes the the trading company takes title to federal financial regulatory agencies goods only against firm orders for the to adopt rules for granting exceptions sale of those goods. The Board also to the prohibitions. The Board adoptadded a technical amendment to re- ed several technical amendments that quire that the proposed investment in will (1) simplify the procedures for the export trading company be ac- obtaining an exception, (2) broaden complished within a year after the the circumstances under which excep- Board had reviewed the proposal. tions can be granted, (3) clarify the The second action was an out- circumstances that require terminagrowth of consideration by the Board tion of an interlocking relationship, of an application by an Edge corpora- and (4) establish a 15-month period tion to invest in a foreign company within which to complete a required that offered travel agency services in termination of an interlock. conjunction with other financial ser- The other four federal regulators vices. The Board found that in some of depository institutions adopted foreign countries banking institutions similar amendments to their regulaare permitted to offer travel agency tions. services as a routine part of their operations. The Board, therefore, Regulation O amended Regulation K to add travel (Loans to Executive Officers, agency services to the list of permissi- Directors, and Principal ble activities for U.S. banking organi- Shareholders of Member Banks) zations operating abroad, provided August 31, 1983—Amendments the travel agency is operated in connection with other financial services. The Board amended Regulation O, The amendment does not permit a effective October 20, 1983, to implebank holding company or an Edge ment portions of the Garn-St Gercorporation to operate a travel agen- main Depository Institutions Act of cy in the United States. 1982. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

70 Board Policy Actions Votes for this action: Messrs. Martin, lation O, effective December 31,1983, Partee, Mrs. Teeters, and Mr. Gramley. to implement portions of the Garn-St Votes against this action: None. Absent Germain Depository Institutions Act and not voting: Messrs. Volcker, Walof 1982. lich, and Rice. Votes for this action: Messrs. Martin, In October 1982, the Board amend- Wallich, Partee, Mrs. Teeters, Messrs. ed Regulation O to incorporate por- Rice, and Gramley. Votes against this tions of the Garn-St Germain act that action: None. Absent and not voting: Mr. Volcker. eliminated existing limitations on certain types of loans to insiders and au- The Financial Institutions Regulathorized the federal regulatory agentory and Interest Rate Control Act recies to prescribe rules governing loans quired insured banks to disclose anfor home mortgages and educational nually specific information about purposes to bank insiders or their loans by the bank to its officers, prinaffiliates. At that time, the Board cipal shareholders, and their related deferred adoption of the remaining interests. Regulation O, which importions of the act pending further plements that act, required, among review. other things, annual disclosures of Having completed its review, the the aggregate amount of such insider Board amended Regulation O to limit lending and the names of all insiders loans to executive officers for purwho borrowed from the bank. poses other than a mortgage or educa- The Garn-St Germain act deleted tion to no more than $25,000 or 2.5 those specific requirements and inpercent of the bank's capital and unstead authorized each federal banking impaired surplus, whichever is greatagency to develop appropriate discloer. At no time, however, may a bank's sure rules. Accordingly, the Board outstanding loans to any executive ofadopted a rule that requires member ficer for other than mortgage or edubanks to disclose, upon request, the cational purposes exceed $100,000. In names of each executive officer or addition, the amendments require apprincipal shareholder who has, or proval by the member bank's board whose related interests have, borrowed of directors in the following instances: from the bank or its correspondents (1) any loan to an executive officer, $500,000 or more or 5 percent of the director, or principal shareholder or bank's capital and unimpaired surrelated interest that, when added to plus, whichever is less. Disclosures other such loans, would exceed $25,000 are not required if the aggregate lendor 5 percent of the bank's capital and ing to an individual and related interunimpaired surplus; and (2) all insidests by the bank or its correspondent er loans that exceed $500,000 in the is less than $25,000. Member banks aggregate. Moreover, loans to execumust maintain records of requests for tive officers, principal shareholders, the required information and of the or their interests may not exceed the disposition of such requests. general lending limits on loans to a single borrower. Regulation Q (Interest on Deposits) December 16, 1983—Amendment September 30,1983—Amendments The Board amended certain reporting and disclosure requirements in Regu- The Board amended Regulation Q, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 71 effective October 1, 1983, to incorpo- The technical amendments adopted rate actions adopted by the Deposi- by the Board relate to actions taken tory Institutions Deregulation Com- by the Depository Institutions Deregmittee to remove interest rate ceilings ulation Committee since June 1983 on most small-denomination time de- concerning the removal of minimum posits and to reduce to 7 days the denominations on money market acminimum maturity of time deposits. counts, Super NOW accounts, and Votes for these actions: Messrs. Volcker, deposits with maturities of 7 to 31 Martin, Partee, Mrs. Teeters, Messrs. days held for depositors' individual Rice, and Gramley. Votes against these retirement accounts or under a Keogh actions: None. Absent and not voting: plan; that removal became effective Mr. Wallich. December 1, 1983. The minimum de- The Depository Institutions Dereg- nominations on such accounts other ulation Committee, which is author- than those in an IRA or a Keogh plan ized to prescribe rules governing the will be phased out by January 1,1986. payment of interest on deposits, re- The Depository Institutions Deregumoved the interest rate ceilings on lation Committee also removed the most time accounts and reduced the differential on the maximum rate of penalties for early withdrawal of time interest payable on passbook savings deposit contracts entered into, re- accounts and on 7- to 31-day deposits newed, or extended after October 1, of less than $2,500 at thrift institu- 1983. The Board amended Regulation tions and banks; beginning in 1984, Q to eliminate interest ceilings on the ceiling for all such accounts is 5 Vi time deposits with original maturities percent. or required notice periods of more than 31 days. For time deposits with Regulation T maturities of 7 to 31 days, only those (Credit by Brokers and Dealers) denominations of less than $2,500 are May 16, 1983—Revision subject to interest rate limitations. The ceilings for passbook savings and The Board adopted a revised and sim- NOW accounts remain in effect. plified Regulation T, effective March The Board also adopted an amend- 31, 1984, in connection with its Regument, similar to a change in Regula- latory Improvement Project. tion D (Reserve Requirements of De- Votes for this action: Messrs. Volcker, pository Institutions), that reduced to Martin, Wallich, Partee, Mrs. Teeters, 7 days the minimum maturity or Messrs. Rice, and Gramley. Votes against notice period for all time deposits. this action: None. December 16,1983—Amendments In 1982, when the Board made several substantive amendments to Reg- The Board amended Regulation Q, ulation T and its other margin regulaeffective January 1,1984, in conformtions, it also published for comment a ance with recent actions by the Deposicomplete revision of Regulation T. tory Institutions Deregulation Com- On the basis of comments received mittee. and its own review, the Board has Votes for this action: Messrs. Martin, adopted a completely revised Regula- Wallich, Partee, Mrs. Teeters, Messrs. tion T. The revised regulation takes Rice, and Gramley. Votes against this action: None. Absent and not voting: account of newly authorized types of Mr. Volcker. securities as well as recent revisions to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

72 Board Policy Actions the Securities Exchange Act of 1934. margin rules applicable to lenders. The margin requirements for the new However, borrowers who willfully securities are equal to the amount cause a violation of the margin reguspecified by the rules of the exchange lations are not excluded from coveron which the instruments are traded. age. In addition, the revised regula- In addition, margin credit is now tion increases from $5,000 to $100,000 authorized for corporate debt securi- the exemption for margin credit exties traded over the counter if at least tended to U.S. persons living abroad. $25 million of the securities were issued originally; previously, margin Regulation Y credit was authorized if at least $25 (Bank Holding Companies and million of the securities were outstand- Change in Bank Control) ing when the credit was extended. August 10, 1983—Amendments The Board had established an effective date of November 21, 1983, The Board amended Regulation Y, for the new regulation, and allowed effective September 9, 1983, to add creditors the option of operating securities brokerage and related marunder the new rules after June 20, gin lending to the list of activities per- 1983. Because a number of brokers missible for bank holding companies. and dealers reported operational dif- Votes for this action: Messrs. Wallich, ficulties in conforming to the regula- Partee, Rice, and Gramley. Votes against tion, the Board delayed the effective this action: None. Absent and not votdate until March 31, 1984. ing: Messrs. Volcker and Martin, and Mrs. Teeters. Regulation X In January 1983, when the Board (Borrowers of Securities Credit) approved an application by a holding December 16, 1983—Revision company to acquire a discount securi- The Board revised Regulation X, ef- ties brokerage firm, it also determined fective January 23, 1984, as part of its that operating a discount brokerage Regulatory Improvement Project. firm was an activity closely related to banking. In February, the Board pub- Votes for this action: Messrs. Martin, lished for comment a proposal to Wallich, Partee, Mrs. Teeters, Messrs. make the activity generally permissi- Rice, and Gramley. Votes against this action: None. Absent and not voting: ble for bank holding companies. Mr. Volcker. After consideration of the comments received and after court opin- Early in 1983, the Board revised the ion upholding the Board's approval margin credit regulations affecting of the acquisition, the Board amendlenders, as part of its ongoing efforts ed Regulation Y to permit holding to update and simplify its regulations, companies to acquire discount brokerto eliminate unnecessary provisions, age firms provided the firm conducts and to reduce compliance burdens. the brokerage service solely as agent Regulation X, which affects borrow- for customers. Underwriting securiers of margin credit, has been revised ties and providing investment advice along those same lines. The new regu- cannot be coupled with discount brolation eliminates the provisions that kerage services. The amendment also govern purely domestic borrowings permits holding companies and their because those rules are included in the nonbank subsidiaries to provide re- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 73 lated margin credit, subject to the for bank holding companies. Compa- Board's Regulation T. nies that acquired such institutions before December 10, 1982, may peti- December 14, 1983—Revision tion the Board for relief based on hardship or unfairness. The Board adopted a revised and The revised regulation adds to the simplified Regulation Y in conjunclist of activities permissible for bank tion with its Regulatory Improvement holding companies five activities that Project. the Board had approved by order for Votes for this action: Messrs. Volcker, individual companies: (1) issuing Wallich, Partee, Mrs. Teeters, Messrs. money orders, (2) arranging equity fi- Rice, and Gramley. Votes against this action: None. Absent and not voting: nancing, (3) underwriting government Mr. Martin. securities and money market instruments, (4) acting as a futures commis- Over the past several years, the sion merchant, and (5) providing for- Board has been systematically review- eign exchange services. The Board ing all of its regulations to clarify and soon will consider whether to make simplify the language, eliminate un- certain other activities generally pernecessary and obsolete provisions, missible. reduce regulatory and compliance Among other changes, the regulaburdens, and codify within the regulation now specifies the procedures to tions many important interpretations. be followed by holding companies The revision to Regulation Y signifiseeking to redeem their own stock. cantly accelerates the processing of Also, bank holding companies must certain types of bank holding comobtain Board approval before investpany applications and notices, and ing in companies under the Bank eliminates them for certain other Service Corporation Act. types, particularly nonbanking appli- The revisions to the application cations. procedures are effective for applica- The new Regulation Y also clarifies tions filed after December 31, 1983; the definition of "bank" and incorthe other changes in the regulation are porates outstanding interpretations effective February 5, 1984. that defined a bank and two related terms: demand deposits and commer- Regulation Z (Truth in Lending) cial loans. Negotiable order of withdrawal (NOW) accounts are con- March 31, 1983—Amendments sidered demand deposits, and the The Board adopted several amendpurchase of commercial paper and ments to Regulation Z, effective April certificates of deposit and the sale of 1, 1983, regarding arrangers of credit, federal funds are now considered student loans, and the calculation of commercial lending. A nonbank comannual percentage rates. pany that has acquired a financial institution that would be considered a Votes for these actions: Messrs. Volcker, Martin, Wallich, Mrs. Teeters, and Mr. bank under the definition in the re- Gramley. Votes against these actions: vised regulation will have two years to None. Absent and not voting: Messrs. divest the bank, to alter the bank's Partee and Rice. activities so that it is no longer within the definition, or to conform its non- The Garn-St Germain Depository banking activities to those permissible Institutions Act of 1982 made two re- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

74 Board Policy Actions visions to provisions of the truth in and not voting: Mr. Wallich and Mrs. lending legislation. One change de- Teeters. leted from the definition of "creditor" those who arrange extensions of In December 1981, the Board and credit between two parties but who the Comptroller of the Currency otherwise are not involved in the adopted guidelines for assessing the credit transaction. The second revi- capital adequacy of well-managed nasion exempted from truth in lending tional banks, state member banks, coverage loans made, insured, or and bank holding companies. The guaranteed under a program author- guidelines divided banking organizaized by Title IV of the Higher Educa- tions into three categories: 17 large tion Act of 1965. The Board amended multinational organizations, as select- Regulation Z to implement these two ed by the two agencies; regional orgachanges. nizations (those with more than $1 The Board also amended the regu- billion in assets that are not in the lation to reinstate provisions that pro- multinational group); and community tect creditors from liability if they use organizations (those with less than $1 faulty calculation tools. Before Octo- billion in assets). Specific capital ber 1982, creditors who made errors standards, based on the relation of in disclosing annual percentage rates primary and secondary capital to total were protected from civil or adminis- assets, were established for regional trative actions if the errors had result- and community organizations. Multied from faulty calculation tools that national firms have ratios that are set had been used in good faith. In Octo- and monitored individually. ber 1982, the Board deleted those The revisions to these guidelines, provisions from the regulation in the which also were adopted jointly with belief that the recent expansion of the the Comptroller of the Currency, (1) bona fide error defense in the Truth establish specific guidelines for multiin Lending Act made them unneces- national organizations equal to those sary. Further review, however, dis- for regional firms, and (2) expand the closed that the protections provided definition of secondary capital to inby the bona fide error clause were not clude unsecured long-term debt of the so complete as the deleted provisions parent or nonbank affiliates. In revisof the regulation had been. The Board ing the guidelines, the Board emphatherefore reinstated those provisions sized that banking organizations are to provide that additional protection. expected to operate with capital levels at or above the minimums specified. In addition, banks whose operations Policy Statements and expose them to risks that are greater Other Actions than average are expected to have commensurately higher capital levels. June 13, 1983—Revisions to the Capital Adequacy Guidelines June 15, 1983—Interpretation of Bankers Acceptance Issues The Board amended the capital adequacy guidelines for state member The Board issued an interpretation, banks and bank holding companies. effective July 20, 1983, to clarify the treatment of participations in certain Votes for this action: Messrs. Volcker, Martin, Partee, Rice, and Gramley. bankers acceptances under the Bank Digitized forV FoRteAsS aEgRa inst this action: None. Absent Export Services Act. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 75 Votes for this action: Messrs. Volcker, reports are prepared according to Wallich, Partee, Rice, and Gramley. local accounting practices. Votes against this action: None. Absent and not voting: Mr. Martin and Mrs. November 30,1983—Participations Teeters. in Bankers Acceptances The Bank Export Services Act per- The Board issued an interpretation, mits member banks and certain U.S. effective June 10, 1984, clarifying the agencies and branches of foreign limitations in the Bank Export Serbanks to create eligible bankers ac- vices Act on participations in bankers ceptances totaling up to 150 percent acceptances. of paid-up capital and unimpaired surplus (or up to 200 percent with the Votes for this action: Messrs. Volcker, Martin, Wallich, Partee, Rice, and Board's permission). The act prohib- Gramley. Votes against this action: its those institutions from issuing to None. Absent and not voting: Mrs. an individual eligible acceptances ex- Teeters. ceeding 10 percent of the institution's capital and surplus; eligible accep- When the Board adopted an intertances arising from domestic transac- pretation in June 1983 regarding tions cannot exceed 50 percent of all bankers acceptances, it also published the acceptances authorized for the in- for comment a proposed interpretastitution. The act also provides that tion that would clarify the applicathe Board will calculate the equivalent bility of the act's limitations on the value in dollars of the foreign parent's issuance of bankers acceptances to capital to determine the limitations participations in such acceptances. applicable to agencies and branches The act provides that any eligible acof foreign organizations. Questions ceptance created by a covered bank had arisen regarding which institution (the senior bank) and conveyed by a is subject to the limitations if accept- participation agreement to a second ances are transferred to another insti- covered bank (the junior bank) is extution under participation agreements cluded from the senior bank's limand how the assets of a foreign com- itations and included in the junior pany are to be evaluated. bank's limitations. The statute did Under the interpretation adopted not define a participation agreement. by the Board, eligible acceptances cre- The interpretation of these proviated by institutions covered by the sions adopted by the Board specifies act's limitations and transferred that the agreement must satisfy the through participations to organiza- following minimum requirements to tions not covered will continue to be be considered a participation in an included in the limitations on the cre- eligible acceptance that is exempt from ating institutions. Participations to the act's limitations: (1) the writcovered institutions will be subject to ten agreement between the two banks the limitations on the recipients rather must specify that the junior bank acthan on the issuers, regardless of quires the claim of the senior bank whether the issuers were covered. against the account party for the The Board decided to use the An- amount of the participation that is nual Reports of Foreign Banking Or- enforceable if the account party fails ganizations (Form F.R. Y-7) to calcu- to perform according to the terms of late a foreign company's capital and the acceptance; and (2) the agreement the U.S. agency's limitations. The must provide that the senior bank will Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

76 Board Policy Actions obtain a claim against the junior the objectives established by the bank for the amount of the participa- Federal Open Market Committee. tion that is enforceable if the account The basic discount rate cited in the party fails to perform according to listing below is the rate on discounts the agreement. An eligible acceptance for and advances to depository instituconveyed through a participation tions for short-term adjustment credit. agreement that does not meet these Other categories of discount window minimum requirements is included in credit include advances made over exthe senior bank's limitations. tended periods to depository institu- The Board decided not to include tions that are under sustained liquidas a minimum requirement a third ity pressure. Such extended credit may provision that had been published for also be provided when exceptional comment; namely, that the senior circumstances or practices adversely bank and the account party specifi- affect a particular depository institucally agree that the senior bank's tion. Finally, so-called seasonal credit rights could be assigned. may be provided for periods longer than those permitted under adjustment credit to assist smaller institu- 1983 Discount Rates tions in meeting regular needs for There were no changes in discount funds arising from certain expected rates during 1983, but the Board movements in their deposits and voted at 15 meetings to turn down re- loans. quests for changes submitted by indi- As of December 31,1983, the strucvidual Federal Reserve Banks. Under ture of rates was as follows: a basic the provisions of the Federal Reserve rate of SVi percent for short-term ad- Act, the boards of directors of the justment credit and for seasonal Federal Reserve Banks are required to credit; and a rate on extended credit establish rates on discounts for and of 8!/2 percent for the first 60 days of advances to depository institutions at borrowing, 9Vi percent for the next least every 14 days and to submit such 90 days of borrowing, and 10 Vi perrates to the Board for review and cent after 150 days. determination. The Board votes listed The listing of the Board's discount below are those that involved disap- rate actions during 1983, including provals of actions to change existing the votes on those actions, follows. rates; votes involving requests for maintaining rates already in effect are March 7, 1983 not shown. In reaching its decisions, the Board The Board disapproved actions taken took into account the general eco- by the directors of the Federal Reserve nomic and financial developments that Bank of Minneapolis on February 24 are covered elsewhere in this REPORT. to reduce the basic discount rate to Its individual decisions were also $lA percent (a reduction from 8Vi made on the basis of current judg- percent), and by the directors of the ments about the course of market in- Federal Reserve Banks of Chicago terest rates, the spread between those and Kansas City on February 24, by rates and the discount rate, the the directors of the Federal Reserve volume of borrowing by depository Bank of San Francisco on March 2, institutions, and information about and by the directors of the Federal the monetary aggregates in relation to Reserve Bank of Boston on March 3 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 77 to reduce the basic discount rate to 8 by the directors of the Federal Repercent. serve Bank of Richmond on April 14 to increase the basic discount rate to 9 Votes for these actions: Messrs. Volcker, percent, and by the directors of the Martin, Partee, Mrs. Teeters, and Mr. Rice. Votes against these actions: None. Federal Reserve Bank of Chicago on Absent and not voting: Messrs. Wallich April 14 to reduce the basic discount and Gramley. rate to 8 percent. March 21, 1983 Votes for these actions: Messrs. Martin, Partee, Mrs. Teeters, Messrs. Rice, and The Board disapproved actions taken Gramley. Votes against these actions: None. Absent and not voting: Messrs. by the directors of the Federal Re- Volcker and Wallich. serve Bank of Boston on March 17 to reduce the basic discount rate to 8 percent, and by the directors of the April 25, 1983 Federal Reserve Bank of Richmond The Board disapproved an action on March 10 to increase the basic distaken by the directors of the Federal count rate to 9 percent. Reserve Bank of Boston on April 21 Votes for these actions: Messrs. Volcker, to reduce the basic discount rate to 8 Martin, Wallich, Partee, Mrs. Teeters, percent. and Messrs. Rice, and Gramley. Votes against these actions: None. Votes for this action: Messrs. Volcker, Martin, Wallich, Partee, Mrs. Teeters, Messrs. Rice, and Gramley. Votes against April 4, 1983 this action: None. The Board disapproved an action taken by the directors of the Federal May 9, 1983 Reserve Bank of Boston on March 30 to reduce the basic discount rate to 8 The Board disapproved actions taken percent. by the directors of the Federal Reserve Banks of Boston and Philadel- Votes for this action: Messrs. Volcker, phia on May 5 to reduce the basic dis- Martin, Wallich, Partee, Mrs. Teeters, count rate to 8 percent. and Mr. Gramley. Votes against this action: None. Absent and not voting: Mr. Votes for these actions: Messrs. Martin, Rice. Partee, and Gramley. Votes against these actions: Mrs. Teeters and Mr. April 11, 1983 Rice. Absent and not voting: Messrs. Volcker and Wallich. The Board disapproved an action taken by the directors of the Federal Mrs. Teeters and Mr. Rice would Reserve Bank of Boston on April 7 to have preferred to table the pending reduce the basic discount rate to 8 reduction for later consideration on percent. the basis of further evidence on the Votes for this action: Mr. Volcker, performance of the economy and re- Mrs. Teeters, Messrs. Rice, and Gram- lated financial developments. ley. Votes against this action: None. Absent and not voting: Messrs. Martin, Wallich, and Partee. May 16, 1983 The Board disapproved an action April 18, 1983 taken by the directors of the Federal The Board disapproved actions taken Reserve Bank of Chicago on May 12 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

78 Board Policy Actions to reduce the basic discount rate to 8 cisco on November 10 to reduce the percent. basic discount rate to 8 percent and 8*4 percent respectively. Votes for this action: Messrs. Volcker, Wallich, Partee, Mrs. Teeters, Messrs. Votes for these actions: Messrs. Volcker, Rice, and Gramley. Votes against this Martin, Wallich, Partee, Mrs. Teeters, action: None. Absent and not voting: and Mr. Gramley. Votes against these Mr. Martin. action: None. Absent and not voting: Mr. Rice. May 31, 1983 The Board disapproved an action November 28, 1983 taken by the directors of the Federal The Board disapproved actions taken Reserve Bank of New York on May 19 by the directors of the Federal Reto reduce the basic discount rate to 8 serve Bank of Chicago on November percent. 22 to reduce the basic discount rate to Votes for this action: Messrs. Martin, 8 percent, and by the directors of the Wallich, Mrs. Teeters, Messrs. Rice, Federal Reserve Bank of San Franand Gramley. Votes against this action: cisco on November 23 to reduce the None. Absent and not voting: Messrs. basic discount rate to %VA percent. Volcker and Partee. Votes for these actions: Messrs. Volcker, June 13, 1983 Martin, Wallich, Partee, Rice, and Gramley. Votes against these actions: The Board disapproved an action None. Absent and not voting: Mrs. taken by the directors of the Federal Teeters. Reserve Bank of Atlanta on June 9 to increase the basic discount rate to 9 December 5, 1983 percent. The Board disapproved an action Votes for this action: Messrs. Volcker, taken by the directors of the Federal Martin, Partee, Rice, and Gramley. Reserve Bank of Chicago on Decem- Votes against this action: None. Absent ber 1 to reduce the basic discount rate and not voting: Mr. Wallich and Mrs. Teeters. to 8 percent. Votes for this action: Messrs. Martin, October 31, 1983 Wallich, Partee, Rice, and Gramley. Votes against this action: None. Absent The Board disapproved an action and not voting: Mr. Volcker and Mrs. taken by the directors of the Federal Teeters. Reserve Bank of Chicago on October 27 to reduce the basic discount rate to December 12, 1983 8 percent. The Board disapproved an action Votes for this action: Messrs. Volcker, taken by the directors of the Federal Martin, Wallich, Partee, Mrs. Teeters, Reserve Bank of San Francisco on Messrs. Rice, and Gramley. Votes against December 8 to reduce the basic disthis action: None. count rate to 8!4 percent. November 21, 1983 Votes for this action: Messrs. Martin, Partee, Rice, and Gramley. Votes against The Board disapproved actions taken this action: None. Absent and not votby the directors of the Federal Re- ing: Messrs. Volcker, Wallich, and Mrs. serve Banks of Chicago and San Fran- Teeters. 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 1983 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 1983, 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 Foreign Currency Directive. These are based on the information that was four instruments are shown below in available to the Committee at the time the form in which they were in effect of the meetings, rather than on data at the beginning of 1983. Changes in as they may have been revised later. the instruments during the year are It will be noted from the record of reported in the records for the indipolicy actions that in some cases the vidual meetings. decisions were made by unanimous vote and that in other cases dissents Authorization for Domestic were recorded. The fact that a deci- Open Market Operations sion in favor of a general policy was by a large majority, or even that it In Effect January 1, 1983 was by unanimous vote, does not nec- 1. The Federal Open Market Commitessarily mean that all members of the tee authorizes and directs the Federal Digitized C fo o r m FR m A i S tt E e R e were equally agreed as to Reserve Bank of New York, to the extent http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

80 FOMC Policy Actions necessary to carry out the most recent conveying title to the underlying goods; domestic policy directive adopted at a provided that the aggregate amount of meeting of the Committee: bankers acceptances held at any one time (a) To buy or sell U.S. Government shall not exceed $100 million; securities, including securities of the Fed- (c) To buy U.S. Government securieral Financing Bank, and securities that ties, obligations that are direct obligations are direct obligations of, or fully guaran- of, or fully guaranteed as to principal and teed as to principal and interest by, any interest by, any agency of the United agency of the United States in the open States, and prime bankers acceptances of market, from or to securities dealers and the types authorized for purchase under foreign and international accounts main- l(b) above, from dealers for the account tained at the Federal Reserve Bank of of the Federal Reserve Bank of New York New York, on a cash, regular, or deferred under agreements for repurchase of such delivery basis, for the System Open Mar- securities, obligations, or acceptances in ket Account at market prices and, for 15 calendar days or less, at rates that, such Account, to exchange maturing U.S. unless otherwise expressly authorized by Government and Federal agency securities the Committee, shall be determined by with the Treasury or the individual agen- competitive bidding, after applying reacies or to allow them to mature without sonable limitations on the volume of replacement; provided that the aggregate agreements with individual dealers; proamount of U.S. Government and Federal vided that in the event Government agency securities held in such Account (in- securities or agency issues covered by any cluding forward commitments) at the such agreement are not repurchased by close of business on the day of a meeting the dealer pursuant to the agreement or a of the Committee at which action is taken renewal thereof, they shall be sold in the with respect to a domestic policy directive market or transferred to the System Open shall not be increased or decreased by Market Account; and provided further more than $4.0 billion1 during the period that in the event bankers acceptances commencing with the opening of business covered by any such agreement are not on the day following such meeting and repurchased by the seller, they shall conending with the close of business on the tinue to be held by the Federal Reserve day of the next such meeting; Bank or shall be sold in the open market. (b) When appropriate, to buy or sell in 2. The Federal Open Market Committhe open market, from or to acceptance tee authorizes and directs the Federal dealers and foreign accounts maintained Reserve Bank of New York (or, under at the Federal Reserve Bank of New York, special circumstances, such as when the on a cash, regular, or deferred delivery New York Reserve Bank is closed, any basis, for the account of the Federal Re- other Federal Reserve Bank) (a) to lend to serve Bank of New York at market dis- the Treasury such amounts of securities count rates, prime bankers acceptances held in the System Open Market Account with maturities of up to 9 months at the as may be necessary from time to time for time of acceptance that (1) arise out of the the temporary accommodation of the current shipment of goods between coun- Treasury, under such conditions as the tries or within the United States, or (2) Committee may specify; and (b) to purarise out of the storage within the United chase directly from the Treasury for re- States of goods under contract of sale or newable periods not to exceed 30 days, expected to move into the channels of when authorized by the Board of Govertrade within a reasonable time and that nors of the Federal Reserve System purare secured throughout their life by a suant to an affirmative vote of not less warehouse receipt or similar document than five members, for its own account (with discretion, in cases where it seems desirable, to issue participations to one or 1. Pursuant to an action taken by the Commore Federal Reserve Banks) such mittee at its meeting on December 20-21,1982, amounts of special short-term certificates the limit on changes between Committee meetof indebtedness as may be necessary from ings in System Account holdings of U.S. govtime to time for the temporary accommoernment and federal agency securities was set at dation of the Treasury, provided that the $4.0 billion for the period through the close of rate charged on such certificates shall be a business on February 9, 1983, at which time it rate of lA of 1 percent below the discount reverted to $3.0 billion. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 81 rate of the Federal Reserve Bank of New parently were maintained, and that the York at the time of such purchases and rise in prices remained much less rapid provided that the total amount of such than in 1981. Retail sales and housing accertificates held at any one time by the tivity have strengthened in recent months, Federal Reserve Banks shall not exceed $2 but business fixed investment apparently billion. has weakened further and efforts to re- 3. In order to ensure the effective con- duce inventories have continued. In duct of open market operations, the Fed- November industrial production and noneral Open Market Committee authorizes farm payroll employment declined furand directs the Federal Reserve Banks to ther, and the unemployment rate rose 0.4 lend U.S. Government securities held in percentage point to 10.8 percent. Initial the System Open Market Account to Gov- claims for unemployment insurance, ernment securities dealers and to banks although down from the early autumn participating in Government securities peaks, have remained relatively high. In clearing arrangements conducted through recent months the advance in the index of a Federal Reserve Bank, under such in- average hourly earnings has slowed apprestructions as the Committee may specify ciably further. from time to time. The weighted average value of the 4. In order to ensure the effective con- dollar against major foreign currencies duct of open market operations, while has declined from peaks reached in early assisting in the provision of short-term in- November. The U.S. merchandise trade vestments for foreign and international deficit rose sharply further in October. accounts maintained at the Federal Re- Growth of Ml has remained rapid in reserve Bank of New York, the Federal cent months, while growth of M2 and M3 Open Market Committee authorizes and has continued at about or somewhat bedirects the Federal Reserve Bank of New low the rates of earlier in the year. On York (a) for System Open Market Ac- balance short-term market interest rates count, to sell U.S. Government securities have declined since mid-November, while to such foreign and international accounts bond yields have risen somewhat in reon the basis set forth in paragraph 1 (a) sponse to unusually heavy borrowing by under agreements providing for the resale businesses and governments; mortgage by such accounts of those securities within rates have edged down further. The Fed- 15 calendar days on terms comparable to eral Reserve announced reductions in the those available on such transactions in the discount rate from 9Vz percent to 9 permarket; and (b) for New York Bank ac- cent on November 19 and to 814 percent count, when appropriate, to undertake on December 13. with dealers, subject to the conditions im- The Federal Open Market Committee posed on purchases and sales of securities seeks to foster monetary and financial in paragraph 1 (c), repurchase agreements conditions that will help to reduce inflain U.S. Government and agency securi- tion, promote a resumption of growth in ties, and to arrange corresponding sale output on a sustainable basis, and conand repurchase agreements between its tribute to a sustainable pattern of interown account and foreign and interna- national transactions. In July, the Comtional accounts maintained at the Bank. mittee agreed that these objectives would Transactions undertaken with such ac- be furthered by reaffirming the monetary counts under the provisions of this para- growth ranges for the period from the graph may provide for a service fee when fourth quarter of 1981 to the fourth quarappropriate. ter of 1982 that it had set at the February meeting. These ranges were 2lA to 5!/2 percent for Ml, 6 to 9 percent for M2, and Domestic Policy Directive 6^2 to 9!/2 percent for M3. The associated In Effect January 1, 19832 range for bank credit was 6 to 9 percent. The Committee agreed that growth in the The information reviewed at this meeting monetary and credit aggregates around suggests that real GNP declined in the the top of the indicated ranges would be fourth quarter, although final sales ap- acceptable in the light of the relatively low base period for the Ml target and other 2. Adopted by the Committee at its meeting factors, and that it would tolerate for on December 20-21, 1983. some period of time growth somewhat Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

82 FOMC Policy Actions above the target should unusual precau- Open Market Account, to the extent tionary demands for money and liquidity necessary to carry out the Committee's be evident in the light of current economic foreign currency directive and express uncertainties. The Committee had also authorizations by the Committee purearlier indicated that it was tentatively suant thereto, and in conformity with planning to continue the current ranges such procedural instructions as the Comfor 1983, but it will review that decision mittee may issue from time to time: carefully at its February 1983 meeting in A. To purchase and sell the following light of economic developments and in- foreign currencies in the form of cable stitutional changes associated with the transfers through spot or forward transnew deposit accounts authorized by the actions on the open market at home and Depository Institutions Deregulation abroad, including transactions with the Committee. U.S. Treasury, with the U.S. Exchange Specification of the behavior of Ml Stabilization Fund established by Section over the months ahead remains subject to 10 of the Gold Reserve Act of 1934, with substantial uncertainty because of special foreign monetary authorities, with the circumstances in connection with the Bank for International Settlements, and public's response to the new deposit ac- with other international financial institucounts available at depository institutions. tions: The difficulties in interpretation of Ml Austrian schillings Italian lire continue to suggest that much less than Belgian francs Japanese yen usual weight be placed on movements in Canadian dollars Mexican pesos that aggregate during the coming quarter. Danish kroner Netherlands guilders The institutional changes also add a de- Pounds sterling Norwegian kroner French francs Swedish kronor gree of uncertainty to the behavior of the German marks Swiss francs broader monetary aggregates. In all the circumstances, the Committee B. To hold balances of, and to have seeks to maintain expansion in bank re- outstanding forward contracts to receive serves consistent with growth of M2 of or to deliver, the foreign currencies listed around 9Vi percent at an annual rate, and in paragraph A above. of M3 at about an 8 percent rate, from C. To draw foreign currencies and to December to March, allowing in the case permit foreign banks to draw dollars of M2 for modest shifting into the new under the reciprocal currency armoney market accounts from large- rangements listed in paragraph 2 below, denomination CDs or market instruments. provided that drawings by either party to The Committee indicated that greater any such arrangement shall be fully growth would be acceptable if analysis of liquidated within 12 months after any incoming data and other evidence from amount outstanding at that time was first bank and market reports indicate that the drawn, unless the Committee, because of new money market accounts are generat- exceptional circumstances, specifically ing more substantial shifts of funds into authorizes a delay. broader aggregates from market instru- D. To maintain an overall open posiments. The Chairman may call for Com- tion in all foreign currencies not exceeding mittee consultation if it appears to the $8.0 billion. For this purpose, the overall Manager for Domestic Operations that open position in all foreign currencies is pursuit of the monetary objectives and defined as the sum (disregarding signs) of related reserve paths during the period net positions in individual currencies. The before the next meeting is likely to be net position in a single foreign currency is associated with a federal funds rate per- defined as holdings of balances in that sistently outside a range of 6 to 10 percent. currency, plus outstanding contracts for future receipt, minus outstanding con- Authorization for Foreign tracts for future delivery of that currency, i.e., as the sum of these elements with due Currency Operations regard to sign. In Effect January 1, 1983 2. The Federal Open Market Committee directs the Federal Reserve Bank of 1. The Federal Open Market Commit- New York to maintain reciprocal currency tee authorizes and directs the Federal arrangements ("swap" arrangements) for Reserve Bank of New York, for System the System Open Market Account for Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 83 periods up to a maximum of 12 months tem holdings of foreign currencies, the with the following foreign banks, which Federal Reserve Bank of New York shall are among those designated by the Board not commit itself to maintain any specific of Governors of the Federal Reserve Sys- balance, unless authorized by the Federal tem under Section 214.5 of Regulation N, Open Market Committee. Any agree- Relations with Foreign Banks and Bank- ments or understandings concerning the ers, and with the approval of the Com- administration of the accounts mainmittee to renew such arrangements on tained by the Federal Reserve Bank of maturity: New York with the foreign banks designated by the Board of Governors under Section 214.5 of Regulation N shall be Amount of arrangement referred for review and approval to the Foreign bank (millions of Committee. dollars equivalent) 5. Foreign currency holdings shall be Austrian National Bank 250 invested insofar as practicable, consider- National Bank of Belgium 1,000 ing needs for minimum working balances. Bank of Canada 2,000 Such investments shall be in liquid form, National Bank of Denmark 250 Bank of England 3,000 and generally have no more than 12 months Bank of France 2,000 remaining to maturity. When appropriate German Federal Bank 6,000 in connection with arrangements to pro- Bank of Italy 3,000 vide investment facilities for foreign cur- Bank of Japan 5,000 Bank of Mexico1 rency holdings, U.S. Government secu- Regular 700 rities may be purchased from foreign Special 325 central banks under agreements for re- Netherlands Bank 500 purchase of such securities within 30 cal- Bank of Norway 250 Bank of Sweden 300 endar days. Swiss National Bank 4,000 6. All operations undertaken pursuant Bank for International Settlements to the preceding paragraphs shall be re- Dollars against Swiss francs 600 Dollars against authorized European ported promptly to the Foreign Currency currencies other than Swiss francs 1,250 Subcommittee and the Committee. The Foreign Currency Subcommittee consists 1. Pursuant to an action taken by the Committee on August 24, 1982, the special reciprocal currency ar- of the Chairman and Vice Chairman of rangement with the Bank of Mexico of $325 million in the Committee, the Vice Chairman of the addition to the regular $700 million arrangement was Board of Governors, and such other added, effective for the period from August 28, 1982, members of the Board as the Chairman through August 23, 1983. may designate (or in the absence of members of the Board serving on the Subcom- Any changes in the terms of existing swap mittee, other Board Members designated arrangements, and the proposed terms of by the Chairman as alternates, and in the any new arrangements that may be au- absence of the Vice Chairman of the thorized, shall be referred for review and Committee, his alternate). Meetings of the approval to the Committee. Subcommittee shall be called at the re- 3. All transactions in foreign currencies quest of any member, or at the request undertaken under paragraph 1(A) above of the Manager for Foreign Operations, shall, unless otherwise expressly autho- for the purposes of reviewing recent or rized by the Committee, be at prevailing contemplated operations and of consultmarket rates. For the purpose of provid- ing with the Manager on other matters ing an investment return on System hold- relating to his responsibilities. At the reings of foreign currencies, or for the pur- quest of any member of the Subcommitpose of adjusting interest rates paid or tee, questions arising from such reviews received in connection with swap draw- and consultations shall be referred for deings, transactions with foreign central termination to the Federal Open Market banks may be undertaken at nonmarket Committee. exchange rates. 7. The Chairman is authorized: 4. It shall be the normal practice to ar- A. With the approval of the Comrange with foreign central banks for the mittee, to enter into any needed agreecoordination of foreign currency trans- ment or understanding with the Secretary actions. In making operating arrange- of the Treasury about the division of rements with foreign central banks on Sys- sponsibility for foreign currency opera- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

84 FOMC Policy Actions tions between the System and the Trea- consistent with the IMF Article IV, sury; Section 1. B. To keep the Secretary of the Trea- 2. To achieve this end the System shall: sury fully advised concerning System for- A. Undertake spot and forward pureign currency operations, and to consult chases and sales of foreign exchange. with the Secretary on policy matters relat- B. Maintain reciprocal currency ing to foreign currency operations; ("swap") arrangements with selected for- C. From time to time, to transmit eign central banks and with the Bank for appropriate reports and information to International Settlements. the National Advisory Council on Inter- C. Cooperate in other respects with national Monetary and Financial Policies. central banks of other countries and with 8. Staff officers of the Committee are international monetary institutions. authorized to transmit pertinent infor- 3. Transactions may also be undermation on System foreign currency op- taken: erations to appropriate officials of the A. To adjust System balances in light Treasury Department. of probable future needs for currencies. 9. All Federal Reserve Banks shall par- B. To provide means for meeting ticipate in the foreign currency operations System and Treasury commitments in for System Account in accordance with particular currencies, and to facilitate paragraph 3G(1) of the Board of Gover- operations of the Exchange Stabilization nors' Statement of Procedure with Re- Fund. spect to Foreign Relationships of Federal C. For such other purposes as may be Reserve Banks dated January 1, 1944. expressly authorized by the Committee. 4. System foreign currency operations shall be conducted: A. In close and continuous consulta- Foreign Currency Directive tion and cooperation with the United States Treasury; In Effect January 1, 1983 B. In cooperation, as appropriate, with foreign monetary authorities; and 1. System operations in foreign curren- C. In a manner consistent with the cies shall generally be directed at count- obligations of the United States in the ering disorderly market conditions, pro- International Monetary Fund regarding vided that market exchange rates for the exchange arrangements under the IMF U.S. dollar reflect actions and behavior Article IV. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 85 Meeting Held on percent below the recent peak in the February 8-9, 1983 fourth quarter of 1981. The decline was concentrated in outlays for dura- Domestic Policy Directive ble equipment, but nonresidential Preliminary estimates of the Com- construction spending also fell somemerce Department indicated that real what. According to the Department gross national product had declined of Commerce survey taken in Novemat an annual rate oilVi percent in the ber and December, plant and equipfourth quarter of 1982. The decline ment spending would decline about was the result mainly of a sharp con- WA percent in 1983; taking account traction in business inventories; final of respondents' expectations of inflasales increased appreciably in the tion, the survey results implied a quarter. Average prices, as measured decline of about 5!4 percent in real by the fixed-weight price index for terms, compared with a decline of AVA gross domestic business product, rose percent in 1982. at an annual rate of about AVA per- Nonfarm payroll employment incent. Over the four quarters of 1982, creased 340,000 in January, after an real GNP declined about 1 VA percent, average monthly decline of about nominal GNP grew about 3VA per- 200,000 in the second half of 1982. cent, and the increase in prices on Other indicators also suggested imaverage decelerated sharply to about provement in labor markets: in manu- 4% percent. facturing, employment edged up for The nominal value of retail sales the first time in about a year and a edged down in December, but rose 3 half and the factory workweek inpercent in the fourth quarter as a creased 0.8 hour to 39.7 hours. Howwhole. Retail sales at automotive out- ever, the January data may have overlets strengthened considerably in the stated the improvement in labor fourth quarter, and sales at general market conditions because of seamerchandise and furniture and appli- sonal adjustment problems. The civilance stores also picked up. Sales of ian unemployment rate fell 0.4 pernew domestic automobiles were at an centage point to 10.4 percent, as the annual rate of about 6 million units in civilian labor force declined substanthe fourth quarter, compared with an tially. average selling pace of about 5!/2 The producer price index for finmillion units during much of 1982; in ished goods was about unchanged in January, sales continued at about the December, reflecting a decline in fourth-quarter pace. prices of energy-related items and Private housing starts fell some- only modest increases in prices of what in December, following a surge consumer foods and other goods. in November, but at an annual rate of During 1982 the index rose iVi per- 1 VA million units in the fourth quar- cent, about half the pace recorded in ter, starts were about 45 percent 1981. The consumer price index deabove the cyclical trough of a year clined 0.3 percent in December, as earlier. Combined sales of new and homeownership costs fell sharply and existing homes have advanced appre- prices for food and energy declined as ciably in recent months. well. Over the year the index in- Spending for business fixed invest- creased less than 4 percent, compared ment declined substantially further in with a rise of about 9 percent in 1981. Digitizedt fhoer FfRoAuSrtEhR q uarter to a rate nearly 8 Vi Price increases were smaller in 1982 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

86 FOMC Policy Actions than in 1981 for all major compo- target ranges. Ml grew about 8 Vi pernents of the index. The rise in the cent on a fourth-quarter to fourthindex of average hourly earnings quarter basis, substantially more than slowed further in the final months of in 1981 and well above the target 1982. Over the year the index rose range. M2 and M3 expanded 9.2 perabout 6 percent, compared with an cent and 10.1 percent respectively increase of about %Vi percent over over the four quarters of 1982, some- 1981. what above the upper limits of their In foreign exchange markets the target ranges; prior to certain revitrade-weighted value of the dollar sions and redefinitions of M2 and M3 against major foreign currencies had in early 1983, their indicated growth declined about 3 percent further from rates for 1982 had been 9.8 percent mid-December to about mid-January. and 10.3 percent respectively.3 Bank Subsequently, the dollar appreciated credit expanded about 7 percent durand was up on balance over the peri- ing the year. od since the Committee's meeting in At its meeting on December 20-21, December. In the fourth quarter the the Committee had decided to seek to U.S. merchandise trade deficit was maintain expansion in bank reserves close to the relatively high third- consistent with growth of M2 at an quarter rate. Agricultural exports annual rate of around 9Vi percent continued at about the reduced thirdquarter rate while a decline in non- 3. The revised data for the monetary aggreagricultural exports was roughly off- gates reflect new benchmarks and revised set by a decline in imports. seasonal factors and some relatively minor changes in definitions of the broader aggre- In July 1982 the Committee reafgates that were published on February 11, firmed the objectives for monetary 1983. As redefined, the broader aggregates growth that it had set in early Febru- now include balances in tax-exempt money ary for the period from the fourth market mutual funds on the same basis as those quarter of 1981 to the fourth quarter in taxable money funds and no longer include balances in individual retirement or Keogh acof 1982 and also decided tentatively counts at depository institutions and money to retain the 1982 target ranges for market mutual funds. 1983. Those objectives included Ml comprises demand deposits at commerranges of 2Vi to 5 Vi percent for Ml, 6 cial banks and thrift institutions, currency in circulation, travelers checks, negotiable order to 9 percent for M2, and 6Vi to 9Vi of withdrawal (NOW) and automatic transfer percent for M3. The associated range service (ATS) accounts at banks and thrift infor bank credit was 6 to 9 percent. stitutions, and credit union share draft ac- The Committee agreed that growth in counts. M2 contains Ml and savings and smallthe monetary and credit aggregates denomination time deposits at all depository institutions, money market deposit accounts around the top of the indicated ranges (MMDAs) at all depository institutions, overwould be acceptable and that it would night repurchase agreements (RPs) at commertolerate for some period of time cial banks and retail RPs at all depository instigrowth somewhat above the target tutions, overnight Eurodollars held at foreign branches of U.S. banks by U.S. residents other ranges if uncertainties relating to than banks, and taxable and tax-exempt money unsettled economic and financial conmarket mutual fund shares other than those ditions should lead to unusual pre- restricted to institutions. M3 is M2 plus largecautionary demands for money and denomination time deposits at all depository institutions, large-denomination term RPs at liquidity. commercial banks and savings and loan asso- Actual monetary growth during ciations, and taxable and tax-exempt institu- Digitized1 f9o8r 2F RAwSaEsR above the Committee's tion-only money market mutual fund shares. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 87 and growth of M3 at an annual rate some of the December increase in M2 of about 8 percent for the period and much of the surge in January was from December to March. The objec- related to the associated shifts of tive for M2 was designed to allow for funds out of non-M2 assets—such as a modest amount of growth resulting market instruments and large-denomfrom shifts into the newly authorized ination CDs—into MMDAs. Abmoney market deposit accounts stracting from such shifts, which (MMDAs) from large-denomination could be calculated only very roughly, certificates of deposit or market in- the growth of M2 over the Decemberstruments. For both M2 and M3, the January period was estimated to have Committee had noted that greater been at a pace that was generally congrowth would be acceptable if analy- sistent with the Committee's longersis of incoming data and other evi- run growth objective for this aggredence from banking and market re- gate. Growth of M3, estimated at anports indicated that the new MMDAs nual rates of about 314 percent in were generating more substantial December and 11 percent in January, shifts of funds from market instru- was much less affected by the introments into the broader aggregates. duction of MMDAs, as depository in- The intermeeting range for the fed- stitutions responded to large net ineral funds rate, which provides a flows of funds in part by allowing mechanism for initiating further con- their large-denomination certificates sultation of the Committee, was set at of deposit to run off. Growth of Ml 6 to 10 percent. remained rapid in January, although On several occasions following the the increase was appreciably smaller December meeting, the Committee than the average pace in other recent discussed the extraordinarily rapid months. To date, Ml growth appeared growth in MMDAs that had taken to have been little affected on balance place since the accounts had become by the introduction of MMDAs in available in mid-December and the mid-December or of Super NOW acimplications of that growth for the counts in early January. behavior and interpretation of the Expansion in total and nonbormonetary aggregates. At the conclu- rowed reserves slowed considerably in sion of a discussion on January 28, January; the slowing reflected the 1983, it was the Committee consensus moderation in growth of transaction to maintain the existing degree of balances as well as the substantial reserve restraint further in response reduction in required reserves associto the reported over-target growth of ated with the attrition of largethe broader monetary aggregates be- denomination CDs and shifts out of cause that growth appeared to be pri- savings and other time deposits into marily related to the massive redistri- nonreservable MMDAs. Excess rebution of funds under way. serves were extraordinarily high M2 grew at an estimated annual around the turn of the year, and also rate of about 29 percent in January, were on the high side around midfollowing an increase at an annual January, reflecting usual year-end rate of about 8 percent in December. pressures and the implementation of At this meeting it was reported that two mandated reserve requirement re- MMDAs had grown to more than ductions. Also reflecting typical year- $210 billion by late January, and end money market churning, adjustavailable evidence suggested that ment borrowing (including seasonal Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

88 FOMC Policy Actions borrowing) was quite large at the be- In the Committee's discussion of ginning of the year, but it tended to the economic situation and outlook, be relatively low thereafter, with the members emphasized that signs of an federal funds rate remaining close to economic recovery had multiplied in the 8V2 percent discount rate except recent weeks, and while some quesfor a brief period around year-end. tion remained about the actual onset Interest rates on private short-term of the recovery the members generally market instruments were little changed agreed that moderate growth in real over the period, while yields on cor- GNP was a reasonable prospect for porate bonds were up about 30 basis 1983 as a whole. The members also points. Yields on most U.S. Treasury believed that economic recovery bills rose about 35 to 40 basis points, could be achieved without a resurand rates on Treasury notes and gence in inflation, partly in light of bonds increased about 35 to 45 basis favorable prospects for productivity points, apparently in response to the growth and for oil prices. The causubstantially increased recent and tionary note was expressed, however, prospective volume of Treasury fi- that inflationary expectations, as well nancing. The prime rate charged by as actual prices and wages, would be most commercial banks on short- importantly influenced by federal term business loans was reduced Vi budgetary developments, and monepercentage point to 11 percent in mid- tary policy also needed to remain January. Average rates on new com- clearly oriented toward fostering furmitments for fixed-rate conventional ther progress in containing inflation. home mortgage loans at savings and While the outlook for economic acloan associations declined about Vi tivity and prices was generally viewed percentage point over the intermeet- as favorable, it remained subject to ing period to a level a little above 13 considerable uncertainty. Some mempercent. bers stressed the potential obstacles to Total credit at U.S. commercial a sustained recovery, including the banks accelerated to an annual rate of prospect of continuing large federal about 101/2 percent in December and deficits in the absence of new legislawas estimated to have picked up fur- tion, the outlook for weak export ther in January. Banks responded to markets, real interest rates that were the strong inflows of funds into still high by historical standards, and MMDAs by purchasing sizable the possibility of further disturbances amounts of Treasury and other secu- in international and domestic finanrities. Banks also expanded their cial markets. On the other hand, a loans somewhat. number of members commented that Staff projections presented at this once under way, the recovery might meeting suggested that real GNP gather momentum and prove to be would turn upward in the first markedly more vigorous than the quarter and continue to grow mod- staff had projected, with the expanerately during 1983. The unemploy- sion in 1983 perhaps more in line with ment rate was expected to remain at a the average experience in the first high level, while inflation, as mea- year of previous economic recoveries. sured by the fixed-weight price index For the period from the fourth for gross domestic business product, quarter of 1982 to the fourth quarter was projected to slow somewhat fur- of 1983, the central tendency of the ther over the year. members' projections was for growth Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 89 in real GNP in a range of 3 Vi percent short-term market rates in the latter to AVi percent, while the range for all half of the year had encouraged inmembers was from 3 lA percent to 5 Vi flows into NOW accounts, which percent. The central tendency for the have become an increasingly impor- GNP deflator was a range of 4 to 5 tant component of Ml, as the cost of percent, and for growth in nominal holding such accounts relative to GNP it was a range of 8 to 9 percent. market instruments fell considerably. Projections for the rate of unemploy- Late in the year, the authorization by ment in the fourth quarter of 1983 the Depository Institutions Deregularanged from 9% to ICM/2 percent, tion Committee (DIDC) of new dewith a central tendency of 9.9 to 10.4 posit instruments incorporating transpercent. These projections were based action features and paying interest on the Committee's objectives for returns tied to market rates may have monetary and credit growth estab- been associated with some anticipalished at this meeting, and the mem- tory increases in balances at deposibers generally assumed that legislative tory institutions. Against the backprogress would be made over the ground of sharply declining velocity, months ahead in reducing federal the Committee had concluded that deficits in future years. rigid adherence to the 1982 targets In reviewing at this meeting the would have resulted in a much more monetary and credit objectives for restrictive policy impact than had 1983 that it had tentatively estab- been intended. lished in July within the framework For 1983 the Committee faced the of the Full Employment and Balanced question of whether underlying rela- Growth ("Humphrey-Hawkins") Act tionships between monetary and ultiof 1978, the Committee recognized mate economic objectives might still that its assessment of appropriate be in the process of changing. Past growth targets for implementing cyclical expansions had typically been broad economic goals was compli- accompanied by sharp increases in cated by a number of economic and velocity, particularly for the narrower institutional factors. Members took measures of money. Developments particular note of the fact that the during 1982 suggested, however, that relationships between monetary and increases in velocity might be relativecredit growth to income and expendi- ly restrained in 1983. Reduced rates of tures had deviated markedly from inflation, a markedly lower level of inpast patterns during 1982. The devia- terest rates, and institutional changes tions in question were reflected in characterized by a greater availability atypical behavior of the income of market-related interest rates on velocity of various measures of transaction accounts could induce money—the ratio of gross national larger holdings of monetary assets product to the individual monetary relative to income than usually occurs measures—all of which fell sharply in during a cyclical upturn. The payment 1982. To a considerable extent the of market rates on the new Super declines in velocity appeared to be a NOW account could have an especialconsequence of strong precautionary ly pronounced impact on the income demands for monetary assets in a pe- velocity of Ml as could the continued riod characterized by economic un- attractiveness of regular NOW accertainties and severe strains in finan- counts if short-term market interest cial markets. In addition, declining rates were to remain near, or fall Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

90 FOMC Policy Actions below, current levels. More generally, discussion, a consensus emerged in movements in Ml could be influenced favor of setting target ranges for all increasingly by attitudes toward sav- three measures of money but to deings as well as by transaction needs as part from past practice in some rethe share of NOW accounts, which spects in light of the complexities and have both savings and transaction uncertainties that were involved. Most features, expands in this aggregate. of the Committee members agreed Members recognized that it could that it would be desirable for the take some time before this newly time being to place substantial weight emerging behavior of Ml in relation on the broader aggregates, M2 and to GNP became clear. The broader M3. It was expected that, once the monetary aggregates, too, were being bulk of shifts had taken place, the affected by institutional changes, performance of those aggregates in with M2 especially influenced in 1983 relation to economic activity might be by shifts into its MMDA component somewhat more predictable than that from market instruments and large- of Ml during the year ahead, aldenomination CDs. Moreover, the though major uncertainties affected phased deregulation of interest rate all of the aggregates. Thus the memceilings was undoubtedly changing bers recognized that an unusual dethe cyclical characteristics of the gree of judgment would be required broader aggregates. in interpreting the performance of the The Committee's assessment of ap- monetary aggregates as a group. The propriate monetary growth ranges ongoing appropriateness of the target was greatly complicated by the mas- ranges would need to be judged in the sive flows of funds associated with re- light of evolving economic conditions, cently introduced deposit instru- including developments in domestic ments, the Super NOW accounts and and international financial markets. especially the money market deposit In this connection a number of memaccounts. The extremely rapid build- bers stressed the overriding imporup of MMDAs since mid-December tance of assuring that monetary perhad resulted in a substantial flow of formance remained consistent with funds into M2 from market instru- the basic objectives of fostering susments and large-denomination certifi- tained economic recovery in a context cates of deposit, which are not in- of continuing progress toward price cluded in M2, with the consequence stability. that growth of that aggregate had After weighing alternative growth been greatly inflated over the course ranges for 1983, a majority of the of recent weeks. It was anticipated Committee expressed support for rethat further redistribution of funds taining the 1982 range for M3 and associated with MMDAs and to a adopting higher ranges for M2 and lesser extent with Super NOW ac- Ml than had been targeted in 1982 counts would continue to influence to allow for ongoing institutional the behavior of the monetary aggre- changes. The preferred range for M3 gates to some degree. While uncer- was therefore 6V2 percent to 9Vi pertainties in predicting flows into these cent on a fourth-quarter 1982 to accounts were obviously great, the fourth-quarter 1983 basis. In favorstaff expected those inflows to mod- ing this range, which contemplated erate over the weeks ahead. growth below the actual outcome for Digitized forI nFR tAhSeE Rc ourse of the Committee's 1982, Committee members assumed http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 91 that M3 would not be greatly affected the past year or more to substantial on balance by shifts of funds asso- uncertainties related to the growing ciated with the new deposit accounts. role of NOW accounts and an appar- Depository institutions had the op- ent shift in the behavior of its income tion, which many had already exer- velocity. Against that background, a cised in recent weeks, of reducing majority of the members supported their issuance of large-denomination setting an Ml target with a relatively certificates of deposit if sizable in- wide range for 1983 as a whole, and flows of MMDAs and other core most members found acceptable a deposits satisfied their need for funds. proposal to establish a specific range For M2 majority sentiment cen- of 4 to 8 percent. The comparatively tered on a range of 7 to 10 percent wide range for Ml reflected allowand the use of a February-March ance for some possible change in its 1983 base period in the expectation cyclical behavior as well as for its that the latter would minimize distor- evolving character as an increasingly tions stemming from the highly ag- important vehicle for savings, espegressive marketing of vfMDAs in the cially in an environment of reduced weeks since their mid-December in- inflation and interest rates. Only troduction. The members assumed modest allowance was made for the that the bulk of the MMDA-generated possibility that the new Super NOW shifts into M2 from assets not in- accounts would draw funds into Ml cluded in that aggregate would be ac- from other sources. It was undercomplished by March. The range did, stood that the target for Ml would however, allow for some modest have to be reassessed if the DIDC future asset shifts into M2. Thus, should extend the authority for dewhile the new 7 to 10 percent range pository institutions to pay market was above its 1982 counterpart, it was rates on transaction balances held by judged in practical effect to represent business firms. about the same or slightly lower It was agreed that the behavior of growth over the balance of the year, Ml would be monitored and that the after abstracting from the further an- degree of emphasis to be placed on ticipated shifts of funds into M2. that aggregate as the year progressed Moreover, given the growth experi- would depend on evidence about enced in 1982, an actual outcome whether the behavior of the velocity within the target range implied slower of Ml was becoming more predicteffective growth in 1983. able and beginning to show its usual Committee members' views varied cyclical characteristics. Over the year, considerably on the weight to attach growth in the lower part of the range to Ml—which had been given much would be appropriate if velocity rose less emphasis as a target beginning in strongly, as had usually been the case the fourth quarter of last year when during recoveries. An outcome near its behavior was distorted by matur- the upper end would be appropriate if ing all-savers certificates and prepara- velocity did not rebound sharply tion for the introduction of new de- from the declines in 1982 and tended pository accounts—and some mem- to stabilize close to current levels. bers questioned the desirability of In addition to the specification of adopting an Ml target at this time. monetary growth targets, the mem- More generally, the performance of bers agreed on the desirability of indi- Digitized t h fo a r t F R ag A g S r E e R g ate had been subject over cating for the first time the Commithttp://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

92 FOMC Policy Actions tee's expectations with respect to and cash management among busigrowth of total debt of domestic non- nesses and households, and of indicafinancial sectors during 1983 and a tions of changing conditions in doconsensus was expressed for a growth mestic and international credit marrange of SV2 to HVi percent for that kets and in foreign exchange markets. variable. A consistent range for At the conclusion of its discussion, growth in bank credit, which the the Committee adopted the following: Committee had associated with its monetary targets in previous years, was judged to be 6 to 9 percent, un- The information reviewed at this meeting indicates that real GNP declined in the changed from the range in 1982. The fourth quarter because of a sharp reducnew range for total credit encom- tion in business inventories. Final sales inpassed growth about in line with ex- creased appreciably, and the rise in prices pected growth of nominal GNP in ac- remained much less rapid than in 1981. Retail sales and housing activity have cordance with longer-term trends, but strengthened in recent months, but busithe Committee recognized that in the ness fixed investment has weakened furparticular circumstances likely to ther. Nonfarm payroll employment rose prevail in 1983, growth in the upper in January, after an extended period of part of the range might occur. It was declines, and the civilian unemployment rate fell 0.4 percentage point to 10.4 perobserved that data for such a broad cent. In recent months the advance in the credit aggregate were not currently index of average hourly earnings has available on a monthly basis, and that slowed further. the Committee did not have the tools The weighted average value of the dolto exert close influence over total lar against major foreign currencies depreciated moderately further from midflows of credit. However, the Com- December to mid-January, but a subsemittee intended to monitor total debt quent appreciation has more than offset flows closely for whatever informa- that decline. In the fourth quarter the tion they could provide in assessing U.S. merchandise trade deficit was close appropriate responses to develop- to the relatively high third-quarter rate. Growth of M2 surged to an extraordiments in the targeted monetary agnary pace in January, apparently reflectgregates. ing shifts of funds into recently author- Given the uncertainties and com- ized money market deposit accounts. plexities involved in setting monetary Growth of M3 accelerated, following very slow expansion in December. Growth of growth targets for 1983, the members Ml remained rapid in January, although anticipated the need for reviewing it was down appreciably from the average those targets during the spring and pace in other recent months. Market inpossibly altering them in light of the terest rates on U.S. Treasury obligations have risen somewhat since the latter part accumulated evidence available at of December, while rates on most private that time regarding the behavior of market instruments are about unchanged the aggregates and their relationship to slightly higher. Mortgage rates have deto other economic variables. Policy clined further. implementation in 1983 would in fact The Federal Open Market Committee seeks to foster monetary and financial require a continuing reassessment of conditions that will help to reduce inflathe performance of the monetary and tion further, promote a resumption of credit aggregates, particularly in the growth in output on a sustainable basis, aftermath of the unusual behavior of and contribute to a sustainable pattern of international transactions. In establishing income velocities in 1982. Such regrowth ranges for monetary and credit agassessment would involve taking acgregates for 1983 in furtherance of these count of patterns of saving behavior objectives, the Committee recognized that Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 93 the relationships between such ranges and be monitored, with the degree of weight ultimate economic goals have been less placed on that aggregate over time depredictable over the past year; that the pendent on evidence that velocity characcurrent impact of new deposit accounts on teristics are resuming more predictable growth rates of monetary aggregates can- patterns. Debt expansion, while not not be determined with a high degree of directly targeted, will be evaluated in confidence; and that the availability of in- judging responses to the monetary agterest on large portions of transaction ac- gregates. The Committee understood that counts, declining inflation, and lower policy implementation would involve conmarket rates of interest may be reflected tinuing appraisal of the relationships bein some changes in the historical trends in tween the various measures of money and velocity. A substantial shift of funds into credit and nominal GNP, including evalu- M2 from market instruments, including ation of conditions in domestic credit and large certificates of deposit not included foreign exchange markets. in M2, in association with the extraordinarily rapid build-up of money market Votes for this action: Messrs. Volcker, deposit accounts has distorted growth in Solomon, Balles, Gramley, Martin, that aggregate during the current quarter. Partee, Rice, and Mrs. Teeters. Votes In establishing growth ranges for the against this action: Messrs. Black, Ford, aggregates for 1983 against this back- Mrs. Horn, and Mr. Wallich. ground, the Committee felt that growth in M2 might be more appropriately mea- Mr. Black and Mrs. Horn dissented sured after the period of highly aggressive marketing of money market deposit ac- from this action because they precounts has subsided. The Committee also ferred to give more weight to Ml as a felt that a somewhat wider range was ap- policy objective. While recognizing propriate for monitoring Ml. Those the difficulties in interpreting Ml curgrowth ranges will be reviewed in the rently, they believed that over time spring and altered, if appropriate, in the light of evidence at that time. Ml was more reliably related to the With these understandings, the Com- Committee's ultimate economic obmittee established the following growth jectives than were the broader aggreranges: for the period from Februarygates and that it constituted a better March of 1983 to the fourth quarter of basis for setting appropriate paths for 1983, 7 to 10 percent at an annual rate for M2, taking into account the probability of reserve growth. They also favored resome residual shifting into that aggregate emphasizing Ml because they viewed from non-M2 sources; and for the period it as a more controllable aggregate. In from the fourth quarter of 1982 to the addition, Mr. Black indicated that he fourth quarter of 1983, 6Vi to 9V£ percent for M3, which appears to be less distorted saw a need for lower target ranges, by the new accounts. For the same period but he wanted to reduce monetary exa tentative range of 4 to 8 percent has been pansion gradually to avert dislocative established for Ml, assuming that Super effects. NOW accounts draw only modest amounts Mr. Ford dissented because he beof funds from sources outside Ml and assuming that the authority to pay interest lieved that policy should focus more on transaction balances is not extended firmly on implementing noninflationbeyond presently eligible accounts. An ary growth via a smaller number of associated range of growth for total monetary targets. He also saw an domestic nonfinancial debt has been estimated at 8V2 to IIV2 percent. urgent need to begin gradually reduc- In implementing monetary policy, the ing the rate of monetary growth in Committee agreed that substantial weight light of its inflationary potential, parwould be placed on behavior of the ticularly when complemented by broader monetary aggregates, expecting highly stimulative fiscal policy. He that current distortions in M2 from the initial adjustment to the new deposit ac- felt strongly that this combination of counts will abate. The behavior of Ml will policies ran the risk of triggering Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

94 FOMC Policy Actions another short-lived recovery that domestic policy directive was apmight be aborted in 1984 by a private proved and issued to the Federal Recredit shortage and the return of high serve Bank of New York: inflation and interest rates. For the more immediate future, the Mr. Wallich favored somewhat Committee seeks to maintain the existing lower monetary growth ranges for degree of restraint on reserve positions. 1983, which in his view would be Lesser restraint would be acceptable in the context of appreciable slowing of growth more consistent with the objectives of in the monetary aggregates to or below the fostering economic recovery while paths implied by the long-term ranges, minimizing the risks of stimulating taking account of the distortions relating inflation. to the introduction of new accounts. The Chairman may call for Committee consul- In their discussion of policy for the tation if it appears to the Manager for weeks immediately ahead, Committee Domestic Operations that pursuit of the members were generally in favor of monetary objectives and related reserve maintaining the existing degree of paths during the period before the next restraint on reserve positions. Refer- meeting is likely to be associated with a federal funds rate persistently outside a ence was made to an analysis that inrange of 6 to 10 percent. dicated that the current degree of restraint was likely to be associated Votes for this action: Messrs. Volcker, with a slowing in the growth rates of Solomon, Balles, Black, Gramley, Mrs. Horn, Messrs. Martin, Partee, Rice, the various monetary aggregates, al- Mrs. Teeters, and Mr. Wallich. Vote though M2 would probably remain against this action: Mr. Ford. relatively rapid. The members agreed that the near-term outlook for growth Mr. Ford dissented from this acin the monetary aggregates remained tion because he believed that policy subject to unusual uncertainties, and should be directed more firmly toan appropriate assessment of such ward gradually reducing monetary growth would need to take account of growth in the period immediately distortions that might continue to be ahead. He was concerned that concreated by the introduction of new tinued monetary expansion at recent deposit accounts. If, after adjustment rapid rates would restimulate inflafor such distortions, monetary growth tion and threaten the sustainability of were to slow appreciably over the the economic recovery, especially weeks ahead and the monetary aggre- against the backdrop of a very expangates appeared to be growing at rates sionary fiscal policy. in line with or below the paths implied by the Committee's ranges for the year, most of the members indicated Meeting Held on that they would find a reduced degree March 28-29, 1983 of reserve restraint acceptable. With 1. Domestic Policy Directive regard to the intermeeting range for the federal funds rate, which provides Based on partial information available a mechanism for initiating consulta- for the first quarter, it appeared that tion of the Committee, the members real GNP rose moderately in the first favored retention of the current range three months of the year, following a of 6 to 10 percent. decline at an annual rate of about 1 At the conclusion of the Commit- percent in the fourth quarter of 1982. tee's discussion, the following short- The turnaround in economic activity run operational paragraph of the reflected a considerable slowing in the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 95 pace of inventory liquidation. Mean- months. Outlays for nonresidential while, private final sales in real terms, construction increased in January, which had risen in the fourth quarter, but high vacancy rates for office continued to increase. The rise in buildings and the reduced drilling acaverage prices, as measured by the tivity associated with declining oil fixed-weight price index for gross prices apparently have damped such domestic business product, slowed expenditures recently. The Departfurther. ment of Commerce survey taken in Final sales were sustained by a late January and February indicated marked strengthening in housing ac- that in 1983 business outlays for plant tivity in early 1983. Private housing and equipment would decline about starts rose to an average annual rate VA percent in nominal terms, about of 1.7 million units in January and the same as in 1982. February, up nearly 40 percent from Nonfarm payroll employment rose the pace in the fourth quarter. Newly about 150,000 on balance over Januissued permits for residential con- ary and February, after an extended struction also rose substantially over period of declines. The month-tothe two-month period. Sales of new month employment figures, which homes increased in January, the latest showed a substantial rise in January month for which data were available; and a decline in February, were disalthough sales of existing homes torted by unusual weather patterns. dipped in February, they were appre- But employment in manufacturing— ciably higher in the first two months particularly in the auto and related combined than in the fourth quarter. metals industries—increased in both Other elements of final sales were months. The civilian unemployment not quite so strong on balance as in rate was unchanged in February at the fourth quarter of last year. Per- 10.4 percent. Industrial production sonal consumption expenditures con- has risen at an annual rate of about tinued to expand in early 1983, but at 714 percent since its trough in Noa slower rate than in the previous vember, less than the average pace in quarter. The nominal value of retail the early stages of previous cyclical sales fell in January and February, recoveries. primarily reflecting declines in sales The producer price index for at automotive outlets, gasoline sta- finished goods fell nearly 1 percent tions, and furniture and appliance over the first two months of the year, stores, although sales at general mer- reflecting sharp declines in prices of chandise and apparel stores rose ap- energy-related items. The consumer preciably from their level in the price index was virtually unchanged fourth quarter. Sales of new domestic over the period, as a substantial drop automobiles continued at an annual in prices of gasoline and other petrorate of about 6.1 million units, the leum products was about offset by same as in the fourth quarter. moderate increases in prices of most Spending for business fixed invest- other commodities and services. Food ment has remained weak in recent prices have changed little thus far in months. Shipments of nondefense 1983 and in February were only 2 percapital goods fell sharply in January cent above their level a year earlier. and edged down further in February, The advance in the index of average and new orders dropped appreciably hourly earnings has slowed further in in February after firming for several recent months. With productivity ap- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

96 FOMC Policy Actions parently continuing to improve in might continue to be created by the early 1983, cost pressures in the non- introduction of new deposit accounts. farm business sector have abated fur- Consequently, the Committee decided ther. that open market operations in the In foreign exchange markets the period until this meeting should be trade-weighted value of the dollar directed toward maintaining the existhad risen about 2 percent on balance ing degree of restraint on reserve posisince the Committee's meeting in tions. It was agreed that lesser restraint February. The U.S. merchandise would be acceptable in the context trade deficit declined marginally in of appreciable slowing of growth in January. Exports rose somewhat and the monetary aggregates, to or below total imports continued at about the the paths implied by the long-term fourth-quarter rate, as oil imports ranges. dropped sharply while non-oil im- M2 grew at an estimated annual ports strengthened. rate of about 24 percent in February, At its meeting on February 8-9, only a little below the exceptional 1983, the Committee established the pace in January, as its growth confollowing ranges for growth of the tinued to be greatly affected by shifts monetary aggregates: for the period of funds from market instruments from February-March of 1983 to the and other non-M2 sources into the fourth quarter of 1983, 7 to 10 per- new money market deposit accounts cent at an annual rate for M2, taking (MMDAs) included in M2. M3 grew into account the probability of some at annual rates of about 12 and 13Vi residual shifting into that aggregate percent in January and February refrom non-M2 sources; and for the spectively. However, growth in both period from the fourth quarter of of the broader aggregates appeared to 1982 to the fourth quarter of 1983, have decelerated substantially during 61/2 to 9Vi percent for M3, which ap- March. The deceleration reflected in peared to be less distorted by shifts part a marked slowing in the volume associated with new deposit accounts. of funds shifted into MMDAs from For the same period, a tentative range market instruments and apparently of 4 to 8 percent was established for also a moderation in the underlying Ml, assuming that Super NOW ac- growth of the nontransaction comcounts would draw only modest ponent of these aggregates. Growth amounts of funds from sources out- in Ml accelerated to an extraordinary side Ml and that the authority to pay annual rate of about 22 percent in interest on transaction accounts February, and, on the basis of prelimwould not be extended beyond cur- inary data, was estimated to have rently eligible accounts. An associ- remained rapid in March, though ated range of growth for total domes- probably slowing somewhat from the tic nonfinancial debt was estimated at February rate. An acceleration in 8V2 to IV/i percent. growth of NOW accounts and a large At the February meeting, the Com- increase in holdings of currency conmittee agreed that the near-term out- tributed to the expansion in Ml. The look for growth in the monetary ag- income velocity of Ml apparently gregates remained subject to unusual declined sharply in the first quarter, uncertainties and that an appropriate continuing the trend that became eviassessment of such growth would need dent in the course of 1982. to take account of the distortions that Total and nonborrowed reserves Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 97 declined appreciably in February, but larly Treasury securities, and also exturned up in March. The behavior of panded their loans somewhat. Very reserves did not reflect the strength in preliminary data suggested that the the aggregates largely because re- total debt of domestic nonfinancial quired reserves at member banks were sectors was increasing in early 1983 at lowered by shifts out of personal sav- a rate near the lower end of the Comings and small time deposits into non- mittee's estimated range for the year. reservable MMDAs and there was an There was a sharp increase in the associated runoff of large-denomina- share of debt financed through detion CDs. The monetary base grew pository institutions, which had expeconsiderably more than the reserve rienced massive inflows of funds as a measures, owing to the rapid expan- result of aggressive marketing of the sion of currency in circulation. Ad- newly authorized MMDAs. justment borrowing (including sea- Staff projections presented at this sonal borrowing) fluctuated between meeting indicated that real GNP $140 million and $600 million over would probably grow at a moderate the intermeeting period. Excess pace throughout 1983, with unemreserves were also volatile and were ployment remaining high. Private somewhat higher than usual on final purchases were projected to pick average; strong demands for excess up somewhat in the latter half of the reserves at times appeared to be year, partly in response to the third related to slow responses by banks to phase of the tax cut. It was anticireductions in reserve requirements. pated that the liquidation of business Federal funds continued to trade near inventories would end by midyear the SVi percent discount rate over and that some restocking of depleted most of the intermeeting interval, inventories would occur in the second though rising to around $3A percent half. The rise in the average level in the week prior to this meeting. of prices was expected to remain Most short-term market interest moderate, even as economic recovery rates rose about 3/s percentage point proceeded over the balance of 1983, over the intermeeting interval, while given the favorable outlook for oil bond rates declined about V% to Viprices and the prospects for continpercentage point. The average rate on ued limited increases in unit labor new commitments for fixed-rate con- costs. ventional home mortgage loans at In the Committee's discussion of savings and loan associations declined the economic situation and outlook, 20 basis points further. At the end of the members agreed that a recovery in February, the prime rate charged by economic activity appeared to be most commercial banks on short- under way, although several comterm business loans was reduced by mented that the evidence available Vi percentage point to lOVi percent. thus far was too fragmentary to per- Total credit outstanding at U.S. mit a firm evaluation of the strength commercial banks, which had grown of the upturn. While the staff projecat an annual rate of about 6 percent tion of moderate growth for 1983 as a in the fourth quarter of 1982, ex- whole was cited as a reasonable expanded at an average annual rate of pectation, members commented on about 10 percent over the first two the many uncertainties surrounding months of this year. Banks acquired a the economic outlook and expressed Digitized sfoizr aFbRlAe SvEoRl ume of securities, particu- differing views regarding the direchttp://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

98 FOMC Policy Actions tion of possible deviations from the Members referred to the favorable staff projection. outlook for prices in 1983, partly Some members saw the staff pro- associated with an improved trend in jection as the middle of a plausible productivity and reduced wage-cost range of possible outcomes for 1983, pressures, but some members also given the outlook for fiscal and mone- commented that the longer-run outtary policy. Several members believe, look for inflation and for a sustainhowever, that the risks of a deviation able recovery would be influenced were in the direction of a shortfall. greatly by progress in holding down These members stressed potential ob- future federal deficits and by success stacles to a vigorous recovery. These in achieving the Committee's objecincluded the possibility of further tives for monetary growth. It was unsettlement in international and noted that the effects of an expandomestic financial markets, the out- sionary federal budget would be offlook for poor export markets, and the set to some extent by efforts of state prospects for continuing weakness in and local governments to curb expenbusiness investment, at least over the ditures and to raise taxes. On balance, quarters immediately ahead, against however, it appeared that markets rethe backdrop of low capacity utiliza- mained apprehensive about the outtion rates in industry and recent over- look for the federal budget, and that building of many types of commercial concern was reflected in continued properties. Reference was also made to pressures on interest rates, especially the retarding impact of relatively high in long-term debt markets. real interest rates, and some members In discussing a policy course for the expressed the view that an appreciable weeks immediately ahead, Committee rise in interest rates, if such a rise members recognized that substantial were to occur, could greatly inhibit uncertainties affected both the ecothe recovery in interest-sensitive sec- nomic outlook and the interpretation tors of the economy, such as housing of the monetary aggregates. Concern and automobiles, which had tended was expressed about the implications to lead the recovery thus far. of the rapid growth in the monetary A differing view was expressed, aggregates, particularly if it should which stressed the possibility of a continue. However, it was also noted stronger recovery that, like many that the rapid expansion of recent previous recoveries in the postwar months, given the distortions related period, would tend to gather momen- to various institutional changes, probtum as it developed. In support of ably did not have the significance for this view, it was noted that private future economic and price developfinal purchases had risen appreciably ments that it might have had in the in the fourth and first quarters, and past. It was generally recognized that such purchases could strengthen mark- much of the recent growth in the edly further in reaction to the federal broad aggregates, especially M2, retax cut at midyear and anticipated flected shifts of investment preferimprovement in business spending. ences by individuals away from mar- Moreover, cutbacks in inventories had ket instruments toward the new been unusually pronounced during the MMDAs, given the very attractive recession, so that gains in consumer rates being offered on the accounts by spending would tend to be translated depository institutions in a highly directly into increased production. competitive environment. Note was Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 99 also taken of the marked slowing in the monetary aggregates—all of the monetary growth that appeared to be members found acceptable a policy in train for March, and of a staff calling for maintaining generally the analysis suggesting that underlying current degree of reserve restraint, growth of the broad aggregates—as pending the availability of further well as growth in Ml—might be mod- evidence on the behavior of the erate in the months ahead as the monetary aggregates and on the ecolagged effects of earlier declines in nomic situation. The members anticimarket interest rates dissipated. With pated that such a policy course would respect to Ml, most members felt that be consistent with substantial slowing persistence of its unusually sharp in the growth of M2 and M3 to andecline in velocity early this year cast nual rates of about 9 percent and 8 doubt on the aggregate as a principal percent respectively over the period guide for policy at this time; however, from March to June; these growth a view was also expressed in favor of rates assumed that shifts of funds giving Ml more weight in the formu- into the new deposit accounts from lation of the Committee's policy. market instruments would have only In evaluating the overall financial a relatively small further impact on situation, it was also pointed out that the broad aggregates—perhaps no the strength of the aggregates needed more than a percentage point or so in to be judged in the context of the the case of M2. The Committee also apparently moderate expansion of expected that Ml growth at an annual domestic nonfinancial debt and of the rate of about 6 to 7 percent over the relatively high level of real interest three-month period would be associrates. With the economic recovery ated with its objectives for the broader still in its early and fragile stages, the aggregates, assuming basically no disview was expressed that strong up- tortion in Ml on balance from the ward pressures on interest rates newly introduced accounts. Should would involve an unacceptable risk of these assumptions about distortions unduly retarding, and perhaps abort- from the new accounts prove to be ining, the recovery. The view was also correct, it was understood that approexpressed that a sustainable recovery priate adjustments would have to be might not develop at the present made in the monetary growth objeclevels of nominal and real interest tives. rates. On the other hand, no member The Committee members agreed expressed sentiment for a substantial that lesser restraint on reserve posieasing in the existing degree of reserve tions would be acceptable in the conrestraint in the absence of clear evi- text of more pronounced slowing in dence of a pronounced slowing in the growth of the monetary aggremonetary growth or of indications gates, after taking account of any disthat the economic recovery was tortions relating to the introduction faltering. of new deposit accounts, or of evi- While a few members indicated a dence of a weakening in the pace of preference for leaning in the direction the economic recovery. If monetary of slightly more, or slightly less, expansion proved to be appreciably restraint on reserve positions in the higher than expected, without being period immediately ahead—depend- clearly explained by the effects of ing on their assessment of the eco- ongoing institutional changes, it was nomic outlook, credit conditions, and understood that the Committee would Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

100 FOMC Policy Actions consult about the desirability under The Federal Open Market Committee the prevailing circumstances of any seeks to foster monetary and financial conditions that will help to reduce inflasubstantial further restraint on bank tion further, promote a resumption of reserve positions. It was further growth in output on a sustainable basis, understood that the intermeeting and contribute to a sustainable pattern of range for the federal funds rate, international transactions. At its meeting which provides a mechanism for initi- in February the Committee established growth ranges for monetary and credit agating consultation of the Committee, gregates for 1983 in furtherance of these would be retained at 6 to 10 percent. objectives. The Committee recognized At the conclusion of its discussion, that the relationships between such ranges the Committee issued the following and ultimate economic goals have been less predictable over the past year; that the domestic policy directive to the Fedcurrent impact of new deposit accounts on eral Reserve Bank of New York: growth rates of monetary aggregates can- The information reviewed at this meet- not be determined with a high degree of ing suggests that real GNP rose moderately confidence; and that the availability of inin the first quarter, after a decline in the terest on large portions of transaction acfourth quarter; the turnaround reflects a counts, declining inflation, and lower considerable slowing in inventory liquida- market rates of interest may be reflected tion. Private final sales apparently in- in some changes in the historical trends in creased only slightly less than in the fourth velocity. A substantial shift of funds into quarter with housing activity strengthen- M2 from market instruments, including ing further. Business fixed investment has large certificates of deposit not included remained weak. Nonfarm payroll employ- in M2, in association with the extraordiment rose on balance in January and Feb- narily rapid build-up of money market ruary, after an extended period of de- deposit accounts, has distorted growth in clines; the civilian unemployment rate was that aggregate during the first quarter. unchanged in February at 10.4 percent. In In establishing growth ranges for the early 1983 the rise in average prices and aggregates for 1983 against this backthe advance in the index of average hourly ground, the Committee felt that growth in earnings have slowed further. M2 might be more appropriately measured The weighted average value of the after the period of highly aggressive dollar against major foreign currencies marketing of money market deposit acrose somewhat on balance between early counts has subsided. The Committee also February and late March. The U.S. mer- felt that a somewhat wider range was apchandise trade deficit declined marginally propriate for monitoring Ml. Those in January. growth ranges will be reviewed in the M2 continued to grow at an exceptional spring and altered, if appropriate, in the rate in February and M3 also expanded at light of evidence at that time. a rapid pace, but growth in both of the With these understandings, the Combroader aggregates appears to be mittee established the following growth decelerating substantially in March. The ranges: for the period from Februarydeceleration reflects in part the marked March of 1983 to the fourth quarter of slowing in growth of money market de- 1983, 7 to 10 percent at an annual rate for posit accounts (MMDAs) in recent weeks M2, taking into account the probability of and apparently also a moderation in the some residual shifting into that aggregate underlying growth of these aggregates, from non-M2 sources; and for the period abstracting from shifts from market in- from the fourth quarter of 1982 to the struments. Ml has expanded rapidly since fourth quarter of 1983, 6Vi to 9Vi percent late January, largely reflecting accelerated for M3, which appeared to be less disgrowth in NOW accounts. Growth in debt torted by the new accounts. For the same of domestic nonfinancial sectors appears period a tentative range of 4 to 8 percent to have been moderate in the first quarter. was established for Ml, assuming that Short-term interest rates have risen some- Super NOW accounts would draw only what since early February while long-term modest amounts of funds from sources rates, including mortgage rates, have outside Ml and assuming that the authorideclined. ty to pay interest on transaction balances Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 101 is not extended beyond presently eligible 2. Review of Continuing accounts. An associated range of growth Authorizations for total domestic nonfinancial debt was estimated at SlA to IIV2 percent. The Committee followed its custom- In implementing monetary policy, the ary practice of reviewing all of its Committee agreed that substantial weight continuing authorizations and direcwould be placed on behavior of the tives at this first regular meeting of broader monetary aggregates, expecting that distortions in M2 from the initial ad- the Federal Open Market Commitjustment to the new deposit accounts will tee following the election of new abate. The behavior of Ml will be moni- members from the Federal Reserve tored, with the degree of weight placed on Banks to serve for the year beginning that aggregate over time dependent on evidence that velocity characteristics are March 1, 1983. The Committee reafresuming more predictable patterns. Debt firmed the authorization for foreign expansion, while not directly targeted, will currency operations, the foreign curbe evaluated in judging responses to the rency directive, and the procedural inmonetary aggregates. The Committee understood that policy implementation structions with respect to foreign curwould involve continuing appraisal of the rency operations in the forms in which relationships between the various mea- they were currently outstanding. sures of money and credit and nominal GNP, including evaluation of conditions Votes for these actions: Messrs. in domestic credit and foreign exchange Volcker, Solomon, Gramley, Guffey, markets. Keehn, Martin, Morris, Partee, Rice, For the short run, the Committee seeks Roberts, Mrs. Teeters, and Mr. Walto maintain generally the existing degree lich. Votes against these actions: None. of restraint on reserve positions, anticipating that would be consistent with a slow- 3. Authorization for Domestic ing from March to June in growth of M2 Open Market Operations and M3 to annual rates of about 9 and 8 percent, respectively. The Committee ex- On the recommendation of the Manpects that Ml growth at an annual rate of ager for Domestic Operations, Sysabout 6 to 7 percent would be consistent with its objectives for the broader aggre- tem Open Market Account, the Comgates. Lesser restraint would be accep- mittee amended paragraph l(a) of the table in the context of more pronounced authorization for domestic open marslowing of growth in the monetary aggreket operations to raise from $3 billion gates relative to the paths implied by the long-term ranges (taking account of the to $4 billion the limit on intermeeting distortions relating to the introduction of changes in System account holdings new accounts), or indications of a weak- of U.S. government and federal agenening in the pace of economic recovery. cy securities. The Manager noted that The Chairman may call for Committee in recent years the Committee had consultation if it appears to the Manager for Domestic Operations that pursuit of found it necessary to authorize temthe monetary objectives and related re- porary increases in the limit with serve paths during the period before the greater frequency because of the next meeting is likely to be associated with longer intervals between Committee a federal funds rate persistently outside a range of 6 to 10 percent. meetings and the increased size of the net variation in market factors affecting reserves. In 1981 and 1982, such temporary increases had been author- Votes for this action: Messrs. Volcker, ized in half of the intermeeting peri- Solomon, Gramley, Guffey, Keehn, ods. A permanent increase in the limit Martin, Morris, Partee, Rice, Roberts, Mrs. Teeters, and Mr. Wallich. Votes to $4 billion would reduce the number against this action: None. of occasions requiring special Com- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

102 FOMC Policy Actions mittee action, while still calling to the (a) To buy or sell U.S. Government Committee's attention needs for par- securities, including securities of the Federal Financing Bank, and securities that ticularly large changes. The Commitare direct obligations of, or fully guarantee concurred in the Manager's view teed as to principal and interest by, any that such an increase would be appro- agency of the United States in the open priate. market, from or to securities dealers and The Committee also approved the foreign and international accounts maintained at the Federal Reserve Bank of deletion of paragraph 2 of the author- New York, on a cash, regular, or deferred ization, which had authorized, under delivery basis, for the System Open Marcertain conditions, the direct lending ket Account at market prices, and, for of securities held in the System ac- such Account, to exchange maturing U.S. Government and Federal agency securities count to the U.S. Treasury and the with the Treasury or the individual agenpurchase of special short-term certificies or to allow them to mature without cates of indebtedness directly from replacement; provided that the aggregate the Treasury. Paragraph 2 had been amount of U.S. Government and Federal agency securities held in such Account (inin a state of de facto suspension since cluding forward commitments) at the June 1981 when the statutory authorclose of business on the day of a meeting ity on which it was based expired. In of the Committee at which action is taken the past, the Congress had enacted with respect to a domestic policy directive the legislation for limited periods and shall not be increased or decreased by more than $4.0 billion during the period occasionally had allowed it to lapse commencing with the opening of business prior to its renewal. Since no legisla- on the day following such meeting and tion to renew the authority was under ending with the close of business on the consideration, the Committee con- day of the next such meeting; curred in a staff recommendation to (b) When appropriate, to buy or sell delete paragraph 2 and renumber the in the open market, from or to acceptance dealers and foreign accounts maintained remaining paragraphs in the authorat the Federal Reserve Bank of New York, ization.4 on a cash, regular, or deferred delivery Accordingly, effective March 28, basis, for the account of the Federal 1983, the authorization for domestic Reserve Bank of New York at market discount rates, prime bankers acceptances open market operations was amended with maturities of up to nine months at to read as follows: the time of acceptance that (1) arise out of the current shipment of goods between 1. The Federal Open Market Commitcountries or within the United States, or tee authorizes and directs the Federal Re- (2) arise out of the storage within the serve Bank of New York, to the extent United States of goods under contract of necessary to carry out the most recent sale or expected to move into the channels domestic policy directive adopted at a of trade within a reasonable time and that meeting of the Committee: are secured throughout their life by a warehouse receipt or similar document conveying title to the underlying goods; 4. The following conforming amendments to provided that the aggregate amount of other Committee documents were also ap- bankers acceptances held at any one time proved: deletion of section 270.4(d) of the shall not exceed $100 million; Regulation Relating to Open Market Opera- (c) To buy U.S. Government securitions of Federal Reserve Banks and redesigna- ties, obligations that are direct obligations tion of the remaining paragraph as 270.4(d); of, or fully guaranteed as to principal and and deletion of paragraph 2 of the Resolution interest by, any agency of the United of Federal Open Market Committee Authoriz- States, and prime bankers acceptances of ing Certain Actions by Federal Reserve Banks the types authorized for purchase under during an Emergency, and renumbering of re- l(b) above, from dealers for the account maining paragraphs. of the Federal Reserve Bank of New York Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 103 under agreements for repurchase of such counts under the provisions of this parasecurities, obligations, or acceptances in graph may provide for a service fee when 15 calendar days or less, at rates that, appropriate. unless otherwise expressly authorized by Votes for these actions: Messrs. the Committee, shall be determined by Volcker, Solomon, Gramley, Guffey, competitive bidding, after applying Keehn, Martin, Morris, Partee, Rice, reasonable limitations on the volume of Roberts, Mrs. Teeters, and Mr. Walagreements with individual dealers; prolich. Votes against these actions: None. vided that in the event Government securities or agency issues covered by any such agreement are not repurchased by the Subsequently, on May 9-10, 1983, dealer pursuant to the agreement or a members of the Committee voted to renewal thereof, they shall be sold in the market or transferred to the System Open increase from $4 billion to $5 billion Market Account; and provided further the limit on changes between Comthat in the event bankers acceptances mittee meetings in System Account covered by any such agreement are not holdings of U.S. government and repurchased by the seller, they shall continue to be held by the Federal Reserve federal agency securities specified in Bank or shall be sold in the open market. paragraph l(a) of the authorization 2. In order to ensure the effective con- for domestic open market operations, duct of open market operations, the Fed- effective May 10 for the period enderal Open Market Committee authorizes ing with the close of business on and directs the Federal Reserve Banks to lend U.S. Government securities held in May 24, 1983. the System Open Market Account to Gov- Votes for this action: Messrs. Volcker, ernment securities dealers and to banks Gramley, Guffey, Keehn, Martin, Morparticipating in Government securities ris, Partee, Rice, Roberts, Mrs. Teeters, clearing arrangements conducted through Messrs. Wallich, and Timlen. Votes a Federal Reserve Bank, under such inagainst this action: None. (Mr. Timlen structions as the Committee may specify voted as alternate for Mr. Solomon.) from time to time. 3. In order to ensure the effective conduct of open market operations, while as- This action was taken on recomsisting in the provision of short-term in- mendation of the Manager for Dovestments for foreign and international mestic Operations. The Manager had accounts maintained at the Federal Readvised that since the March meeting, serve Bank of New York, the Federal Open Market Committee authorizes and large net purchases of securities had directs the Federal Reserve Bank of New been undertaken to meet reserve York (a) for System Open Market Ac- needs due to increases in currency in count, to sell U.S. Government securities circulation and required reserves, to such foreign and international accounts on the bases set forth in paragraph l(a) reducing the leeway for further purunder agreements providing for the resale chases over the intermeeting interval by such accounts of those securities within to slightly under $1 billion. It ap- 15 calendar days on terms comparable to peared likely that purchases in excess those available on such transactions in the of that leeway would be required over market; and (b) for New York Bank account, when appropriate, to undertake the remainder of the intermeeting with dealers, subject to the conditions im- period. posed on purchases and sales of securities in paragraph l(c), repurchase agreements 4. Agreement with Treasury to in U.S. Government and agency securi- Warehouse Foreign Currencies ties, and to arrange corresponding sale and repurchase agreements between its At its meeting on January 17-18, own account and foreign and international accounts maintained at the Bank. 1977, the Committee had agreed to a Transactions undertaken with such ac- suggestion by the Treasury that the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

104 FOMC Policy Actions Federal Reserve undertake to "ware- The index of industrial production house" foreign currencies—that is, to rose 2.1 percent in April, the largest make spot purchases of foreign cur- monthly increase since the summer of rencies from the Exchange Stabiliza- 1975, to a level about 6 percent above tion Fund (ESF) and simultaneously its recent trough in November. Gains to make forward sales of the same in output were spread across a broad currencies at the same exchange rate range of industries, and were parto the ESF. Pursuant to that agree- ticularly strong for consumer durable ment, the Committee had agreed that goods and durable goods materials. the Federal Reserve would be pre- Production of business equipment, pared to warehouse for the Treasury which had contracted sharply since or for the ESF up to $5 billion of late 1981, also rose substantially in eligible foreign currencies. At this April after turning up in March. meeting the Committee reaffirmed Rates of capacity utilization in the agreement on the terms adopted manufacturing and at materials proon March 18, 1980, with the under- ducers increased from record lows standing that it would be subject to late in 1982 to around 71 percent in annual review. April. Nonfarm payroll employment in- Votes for this action: Messrs. Volcker, creased more than 250,000 in April, Solomon, Gramley, Guffey, Keehn, Martin, Morris, Partee, Rice, Roberts, after an increase of about 200,000 in Mrs. Teeters, and Mr. Wallich. Votes March. Employment gains in manuagainst this action: None. facturing and service industries accounted for the bulk of the rise in Meeting Held on both months. The civilian unemploy- May 24, 1983 ment rate edged down further to 10.2 percent in April. Domestic Policy Directive The dollar value of retail sales ad- The information reviewed at this vanced 1.6 percent in April, about the meeting suggested that growth in real same as in March. Outlays at apparel GNP would accelerate, perhaps rather and furniture and appliance stores substantially, in the current quarter, were brisk, but a major factor in the after an increase at an annual rate of April gain was increased spending on about 2Vi percent in the first quarter. new cars. Sales of new domestic auto- To a considerable extent, the ex- mobiles, which had held at an annual pected pickup in growth reflected an rate of slightly over 6 million units apparently marked further slowing in since November, rose to a rate of 6.4 the rate of inventory liquidation, with million units in April and strengthan ending of liquidation possible dur- ened somewhat further in early May. ing the quarter. At the same time Total private housing starts definal demands for goods and services, clined somewhat in both March and which had strengthened in late 1982, April, but at an annual rate of 1.5 were being relatively well maintained. million units in April, they were still The rise in average prices, as mea- about 40 percent above the depressed sured by the fixed-weight price index 1982 average. Newly issued permits for gross domestic business product, for residential construction picked up appeared to be continuing at about in April, reflecting a marked increase the moderate pace recorded over the in permits for multifamily units. Sales past year. of new and existing homes increased Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 105 substantially in the first quarter of nounced slowing in the growth of the 1983. monetary aggregates (after taking ac- The producer price index for fin- count of any distortions relating to ished goods edged down in both the introduction of new deposit ac- March and April; prices of energy- counts) or of evidence of a weakening related items, which are lagged one in the pace of economic recovery. If month in this index, declined consid- monetary expansion proved to be aperably further while prices of con- preciably higher than expected, withsumer foods increased. The consumer out being clearly explained by the efprice index rose 0.6 percent in April, fects of ongoing institutional changes, after having edged up 0.1 percent in it was understood that the Committee March; more than one-third of the would consult about the desirability April increase reflected the rise in under the prevailing circumstances of gasoline prices associated with imple- any substantial further restraint on mentation of the higher federal excise bank reserve positions. The intertax. Thus far in 1983 the consumer meeting range for the federal funds price index has increased little, and rate was retained at 6 to 10 percent. the index of average hourly earnings Growth in M2, which had slowed has risen at a considerably slower to an annual rate of about 11 percent pace than in 1982. in March, decelerated further in April Since late March the trade-weighted to an annual rate of about 3 percent. value of the dollar in foreign exchange The deceleration reflected, in part, markets had remained in a narrow substantial shifts of funds into indirange near its recent high level. The vidual retirement and Keogh accounts U.S. foreign trade deficit in the first before the April 15 tax date. Growth quarter was about one-third less than in M3 slowed to an annual rate of in the preceding quarter, as oil im- about 4!/2 percent, after expanding at ports dropped sharply, reflecting a an 814 percent pace in March. Partial decline in price and a considerable re- data suggested that expansion in both duction in volume. M2 and M3 had picked up in early At its meeting on March 28-29, May, but growth to date still ap- 1983, the Committee had decided that peared to be below the annual rates of open market operations in the period 9 and 8 percent respectively expected until this meeting should be directed by the Committee for the period from at maintaining generally the existing March to June. degree of restraint on reserve posi- Ml declined at an annual rate of tions, anticipating that such a policy about 3 percent in April but, accordwould be consistent with a slowing ing to preliminary data, strengthened from March to June in growth of M2 markedly in early May. Thus far in and M3 to annual rates of about 9 the second quarter, growth in Ml apand 8 percent respectively. The Com- peared to be running substantially mittee expected that growth in Ml at above the annual rate of 6 to 7 peran annual rate of about 6 to 7 percent cent deemed consistent with the Comover the three-month period would be mittee's expectations for the broader associated with its objectives for the aggregates. broader aggregates. The Committee Growth in debt of domestic nonmembers agreed that lesser restraint financial sectors appeared to have on reserve positions would be accept- continued in April at about the same able in the context of more pro- pace as in the first quarter. Over the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

106 FOMC Policy Actions first four months of the year, debt ex- recovery became more widespread, pansion was estimated at an annual and prospects increased that private rate of about 9lA percent, well within credit demands would strengthen the Committee's range of SVi to 11 Vi while Treasury borrowing remained percent for the year. Funds raised by exceptionally large. Average rates on the U.S. Treasury grew at about twice new commitments for fixed-rate conthe rate of total debt expansion, ventional home mortgage loans at while private debt rose at a moderate savings and loan associations fell pace. Growth in total credit outstand- about 30 basis points further. ing at U.S. commercial banks slowed The staff projections presented at somewhat in April, as banks con- this meeting indicated that growth in tinued to acquire sizable amounts of real GNP in the second half of the Treasury securities but reduced sub- year would be a little higher than had stantially their holdings of business been expected, though probably slowloans. ing somewhat from the second- Growth in total and nonborrowed quarter pace. Recent evidence, inreserves slowed appreciably in April cluding increased spending for busiand early May, as weakness in trans- ness equipment, strength in new action deposits over much of March orders at durable goods manufacturand in April was reflected with a lag ers, and survey reports of marked imin reduced demand for required re- provement in consumer attitudes, serves. Apart from large borrowings suggested somewhat stronger private around the end-of-quarter statement final demands from businesses and date early in the intermeeting period, consumers than had been anticipated adjustment borrowing from the Fed- previously. The unemployment rate eral Reserve discount window, includ- was projected to decline only modesting seasonal borrowing, fluctuated ly from its recent high level, and the within a range of about $200 million rise in the average level of prices was to $675 million. Special factors, such expected to remain moderate. as relatively sizable weekend borrow- In the Committee's discussion of ing associated with wire transfer prob- the economic situation and outlook, a lems, contributed at times to increased number of members expressed gendemands for borrowing. Excess re- eral agreement with the staff projecserves also continued to be volatile tion, but several emphasized that ecoand were relatively high on average. nomic activity might well prove to be Federal funds generally traded in a stronger than projected, especially range of %Vi to 8% percent during the during the quarters immediately intermeeting interval. ahead. Members observed that con- Market interest rates changed little sumer sentiment appeared to have imon balance over the intermeeting in- proved considerably, and that retail terval. Short-term interest rates de- sales should benefit from the inclined about lA percentage point creased market value of financial while most long-term rates were asset portfolios as well as from the slightly lower or up only marginally. federal tax cut at midyear. A turn- Market rates had fallen considerably around from sharp inventory liquidain the early part of the period but had tion to little change, or possibly even risen again most recently, as growth some accumulation, was seen as likely in the monetary aggregates seemed to and would have a pronounced posibe strengthening, signs of economic tive impact on GNP and on income Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 107 flows, at least for a quarter or two. were likely to be followed by increas- Members also commented that an in- ing capital investment, in the pattern creasingly stimulative fiscal policy characteristic of earlier cyclical exwould add strength to the recovery pansions. In this connection some over the period ahead, and an unduly members stressed that the expansion large federal deficit was likely to might well gather momentum and create problems later as private credit prove to be much stronger than the demands expanded. staff was projecting, partly because While all Committee members an- the recovery would follow a relatively ticipated continuing and possibly sub- long and severe recession. stantial improvement in economic At this meeting the Committee reactivity over the months ahead, a viewed the monetary growth ranges number also questioned the balance that it had established in February for and sustainability of the recovery. the year 1983. It decided not to They noted that, though business change any of the ranges or the capital spending was showing signs of relative importance of the various agreviving, it would need to improve gregates for policy, pending a further markedly further to foster an extend- review at the July meeting. Growth of ed recovery. Such spending could be the broader aggregates appeared to be inhibited if a continuing need to within the Committee's ranges for the finance large federal deficits engen- year. Earlier in the year, growth of dered rising interest rates as the recov- M2 had been affected to a major exery proceeded. The outlook for ex- tent by large shifts of funds associports was also thought to be relatively ated with the introduction of money weak, although exports should even- market deposit accounts; such shifts tually improve if the foreign exchange had slackened substantially, although value of the dollar were to decline MMDAs were still expanding at a substantially and if major distur- somewhat faster rate than the staff bances in international financial mar- had projected earlier. Ml had grown kets were averted. One member com- substantially in excess of the Commitmented that housing activity could be tee's expectations in the latter part of less strong than was widely antici- 1982 and the first quarter of 1983. pated and another observed that con- Staff analysis based on recent resumer spending could prove to be dis- search suggested that this earlier appointing, particularly if consumers growth reflected to a substantial exdid not react more positively to the tent lagged responses to the decline in approaching tax cut than they had to interest rates that began during the the 1982 reduction. Another member summer of 1982. That decline had encommented that recent indications of hanced the attractiveness of NOW aca more vigorous recovery might re- counts, which serve as a vehicle for flect mainly a short-lived inventory savings as well as for transactions. adjustment. The performance of Ml would con- Other members expressed a differ- tinue to be affected by substantial ing view and emphasized that the uncertainties relating to the interest prospects for an extended recovery and income sensitivity of fixed-ceiling were relatively favorable. In support NOW accounts and also by the growof this view it was observed that sub- ing importance in Ml of the more stantial improvements in consumer recently introduced Super NOW acspending and inventory investment counts, which bear a market-related Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

108 FOMC Policy Actions rate of interest. While the effects of ternational financial conditions and earlier declines in interest rates should the foreign exchange value of the now be diminishing, given the relative dollar to firmer credit conditions in stability of rates over recent months, the United States, suggesting for some time would be needed to evalu- some a dilemma for monetary policy ate the evolving role of Ml as a vehi- stemming in substantial part from the cle for savings. budgetary situation. Turning to policy for the short run, Members who supported retention the members noted a staff analysis, of the current short-run policy emwhich suggested that maintenance of phasized that the growth of the the existing degree of restraint on broader monetary aggregates, on reserve positions might be associated which the Committee had focused, with second-quarter growth of M2 was within the Committee's 1983 and M3 marginally below the rates ranges for the year to date. Moreestablished by the Committee at the over, such growth seemed to be fallprevious meeting, but with expansion ing a bit short of the second-quarter of Ml above the level anticipated by targets that the Committee had set at the Committee, given the surge in Ml the previous meeting. Expansion in growth during the first part of May. total domestic nonfinancial debt also The staff analysis also indicated that, appeared to be within the range for within limits, alternative policy 1983 that the Committee had estabcourses would have relatively little lished for monitoring purposes. Ml impact on the second-quarter growth clearly was growing at a pace well of the monetary aggregates in light of above the Committee's expectations, the limited time remaining in the but many members continued to view quarter, but would affect their growth that aggregate as an unreliable guide more substantially over the months for policy and they preferred to give ahead. little or no weight to its performance, In the course of their discussion, at least for the present. Committee members expressed dif- A number of members were also fering views with regard to the appro- concerned that under current circumpriate course for policy in the weeks stances even a modest tightening of immediately ahead. The members reserve conditions might have a diswere narrowly divided between those proportionate impact on sentiment in who favored some increase in reserve domestic and international financial restraint over the next few weeks and markets and lead to sizable increases others who preferred to maintain the in domestic interest rates. In their degree of reserve restraint contem- view increases in interest rates would plated at the March meeting. This have adverse consequences for interdivergence reflected varying assess- est-sensitive sectors of the economy ments of the strength and sustain- and possibly for the sustainability of ability of the economic recovery; dif- the economic recovery. Indeed, one fering views with regard to the inter- member believed that lower interest pretation of the monetary aggregates; rates were likely to be needed to enand different opinions concerning the sure continued economic expansion. risks associated with the likely impact Moreover, appreciably higher U.S. of alternative policy courses on do- interest rates might have particularly mestic interest rates. Members also damaging consequences internationnoted the potential sensitivity of in- ally by raising the foreign exchange Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 109 value of the dollar and intensifying tee's discussion, a majority of the the severe pressures on countries with members indicated that they favored serious external debt problems. marginally more restraint on reserve Other Committee members, how- positions for the near term. Although ever, weighed the risks associated these members differed on the precise with alternative policy courses differ- degree of additional restraint that ently. They felt that at least limited they preferred, they indicated their tightening of reserve conditions was acceptance of a directive calling for desirable in light of the very rapid only slightly more restraint on reserve growth in Ml against the background positions than had been approved at of accumulating evidence. While, the previous meeting. It was underconsistent with previous decisions, stood that at this point M2 and M3 Ml was not given so much weight as a seemed to be on courses that would monetary policy target as it had had bring their growth to slightly below earlier, a number of members none- the rates of 9 and 8 percent respectheless saw a need to move toward tively that had been set at the March restraining its growth, which clearly meeting for the second quarter, but was running well above the pace for that Ml would probably expand at a the second quarter that the Commit- rate well above the growth that had tee had expected would be consistent been anticipated for the quarter. The with the behavior of the broader ag- members agreed that lesser restraint gregates. would be appropriate in the context Several members commented that of more pronounced slowing in the slightly greater restraint on reserves growth of the broader monetary agwould be desirable at this point to gregates within their 1983 ranges and minimize the possible need for more deceleration of Ml growth, or of insubstantial restraint later, reducing dications that the pace of the ecothe interest rate impact on financial nomic recovery was weakening. It markets over time and helping to sus- was understood that the intermeeting tain the expansion. Reference was range for the federal funds rate, made to the favorable effect such a which provides a mechanism for inimove might have on market percep- tiating consultation of the Committions about monetary policy and the tee, would remain at 6 to 10 percent. outlook for containing inflation, with At the conclusion of its discussion, the consequence that prospects for the Committee issued the following stable or declining interest rates in domestic policy directive to the Fedlong-term debt markets would be eral Reserve Bank of New York: enhanced as the recovery proceeded. The view was also expressed that the The information reviewed at this external debt difficulties of a number meeting suggests that growth in real GNP of foriegn countries were continuing has accelerated in the current quarter following a moderate increase in the first problems. The Federal Reserve could quarter. Industrial production increased best contribute to the resolution of sharply in April after rising at a moderate those problems by following policies pace in previous months; nonfarm payroll that would foster sustained, noninfla- employment and retail sales rose considertionary economic growth. Deferring ably in March and April. Housing starts declined somewhat in both months but any actions could well pose a greater were still well above depressed 1982 levels. dilemma at a later time. Data on new orders and shipments suggest At the conclusion of the Commit- that the demand for business equipment is Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

110 FOMC Policy Actions reviving. The civilian unemployment rate propriate for monitoring Ml. Those edged down to 10.2 percent in April. growth ranges were to be reviewed in the Average prices have changed little and the spring and altered, if appropriate, in the index of average hourly earnings has risen light of evidence at that time. The Comat a much reduced pace in the early mittee reviewed the ranges at this meeting months of 1983. and decided not to change them at this The weighted average value of the time, pending further review at the July dollar against major foreign currencies meeting. With these understandings, the has remained in a narrow range near its re- Committee established the following cent high level since late March. The U.S. growth ranges: for the period from Februforeign trade deficit fell substantially in ary-March of 1983 to the fourth quarter the first quarter, reflecting a sharp drop in of 1983, 7 to 10 percent at an annual rate the value of oil imports. for M2, taking into account the probabil- Growth in M2 and M3 decelerated fur- ity of some residual shifting into that agther in April to relatively low rates but ap- gregate from non-M2 sources; and for the pears to have picked up recently. Ml de- period from the fourth quarter of 1982 to clined in April but has strengthened the fourth quarter of 1983, 6V2 to 9Vi permarkedly in early May. Growth in debt of cent for M3, which appeared to be less domestic nonfinancial sectors appears to distorted by the new accounts. For the have been moderate over the first four same period a tentative range of 4 to 8 months of the year. Interest rates have percent was established for Ml, assuming changed little on balance since late March. that Super NOW accounts would draw The Federal Open Market Committee only modest amounts of funds from seeks to foster monetary and financial sources outside Ml and assuming that the conditions that will help to reduce infla- authority to pay interest on transaction tion further, promote a resumption of balances was not extended beyond presgrowth in output on a sustainable basis, ently eligible accounts. An associated and contribute to a sustainable pattern of range of growth for total domestic noninternational transactions. At its meeting financial debt was estimated at 8V2 to in February the Committee established 11 Vi percent. growth ranges for monetary and credit ag- In implementing monetary policy, the gregates for 1983 in furtherance of these Committee agreed that substantial weight objectives. The Committee recognized would continue to be placed on behavior that the relationships between such ranges of the broader monetary aggregates exand ultimate economic goals have been pecting that distortions in M2 from the less predictable over the past year; that the initial adjustment to the new deposit acimpact of new deposit accounts on growth counts will abate. The behavior of Ml will ranges of monetary aggregates cannot be continue to be monitored, with the degree determined with a high degree of confi- of weight placed on that aggregate over dence; and that the availability of interest time dependent on evidence that velocity on large portions of transaction accounts, characteristics are resuming more predictdeclining inflation, and lower market able patterns. Debt expansion, while not rates of interest may be reflected in some directly targeted, will be evaluated in changes in the historical trends in velocity. judging responses to the monetary aggre- A substantial shift of funds into M2 from gates. The Committee understood that market instruments, including large cer- policy implementation would involve contificates of deposit not included in M2, in tinuing appraisal of the relationships beassociation with the extraordinarily rapid tween the various measures of money and buildup of money market deposit ac- credit and nominal GNP, including evalucounts, distorted growth in that aggregate ation of conditions in domestic credit and during the first quarter. foreign exchange markets. In establishing growth ranges for the The Committee seeks in the short run to aggregates for 1983 against this back- increase only slightly the degree of reserve ground, the Committee felt that growth in restraint. The action was taken against the M2 might be more appropriately mea- background of M2 and M3 remaining sured after the period of highly aggressive slightly below the rates of growth of 9 and marketing of money market deposit ac- 8 percent, respectively, established earlier counts had subsided. The Committee also for the quarter and within their long-term felt that a somewhat wider range was ap- ranges, Ml growing well above anticipated Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 111 levels for some time, and evidence of and it was not predictably related to some acceleration in the rate of business nominal GNP. recovery. Lesser restraint would be appro- Under current economic and finanpriate in the context of more pronounced slowing of growth in the broader mone- cial circumstances, the implementatary aggregates relative to the paths im- tion of firmer reserve conditions plied by the long-term ranges and deceler- would also incur an undue risk of an ation of Ml, or indications of a weakenexaggerated reaction in domestic and ing in the pace of economic recovery. The international financial markets. Sub- Chairman may call for Committee consultation if it appears to the Manager for stantially higher domestic interest Domestic Operations that pursuit of the rates would have damaging consemonetary objectives and related reserve quences for interest-sensitive induspaths during the period before the next tries and could limit the recovery in meeting is likely to be associated with a federal funds rate persistently outside a economic activity. These members range of 6 to 10 percent. agreed that current interest rate levels appeared to be more consistent with Votes for this action: Messrs. Volcker, continuing economic expansion in the Gramley, Keehn, Martin, Partee, Robmonths immediately ahead, but Mrs. erts, and Wallich. Votes against this action: Messrs. Solomon, Guffey, Mor- Teeters believed that lower interest ris, Rice, and Mrs. Teeters. rates might well be needed later to sustain the recovery. These members also referred to the Messrs. Solomon, Guffey, Morris, potentially disruptive international Rice, and Mrs. Teeters dissented impact of rising U.S. interest rates. from this action because they wanted Messrs. Solomon, Guffey, and Moropen market operations to continue ris in particular believed that the being directed toward maintaining already strong dollar in foreign exapproximately the degree of reserve change markets, the tenuous situation restraint approved at the previous of some of the developing countries, meeting. In the view of these mem- the still fragile economic recovery in bers, a firming of reserve conditions other industrial countries, and the was not warranted by the perfor- continuing weak outlook for U.S. exmance of the monetary aggregates or ports counseled against an increase in by the current economic situation. M2 reserve restraint. and M3 were expanding more slowly On June 23 the Committee held a in the second quarter than the Com- telephone conference to review recent mittee had anticipated at its previous developments in the domestic and inmeeting and for the year to date these ternational economy and financial broader aggregates, along with total markets since the May 24 meeting. domestic nonfinancial credit, were Evidence suggested that economic acgrowing at rates that were within the tivity was continuing to strengthen at Committee's 1983 ranges. Ml had a somewhat more rapid pace than had been expanding at a pace markedly in generally been anticipated earlier. excess of the Committee's expecta- Some interest rates had increased tions in recent weeks and for the year modestly in recent weeks. Growth in to date, but this aggregate was not monetary aggregates, particularly viewed as a sufficiently reliable guide Ml, had been relatively rapid alfor policy, at least for the present, though growth in M2 and M3 resince its performance was substantialmained close to the targets estably distorted by various developments lished for the quarter as a whole. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

112 FOMC Policy Actions Against that background, the con- of nearly 1.8 million units, following sensus was that a modest increase in small declines during the two precedreserve restraint, within the frame- ing months. Starts in May were about work of the directive adopted at the 40 percent above their average level in May 24 meeting and consistent with the fourth quarter of 1982. Other inrecent reserve conditions, remained dicators of housing activity also exappropriate. hibited strength: newly issued permits for residential buildings rose further in May as did combined sales of new Meeting Held on and existing homes. Both measures July 12-13, 1983 were more than 30 percent above the average levels in the fourth quarter of Domestic Policy Directive last year. The information reviewed at this With inventories depleted and sales meeting suggested that the economic strong, businesses have been meeting recovery was proceeding at a strength- demands out of current production ened pace. The latest data suggested and appear to have started rebuilding that growth in real GNP may have stocks in some lines. The index of inbeen even more rapid in the second dustrial production rose 1.1 percent quarter than the 6Vi percent prelimi- in May to a level 7 percent above its nary estimate of the Commerce De- trough six months earlier, and availpartment, and it appeared that rela- able data, including the statistics on tively strong growth would be sus- employment and hours worked in tained into the current quarter. Ex- manufacturing, suggested another penditures for consumer goods were sizable gain in output in June. As in especially large, and a swing in busi- other recent months, gains in output ness inventories from liquidation to and employment occurred across a accumulation seemed to be develop- broad range of industries. Nonfarm ing more rapidly than anticipated payroll employment rose nearly earlier. 350,000 in June, after an increase of The dollar value of retail sales ad- about 300,000 in May. The civilian vanced appreciably in May, marking unemployment rate declined to 10.0 the third consecutive monthly in- percent in June, down 0.8 percentage crease. Outlays at general merchan- point from its peak in December. dise outlets and at furniture and ap- Data on new orders and shipments pliance stores were brisk, but sizable continued to indicate improvement in expenditures on autos and automo- the demand for business equipment. tive products continued to be an im- Production of business equipment, portant factor in the strength of retail which had contracted sharply in 1982 sales. Sales of new domestic automo- and had continued to decline during biles rose to a rate of 7.2 million units the first quarter of this year, rose in June, the strongest monthly selling substantially in May for the second pace in nearly two years. Survey re- month in a row. ports of marked improvement in con- The producer price index for finsumer confidence accompanied the ished goods (PPI) and the consumer vigorous recent gains in consumer price index (CPI) increased 0.3 perspending. cent and 0.5 percent respectively in Total private housing starts increased May, largely reflecting a sharp rise in considerably in May to an annual rate energy prices at both the producer Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 113 and the consumer levels. Exclusion of paths implied by the long-term ranges the volatile energy components would and deceleration of Ml, or of indicahave resulted in no change in the PPI tions of a weakening in the pace of and nearly a halving of the increase in economic recovery. The intermeeting the CPI. During the first five months range for the federal funds rate was of 1983, the PPI declined at an an- retained at 6 to 10 percent. nual rate of about 2 lA percent and the Growth in M2 and M3 accelerated CPI increased at an annual rate of 3 in May and continued relatively strong percent. Over the same period, the in- in June, with both aggregates expanddex of average hourly earnings for ing at an estimated annual rate of private nonfarm production workers about 10 percent. For the March-torose at an annual rate of 4lA percent, June period both M2 and M3 grew at compared with an increase of 6 per- an annual rate of about 8 Vi percent, a cent for the year 1982. bit below the quarterly objective es- In foreign exchange markets the tablished for M2 and a bit above that trade-weighted value of the dollar for M3. Relative to the longer-run against major foreign currencies rose ranges, M2 by June was somewhat more than 2Vi percent in late May above the midpoint of its range and and early June to a record level; sub- M3 was around the upper limit of its sequently it had fluctuated in a nar- range for the year. row range. Reflecting the strength of Ml, which had surged to an annual the economy and the persistently high rate of growth of about 26 percent in level of the dollar, the U.S. for- May, expanded at a rate of around eign trade deficit increased sharply in \0Vi percent in June. From the fourth the April-May period from its re- quarter of 1982 to June, Ml grew at duced first-quarter rate; exports de- an annual rate of about 13% percent, clined and both oil and non-oil im- considerably above the Committee's ports rose. tentative range of 4 to 8 percent for At its meeting on May 24, 1983, the the year. Committee had decided that open Though the pace of expansion in market operations in the period until debt of domestic nonfinancial sectors this meeting should be directed at in- over the first half of the year was esticreasing only slightly the degree of mated to have remained within the restraint on reserve positions. That Committee's annual range of 8Vi to action had been taken against the MVi percent, growth in debt apbackground of growth in M2 and M3 peared to have been more rapid in the remaining within their long-term second than in the first quarter. This ranges and slightly below the annual development reflected an acceleration rates of 9 and 8 percent respectively in borrowing by the U.S. Treasury as established earlier for the quarter, Ml well as a pickup in private credit degrowing substantially above antici- mand. Total credit outstanding at pated levels for some time, and evi- U.S. commercial banks expanded at dence of an acceleration in the rate of an annual rate of nearly 10 percent in business recovery. The Committee June and in the second quarter as a had agreed that lesser restraint on re- whole. Sizable acquisitions of Treaserve positions would be appropriate sury securities continued to make the in the context of more pronounced major contribution to the expansion slowing of growth in the broader in bank credit in June, but real estate monetary aggregates relative to the lending strengthened further and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

114 FOMC Policy Actions business loans registered their first loans at savings and loan associations significant increase since January. also rose about VA percentage point. Strong demands for money were Given the momentum in economic associated with relatively rapid ex- activity that appeared to be in train, pansion in total reserves in June, but the staff projections presented at this growth in nonborrowed reserves (plus meeting indicated that growth in real extended credit at the discount win- GNP in the second half of the year dow) was considerably slower than would be somewhat higher than had the increase in total reserves. With been anticipated earlier. Final puropen market operations holding back chases in private domestic sectors, on the supply of reserves, depository buoyed by expenditures for consumer institutions increased their short-term goods, were expected to be maintained borrowing at the discount window at a relatively strong pace in the latter and sought reserves more actively in half of the year and businesses were the federal funds market. Adjustment expected to be adding appreciably to borrowing from the Federal Reserve inventories. A gradual decline in the discount window (including seasonal unemployment rate was anticipated borrowing) rose to about $680 million over the balance of the year, and a in June and rose further in the first further decline was expected in 1984 part of July; borrowing temporarily in association with continued, though bulged to over $1 billion in the reserve more moderate, economic recovery. statement week that encompassed the Upward price pressures were expected midyear bank statement date and the to be relatively modest over the pro- July 4 holiday period. The federal jection horizon, assuming that infunds rate traded in a range of %3A to flationary expectations remained 9 percent for most of the period, but damped, with related restraint on most recently the rate had moved wage and price policies of labor and up into the 9 to 9Vs percent range; business. somewhat higher rates were tem- In their review of the economic porarily associated with the manage- situation and outlook, the members ment of reserve positions over the focused on evidence of the economy's midyear statement date and the holi- strong forward momentum and the day period. prospects for continuing sizable gains Other short-term market rates rose in real GNP during the months immeabout 3A to 1 percentage point during diately ahead. Consumer spending, the intermeeting period, reflecting in which along with housing has played part responses to the modest tighten- a major role in fostering the recovery, ing of reserve market conditions that was likely to be sustained by the furwas under way and apparently also ther reduction in personal income some anticipatory reaction to the taxes at midyear. Most of the memstrength of incoming data on the bers agreed, however, that economic monetary aggregates and economic activity would probably expand at a activity. Most long-term interest rates more moderate pace later in the year on taxable securities increased about and in 1984. Spending for business in- 3A percentage point over the period, ventories was expected to become a while yields on tax-exempt issues were less expansive factor as the recovery little changed on balance. Average proceeded, and the outlook for exrates on new commitments for fixed- ports remained relatively weak. The rate conventional home mortgage members also referred to a number of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 115 potential threats to the recovery, in- creases would be sensitive to expectacluding financial strains related to the tions as conditioned by fiscal and debt problems of numerous develop- monetary policy developments. ing countries and the adverse impact The individual members of the of continuing large federal deficits in Committee had prepared specific prothe absence of measures to reduce jections of economic activity and them. prices for this meeting. With regard While the expansive fiscal policy to growth in real GNP, the projecadded to purchasing power and sup- tions had as their central tendency a ported consumption, members were range of 5 to 53A percent for 1983 and concerned that the need to finance 4 to 4Vi percent for 1984, measured large Treasury borrowing in a period from fourth quarter to fourth quarwhen private credit demands were ac- ter. Most of the members projected a celerating would put increasing up- rise in the implicit GNP deflator in a ward pressure on interest rates and range of 4lA to 43A percent during curtail the availability of financing to 1983 and 454 to 5 percent during private borrowers. Sectors heavily 1984. The rate of unemployment was dependent on credit, such as housing expected to decline gradually over the and business investment, would be projection period, with most memparticularly affected, as would small bers anticipating an average rate of businesses. The view was expressed about 91/2 percent in the fourth quarthat the restraining impact on private ter of 1983 and %VA to 8% percent in credit demands and economic activity the fourth quarter of 1984. of even current relatively high interest At its meeting on May 24, the rates—which seemed especially high Committee had reviewed the growth in real terms—could well be under- ranges for the monetary and credit estimated, and a view was expressed aggregates that it had established in that a decline in interest rates from February for the year 1983 and had present levels would probably be decided not to change those ranges needed to prolong the recovery dur- but to review them further at this ing 1984. meeting. For the broader monetary Members generally continued to re- aggregates, on which the Committee gard the near-term outlook for prices had agreed to place principal weight, as favorable, and it was observed that the ranges included annual growth wage increases remained quite moder- rates of 7 to 10 percent for M2, meaate. However, several members saw sured from February-March 1983 to acceleration in the rate of increase in the fourth quarter of 1983, and 6Vi to prices as a likely prospect for 1984. 9!/2 percent for M3, measured from Reference was made to a number of the fourth quarter of 1982 to the developments that were potentially fourth quarter of 1983. The range for unfavorable, including possible in- monitoring Ml was set at 4 to 8 percreases in prices of key farm products cent and an associated range for total as a consequence of governmental domestic nonfinancial debt was estipolicies to reduce farm supplies, and mated at SVi to IIVi percent, both pressures stemming from rising prices for the period from the fourth quarof imports if the foreign exchange ter of 1982 to the fourth quarter of value of the dollar were to weaken, as 1983. many observers anticipated. It was At this meeting the Committee realso pointed out that actual price in- viewed its target ranges for 1983 and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

116 FOMC Policy Actions established tentative ranges for 1984 point from the 1983 ranges, but in the in light of the basic objectives of en- course of the discussion two members couraging sustained economic recov- expressed a preference for retaining ery while fostering continued progress the 1983 ranges. One member believed toward price stability and promoting that the prospective relationship bea sustainable pattern of international tween M2 and nominal GNP was subtransactions. In setting these ranges, ject to a very high degree of uncerthe Committee recognized that the tainty and that therefore no specific relationships among the money and target should be set for that aggregate credit aggregates and nominal GNP at this time. in the period ahead were subject to In the view of most members, the considerable uncertainty. It was establishment of lower ranges for therefore understood that the signifi- 1984 would be consistent with the cance to be attached to movements in Committee's objective of providing the various aggregates in the im- adequate monetary growth to support plementation of policy would depend continued economic recovery while on continuing appraisal of evidence encouraging progress toward reasonabout the strength of the economic able price stability. It was recognized, recovery, the performance of prices, however, that attainment of these and emerging conditions in domestic broad economic objectives would be and international financial markets. greatly facilitated by complementary In the Committee's discussion, all governmental policies, notably furof the members supported a proposal ther actions to reduce future federal to retain the 1983 ranges for growth deficits. Members who preferred to in M2 and M3 established in February. retain the current M2 and M3 ranges Recent experience suggested that ac- for 1984 were concerned that lower tual growth of M2 and especially of ranges might prove to be more restric- M3 might be in the upper half of their tive than was desirable and, given the respective ranges for the year rather uncertainties that were involved, they than near the midpoints as antici- preferred not to reduce the ranges pated earlier. The members noted unless there were substantial evidence that the massive shifts of funds into that inflationary pressures were reviv- M2 stemming from the introduction ing. In the view of most members, of money market deposit accounts however, modest and timely action to and the much more limited shifts curb monetary growth would enrelating to the new Super NOW ac- hance, rather than reduce, prospects counts had abated about as antici- for sustaining the economic recovery pated; and they assumed that these and for lower interest rates over time accounts, along with the further in the context of diminishing infladeregulation of interest rates on time tionary pressures. deposits scheduled for October 1, A majority of the members also would have relatively little impact on supported a proposal to retain for growth of the broader aggregates 1983 the associated range for total over the balance of 1983 and in 1984. domestic nonfinancial debt that had The members differed only margin- been set earlier but to reduce that ally with regard to the appropriate range by Vi percentage point for 1984. ranges that should be established for Some sentiment was expressed in growth in M2 and M3 in 1984. Most favor of a reduction of 1 percentage favored a reduction of Vi percentage point for 1984 on the ground that the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 117 range contemplated by the majority ceiling rate of 5 lA percent. The sharp was a little high in relation to the cen- drop in market rates during the sectral tendency of the members' projec- ond half of 1982 made the opportutions of nominal GNP; in the past, nity cost of holding NOW accounts growth in this aggregate had tended relatively small and, with a lag, into approximate growth in nominal creased the demand for them. It was GNP. However, a majority of the noted, though, that the recent expanmembers concluded that allowance sion in Ml, with currency and deshould be made for expansion in total mand deposits showing strength as debt in 1984 in excess of nominal well, probably also reflected growing GNP growth. Such a development transaction needs relating to the would be consistent with this year's recovery in economic activity. experience and might be connected Against this background, a key unwith the relatively rapid expansion in certainty confronting the Committee federal debt. was whether Ml velocity in the future The members discussed at consid- would exhibit characteristics more in erable length what longer-run ranges line with earlier postwar experience. to establish for Ml and what weight Recent evidence seemed to suggest the Committee should attach to that that the decline in Ml velocity was aggregate in the implementation of ending, as might be expected as the monetary policy. The income velocity lagged upward effect on demand from of Ml—the ratio of nominal GNP to earlier declines in interest rates wore Ml—had deviated substantially from off and as business and consumer normal cyclical patterns since the attitudes became more optimistic. beginning of 1982. It had declined While acknowledging the major more sharply and longer than usual uncertainties that existed, a majority during the recent recession and had of the members nonetheless believed failed to rebound as quickly as in the that a monitoring range should be repast with the onset of recovery. A tained for Ml. In this view Ml would number of factors apparently con- continue to be given reduced weight tributed to this unusual behavior, in- in the formulation of monetary policy cluding for a time precautionary and primary emphasis would continue demands for highly liquid balances by to be placed on the broader aggrethe public in the face of various gates. A few members, however, preeconomic and financial uncertainties. ferred to suspend the targeting of Ml Over the last several months, the at this time because they viewed its behavior of Ml velocity seemed to prospective behavior as too uncertain reflect the greater sensitivity of this to permit the establishment of a aggregate to declines in market in- meaningful range. A subsidiary reaterest rates probably resulting from son cited in support of this view was the much increased share of interest- the difficulty of communicating a bearing NOW accounts in the total. proper assessment of the reduced role NOW accounts, which may serve as a of Ml to outside observers so long as savings vehicle as well as fulfilling the Committee continued to set a spetransactions needs, have been the cific range. One result was a tendency most rapidly growing component of for participants in financial markets Ml since they were introduced on a to attach undue importance to weekly nationwide basis at the beginning of fluctuations in Ml data, with the con- 1981. Regular NOW accounts bear a sequence that on occasion published Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

118 FOMC Policy Actions figures had a needlessly unsettling im- date the possibility that the demand pact on financial markets. for Ml would remain stronger than it In reviewing the Ml range for 1983, had been in the earlier postwar members discussed whether that period, given income and interest range should continue to be based on rates. At the other extreme such a the fourth quarter of 1982 or rebased range could allow for a fairly sizable on the second quarter of 1983 in view increase in Ml velocity; however, of the probability of a prospective given the ongoing changes in the comchange in the behavior of velocity. If position of Ml, it was recognized that the fourth quarter of 1982 were con- the increase could be somewhat less tinued as a base, Ml growth would than experienced in previous cyclical need to be sharply curtailed to the expansions. point of little or no growth for the Discussion of specific ranges for rest of the year; alternatively, the Ml Ml centered on 5 to 9 percent or 4 to range for the year would need to be 8 percent for the second half of 1983 raised substantially from the current and the year 1984, although one 4 to 8 percent, given the rapid expan- member preferred a lower range for sion during the first half of the year, 1984. Most of the members indicated to allow for any significant further that they could accept a proposal to growth in the second half. If instead establish a range for growth in Ml of Ml were rebased on the second quar- 5 to 9 percent for the period from the ter, or perhaps on June, some mem- second quarter of 1983 to the fourth bers were concerned that this could be quarter of 1983 and a tentative range misconstrued as an indication that the of 4 to 8 percent for the period from Committee was now weighing Ml the fourth quarter of 1983 to the more heavily in the formulation of fourth quarter of 1984. It was undermonetary policy. However, most stood that growth within the lower members favored rebasing the Ml portions of those ranges would be aprange for 1983 on the second quarter propriate if the velocity of Ml tended to help make it clear that the rapid toward a relatively normal cyclical ingrowth in Ml over the past several crease as the recovery proceeded; quarters was related to special cir- growth in the upper portions of the cumstances and that the Committee ranges would be acceptable if the expected and wished to see slower upturn in Ml velocity remained relagrowth in the future. Such an ap- tively weak. If there should occur an proach, it was stressed, did not in unexpectedly rapid increase or a itself imply placing more weight on decline in Ml velocity, the Committee Ml relative to the other aggregates in would reassess the ranges; it would in policy implementation. any event review the tentative range The members who preferred to for 1984 early in the year in the light continue setting a longer-run range of economic and financial conditions for Ml generally also agreed that it prevailing then. should encompass growth rates close In implementing policy, the Comto, or below, the Committee mem- mittee agreed that primary emphasis bers' outlook for expansion in would continue to be placed on the nominal GNP. At one extreme the broader aggregates. The behavior of Ml range could allow for very little Ml would be monitored, with any inchange, or perhaps only a minor in- crease in the weight placed on that agcrease, in Ml velocity to accommo- gregate dependent on evidence that its Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 119 velocity behavior was assuming a specifically M3, total liquid assets, more predictable pattern. Expansion and total domestic nonfinancial debt in total nonfinancial domestic debt as targets for monetary policy. would also be monitored in assessing In the Committee's discussion of a the behavior of the monetary aggre- policy course for the short run, most gates and the general stance of of the members indicated that they monetary policy. could support a slight further increase At the conclusion of its discussion in the degree of reserve restraint. In the Committee voted for the follow- the context of an economy that was ing longer-run policy: much stronger than expected, these members believed that such a policy The Committee reaffirmed the longerwould provide some insurance against run ranges established earlier for growth in M2 and M3 for 1983. The Committee the possible need for a considerably also agreed on tentative growth ranges for greater degree of restraint later to the period from the fourth quarter of 1983 maintain control on inflation and to the fourth quarter of 1984 of 6Vi to 9lA growth in money and credit. For the percent for M2 and 6 to 9 percent for M3. The Committee considered that growth in third quarter, the members expected Ml in a range of 5 to 9 percent from the this policy to be associated with consecond quarter of 1983 to the fourth quar- siderable moderation in the growth of ter of 1983, and in a range of 4 to 8 perthe monetary aggregates, especially cent from the fourth quarter of 1983 to the fourth quarter of 1984 would be con- Ml, although they recognized the subsistent with the ranges for the broader ag- stantial uncertainties that governed gregates. The associated range for total the short-run performance of the domestic nonfinancial debt was reafmonetary aggregates, again especially firmed at 8V2 to 11 Vi percent for 1983 and tentatively set at 8 to 11 percent for 1984.5 that of Ml. One member expressed a preference Votes for this action: Messrs. Volcker, for somewhat more tightening of Solomon, Gramley, Guffey, Keehn, reserve conditions over the weeks Martin, Partee, Rice, Roberts, Mrs. Teeters, and Mr. Wallich. Vote against ahead, while another favored no this action: Mr. Morris. change from the existing degree of restraint. In the view of several mem- Mr. Morris dissented from this ac- bers, a slight further tightening by the tion because he did not believe that Committee need not itself be reflected target ranges should be set for Ml in sizable further changes in interest and M2. Because of financial innova- rates generally, given the increases tions, these aggregates in his view are that had already occurred. It was no longer predictably related to nomi- recognized, however, that actual nal GNP—an essential characteristic movements in market rates would deof an intermediate target for monetary pend importantly on economic and policy. Thus, the Committee should financial developments in the weeks turn to broader financial aggregates, ahead, including the performance of the monetary aggregates, the outlook for the budget, and emerging private credit demands against the background of a rapidly expanding econ- 5. The Board's Midyear Monetary Policy omy. It was also suggested that such Report pursuant to the Full Employment and an approach to short-run policy Balanced Growth Act of 1978 (the Humphrey- Hawkins Act) was transmitted to the Congress would improve prospects for the deon July 20, 1983. velopment of conditions that would Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

120 FOMC Policy Actions permit some easing in the degree of Federal Reserve Bank of New York: reserve restraint later. At the conclusion of the Commit- The rapid growth in real GNP in the tee's discussion, a majority of the second quarter and other information members indicated that they favored reviewed at this meeting suggest that the economic recovery is proceeding at a a slight increase in the degree of restrengthened pace. Expenditures on conserve restraint for the near term. It sumption and housing expanded substanwas anticipated that such a policy tially in the second quarter and businesses course would be associated with apparently began to add to inventories growth of M2 and M3 at annual rates after a period of sharp liquidation. Nonfarm payroll employment rose considerof about SVi and 8 percent respectiveably in May and June and the civilian unly for the period from June to Sep- employment rate declined to 10.0 percent tember. Primary weight would be in June. Industrial production continued placed on the performance of these to rise markedly in May and partial data suggest a sizable gain in June. Data on broader monetary aggregates in evalnew orders and shipments continued to inuating the conduct of open market dicate improvement in the demand for operations. The members agreed that business equipment. In May housing lesser restraint on reserve conditions starts increased substantially following would be acceptable in the event of a small declines earlier and retail sales rose appreciably further. Average prices and significant shortfall in the growth of the index of average hourly earnings have the aggregates over the period ahead, risen at a reduced pace in the first five while somewhat greater restraint months of 1983. would be acceptable in the context of The weighted average value of the more rapid growth in the aggregates. dollar against major foreign currencies rose substantially in late May and the first It was understood that the need for half of June and subsequently has fluctugreater or lesser reserve restraint ated in a narrow range. Reflecting the would also be evaluated on the basis strength of the U.S. economy and the perof available evidence about trends in sistent high level of the dollar, the U.S. economic activity and prices and con- foreign trade deficit increased sharply in April-May from its reduced first-quarter ditions in domestic and international rate; exports declined and both oil and financial markets, including foreign nonoil imports rose. exchange markets. The Committee Strong growth in the broader aggreanticipated that its third-quarter ob- gates in May and June raised M2 to a level somewhat above the midpoint of the jectives for the broader aggregates Committee's range for 1983 and M3 to would be consistent with a decelera- around the upper limit of its range. Ml tion in Ml growth to an annual rate grew very rapidly over both months and of around 7 percent from June to was well above its range for the year. Growth in debt of domestic nonfinancial September, and that expansion in sectors appears to have picked up in the total domestic nonfinancial debt second quarter. Interest rates have risen would remain within the range of %Vi appreciably since early May. to WVi percent established for the The Federal Open Market Committee year. It was agreed that the intermeet- seeks to foster monetary and financial conditions that will help to reduce inflaing range for the federal funds rate, tion further, promote growth in output on which provides a mechanism for initi- a sustainable basis, and contribute to a ating consultation of the Committee, sustainable pattern of international transwould remain at 6 to 10 percent. actions. At its meeting in February the Committee established growth ranges for At the conclusion of its discussion, monetary and credit aggregates for 1983 the Committee issued the following in furtherance of these objectives. The domestic policy directive to the Committee recognized that the relation- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 121 ships between such ranges and ultimate the ranges for the broader aggregates. The economic goals have been less predictable associated range for total domestic nonover the past year; that the impact of new financial debt was reaffirmed at 8 Vi to deposit accounts on growth ranges of 11V£ percent for 1983 and tentatively set monetary aggregates cannot be deter- at 8 to 11 percent for 1984. mined with a high degree of confidence; In implementing monetary policy, the and that the availability of interest on Committee agreed that substantial weight large portions of transaction accounts, de- would continue to be placed on the beclining inflation, and lower market rates havior of the broader monetary aggreof interest may be reflected in some gates. The behavior of Ml and total changes in the historical trends in velocity. domestic nonfinancial debt will be moni- In establishing growth ranges last tored, with the degree of weight placed on February for the aggregates for 1983 Ml over time dependent on evidence that against this background, the Committee velocity characteristics are resuming more felt that growth in M2 might be more ap- predictable patterns. The Committee propriately measured after the period of understood that policy implementation highly aggressive marketing of money would involve continuing appraisal of the market deposit accounts had subsided. relationships between the various mea- The Committee also felt that a somewhat sures of money and credit and nominal wider range was appropriate for monitor- GNP, including evaluation of conditions ing Ml. With these understandings, the in domestic credit and foreign exchange Committee established the following markets. growth ranges: for the period from Febru- The Committee seeks in the short run to ary-March of 1983 to the fourth quarter increase slightly further the existing degree of 1983, 7 to 10 percent at an annual rate of reserve restraint. The action is expected for M2, taking into account the probability to be associated with growth of M2 and of some residual shifting into that aggre- M3 at annual rates of about 8 Vi and 8 pergate from non-M2 sources; and for the cent respectively from June to September, period from the fourth quarter of 1982 to consistent with the targets established for the fourth quarter of 1983, 6V2 to 9Vi per- these aggregates for the year. Depending cent for M3, which appeared to be less on evidence about the strength of ecodistorted by the new accounts. For the nomic recovery and other factors bearing same period a tentative range of 4 to 8 on the business and inflation outlook, percent was established for Ml assuming lesser restraint would be acceptable in the that Super NOW accounts would draw context of a significant shortfall in growth only modest amounts of funds from of the aggregates from current expectasources outside Ml and assuming that the tions, while somewhat greater restraint authority to pay interest on transaction would be acceptable should the aggregates balances was not extended beyond pres- expand more rapidly. The Committee anently eligible accounts. An associated ticipates that a deceleration in Ml growth range of growth for total domestic non- to an annual rate of around 7 percent financial debt was estimated at 8V£ to from June to September will be consistent W/i percent. These ranges were reviewed with its third-quarter objectives for the at the May meeting and left unchanged, broader aggregates, and that expansion in pending further review in July. total domestic nonfinancial debt would At this meeting, the Committee reaf- remain within the range established for firmed the longer-run ranges established the year. The Chairman may call for earlier for growth in M2 and M3 for 1983. Committee consultation if it appears to The Committee also agreed on tentative the Manager for Domestic Operations growth ranges for the period from the that pursuit of the monetary objectives fourth quarter of 1983 to the fourth and related reserve paths during the periquarter of 1984 of 6Vi to 9Vi percent for od before the next meeting is likely to be M2 and 6 to 9 percent for M3. The Com- associated with a federal funds rate persismittee considered that growth in Ml in a tently outside a range of 6 to 10 percent. range of 5 to 9 percent from the second quarter of 1983 to the fourth quarter of 1983, and in a range of 4 to 8 percent from Votes for this action: Messrs. Volcker, the fourth quarter of 1983 to the fourth Solomon, Gramley, Guffey, Keehn, quarter of 1984 would be consistent with Martin, Morris, Partee, Rice, and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

122 FOMC Policy Actions Roberts. Votes against this action: Mrs. percent in real terms. Much of the in- Teeters and Mr. Wallich. creased spending occurred in April and May, as sales in all major cate- Mrs. Teeters dissented from this gories advanced sharply. In June and action because she preferred to direct July the nominal value of retail sales open market operations toward main- showed little further change, but surtaining the existing degree of reserve veys indicated a continuing high level restraint. In her view the additional of consumer confidence. Sales of new upward pressure on interest rates domestic automobiles moved up in from further restraint on reserve posi- June to a relatively strong annual rate tions was unnecessary and would of 7 VA million units and continued at retard activity in interest-sensitive that pace in July. In early August sectors of the economy and threaten auto sales rose somewhat further the sustainability of the recovery. despite reductions in the availability Mr. Wallich dissented from this ac- and value of financing concessions tion because he favored a directive and other purchase incentives. calling for somewhat greater reserve Total private housing starts edged restraint. In his judgment, such a down in July, as they had in June, to policy course would contribute to bet- an annual rate of VA million units. ter control of the monetary aggre- Permits, however, rose over the Junegates and, given the strong momen- July period—substantially for multitum of the economy, would be more family units and marginally on likely to prove consistent with the balance for single-family units. In the Committee's longer-run objectives of second quarter, combined sales of fostering sustained economic recovery new and existing houses had risen to a while curbing inflation. rate more than 50 percent above the cyclical low in the third quarter of Meeting Held on 1982, but there was evidence of some August 23, 1983 slowdown as the quarter progressed. Moreover, reports of an appreciable 1. Domestic Policy Directive reduction in mortgage loan applica- The information reviewed at this tions and an increase in cancellations meeting suggested that real GNP, of sales contracts suggested some which had grown at an annual rate of weakening in home sales in July. about 9!4 percent in the second quar- On the other hand, recent data ter, was continuing to expand quite continued on the average to indicate rapidly in the current quarter, pro- strengthening in business capital pelled to a large extent by the relative- spending. The second quarter had ly sharp swing in business inventories marked a turnaround in that sector: from liquidation to accumulation that new orders and shipments of nondeappeared to be in process. Available fense capital goods were up 14 percent indicators of final purchases remained and 4lA percent respectively from the generally favorable, though sugges- previous quarter; and expenditures tive of a slowing from the unusually for equipment rose at an annual rate strong rate of expansion in the second of 14 percent in real terms, the largest quarter. one-quarter advance in five years. Personal consumption expenditures This strengthening tendency appeared in the second quarter had risen at an to be continuing. Production of busiexceptional annual rate of nearly 10 ness equipment remained strong in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 123 June and July, and shipments of non- than in the first, as imports rose while defense capital goods rose in June to exports were essentially unchanged. a level well above the average for the At its meeting on July 12-13, 1983, second quarter. the Committee had decided that open The index of industrial production market operations in the period until rose 1.8 percent in July following this meeting should be directed at inlarge advances in the second quarter. creasing slightly further the existing As in other recent months, sizable degree of reserve restraint. That acgains in output occurred across a tion was expected to be associated broad range of industries and were with growth of M2 and M3 at annual particularly large for consumer dura- rates of about %Vi and 8 percent ble goods. By July the index had risen respectively from June to Septemabout lO1/^ percent from its trough in ber, consistent with the Committee's November 1982, close to the average longer-run ranges of 7 to 10 percent increase for comparable stages of for M2 for the period from Februaryeconomic recovery in the postwar March of 1983 to the fourth quarter period. of 1983 and 6V2 to 9Vi percent for M3 Nonfarm payroll employment, for the period from the fourth quarwhich had increased about 1 million ter of 1982 to the fourth quarter of in the second quarter, rose about Vi 1983. The Committee had anticipated million further in July, and the civilian that a deceleration in growth of Ml to unemployment rate fell 0.5 percentage an annual rate of around 7 percent point to 9.5 percent. In manufactur- from June to September would be ing, employment advanced about consistent with its third-quarter ob- 160,000, marking the fourth consecu- jectives for the broader aggregates tive month of large gains, and the and that expansion in total domestic average workweek lengthened a bit nonfinancial debt would remain further to 40.3 hours. within its associated range of iVi to In July the producer price index for HI/2 percent for the year. The interfinished goods edged up 0.1 percent meeting range for the federal funds and the consumer price index rose 0.4 rate was retained at 6 to 10 percent. percent. Thus far in 1983, the pro- Growth in M2 and M3 slowed subducer price index has declined slight- stantially in July to annual rates of ly, and the consumer price index and about 6lA percent and 5 percent rethe index of average hourly earnings spectively. By July M2 was at a level have risen at rates considerably below near the midpoint of the Committee's those in 1982. range for 1983 and M3 was somewhat In foreign exchange markets the below the upper limit of its range. trade-weighted value of the dollar Growth in Ml decelerated to an anagainst major foreign currencies rose nual rate of about 9 percent in July, about AVi percent further in July and less than half the average pace in the early August but subsequently depre- May-June period, but the level of Ml ciated about 3 percent. The fluctua- remained above the Committee's tion in the exchange rate was related monitoring range for the second half in part to movements in U.S. interest of the year. rates over the period. The U.S. Total borrowing by domestic nonforeign trade deficit was smaller in financial sectors was estimated to June than in May, but the deficit was have slowed somewhat in July from much larger in the second quarter its average in the second quarter, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

124 FOMC Policy Actions largely because of reduced borrowing during the economic recovery, and to by the federal government, with the heavy borrowing by the U.S. growth in nonfinancial debt remain- Treasury, particularly in connection ing within its longer-run range for with the mid-August financing, as 1983. Expansion of bank credit was well as to the slightly firmer degree of at an annual rate of around 10 per- restraint on bank reserve positions. cent in July, about the same as in the After reaching an intermeeting peak second quarter. Its composition, in the second week of August, most however, changed substantially. interest rates retraced the greater part Total loans expanded at a rate more of their earlier increases, apparently than double the pace in the second reflecting responses to slower-thanquarter, while acquisitions of U.S. expected growth in the money supply Treasury securities slowed appre- and incoming data—including the ciably. Outstanding business loans, leveling off of retail sales in June and which had declined slightly in the sec- July—that suggested a more moderond quarter, grew at an annual rate ate pace of economic expansion. of about 12 percent in July, and con- Most commercial banks raised the sumer loans expanded at an annual prime rate charged on short-term rate of more than 20 percent, nearly business loans by Vi percentage point twice the pace recorded in the second to 11 percent in the early part of quarter. The pickup in lending to August. Average rates on new combusinesses by banks in part reflected mitments for fixed-rate conventional reduced issuance of bonds by corpo- home mortgage loans at savings and rations in reaction to increases in loan associations were up about 60 long-term market interest rates. basis points over the period; the ceil- Growth in total reserves decelerated ing rate on FHA- and VA-underwritto an annual rate of about 6 percent ten mortgage loans, which had been in July, but nonborrowed reserves raised 1 percentage point as of (including extended credit at the dis- August 1, was reduced Vi percentage count window) changed little as ad- point to 13 percent, effective on the justment plus seasonal borrowing day of this meeting. rose from about $680 million in June The staff projections presented at to around $875 million in July. Such this meeting indicated that the ecoborrowing increased further in the nomic recovery would continue in the first half of August to about $1 latter part of 1983 and in 1984, billion. though at a more moderate pace than With a little greater restraint on in the second and third quarters of reserve availability relative to this year. Consumer spending, while demands, the federal funds rate and continuing to grow, was expected to other short-term interest rates rose become a less expansive factor. Gains about 20 to 40 basis points on balance stemming from expenditures on housover the intermeeting period. Atypi- ing and increased business inventories cally, long-term rates rose by more were also expected to provide less than short-term rates, increasing stimulus over the projection period. about 80 basis points. Market par- On the other hand, the staff expected ticipants apparently reacted to indi- business fixed investment to provide cations of further strength in the some additional impetus to overall economy, to concern about possible economic growth. The staff continincreases in inflationary pressure later ued to project a gradual decline in the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 125 unemployment rate over the balance over coming months, given the curof the year and a further decline in rent relatively high level of real in- 1984. Upward pressures on prices and terest rates. Reports of a slowdown in wages were expected to remain new mortgage applications, increased relatively moderate over the projec- cancellations of existing sales contion horizon, although the impact on tracts, and high vacancy rates in rentfood prices of adverse weather condi- al units were cited as indications that tions might be expected to raise the recovery in the housing sector prices, overall, a little more than had might wane. A few members also exbeen previously projected. pressed the view that automobile sales During the Committee's discussion might slow somewhat more than genof the economic situation and out- erally expected as the pent-up delook, the members noted the tentative mand for automobiles began to be indications of some slowing in the satisfied. Another member suggested pace of the recovery, but they agreed more generally that growth in conthat continuing economic expansion sumer spending would probably be was a likely prospect for the period more moderate than anticipated as through 1984. Views differed to some consumers attempted to save a extent regarding the prospective higher, and more normal, proportion strength of the ongoing recovery, of their incomes than had been the although all the members expected case in recent quarters. the rate of growth to moderate con- Members continued to express considerably from its recent pace. Several cern about the prospects for large agreed that growth at about the federal deficits. Although a stimulamoderate pace projected by the staff tive fiscal policy had contributed to was a reasonable expectation for the the rebound in economic activity, next several quarters. But some be- continued large deficits as the recovlieved that the expansion could be on ery proceeded would tend to intensify the faster side, whereas others credit market pressures and divert thought that slower growth was more financial and real resources from probable. needed private investment in plant Factors that would tend to strengthen and equipment and housing. The view the expansion included, it was noted, was expressed that actions to reduce the substantial momentum of the re- future deficits, if of sufficient magnicovery and the favorable prospects tude, could work to ease pressures on in such circumstances that a substan- interest rates in a period of rising pritial pickup in business fixed invest- vate credit demands. Actual interest ment might develop as businesses be- rates would of course be influenced came more optimistic about the out- by a broad range of developments, inlook. Orders for business equipment cluding the degree of strength in had been running higher over the private credit demands, the outlook course of recent months, and many for inflation, and the volume of businesses were reporting expanding capital inflows from abroad. sales and rising profits. On the other A number of members commented hand, members who were less sanguine that strong competition in many about the long-run strength of the markets, including foreign competirecovery cautioned that housing and tion, along with successful efforts by other interest-sensitive sectors of the many businesses to cut costs, was economy might weaken appreciably having a restraining effect on prices Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

126 FOMC Policy Actions and wages. Concern was expressed, to-September path that the Commithowever, that upward pressures on tee had expected would be consistent prices and wages could develop as with its third-quarter objectives for levels of capacity utilization and em- the broader aggregates and also above ployment continued to rise. Members its longer-run monitoring range. Inalso noted the possibility that the coming data suggested, however, that domestic price level would be ad- Ml growth would probably continue versely affected by higher import to decelerate in August. prices if the value of the dollar were At the conclusion of the discussion to decline substantially on foreign ex- the members agreed that no change change markets and by rising food needed to be made at this time in the prices that would result from the in- degree of pressure on bank reserves. teraction of adverse weather condi- Accordingly, a consensus was extions and governmental policies to pressed in favor of maintaining about reduce farm supplies. the existing degree of reserve restraint Turning to policy for the near term, for the period immediately ahead. the Committee considered whether The members anticipated that such a any further adjustment in the degree policy course would be associated of restraint on bank reserve condi- with growth of both M2 and M3 at tions would be desirable under cur- annual rates of around 8 percent for rent economic and financial circum- the period from June to September. stances, given the behavior of the The members also agreed that the monetary and credit aggregates. The need for greater or lesser restraint on members noted that growth in the reserve conditions should be evaluated broader aggregates, on which the against the background of available Committee had been placing primary evidence about trends in economic emphasis, had slowed substantially. activity and prices and conditions in Both M2 and M3 appeared to be ex- domestic and international financial panding at rates that were somewhat markets, including foreign exchange below their June-to-September target markets. Depending upon such develpaths and their recent levels were opments, lesser restraint would be acwithin the longer-run ranges that the ceptable in the event of a significant Committee had established for the shortfall in the growth of the aggreyear. A staff analysis suggested that gates over the period ahead, while the slowdown in the growth of M2 somewhat greater restraint would be and M3 might have resulted in part acceptable in the context of more from special factors, including an rapid growth in the aggregates. The unusually large buildup in July in the Committee continued to anticipate average level of Treasury balances, that its third-quarter objectives for which probably led to reduced bank the broader aggregates would be conreliance on managed liabilities to sistent with a deceleration in Ml finance credit expansion. An unwind- growth to an annual rate of around 7 ing of these developments in the percent from June to September, and weeks ahead could be associated with that expansion in total nonfinancial some acceleration in the growth of M2 debt would remain within the range and M3 over the balance of the third of 8 Vi to 11 Vi percent established for quarter. Growth in Ml had moder- the year. It was agreed that the interated somewhat further in July, but it meeting range for the federal funds Digitizedr feomr FaRinAeSdE Ra bove the short-run, June- rate, which provides a mechanism for http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 127 initiating consultation of the Commit- sustainable pattern of international transtee, would remain at 6 to 10 percent. actions. At its meeting in July the Committee reconsidered the growth ranges for The following domestic policy monetary and credit aggregates estabdirective was issued to the Federal lished earlier for 1983 in furtherance of Reserve Bank of New York: these objectives and set tentative ranges for 1984. The Committee recognized that the relationships between such ranges and The information reviewed at this meet- ultimate economic goals have become less ing suggests continued rapid growth in predictable; that the impact of new dereal GNP in the current quarter. Indus- posit accounts on growth of the monetary trial production increased sharply in July aggregates cannot be determined with a following large gains in the second quar- high degree of confidence; and that the ter. Nonfarm payroll employment also availability of interest on large portions of rose substantially further in July and the transaction accounts may be reflected in civilian unemployment rate declined Vi some changes in the historical trends in percentage point to 9.5 percent. After ris- velocity. ing sharply in the spring, retail sales have Against this background, the Commitleveled off recently. Housing starts edged tee at its July meeting reaffirmed the down over the past two months but per- following growth ranges for the broader mits continued to rise. Recent data on new aggregates: for the period from Februaryorders and shipments on average con- March of 1983 to the fourth quarter of tinued to indicate strength in the demand 1983, 7 to 10 percent at an annual rate for for business equipment. In July, informa- M2; and for the period from the fourth tion on producer and consumer prices and quarter of 1982 to the fourth quarter of the index of average hourly earnings was 1983, 6Vi to 9Vi percent for M3. The consistent with earlier indications of a Committee also agreed on tentative considerable moderation in the rate of growth ranges for the period from the inflation. fourth quarter of 1983 to the fourth Growth in the broader monetary aggre- quarter of 1984 of 61/z to 9Vi percent for gates slowed substantially in July, bring- M2 and 6 to 9 percent for M3. The Coming M2 to a level near the midpoint of the mittee considered that growth in Ml in a Committee's range for 1983 and M3 to a range of 5 to 9 percent from the second level somewhat below the upper limit of quarter of 1983 to the fourth quarter of its range. Growth in Ml decelerated con- 1983, and in a range of 4 to 8 percent from siderably from its May-June pace, but its the fourth quarter of 1983 to the fourth level remained above the Committee's quarter of 1984 would be consistent with monitoring range for the year. Interest the ranges for the broader aggregates. The rates rose appreciably through much of associated range for total domestic nonthe intermeeting period but recently financial debt was reaffirmed at SlA to market rates have retraced most of their WVi percent for 1983 and tentatively set rise. at 8 to 11 percent for 1984. In part reflecting the course of U.S. in- In implementing monetary policy, the terest rates, the weighted average value of Committee agreed that substantial weight the dollar against major foreign currencies would continue to be placed on the berose substantially further in July and early havior of the broader monetary aggre- August, but the rise was followed by a gates. The behavior of Ml and total subsequent decline that reversed most of domestic nonfinancial debt will be monithe earlier increase. The U.S. foreign tored, with the degree of weight placed on trade deficit was smaller in June than in Ml over time dependent on evidence that May, but the deficit in the second quarter velocity characteristics are resuming more was much larger than in the first as im- predictable patterns. The Committee ports rose while exports were essentially understood that policy implementation unchanged. would involve continuing appraisal of the The Federal Open Market Committee relationships between the various measeeks to foster monetary and financial sures of money and credit and nominal conditions that will help to reduce infla- GNP, including evaluation of conditions tion further, promote growth in output on in domestic credit and foreign exchange a sustainable basis, and contribute to a markets. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

128 FOMC Policy Actions The Committee seeks in the short run to today as scheduled. It was also noted maintain the existing degree of reserve that drawings made on the $700 milrestraint. The action is expected to be lion regular swap arrangement had associated with growth of M2 and M3 at been repaid earlier and that as of this annual rates of around 8 percent from June to September, consistent with the date there would be no outstanding targets established for these aggregates for drawings on the Federal Reserve the year. Depending on evidence about System by the Bank of Mexico. the strength of economic recovery and other factors bearing on the business and inflation outlook, lesser restraint would be acceptable in the context of a signifi- Meeting Held on cant shortfall in growth of the aggregates October 4, 1983 from current expectations, while somewhat greater restraint would be acceptable Domestic Policy Directive should the aggregates expand more rapidly. The Committee anticipates that a The information reviewed at this deceleration in Ml growth to an annual meeting suggested that real GNP had rate of around 7 percent from June to continued to grow rapidly in the third September will be consistent with its thirdquarter, although the pace of expanquarter objectives for the broader aggregates, and that expansion in total sion had moderated from the excepdomestic nonfinancial debt would remain tionally strong annual rate of about within the range established for the year. 9VA percent in the second quarter. A The Chairman may call for Committee major factor in the third-quarter exconsultation if it appears to the Manager for Domestic Operations that pursuit of pansion was a sharp swing in business the monetary objectives and related inventories from liquidation to reserve paths during the period before the accumulation. next meeting is likely to be associated with The index of industrial production a federal funds rate persistently outside a range of 6 to 10 percent. rose 0.9 percent in August, following sizable advances in previous months. Votes for this action: Messrs. Volcker, As in other recent months, gains were Solomon, Gramley, Guffey, Keehn, widespread across industry groupings Martin, Morris, Partee, Rice, Roberts, and were particularly strong for con- Mrs. Teeters, and Mr. Wallich. Votes against this action: None. sumer durable goods. By August the index had risen about IIV2 percent from its trough in November 1982 to a level 2V4 percent below the previous 2. Authorization for Foreign peak in July 1981. Currency Operations Nonfarm payroll employment, ad- In August 1982 the Committee had justed for strike activity, rose about authorized the temporary establish- 300,000 in August, continuing the ment of a special swap arrangement strong upward trend that had been of $325 million with the Bank of evident since March. With growth in Mexico, in addition to the regular the civilian labor force roughly swap arrangement of $700 million, matching the rise in employment, the effective for the period from August unemployment rate, which had de- 28, 1982, through August 23, 1983. clined 0.5 percentage point to 9.5 At this meeting the Committee was percent in July, was unchanged in apprised that the Bank of Mexico was August. making the final repayment of dollars After rising sharply in the spring, drawn under the special swap facility consumer spending had moderated and that the facility would expire substantially in recent months. The Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 129 nominal value of retail sales edged the reduced level of spending redown in July and fell appreciably fur- ported for the first half of 1983, the ther in August as sales of durable survey results implied a substantial goods, particularly in the automotive increase in investment outlays in the sector, declined. Sales of new domes- second half of the year. tic automobiles fell in August to an The producer price index for finannual rate just above 6K2 million ished goods and the consumer price units, compared with an average rate index both rose 0.4 percent in August, of 7 VA million units in the preceding somewhat more than the average intwo months. The slowdown in auto crease in the previous few months. sales, which continued into early Sep- The summer drought appeared to tember, apparently reflected the elim- have had little immediate impact on ination of interest subsidies and other prices of foods at the wholesale and incentives to buyers as well as the consumer levels, but at the farm level limited availability of some popular the producer price index for crude models. Auto sales picked up in mid- foods jumped nearly 4 percent in September with the introduction of August after three months of decline. 1984 models and the associated in- Over the first eight months of the crease in dealer inventories. Although year, the producer price index had the growth in consumer spending had shown virtually no change, while the moderated recently, consumer finan- consumer price index had increased at cial positions appeared to be quite an annual rate a little over 3 percent. strong and surveys indicated a con- Along with the moderation in price tinuing high level of consumer confi- pressures, nominal wage increases dence. had generally been quite modest, with Total private housing starts rose to the index of average hourly earnings an annual rate of more than 1.9 mil- of production workers rising only lion units in August, nearly 10 percent about 3 percent at an annual rate above the average rate over the pre- since the beginning of the year. vious three months. However, other The debt of domestic nonfinancial indicators suggested some weakening sectors expanded somewhat less in housing activity: newly issued per- rapidly in August and apparently in mits for residential construction September than in July, as growth declined in August, and sales of both in funds raised by private sectors new and existing homes fell for the slowed. Governmental credit demands second month in a row. remained unusually strong, with U.S. Data on new orders and shipments government borrowings accounting generally continued to indicate for roughly half of the total funds strength in the demand for business raised in credit markets by domestic equipment. Investment in nonresiden- nonfinancial borrowers. Credit at tial structures had stabilized in recent U.S. commercial banks expanded at months, after declines earlier in the an annual rate of about 11 VA percent year. The Department of Commerce in August, somewhat above the aversurvey of business spending plans age pace of other recent months, but conducted in late July and August data for early September suggested a suggested that plant and equipment slowing in the growth of bank credit, expenditures in 1983 as a whole in part reflecting reduced demand for would be about 3 percent lower, in business loans. Issuance of commernominal terms, than in 1982. Given cial paper by nonfinancial businesses Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

130 FOMC Policy Actions was maintained in September at for the year. The intermeeting range about the relatively rapid pace re- for the federal funds rate was recorded in August, while bond offer- tained at 6 to 10 percent. ings remained at a reduced pace. In the latter part of the summer, The foreign exchange value of the growth in M2 remained at, or below, dollar, as measured by its trade- its reduced pace in July, and over the weighted average against major for- June-to-September period its growth eign currencies, had fluctuated within was estimated to have been well a relatively narrow range since mid- below the annual rate of around 8 August. Fluctuations in the exchange percent expected by the Committee. rate over the period generally paral- Growth in M3 strengthened someleled changes in the spread between what in late summer and in the third U.S. interest rates and foreign rates. quarter that aggregate expanded at a The U.S. foreign trade deficit rose pace close to the expected rate. Meansubstantially in July-August from the while, expansion in Ml fell to an anrate in the second quarter, as imports nual rate a little below 3 percent in increased further in association with August, and growth remained relathe pickup in U.S. economic activity. tively low in September. By Septem- At its meeting on August 23, 1983, ber all three monetary aggregates apthe Committee had decided that open peared to be within the longer-run market operations in the period until ranges specified by the Committee, this meeting should be directed at with M2 in the lower portion of its maintaining about the existing degree range, M3 in the upper portion of its of reserve restraint. That action was range, and Ml somewhat above the expected to be associated with growth midpoint of its monitoring range. of M2 and M3 at annual rates of Growth in total domestic nonfinanaround 8 percent from June to Sep- cial debt also appeared to be well tember, consistent with the targets within its range for the year. established for those aggregates for Consistent with the policy directive the year. The Committee had also adopted at the August FOMC meetagreed that, depending on evidence ing, a slightly lesser degree of reserve about the strength of the economic restraint than that prevailing at the recovery and other factors bearing on time of the meeting was sought as the the business and inflation outlook, intermeeting period progressed, in lesser retraint would be acceptable in light of slower than anticipated the context of a significant shortfall money growth in the context of eviin growth of the aggregates from cur- dence of a moderation in the rate of rent expectations, while somewhat economic expansion and continued greater restraint would be acceptable restraint on inflationary pressures. should the aggregates expand more Nonborrowed reserves of depository rapidly than expected. The Commit- institutions, after declining in July tee had anticipated that a reduction in and August, rose somewhat in Sepgrowth of Ml to an annual rate of tember as institutions employed the around 7 percent from June to Sep- increased availability of reserves in tember would be consistent with its part to repay borrowings from the third-quarter objectives for the Federal Reserve. Adjustment plus seabroader aggregates and that expan- sonal borrowing, which had averaged sion in total domestic nonfinancial somewhat over $1 billion in August, debt would remain within its range fell off in September. However, the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 131 average level for September was in- real GNP would proceed at a less flated in part by complications in re- rapid pace in the fourth quarter and serve management related to the re- in 1984, partly reflecting lessened distribution of reserves around the stimulus from inventory rebuilding banking system in connection with a and from expenditures on residential huge buildup in U.S. Treasury cash structures. Growth in consumer balances at depository institutions spending was projected to recover and also at Federal Reserve Banks somewhat over the balance of the following the mid-September tax date. year from a reduced rate in the third Borrowings (excluding extended cred- quarter but to moderate again during it) surged to nearly $1.6 billion during 1984. A decline in the unemployment the statement week ending September rate was anticipated over the projec- 21, but were in a range of about $650 tion period, and upward pressures on million to $750 million during other prices were expected to remain modweeks in September. erate. Interest rates in general fluctuated In the Committee's discussion of around a modest downward trend the economic situation, the members over the intermeeting interval, as the were generally optimistic about the market responded to incoming data prospects for continued recovery in on the economy and the monetary ag- economic activity and containment of gregates, to some weakening in credit inflationary pressures. They agreed demands, and to varying expectations that the staff projection of moderate about implications for the stance of economic growth seemed to be the monetary policy. Short-term interest most likely outcome for the year rates in general declined about !4 to ahead, and in this connection some Vi percentage point on balance over members commented that a more the intermeeting interval. The federal moderate rate of economic growth funds rate averaged close to 9Vi per- than that experienced recently would cent through most of the intermeeting be more consistent over time with susperiod, down slightly from its average taining the expansion and containing in the first half of August. The rate inflation. The view was expressed, dropped to about 9 percent in the last however, that the rate of inflation full statement week of September, ap- could turn out to be somewhat higher parently in part because of reserve than projected and the rate of expandistribution effects stemming from sion somewhat slower. Several memthe large buildup in Treasury depos- bers also emphasized that financial its. However, the funds rate rose sub- markets and the economy could be stantially in the days just before this adversely affected by unpredictable meeting, reflecting usual pressures developments, including possible disaround the end-of-quarter statement turbances originating abroad such as date. Most long-term rates fell about a major interruption in oil shipments 10 to 20 basis points over the period, due to hostilities in the Middle East or and the average rate on new com- a debt-servicing crisis that led to a dismitments for fixed-rate conventional ruption of international credit flows. mortgage loans at savings and loan Concern was also expressed about the associations declined about lA per- continued lag in demand in tradicentage point. tional heavy capital equipment indus- The staff projections presented at tries and also about the restraint that this meeting indicated that growth of would be exerted over time on capital Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

132 FOMC Policy Actions investment and housing by the cur- However, it was noted that a number rent high level of long-term interest of recent settlements, primarily in inrates. dustries not subject to strong com- In the latter context, the members petitive or financial pressures, had again expressed a great deal of con- called for wage increases substantially cern about the prospects for massive higher than the rate of inflation. federal deficits. It was observed that There also appeared to be a "catch the Treasury's large borrowing needs up" demand for higher wages from were already exerting upward pres- workers in previously troubled firms. sure on interest rates, and that greater Concern was expressed that, with pressure could be expected if rela- continuing expansion in economic actively large Treasury credit demands tivity, an increasing number of firms continued and were augmented by would become less willing to resist growing business demands for a sub- inflationary wage demands and that stantial amount of external funds to progress in containing wage costs finance their investments. To date, a might be halted or reversed. relatively good rebound in corporate In the Committee's discussion of cash flow had combined with moder- monetary policy for the weeks ahead, ate investment demands to limit the a consensus was expressed in favor of net external financing needs of the making no further adjustment in the business sector. Moreover, large net degree of reserve restraint at this time inflows of capital from abroad had beyond the slight easing that had been been helping to finance the federal sought in recent weeks on the basis of deficit, and the sustainability of such the directive issued at the August inflows was open to question, with meeting. A staff analysis suggested possible implications for the ex- that such reserve restraint was likely change value of the dollar and for to be associated with some increase in domestic interest rates. monetary growth from the reduced The members commented at some third-quarter pace, reflecting in part length on the related rise in the for- an abatement of the restraining efeign trade and current account defi- fects of the rise in interest rates in late cits to historic and disturbing levels. spring and summer. Growth of all the A substantial decline in the foreign monetary aggregates was likely to reexchange value of the dollar, which main within the Committee's longermany forecasters anticipated, would run ranges, however, given a projechelp to reduce the deficit over time, tion of moderate expansion in but it would probably also foster some nominal GNP in the fourth quarter. inflationary pressures in the domestic According to the staff analysis, the economy. On balance, though, for- removal of most remaining controls eign trade developments were viewed on time deposits by the Depository as having a disproportionately adverse Institutions Deregulation Committee, impact on some domestic industries effective October 1, would under preand, more generally, appeared to be vailing circumstances probably have retarding the economic recovery. only a minor, and possibly undetect- Members referred to the substan- able, near-term effect on the monetial progress that had been made in tary aggregates—in the direction of curbing the rise of prices and wages restraining growth of Ml and inand to the concessions that were still creasing that of the broader aggrebeing made in some wage settlements. gates. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 133 The Committee members recog- deregulation of time deposits on the nized that the behavior of the mone- growth of the broader aggregates in tary aggregates remained subject to a the fourth quarter. The members also great deal of uncertainty, and they agreed that the need for greater or focused on the issue of how promptly lesser restraint on reserve conditions and to what extent open market oper- should be evaluated against the backations should respond to any devia- ground of developments relating to tions in monetary expansion from ex- the strength of the economic recovpected growth rates. The members ery, the outlook for inflation, and agreed on the desirability of continu- conditions in domestic and internaing to take account of emerging eco- tional financial markets. Depending nomic and financial developments, upon such developments, lesser reincluding the international financial straint would be acceptable in the situation, in policy implementation. event of a significant shortfall in the In this connection, some members growth of the aggregates over the felt that the Committee should be weeks ahead, while somewhat greater prepared to respond a little more restraint would be acceptable in the promptly and aggressively in an eas- context of more rapid growth in the ing direction than in a tightening aggregates. The Committee anticidirection, should developments seem pated that its fourth-quarter objecto warrant a change in the degree of tives for the broader aggregates reserve restraint. These members would be consistent with Ml growth underscored the sensitivity of key sec- at an annual rate of around 7 percent tors of the economy to interest rate from September to December, and developments and the impact of U.S. that expansion in total domestic noninterest rates on the strained interna- financial debt would remain within tional debt situation. On the other the range of 8V2 to WVi percent eshand, others called attention to the tablished for the year. It was agreed need for caution in light of the infla- that the intermeeting range for the tionary risks of being too accommo- federal funds rate, which provides a dative in the provision of reserves, mechanism for initiating consultation with even more adverse consequences of the Committee, would remain at 6 over time both domestically and in- to 10 percent. ternationally. At the conclusion of the discussion, At the conclusion of the discussion the Committee issued the following the members agreed that no change domestic policy directive to the Fedshould be made at this time in the eral Reserve Bank of New York: degree of pressure on reserve positions and that operations should be directed toward maintaining the The information reviewed at this meetslightly reduced reserve restraint that ing suggests that real GNP continued to grow rapidly in the third quarter, alhad been sought in recent weeks. The though the rate of expansion moderated members anticipated that such a from that in the second quarter. Industrial policy course would be associated production and employment increased apwith growth of both M2 and M3 at an preciably further in August, following annual rate of around 8 Vi percent for large gains in previous months, and the civilian unemployment rate remained at the period from September to Decem- 9.5 percent. After rising sharply in the ber; this growth rate allowed for a spring, growth in consumer spending has minor impact from the October 1 moderated substantially. Housing starts Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

134 FOMC Policy Actions rose in August but permits turned down. 1983, 7 to 10 percent at an annual rate for Data on new orders and shipments gener- M2; and for the period from the fourth ally continued to indicate strength in the quarter of 1982 to the fourth quarter of demand for business equipment. Producer 1983,6Vi io9Vi percent for M3. The Comand consumer prices increased somewhat mittee also agreed on tentative growth more in August than in other recent ranges for the period from the fourth months, but over the first eight months of quarter of 1983 to the fourth quarter of the year average prices and the index of 1984 of 6Vi to 9Vi percent for M2 and 6 to average hourly earnings have risen more 9 percent for M3. The Committee considslowly than in 1982. ered that growth in Ml in a range of 5 to 9 After slowing substantially in July, percent from the second quarter of 1983 growth in M2 remained at a reduced pace to the fourth quarter of 1983, and in a over the August-September period, while range of 4 to 8 percent from the fourth expansion in M3 picked up. Through Sep- quarter of 1983 to the fourth quarter of tember M2 is estimated to be at a level in 1984, would be consistent with the ranges the lower portion of the Committee's for the broader aggregates. The associated range for 1983 and M3 in the upper por- range for total domestic nonfinancial debt tion of its range. Growth in Ml deceler- was reaffirmed at 8 Vi to 11 Vi percent for ated considerably further in August-Sep- 1983 and tentatively set at 8 to 11 percent tember and moved within the Committee's for 1984. monitoring range for the second half of In implementing monetary policy, the the year. Interest rates have declined Committee agreed that substantial weight somewhat since mid-August. would continue to be placed on the be- The foreign exchange value of the havior of the broader monetary aggredollar, as measured by its weighted aver- gates. The behavior of Ml and total age value against major foreign curren- domestic nonfinancial debt will be monicies, has fluctuated within a relatively nar- tored, with the degree of weight placed on row range since mid-August. The U.S. Ml over time dependent on evidence that foreign trade deficit rose substantially in velocity characteristics are resuming more July-August from the second-quarter predictable patterns. The Committee rate, reflecting a further increase in im- understood that policy implementation ports of a broad range of goods. would involve continuing appraisal of the The Federal Open Market Committee relationships between the various measeeks to foster monetary and financial sures of money and credit and nominal conditions that will help to reduce infla- GNP, including evaluation of conditions tion further, promote growth in output on in domestic credit and foreign exchange a sustainable basis, and contribute to a markets. sustainable pattern of international trans- The Committee seeks in the short run to actions. At its meeting in July the Com- maintain the slightly lesser degree of remittee reconsidered the growth ranges for serve restraint sought in recent weeks. The monetary and credit aggregates estab- action is expected to be associated with lished earlier for 1983 in furtherance of growth of M2 and M3 at annual rates of these objectives and set tentative ranges around 8/2 percent from September to for 1984. The Committee recognized that December, consistent with the targets esthe relationships between such ranges and tablished for these aggregates for the year. ultimate economic goals have become less Depending on evidence about the strength predictable; that the impact of new de- of economic recovery and other factors posit accounts on growth of the monetary bearing on the business and inflation aggregates cannot be determined with a outlook, lesser restraint would be accepthigh degree of confidence; and that the able in the context of a significant shortavailability of interest on large portions of fall in growth of the aggregates from curtransaction accounts may be reflected in rent expectations, while somewhat greater some changes in the historical trends in restraint would be acceptable should the velocity. aggregates expand more rapidly. The Against this background, the Commit- Committee anticipates that Ml growth at tee at its July meeting reaffirmed the fol- an annual rate of around 7 percent from lowing growth ranges for the broader ag- September to December will be consistent gregates: for the period from February- with its fourth-quarter objectives for the March of 1983 to the fourth quarter of broader aggregates, and that expansion in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 135 total domestic nonfinancial debt would had risen about 14H percent from its remain within the range established for trough in November 1982 to a level the year. The Chairman may call for slightly above the previous peak in Committee consultation if it appears to July 1981. the Manager for Domestic Operations that pursuit of the monetary objectives and Nonfarm payroll employment, adrelated reserve paths during the period be- justed for strike activity, rose about fore the next meeting is likely to be asso- 330,000 in October, about the same ciated with a federal funds rate persistentas the average monthly increase in the ly outside a range of 6 to 10 percent. preceding five months. Employment Votes for this action: Messrs. Volcker, gains were particularly marked in Solomon, Gramley, Guffey, Keehn, manufacturing and service industries, Martin, Morris, Partee, Rice, Roberts, and employment in retail trade and Mrs. Teeters, and Mr. Wallich. Votes construction also continued to against this action: None. strengthen. The civilian unemployment rate fell 0.5 percentage point to Meeting Held on 8.8 percent, two percentage points November 14-15, 1983 below its peak in December 1982. The nominal value of retail sales, 1. Domestic Policy Directive after changing little on balance dur- The information reviewed at this ing the summer months, rose about meeting suggested that real GNP was WA percent in both September and growing at a relatively rapid rate in October. Outlays at apparel stores the current quarter, although the pace and furniture and appliance outlets of expansion appeared to have mod- rose substantially in October, and erated from the annual rates of about sales at automotive outlets increased 9VA percent and nearly 8 percent re- markedly in both months. Sales of ported by the Commerce Department new domestic automobiles picked up for the second and third quarters to an average annual rate of 7 million respectively. Renewed strength in per- units in the two months, and sales of sonal consumption expenditures and imported cars surged in October, apa substantial further increase in in- parently in response to the increased ventory accumulation were expected availability of popular Japanese modto contribute to the continued expan- els. Consumers remained optimistic sion in economic activity. Meanwhile, about the near-term outlook, accordprice and wage increases generally ing to recent surveys of consumer have remained moderate, although confidence. Moreover, recent data inthere has been some pickup in recent dicated marked gains in consumers' months in average wage costs and in real disposable incomes, reflecting nonfood consumer prices. substantial increases in nominal per- The index of industrial production, sonal income augmented by the midwhich had risen 1.3 percent in both year tax cut and a continued moder- August and September, increased 0.8 ate rate of increase in the average percent further in October. Output of level of prices. business equipment rose sharply, Following a surge in August, priwhile production of consumer dur- vate housing starts fell to an annual able goods and construction supplies rate of 1.65 million units in Septemedged up slightly further, following ber, close to their average in the secvery large increases in the second and ond quarter. Newly issued permits for third quarters. By October the index residential construction also fell in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

136 FOMC Policy Actions September, marking the second con- of locations around the world was a secutive monthly decline. Sales of ex- factor in the dollar's strength, as isting homes remained at about the some investors viewed the dollar as a reduced July-August pace, while 44safe haven" during the period of sales of new homes rose after three heightened international tensions. months of decline. The rise was also associated in part Business spending for capital goods with some widening of the differenhas remained strong. Outlays for pro- tial between U.S. and key foreign inducers' durable equipment, which terest rates. The U.S. foreign trade had increased at an annual rate of deficit increased considerably in the about 20 percent in real terms in the third quarter as imports, especially of second quarter, rose at a rate of near- petroleum, rose faster than exports. ly 16 percent in the third quarter. Re- At its meeting on October 4, 1983, cent data on new orders and ship- the Committee had decided that in ments indicated further strength in the short run, open market operathe demand for business equipment. tions should be directed toward main- Investment in nonresidential struc- taining the slightly reduced reserve tures rose at an annual rate of about restraint that had been sought in the 12 percent in the third quarter, after weeks just prior to that meeting. This declines earlier in the year. policy was expected to be associated The producer price index for fin- with growth of both M2 and M3 at an ished goods rose 0.3 percent in Octo- annual rate of around %Vi percent for ber, about the same as in other recent the period from September to Decemmonths. Most of the October increase ber. The members had agreed that the was attributable to higher prices for need for greater or lesser restraint on consumer foods; prices of energy- reserve conditions should be evalurelated items and of finished consum- ated against the background of deer goods other than foods were little velopments relating to the strength of changed. Thus far in 1983 the index the economic recovery, the outlook had increased at an annual rate of less for inflation, and conditions in domesthan 1 percent. The consumer price tic and international financial marindex rose 0.5 percent in September, kets. Depending on such developfollowing advances of 0.4 percent in ments, lesser restraint would be acthe preceding two months. Consumer ceptable in the event of a significant prices had changed little early in the shortfall in the growth of the aggreyear and over the first nine months of gates, while somewhat greater restraint 1983 had increased at an annual rate would be acceptable in the context of of about VA percent. The index of more rapid growth in the aggregates. average hourly earnings rose some- The Committee anticipated that Ml what more in September and October growth at an annual rate of around 7 than in previous months, but the in- percent from September to December dex has risen more slowly this year would be consistent with its fourththan in 1982. quarter objectives for the broader ag- In foreign exchange markets the gregates, and that expansion in total trade-weighted value of the dollar nonfinancial debt would remain withagainst major foreign currencies had in the range of 8 Vi to 11 Vi percent esrisen a little more than 1 percent since tablished for the year. The intermeetearly October. The eruption of politi- ing range for the federal funds rate cal and military conflicts in a number was retained at 6 to 10 percent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 137 In October, both M2 and M3 grew ing the five statement weeks ending at annual rates close to the SVi per- November 9, somewhat below the cent pace sought by the Committee level that had prevailed during most for the September-to-December peri- weeks in the previous intermeeting inod: growth in M2, after slowing sub- terval. stantially over the summer months, Interest rates generally fluctuated accelerated to an estimated annual in a narrow range over the intermeetrate of about 9 percent, while growth ing period. Federal funds traded mainin M3 was at an estimated annual rate ly around 93/s percent, down from of about 8V4 percent. On the other earlier weeks. Other short-term rates hand, expansion in Ml, at an annual were up marginally on balance over rate of about 1 Vi percent, remained the intermeeting period. Most longlow. Through October, M2 was at a term rates rose somewhat, apparently level in the lower portion of the Com- in response to indications of continmittee's range for 1983 and M3 was in ued strength in economic activity and the upper portion of its range. Ml to uncertainties about the prospective was in the lower portion of the Com- pattern of Treasury financing as pasmittee's monitoring range for the sec- sage of legislation to raise the debt ond half of the year. ceiling was delayed. In contrast, aver- Growth in the debt of domestic age rates on new commitments for nonfinancial sectors was estimated to fixed-rate conventional home morthave slowed somewhat in October, gage loans declined about 20 basis but it remained well within the Com- points and the ceiling rate on regular mittee's monitoring range for the FHA/VA mortgage loans was reyear. Growth in funds raised by pri- duced Vi percentage point to \2Vi vate sectors apparently moderated, percent. while funds raised by the federal gov- The staff projections presented at ernment continued relatively large. this meeting indicated that growth in Expansion in credit at U.S. commer- real GNP would slow from the rapid cial banks increased at an estimated rate of recent quarters to a more annual rate of about 10 percent in Oc- moderate pace during 1984. A key tober, considerably faster than in Sep- element in the expected slowdown tember and close to the average pace was a projection of lessened stimulus for the year to date. The acceleration from inventory rebuilding and housin October reflected primarily a sub- ing activity; growth in consumer stantial increase in banks' acquisitions spending was also projected to slow of U.S. Treasury securities but also somewhat. On the other hand, busistrong growth in consumer loans. Bor- ness fixed investment was expected to rowing by businesses remained mod- accelerate and the foreign sector was erate, as funds generated internally expected to be less of a damping faccovered the bulk of financing needs; tor over the course of 1984 than over such borrowing continued to be con- 1983. A decline in the unemployment centrated in the short-term area. rate was anticipated over the projec- Total reserves contracted some- tion period, and upward pressures on what in October, but growth of non- prices were expected to remain generborrowed reserves (including extend- ally moderate. ed credit at the discount window) In the Committee's discussion of picked up. Adjustment plus seasonal the economic situation and outlook, borrowing averaged $630 million dur- members commented that the eco- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

138 FOMC Policy Actions nomic expansion had remained strong- tional producers of capital equiper than generally anticipated. Reports ment, and, more generally, by relafrom around the country suggested tively high interest rates in the context increasingly widespread optimism of massive Treasury debt financings. about business conditions and a high International developments might degree of consumer confidence. While also continue to exert a retarding imall the members expected the rate of pact on the domestic economy, espeeconomic growth to moderate over cially if the dollar failed to depreciate the year ahead, there were some dif- as many observers expected and if the ferences of view with regard to the economies of foreign countries retiming and likely extent of the slow- mained relatively sluggish, thereby down. Some members anticipated limiting export markets for U.S. that the slowdown might be ap- products while encouraging foreign preciably less than projected by the firms to compete aggressively in U.S. staff, with unfavorable implications markets. Reference was also made to for inflationary pressures and the ulti- the possibility that problems related mate sustainability of the expansion. to the international debt situation In support of this view, reference was could have adverse consequences for made to the favorable conditions for U.S. financial markets and economic a surge in business fixed investment activity. created by the momentum of the ex- With regard to the prospects for pansion. In addition, it was pointed prices, several members questioned out that a highly stimulative fiscal whether further progress could be policy remained in prospect for 1984. made in containing inflationary pres- Thus, while the expansionary impact sures if the rate of economic expanof housing and inventory accumula- sion did not slow to a more moderate tion could be expected to wane during pace over the year ahead. One memthe second year of the recovery, vig- ber observed that by late 1984, capacorous growth in fixed investment ex- ity utilization rates could reach levels penditures in conjunction with the that would tend to generate inflationprospective federal deficit might well ary cost pressures even if unemploysustain relatively rapid expansion in ment were still high relative to earlier overall economic activity during the expansion periods. On the other year ahead. It was also suggested hand, some members felt that there that, at least for the near term, con- was little current evidence that price sumer spending and inventory accu- and wage pressures or inflationary exmulation might provide more stimu- pectations were worsening. One memlus to the economy than was generally ber also noted that the economy was anticipated. still operating well below capacity Other members placed more em- and that further significant improvephasis on some elements of potential ments in productivity, along with weakness in the economic outlook. It competitive pressures from world was pointed out that there was as yet markets, were likely to restrain inflano firm evidence that business fixed tion during 1984. investment would prove to be excep- In the Committee's discussion of tionally strong during 1984. Indeed, policy for the period immediately such investment might continue to be ahead, all of the members found acheld down by the persistence of weak ceptable a policy directed toward demand for the output of some tradi- maintaining the existing degree of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 139 reserve restraint. In the view of some, dicated that the demand for transachowever, an argument could be made tion balances remained subject to a in favor of a small, precautionary great deal of uncertainty, and that step in the direction of firming in transaction needs related to strengthlight of the continuing strength of the ened business activity could continue economic expansion and the associ- to be met for a time, at least in part, ated danger of a resurgence of infla- out of balances that had been built up tionary pressures during the year earlier, including NOW accounts. ahead. While acknowledging the risks One member indicated a preference of inflation in a rapidly expanding for giving increased weight to Ml in economy combined with large budget the formulation of monetary policy deficits and the relatively rapid and commented that its slow growth, monetary growth earlier in the year, should it persist, could threaten the most members saw sufficient uncer- sustainability of the economic expantainties in the outlook to counsel sion. Other members commented that against any change in reserve pres- the deceleration of Ml growth in resures at this time. Some members cent months had to be evaluated were also concerned that under the against the background of unusually prevailing circumstances even a rapid expansion in the latter part of modest increase in restraint on re- 1982 and the first half of 1983. It was serves might have a disproportionate also pointed out that the broader impact on domestic and international monetary aggregates emphasized by financial markets. The result could be the Committee had been growing in an increase in domestic interest rates line with the Committee's objectives. large enough to have damaging conse- All the members indicated that they quences for housing and other interest- could support a directive that called sensitive sectors of the economy and for maintaining the current degree of to intensify greatly the pressures on restraint on reserve positions over countries with severe external debt the near term, but they also agreed problems. that the directive should continue to According to a staff analysis, a allow for some leeway to adjust the policy of maintaining the present de- degree of reserve pressure during the gree of restraint on reserve conditions intermeeting period. In this connecwas likely to be associated with growth tion, a number of members were in in M2 and M3 at rates that were con- favor of being particularly sensitive sistent with the objectives that the to evidence of continued unexpected Committee had set previously for the strength in the economy and the refourth quarter and for the year as a lated potential for greater price and whole. Such a policy might also result wage pressures, should growth in the in an acceleration in the growth of monetary aggregates appear to be ex- Ml over the last two months of the ceeding expectations. year, primarily in response to increas- At the conclusion of the discussion ing needs for transaction balances in the Committee decided that no change a rapidly expanding economy. Given should be made at this time in the the limited growth of Ml in October, degree of restraint on reserve posihowever, its expansion for the entire tions. The members anticipated that fourth quarter was likely to be below such a policy would continue to be the growth rate of around 7 percent associated with growth of both M2 anticipated earlier. The staff also in- and M3 at an annual rate of around Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

140 FOMC Policy Actions SVi percent for the period from Sep- during the summer months, retail sales tember to December. The members strengthened in September and October. Housing starts and permits declined in also agreed that the need for greater September while home sales rose someor lesser restraint on reserve condiwhat. Recent data on new orders and shiptions should be evaluated against the ments indicate further strength in the debackground of developments relating mand for business equipment. Producer to the strength of the economic recov- and consumer prices have continued to increase at about the same pace as in other ery, the outlook for inflation, and recent months. The index of average hourconditions in domestic and interna- ly earnings rose somewhat more in Septional financial markets. Depending tember and October than in previous upon such developments over the months, but over the first ten months of the year the index has risen more slowly weeks ahead, greater restraint would than in 1982. be acceptable in the event of more The foreign exchange value of the dolrapid growth in the broader monetary lar has risen since early October against a aggregates, while lesser restraint trade-weighted average of major foreign would be acceptable in the context of currencies. The U.S. foreign trade deficit increased considerably in the third quara significant shortfall in such growth. ter, with imports, especially of petroleum, The Committee anticipated that, rising faster than exports. given the relatively slow growth of After slowing substantially over the Ml in October, its expansion at an summer months, growth in M2 accelerannual rate of around 5 to 6 percent ated in October, while M3 continued to expand at a moderate rate. Through Ocfrom September to December would tober, M2 was at a level in the lower porbe consistent with the fourth-quarter tion of the Committee's range for 1983 objectives for the broader aggregates, and M3 in the upper portion of its range. and that expansion in total domestic Ml continued to grow at a sluggish pace in October and was in the lower portion of nonfinancial debt would remain withthe Committee's monitoring range for the in the range of SlA to 1114 percent second half of the year. Longer-term established for the year. It was agreed market rates have risen somewhat on that the intermeeting range for the balance since early October, and shortfederal funds rate, which provides a term rates generally have fluctuated in a narrow range. mechanism for initiating consultation The Federal Open Market Committee of the Committee, would remain at 6 seeks to foster monetary and financial to 10 percent. conditions that will help to reduce infla- At the conclusion of the discussion, tion further, promote growth in output on a sustainable basis, and contribute to a the Committee issued the following sustainable pattern of international transdomestic policy directive to the actions. At its meeting in July the Com- Federal Reserve Bank of New York: mittee reconsidered the growth ranges for monetary and credit aggregates established earlier for 1983 in furtherance of The information reviewed at this meet- these objectives and set tentative ranges ing suggests that real GNP is growing at a for 1984. The Committee recognized that relatively rapid pace in the current quar- the relationships between such ranges and ter, although the rate of expansion ap- ultimate economic goals have become less pears to have moderated since the spring predictable; that the impact of new deand summer. In October, industrial pro- posit accounts on growth of the monetary duction increased appreciably, following aggregates cannot be determined with a large gains in previous months. Nonfarm high degree of confidence; and that the payroll employment rose substantially availability of interest on large portions of further, and the civilian unemployment transaction accounts may be reflected in rate declined Vi percentage point to 8.8 some changes in the historical trends in percent. After changing little on balance velocity. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 141 Against this background, the Commit- growth in October, the Committee anticitee at its July meeting reaffirmed the pates that Ml growth at an annual rate of following growth ranges for the broader around 5 to 6 percent from September to aggregates: for the period from February- December will be consistent with its March of 1983 to the fourth quarter of fourth-quarter objectives for the broader 1983, 7 to 10 percent at an annual rate for aggregates, and that expansion in total M2; and for the period from the fourth domestic nonfinancial debt would remain quarter of 1982 to the fourth quarter of within the range established for the year. 1983, 6Vi to 9Vi percent for M3. The The Chairman may call for Committee Committee also agreed on tentative consultation if it appears to the Manager growth ranges for the period from the for Domestic Operations that pursuit of fourth quarter of 1983 to the fourth the monetary objectives and related quarter of 1984 of 6Vi to 9Vi percent for reserve paths during the period before the M2 and 6 to 9 percent for M3. The Com- next meeting is likely to be associated with mittee considered that growth of Ml in a a federal funds rate persistently outside a range of 5 to 9 percent from the second range of 6 to 10 percent. quarter of 1983 to the fourth quarter of 1983, and in a range of 4 to 8 percent from Votes for this action: Messrs. Volcker, the fourth quarter of 1983 to the fourth Solomon, Gramley, Guffey, Keehn, quarter of 1984, would be consistent with Martin, Morris, Partee, Rice, Roberts, the ranges for the broader aggregates. The Mrs. Teeters, and Mr. Wallich. Votes associated range for total domestic non- against this action: None. financial debt was reaffirmed at 8V2 to IIV2 percent for 1983 and tentatively set at 8 to 11 percent for 1984. 2. Authorization for Domestic In implementing monetary policy, the Committee agreed that substantial weight Open Market Operations would continue to be placed on the behavior of the broader monetary aggre- At this meeting the Committee voted gates. The behavior of Ml and total to increase from $4 billion to $5 bildomestic nonfinancial debt will be moni- lion the limit on changes between tored, with the degree of weight placed on Committee meetings in System Ac- Ml over time dependent on evidence that count holdings of U.S. government velocity characteristics are resuming more predictable patterns. The Committee and federal agency securities specified understood that policy implementation in paragraph l(a) of the authorization would involve continuing appraisal of the for domestic open market operations, relationships between the various meafor the intermeeting period ending sures of money and credit and nominal with the close of business on Decem- GNP, including evaluation of conditions in domestic credit and foreign exchange ber 20, 1983. markets. The Committee seeks in the short run to Votes for this action: Messrs. Volcker, maintain the existing degree of reserve Solomon, Gramley, Guffey, Keehn, restraint. The action is expected to be Martin, Morris, Partee, Rice, Roberts, associated with growth of M2 and M3 at Mrs. Teeters, and Mr. Wallich. Votes annual rates of around 8I/2 percent from against this action: None. September to December, consistent with the targets established for these aggregates This action was taken on the recomfor the year. Depending on evidence about mendation of the Manager for Dothe continuing strength of economic remestic Operations. The Manager had covery and other factors bearing on the business and inflation outlook, somewhat advised that projections for the upgreater restraint would be acceptable coming intermeeting period indicated should the aggregates expand more rapa substantial need for additions to reidly; lesser restraint might be acceptable in serves relating to a seasonal increase the context of a significant shortfall in growth of the aggregates from current ex- in currency in circulation. Accordingpectations. Given the relatively slow ly, the need for net purchases of U.S. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

142 FOMC Policy Actions government and federal agency secur- third quarters. Employment gains ities during the intermeeting interval were widespread, and were particuwas considered likely to exceed the larly marked in manufacturing and standard $4 billion limit on inter- service industries. The civilian unemmeeting changes in holdings of such ployment rate fell 0.4 percentage securities. point further to 8.4 percent, nearly 2Vi percentage points below its peak in December 1982. Meeting Held on The nominal value of retail sales December 19-20, 1983 rose 1.9 percent in November, after increases of 1.4 percent in each of the 1. Domestic Policy Directive preceding two months. Sales increased The information reviewed at this at most major categories of stores in meeting suggested that real GNP was November, including a substantial growing at a relatively rapid pace in rise in purchases of discretionary the current quarter, although the rate items, as indicated by strong outlays of expansion appeared to have mod- at general merchandise and apparel erated from the third-quarter pace. stores. Sales at automotive outlets Strength in personal consumption ex- also rose markedly. While sales of penditures and in business spending— new domestic automobiles, at an anparticularly for inventories and equip- nual rate of about 7 million units in ment—is apparently contributing to both October and November, were up the continued expansion in economic only slightly from the average selling activity. Price and wage increases pace in the third quarter, the annual generally have remained moderate, rate of imported car sales averaged though advances in some indexes about 350,000 units higher in those have been somewhat larger than in months than in the third quarter. the spring and summer. Private housing starts rose about The index of industrial production 6Vi percent in November, to an anincreased 0.8 percent in November, nual rate of about 1 VA million units, the same as in October. Output of and newly issued permits for resibusiness equipment continued to rise dential construction increased marginbriskly, registering average increases ally. For both series, the levels in of nearly 1 Vi percent in each of the November were close to the avertwo months. Output of materials also ages in the third quarter. In October, continued to increase rapidly, but sales of existing homes fell about 5Vi production of consumer goods and percent below their average in the construction supplies rose only slight- third quarter, while sales of new ly. The rate of capacity utilization in homes rose for the second consecutive manufacturing increased 0.5 percent- months. age point further in November to 79.4 Indicators of business capital spendpercent, well above its recession low ing have moved somewhat erratically of 68.8 percent a year earlier. in recent months, but generally sug- Nonfarm payroll employment, ad- gest continued relatively strong expanjusted for strike activity, advanced sion in that sector. Shipments of nonabout 345,000 further in November; defense capital goods surged in Septhe rise was larger than in October tember but fell somewhat in October. but about the same as the average New orders, however, recorded strong monthly increase in the second and gains in September and October, and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 143 the backlog of unfilled orders rose restraint. The members anticipated sharply in both months. that such a policy would continue to The producer price index for be associated with growth of M2 and finished goods had changed little on M3 at an annual rate of around 8 Vi average over the previous two months, percent for the period from September rising 0.3 percent in October and fall- to December, consistent with the ing 0.2 percent in November. Thus growth ranges established for those far in 1983 the index had increased at aggregates for the year. Those ranges an annual rate of less than Vi percent. were 7 to 10 percent at an annual rate The consumer price index rose 0.4 for M2 for the period from Februarypercent in October, about the same as March of 1983 to the fourth quarter in the preceding three months; over of 1983; and 6V2 to 9Vi percent for the first ten months of the year, con- M3 for the period from the fourth sumer prices had increased at an an- quarter of 1982 to the fourth quarter nual rate of about 4 percent. The in- of 1983. It was agreed that over the dex of average hourly earnings was coming intermeeting period the need little changed in November, after ris- for greater or lesser restraint on reing somewhat faster in September serve conditions should be evaluated and October than in previous months. on the basis of evidence about the Thus far in 1983 the index had in- continuing strength of the economic creased at an annual rate of about 3 Vi recovery and other factors bearing on percent, compared with a rise of 6 the business and inflation outlook. percent in 1982. Depending on such evidence, some- In foreign exchange markets the what greater restraint would be actrade-weighted value of the dollar ceptable should the aggregates exhad risen more than 3 percent since pand more rapidly, while lesser the FOMC meeting in mid-November, restraint might be acceptable in the surpassing the peak recorded in context of a significant shortfall in August. Increasing international ten- growth of the aggregates from cursions apparently contributed to the rent expectations. dollar's strength, as investors viewed Growth in M2 and M3, after slowdollar assets as a "safe haven" in the ing substantially over the summer face of concerns about the security of months, strengthened in October and financial assets in some other parts of November. M2 was growing at a pace the world. Evidence of continued close to the annual rate of 8 Vi percent strong expansion in U.S. economic specified by the Committee for the activity also fueled the dollar's rise. September-to-December period; M3 News of a record trade deficit for Oc- grew at an annual rate of SVi percent tober, at a rate markedly higher than in October but increased at a faster that in the third quarter, slowed the pace in November, as banks relied appreciation of the dollar only tem- more on managed liabilities, partly to porarily. The rise in the deficit offset a massive runoff of U.S. Treareflected a sharp increase in imports, sury balances associated with the temas exports were about unchanged. porary delay in raising the federal At its meeting on November 14-15, debt limit. Ml continued to expand at 1983, the Committee had decided that a sluggish pace in November but inin the short run, open market opera- creased substantially in early Decemtions should be directed toward main- ber. Through November, M2 was in taining the existing degree of reserve the lower portion of the Committee's Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

144 FOMC Policy Actions longer-run range for the year 1983, rose about VA to VA percentage point M3 was close to the upper limit of its over the intermeeting period, while range, and Ml was near the lower end most long-term rates increased about of the Committee's monitoring range VA percentage point. Rates on municiof 5 to 9 percent for the period from pal bonds rose somewhat more, as the second quarter of 1983 to the issuers marketed large volumes of fourth quarter of 1983. such securities in advance of dead- The debt of domestic nonfinancial lines on some types of issuance or in sectors was estimated to have con- anticipation of legislation in 1984 imtinued expanding at a moderate pace posing restrictions on the issuance of in November, and its level remained certain tax-exempt bonds. Average well within the Committee's monitor- rates on new commitments for fixeding range of SVi percent to IIK2 per- rate conventional home mortgage cent for the year. Growth in credit at loans changed little over the period U.S. commercial banks rose to an esti- and have fluctuated in a narrow range mated annual rate of about 14 percent near 13.40 percent since late October. in November, reflecting an accelera- The staff projections presented at tion in growth of total loans and con- this meeting continued to indicate tinued heavy acquisitions of Treasury that growth of real GNP would slow securities. Real estate and consumer from the rapid rate of recent quarters lending, while moderating somewhat to a more moderate pace in 1984. in November, remained strong. Bor- Consumption expenditures and housrowing by businesses picked up, as ing outlays were projected to moderissuance of commercial paper slowed ate after growing rapidly in 1983, and considerably from the brisk pace of the stimulus to economic growth previous months and financing in from inventory accumulation was long-term debt markets remained likely to diminish. However, business light. fixed investment was expected to show Total reserves contracted in Novem- continued strength, and the deterioraber, as required reserves declined in tion in net exports of goods and servassociation with a drop in demand de- ices was expected to slow over the posits. Nonborrowed reserves fell by course of 1984. A decline in the unmore, as the average level of adjust- employment rate was anticipated over ment borrowing rose in that month. the projection period, and upward Demands for borrowing eased off in pressures on prices were expected to the first half of December, however. remain generally moderate. Over the intermeeting interval as a In the Committee's discussion of whole, adjustment plus seasonal bor- the economic situation and outlook, rowing ranged from about $440 mil- the members commented that further lion to $865 million, averaging about expansion in economic activity re- $685 million during the four state- mained a likely prospect for 1984 but ment weeks ending December 14, only that the rate of growth would probslightly above the average during the ably slow considerably from the pace previous intermeeting period. in recent quarters. At the same time, Federal funds continued to trade in members referred to the many una range of about 9lA to 9Vi percent certainties that clouded the outlook, over the period, with recent trading and several expressed concern that ingenerally near the upper end of that flationary pressures might worsen range. Other short-term interest rates during the year. Reports from around Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 145 the country indicated widespread im- one member that, if very sluggish provement in business conditions and growth in Ml over the course of rethe development of considerable opti- cent months were to continue, it mism in the business community, could lead to a downturn in economic although it was also noted that some activity by the second or third quarter industries were still operating well of 1984. Another member raised the below capacity. possibility that sales might prove to In the view of some Committee be disappointing over the months members, the expansion in economic ahead in relation to the apparently exactivity during 1984 might well exceed uberant expectations of many busithe staff projection, given the mo- ness leaders, and such a development mentum of the recovery and a stimu- would tend to restrain spending on lative fiscal policy. In particular, it both fixed investment and invenwas suggested that the currently high tories. One member also commented level of confidence among business- that the backlog in demand for housmen and large cash flows to business ing appeared to have been used up, firms favored relatively rapid expan- and further demand was likely to be sion in business fixed investment. weak under foreseeable financial con- Some members also referred to the ditions. possibility of a buildup in inventories Partly because of these differences by firms that had been experiencing about the outlook for economic activstrong sales and increasing delays ity, the members expressed somewhat in obtaining new supplies of many divergent views with regard to prosproducts. pects for inflation over the year Other members were somewhat ahead. A number of members, while less sanguine about the prospective acknowledging the possibility of strength of the ongoing expansion. some rise in the rate of inflation dur- Some emphasized the vulnerability of ing the second year of a recovery, the economy to a substantial rise in believed that any such rise was likely interest rates, should one occur, from to be moderated by sizable margins of levels that were already high in real unused capacity in many industries, terms. In this connection, members by continuing strong competition referred to the desirability of prompt from foreign suppliers, and by a still action to reduce the federal deficit, relatively high, if declining, rate of whose size, both current and prospec- unemployment. Some of these memtive, was a major factor maintaining bers also observed that recent statisupward pressure on interest rates. tics on commodity and other prices High interest rates, apart from their did not suggest that the rate of inflaadverse impact on interest-sensitive tion was accelerating. sectors of the domestic economy such Other members were less optimistic as housing, also would tend to exert about the prospects for inflation. upward pressure on the value of the Several commented on indications of dollar in foreign exchange markets, a strengthening in inflationary expecwith further unfavorable conse- tations among participants in finanquences for U.S. exports, and would cial markets and among businessmen, add to difficulties inherent in the cur- many of whom were reportedly lookrent international debt situation. ing for opportunities to raise prices. Other comments about the eco- Underlying wage pressures, which nomic outlook included the view of had been held down by depressed Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

146 FOMC Policy Actions conditions in many industries, were of 1978 (the Humphrey-Hawkins Act). also seen by many members as likely In the Committee's discussion of to increase as profits continued to im- policy for the near term, most of the prove. Reference was also made to members agreed that the continued the adverse implications for costs and strength of the economic expansion for inflationary pressures of a pro- and the spreading optimism, with the jected decline in productivity growth. attendant risk that inflationary senti- One member expressed the view that ment would intensify, argued against large increases in Ml during the latter any easing of reserve conditions and part of 1982 and the first part of 1983 in favor of maintaining at least the would probably be reflected, after an existing degree of reserve restraint. expected lag, in accelerating inflation Such a policy would contemplate a by the latter part of 1984. It was also slight move toward greater restraint if noted that a significant decline in the economic and monetary developments foreign exchange value of the dollar, appeared to warrant such a course. if it should occur as many observers According to an analysis presented at expected, would contribute to domes- this meeting, the existing restraint on tic inflation. In this connection con- reserve conditions was likely to be cern was expressed that, as the for- associated with growth in M2 and M3 eign exchange value of the dollar rose during the period from November to to a relatively high level, the dollar March at rates that were well within would be exposed increasingly to a the ranges that the Committee had precipitate drop, and if such a drop tentatively set previously for 1984. came when the economy was operat- Such a policy was also likely to result ing closer to full capacity, it would in a considerable acceleration in the tend to have a much more substan- growth of Ml over the four-month tial inflationary impact than other- period, given the anticipation that wise. demands for transaction balances At its meeting in July, the Commit- would be more in line with spending tee had agreed on tentative growth than they had been in recent months. ranges of 6!/2 to 9Vi percent for M2 While nearly all the members could and 6 to 9 percent for M3 during the accept a policy of maintaining at least period from the fourth quarter of the existing degree of reserve re- 1983 to the fourth quarter of 1984. straint, some expressed a preference The Committee believed that growth for some slight firming immediately of Ml in a range of 4 to 8 percent in light of their assessment of the ecofrom the fourth quarter of 1983 to the nomic situation and concerns about fourth quarter of 1984 would be con- the potential for a reemergence of insistent with the ranges for the broader flationary pressures. Other members aggregates. The associated range for preferred to make no change in the total domestic nonfinancial debt was existing degree of restraint for now, provisionally set at 8 to 11 percent for pending a further evaluation of eco- 1984. At this meeting the Committee nomic developments and monetary began a review of the ranges for 1984 growth. In the view of some of these in the expectation that at its next members, even a slight firming of meeting it would complete the review reserve conditions at this time would and establish ranges for the year incur the risk of a relatively prowithin the framework of the Full Em- nounced reaction in financial marployment and Balanced Growth Act kets, with damaging consequences for Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 147 housing and other interest-sensitive initiating consultation of the Comsectors of the economy. Some mem- mittee, would remain at 6 to 10 perbers also emphasized that higher do- cent. It was also understood that the mestic interest rates could have a very Committee would consult should the undesirable impact on the value of aggregates and the economy turn out the dollar in foreign exchange mar- to be significantly weaker than exkets and on the international debt sit- pected. uation. A number of members were At the conclusion of the meeting, also influenced by the relatively slug- the Committee issued the following gish growth of Ml over the course of domestic policy directive to the Fedrecent months, although such growth eral Reserve Bank of New York: appeared to be accelerating in December. Some urged that greater weight The information reviewed at this meetbe placed on Ml in the formulation ing suggests that real GNP has grown at a relatively rapid pace in the current quarand implementation of policy; and in ter, although the rate of expansion apthe view of one member, reserve conpears to have moderated since the spring ditions should be eased promptly if it and summer. In November, industrial became clear that growth in Ml was production and nonfarm payroll employremaining sluggish. ment increased appreciably further and the civilian unemployment rate declined At the conclusion of the discussion, 0.4 percentage point to 8.4 percent. Retail most of the members indicated their sales rose substantially in November folacceptance of a short-run policy that lowing sizable gains in September and Occalled for maintaining at least the ex- tober. Housing starts increased in November to a level close to their third-quarter isting degree of restraint on reserve average. Recent data indicate continuing positions, subject to the possibility of expansion in business capital spending. a slight increase in such restraint de- Producer prices were little changed on pending on developments relating to average in October and November, and consumer prices continued to increase in the outlook for economic activity and October at about the same pace as in other price pressures and on evidence that recent months. The index of average monetary growth appeared to be ex- hourly earnings changed little in Novemceeding the Committee's expecta- ber after rising somewhat faster in Septions. The members anticipated that tember and October than in previous months; over the first eleven months of such a policy would be associated the year the index has risen more slowly with growth of both M2 and M3 at an than in 1982. annual rate of around 8 percent for The foreign exchange value of the dolthe period from November 1983 to lar has risen considerably further since March 1984. The Committee believed mid-November against a trade-weighted average of major foreign currencies. In that an acceleration in the growth of October the U.S. foreign trade deficit was Ml to an annual rate of around 6 permarkedly higher than in the third quarter, cent for the four-month period was reflecting a sharp rise in imports. likely to be consistent with its objec- After slowing substantially over the tives for the broader aggregates and summer months, growth in M2 and M3 strengthened in October and November. that expansion in total domestic non- Ml continued to grow at a sluggish pace financial debt over this period would in November but increased substantially be within the tentative range of 8 to in early December. Through November, 11 percent established for the year M2 was at a level in the lower portion of 1984. It was agreed that the inter- the Committee's range for 1983, M3 was close to the upper limit of its range, and meeting range for the federal funds Ml was near the lower end of the Comrate, which provides a mechanism for mittee's monitoring range for the second Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

148 FOMC Policy Actions half of the year. Most interest rates have continuing appraisal of the relationships risen somewhat since mid-November. between the various measures of money The Federal Open Market Committee and credit and nominal GNP, including seeks to foster monetary and financial evaluation of conditions in domestic credit conditions that will help to reduce infla- and foreign exchange markets. tion further, promote growth in output on The Committee seeks in the short run to a sustainable basis, and contribute to a maintain at least the existing degree of resustainable pattern of international trans- serve restraint. The action is expected to actions. At its meeting in July the Com- be associated with growth of M2 and M3 mittee reconsidered the growth ranges for at annual rates of around 8 percent from monetary and credit aggregates established November to March. The Committee anearlier for 1983 in furtherance of these ob- ticipates that Ml growth at an annual rate jectives and set tentative ranges for 1984. of around 6 percent from November to The Committee recognized that the rela- March will be consistent with its objectionships between such ranges and ultimate tives for the broader aggregates, and that economic goals have become less predict- expansion in total domestic nonfinancial able; that the impact of new deposit ac- debt would continue at around its recent counts on growth of monetary aggregates pace. Depending on evidence about the cannot be determined with a high degree continuing strength of economic recovery of confidence; and that the availability of and other factors bearing on the business interest on large portions of transaction and inflation outlook, somewhat greater accounts may be reflected in some changes restraint would be acceptable should the in the historical trends in velocity. aggregates expand more rapidly. The Against this background, the Commit- Chairman may call for Committee consultee at its July meeting reaffirmed the fol- tation if it appears to the Manager for lowing growth ranges for the broader ag- Domestic Operations that pursuit of the gregates: for the period from February- monetary objectives and related reserve March of 1983 to the fourth quarter of paths during the period before the next 1983, 7 to 10 percent at an annual rate for meeting is likely to be associated with a M2; and for the period from the fourth federal funds rate persistently outside a quarter of 1982 to the fourth quarter of range of 6 to 10 percent. 1983, 6!/2 to 9lA percent for M3. The committee also agreed on tentative growth Votes for this action: Messrs. Volcker, ranges for the period from the fourth Solomon, Gramley, Guffey, Keehn, quarter of 1983 to the fourth quarter of Morris, Partee, Rice, Roberts, Mrs. 1984 of 6lA to 9l/z percent for M2 and 6 to Teeters, and Mr. Wallich. Vote against 9 percent for M3. The Committee considthis action: Mr. Martin. ered that growth of Ml in a range of 5 to 9 percent from the second quarter of 1983 to the fourth quarter of 1983, and in a Mr. Martin dissented from this acrange of 4 to 8 percent from the fourth tion because of his concern that any quarter of 1983 to the fourth quarter of 1984, would be consistent with the ranges tightening of reserve conditions and for the broader aggregates. The associated the associated increase in interest range for total domestic nonfinancial debt rates would present a threat to the suswas reaffirmed at SlA to HVi percent for tainability of the economic expansion: 1983 and tentatively set at 8 to 11 percent for 1984. needed business investment would be In implementing monetary policy, the more expensive, international debt Committee agreed that substantial weight servicing more burdensome, and inwould continue to be placed on the behav- terest-sensitive housing more vulnerior of the broader monetary aggregates. able. The behavior of Ml and total domestic nonfinancial debt will be monitored, with the degree of weight placed on Ml over 2. Authorization for Domestic time dependent on evidence that velocity characteristics are resuming more predict- Open Market Operations able patterns. The Committee understood that policy implementation would involve At its previous meeting the Commit- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 149 tee had voted to increase from $4 bil- Votes for this action: Messrs. Volcker, lion to $5 billion the limit on changes Solomon, Gramley, Guffey, Keehn, Martin, Morris, Partee, Rice, Roberts, between Committee meetings in Sys- Mrs. Teeters, and Mr. Wallich. Votes tem Account holdings of U.S. govagainst this action: None. ernment and federal agency securities specified in paragraph l(a) of the au- This action was taken on the recthorization for domestic open market ommendation of the Manager for operations, for the inter meeting peri- Domestic Operations. The Manager od ending with the close of business had advised that substantial net sales on December 20, 1983. At this meet- of securities were likely to be required ing the Committee voted to retain the during the weeks ahead in order to $5 billion limit for the upcoming in- absorb reserves that had been providtermeeting interval beginning on De- ed recently to meet seasonal needs for cember 21, 1983. currency in circulation. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

150 Consumer and Community Affairs In 1983, the Board of Governors of examination reports, expanding the the Federal Reserve System sought to program for educating consumer reduce the costs of compliance with compliance examiners, and producits consumer regulations while main- ing pamphlets and videotapes to help taining the protections for consumers state member banks comply with that the underlying statutes provide.1 consumer-related regulations. As discussed further in this report, This report offers a statistical sumthe Board monitored the effects of mary of consumer complaints handled the simplification of Regulation Z by the Board, and describes the way (Truth in Lending), and sent to the the Board monitors acts or practices Congress proposed legislation for by banks that may be unfair or decepsimplifying the Consumer Leasing tive. Also discussed are the extent of Act by reducing the complexity and compliance by institutions with Regunumber of lease disclosures and lation Z, Regulation B, and Regulabringing under the act's coverage tion E (Electronic Fund Transfers); rental-purchase agreements, such as the economic impact of Regulation E; those for television sets and other implementation of the Community home appliances. The Board also Reinvestment Act; the activities of undertook a review of Regulation B the Consumer Advisory Council; and (Equal Credit Opportunity) to evalu- legislative recommendations from the ate ways to clarify its guidance to agencies with enforcement responsicreditors, to identify more effectively bilities under the Truth in Lending, and prohibit any illegal discrimina- Equal Credit Opportunity, and Electory practices, and to address other tronic Fund Transfer Acts. concerns. The review was initiated In 1983, the Board and the Reserve under the Board's Regulatory Im- Banks continued distribution of a provement Project, which requires wide variety of consumer education periodic efforts to update and pamphlets and teaching packages and simplify all Board regulations. This held further workshops for teachers report also summarizes the Board's on the consumer credit education 1983 regulatory actions, which affect laws. Two popular consumer credit rules on truth in lending, home mort- films, "To Your Credit" and "EFT: gage disclosures, electronic fund trans- At Your Service," were put on videofers, and consumer leasing. tape for national distribution for The Board also sought to strengthen classroom use. In May, the Board the System's enforcement of consumer was host for a systemwide meeting on regulations by improving consumer consumer and economic education to consolidate ongoing activities and to plan programs for 1984. 1. These statutes, on which the Board is required to report annually to the Congress, are the Truth in Lending Act, the Equal Credit Op- Simplification of Regulation Z portunity Act, the Electronic Fund Transfer Act, the Community Reinvestment Act, and In 1983, the Board monitored the efthe Federal Trade Commission Improvement DigitizedA foctr. FRASER fects of the restructured, shortened, http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 151 and simplified version of Regulation Act. The act, passed in 1976 to assure Z. After the first full year of manda- that lessees of personal property are tory compliance, which began in Oc- given meaningful disclosures of lease tober 1982, the Board found signifi- terms, applies to personal property cant improvements in compliance, leased for more than four months for litigation, and interpretation. personal, family, or household use. In 1983, the number of institutions The simplified version was introwith no violations of Regulation Z duced in the U.S. Senate in late April jumped by nearly 9 percent, to 42 per- (as S. 1152), and was later incorporatcent of all institutions examined. ed into an omnibus bill introduced in Over half of the institutions with November. some violations of the regulation had The draft is written in plain lanonly a few (one to five). Moreover, guage with short, concise sentences that virtually no litigation has arisen eliminate redundancy and unnecesunder the revised regulation. This is sary "legalese." Emphasizing straightan especially significant result, forward disclosures of essential cost because the hope of reducing litiga- information, it simplifies the leasing tion was a driving force in the rules by applying many of the concepts Board's simplification efforts. and principles used in the 1980 sim- The official staff commentary on plification of the Truth in Lending Regulation Z, which interprets the Act. As a result, this version substan- Board's truth in lending rules, has tially reduces both the number and proved to be an effective regulatory the complexity of the required disclotool. Before it was developed, the sures and concentrates on the informa- Board issued many individual letters tion most likely to be used in shopping of interpretation, including official and decisionmaking. It also requires and unofficial staff opinions, as well that all disclosures be presented to the as formal Board interpretations. consumer separately from other infor- Creditors were required to search for, mation so as to emphasize their imcollect, and sort through these inter- portance. pretations for guidance on many spe- The draft legislation adds coverage cific issues, an inconvenient and cost- of rental-purchase agreements, which ly process. Because the commentary are covered neither by the Consumer brings together all interpretations Leasing Act nor by the Truth in Lendinto a single document, is updated ing Act. Under a rental-purchase regularly, and is arranged for quick agreement, the consumer rents the reference, it eases many tasks for property (typically a television set or creditors. The commentary has ap- other home appliance) for a week or a parently succeeded in making the in- month. The rental is automatically terpretations more manageable for renewed with each subsequent paycreditors and in reducing the related ment, and after a specified number of costs of compliance. payments, the consumer owns the property. Some consumer groups have ex- Simplification of the pressed concern that consumers enter Consumer Leasing Act these agreements without adequate In early 1983, the Board sent to the cost disclosures. They say that the in- Congress proposed legislation for dustry emphasizes the option to own simplifying the Consumer Leasing the property without specifying the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

152 Consumer and Community Affairs dollar amount necessary to acquire without removing the protections ownership—an amount that may be against discrimination. The Board also several times the retail price of the asked whether the regulation should goods. They believe that many con- be modified so as more effectively to sumers enter these agreements with- identify and prohibit discriminatory out knowing the ultimate cost of the practices. Finally, the Board specified item and without understanding that several technical issues on which they have no equity in the item if they public comment would be helpful: the stop making payments. Consumer need for improving the sample notice groups also contend that much of the of reasons for adverse action, the industry's advertising is aimed at low- adequacy of the regulation's proviincome people and that it fosters the sions on credit history, the circumbelief that leasing is the only way low- stances under which a creditor may income people can acquire certain consider an application withdrawn, high-priced items. and the need for new rules related to Representatives of the appliance reapplications on open-end credit acrental-purchase industry contend counts. that this type of transaction fills a The Board of Governors expects to legitimate need in the marketplace. issue for public comment the proposed They point out that the agreements changes to the regulation, as well as a offer advantages over purchasing on staff commentary, in the first quarter credit, such as comprehensive mainte- of 1984. nance of the property, the right to terminate without penalty, and the Regulatory Actions absence of a credit check. Now, how- In 1983, the Board amended Reguever, these representatives favor covlation Z (Truth in Lending) to reerage under the Consumer Leasing flect statutory changes and published Act, largely as a result of a number of changes to the regulation's official staff court cases and at least one new state commentary. In addition, the Board law that classifies rental-purchase issued final determinations that the agreements as credit sales for some Truth in Lending Act preempts cerpurposes. They are concerned about tain provisions of the laws of several such treatment on the state level and states. The Board also granted appliwould prefer coverage by federal law. cations from four states for the renewal of exemptions from the disclo- Review of Regulation B sure requirements of Regulation C (Home Mortgage Disclosure). In June 1983, the Board announced its review of Regulation B, explaining Amendments that the purpose of any revisions would be to update the regulation In April, the Board amended Regularather than to make broad and exten- tion Z, effective October 1, 1982, to sive changes, because the Equal Cred- reflect amendments to the Truth in it Opportunity Act, under which it Lending Act that were contained in issued the regulation, had not been the Garn-St Germain Depository Inamended. The Board asked for com- stitutions Act of 1982. The 1982 ment generally on ways to simplify amendment revised the Truth in the regulation's guidance to creditors Lending Act by deleting " arrangers and to reduce compliance burdens of credit" from the definition of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 153 creditor, thereby excluding all such ment. Because the commentary is the arrangers from the act's coverage. The sole vehicle for interpreting Regulaamendments also prospectively and tion Z, the staff plans to update the retroactively exempt from coverage commentary at least annually. Proloans that are made, insured, or guar- posed revisions generally will be anteed pursuant to a program autho- published in November of each year rized by title IV of the Higher Educa- for a 60-day comment period. Final tion Act of 1965. These loans include changes will be issued by March 31 of the Guaranteed Student Loans, the the following year; compliance will be Auxiliary Loans to Assist Students, optional until October 1 of that year, and National Direct Student Loans. when compliance will become manda- These programs provide the majority tory. In accordance with this plan, of federal student loans covered by the staff issued proposed amendthe regulation. ments to the commentary in late The Board also amended Regula- November 1983. tion Z to provide that an error in the disclosure of the annual percentage Determinations of rate or finance charge is not consid- Preemptions and Exemptions ered a violation of the regulation if the error results from a correspond- To eliminate burdensome inconsising error in a calculation tool that the tencies between state and federal creditor used in good faith, and if the laws, the Board issued final determicreditor discontinues use of the tool nations in 1983 that, for certain transand notifies the Board in writing of actions, selected parts of the laws of the error in the tool. Arizona, Florida, Missouri, South In December 1983, the Board an- Carolina, and Mississippi are prenounced two technical amendments empted by the Truth in Lending Act to Regulation C. The first implements and Regulation Z. changes in terminology related to the Determinations of truth-in-lending definition of metropolitan areas that preemptions are based on whether the were adopted by the U.S. Office of state law is inconsistent with the fed- Management and Budget (OMB). The eral law and regulation. An inconsissecond reflects the shift in the author- tent state law is one that requires disity to define standard metropolitan closures or actions by creditors that statistical areas from the Department significantly impede the operation of of Commerce to the OMB. These the federal law, interfere with its puramendments are effective January 1, pose, or contradict it. Such inconsis- 1984. tencies include requiring use of the same term to describe a different amount or meaning than the federal Interpretations law does, defining a term differently At the same time that the Board from the way the federal law does, issued the amendments to Regulation and requiring the use of a term differ- Z, the staff published changes to the ent from the federal term to describe official staff commentary for the the same item. regulation. Some changes correspond In 1983, the Board developed three to the regulatory amendments imple- principles for determining whether a menting the 1982 legislative amend- state law is inconsistent with the ments, while others update the docu- Truth in Lending Act: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

154 Consumer and Community Affairs • State law is viewed as requiring revisions of the Board's examination the use of specific terms if it uses report to make it more comprehensithose terms in its provisions on dis- ble, an expansion of the System's closures, even if it does not impose program for educating examiners, penalties for non-usage. and the production and distribution • A state disclosure that has no of pamphlets and videotapes on comfunctional federal equivalent does not pliance issues. At year-end, the Board pose any question of inconsistency. was also considering improvements to • A state law is preempted only the System's implementation of the when inconsistency exists and not Community Reinvestment Act that when there is merely a potential for it. are based on proposals of the Con- In addition, the Board decided that sumer Advisory Council.2 a preemption determination about a In January 1983, the Federal particular state's law will not affect Reserve Banks implemented new similar provisions in the laws of states standards for the format and content that do not request preemption. Final- of bank examination reports. The ly, the Board delegated the authority revised report emphasizes a bank's for preemption determinations under substantive compliance problems and Regulation Z, Regulation E, and Reg- their causes. When possible, the ulation M (Consumer Leasing) to the reports also make specific suggestions Director of the Board's Division of about corrective action that the bank Consumer and Community Affairs. should take. During the compliance The Board also proposed preemp- examination, examiners note minor tion of certain provisions in the Mas- violations which may not be indicasachusetts law on electronic transfers tive of the bank's general practices; because they were inconsistent with such violations are not presented forthe federal Electronic Fund Transfer mally in the report unless they indi- Act and Regulation E and because, cate a more systematic problem. The according to a preliminary review, Board believes that this new approach they did not afford the consumer will better communicate with bank greater protection than did the management and help them both to federal law. The Massachusetts Divi- correct specific violations and to sion of Banks and Loan Agencies change operational procedures and then revised those provisions to other factors that may contribute to eliminate the grounds for preemp- violations. tion. Therefore, in September the During the year, the Federal Re- Board issued a final determination serve System further strengthened its that the federal law did not preempt consumer compliance program with the Massachusetts law. new centralized training for senior examiners. The one-week Advanced Consumer Compliance School, which is designed for examiners with 18 to Enforcement of 24 months of field experience, focuses Consumer Protection Laws on effectiveness in compliance ex- In 1983, the Board strove to improve aminations and on new regulatory the enforcement of consumer protection regulations and to strengthen institutional compliance with those 2. See the discussion of the work of the Conregulations. These efforts resulted in sumer Advisory Council below. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 155 issues. Two sessions were offered in banks during compliance examina- 1983. The new school supplements tions. the basic school for new examiners, topical seminars for experienced ex- Responsibilities under the aminers, and a variety of informal Federal Trade Commission Act training programs at the regional The Board has three major responlevel. sibilities under the Federal Trade In 1983, the Board produced video- Commission Act: first, to receive tapes and pamphlets to help examicomplaints against state member ners, other regulatory personnel, and banks and to take appropriate action financial institutions better underto remedy them; second, to identify stand the requirements of the conunfair or deceptive banking practices sumer regulations. One of the videoand to adopt regulations that prohibit tapes was "How to Edit HMDA them; and third, within 60 days of the Data," which the Federal Financial effective date of rules adopted by the Institutions Examination Council dis- Federal Trade Commission (FTC) tributed to each office of the regulathat prohibit unfair or deceptive practory agencies that are responsible for tices, to promulgate substantially collecting from financial institutions similar regulations that are applicable the data required under the Home to banks unless certain exceptions Mortgage Disclosure Act. This apply. 17-minute videotape proved effective in improving the quality of the State Member Banks HMDA data that the Council aggregates each year. The Board and the Federal Reserve A second videotape, "Truth in Banks investigate and act to resolve Lending Disclosures for Alternative complaints against state member Mortgages," was aimed at helping ex- banks and forward to appropriate enaminers and others understand how forcement agencies any complaints the disclosure requirements of Regu- received that involve other businesses lation Z apply to mortgage financing or creditors. In 1983, the Federal that involves graduated payments, Reserve System received 2,487 comvariable rates, growing equity, and plaints: 1,725 by mail, 724 by teleseller or consumer buydowns. The phone, and 28 in person (see the videotape was distributed with book- accompanying table). Of these comlets to the Federal Reserve Banks, plaints, 1,030 involved state member which in turn have offered the pro- banks. The Board also received 279 gram to interested groups. written inquiries concerning con- The Board distributed three pam- sumer credit laws, regulations, and phlets to help state member banks banking policies and practices in meet the requirements of the con- 1983. In responding to both the comsumer regulations: "The Board of plaints and the inquiries, members of Directors' Opportunities in Com- the Board's staff provided consumers munity Reinvestment," "How to with specific explanations of laws, Determine the Credit Needs of Your regulations, and banking practices, Community," and "The Board of and with helpful printed material. Directors' Role in Consumer Law Staff members of the Board's Divi- Compliance." Examiners will dis- sion of Consumer and Community tribute the appropriate pamphlets to Affairs continue regularly to review a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

156 Consumer and Community Affairs Consumer Complaints Received by the they were treated courteously by Federal Reserve System, by Subject, Federal Reserve staff; 88 percent, 1983 that they would contact the Federal Reserve again if they had other prob- Subject Number lems with banks; and 57 percent that Regulation B (Equal Credit the resolutions of their complaints Opportunity) 266 Regulation C (Home Mortgage were acceptable. The proportion of Disclosure) 2 Regulation E (Electronic Fund those satisfied with the outcome is Transfers) 71 relatively lower than the proportion Regulation M (Consumer Leasing) 5 Regulation Q (Interest on Deposits) 155 of those satisfied with the System's Regulation X (Securities Credit) 0 handling of the complaints because a Regulation Z (Truth in Lending) 492 Regulation BB (Community number of the complaints involved Reinvestment) 3 practices that, although of concern to Fair Credit Reporting Act 66 consumers, are permissible banking Fair Debt Collection Practices Act 22 practices. Fair Housing Act 1 Holder in due course 4 The following table summarizes the Transfer agents 2 Municipal securities dealer regulation .. 21 nature and resolution of the com- Unregulated bank practices 1,340 plaints against state member banks in Other' 37 1983. The complaints are classified Total 2,487 according to bank functions: loans, 1. "Other" refers primarily to miscellaneous com- deposits, electronic fund transfers, plaints against business entities. trust services, and other. About 55 percent of the complaints against sample of the correspondence that in- state member banks concerned lendvolves complaints processed by the ing functions: 30 percent alleged dis- Reserve Banks and to evaluate the ac- crimination on a prohibited basis; tions of the Banks for adherence to and 25 percent dealt with credit denial System procedures and guidelines. on a nonprohibited basis (such as The results of the review are then dis- length of residency), disclosures of cussed with the pertinent Reserve credit costs, and other general lending Bank. This procedure provides the functions. Approximately 28 percent Board with the information necessary involved interest on deposits and to strengthen the System's handling general practices concerning deposit of complaints. accounts. To assess the attitudes of complainants concerning the handling of their Unregulated Practices complaints, the Board sent follow-up questionnaires to consumers whose The Board continued to monitor comcomplaints against state member plaints about unregulated practices to banks were handled by the System. In identify those that might require 1983, consumers returned 45 percent special attention. of these questionnaires; in 1982, the As in the past, the Board identified return rate was 60 percent. Approxi- the unregulated practices that were mately 70 percent of the respondents the subject of 15 or more complaints reported that the explanations they per quarter or 50 for the year as a received were clear and understand- whole. Of the 1,340 complaints, 357 able; 80 percent, that they were satis- fell into one or the other of these fied with the promptness in handling categories. They were of five types: their complaints; 98 percent, that complaints about credit denial based Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 157 Consumer Complaints Received by the Federal Reserve System, by Function and Resolution, 1983 Type of complaint Total Loan functions Elec- Type of resolution p c l o ai m nt - s Dis- f D un ep ct o i s o i n t t f r u o n n d ic se T r r v u ic s e t s Other crimi- Other transnation fers Total complaints 2,487 272 1,015 738 71 17 374 Total concerning state member banks 1,030 169 399 293 36 9 124 Insufficient information' 30 3 10 8 1 0 8 Information furnished2 180 25 92 45 2 0 16 Bank legally correct No accommodation 373 83 136 94 14 6 40 Accommodation made3 .... 131 15 59 36 4 0 17 Clerical error, corrected 115 13 34 49 4 1 14 Factual dispute * 33 2 7 16 2 0 6 Bank violation, resolved5 18 2 10 4 2 0 0 Possible bank violation, unresolved6 10 0 3 4 10 2 Customer error 13 1 3 4 3 0 2 Pending, December 31 127 25 45 33 3 2 19 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. Conon credit history (91, or 7 percent of credit history or the lack of borrowthe total complaints about unregu- ing experience for a lender's decision lated practices); disputed deposits about the applicant's creditworthi- (73, or 5 percent); excessive time to ness. The second category involves clear checks, including delayed avail- factual disputes between the conability of funds (65, or 5 percent); sumer and the bank; in these disdiscrepancies in accounts (64, or 5 putes, no single policy or procedure percent); and charges and procedures engendered enough complaints to related to insufficient funds (64, or 5 constitute a trend of unfair practices. percent). Each of these categories accounts for The two largest categories of com- only a small fraction (3 percent or plaints received involved credit denial less) of all consumer complaints because of credit history and disputed received. deposits. In the first category, the In March 1983, the Board initiated complaints did not clearly involve research to heighten its understanding practices that are unfair or deceptive. of the difficulties consumers have Many of the complaints indicated with availability of funds. As part of that the applicant for credit did not the Survey on Consumer Attitudes realize the implications of a poor conducted by the Survey Research Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

158 Consumer and Community Affairs Center of the University of Michigan, FTC Rules the Board asked consumers about their experiences with delayed availa- In 1983, the Board continued to monibility of funds deposited into check- tor the status of three rules proposed ing, savings, and money market de- by the FTC to determine the need for posit accounts. The large majority of substantially similar rules applicable deposit account holders did not have to banks. These rules are the Credit problems of delayed availability in Practices Rule, an amendment to the the past few years. Of the respondents Holder-in-Due-Course Rule, and the who had problems, few reported that "Used Car Rule." the problems occurred frequently.3 The proposed Credit Practices Rule In September, the Board's Vice would prohibit certain contractual Chairman, Preston Martin, testified terms that creditors have used when before the Subcommittee on Con- collecting unpaid debts and would resumer Affairs of the Senate Commit- quire creditors to make certain disclotee on Banking, Housing, and Urban sures. The proposal, which was first Affairs on legislation that had been issued for comment by the FTC in proposed to address the issue of de- 1975, has been modified to meet some layed availability. Although acknowl- of the technical objections that were edging that the practice causes prob- raised during hearings held by the lems for some consumers, the Vice Commission in 1977 and 1978. The Chairman testified that the steps the Board presented testimony to the industry has voluntarily taken should Commission concerning the proposal be given a chance to resolve the issue in June 1983. On July 20, 1983, the before legislation is enacted. Through- FTC gave conditional approval to the out 1983, the Board continued to en- rule by mnanimously adopting six of courage such steps by, among other the ten provisions, some of which had things, meetings with industry repre- been modified since they were origisentatives. nally proposed. The approval of the In early 1984, the Board proposed rule depends on the preparation by to the other federal financial agencies FTC staff of two documents, a reguthat they all issue a joint policy state- latory analysis and a statement of ment on the practice of delayed avail- basis and purpose, for consideration ability of funds. The Board suggested by the Commission. If the FTC acthat the policy statement call on cepts the documents, the effective financial institutions that delay avail- date of the rule will be one year from ability to review and disclose their the date of promulgation. policies; take into account individual The proposed amendment to the factors that may indicate whether a Holder-in-Due-Course Rule is pendrisk of loss exists; provide a means ing at the FTC. The purpose of the for depositors to request an exception rule, according to the FTC, is to enfrom the standard delay policies; and sure that no legal device interferes refrain from imposing holds on social with a seller's duty to perform its security and other federal govern- responsibilities when a consumer has ment checks. agreed to pay for goods. The seller portion of the rule has been in effect since May 14, 1976; the amendment would extend the requirements of the 3. "Frequently" was defined as at least once rule to creditors besides sellers. a month. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 159 In August 1981, the FTC adopted amined were found to have no violain final form the "Used Car Rule," tions at all, compared with 33 percent which requires certain disclosures by in 1982. The three agencies that were sellers of used motor vehicles. In Sep- able to provide ranges of violations tember 1981, the Commission sub- (the Board, the OCC, and the mitted the rule to the Congress for NCUA) reported that 58 percent of review pursuant to the legislative-veto the institutions they examined were in provisions of the act, and the rule was full compliance, 25 percent had comvetoed in May 1982. Although the mitted no more than five violations, Supreme Court found that veto un- and only 17 percent had committed constitutional, subsequent lower more than five violations. The Fedcourt action has further delayed the eral Deposit Insurance Corporation effective date of the rule. (FDIC) reported a slight decrease (3 percent) in the number of institutions Compliance with in full compliance. Consumer Regulations Summaries of examination findings compiled by the Board of Governors, The five federal agencies that superthe OCC, the FDIC, the FHLBB, and vise financial institutions reported the NCUA indicate that the most frethat overall compliance with the conquent violations of Regulation Z are sumer regulations improved in 1983. the following: The other agencies that enforce these • Failure to disclose the number, laws also reported high levels of comamount, or timing of payments pliance. This section summarizes scheduled to repay the indebtedness. these reports on compliance with reg- • Failure to disclose correctly the ulations under the Truth in Lending annual percentage rate. Act, the Equal Credit Opportunity • Failure to disclose with sufficient Act, and the Electronic Fund Transprecision the finance charge and the fer Act. The reports cover the period July 1, 1982, to June 30, 1983.4 total of payments. • Failure to make written disclosures, properly grouped and segre- Truth in Lending gated in a form that the customer (Regulation Z) may retain. Four of the five federal agencies that • Failure to disclose properly and regulate financial institutions reto itemize the amount financed on ported that compliance with Regulaclosed-end credit. tion Z continued to improve in 1983. The FDIC issued one cease-and- The Board, the Office of the Compdesist order for violations of Regulatroller of the Currency (OCC), the tion Z. The Board entered into three National Credit Union Administraformal administrative enforcement tion (NCUA), and the Federal Home actions, and the OCC into one, that Loan Bank Board (FHLBB) reported included provisions requiring complithat 42 percent of all institutions exance with Regulation Z. Approximately 618 institutions supervised by the Board, the OCC, the FDIC, and 4. Although the federal agencies that regu- the FHLBB reimbursed more than $2 late financial institutions do not all use the million on 38,821 accounts under the same method to summarize compliance data, Regulation Z enforcement policy; the the data they provide support the general con- Digitizedc lfuosr iFonRsA pSrEesRen ted here. 1981 figure was $5.5 million. The http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

160 Consumer and Community Affairs marked decline in both the number promptly to consumers as required by and total dollar amount of restitu- the Truth in Lending Act. tions indicates continued improve- Maine, Connecticut, Massachument in disclosing annual percentage setts, Oklahoma, and Wyoming, rates and finance charges properly. which are exempt from certain parts The Federal Trade Commission of the Truth in Lending Act, reported (FTC) initiated a pilot program to in- satisfactory compliance in 1983 with crease voluntary compliance with the truth-in-lending rules. provisions of the Truth in Lending Act regarding credit advertising. The Equal Credit Opportunity FTC monitored real estate advertise- (Regulation B) ments in newspapers in 16 major cities and notified advertisers of any Each of the agencies that regulate violation observed. As a result, com- financial institutions reported continpliance with these provisions rose ued improvement of compliance with from an average of 13 percent in the Equal Credit Opportunity Act January 1983 to more than 84 percent (ECOA) and Regulation B. Approxiin June; nearly 1,300 advertisers were mately 76 percent of the institutions brought into compliance without for- examined had no violations, up from mal enforcement actions. Since June, 67 percent in 1982. The Board instithe FTC has expanded monitoring to tuted three formal administrative acadditional major cities. It also has tions that addressed noncompliance entered into three consent agreements with Regulation B, and the OCC that require the creditors involved to instituted one. The most frequent viocorrect violations of advertising re- lations of Regulation B were the quirements of the Truth in Lending following: Act and the error-resolution require- • Failing to provide adequate and ments of the Fair Credit Billing Act. timely notice of action taken on a In addition, the FTC sought civil credit application. penalties against a creditor that failed • Failing to use the appropriate to comply with an earlier order that form and provide specific reasons for cited advertising violations. adverse action when credit is denied. The other agencies with enforce- • Requesting prohibited informament responsibilities—the Packers tion (such as the race, color, religion, and Stockyards Administration of the or national origin of an applicant, ex- U.S. Department of Agriculture, the cept as required for monitoring pur- Farm Credit Administration, and the poses) or requests for information Civil Aeronautics Board—reported about "other income" without the regenerally high levels of compliance. quired disclosure that it is optional. The Farm Credit Administration re- • Requiring the signature of an apported that the investigation of a for- plicant's spouse or other person, mal complaint against a federal land other than a joint applicant, when the bank association led to the discovery applicant qualifies under the creditor's of a pattern of miscalculated annual standards of creditworthiness. percentage rates. The land bank reim- The Federal Trade Commission bursed about $35,000 to 1,300 custo- took four formal enforcement actions mers. The Civil Aeronautics Board against creditors: three of the crediissued a cease-and-desist order to one tors were charged with discrimination air carrier for failure to credit refunds prohibited by the act, and a depart- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 161 ment store chain was charged with quent violations of Regulation E in failing to tell applicants the specific 1983: reason for credit denial and failing to • Failure to provide initial discloprovide disclosures required by the sures, or correct ones, when a custo- Fair Credit Reporting Act. mer contracts for EFT service or Although most creditors seem to be before the first transfer on the complying, the FTC staff is pursuing account. several investigations. These investi- • Failure to provide a notice of gations involve issues such as discour- error-resolution procedure at least aging applications from the elderly once each calendar year. because of age or lack of full-time • Failure to provide adequate inemployment, restrictions on the formation on the periodic statement. repayment periods of loans to the The FTC, which also has responsielderly, failure to retain applications, bilities for enforcement of this act, and failure to provide notices of reported satisfactory compliance. Acadverse action. cording to the Securities and Exchange The Small Business Administration Commission, a few broker-dealers (SBA) reported one violation related are beginning activities that may be to age. The ECOA prohibits consid- subject to the provisions of the act. eration of an applicant's age except in The Commission will monitor those an appropriate credit-scoring system parties' activities closely to ensure to determine a pertinent element of compliance. creditworthiness, such as whether the amount of employment or retirement The Economic Impact of income will support the debt until Regulation E maturity. The SBA's standard operating procedure states merely that the As the Electronic Fund Transfer Act age and health of an applicant are requires, the Board monitors the efvalid concerns when looking at the fects of the act on the costs and beneability to repay a loan. The procedure fits to financial institutions and conis now being amended to give more sumers. The application of the act specific guidance for weighting an ap- broadened during 1983 as more fiplicant's circumstances in keeping nancial institutions offered electronic with the ECOA and Regulation B. fund transfers (EFTs) and more con- The other federal agencies respon- sumers used them. A growing number sible for enforcing the act reported of institutions made preauthorized satisfactory compliance. transfers through automated clearinghouses (ACHs), provided automated teller machines (ATMs), or engaged in other forms of EFT. Al- Electronic Fund though larger institutions are more Transfer Act (Regulation E) likely to offer a full range of con- The financial regulatory agencies sumer EFT services than smaller reported substantial improvement in ones, shared networks and joint vencompliance with the Electronic Fund tures continue to make more EFT ser- Transfer Act. Of the institutions ex- vices available to smaller institutions amined, 84 percent were in compli- and their customers. As the automaance, up from 74 percent in 1982. tion of operations spreads among fi- The following were the most fre- nancial institutions of all sizes, the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

162 Consumer and Community Affairs cost of providing EFTs to consumers sumer Complaint Control System. will continue to fall. Because of Only 71 of the 2,487 complaints prodeclining cost and growing consumer cessed in 1983 involved EFTs. The demand for the benefits from EFT Federal Reserve System forwarded 27 services, consumer use of EFT is like- of these complaints to other agencies ly to grow. for resolution; of the remaining 44, More consumers than in the pre- only 4 involved a possible violation of vious year had accounts at institutions the regulation. that offered EFT services. Further- Costs associated with the act are more, they made greater use of such also difficult to quantify because the features. A Board-sponsored survey costs of industry practices that would conducted in April 1983 found that of have evolved in the absence of statuhouseholds with a checking, savings, tory requirements are unknown. Renegotiable order of withdrawal search by the Board staff has found (NOW), or share draft account, more that, on average, data processing than 68 percent had an account with changes, labor, and administration an EFT feature and used it at least oc- were the most costly elements in comcasionally; the proportion in March pliance. The compliance cost of an 1981 was 54 percent. ATMs are cur- EFT transaction is probably not high rently the most widely used of the five enough to compromise the cost adprincipal forms of EFT (the others vantage EFT transactions may otherare telephone bill payment, home wise have over check-based transacbanking, point-of-sale payments, and tions. As EFT systems mature, as transfers through ACHs). transaction volume builds, and as The benefits to consumers from the start-up costs for compliance are Electronic Fund Transfer Act are dif- amortized, compliance costs for each ficult to measure because they cannot EFT transaction are likely to fall. The be isolated from consumer protec- cost burden of the act is therefore tions that would have been provided likely to decline. otherwise. Compliance statistics from examination reports do not suggest Community Reinvestment Act any widespread compliance problem or violations of the consumer rights The Board of Governors is required established by the act. All five federal by the Community Reinvestment Act agencies that regulate financial in- (CRA) to encourage institutions stitutions reported decreases from the under its jurisdiction to help meet the previous year in the percentage of in- credit needs in their communities— stitutions not in full compliance. The including low- and moderate-income most frequent violations involved neighborhoods—consistent with the failure to provide one or more infor- safety and soundness of the institumation disclosures to consumers. tions. The CRA requires the Board to Moreover, the majority of institu- assess the record of an institution in tions cited for noncompliance had meeting such needs and to take that only one to five violations, a good record into account in deciding cerrecord in light of the volume of con- tain applications that the institution sumer EFT transactions. files. Further evidence that consumers During the 1983 reporting period have no serious problems with EFT (July 1, 1982 through June 30, 1983), lies in data from the Board's Con- Federal Reserve System personnel ex- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 163 amined 785 state member banks for Officers at the Reserve Banks spon- CRA compliance. These institutions sored numerous programs to foster are ranked for compliance on a scale constructive dialogue between finanof 1 through 5, with 5 representing cial institutions and their communithe lowest level of performance and ties. These officers also assisted 3, less than satisfactory performance. lenders in fulfilling their obligations No bank fell into the lowest category, under the CRA and in promoting reand less than 4 percent failed to vitalization through initiatives of the achieve at least a satisfactory perfor- private sector. mance. Consumer Advisory Council To assure a balanced perspective on whether a bank is responding to The Consumer Advisory Council met the needs of its community, Federal in March, July, and October 1983 to Reserve examiners often interview advise the Board with regard to its community representatives. In the rulewriting and enforcement respon- 1983 reporting period, 1,036 such in- sibilities and to discuss other issues terviews were conducted with govern- relating to consumer financial servment officials, community-based ices. The council has 30 members, organizations, community develop- who represent a wide spectrum of ment corporations, and civil rights the interests of both consumers and and consumer advocates. financial institutions. The council's In the 1983 reporting period, three meetings are open to the public. applications that the Federal Reserve In 1983, the council considered the System processed were protested under following issues: the CRA. The first application was • The merits of state or federal protested by a community organiza- rules that would govern disclosures tion which alleged that the applicant for time deposits and savings achad failed to meet the credit needs of counts. the low- and moderate-income popu- • The Board's proposed revision lation in the community. In a private of the Consumer Leasing Act. meeting between the applicant and • The way limitations on creditor the community organization, the remedies may affect the availability organization agreed to withdraw its of consumer credit and the number of protest. Following the protest, num- consumer bankruptcies. erous lenders in the area expressed an • The relationship between cominterest in working with community mercial and consumer interest rates. groups to establish a local neighbor- • Bank policies on dormant achood housing services program. The counts. protest appeared to open new chan- • Legislative and operational denels of communication between the velopments relating to delayed availcommunity and its lenders. The sec- ability of funds. ond application was also approved • The Board's plan for reviewing following the withdrawal of the pro- Regulation B. test, again as a result of private meet- • The effectiveness of the Federal ings between the applicant and the Reserve System's implementation of protestant. The third was approved the Communty Reinvestment Act. by the System following a finding • The economic effects of credit that the protest was nonsubstantive. card use on consumers, merchants, In 1983, the Community Affairs and card issuers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

164 Consumer and Community Affairs • Credit card fraud and proposed with them in interviews with local legislation to expand existing law. community groups and agencies in • Bankruptcy reform. maintaining CRA-related informa- In 1983, the council forwarded to tion. Also, the Board should offer the Board "The Federal Reserve specialized education for examiners System's Implementation of the and monitor the performance of the Community Reinvestment Act of officers. The council also recom- 1977," a report requested by Chair- mends increased coordination of the man Volcker. The review committee enforcement effort of the federal of 11 council members focused on supervisory agencies, especially in four areas: bank examinations, the developing and maintaining CRAtraining of consumer compliance per- related information, such as comsonnel, applications and protests, and munity profiles. community affairs. • The Federal Reserve System The council's report commends should exercise leadership in fostering many of the System's efforts to im- constructive dialogue between bankplement CRA, especially the appoint- ers and their communities. Specifiment of a community affairs officer cally, the System should encourage at the Board and at each of the community affairs officers to use Federal Reserve Banks; the System's community resources, especially expecommunity outreach program; and rienced community specialists, more the CRA training for consumer com- fully; to urge examiners to interview a pliance examiners. In addition, the broad range of community represenreport offers recommendations to tatives; and to seek better written strengthen implementation of the act, communications with the public. The within a framework of general beliefs: report suggests that Reserve Banks • The Board should assign a improve their special mailings to higher, more clearly defined priority community groups and that newsto enforcement and other efforts paper notices of applications by necessary to implement the CRA. banks and bank holding companies Specifically, the council recommends be written in plain English and state that System examiners use more ef- that the Federal Reserve will confective methods to detect bank prac- sider, in deciding on the application, tices that discourage minorities and a bank's performance in helping to other protected classes from applying meet the credit needs of the commufor loans, and that the System pro- nity. The council also recommends duce additional educational materials that the CRA statement be changed to inform consumers of the Federal to make it a more useful instrument Reserve's willingness to respond to of public disclosure. CRA complaints against state mem- The Board is currently studying the ber banks. council's recommendations to deter- • The System should strive for bet- mine how the System's implementater coordination in various CRA- tion of CRA may be enhanced. related activities. For example, the community affairs officers, who are Legislative Recommendations expected to have the most wellrounded view of CRA issues, should Each year the Board asks the agencies be directly involved in training new with enforcement responsibilities examiners and should work closely with regard to Regulations B, E, and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 165 Z for any legislative recommenda- OCC believes that financial institutions concerning the underlying acts. tions face difficulties in establishing Although the Board has no legislative consumer liability, because they must recommendations beyond those re- prove when the consumer learned of garding the Consumer Leasing Act the loss or theft and, in some in- (summarized earlier in this section), stances, must also prove that the other agencies have made suggestions. losses would not have occurred if the The Interstate Commerce Commis- consumer had notified the institution. sion has requested consideration of The OCC also believes that clarifian amendment to the Equal Credit cation of congressional intent is need- Opportunity Act that would eliminate ed with regard to section 909 of the it as an agency responsible for enforc- Electronic Fund Transfer Act. The ing the act. In support of its request, OCC points out that, in a dispute the commission notes that most cus- about unauthorized transfers, the act tomers of the carriers that it regulates puts the burden of proof upon the are business firms rather than individ- financial institution, and that the uals. Moreover, the commission notes Board's Regulation E requires merely that although the carriers of house- a "good faith investigation" of the hold goods, which serve individuals, institution's records in resolving a may appear to have opportunities to dispute. As a result, the act's requirediscriminate in ways prohibited by ment about burden of proof is weakthe act, those carriers tend to restrict ened. The OCC also suggests clarificredit to corporations and relocation cation as to whether this requirement companies. "Should the extension of applies only in a judicial procedure or credit to individuals become more also in pretrial stages of a consumer prevalent," the commission advises, complaint. "the commission staff will regard the The Federal Deposit Insurance household goods sector as a potential Corporation reiterates its recommenproblem area warranting scrutiny, dation that the Congress review and but we are unaware of any movement overhaul the Truth in Lending Act, in that direction." which the FDIC finds complex and The Office of the Comptroller of unmanageable. The agency suggests the Currency believes that provisions that the Congress reexamine the in the Electronic Fund Transfer Act scope of the act and the nature and governing consumer liability for un- extent of the abuses that gave rise to authorized electronic transfer of the statute. It observes that a broad funds should be re-evaluated. The act category of simple-interest loans establishes a three-tiered structure for could well be exempted from the cost determining consumer liability that, disclosures of the law as long as any according to the OCC, is complex and associated credit insurance was in fact confusing for consumers and finan- voluntary. cial institutions alike. Moreover, the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

166 Legislative Recommendations The Board of Governors has made for the various segments of the finanthe following recommendations for cial service industry. The Board takes legislation to the Congress of the as its point of departure the basic United States. proposition that banks, and depository institutions generally, continue Bank Holding Company to perform a unique and critical role Legislation in the financial system and the economy—as operators of the payments Legislation is under consideration in system, as custodians of the bulk of the Congress to expand banking liquid savings, as key and impartial powers and revise the banking laws to suppliers of short-term credit, and as be responsive to technological and the link between monetary policy and market changes, competitive forces, the economy. and customer needs. The Board believes that all institu- The Federal Reserve believes that tions having the unique character of reform of the existing statutory banks should be subject to the rules framework is urgent to accommodate applicable to banking institutions— the constructive evolution of the that is, the limitations on the range of banking system and to channel the activities and ownership, as well as forces of change in a manner consisthe protections against conflict of intent with continuing public policy obterest, concentration of resources, jectives. and excessive risk. To achieve that end The Federal Reserve has recomand to close the so-called "nonbank mended that the framework for legisbank" loophole, the Board has recomlative action should include the folmended clarifying the definition of lowing essential elements: "bank" in the Bank Holding Com- • New statutory definitions to pany Act by, among other changes, clarify what is a bank, what is a thrift extending the definition to cover all institution, and what is the proper institutions that are insured by the Fedscope of powers for state-chartered eral Deposit Insurance Corporation. banks. The Board has also recommended • Expansion of the powers of bank that thrift institutions meet a miniholding companies. mum residential mortgage test to re- • Streamlining of the procedures main eligible for the special benefits of the Bank Holding Company Act. provided by law for such institutions. The holding companies of thrift insti- Definitions tutions not meeting the test would be New definitions of the terms "bank" limited so that the scope of their perand "thrift institution" are urgent to missible nonbanking activities would assure an orderly framework for the be similar to those of bank holding development of the financial system, companies. to promote competitive equity, and to The Board has also recommended establish clearly the competitive rules that the Congress establish limits with Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legislative Recommendations 167 respect to the ability of states to latory burdens. The Board has recauthorize state-chartered institutions ommended legislation eliminating the to engage in activities that are beyond "benefits and burdens" test of present the powers permitted under federal law, limiting bank holding company law to depository institutions and examinations and reports, providing their holding companies. Otherwise, for expedited notice procedures for to the extent that the Congress, in the approval of new activities, and setting national interest, finds it necessary to out new and simplified criteria for circumscribe the activities of deposi- determining the permissibility of new tory institutions and their holding activities generally. companies, such limitations could be rendered null and void over time by Increasing the Number unrestrained state action. of Class C Directors The Board has recommended that the Powers Federal Reserve Act be amended to The Board has recommended permit- increase the number of Class C directing bank holding companies to en- tors at each Federal Reserve Bank gage in a broader range of activities from three to five. The proposal aims including the following: to diversify further the backgrounds • The expansion of securities and interests represented on the powers, specifically revenue bond boards of directors of the Reserve underwriting and mutual investment Banks as a way of accomplishing one fund powers. of the objectives of the Federal Re- • Insurance brokerage and under- serve Reform Act of 1977. That act writing activities with some con- provides for the representation of the straints on the size combinations of interests of consumers, labor, and banks and insurance firms. services, in addition to agriculture, • Real estate brokerage and the ex- commerce, and industry, on the boards ercise of real estate investment and of the Reserve Banks. development powers with certain pru- The Board also has recommended dential limitations. that thrift institutions be added to the • The operation of a thrift institu- groups that should be considered in tion insured by the Federal Savings selecting Class C directors in view of and Loan Insurance Corporation. the changes made by the Monetary • Any activity determined by the Control Act of 1980. That act applied Board to be of a financial nature or reserve requirements to such instituclosely related to banking. tions and made Federal Reserve credit and services available to them. Procedures Amendments to the The Board favors streamlining the Consumer Leasing Act procedures for dealing with bank holding company applications. By re- The Board has submitted to the Concent changes in the regulation govern- gress draft legislation to simplify and ing holding company activities, the improve the Consumer Leasing Act. Board has gone as far as it believes it The Board suggested that the law, can, consistent with present law, to which requires disclosure of the terms speed up procedures and lessen regu- and cost of leasing personal property Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

168 Legislative Recommendations by consumers, could benefit from the expenses for branch construction kind of streamlining that characterized principally for additions to, or rethe simplification of the Truth in placements for, existing branch facili- Lending Act in 1980. The Board's ties. The current limitation, set in proposal would accomplish the 1974, will be exhausted by projects following: that are under way or that are cur- • Emphasize disclosure of the es- rently at an advanced planning stage. sential cost information in a straight- Branches of Federal Reserve Banks forward manner. provide important services to the fi- • Reduce both the number and the nancial system and the public, includcomplexity of the required disclosures ing the distribution of coin and curand concentrate on information most rency, the clearing of checks, and the likely to be used in shopping and deci- processing of electronic payments. sionmaking. The current statutory limitation will • Require disclosures to be pre- prevent needed renovation and new sented separately from other infor- construction at branch buildings. mation so as to highlight them for the consumer. One major change recommended by Amendments to the the Board is to expand the coverage International Banking Act of the act to include " rental-purchase The International Banking Act of agreements." These are short-term 1978 (IBA) provided a federal regula- (usually week-to-week or month-totory framework governing the operamonth) rentals of television sets or tions of foreign banks within the other goods; the agreement may be United States and also contained procanceled by the consumer at any time, visions relating to the organization but provides that the consumer will and operations of Edge corporations. own the goods after a certain number As required by the IBA, the Board in of payments. Because of tjie need for 1980 submitted to the Congress a recost information for these increasingly port containing its recommendations popular transactions and because of to improve the implementation of the the similarity of rental-purchase IBA. The Board's current recommenagreements to longer-term leases, the dations include the following ele- Board has recommended that they be ments: covered by the act.1 • Authorize access for Edge corporations to the Federal Reserve dis- Federal Reserve Bank Branches count window without requiring them The Board has recommended that the to become members of the Federal Federal Reserve Act be amended with Reserve System. respect to the limit on the cumulative • Authorize the Board to permit dollar amount that may be spent on majority ownership of an Edge corconstruction of Federal Reserve Bank poration by a U.S. bank that is conbranch buildings. The System incurs trolled by foreign individuals. • Eliminate the statutory limita- 1. See the section "Consumer and Com- tion on investments by a member munity Affairs" in this Report for a further bank in Edge corporations and discussion of the Board's suggestions for amending the Consumer Leasing Act. authorize the Board to determine Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legislative Recommendations 169 amounts of aggregate and individual • Amend the Bank Holding Cominvestments in Edge corporations. pany Act so as effectively to prohibit • Clarify the Board's authority to bank holding companies from acquirrequire prior approval or notice of a ing by merger banks outside their change in ownership or control of an principal state of bank operations, Edge corporation, and revise the Edge and clarify the intent of the Congress act to provide rules applicable to under section 5 of the IBA with ownership of Edge corporations that respect to a change in home state. are comparable to those applicable to • Provide specifically by statute owners of other U.S. banking institu- that the banking agencies may exempt tions. from disclosure information obtained • Eliminate the statutory require- from foreign banking organizations ment that Edge corporations be ex- that is not disclosed, either by law or amined at least annually. by custom, in their home countries. • Authorize the Board to impose • Authorize the banking agencies reserve requirements on all foreign to exchange examination and other banking institutions in the United supervisory information with foreign States, including commercial lending banking authorities about banks and companies and agencies of foreign bank holding companies under suitbanks with consolidated worldwide able agreements to maintain confiassets of less than $1 billion. dentiality of that information. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

170 Litigation During 1983, the Board of Governors Board's order was upheld in an opinwas named in thirty-two pending law- ion dated October 17, 1983 (717 F.2d suits, compared with thirty-four in 242). On November 17, 1983, a peti- 1982. Of the new lawsuits filed in tion for rehearing and a suggestion 1983, five raised questions under the for rehearing en bane were denied. Bank Holding Company Act, com- In First Bancorporation v. Board pared with six such actions filed in of Governors, no. 82-1401 (10th Cir- 1982. As of December 31, 1983, nine- cuit, filed April 9, 1982), petitioner teen cases were pending, seven of seeks judicial review of a Board order which involve questions under the approving petitioner's application to Bank Holding Company Act. A brief acquire an industrial loan company, description of each of these cases and subject to the conditions that that of those disposed of in 1983 follows. company not both offer negotiable order of withdrawal accounts and en- Bank Holding Companies- gage in the business of commercial Antitrust Action lending, and that NOW accounts offered be subject to federal limitations In 1983, the U.S. Department of on interest rates and reserve require- Justice filed no challenges under the ments (Federal Reserve Bulletin, antitrust laws of the United States to volume 68, April 1982, page 253). bank holding company acquisitions Oral argument was held on November or mergers that had been approved 14, 1983. The case is awaiting the previously by the Board, and no such court's decision. cases were pending from previous In Wyoming Bancorporation v. years. Board of Governors, no. 82-1634 (10th Circuit, filed May 20, 1982), Bank Holding Company Act— petitioner seeks judicial review of the Review of Board Actions Board's order dated April 27, 1982 In Gustafson v. Board of Governors, (Federal Reserve Bulletin, volume 68, nos. 82-4113 and 82-4213 (5th Cir- May 1982, page 313), disapproving cuit, filed March 24, and June 4, petitioner's application to acquire the 1982), petitioner sought judicial American State Bank of Powell, review of an order of the Federal Powell, Wyoming. Petitioner chal- Reserve Bank of Dallas approving the lenges the Board's definition of the application of Raymondville State relevant geographic market for Bancshares, Inc., Raymondville, assessing the competitive impact of Texas, to acquire Raymondville State the proposal. Oral argument was held Bank, Raymondville, Texas, pur- on November 14, 1983. The case is suant to authority delegated by the awaiting the court's decision. Board of Governors {Federal Reserve In Association of Data Processing Bulletin, volume 68, April 1982, page Service Organizations, Inc., et al. v. 260). The petition was denied and the Board of Governors, nos. 82-1910 and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Litigation 171 82-2108 (D.C. Circuit, filed August eral Reserve Bulletin, volume 69, 6, and September 20, 1982), peti- June 1983, page 442). Petitioner's tioners seek judicial review of Board motion to dismiss was granted on orders approving an application by September 28, 1983. Citicorp, New York, New York, to In Independent Insurance Agents engage, through a subsidiary, in cer- of America, Inc., et al. v. Board of tain data processing activities Governors, nos. 83-1818 and 83-1819 (Federal Reserve Bulletin, volume 68, (8th Circuit, filed June 21, 1983), August 1982, page 505), and amend- petitioners seek judicial review of the ing the Board's Regulation Y to Board's orders dated May 31, 1983, designate those activities as closely approving applications by Commerce related to banking and thus permissi- Bancshares, Inc., Kansas City, ble for bank holding companies gen- Missouri, and St. Louis, Missouri, erally (Federal Reserve Bulletin, and Mercantile Bancorporation, Inc., volume 68, September 1982, page St. Louis, Missouri, to engage in the 552). The cases are awaiting the sale of property and casualty insurcourt's decision. ance directly related to financial ser- In Securities Industry Association vices provided by the applicants' subv. Board of Governors, no. 83-614 sidiaries (Federal Reserve Bulletin, (Supreme Court, filed February 3, volume 69, June 1983, page 447). The 1983), plaintiff seeks judicial review cases have been fully briefed and are of the Board's order, dated January awaiting oral argument. 7, 1983, approving an application by In Oklahoma Bankers Association Bankamerica Corporation, San Fran- v. Federal Reserve Board, no. 83-2591 cisco, California, to acquire The (10th Circuit, filed December 13, Charles Schwab Corporation, San 1983), plaintiff seeks judicial review Francisco, California, which owns a of a Board order dated November 17, discount securities brokerage firm, 1983, approving the application of Charles Schwab & Co., Inc. (Federal Citicorp, New York, New York, to Reserve Bulletin, volume 69, Febru- acquire de novo Citicorp Savings and ary 1983, page 105). The court issued Trust Company, Tulsa and Oklahoma an opinion on July 15, 1983, uphold- City, Oklahoma, a limited-purpose ing the Board's order (716 F.2d 92). trust company that will engage in in- A petition for certiorari is pending, dustrial bank activities. The case is 52 U.S.L.W. 3324 (U.S., October 12, pending. 1983) (no. 83-614). In Dimension Financial Corpora- In Dakota Bankshares, Inc. v. tion et al. v. Board of Governors, Board of Governors, no. 83-1697 nos. 83-2604 and 83-2605 (10th Cir- (8th Circuit, filed May 26, 1983), cuit, filed December 14, 1983), and petitioner sought judicial review of a no. 83-2647 (10th Circuit, filed Board order, dated May 3, 1983, dis- December 23, 1983), petitioners chalapproving petitioner's application to lenge the definition of "commercial acquire 80 percent of the outstanding loan" and "demand deposit" in an voting shares of Dakota Bank of amendment to the Board's Regula- Wahpeton, Wahpeton, North Dakota, tion Y that was approved by the based on the financial resources and Board on December 14, 1983. The future prospects of petitioner (Fed- case is pending. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

172 Litigation Other Litigation Involving September 28, 1981), plaintiff sought Challenges to Board declaratory and injunctive relief and Procedures and Regulations compensatory damages in connection with the Board's issuance of an order The Monetary Control Act of 1980 pursuant to the Financial Institutions In First Bank & Trust Co. v. Board of Supervisory Act of 1966. By order Governors, no. 81-38 (E.D. Ky., filed dated July 13, 1983, the district court February 24, 1981), plaintiff seeks granted the Board's motion for sumdeclaratory and injunctive relief from mary judgment. An appeal is pending. a Board determination that plaintiff In a case filed with the U.S. District is ineligible under the provisions of Court for the District of Columbia, the Monetary Control Act of 1980 re- no. 83-3593 (filed December 1,1983), garding the phase-in of reserve re- and placed under seal by court order, quirements for nonmember banks. A plaintiff sought preliminary relief to status hearing was held on November restrain enforcement of a temporary 21, 1983, with respect to the parties' cease and desist order issued by the cross-motions for summary judgment Board. Petitioner claimed that the or dismissal. Board acted in an arbitrary and In Bank Stationers Association et capricious manner and with an abuse al. v. Board of Governors, no. of discretion in issuing the cease and C81-1417A (N.D. Ga., filed July 27, desist order. In a decision issued 1981), plaintiff sought declaratory December 21, 1983, the court denied and injunctive relief from the fee the petitioner's request for a prelimischedule for automated clearinghouse nary injunction. services adopted by the Board pursuant to the Monetary Control Act of The Glass-Steagall Act 1980. By order dated December 22, inA.G. Becker Inc. v. Board of Gov- 1981, the district court dismissed ernors et al., no. 80-2614 (D.D.C., plaintiff's complaint for lack of filed October 14,1980), and Securities standing (no. 82-8058). On May 12, Industry Association v. Board of 1983, the court of appeals affirmed Governors et al., no. 80-2730 the district court's dismissal for lack (D.D.C., filed October 24, 1980), of standing (704 F.2d 1233). plaintiffs sought review of a Board In Jet Courier Services, Inc., et al. statement, dated September 26, 1980, v. Federal Reserve Bank of Atlanta et denying in part plaintiffs' petition al., no. 83-3128 (6th Circuit, filed that the Board prohibit Bankers Trust February 17, 1983), petitioners ap- Company, a state member bank, from pealed the district court's dismissal of selling third-party commercial paper their action challenging new checkas an agent of the issuer. Plaintiffs collection fees and presentment deadalso filed petitions for review of the lines. On July 29, 1983, the court af- Board's statement in the U.S. Court of firmed the dismissal (713 F.2d 1221). Appeals for the District of Columbia Circuit (no. 80-2258, filed October Financial Institutions 14, 1980, and no. 80-2314, filed Oc- Supervisory Act of 1966 tober 24, 1980). In an opinion and In Wolfson v. Board of Governors, order dated July 28, 1981 (519 F. no. 81-913 CWTK (M.D. Fla., filed Supp. 602), the district court declined Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Litigation 173 to order the Board to initiate enforce- with the court of appeals for rehearment proceedings against Bankers ing or rehearing en bane. Trust, but invalidated the legal con- In Flagship Banks, Inc. v. Board of clusions contained in the Board's Governors, no. 82-2920 (D.D.C., statement. The Board and A.G. filed October 12, 1982), plaintiff Becker appealed the district court's seeks disclosure of Board records perjudgment (nos. 81-2070, 81-2058, taining to a notice filed pursuant to and 81-2096). the Change in Bank Control Act. The In an opinion and order dated case has been suspended pending ap- November 2, 1982, the U.S. Court of proval of a proposed acquisition of Appeals for the District of Columbia plaintiff. Circuit reversed the action of the district court and upheld the Board's Administrative Procedure Act statement under the Glass-Steagall In Philadelphia Clearing House Asso- Act (693 F.2d 136). On October 3, ciation et ai v. Board of Governors, 1983, a joint petition for certiorari no. 82-3245 (E.D. Pa., filed July 27, (no. 82-1766) was granted (104 S. 1982), plaintiffs sought injunctive Ct. 65). and other relief under the Administrative Procedure Act with respect to Freedom of Information Act a determination to set a uniform deadline of 12 noon for presentment In 9 to 5 Organization for Women of "city items" by Federal Reserve Office Workers v. Board of Gover- Banks to depository institutions for nors, no. 80-2905-C (D. Mass., filed clearing and settlement. By stipula- December 30, 1980), plaintiff seeks tion of the parties, the action was disdisclosure under the Freedom of Inmissed on April 28, 1983. formation Act of records regarding a In Sundorph Aeronautical Corp. v. wage survey conducted by a consorti- Federal Reserve Bank of Chicago, um of employers in Massachusetts no. C83-4723 (N.D. Ohio, filed Noand used by the Board in approving vember 18, 1983), petitioner, an unsalaries of the Federal Reserve Bank successful bidder for a private transof Boston. By orders dated December portation contract with the Federal 21, 1981, and June 17, September 30, Reserve Bank of Chicago, alleges that and December 2, 1982, the district the Reserve Bank and the Board viocourt partially granted and partially lated the Administrative Procedure denied each of the parties' cross- Act and the federal procurement law motions for summary judgment. The in the solicitation process for serv- Board appealed the district court's ice contracts with the Reserve Bank. decision that data from salary surveys The Board's motion to dismiss is were not protected from disclosure pending. under exemption (b)(4) of the act (no. 83-1171). On November 2, 1983, the Other Actions U.S. Court of Appeals for the First Circuit vacated the decision of the In Berkovitz et al. v. Government of district court and remanded the case Iran, no. C80-0097-WWS (N.D. to the district court. On November Cal., filed June 13, 1980), plaintiffs 16, 1983, plaintiffs filed a motion sought to impose a trust on assets of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

174 Litigation the Government of Iran, and to re- ing the action, and dated September cover damages in connection with the 30, 1982, awarding attorneys' fees to death of Martin Berkovitz, a U.S. defendant (no. 82-8743). On Decemcitizen. By stipulation of the parties, ber 1, 1983, the court of appeals afthe action was dismissed on May 9, firmed the district court's decision. 1983. In Vick v. Volcker, no. 82-0592 In Gordon v. Heimann et al., nos. (D.D.C., filed March 2, 1982), plain- C80-1265A (N.D. Ga., filed July 25, tiff sought damages and other relief 1980) and 81-288A (N.D. Ga., filed in connection with the alleged uncon- February 15, 1981), plaintiff sought stitutionality of the Federal Reserve damages from 44 defendants in con- Act. The district court dismissed the nection with alleged violations of the complaint for lack of standing. Plain- Securities Act of 1933, the Securities tiff filed notices of appeal (D.C. Cir- Exchange Act of 1934, and the Rack- cuit, nos. 82-1504, 82-1505, 82-1506, eteer Influenced and Corrupt Organi- 82-1510). On March 18, 1983, the zations Act (RICO). Both actions court dismissed plaintiff's appeals were dismissed by the district court by and motion to proceed in forma orders dated December 2, 1980, and pauperis. May 28, 1981, respectively. By orders In Richter v. Board of Governors dated September 25, 1981, the district et al., no. 82-C-3150 (N.D. 111., filed court awarded attorneys' fees to cer- May 21, 1982), plaintiff sought intain defendants in both cases and junctive relief in connection with the denied attorneys' fees to certain other Board's conduct of national monedefendants in no. C80-1265A. Plain- tary policy. The Board's motion to tiff's appeals from the district court's dismiss was granted by court order on orders of September 25, 1981 (nos. October 3, 1983. 81-8017 and 81-8018) were consoli- In Bowler v. Treasurer of the dated before the U.S. Court of Ap- United States et al., no. 82-0151-B peals for the Eleventh Circuit with (D. Me., filed July 15, 1982), plaintiff cross-appeals from the denial of at- sought relief in connection with the torneys' fees to certain defendants in alleged unconstitutionality of issuno. C80-1265A. On September 19, ance of Federal Reserve notes as legal 1983, the court of appeals affirmed tender in the United States. The disthe district court's order awarding at- trict court granted the Board's motorneys' fees and remanded with tion to dismiss by order dated Nodirections for reconsideration of vember 17, 1982. Plaintiff appealed previous denials of attorneys' fees. the district court's order in the Court The case is pending. of Appeals for the First Circuit (no. In Public Interest Bounty Hunters 82-1879). The district court's order v. Board of Governors, no. C81- was affirmed on January 26, 1983. 1184A (N.D. Ga., filed June 25, In Hayton v. State of Utah et al., 1981), plaintiff alleges that various no. C82-6595 (D. Utah, filed Sep- Board actions violate the Bank Hold- tember 10, 1982), plaintiff sought ing Company Act and the Glass- various relief in connection with the Steagall Act. On November 29, 1982, alleged unconstitutionality of issuplaintiff appealed the district court's ance of Federal Reserve notes as legal orders dated June 23, 1982, dismiss- tender in the United States. The Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Litigation 175 Board's motion to dismiss was In The Committee for Monetary granted on February 25, 1983. Reform et al. v. Board of Gover- In Taxpayers of the U.S.A. et al. nors, no. 83-1730 (D.D.C., filed v. Board of Governors et al., no. 82- June 16, 1983), plaintiff challenged 183 (E.D. Ky., filed on November 27, the constitutionality of the Federal 1982), plaintiffs alleged, among other Open Market Committee and the claims, that the Federal Reserve Sys- Board's regulation of the nation's tem is involved in a conspiracy to money supply. The court granted the overthrow the U.S. government. On defendant's motion to dismiss on Oc- January 24, 1983, the court dismissed tober 26, 1983. Plaintiffs' motion to the case for lack of subject matter reconsider or amend the judgment jurisdiction. was denied on December 1, 1983. In Flagship Banks, Inc. v. Board of In Wendell L. White v. Commis- Governors, no. 83-0200 (D.D.C., sioner of Internal Revenue et al., no. filed January 25, 1983) and no. 83- 83-5148 IH (CD. Cal., filed August 1199 (D.D.C., filed February 22, 9, 1983), plaintiff challenges the 1983), petitioner seeks injunctive and valuation of Federal Reserve notes other relief from the Board's decision for tax purposes. The case is pending. not to object to a notice filed by Juan In a case filed in the U.S. District Vicente Perez Sandoval and Inver- Court for the District of Minnesota, siones Credival, C.A., Caracas, Vene- no. 4-83-995 (filed November 16, zuela, under the Change in Bank 1983), and placed under seal by court Control Act to acquire up to 24.99 order, plaintiff alleges that the Board percent of its outstanding voting reviewed and copied his financial recshares. The case was suspended pend- ords at a national bank in violation of ing approval of a proposed acquisi- the Right to Financial Privacy Act. tion of petitioner. The case is pending. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

176 Legislation Enacted Bretton Woods Agreement • Actively oppose any facility involving the use of Fund credit by any Title VIII of Public Law 98-181, ap- Communist dictatorship or by any proved November 30,1983, authorizes country that practices apartheid, unthe U.S. Governor of the Internation- less the Secretary of the Treasury notial Monetary Fund to consent to an in- fies the Congress and makes certain crease in the U.S. quota in the Fund. findings, including the finding that The authority to extend loans to the the drawing is in the best economic Fund under the General Agreements interest of the majority of the people to Borrow is also increased, subject to in that country. certification by the Secretary of the • Recommend and work for changes Treasury that supplementary resources in Fund policies that would, among are needed to forestall or cope with other things, (1) convert short-term an impairment of the international bank debt into long-term debt at signifmonetary system and that the Fund icantly narrower interest rate spreads, has fully explored other means of where such action is consistent with a funding. Title VIII also requires con- country's need to obtain adequate exgressional consultation before future ternal private financing; and (2) assure increases in the quota are negotiated that annual external debt service is or agreed to, and consultation by the manageable. Secretary of the Treasury with rele- • Oppose and vote against any vant congressional committees at least Fund drawing where, in the judgment 90 days before any vote to allocate of the U.S. Executive Director, Fund Special Drawing Rights. resources would be drawn principally Title VIII also includes provisions to repay loans imprudently made by instructing the U.S. Executive Direc- banking institutions. tor of the Fund to do the following, • Work to insure that the Fund enamong other things: courage borrowing countries and banks • Work for adoption of Fund poli- to negotiate, where appropriate, a recies that promote conditions contrib- scheduling of debt that is consistent uting to the stability of exchange rates with safe and sound banking practices and that avoid the manipulation of ex- and with the country's ability to repay. change rates among major currencies. • Propose policies requiring the • Propose and vote for adoption of Fund (1) to intensify examination of Fund procedures to collect and dis- the trend and volume of external inseminate information, on a quarterly debtedness in a country seeking assisbasis, from and to Fund members, tance and to consider the extent to and to disseminate publicly informa- which this information could be made tion that the Fund determines will en- public; (2) to consider placing limits hance the informational base upon on external short- and long-term borwhich international borrowing and rowing in the public sector as part of lending decisions are taken. any stabilization program; and (3) to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legislation Enacted 177 publish the Fund's evaluation of the be regarded as capital and surplus or trend and volume of international as allowances for loan losses for regulending. latory, supervisory, or disclosure pur- • Propose and work for adoption poses. of Fund policies to bring the rate of 4. Provides that, in the restructurcharges on Fund drawings in line with ing of an international loan, no fee market rates. may be charged that exceeds the ad- • Work for Fund policies that re- ministrative cost of the restructuring duce obstacles to, and restrictions unless the fee is amortized over the upon, international trade and invest- life of the loan. ment, that eliminate unfair trade and 5. Directs the federal banking ageninvestment practices, and that pro- cies to collect information on foreign mote mutually advantageous econom- country exposure from banks at least ic relations. four times a year and to require banks to disclose publicly information regarding material foreign country ex- International Lending Supervision posure in relation to assets and capital. Title IX of Public Law 98-181, the In- 6. Directs the federal banking agenternational Lending Supervision Act cies to establish minimum levels of of 1983, approved November 30,1983, capital for banking institutions. Proamong other things, does the follow- visions are included regarding the ing: agencies' authority to enforce the 1. Directs the federal banking agen- minimum capital levels, and new procies to consult with supervisory au- cedures are specified for issuing orders thorities of other countries to reach to increase capital levels. understandings aimed at achieving the 7. Requires a bank that makes a adoption of effective and consistent loan exceeding $20 million to finance supervisory policies and practices con- foreign mining projects to prepare a cerning international lending. written evaluation of economic feasi- 2. Directs the federal banking agen- bility. The evaluation must include, cies to evaluate foreign country expo- among other things, a review of the sure and transfer risk, and to establish profit potential of the project, its improcedures to assure that these factors pact on world markets, and its effect are taken into account in evaluating on long-term economic development the capital adequacy of banks. of the host country, and an assess- 3. Provides for the maintenance of ment of whether the loan can be respecial reserves whenever the quality paid from project revenues. of an institution's assets has been im- 8. Directs the federal banking agenpaired by a protracted inability of cies to establish uniform systems of impublic or private borrowers in a for- plementation, and provides civil peneign country to make payments on alties for violations. their external indebtedness, or where 9. Authorizes the General Accountno definite prospects exist for the ing Office to review and evaluate the orderly restoration of debt service. international regulation, supervision, Such special reserves must be charged and examination activities of the fedagainst current income and will not eral banking agencies. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

178 Banking Supervision and Regulation One of the Federal Reserve's principal and (4) a review for compliance with responsibilities is the supervision and applicable laws and regulations.1 regulation of commercial banking organizations. In carrying out its duties, State Member Banks the Federal Reserve supervises and The Federal Reserve is the primary regulates state member banks; bank federal supervisor and regulator of holding companies and their nonbank state-chartered commercial banks subsidiaries; the international activi- that are members of the System. At ties of banks and bank holding com- the end of 1983, there were 1,089 state panies; and the U.S. banking and member banks, accounting for about nonbanking operations of foreign 8 percent of all insured commercial banks. Many of these supervisory ac- banks. Because these banks typically tivities are coordinated with other were larger than the average, they federal and state regulatory agencies. held about 18 percent of total assets A description of how the System ful- of insured commercial banks. filled these responsibilities during State member banks are examined 1983 follows. every 18 months, except when significant weaknesses or other conditions call for more frequent examination. Supervision for In 1983, System personnel conducted Safety and Soundness 736 examinations, many jointly or concurrently with examiners from The Federal Reserve conducts three state regulatory agencies. main activities to ensure the safety and soundness of financial institu- Bank Holding Companies tions: on-site examinations and in- During 1983, the number of bank spections, surveillance and monitorholding companies increased by 814 ing, and enforcement and other to a total of 5,371. These organizasupervisory actions. tions control commercial banks that hold about 87 percent of the total Examinations and Inspections The on-site review of operations is the 1. The Board's Division of Consumer and primary means for ensuring the safety Community Affairs is responsible for reviewand soundness of financial institu- ing compliance with consumer and civil rights tions. Examinations or inspections of laws. This responsibility is accomplished mainthese operations entail (1) an apprais- ly through examinations by specially trained Reserve Bank examiners. These regulatory real of the quality of the institution's sponsibilities are described in the "Consumer assets; (2) an evaluation of manage- and Community Affairs" section of this ment, along with internal policies, REPORT. Compliance with other statutes and operations, and procedures; (3) an regulations, which is treated in this section, is the responsibility of the Board's Division of assessment of the key financial fac- Banking Supervision and Regulation and of the tors 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

Banking Supervision and Regulation 179 assets of insured commercial banks in Federal Reserve examined 14 foreign the United States. branches of state member banks and Most large bank holding compa- 25 foreign subsidiaries of Edge corponies, as well as small companies with rations and bank holding companies. significant nonbank assets, are in- U.S. activities of foreign banks. In spected at least every 18 months, recent years, foreign entities have others at least every three years. The rapidly expanded their operations in inspection focuses on the operations the United States and have become a of the parent holding company and significant element in the U.S. bankits nonbank subsidiaries; the subsidi- ing system. As of December 31, 1983, ary banks are examined by the appro- 225 foreign banks operated 355 statepriate federal banking regulatory licensed uninsured branches and agency. During the year, System ex- agencies, 31 state-licensed branches aminers conducted 1,398 inspections insured by the Federal Deposit Insurof bank holding companies. ance Corporation (FDIC), and 64 branches and agencies licensed by the International Activities Office of the Comptroller of the Cur- The Federal Reserve oversees a numrency (of which 3 have FDIC insurber of international banking activiance). Foreign banks also owned a ties. controlling interest in 67 U.S. banks. Edge and Agreement corporations. Together, these foreign banks con- Edge corporations are chartered by trolled 13.6 percent of U.S. banking the Board to conduct an international assets as of June 30, 1983. banking business to provide all seg- The Federal Reserve has broad resiments of the U.S. economy with a dual and oversight authority for the means of financing international supervision and regulation of foreign trade, exports in particular. An Agreebanks that engage in banking in the ment corporation is a company that United States through branches, agenenters into an agreement with the cies, commercial lending companies, Board not to exercise any power that and banks. In exercising this authoris impermissible for an Edge corporaity, the Federal Reserve relies on extion. During 1983, the Federal Reaminations conducted by the approserve conducted 124 examinations of priate federal regulatory agency for Edge and Agreement corporations insured branches and for federally and their branches. licensed branches and agencies, or Overseas operations of U.S. bankcommercial bank subsidiaries, and on ing organizations. Examinations of examinations by the appropriate state the international operations of state authority for state-licensed branches member banks, Edge corporations, and agencies. Although the states and bank holding companies are conhave primary authority for examining ducted principally at the banking state-licensed uninsured branches and organization's head office in the agencies, the Federal Reserve partici- United States, where the ultimate pated in the examination of 128 such responsibility for overseas facilities offices in 1983. lies. To verify and supplement the results of the head-office examinations, on-site reviews of important Specialized Examinations overseas facilities are performed at least every three years. In 1983, the The Federal Reserve conducts special- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

180 Banking Supervision and Regulation ized examinations in the following tered with the Board were examined areas of bank activity. in 1983. Electronic Data Processing Transfer Agents The Federal Reserve examines the System examiners conduct separate electronic data processing (EDP) ac- reviews of state member banks and tivities of state member banks, Edge bank holding companies that act as and Agreement corporations, and in- transfer agents. Transfer agents dependent centers that provide EDP countersign and monitor the issuance services to these institutions. During of securities, register the transfer of the year, System examiners con- securities, and exchange or convert ducted 323 on-site EDP reviews. In securities. During 1983, the Board exaddition, the Federal Reserve reviews amined 119 such banks and bank EDP examination reports of inde- holding companies. pendent centers that provide EDP services to state member banks. These Improvements to Examinations centers are examined by the other fed- and Inspections eral agencies under the Interagency During the year, the Federal Reserve EDP Examination Program. took a number of steps to enhance its Trust Activities examination and inspection pro- The Federal Reserve examines trust grams. departments of state member banks, New Examination Report trust companies that are members of for Commercial Banks the Federal Reserve System, and cer- Nineteen-eighty-three was the first tain trust-company subsidiaries of year in which the Federal Reserve's bank holding companies. These exnew format for the examination reaminations review the trust functions port for commercial banks was used. to ensure that they are conducted in The new format reflects changing accordance with applicable fiduciary banking practices particularly with principles and with the laws and regurespect to funding and the managelations. During the year, the Board ment of assets and liabilities; it also examined 285 such institutions. stresses the evaluation of manage- Municipal Securities Dealers ment policies, procedures, and interand Clearing Agents nal systems and controls. Under the Securities Acts Amend- Each examination report makes exments of 1975, the Board is responsi- tensive use of data from reports of ble for supervising state member condition and income filed by state banks and bank holding companies member banks and from the uniform that act as municipal securities deal- bank performance report, as well as ers or as clearing agencies. In 1983, information obtained directly from the Board examined 38 of the 54 state the bank under examination. The member banks registered with the report balances the presentation of Board that deal in municipal securi- these data with written analyses of ties for their trading accounts. important aspects of the bank's man- A clearing agency acts as a custo- agement, loan quality, and financial dian of securities for the settlement of condition. Besides asset quality, capisecurities transactions by bookkeep- tal, and liquidity, the report emphaing entries. The three agencies regis- sizes the analysis of interest rate sensi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 181 tivity and off-balance-sheet items of bearing liabilities, and in assessing the banks. Because the report makes ex- effect of interest rate changes on a tensive use of readily available data, bank's condition. Another schedule, it has permitted more efficient exam- Commitments and Contingencies, inations and has given examiners helps examiners weigh the impact that more time to review problem areas off-balance-sheet items—such as loan requiring supervisory attention. Ex- commitments, foreign exchange conperience indicates that the new format tracts, interest rate futures contracts, has strengthened the examiner's and letters of credit—may have on a evaluation of the bank's financial bank's financial condition. condition and has improved the During 1983, banks also began to presentation of findings to bank man- file a quarterly report on past-due, agement and supervisory officials. nonaccrual, and renegotiated "troubled" loans and leases. This schedule Supervisory Reporting reveals the quality of a bank's loan Requirements portfolio and, together with other Under the auspices of the Federal data collected though the examina- Financial Institutions Examination tion process, helps supervisors moni- Council (FFIEC), the Federal Reserve tor the condition of commercial banks. continued to participate with the In addition, revisions to the report of other banking agencies in revising the condition implemented in 1983 recommercial bank reports of condition quire banks to report quarterly the and income.2 Such reports are filed amount of deposits they have acquarterly and are available to bank quired through money brokers. depositors, customers, and the gen- In developing reporting requireeral public. The revisions yield informents, the banking agencies have atmation necessary for supervisory and tempted to minimize the disruption regulatory purposes, improve the inand burden that such requirements formation available to the public, and can impose on banking organizaupdate the reports to reflect changing tions. For example, in 1983, the agenbank and accounting practices and cies took steps to alleviate the burden new deposit instruments. on small banks in particular by per- In 1983, for the first time, banks mitting them to report certain inforfiled certain quarterly schedules demation in a way that is consistent with veloped by the FFIEC to complement their own bookkeeping systems, rather and strengthen the supervisory procthan in a set format that might be ess. One such schedule, Repricing more costly. Public availability of re- Opportunities for Selected Balance ports of condition and income has Sheet Categories, assists examiners in helped to make bank customers and analyzing the interest rate sensitivity investors more knowledgeable about a of banks' earning assets and interestbank's financial condition and, in so doing, has served to reinforce the selfdiscipline of the marketplace. 2. The Federal Financial Institutions Examination Council comprises the Comptroller of Amendments to the Currency, the Federal Deposit Insurance Capital-Adequacy Guidelines Corporation, the Federal Home Loan Bank In June 1983, the Federal Reserve, in Board, the National Credit Union Administraconjunction with the Office of the tion, and the Board of Governors of the Federal Reserve System. Comptroller of the Currency (OCC), Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

182 Banking Supervision and Regulation made two amendments to the capital- used in evaluating the capital adequaadequacy guidelines, which were orig- cy of consolidated bank holding cominally implemented in December 1981. panies to include unsecured, long- These guidelines are used in examin- term debt issued by the parent compaing and supervising well-managed na- ny and its nonbank affiliates. Before, tional banks and state banks that are the only form of long-term debt countmembers of the Federal Reserve Sys- ed as secondary capital was qualifytem, and bank holding companies.3 ing subordinated notes and debentures The first amendment established ex- issued by bank affiliates of the holdplicit guidelines on capital ratios for ing company. 17 large multinational organizations for the first time.4 The most impor- Coordination of Examinations of Large Banks and tant effect of the action was to re- Their Parent Holding Companies quire multinationals to have a ratio of Beginning in 1983, the Federal Deprimary capital to total assets of at posit Insurance Corporation joined least 5 percent. At year-end 1983, the the Federal Reserve and the OCC in a primary-capital ratios of almost all of program that calls for coordinated the multinationals were above the examination of bank holding compaminimum. nies and their lead-bank subsidiaries. The second amendment expanded Under the program, bank holding the definition of secondary capital companies with more than $1 billion in consolidated assets and their lead national or state nonmember bank 3. Institutions that are under special super- subsidiaries are examined every year vision and those that have been in operation concurrently by the Federal Reserve for less than two years are not included in the and the OCC when a lead national program. bank is involved, and by the Federal 4. The 17 multinational organizations, with lead banks in parentheses, are the following: Reserve and the FDIC when the lead BankAmerica Corporation (Bank of America, bank is a state nonmember bank. The NT&SA); Bank of Boston Corporation (The program has helped to strengthen First National Bank of Boston); Bankers Trust cooperation among the federal bank- New York Corporation (Bankers Trust Company); Chase Manhattan Corporation (Chase ing agencies, eliminate duplication, Manhattan Bank, N.A.); Chemical New York and reduce the burden of multiple ex- Corporation (Chemical Bank); Citicorp (Citi- aminations on commercial banks and bank, N.A.); Continental Illinois Corporation their parent companies. (Continental Illinois National Bank and Trust Company of Chicago); Crocker National Cor- Funds Transfer Activities poration (Crocker National Bank); First Chi- In light of the substantial growth in cago Corporation (The First National Bank of Chicago); First Interstate Bancorp (First Inter- terms of transaction volume, dollar state Bank of California); Irving Bank Corpo- volume, and number of participants, ration (Irving Trust Company); Manufacturers the FFIEC's Task Force on Supervi- Hanover Corporation (Manufacturers Hanover sion adopted the Funds Transfer Ac- Trust Company); Marine Midland Banks, Inc. tivities Uniform Examination Proce- (Marine Midland Bank, N.A.); Mellon National Corporation (Mellon Bank, N.A.); J.P. dures Manual. The manual strength- Morgan & Co., Incorporated (Morgan Guar- ens and standardizes objectives for anty Trust Company of New York); Security examinations and the procedures for Pacific Corporation (Security Pacific National reviewing the transfer activity of the Bank); and Wells Fargo & Company (Wells Fargo Bank, N.A.). five major wholesale payments sys- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 183 terns used by depository institutions. Federal Reserve and the other federal The examination procedures have two bank regulatory agencies. Under the sections: the first covers operations act banks must (1) establish specific and internal controls; the second ad- reserves against loans to countries dresses controls related to overdrafts, with protracted debt-service probadvances against uncollected depos- lems; (2) amortize most fees on interits, and settlement risk. Examiners of national loans over the life of the loan the agencies responsible for supervis- instead of taking them into income ing participating depository institu- immediately; (3) report more fretions use uniform procedures. quently on country exposure and disclose to the public large exposures to Supervision of individual countries; and (4) meet International Lending minimum capital standards. Furthermore, the agencies must take country In 1983, major efforts were made to exposure into consideration in assessdeal with the problems of internaing the adequacy of a bank's capital tional debt, which had begun to and reserves. Final regulations impleworsen in the second half of 1982. menting the laws will be adopted in During the year, a number of counthe first half of 1984. Although the tries instituted economic adjustment draft regulations were issued for commeasures, generally as part of proment in 1983 and had not become grams designed by the International final, the Federal Reserve advised Monetary Fund to restore their interbanks that reserves against loans to national creditworthiness and imcountries with longstanding debtprove their debt-service capability. service problems should be estab- Where borrowing countries adopted lished for financial statements for suitable adjustment programs, banks year-end 1983. cooperated in the adjustment process by renegotiating existing loans and in Surveillance and many cases by providing new money. Monitoring Program The progress of these efforts was monitored by the Federal Reserve The Federal Reserve System monitors through its supervisory and reporting the financial condition of member procedures. In cooperation with the banks quarterly and that of large other federal bank regulatory agen- bank holding companies semiannualcies, the Federal Reserve also con- ly. This computerized function aids ducted a major review of these proce- the examination process by identifydures to improve supervisory policies. ing changes in the financial condition This included development of new ex- of banking organizations between examination categories to better iden- aminations. If major deterioration tify the element of country risk in in- seems to have occurred, the examinaternational lending. tion schedule is accelerated. Con- In November, the Congress passed versely, if the bank has had a good the International Lending Supervi- examination rating and surveillance sion Act of 1983, which contained confirms that it has remained sound, several measures designed to enhance the examination schedule may be supervision in this area. Most of these lengthened and thus resources may be measures were based on proposals allocated to organizations warranting sent to the Congress in April by the closer supervision. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

184 Banking Supervision and Regulation During 1983, the Reserve Banks and-desist orders and entered into 33 were given a means to retrieve from written agreements: 15 involved the Federal Reserve Board's com- banks; 36, bank holding companies puter a display of the Uniform Bank or their subsidiaries; 11, individuals and Bank Holding Company Per- participating in the affairs of the formance Reports, which are used ex- financial institutions; 1, an Edge act tensively in the supervisory and ex- corporation; 1, an Agreement corpoamination functions. This capability ration; and 5, bank management or affords easier and broader access to consulting firms. The Board also these reports and greatly reduces the issued 4 temporary cease-and-desist paper flow among the bank regula- orders against 3 banks and 1 bank tory agencies and the Reserve Banks. holding company. Also, bank surveillance was extended Also, the Board assessed and colfrom two screening periods to four lected five civil money penalties totalbecause data from quarterly income ing $60,000 and collected the remainstatements became available for the ing $242,000 of a civil money penalty spring and fall quarters for small assessed in 1981. Of these six penalbanks that previously filed only semi- ties, two were paid by bank holding annual data as of June 30 and Decem- companies, two by individuals, and ber 31. The availability of new data one each by a foreign bank and one reported in 1983 has yielded several of its subsidiaries. refinements to the surveillance screens The Board made available to the and performance reports. public a description of all formal supervisory actions completed during the year and the reasons for them. Enforcement Actions and This action was taken to achieve the Civil Money Penalties fullest public disclosure of informa- Under the Financial Institutions Su- tion consistent with confidentiality. pervisory Act of 1966, the Board of Governors has the authority to enter Staff Training into written agreements with, or issue cease-and-desist orders against, state System training continued to emphamember banks, bank holding compa- size analytical and supervisory themes nies, and persons associated with such common to the four areas of superviorganizations that engage in unsafe sion and regulation—examinations, or unsound practices or that violate inspections, applications, and surveilapplicable laws or regulations. The lance—and to stress the interdepend- Board may also assess civil money ence among these areas. During 1983, penalties for violations of a cease- the Federal Reserve conducted nineand-desist order, of the Bank Hold- teen schools, ten of which offered ing Company Act, or of certain pro- core banking courses—three introvisions of the Federal Reserve Act. ductory, four intermediate, and three In 1983, the Reserve Banks recom- advanced. Other programs included mended and the Board's staff initi- two schools dealing with credit analyated 83 enforcement actions, most sis, one with bank holding company dealing with unsafe or unsound bank- applications, four with consumer ing practices; 50 were completed by compliance examinations (two introyear-end. The Board issued 36 cease- ductory and two advanced), one with Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 185 financial analysis for senior ex- Bank Holding Company Act aminers, and one with trust activities. By law, a company must obtain the In addition to the two sessions of the Board's approval to form a bank credit analysis school held in Washholding company by securing control ington, regional sessions were conof one or more banks. Moreover, ducted at seven Reserve Banks for once formed, a bank holding com- 178 students. pany must receive the Board's ap- Courses in specialized areas, includproval before acquiring additional ing trust, international banking, elecbanks or nonbanking companies. tronic data processing, activities of In reviewing an application filed by municipal securities dealers, managea bank holding company, the Board ment, and instructor training were considers the convenience and needs conducted by the FFIEC. of the community, the applicant's In 1983, 514 Federal Reserve emfinancial and managerial resources, ployees completed System training the prospects of both the applicant programs and 267 completed FFIEC and the firm to be acquired, and the courses. As in previous years, staff competitive effects of the proposal. members from state banking depart- In 1983, the Board—and, under ments and several foreign central delegated authority, the Federal Rebanks attended the System schools. serve Banks, the Director of the Board's Division of Banking Supervi- Regulation of the sion and Regulation, and the Board's U.S. Banking Structure Office of the Secretary—acted on 2,542 bank holding company applica- The Board of Governors administers tions. The System approved 992 prothe Bank Holding Company Act, the posals to organize holding companies Bank Merger Act, and the Change in and denied 6; approved 442 bank ac- Bank Control Act for state member quisitions by existing bank holding banks and bank holding companies. companies and denied 14; and ap- In doing so, the Federal Reserve acts proved 1,019 requests to acquire nonon a variety of proposals that directly bank companies that are closely reor indirectly affect U.S. banking lated to banking. Data on holding structure at the local, regional, and company decisions are shown in the national levels. The Board also has accompanying table. primary responsibility for regulating the international operations of domestic banking organizations and the Bank Merger Act U.S. operations of foreign banks that engage in banking in the United The Bank Merger Act requires that all States, either directly through a proposed bank mergers receive the branch or agency or indirectly through prior approval of the appropriate a subsidiary commercial lending com- federal bank regulatory agency. If the pany. In addition, the Board has bank surviving the merger is a state established regulations for the inter- member bank, the Federal Reserve state banking activities of these for- has primary jurisdiction. eign banks and for foreign banks that Before approving a bank merger, control a U.S. subsidiary commercial the Federal Reserve considers the bank. community's convenience and needs, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

186 Banking Supervision and Regulation Bank Holding Company Decisionsby the Federal Reserve, Domestic Applications, 1983 Direct action Delegated authority by the 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 69 6 4 919 998 Retention of bank. 4 4 Acquisition Bank 90 14 .... .... 44 308 456 Nonbank 123 4 89 803 1,019 Merger of holding company 15 1 4 19 39 Acquisition of bank service corporation 3 3 Other 13 5 .... 5 23 Total 300 21 13 5 56 1,344 803 2,542 1. This heading refers to the Director of the Division of Banking Supervision and Regulation. the financial and managerial resources Board and those agencies have adoptand prospects of the existing and pro- ed standard terminology for assessing posed institutions, and the competi- competitive factors in bank merger tive effects of the proposal. The Board cases to assure consistency in adminmust also consider the views of cer- istering the Bank Merger Act. tain other agencies on the competitive factors involved in the transaction. Change in Bank Control Act During 1983, the Federal Reserve approved 69 merger applications: 8 The Change in Bank Control Act of were approved by the Board, 5 by the 1978 gave the federal banking agen- Secretary of the Board under dele- cies the authority to disapprove gated authority, and 56 by the changes in the control of banks and Reserve Banks under delegated au- bank holding companies. The Federal thority. As required by law, each Reserve is the agency responsible for merger is described in table 17 in the changes in the control of state mem- Statistical Tables section of this ber banks and bank holding companies. Factors to be considered in REPORT. When the Comptroller of the Cur- determining whether a transfer of rency (OCC) or the Federal Deposit control should be denied include the Insurance Corporation (FDIC) has financial condition, competence, exjurisdiction over a merger, the Board perience, and integrity of the acquiris asked to comment on the,competi- ing person, and the effect on competitive factors to assure comparable en- tion. forcement of the antimonopoly pro- In 1983, 161 changes in ownership visions of the act. On behalf of the of the stock of state member banks Board, the Reserve Banks submitted and holding companies were report- 777 reports on competitive factors to ed; all but 4 were processed by the Rethe OCC and the FDIC in 1983. The serve Banks. There was only 1 denial. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 187 International Activities of branches and agencies of foreign U.S. Banking Organizations banks. An IBF is essentially a set of asset The Board has three principal statuand liability accounts that is segretory responsibilities in supervising the gated from other accounts of the international operations of U.S. establishing office. In general, debanking organizations: to approve posits from and credit extended to the establishment of foreign branches foreign residents or other IBFs can be of member banks and regulate the booked at these facilities free from scope of their activities; to charter domestic reserve requirements and inand regulate Edge corporations and terest rate limitations. By the end of their investments; and to authorize 1983, 496 IBFs had been established. and regulate overseas investments by member banks, Edge corporations, Edge and Agreement Corporations and bank holding companies. Under sections 25 and 25(a) of the Federal Reserve Act, Edge and Agree- Foreign Branches ment corporations may engage in inof Member Banks ternational banking and foreign fi- Under provisions of the Federal Re- nancial transactions. These corporaserve Act and Regulation K, member tions, which are usually subsidiaries banks may establish branches in for- of member banks, provide their owneign countries subject, in most cases, er organizations with additional powto the Board's prior approval. In ers in two areas: (1) they may conduct reviewing proposed foreign branches, a deposit and loan business in states the Board considers the requirements other than that of the parent, providof the governing statute, the condi- ed that the business is strictly related tion of the bank, and the bank's expe- to international transactions; and (2) rience in international business. In they have broader powers to make 1983, the Board approved the open- foreign investments than member ing of 13 foreign branches. banks do because they can invest in By the end of 1983, 163 member foreign financial organizations, such banks were operating 890 branches in as finance companies and leasing foreign countries and overseas areas companies, as well as in foreign of the United States. One hundred banks. In 1983, the Board approved thirty-one national banks were oper- the establishment of seven Edge corating 759 of these branches, while 32 porations. The Board requires each state member banks were operating Edge corporation that is engaged in the remaining 131 branches. banking to maintain a ratio of equity to risk assets of at least 7 percent. At International Banking Facilities midyear, half of the banking corpora- Effective December 3, 1981, the tions had ratios that were more than Board amended its Regulations D and twice this minimum. Q to permit the establishment of international banking facilities (IBFs) Foreign Investments in the United States. Subject to condi- Under authority of the Federal Retions specified by the Board, IBFs serve Act and the Bank Holding may be established by U.S. deposi- Company Act, in 1983 the Board autory institutions, by Edge and Agree- thorized 86 foreign investments by ment corporations, and by U.S. member banks, Edge and Agreement Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

188 Banking Supervision and Regulation corporations, and bank holding com- In 1978, the last full year before expanies. In most cases, the applicant panded delegation, only 78 percent of requested permission to increase an applications were processed by the existing investment. Reserve Banks; during 1980, the first full year under expanded delegation, Export Trading Companies the ratio rose to 89 percent. This In 1982, the Bank Export Services percentage was maintained in 1983. Act amended section 4 of the Bank In 1982, the Board delegated to the Holding Company Act to permit Reserve Banks authority to approve bank holding companies, their subdomestic branches of Edge corporasidiary Edge or Agreement corporations and foreign "shell" branches of tions, and bankers' banks to invest in member banks. In addition, the export trading companies subject to Board reduced from 60 to 45 days the certain limitations and after Board notification period for foreign inreview. The purpose was to allow efvestments by U.S. banking organizafective participation by bank holding tions. On December 20, 1983, the companies in the financing and de- Board delegated authority to the velopment of export trading compa- Reserve Banks to expedite the pronies. On June 2, 1983, the Board cessing of those notifications to adopted regulations to achieve the establish export trading companies objectives set forth in the law: to that appeared to raise no major facilitate the export of goods and policy issue. The benefits that were services produced in the United States expected from broadened delegation and to minimize potential adverse efcontinue to be achieved: routine cases fects on the subsidiary banks of the have been removed from the Board's bank holding companies involved. In agenda to allow more efficient use of 1983, the Board acted affirmatively staff of both the Board and the on the 18 notifications received for Reserve Banks. the establishment of export trading companies. Timely Processing of Applications Delegation of Applications The number of applications by hold- In exercising its responsibility to for- ing companies increased by 6 percent mulate policies and procedures in the in 1983 from 1982, up from 2,401 to applications area, the Board has dele- 2,542. The System acted on 94 pergated certain regulatory functions— cent of the applications in 1983 within including the authority to approve, 90 days after the filing of a complete but not to deny, certain types of ap- application. plications—to the Reserve Banks, to In 1983, 68 of the 69 applications the Board's Division of Banking for bank mergers were processed Supervision and Regulation, and to within 90 days; the application that the Board's Office of the Secretary. took longer involved a competitive In September 1979, the Board is- issue. The System also prepared 777 sued revised rules that delegated addi- reports on the competitive factors of tional authority to the Reserve Banks proposed mergers for the other two to approve applications for bank banking agencies; all but a few were holding companies and bank mergers. completed within 30 days. Of the 161 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 189 change-of-control notices, 137 were Board Policy Decisions handled within 60 days. and Developments The System also measures its per- in Bank-Related Activities formance in processing international During 1983, the Board added retail applications against a 90-day standdiscount brokerage to the list in Regard. During 1983, the Federal Reserve ulation Y of activities permissible for acted on 179 international applicabank holding companies. The Board tions, 94 percent of which were decidalso approved by order the expansion ed in 90 days or less. of two activities previously approved During 1983, the System made for holding companies: acting as a several changes to the applications futures commission merchant for nonprocess that will reduce significantly affiliated persons in the execution the burden on applicants and make and clearance of options on financial more efficient use of the staff at the futures and the underlying financial Board and Reserve Banks. Regulainstruments, and the sale of general tion Y was revised to shorten the time insurance by a bank holding company that the System will take to process with consolidated assets of $50 milbank holding company applications.5 lion or less. The processing time has been reduced The Board approved, by order for from 90 to 60 days for applications banks, the establishment of two bank acted on by the Board and from 45 to service corporations which, pursuant 30 days for applications acted on to the Bank Service Corporation Act, under delegated authority by the are allowed to engage in any activity Reserve Banks, the Director of the that the Board has determined, by Division of Banking Supervision and regulation, to be permissible for a Regulation, or the Secretary of the bank holding company. The activities Board. The System revised the proceapproved by the Board for the bank dures for applications and impleservice corporations were giving real mented the revised processing schedestate investment advice, and underule on January 1, 1984. writing credit life, accident, and In conjunction with the shortened health insurance. Certain restrictions processing schedules, the System apply to these activities and are outrevised the application forms for lined either in Regulation Y or in the bank acquisitions by bank holding related Board order. These restriccompanies to cut approximately in tions are intended to ensure that such half the amount of information reactivities are conducted in a manner quired. Forms for nonbank proposals consistent with the public interest. of holding companies are now being During 1983, the Board adopted a similarly revised to reduce the burden comprehensive revision to Regulation on applicants and to conform with Y, which was to take effect on Februthe revised Regulation Y. ary 6, 1984. Under certain conditions bank holding companies will be allowed to acquire small companies that are engaged in a number of nonbanking activities simply by filing a notice at 5. See the section "Regulatory Simplificaleast 15 days in advance. They may tion" in this REPORT for a further discussion of now also file a one-time notice to enthe comprehensive revision of Regulation Y and other comments on the topic. gage on a nationwide basis in non- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

190 Banking Supervision and Regulation banking activities listed in Regulation Enforcement of Other Y. These changes will significantly re- Laws and Regulations duce the burden on both applicants The preceding sections discussed the and the Federal Reserve without ma- Board's activities in carrying out its terially affecting the public interest. statutory responsibilities for the su- Activities in addition to retail dispervision of bank safety and soundcount brokerage added to the apness and the regulation of banking proved list in Regulation Y included: structure. This section describes the issuing money orders, real estate enforcement of other laws, rules, and equity financing, underwriting and regulations. dealing in government obligations and certain money market obligations, providing foreign exchange ad- Financial Disclosure visory and transactional services, and by State Member Banks acting as a futures commission mer- The Board's Regulation F deals with chant. These activities were previous- the disclosure requirements for state ly permitted only by Board order. member banks that have securities The Board also expanded its defini- registered under the Securities Extion of a bank and clarified and in- change Act of 1934. Fifty-four state cluded in the regulation its definition member banks, most of which are of of demand deposits and commercial small or medium size, were registered loans. with the Board under this regulation. These institutions must file certain Public Notice materials, such as financial reports and proxy statements, that are of inof Board Decisions terest to investors. The Board's staff Each action by the Board on a case reviews these filings for compliance involving a bank holding company, with the regulation. bank merger, change in control, or The disclosure rules under Regulainternational banking proposal is eftion F are substantially similar to fected by an order or announcement. those issued by the Securities and Ex- Orders set forth the essential facts of change Commission (SEC). the application, the basis for the decision, and the decision. Announce- Loans to Executive Officers ments state merely the action taken by the Federal Reserve. All orders Under section 22(g) of the Federal and announcements are released im- Reserve Act, each state member bank mediately to the public and are re- must include with each quarterly reported in the Board's weekly H.2 sta- port of condition a report of all extentistical release, "Actions of the sions of credit made by the bank to its Board; applications and reports," executive officers since the date of the and in the monthly Federal Reserve bank's previous report of condition. Bulletin. Actions taken by the Re- The accompanying table summarizes serve Banks are also reported in the these data for the last quarter of 1982 H.2 statistical release and in the and the first three quarters of 1983. Bulletin. Announcements of applica- In 1982, the Garn-St Germain Detions and notices received by the pository Institutions Act (Garn-St System but not yet acted on are also Germain act) authorized the Board to made in the H.2 release. revise reporting and disclosure re- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 191 Range of Total loans to executive officers interest rates Period charged Number Amount (dollars) (percent) October 1-December 31, 1982 697 4,466,043 6-21 January 1-March 31,1983 748 5,454,385 6-21 April 1-June 30,1983 .. .• 1,051 7,502,565 7-23 July 1-September 30,1983 977 9,629,452 6-21 quirements concerning loans to ex- of intention to withdraw from memecutive officers and principal share- bership in the System. The Federal holders of a state member bank and Reserve employs the application or the related interests of such persons notification process to administer from the state member bank and its these statutory provisions. correspondent banks. In 1983, the With few exceptions, these matters Board amended Regulation O in ac- are handled under delegated authoricordance with the recommendations ty by the Federal Reserve Banks or, in and action of the Federal Financial In- the case of proposed sales of suborstitutions Examination Council. The dinated debt, by the Director of the major effects of the revised require- Board's Division of Banking Superviments were to reduce the regulatory sion and Regulation. burden on banks and to provide more meaningful information on "insider" Stock Repurchases by loans to both the Federal Reserve Sys- Bank Holding Companies tem and the public. Also during 1983, A bank holding company sometimes as authorized by the Garn-St Gerpurchases its own shares from its main act, the Board further amended shareholders. Often such stock repur- Regulation O. These amendments rechases are financed through borrowlate to the limitations on loans by a ings, so that the net effect of the member bank to its insiders, and the transaction is to increase the debt of dollar amount above which such loans the bank holding company at the very must be approved in advance by the bank's board of directors.6 time that its equity decreases. Because relatively large repurchases may adversely affect the financial condition Applications by of a bank holding company and its State Member Banks bank subsidiary, the Board, by regu- The Board's authority over state lation, requires holding companies to member banks covers permission to give advance notice of repurchases open new domestic branches, to make that retire 10 percent or more of their investments in bank premises that ex- consolidated equity capital. Revisions ceed 100 percent of capital stock, and to Regulation Y, adopted by the to add to the capital base from sales Board during 1983, will allow the of subordinated debt; it also covers Board to object to stock repurchases the waiver of the six months' notice if the holding company that files the notice fails to meet the standards that 6. See the section "Record of Policy Actions the Board applies in the application of the Board of Governors" in this REPORT for process, including the Board's capital a further discussion of amendments to Regulation O. guidelines. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

192 Banking Supervision and Regulation The Federal Reserve reviewed 148 and other lenders only for loans such notifications during 1983, all but whose purpose is purchasing or carry- 1 of which were acted on by the ing publicly held equity securities and Reserve Banks on the Board's behalf. that are secured by such securities. Regulation T limits the amount of credit that brokers and dealers may Securities Regulation extend when securities serve as col- Under the Securities Exchange Act of lateral. This collateral must consist of 1934, the Board is responsible for stocks and bonds traded on national regulating credit used to purchase or securities exchanges or certain overcarry securities. In fulfilling its the-counter stocks that the Board responsibility under the act, the designates as having characteristics Board limits the amount of credit that similar to those of stocks listed on namay be provided by securities brokers tional exchanges and of bonds meetand dealers (Regulation T), by banks ing certain requirements. Such stocks (Regulation U), and by other lenders appear on the Board's "List of OTC (Regulation G). Regulation X extends Margin Stocks." these credit limitations, or margin re- The Board published revised lists quirements, to certain borrowers and of OTC stocks subject to its margin certain credit extensions, such as regulations on February 22, June 20, credit obtained from foreign lenders and October 17, 1983. The current list by U.S. citizens. consists of 1,742 stocks. The Board's The SEC, the National Association Division of Banking Supervision and of Securities Dealers, and the na- Regulation monitors the market actional securities exchanges examine tivity of all OTC stocks to determine brokers and dealers for compliance what stocks to place on this list. with Regulation T. The three bank In 1983, all four of the margin regsupervisory agencies examine banks ulations were completely revised and for compliance with Regulation U, simplified as part of the Board's Regwith the Board being responsible for ulatory Improvement Project. Under state member banks that extend mar- this program, the Board reviewed gin stock-secured credit. those regulations to update them, The Board, the National Credit simplify their language, eliminate ob- Union Administration, and the Farm solete or unneeded language or provi- Credit Administration examine other sions, and lighten the burden of comlenders under their respective juris- pliance. dictions for compliance with Regula- Regulation T was shortened by aption G. At the end of 1983, there were proximately a third. The new regula- 530 such lenders, 302 of which were tion, as adopted after consideration subject to the Board's supervision. of comments received, included the During the year, Federal Reserve ex- following significant revisions: aminers inspected 121 lenders that • Consolidation along functional were subject to Regulation G for com- lines into seven accounts of the eleven pliance with the Federal Reserve's types brokers and dealers had to margin requirements (these lenders maintain under the old regulation. are inspected on a biennial basis). The three customer margin accounts Regulations U and G, in general, were consolidated into a single impose credit limitations on banks general margin account. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 193 • Authorization for a clearing amount specified by the rules of the broker to maintain separate margin national securities exchange on which accounts for a single person who is in- the option is traded, provided that all troduced by different brokers. Intro- such rules have been approved by the ducing brokers may maintain separate Securities and Exchange Commission. accounts for the same person if the • Changes in terminology, throughaccounts are cleared by different out the regulation, from "maximum clearing brokers. In addition, sep- loan value/adjusted debit balance" arate accounts may also be estab- to "equity/margin requirement." lished for the same person by a Brokers and dealers were permitted broker and dealer when the broker, to comply with the new Regulation T dealer, or a third-party investment as early as June 20, 1983, but the ofadvisor has investment discretion. ficial effective date was to be March 31, • Provisions that permit a clearing 1984, to give brokers and dealers amagency to accept as the required de- ple time to program their computer posit any margin securities underlying systems for the changes. options issued by the clearing agency. The revised Regulation U became • Revision of rules for extending effective on August 31, 1983. These credit to option specialists, to permit significant changes were made: a "good faith" margin instead of the • Exemption from the require- 25 percent margin on long and short ments of the regulation of bank credit positions. to a trust for an employee stock • Expansion of the class of brokers ownership plan qualified under secand dealers who may make loans to tion 401 of the Internal Revenue other brokers and dealers, as well as Code. authorization for that class to finance • Consolidation of all provisions positions with other brokers and dealing with special-purpose loans to dealers. brokers and dealers into one section • Authorization of margin credit and permission for such credit to be on over-the-counter corporate debt extended without restriction on the securities with at least $25 million type or valuation of collateral. outstanding at the time of original • Elimination of certain filing reissue, rather than at the time of the quirements with respect to loans to extension of the credit. OTC and third market makers and • Permission to use convertible or block positioners. exchangeable securities as a proxy for • Elimination of section 221.3(q), the related security when call options which regulated loans to certain lendare written in a cash account. ers registered under Regulation G. • Special provision for new instru- The complete revision of Regulaments—options on foreign currency tion G, which became effective that are traded on securities ex- August 31, 1983, includes the followchanges, and options on certificates ing significant changes: of deposit and on stock indexes— • A rise in the registration threshwhich recent legislation has brought old for lenders subject to the regulawithin the Board's authority to set tion to $200,000, and elimination of margins. registration requirements for those • Establishment of the margin who arrange but do not extend credit level of these new instruments as the secured by margin securities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

194 Banking Supervision and Regulation • Deletion of a provision prohibit- member banks with respect to credit ing unsecured loans to a broker or on securities. Domestic and foreign dealer by a lender subject to the regu- nonmember banks must file these lation. The prohibition in section 8 of agreements, designated T-l and T-2 the Securities Exchange Act of 1934, respectively, before they can lend to which prevents anyone except a bank brokers and dealers on the collateral from lending to a broker or dealer on of registered securities. During the the collateral of registered securities, year, the Board processed eight T-l was retained. and T-2 agreements. • Liberalization of the "plan- In 1983, the Securities Regulation lender" provision, which covers ex- Section of the Board's Division of tensions of credit under employee Banking Supervision and Regulation stock-option and stock-purchase issued numerous interpretations of plans. The revision will permit com- the margin regulations. Those that panies and their affiliates to finance presented sufficiently important or employee purchases of company novel issues were published in the stock without a specific scheduled Securities Credit Transactions Handpaydown of the loan or a three-year book, which is part of the Federal lockup of the stock, as was formerly Reserve Regulatory Service. These inrequired. The regulation will continue terpretations, published monthly, to permit a company to extend credit serve as a guide to compliance with to plan participants in excess of the the margin regulations. Also, memcurrent maximum loan value of the bers of the staff served on nationwide securities. panels explaining the newly revised The completely revised Regulation Regulation T to brokers and dealers. X has an effective date of January 23, 1984. The major substantive changes Federal Reserve Membership to the regulation are (1) the exclusion, At the end of 1983, 5,807 banks were with one exception, of purely domesmembers of the Federal Reserve Systic borrowings, which are already tem, a net increase of 188 from the regulated by margin rules applicable previous year. Member banks operto lenders; and (2) an increase in the ated 26,726 branches on December 31, exemption for margin credit obtained 1983, a net decrease of 227 for the by U.S. persons residing abroad from year.7 $5,000 to $100,000. Domestic bor- Member banks accounted for 38 rowers who willfully cause credit to percent of all commercial banks in be extended in contravention of the the United States, and for 64 percent margin rules are not excluded from of commercial banking offices. Comthe scope of the regulation. plete figures on changes in the num- Under section 8 of the Securities ber of banks and banking offices by Exchange Act, a broker or dealer may charter classes will be presented in the not borrow from a bank on the collat- April 1984 issue of the Federal Reeral of registered securities unless the serve Bulletin. bank is either a member of the Federal Reserve System or one that files an agreement with the Board under- 7. The 1982 figure of 26,953 branches included 1,818 automatic teller machine (ATM) taking to comply with all statutes, branches, which are no longer included in rules, and regulations applicable to branch counts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

195 Regulatory Simplification Action that the Board of Governors rities of 7 to 31 days. The change entook in 1983 to comply with the Finan- ables institutions to offer certificates cial Regulation Simplification Act of of deposit with maturities of 7 to 13 1980 is reported here, as required by days, and one beneficial effect is to section 805 of that act. This report also give small institutions, which do not discusses the Board's efforts under normally trade in the secondary marthe Regulatory Flexibility Act and the ket, an additional tool in competing Board's Statement of Policy Regard- with larger institutions for short-term, ing Expanded Rulemaking Proce- large-denomination deposits. dures. These acts and the Board's As part of its efforts to reduce unpolicy statement are intended to im- necessary burdens in implementing prove the regulatory process. the Monetary Control Act of 1980, Under the Financial Regulation the Board adopted an amendment Simplification Act, each federal fi- that reduces the reporting burden for nancial regulatory agency must assure small institutions with total reserve that its regulations impose no more liabilities of $2.1 million or less. Last burdens than are necessary, that they year's REPORT noted that the Conare adopted only after interested per- gress had adopted the Board's recomsons are heard, and that they are writ- mendation that the first $2 million of ten simply and clearly. The act also a depository institution's reserve liarequires each agency periodically to bilities be free of reserve requirements, review how well its regulations meet thereby exempting almost 25,000 inthese objectives. stitutions. Monetary Policy and Securities Credit and Payments System Securities Activities Reserve Requirements Margin Credit of Depository Institutions (Regulations G, T, U, and X) (Regulation D) and Last year's REPORT noted some of the Interest on Deposits substantive changes that the Board (Regulation Q) had made in the first phase of its The Board amended Regulations D comprehensive review of the regulaand Q to reduce the minimum matu- tions on margin credit—Regulations rity of all time deposits to 7 days. G, T, U, and X. These regulations This step was taken in light of actions govern loans to purchase stocks made by the Depository Institutions Dereg- by banks, brokers and dealers, and ulation Committee authorizing money other lenders, such as insurance commarket deposit accounts and remov- panies, savings and loan associations, ing the interest rate ceilings on time and corporate plan lenders. It was deposits of $2,500 or more with matu- noted that public comment had been Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

196 Regulatory Simplification received on a completely rewritten After gaining experience with sev- Regulation T, and that work was pro- eral export trading proposals under gressing on the redrafting of Regula- the new regulation, the Board simplitions G, U, and X. fied its procedures by eliminating the In 1983, the Board completed the requirement for certain notifications revision and simplification of all four and by delegating authority to the Remargin regulations as part of its Regu- serve Banks to act on notices of inlatory Improvement Project. The re- tended investments in export trading view was designed to update the regu- companies. lations, simplify their language, elimi- The Board also liberalized Regulanate obsolete or unnecessary language tion K by adding the operation of or provisions, and ease the burden travel agencies abroad as a permissiof compliance. The specific changes ble activity for U.S. banking organimade are discussed in the section of zations. Moreover, the Board plans the REPORT, "Banking Supervision to undertake in 1984 a broad review and Regulation." to determine whether, after five years The changes made in the margin of operations under the revised regucredit regulations will promote com- lation, additional changes are necespetition between banks and brokers, sary or desirable to enable U.S. inafford consumers greater flexibility in ternational banking firms to compete investment decisions, and promote effectively with similar foreign-owned efficiency in securities markets by institutions, to foster the participamodernizing a regulatory framework tion of regional and smaller banks in that dates back half a century. providing international banking services, and to stimulate U.S. exports to achieve a sound trade position. Banking Structure and Supervision International Banking Management Official Interlocks Operations (Regulation L) (Regulation K) As noted in last year's REPORT, the In 1983, the Board adopted regula- Board in 1982 issued for public comtions implementing the Bank Export ment proposed amendments to Regu- Services Act, which permits bank lation L, which governs management holding companies, Edge act and interlocks among depository institu- Agreement corporations, and bank- tions. These proposals were designed ers' banks to invest in export trading to update and clarify the regulation, companies. Small business entities and make technical changes in the will benefit from the simplicity and light of the Board's experience with brevity of the proposed regulations, the regulation. The revisions relax as well as from the liberal definition certain prohibitions on interlocks that of an export trading company. In the Board has found to be unnecesadopting the underlying statute, the sary; the changes will especially aid Congress estimated that the law small institutions facing a disruptive would create between 320,000 and loss of management due to statutory 640,000 jobs over the next three to provisions. The Board adopted these four years. proposals in 1983. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Regulatory Simplification 197 Loans to Executive Officers, time for required applications will Directors, and Principal prevent costly delays for regulated Shareholders of Member Banks companies and will create new busi- (Regulation O) ness opportunities for them in dealing with nonregulated entities that are The Board adopted several amendunwilling to delay. Revisions of the ments to Regulation O, which govforms will reduce costs for the induserns loans to executive officers, directry by eliminating requests for infortors, and principal shareholders of mation that is available to the Board member banks. Some of the changes through other sources. Finally, the ease the burden of reporting and dis- Board will propose a list of new acclosing these "insider" loans. The eftivities for public comment in early fect of other changes is to increase 1984, which would permit bank holdsubstantially the size of generaling companies to engage in a wide purpose loans available to such indivariety of additional businesses. This viduals. In 1982, the Board had comprehensive review of Regulation already eliminated, through congres- Y, the first such study in 12 years, has sional authorization, the ceiling on given the public an opportunity to loans to officers and directors for comment on all aspects of the Board's home mortgages or to an executive administration of the regulation, inofficer for the education of his or her cluding the definition of "bank," children. which is especially important in the light of rapid changes in the financial Bank Holding Companies and marketplace. Change in Bank Control As a related matter, the Board dele- (Regulation Y) gated expanded authority to the Last year's REPORT noted that staff Reserve Banks to act on applications work was continuing on a complete for bank mergers, an action that revision of Regulation Y, which gov- should expedite such applications. erns acquisitions and activities by bank holding companies and changes Consumer and Community in bank control. This year, the Board Affairs proposed a revision for comment and Equal Credit Opportunity subsequently adopted it. The primary (Regulation B) purposes of the revision are (1) to reduce the number of required appli- The Board announced that it intends cations, (2) to simplify the procedures to review Regulation B to update its for filing applications, and (3) to ex- substance and simplify its language, pedite the processing of all applica- and asked for preliminary comments tions. These changes should reduce on the issues to be addressed. The regulatory burdens significantly, Board has also been conducting costwhile reducing the administrative benefit studies that involve Regulacosts of the statute. One provision, tion B. After consideration of the for example, is expected to eliminate preliminary comments and the staff's the more than 500 applications per analysis, proposed changes in the regyear for new offices. Moreover, the ulation will be published for comsubstantial reduction of processing ment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

198 Regulatory Simplification Consumer Leasing and complexity of the disclosures re- (Regulation M) quired, thereby lessening the burden of compliance on creditors and high- In April 1983, the Board sent recomlighting important information for mendations to the Congress for a simconsumers. Congressional hearings plified version of the Consumer Leashave been held, and the Board has ing Act, which the Board administers been accepting public comment on its through Regulation M. The Board's proposals. proposals would reduce the number Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

199 Federal Reserve Banks Developments in the as local clearing arrangements expand- Payments Mechanism ed to provide more efficient alternaand in the Pricing of tives and private firms sought to offer Federal Reserve Services more cost-effective services. Check volume at Reserve Banks began to During 1983, the Federal Reserve esgrow again in 1982, though at a rate sentially completed the pricing of sermuch slower than the trend rate bevices provided by the Federal Reserve fore pricing, and it has begun to ap- Banks to depository institutions, as proach the levels experienced in midrequired by the Monetary Control Act 1981 (see the chart). of 1980. The Board had determined Throughout the transition period, in 1980 that a transition period would the System took steps to improve the help both the Banks and depository efficiency of the nation's payments institutions make the change from mechanism while working toward refree to priced services. With the excepcovering costs, two objectives of the tion of float, all services covered by act. In 1983, the Federal Reserve the act were priced by the end of 1982. Banks introduced further operational The Board adopted methods to elimiimprovements, cost control measures, nate or price major components of and adjustments to the services of- Federal Reserve float by mid-1983, fered. These are all discussed below. and requested comment on proposals to deal with the remaining float. Final Commercial Check Collection action on the proposals is expected early in 1984. The total number of commercial Both the private sector and the checks cleared by Federal Reserve Reserve Banks have accommodated Banks increased 2 percent in 1983. to the change to priced Federal Re- The moderate increase reflects on serve services. As the accompanying balance the economic recovery, the chart shows, the volume of wire continued adjustment of depository transfers of funds, a principal pay- institutions to the pricing of this Fedment service, has trended upward, eral Reserve service, and their response but at a slower pace in each year since to a new program to accelerate the the introduction of fees in January collection of checks. Starting in Feb- 1981. In 1983, average daily volume ruary 1983, depository institutions rose less than one-half the trend have been able to deposit checks at growth rate in evidence before pric- Federal Reserve offices later in the ing, partly because alternatives for day, and Reserve Banks have provided the service became more attractive. later presentment of checks to payor When fees for the check service institutions located in Federal Reserve were first imposed in August 1981, cities. The later deposit deadlines and the average daily number of checks presentment times expedite the colleccollected declined significantly at first, tion of checks, and thus improve Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

200 Federal Reserve Banks Index of Volume for Selected checks drawn on certain non-city Priced Services pay or institutions. The Board will Initial volume=100 consider comments early in 1984. Wire transfer Wire Transfer of Funds and Net Settlement The number of wire transfers of funds grew 7 percent in 1983, and averaged 120 3.2 million per month. Expansion of electronic access through the deployment of terminals at smaller deposi- 100 tory institutions continued during the year. By year-end, more than 4,000 institutions could enjoy lower service fees through on-line access to the 1981 1982 1983 funds transfer service and other services. After review of projected costs, funds availability to depositors. The volumes, and revenues for 1983, the program has achieved its objective of Board determined that fees for the accelerating collection: city items, wire transfer and net settlement servtotaling approximately $2 billion, are ices that were established in the last now collected one day faster than they revision, in April 1982, should be formerly were. retained. Total costs for the year, Along with the program to accelincluding the private sector adjusterate check collection, the Reserve ment, amounted to $65.3 million, and Banks revised fee schedules for check revenues were $67.2 million. services in February 1983. In mid- 1983, depository institutions began absorbing the cost of some types of Automated Clearinghouse check float through changes in credit- Service ing procedures for deposits. Further adjustments to fees were made in The volume of transactions processed December 1983 to recover the remain- by the Federal Reserve's automated ing value of check float that had been clearinghouse (ACH) grew 26 percent included in the costs of the check col- during 1983. Commercial transactions lection service since October 1, 1983. grew 48 percent, substantially faster Including the value of float and the than government transactions, which private sector adjustment (discussed rose 15 percent. This trend seems likely below), total costs for the check serv- to continue, especially in light of the ice in 1983 were $438.1 million, and success of the expanded night cycle total revenues were $436.7 million. service and enhancements proposed In 1983, the Federal Reserve pur- for the ACH service for 1984. sued other measures to improve the The schedules of funds availability, check collection system. In May, the deposit options, and the flexibility of Board published for comment a pro- the existing ACH service were reposal to accelerate the collection of viewed in 1983. In each area, the re- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Banks 201 view identified potential improvements million. After an adjustment to costs in service that might benefit depository for the Board's interim support proinstitutions. In September, the Board gram, revenues exceeded costs by $0.2 requested public comment on a num- million. ber of service enhancements and on a The coin wrapping service was ofproposed restructuring of ACH fees. fered by five Reserve Districts in In accordance with the Board's incen- 1983, three more than in 1982. In adtive pricing policy for the ACH serv- dition, special cash packaging and acice, the proposed schedule is designed ceptance of late orders for cash were to recover 60 percent of commercial provided on a trial basis. These serv- ACH costs, including the private sec- ices will be reviewed in 1984. In 1983, tor adjustment, plus the value of pro- revenues for the coin wrapping service jected ACH float due to delayed in- equaled full costs of $1.6 million, interregional transmission. The Board cluding the private sector adjustment. will consider comments on the fee schedule early in 1984. Total costs for the commercial ACH Securities Services service, including the private sector adjustment, were $15.2 million in 1983; The revised fee schedule for booktotal revenues were $7.7 million. After entry securities services became effecan adjustment to costs for the Board's tive April 28, 1983. A per issue fee for incentive pricing policy, revenues ex- account maintenance was added, and ceeded costs by $0.6 million. other fees were raised. During 1983, the volume in the safekeeping service for definitive securi- Coin and Currency Services ties continued to decline, but the When the cash transportation service volume in the noncash collection servwas initially priced in 1982, a tempo- ice increased. Costs of both services rary support program was adopted to continued to exceed revenue. The fee ease the burden of adjustment to full- schedules for these services were recost pricing for institutions in remote vised, effective October 27, 1983. In areas. The level of support was re- September, three Federal Reserve Disduced for 1983, and it was eliminated tricts introduced a mixed deposit and on December 31, 1983, except for fine-sort program on a trial basis. locations outside the contiguous 48 The pilot program was expanded substates. During 1983, two Reserve Dis- sequently to five Districts. tricts and one office in a third District Total costs for the book-entry secuceased contracting directly for trans- rities service, including the private portation of currency and coin and sector adjustment, were $20.5 million instead assisted depository institu- in 1983, and total revenues were $21.8 tions in making arrangements at lower million. For the definitive safekeepcost. At least one other Reserve office ing and noncash collection services, is expected to adopt such a role dur- total costs were $23.5 million, and ing 1984. total revenues were $19.1 million. Total costs for the cash transporta- For the full year 1984, the System tion service, including the private sec- will include the value of float in the tor adjustment, were $28.5 million in costs of the book-entry service. The 1983, and total revenues were $27.1 value of float will be included in the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

202 Federal Reserve Banks costs of the noncash collection service been furnished by a private business beginning May 1, 1984. firm." The proposal includes direct determination of assets allocated to Float priced services and expansion from 12 to 25 of the sample of large bank During 1983, the Federal Reserve holding companies used in determintook a number of steps to deal with ing the PSAF. The Board also refloat. In July, the System changed the quested comment on an alternative crediting procedures for deposits of method for setting the income tax interterritory checks. Under the new rate used in calculating the PSAF. program, institutions can choose be- Finally, the Board requested comtween two crediting options and ment on an adjusted rate applied to among several methods for paying for clearing balances that reflects the net float associated with interterritory value of the balances to depository inchecks. The Board also decided to institutions. Aggregate excess clearing corporate the value of holdover check balances are expected to decline in float into the cost base for the check 1984 because Reserve Banks are deservice in several stages, and full reveloping a new service that will allow covery of all such float began on Ocdepository institutions to invest their tober 1, 1983. On May 4, the Board excess balances more readily. instituted a program for reducing return-item float, and announced that the value of other check float Financial Performance would be incorporated into check service costs on October 1. In Sep- The Monetary Control Act directs the tember, the Board requested comment Federal Reserve, over the long run, to on a proposal to deal with midweek set fees that are based on (1) all direct closing and nonstandard holiday and indirect costs of providing servfloat; it will consider comments early ices, and (2) an imputed cost (reprein 1984. sented by the PSAF) that accounts for the taxes paid and the return on The System developed cost-effective capital earned by a private firm. methods to reduce or price float in For 1983, total revenue at Reserve services other than check collection, Banks from all services was $581.1 as discussed above for the ACH and million, and total cost was $592.7 securities services. The Board expects million. These figures include the into announce in 1984 plans to eliminate come and expenses related to clearing or price all Federal Reserve float. balances, the private sector adjustment, and the value of priced float. Administrative Matters With allowances for temporary sup- On October 13, 1983, the Board pub- port programs for the ACH and cash lished for comment proposed changes transportation services, the Banks to the procedure for calculating the had a net revenue of -$1.9 million. private sector adjustment factor Enhancements to the services of- (PSAF) for 1984. The PSAF is used fered, improved operations, and betto impute the "taxes that would have ter cost control resulted in marked been paid and a return on capital that gains for the System's performance in would have been provided had the 1983. For the year, the Reserve Banks [Federal Reserve's priced] services received 99.7 percent of costs in reve- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Banks 203 nues for priced services, compared related to the Federal Reserve System with 84.3 percent in 1982. As the ac- Open Market Account and the foreign companying chart shows, revenue as currency operations conducted by a percent of cost increased for every that Bank in accordance with policies service offered, and the commercial formulated by the Federal Open Mar- ACH and book-entry securities serv- ket Committee; the Committee reices showed dramatic improvement. ceived copies of these reports. The Table 9, in the statistical tables sec- procedures that the Board's examintion of this REPORT, presents revenues ers followed were appraised by a priand expenses by major category of vate firm of certified public accountservice. ants, pursuant to the policy of annual reviews. Examination Income and Expenses The Board's Division of Federal Reserve Bank Operations examined the The accompanying table summarizes 12 Federal Reserve Banks and their 25 the income, expenses, and distribubranches during 1983, as required by tion of net earnings of the Federal section 21 of the Federal Reserve Act. Reserve Banks for 1983 and 1982. In conjunction with the examina- Current income, at $16,068 million, tion of the Federal Reserve Bank of was $449 million lower in 1983 than New York, the Board's examiners in 1982. Income from the System's audited the accounts and holdings holdings of U.S. government obliga- Recoverv of Costs for Priced Services of Federal Reserve Banks Commercial check collection t Wire transfer and net settlement Commercial ACH Definitive safekeeping and noncash collection Book - entry securities Cash services Total Percent 0 20 100 In accordance with System policy, revenue is shown as cent in 1982. The cost of cash services is adjusted for a percent of part of full automated clearinghouse a temporary support program that subsidized remotecosts; the portion was 40 percent in 1983 and 20 per- ly located depository institutions in 1983 and 1982. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

204 Federal Reserve Banks Income, Expenses, and Distribution of Net Earnings of Federal Reserve Banks, 1983 and 19821 Thousands of dollars Item 1983 1982 Current income 16,068,362 16,517,385 Current expenses 1,023,678 926,034 Operating expenses2 951,919 897,773 Earning credits granted 71,759 28,261 Current net income 15,044,684 15,591,351 Net deduction from current net income 400,366 68,833 Assessments by the Board of Governors 223,686 160,254 For expenditures of Board 71,551 61,813 For cost of Federal Reserve currency2 152,135 98,441 Net income before payments to U.S. Treasury 14,420,631 15,362,264 Dividends paid 85,152 79,352 Payments to U.S. Treasury (interest on Federal Reserve notes)., 14,228,816 15,204,591 Transferred to surplus 106,663 78,320 1. Details may not add to totals because of rounding. penses, are now identified as a separate item. Accord- 2. Assessments by the Board for the cost of Federal ingly, the operating expenses item for 1982 and for Reserve currency, heretofore included in operating ex- earlier years, shown in table 8, has been restated. tions and of assets denominated in consequent increase in the paid-in foreign currencies was lower, by $343 capital stock of the Reserve Banks. million and $159 million respectively. Payments to the U.S. Treasury as The decline in income was due to the interest on Federal Reserve notes lower rates of interest paid on those totaled $14,229 million for the year, holdings. Fee income from priced compared with $15,205 million in services amounted to $496 million, 1982. This sum consists of all net in- $109 million more than in 1982. come after dividends and the amount Operating expenses totaled $1,024 necessary to bring surplus to the level million in 1983, including $72 million of paid-in capital. of earnings credits granted to deposi- A detailed statement of the income tory institutions that use these credits and expenses of each Federal Reserve to pay for priced services. Assess- Bank for 1983 is shown in table 7 and ments by the Board of Governors a condensed historical statement apwere $72 million for its expenditures pears in table 8, in the Statistical and $152 million for the cost of Fed- Tables section of this REPORT. A eral Reserve currency. detailed statement of assessments and Deductions from current net income expenditures of the Board of Govertotaled $400 million in 1983, princi- nors appears in the Financial Statepally because of an unrealized loss of ments section of the REPORT, which $456 million on assets denominated in follows. foreign currencies that were revalued at market exchange rates. That loss Federal Reserve was offset partially by a $21 million Bank Premises gain on sales of U.S. government obligations. During 1983, the Federal Reserve Statutory dividends paid to mem- Bank of San Francisco moved to its ber banks totaled $85 million, $6 new quarters and sold the vacated million more than in 1982. This rise buildings and properties; and the reflected an increase in the capital Board of Governors authorized conand surplus of member banks and a struction of a new building for the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Banks 205 Jacksonville Branch of the Federal $11,558 million over 1982. Holdings Reserve Bank of Atlanta. of U.S. government securities in- Table 6, in the Statistical Tables creased $11,657 million, loans desection of this REPORT, shows the cost creased $9 million, and acceptances and book values of premises owned decreased $90 million. or occupied by the Federal Reserve From 1982 to 1983, the average Banks and branches, and of real rate of interest on all types of holdestate acquired for future banking- ings declined: on U.S. government house purposes. securities, from 11.08 to 10.00 percent; on loans, from 11.49 to 9.05 Holdings of Securities and Loans percent; and on acceptances, from 12.08 to 10.17 percent. The accompanying table presents holdings, earnings, and average interest Volume of Operations rates on securities and loans of the Federal Reserve Banks during the past Table 10, in the Statistical Tables secthree years. tion of this REPORT, shows the volume Average daily holdings of securities of operations in the principal departand loans during 1983 amounted to ments of the Federal Reserve Banks $152,526 million, an increase of for the years 1980-83. Securities and Loans of Federal Reserve Banks, 1981-83 Millions of dollars except as noted U.S. Accep- Item and year Total government Loans tances securities' Average daily holdings2 1981 . 132,238 130,754 1,363 121 1982 140,968 139,772 1,047 149 1983 152,526 151,429 1,038 59 Earnings 1981 14,757r 14,551 187r 19 1982 15,631r 15,493r 1201" 18 1983 15,250 15,150 94 6 Average interest rate (percent) 1981 ... 11.16r 11.13 13.72r 15.70 1982 11.09r 11.08r 11.49r 12.08 1983 10.00 10.00 9.05 10.17 1. Includes federal agency obligations. r Revised. 2. Based on holdings at opening of business. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

206 Board of Governors Financial Statements The financial statements of the Board Price Waterhouse, independent public for the year 1983 were examined by accountants. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Governors of the Federal Reserve System We have examined the balance sheet of the Board of Governors of the Federal Reserve System as of December 31, 1983, and the related statements of revenues and expenses and changes in financial position for the year then ended. Our examination was 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. The financial statements of the Board of Governors of the Federal Reserve System for the year ended December 31, 1982, were examined by other independent accountants, whose report dated February 18, 1983, expressed an unqualified opinion on those statements. In our opinion, the financial statements examined by us present fairly the financial position of the Board of Governors of the Federal Reserve System at December 31, 1983, and the results of its operations and the changes in its financial position for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. Washington, D.C., February 22, 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Statements 207 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM BALANCE SHEETS As of December 31 ASSETS 1983 1982 OPERATING FUND Cash $ 5,842,333 $ 4,613,805 Receivables and advances (Note 1) 1,124,235 582,012 Stockroom and cafeteria inventories at lower of cost (first-in, first-out) or market 266,428 257,495 Noncurrent assets 167,695 22,592 Total operating fund 7,400,691 5,475,904 PROPERTY FUND, at cost (Note 1) Land and improvements 1,301,314 1,301,314 Buildings 61,212,084 61,056,512 Furniture and equipment 9,083,750 8,636,512 Computer equipment 6,845,572 6,845,572 Total property fund 78,442,720 77,839,910 Total assets $85,843,411 $83,315,814 LIABILITIES AND FUND BALANCES OPERATING FUND Liabilities Accounts payable $ 3,182,826 $ 3,353,351 Accrued payroll and related taxes 1,586,436 1,466,018 Accrued annual leave 3,358,022 3,074,671 Other liabilities 304,811 1,025,000 8,432,095 8,919,040 Commitments and contingencies (Notes 2 and 3) Fund balance (Note 1) Balance, beginning of year (3,443,136) 821,816 Revenues over (under) expenses 2,411,732 (4,264,952) Balance, end of year (1,031,404) (3,443,136) Total operating fund 7,400,691 5,475,904 PROPERTY FUND (Note 1) Fund balance Balance, beginning of year 77,839,910 76,067,343 Additions—at cost 732,392 1,808,096 Disposals—at cost (129,582) (35,529) Total property fund 78,442,720 77,839,910 Total liabilities and fund balances $85,843,411 $83,315,814 The accompanying notes are an integral part of these statements. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

208 Financial Statements BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM STATEMENTS OF REVENUES AND EXPENSES For the years ended December 31 1983 1982 BOARD OPERATING REVENUES (Note 1) Assessments levied on Federal Reserve Banks for Board operating expenses $$ 7711,,555511,,000000 $61,813,400 Other Sale of publications 1,110,591 1,103,340 Miscellaneous 454,383 409,930 Total other revenues 1,564,974 1,513,270 Total operating revenues 73,115,974 63,326,670 FUNDED BOARD OPERATING EXPENSES (Note 1) Salaries 47,069,895 44,110,097 Retirement and insurance contributions (Note 2) .. 7,662,084 7,613,490 Travel 1,900,557 1,765,093 Contractual services 2,022,552 1,625,785 Printing and binding 1,576,019 1,556,785 Heat, light and power 1,289,483 1,268,450 Equipment, office space and other rentals (Note 3) 1,554,318 1,327,555 Telephone and telegraph 1,266,092 1,038,630 Repairs and maintenance 1,169,404 982,601 Postage 856,768 920,350 Stationery, office and other supplies 715,588 696,557 Cafeteria operations, net 520,812 476,168 Professional fees 296,192 397,948 Books and subscriptions 278,526 248,943 Subsidies and contributions (Note 4) 702,823 489,807 Tuition, registration and membership fees 408,991 335,717 Other (Note 5) 398,395 555,610 Property additions (Note 1) 732,392 1,802,331 Total funded operating expenses 70,420,891 67,211,917 BOARD OPERATING REVENUES OVER (UNDER) FUNDED OPERATING EXPENSES 2,695,083 (3,885,247) Unfunded Accrued Annual Leave . 283,351 379,705 BOARD OPERATING REVENUES OVER (UNDER) TOTAL OPERATING EXPENSES 2,411,732 (4,264,952) ISSUANCE AND REDEMPTION OF FEDERAL RESERVE NOTES ON BEHALF OF FEDERAL RESERVE BANKS (Note 6) Expenditures for issuance and redemption of Federal Reserve notes 128,215,054 85,766,269 Less assessments levied on Federal Reserve Banks for currency issuance and redemption 128,215,054 85,766,269 0 0 REVENUES OVER (UNDER) EXPENSES $ 2,411,732 $(4,264,952) 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 209 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM STATEMENTS OF CHANGES IN FINANCIAL POSITION For the years ended December 31 1983 1982 SOURCES OF CASH Board operating revenues $ 73,115,974 $ 63,326,670 Assessments levied on Federal Reserve Banks for currency issuance and redemption 128,215,054 85,766,269 Decrease in deferred publication costs 334,562 Increase in accrued payroll and related taxes 120,418 93,552 Increase in accrued annual leave liability 283,351 379,705 Total sources 201,734,797 149,900,758 USES OF CASH Funded Board operating expenses 70,420,891 67,211,917 Unfunded accrued annual leave expense 283,351 379,705 Expenditures for issuance and redemption of Federal Reserve notes 128,215,054 85,766,269 Increase (decrease) in receivables 542,223 (52,520) Increase in inventories 8,933 17,455 Increase in noncurrent assets 145,103 22,592 Decrease (increase) in accounts payable 170,525 (868,504) Decrease (increase) in other liabilities 720,189 (1,025,000) Total uses 200,506,269 151,451,914 INCREASE (DECREASE) IN CASH 1,228,528 (1,551,156) CASH BALANCE, beginning of year 4,613,805 6,164,961 CASH BALANCE, end of year $ 5,842,333 $ 4,613,805 The accompanying notes are an integral part of these statements. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

210 Financial Statements NOTES TO FINANCIAL STATEMENTS Under the Thrift Plan, members may contribute up to a fixed percentage of their salary. Board contributions DECEMBER 31, 1983 AND 1982 are based upon a fixed percentage of each member's basic contribution. Effective January 1, 1983, the Thrift Plan was expanded to include a Deferred Com- (1) SIGNIFICANT ACCOUNTING POLICIES pensation Account. This new account did not have a In preparing its financial statements, the Board of significant impact on the Board's 1983 Thrift Plan Governors of the Federal Reserve System (the Board) contributions. has applied accounting principles which, in manage- Board contributions to the retirement plans and the ment's opinion, best reflect its financial position and Thrift Plan totaled approximately $5,517,000 in 1983 results of operations. These accounting principles in- and $6,384,000 in 1982. clude certain principles which are generally accepted As of January 1, 1983 and 1982 (the dates of the for organizations in the private sector and also certain most recent actuarial reviews), the accumulated plan principles which are generally accepted for federal benefits for the Federal Reserve Board Plan, including government agencies. A summary of significant ac- those arising from COLA supplements, were as folcounting policies is shown below. lows: Board Operating Revenues and Expenses—Assessments made on the Federal Reserve Banks for Board As of January 1 operating expenses are calculated based upon expected cash needs. These assessments, other operating 1983 1982 revenues, and operating expenses are recorded on the accrual basis of accounting. Actuarial present value Receivables and Advances—The Board coordinates of accumulated various special projects on behalf of the Federal plan benefits Reserve System. Costs incurred by the Board are reim- Vested $51,237,000 $44,679,000 bursed upon completion of the project or as provided Nonvested 3,118,000 2,550,000 under the terms of related agreements. $54,355,000 $47,229,000 Property—The Board does not charge depreciation as an operating expense. Property additions are charged to expense in the Operating Fund in the year The assumed rate of return used in determining the of acquisition; recoveries on the disposal of property present value of accumulated plan benefits was 9.5 are recorded as a reduction of expense in the Operatpercent in 1983 and 10 percent in 1982. ing Fund in the year of disposition. When property is As of January 1, 1983 and 1982, net assets available acquired or sold, the property asset accounts and the for plan benefits exceeded the actuarial present value fund balance in the Property Fund are increased or of accumulated plan benefits. decreased at cost. (3) COMMITMENTS AND CONTINGENCIES (2) RETIREMENT PLANS The Board leases office and computer equipment There are two major retirement plans for employees and office and storage space under leases which may of the Board. Approximately 84 percent of the emgenerally be terminated within one year. At Decemployees are covered by the Federal Reserve Board ber 31, 1983, fixed future rental commitments were Plan. Substantially all new members of the staff who approximately $1,350,000 for 1984. do not come directly from a position in the federal The Board has been named as a defendant in varigovernment are covered by the Board Plan. The secous litigation involving challenges to, or appeals from, ond plan, the Civil Service Retirement Plan, covers all actions or proposed actions of the Board pursuant to new employees who come directly from the federal statutory requirement or authorization. Such lawsuits government service. Employee contributions are the generally seek injunctive or declaratory relief against same percentage of salary under both plans, and benethe Board rather than monetary awards. It is the opinfits are similar, being based upon the Civil Service ion of Board counsel that lawsuits involving monetary Plan. awards do not represent a material liability to the Under the Civil Service Plan, the Board's contribu- Board. tions directly match employee payroll deductions. The Board is self-insured with regard to (1) a group Under the Board Plan, the Board's contributions for term life and accident insurance plan for Board ofactive employees are actuarially determined and are ficers and (2) losses of its building and equipment funded in the current period. Costs associated with anfrom fire or other casualties. Coverage for other cusnual cost-of-living adjustments (COLA) for retirees tomarily insured risks, such as workers' compensation are actuarially determined. One-half of the cost of the and comprehensive general liability, is carried by the COLA supplement is funded by a lump sum payment Board. at the time the supplement is granted. The remaining one-half of the cost of each supplement is funded over fifteen years and is reflected in the normal contribu- (4) FEDERAL FINANCIAL INSTITUTIONS tions to the Board Plan. The lump sum payments for EXAMINATION COUNCIL the 1983 and 1982 amendments to retirees' benefits The Board is one of the five member agencies of the amounted to $875,000 and $1,850,000, respectively. Federal Financial Institutions Examination Council Additionally, employees of the Board may partici- (the Council). During 1983 and 1982, the Board paid pate in the Federal Reserve System's Thrift Plan. $87,600 and $175,000, respectively, in assessments for Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Statements 211 operating expenses of the Council. These amounts are deferred publication costs from prior years. included in subsidies and contributions for 1983 and 1982. (6) ISSUANCE AND REDEMPTION OF FEDERAL The Board serves as custodian for the Council's RESERVE NOTES ON BEHALF OF cash account. (This cash is not reflected in the accom- FEDERAL RESERVE BANKS panying financial statements.) It also processes accounting transactions, including payroll for most of The Board records assessments and expenditures for the Council employees, and performs other adminis- the issuance and redemption of Federal Reserve notes trative services for which the Board is reimbursed by on behalf of the Federal Reserve Banks. These assessthe Council. ments and expenditures are separately reported in the The Board is not reimbursed for the costs of person- Statements of Revenues and Expenses because they nel who serve on the Council and on the various task are not Board operating transactions. forces and committees of the Council. The costs asso- In 1983 the Board changed from the cash basis of ciated with these contributed services are included in accounting to the accrual basis of accounting for these the accompanying financial statements. assessments and expenditures. The accrual methodology produced results which were not materially differ- (5) FEDERAL RESERVE REGULATORY SERVICE ent from those produced using the cash basis of accounting in 1982 and had no effect on revenues over The Board began the publication and sale of the expenses in 1983. Federal Reserve Regulatory Service in 1981. This monthly looseleaf service contains Board regulations, interpretations, staff rulings and other regulatory (7) RECLASSIFICATIONS materials. The development costs incurred during Certain 1982 amounts have been reclassified to con- 1979 and 1980 were fully amortized against subscrip- form with presentations in the 1983 financial statetion revenues realized in 1981 and 1982. Included in ments. These reclassifications have no effect on other expenses for 1982 is $334,562 in amortization of previously reported 1982 revenues under expenses. 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

214 Tables 1. Detailed Statement of Condition of All Federal Reserve Banks Combined, December 31, 1983 Thousands of dollars ASSETS Gold certificate account 11,121,029 Special drawing rights certificate account 4,618,000 Coin 416,055 Loans and securities Loans to depository institutions 917,588 Acceptances held under repurchase agreement 418,160 Federal agency obligations Bought outright 8,645,048 Held under repurchase agreement 207,700 U.S. government securities Bought outright Bills 65,810,550 Notes 63,933,846 Bonds 20,813,727 Total bought outright 150,558,123 Held under repurchase agreement 1,384,200 Total U.S. government securities 151,942,323 Total loans and securities 162,130,819 Cash items in process of collection Transititems 10,099,574 Other cash items 1,464,758 Total cash items in process of collection 11,564,333 Bank premises Land 90,077 Buildings (including vaults) 348,755 Building machinery and equipment 132,954 Construction account 131,209 Total bank premises 612,958 Less depreciation allowance 152,984 459,934 Bank premises, net 550,011 Other assets Furniture and equipment 342,656 Less depreciation 125,143 Total furniture and equipment, net 217,514 Denominated in foreign currencies' 3,688,213 Interest accrued 2,554,425 Premium on securities 438,624 Due from Federal Deposit Insurance Corporation 806,667 Overdrafts 194,778 Prepaid expenses 35,108 Suspense account 62,743 Real estate acquired for banking-house purposes 15,186 All other 161,608 Total other assets 8,174,867 Total assets 198,575,114 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 215 1.—Continued LIABILITIES Federal Reserve notes Outstanding (issued to Federal Reserve Banks) 178,874,587 Less held by Federal Reserve Banks 21,776,037 Total Federal Reserve notes, net 157,098,550 Deposits Depository institutions 21,445,601 U.S. Treasury—general account 3,660,843 Foreign-official accounts 190,816 Other deposits Collected funds due to other Federal Reserve Banks 0 Officers' and certified checks 32,000 International organizations 319,759 All other2 477,100 Total other deposits 828,860 Deferred availability cash items 9,958,175 Other liabilities Exchange-translation account 0 Unearned discount 474 Discount on securities 2,392,5% Sundry items payable 31,721 Suspense account 26,165 All other 13,089 Total other liabilities 2,464,045 Total liabilities 195,646,889 CAPITAL ACCOUNTS Capital paidin 1,464,112 Surplus 1,464,112 Other capital accounts3 0 Total liabilities and capital accounts 198,575,114 1. Of this amount, $1,543.4 million was invested in 3. During the year, this item includes undistributed securities issued by foreign governments, and the bal- net income, which is closed out on Dec. 31; see table 7 ance was invested with foreign central banks and the in the Statistical Tables section of this REPORT. Bank for International Settlements. NOTE. Amounts in boldface type indicate items in 2. In closing out the other capital accounts at year- the Board's weekly statement of condition of the Fedend, the Reserve Bank earnings that are payable to the eral Reserve Banks. Treasury are included in this account pending payment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

216 Tables 2. Statement of Condition of Each Federal Reserve Bank, December 31, 1983 and 1982 Millions of dollars Total Boston Item 1983 1982 1983 1982 ASSETS Gold certificate account 11,121 11,148 927 570 Special drawing rights certificate account. 4,618 4,618 241 241 Coin 415 438 20 26 Loans To depository institutions. 918 717 14 15 Other 0 0 0 0 Acceptances held under repurchase agreements . 418 1,480 Federal agency obligations Bought outright 8,645 8,937 406 413 Held under repurchase agreements 208 588 0 0 U.S. government securities Bought outright1 150,558 135,607 7,062 6,265 Held under repurchase agreements 1,384 3,705 0 0 Total loans and securities 162,131 151,034 7,482 6,693 Cash items in process of collection 11,562 13,000 405 345 Bank premises 547 549 96 97 Other assets Denominated in foreign currencies2. 3,687 5,764 95 150 Allother 4,494 153 144 3,577 Interdistrict Settlement Account 0 + 702 + 101 0 Total assets 198,575 10,121 8,367 190,128 LIABILITIES Federal Reserve notes 157,097 141,990 8,961 7,191 Deposits Depository institutions 21,446 26,489 614 676 U.S. Treasury—General account. 3,661 5,033 0 0 Foreign—Official accounts 191 328 4 5 Other 831 2,484 19 25 Total deposits . 26,129 34,334 637 706 Deferred-availability cash items 9,957 8,814 333 306 Other liabilities and accrued dividends3 2,462 2,272 110 94 Total liabilities 195,645 187,410 10,041 8,297 CAPITAL ACCOUNTS Capital paid in 1,465 1,359 40 35 Surplus 1,465 1,359 40 35 Other capital accounts. 0 0 0 0 Total liabilities and capital accounts 198,575 190,128 10,121 8,367 FEDERAL RESERVE NOTE STATEMENT Federal Reserve notes outstanding (issued to Bank) 178,875 159,979 10,082 8,050 LESS: Held by Bank4 21,778 17,989 1,121 859 Federal Reserve notes, net5 157,097 141,990 8,961 7,191 Collateral for Federal Reserve notes6 Gold certificate account 11,121 11,148 Special drawing rights certificate account. 4,618 4,618 Other eligible assets 0 107 U.S. government and agency securities ... 141,358 126,717 Total collateral 157,097 141,990 Digitized for FRASER For notes see end of table. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 217 2.—Continued New York Philadelphi,i Cleveland Richmonc 1983 1982 1983 1982 1983 1982 1983 1982 3,058 3,212 541 554 659 744 913 967 1,335 1,335 225 225 302 302 408 408 24 32 18 13 37 48 53 51 124 90 158 101 29 19 200 108 0 0 0 0 0 0 0 0 418 1,480 0 0 0 0 0 0 2,831 2,811 288 298 512 590 718 758 208 588 0 0 0 0 0 0 49,294 42,656 5,023 4,519 8,920 8,950 12,502 11,506 1,384 3,705 0 0 0 0 0 0 54,259 51,330 5,469 4,918 9,461 9,559 13,420 12,372 1,362 1,630 374 299 314 497 1,806 1,723 25 25 50 51 27 27 105 110 900 1,436 162 236 269 432 195 300 1,329 1,358 113 107 203 191 270 259 + 448 + 871 + 146 + 364 -694 -1,322 -72 -307 62,740 61,229 7,098 6,767 10,578 10,478 17,098 15,883 49,474 44,812 5,856 5,560 8,831 8,823 13,762 12,411 6,228 8,882 732 816 1,094 1,051 1,214 1,322 3,661 5,033 0 0 0 0 0 0 77 170 7 9 11 16 8 11 513 587 13 21 23 41 40 65 0,479 14,672 752 846 1,128 1,108 1,262 1,398 1,215 485 268 173 275 215 1,730 1,478 858 596 80 68 142 134 196 452 62,026 60,565 6,956 6,647 10,376 10,280 16,950 15,739 357 332 71 60 101 99 74 72 357 332 71 60 101 99 74 72 0 0 0 0 0 0 0 0 62,740 61,229 7,098 6,767 10,578 10,478 17,098 15,883 52,817 47,896 8,163 7,546 9,721 9,463 15,565 13,708 3,343 3,084 2,307 1,986 890 640 1,803 1,297 49,474 44,812 5,856 5,560 8,831 8,823 13,762 12,411 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

218 Tables 2. Statement of Condition of Each Federal Reserve Bank, December 31, 1983 and 1982—Continued Millions of dollars Atlanta Chicago Item 1983 1982 1983 1982 ASSETS Gold certificate account 371 402 1,504 1,476 Special drawing rights certificate account 161 161 646 646 Coin 42 44 24 26 Loans To depository institutions 10 95 83 Other 0 0 0 Acceptances held under repurchase agreements Federal agency obligations Bought outright 210 227 1,191 1,268 Held under repurchase agreements 0 0 0 0 U.S. government securities Bought outright1 3,651 3,452 20,748 19,246 Held under repurchase agreements 0 0 0 0 Total loans and securities 3,871 3,687 22,034 20,597 Cash items in process of collection 1,210 1,664 1,054 923 Bank premises 34 34 20 19 Other assets Denominated in foreign currencies2 295 438 502 813 All other 100 117 4347 544 Interdistrict Settlement Account + 35 -278 -158 + 91 Total assets 6,119 6,269 24,776 26,419 LIABILITIES Federal Reserve notes 3,156 3,295 22,425 20,612 Deposits Depository institutions 1,559 1,647 2,341 2,854 U.S. Treasury—General account 0 0 0 0 Foreign—Official accounts 12 16 21 30 Other 7 31 97 114 Total deposits 1,578 1,694 2,459 2,998 Deferred-availability cash items 1,074 1,007 822 508 67 55 329 288 Other liabilities and accrued dividends3 5,875 6,051 26,035 24,406 Total liabilities CAPITAL ACCOUNTS 122 109 192 185 Capital paid in 122 109 192 185 Surplus 0 0 0 0 Other capital accounts 6,119 6,269 26,419 24,776 Total liabilities and capital accounts FEDERAL RESERVE NOTE STATEMENT 5,746 5,522 24,572 22,048 2,590 2,227 2,147 1,436 Federal Reserve notes outstanding (issued to Bank 3,156 3,295 22,425 20,612 LESS: Held by Bank4 , Federal Reserve notes, net5 rencies and foreign currencies warehoused for the U.S. Treasury. Assets shown in this line are revalued 1. Includes securities loaned—fully guaranteed by monthly at market exchange rates. U.S. government securities pledged with Federal 3. Includes exchange-translation account reflecting Reserve Banks—and excludes (if any) securities sold the monthly revaluation at market exchange rates of and scheduled to be bought back under matched sale- Digitizedp fuorrc hFaRseA tSraEnsRa ctions. foreign-exchange commitments. http://frase2r.. sItnlocluuidsefse dU..oSr.g g/ overnment securities held under 4. Beginning September 1980, Federal Reserve repurchase agreement against receipt of foreign cur- Federal Reserve Bank of St. Louis

Tables 219 2.—Continued St. Louis Minneapolis Kansas City Dallas San Francisco 1983 1982 1983 1982 1983 1982 1983 1982 1983 1982 468 418 143 154 605 675 750 743 1,182 1,233 170 170 61 61 241 241 310 310 518 518 22 25 20 19 46 44 28 32 81 78 93 88 49 9 53 33 70 160 23 3 0 0 0 0 0 0 0 0 0 0 245 301 106 113 444 422 598 606 1,096 1,130 0 0 0 0 0 0 0 0 0 0 4,267 4,565 1,843 1,709 7,739 6,406 10,417 9,192 19,092 17,141 0 0 0 0 0 0 0 0 0 0 4,605 4,954 1,998 1,831 8,236 6,861 11,085 9,958 20,211 18,274 678 677 469 688 1,310 1,366 1,101 1,404 1,479 1,784 16 15 25 27 25 24 18 16 106 104 103 167 133 213 170 259 254 375 609 945 125 99 84 62 172 165 933 203 468 438 -97 + 742 + 329 -275 -915 + 873 -1,247 + 91 + 1,274 -702 6,090 7,267 3,262 2,780 9,890 10,580 13,232 13,132 25,928 22,672 4,873 4,630 2,296 1,758 7,589 7,851 9,944 9,317 19,930 15,730 475 477 394 414 801 1,224 1,985 2,408 4,009 4,718 0 0 0 0 0 0 0 0 0 0 4 6 5 8 7 9 10 14 25 34 15 1,408 3 22 20 36 29 46 52 88 494 1,891 402 444 828 1,269 2,024 2,468 4,086 4,840 579 603 431 452 1,214 1,168 885 1,024 1,131 1,395 64 67 31 28 123 96 163 135 299 259 6,010 7,191 3,160 2,682 9,754 10,384 13,016 12,944 25,426 22,224 40 38 51 49 68 62 108 94 241 224 40 38 51 49 68 62 108 94 241 224 0 0 0 0 0 0 0 0 0 0 6,090 7,267 3,262 2,780 9,890 10,508 13,232 13,132 25,928 22,672 5,787 5,440 2,800 2,206 9,810 8,974 11,763 11,047 22,049 18,079 914 810 504 448 2,221 1,123 1,819 1,730 2,119 2,349 4,873 4,630 2,296 1,758 7,589 7,851 9,944 9,317 19,930 15,730 notes held by the Reserve Banks are exempt from the 7. Includes special investment account at Chicago collateral requirements. of Treasury bills maturing within 90 days. 5. Includes Federal Reserve notes held by U.S. NOTE. Data for 1983 in tables 1 and 2 may differ Treasury and by Federal Reserve Banks other than the because of rounding or closing adjustments, which are issuing Bank. not included in table 2. Digitized fo6r. FERffeActSivEe RO ct. 12, 1983, Federal Reserve notes are collateralized in the aggregate rather than by Banks. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

220 Tables 3. Federal Reserve Open Market Transactions, 1983 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 1,983 Exchange 0 Redemptions 900 Others within 1 year Gross purchases 0 Gross sales 0 Maturity shift 558 Exchange -544 Redemptions 0 1 to 5 years Gross purchases 0 Gross sales 0 Maturity shift -553 Exchange 544 5 to 10 years Gross purchases 0 Gross sales 0 Maturity shift -5 Exchange 0 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 oooo 1,456 1,259 934 0 0 0 300 0 0 0 0 0 4,564 1,198 -2,688 -900 0 0 0 0 0 0 -4,564 -1,198 1,599 900 0 0 229 650 0 0 -229 439 0 1,456 1,983 934 900 300 59,398 35,234 59,043 38,204 6,747 6,697 10,451 6,697 oooo oooo 2,880 0 0 0 0 0 826 0 0 0 0 -684 0 0 0 -142 0 1,259 0 0 47,892 47,724 3,526 3,526 oooo 2,880 0 0 37,873 36,205 7,671 3,984 -6,943 3,192 1,090 4,899 Repurchase agreements Gross purchases 452 276 379 340 Gross sales 1,040 276 379 92 Net change in federal agency obligations -596 -5 -8 241 BANKERS ACCEPTANCES Repurchase agreements, net -1,480 0 0 704 Total net change in System Open Market Account. -9,019 3,187 1,082 5,844 •Less than $500,000. NOTE. Sales, redemptions, and negative figures Digitized for FRASER reduce holdings of the System Open Market Account; http://fraser.stlouisfed.org/ all other figures increase such holdings. Details may Federal Reserve Bank of St. Louis

Tables 221 3.—Continued May June July Aug. Sept. Oct. Nov. Dec. Total 516 1,721 666 1,768 3,184 309 1,435 3,695 18,888 0 0 0 289 214 0 0 0 3,420 0 0 0 0 0 0 0 0 0 0 0 0 0 500 0 700 0 2,400 173 0 156 0 0 0 155 0 484 0 0 0 0 0 0 0 0 0 1,795 1,398 1,162 2,212 902 529 2,828 915 18,887 -1,842 -916 0 -5,344 -753 -636 -2,930 0 -16,553 0 87 0 0 0 0 0 0 87 595 0 481 0 0 0 820 0 1,896 0 0 0 0 0 0 0 0 0 -41 -1,398 -1,121 -2,212 -902 -256 -1,689 -915 -15,533 1,367 916 0 3,130 753 636 1,796 0 11,641 326 0 215 0 0 0 349 0 890 0 0 0 0 0 0 0 0 0 -1,754 0 -41 516 0 -273 -980 0 -2,450 300 0 0 1,300 0 0 700 0 2,950 108 0 124 0 0 0 151 0 383 0 0 0 0 0 0 0 0 0 0 0 0 -516 0 0 -159 0 -904 175 0 0 914 0 0 434 0 1,962 1,719 1,721 1,642 1,768 3,184 309 2,909 3,695 22,540 0 0 0 289 214 0 0 0 3,420 0 87 0 0 500 0 700 0 2,487 43,404 50,086 40,934 45,989 48,193 53,751 56,858 58,979 578,591 45,001 47,783 43,037 44,480 47,667 53,367 57,991 56,404 576,908 0 7,891 7,816 2,263 37,211 19,247 3,257 3,644 105,971 3,687 6,730 8,978 0 30,223 28,499 3,257 2,260 108,291 -371 493 2,583 2,234 8,933 -9,326 3,342 2,504 12,631 0 0 0 0 17 0 678 248 463 ooo 0 0 0 0 0 0 0 0 0 0 0 0 138 5 6 84 2 292 558 189 2,871 1,960 497 634 8,833 773 0 2,510 2,510 497 426 9,213 -248 198 -225 51 356 -557 -84 206 -672 -704 203 -203 209 913 -1,122 0 418 -1,062 -1,322 893 2,155 2,493 10,203 -11,005 3,258 3,128 10,897 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

222 Tables 4. Federal Reserve Bank Holdings of U.S. Government and Federal Agency Securities, December 31, 1981-83 Millions of dollars Increase or December 31 decrease (-) Description 1983 1982 1981 1983 1982 U.S. government securities—Total 151,942 139,312 130,954 12,630 8,358 1-15 days' 2,700 4,3% 3,935 -1,696 461 16-90days 38,248 31,088 25,190 7,160 5,898 91 days to 1 year 45,475 40,057 37,417 5,418 2,640 1-5 years 34,021 35,102 36,025 -1,081 -923 5-10 years 13,485 12,095 11,752 1,390 343 Over 10 years 18,014 16,574 16,634 1,440 -60 Held outright2 Treasury bills 65,811 54,426 49,359 11,385 5,067 Treasury notes 63,934 62,626 59,978 1,308 2,648 Treasury bonds 20,814 18,556 18,401 2,258 155 Held under RPs 1,384 3,704 3,216 -2,320 488 Federal agency obligations—Total 8,853 9,525 9,394 -672 131 1-15 days 386 730 530 -344 200 16-90 days 597 564 631 33 -67 91 days to 1 year 1,937 1,954 1,443 -17 511 1-5 years 4,196 4,780 5,256 -584 -476 5-10 years 1,333 979 962 354 17 Over 10 years 403 518 573 -115 -55 Held outright Banks for Cooperatives 21 21 21 0 0 Export-Import Bank 0 0 16 0 -16 Federal Farm Credit Banks 2,420 2,174 1,960 246 214 Federal Home Loan Banks 2,272 2,494 2,500 -222 -6 Federal Home Loan Mortgage Corporation 5 5 5 0 0 Federal Intermediate Credit Banks 50 50 59 0 -9 Federal Land Banks 350 613 840 -263 -227 Farmers Home Administration 147 147 163 0 -16 Federal National Mortgage Association 3,144 3,198 3,312 -54 -114 Government National Mortgage Association—PCs 67 67 83 0 -16 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 208 588 269 -380 319 1. Includes securities held under repurchase agree- NOTE. Details may not add to totals because of ments. rounding. 2. Excludes securities sold under matched agreements, and securities held under repurchase agreements. 5. Number and Salaries of Officers and Employees of Federal Reserve Banks, December 31, 1983 President Other officers Employees Total Federal Reserve Number Bank (including Annual Num- Annual Annual Num- Annual branches) salary ber salaries Full- Part- salaries ber salaries (dollars) (dollars) time time (dollars) (dollars) Boston 126,000 49 2,690,200 1,222 189 27,710,080 1,461 30,526,280 New York 164,600 155 9,944,900 3,920 76 89,653,242 4,152 99,762,742 Philadelphia 102,200 43 2,281,600 1,032 69 20,980,805 1,145 23,364,605 Cleveland 104,100 52 2,483,500 1,231 57 23,981,985 1,341 26,569,585 Richmond 110,100 71 3,553,700 1,770 128 31,365,680 1,970 35,029,480 Atlanta 108,000 62 3,217,150 1,950 48 36,060,303 2,061 39,385,453 Chicago 132,800 81 4,181,800 2,883 144 56,819,219 3,109 61,133,819 St. Louis 108,000 44 2,265,380 1,162 99 22,086,288 1,306 24,459,668 Minneapolis 108,000 37 1,852,800 1,049 3 20,325,245 1,090 22,286,045 Kansas City 103,100 54 2,764,100 1,514 42 28,496,511 1,611 31,363,711 Dallas 101,700 49 2,442,000 1,352 24 26,350,178 1,426 28,893,878 Digitized Sfoanr FFrRanAcSisEcoR 138,500 89 4,717,329 2,089 74 45,278,902 2,253 50,134,731 http://fraser.stlouisfed.org/ Federal RTeotsaelrve Bank of S1t., 4L0o7,u1i0s0 786 42,394,459 21,174 953 429,108,438 22,925 472,909,997

Tables 223 6. Bank Premises of Federal Reserve Banks and Branches, December 31, 1983 Dollars Federal Costs Net Other Reserve or B b a r n a k nch Land ( B in u c i l l u di d n i g n s g B ch ui i l n d e i r n y g a m n a d - Total2 v b a o l o u k e es r t e a a te l 3 vaults) ' equipment BOSTON . 21,984,026 79,883,850 5,425,128 107,293,005 95,903,202 Annex.. 27,840 89,202 44,538 161,580 141,284 NEW YORK 3,436,277 11,866,934 21,427,695 36,730,906 21,422,003 Annex 477,863 1,136,219 745,855 2,359,936 908,097 Buffalo 887,844 2,714,938 1,955,684 5,558,466 3,062,621 PHILADELPHIA 1,876,601 52,376,087 5,331,020 59,583,708 49,971,600 CLEVELAND 1,074,281 6,182,682 4,669,862 11,926,825 4,268,592 1,224,363 Cincinnati .... 2,003,999 13,537,723 7,521,727 23,063,449 15,567,437 Pittsburgh 1,658,376 5,186,135 3,067,600 9,912,111 7,586,991 RICHMOND 3,912,575 55,692,101 14,314,313 73,918,988 63,989,256 Annex 522,733 3,725,466 3,616,991 7,865,190 4,239,263 Baltimore 3,880,302 32,901,277 36,781,579 35,901,664 Charlotte .... 347,071 1,116,899 946,943 2,410,914 1,212,390 1,675,944 ATLANTA . 1,202,255 7,093,025 3,558,580 11,853,861 6,663,964 Birmingham. 2,361,070 1,905,770 1,046,244 5,313,084 3,612,914 166,845 Jacksonville. 164,004 1,706,794 778,381 2,649,179 839,902 951,793 Annex 107,925 76,236 15,843 200,003 154,302 Miami 3,607,531 11,853,644 2,134,409 17,595,584 16,411,138 Nashville ... 592,342 1,474,678 1,175,891 3,242,912 1,510,254 New Orleans 3,087,693 2,754,272 1,476,257 7,318,222 4,993,768 283,753 CHICAGO . 4,511,942 15,364,652 12,068,149 31,944,743 16,217,244 Annex 53,066 302,249 136,878 492,193 443,273 Detroit 797,734 3,429,670 2,004,896 6,232,301 3,411,722 ST. LOUIS 700,378 6,161,656 3,870,028 10,732,062 4,815,069 Little Rock. 1,148,492 2,067,898 1,023,475 4,239,865 2,904,397 Louisville .. 700,075 2,945,455 1,131,238 4,776,768 2,480,281 Memphis .. 1,135,623 4,216,382 2,126,755 7,478,760 5,355,294 MINNEAPOLIS. 1,394,384 26,664,805 7,692,189 35,751,378 25,963,650 Helena 289,619 104,184 61,906 455,709 336,861 KANSAS CITY. 1,338,737 10,557,450 7,544,533 19,440,719 13,835,183 5,555,451 Denver 2,997,746 3,453,303 2,457,850 8,908,898 6,075,513 Oklahoma City . 646,386 2,395,121 1,717,342 4,758,848 3,374,796 Omaha 1,030,226 1,550,902 817,215 3,398,342 1,814,471 "479,076 DALLAS ... 3,729,268 5,095,599 3,737,706 12,562,573 9,217,317 El Paso 262,477 1,131,610 393,301 1,787,388 1,528,026 Houston .... 2,049,064 2,582,938 791,229 5,423,231 4,699,387 San Antonio 448,596 2,226,761 570,846 3,246,204 2,753,233 SAN FRANCISCO... 12,024,102 86,465,796 98,489,898 95,954,885 Los Angeles 644,238 4,429,418 2,468,917 7,542,573 4,170,931 4,848,691 Portland 207,381 1,681,372 649,432 2,538,184 1,865,994 Salt Lake City 480,222 1,972,068 1,048,304 3,500,594 2,433,513 Seattle 274,772 1,890,966 1,388,582 3,554,319 1,996,657 Total 90,077,134 479,964,186 132,953,731 702,995,051 550,008,341 15,185,914 1. Includes expenditures for construction at some and Bank premises formerly occupied and being held offices pending allocation to appropriate accounts. pending sale. 2. Excludes charge-offs of $17,698,968 before 1952. NOTE. Details may not add to totals due to round- 3. Includes acquisitions for banking-house purposes, ing. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

224 Tables 7. Income and Expenses of Federal Reserve Banks, 1983 Dollars Item Total Boston New York Philadelphia Cleveland CURRENT INCOME Loans 132,865,618 1,536,753 35,493,027 4,912,031 2,378,047 Acceptances 6,002,058 0 6,002,058 0 0 U.S. government securities .. 15,150,174,988 703,948,643 4,949,240,503 502,849,580 924,706,072 Foreign currencies 273,795,191 7,118,674 66,806,027 12,046,989 19,987,049 Priced services 496,248,128 27,183,964 80,390,885 17,332,387 30,342,356 Allother 9,276,134 316,890 3,408,563 242,571 286,732 Total 16,068,362,117 740,104,924 5,141,341,063 537,383,558 977,700,256 CURRENT EXPENSES Salaries and other personnel expenses 499,601,810 30,903,530 107,308,332 24,637,342 27,530,530 Retirement and other benefits 141,205,741 8,933,801 27,851,445 7,329,265 8,470,436 Fees 12,111,411 832,422 1,170,056 504,349 657,350 Travel 16,407,036 790,390 2,179,756 729,994 1,194,279 Postage and other shipping costs 97,068,920 4,257,487 12,817,701 4,231,943 6,770,402 Communications 20,980,191 1,361,774 4,426,817 1,126,418 1,512,074 Materials and supplies 38,833,832 1,950,987 7,511,411 2,029,739 2,056,739 Building expenses Taxes on real estate 19,431,519 3,224,276 2,998,552 1,424,521 979,638 Property depreciation 18,938,040 2,370,078 1,800,952 1,514,777 1,044,304 Utilities 21,553,559 1,965,115 4,195,366 1,843,426 1,439,614 Rent 11,501,300 505,036 7,209,322 40,989 199,299 Other 10,954,042 517,171 2,286,769 885,449 513,535 Equipment Rentals 50,254,222 1,893,580 11,348,573 1,411,586 4,121,712 Depreciation 39,710,008 1,716,841 7,331,591 1,777,658 1,612,358 Repairs and maintenance 24,738,993 1,201,338 4,725,936 1,542,680 826,155 Cost of earnings credits 71,759,091 4,414,448 6,144,555 4,059,103 6,514,992 All other 28,336,513 2,211,079 4,130,407 1,151,701 2,019,137 Shared costs, net' 0 820,444 1,491,075 1,278,289 -335,588 Recoveries -14,643,515 -3,632,591 -1,549,820 -1,340,366 -762,771 Expenses capitalized2 -2,601,833 -107,646 -4,369 -3,024 -163,047 Total3 1,100,235,074 66,129,558 215,374,427 56,175,838 66,201,147 Reimbursements -76,556,600 -3,715,636 -18,588,582 -4,790,044 -5,407,502 Net expenses 1,023,678,474 62,413,922 196,785,845 51,385,794 60,793,645 For notes see end of table Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 225 7.—Continued Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco 6,448,728 2,877,162 6,615,850 3,044,091 3,037,194 7,060,631 50,351,114 9,110,990 0 0 0 0 0 0 0 0 1,260,483,680 371,200,019 2,096,979,158 452,105,131 186,219,854 755,652,637 1,036,724,272 1,910,065,439 14,511,145 21,903,615 37,236,146 7,666,265 9,856,627 12,594,579 18,891,868 45,176,207 39,056,539 53,407,686 72,017,605 24,693,958 28,590,949 35,813,697 35,139,599 52,278,503 502,296 733,097 1,098,497 326,068 185,342 108,909 624,058 1,443,111 1,321,002,388 450,121,579 2,213,947,256 487,835,513 227,889,966 811,230,453 1,141,730,911 2,018,074,250 37,091,518 41,646,375 64,524,454 25,436,242 23,642,133 32,990,583 30,217,808 53,672,963 10,946,323 11,633,939 18,485,203 7,647,576 6,155,213 9,334,220 8,445,620 15,972,700 501,525 4,482,379 1,243,514 538,939 511,391 523,462 383,440 762,584 1,325,130 1,409,851 2,320,397 730,228 894,106 1,373,518 1,276,888 2,182,499 8,724,376 9,374,192 12,249,253 6,185,105 5,119,439 7,992,043 7,305,459 12,041,520 1,689,102 2,110,192 2,268,948 811,831 992,639 1,428,822 1,245,370 2,006,204 3,654,209 3,809,246 4,886,229 2,446,694 1,625,048 2,998,155 2,430,214 3,435,161 1,642,856 1,074,265 2,466,379 402,701 2,158,213 616,043 699,335 1,744,740 3,603,387 988,938 807,063 561,887 1,004,955 1,042,065 791,214 3,408,420 1,975,577 1,874,560 2,217,534 1,144,244 841,779 1,126,324 1,301,628 1,628,392 359,758 111,942 1,830,862 306,748 77,870 61,902 738,506 59,066 1,127,544 612,938 1,729,671 530,781 594,114 628,325 561,905 965,840 4,426,664 6,280,908 7,104,648 1,574,016 2,264,308 1,884,147 3,112,469 4,831,611 4,433,750 2,449,702 4,977,365 2,151,038 1,896,474 3,090,392 3,450,760 4,822,079 2,767,553 2,038,594 3,351,289 1,155,240 934,802 1,869,074 1,648,894 2,677,438 5,638,623 8,175,346 19,049,569 3,063,683 4,049,236 3,346,181 2,579,199 4,724,156 1,683,929 2,481,548 4,486,156 1,516,799 1,541,510 1,492,778 2,108,515 3,512,954 1,007,004 -2,017,646 -3,298,031 1,375,023 1,154,088 -639,675 -2,410,705 1,575,722 -3,011,091 -684,284 -1,250,412 -593,280 -176,856 -639,156 -191,689 -811,199 -243,776 -179,467 -616,918 -115,773 -63,619 -558,895 -439,743 -105,556 83,438,1653 97,673,518 148,833,173 56,869,722 55,216,843 69,960,307 65,255,083 119,107,293 -5,125,512 -5,822,014 -9,566,570 -4,042,018 -2,522,503 -4,791,960 -3,699,235 -8,485,024 78,312,653 91,851,504 139,266,603 52,827,704 52,694,340 65,168,347 61,555,848 110,622,269 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

226 Tables 7. Income and Expenses of Federal Reserve Banks, 1983—Continued Dollars Item Total Boston New York Philadelphia Cleveland PROFIT AND LOSS Current net income 15,044,683,644 677,691,002 4,944,555,217 485,997,765 916,906,611 Additions to current net income Profits on sales of U.S. government securities 20,985,052 974,625 6,693,696 699,610 1,336,302 All other 35,829,894 1,485 20,850 2,179 14,243 Total additions 56,814,946 976,110 6,714,546 701,788 1,350,545 Deductions from current net income Losses on foreign currency transactions4 456,297,385 11,863,733 111,336,562 20,077,085 33,309,709 All other 883,484 4,838 116,615 12,783 45,472 Total deductions 457,180,869 11,868,571 111,453,177 20,089,868 33,355,181 Net additions to or deductions (-) from current net income -400,365,922 -10,892,461 -104,738,631 -19,388,080 -32,004,636 Assessments by Board Board expenditures5 71,551,000 1,861,700 17,513,200 3,214,900 5,187,600 Cost of Federal Reserve currency 152,135,488 8,203,654 41,636,586 8,308,678 8,472,971 Net income before payments to U.S. Treasury 14,420,631,234 656,733,187 4,780,666,800 455,086,107 871,241,404 Dividends paid 85,151,835 2,284,502 20,884,084 4,024,901 6,018,003 Payments to U.S. Treasury (interest on Federal Reserve notes) 14,228,816,297 649,638,935 4,733,958,866 439,879,006 863,002,352 Transferred to surplus 106,663,100 4,809,750 25,823,850 11,182,200 2,221,050 Surplus, January 1 1,357,449,200 34,953,200 331,612,700 59,790,650 99,146,300 Surplus, December 31 1,464,112,300 39,762,950 357,436,550 70,972,850 101,367,350 1. Includes distribution of costs for projects per- System. formed by one Bank for the benefit of one or more 4. This item consists of unrealized net losses related other Banks. to revaluation of assets denominated in foreign cur- 2. This item includes expenses for labor and rencies to market exchange rates. materials temporarily capitalized and charged to ac- 5. For additional details, see the last three pages of tivities when the products are consumed. the section "Board of Governors, Financial State- 3. The total expense for Richmond has been ad- ments" in this REPORT. justed to exclude $5,905,795, which was allocated to NOTE. Details may not add to totals because of the expenses of other Federal Reserve Banks for rounding. operation of the Federal Reserve Communications Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 227 7.—Continued Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco 1,242,689,736 358,270,074 2,074,680,653 435,007,810 175,195,626 746,062,106 1,080,175,063 1,907,451,981 1,767,545 525,429 2,948,568 668,104 261,812 1,021,335 1,432,608 2,655,418 16,030 4,204 0 26,283 1,858 55,362 11,138 35,676,261 1,783,575 529,633 2,948,568 694,387 263,671 1,076,697 1,443,746 38,331,680 24,183,761 36,503,791 62,056,444 12,776,327 16,426,706 20,989,680 31,484,519 75,289,068 61,785 101,695 102,895 56,609 2,271 110,767 136,790 130,965 24,245,546 36,605,485 62,159,339 12,832,936 16,428,977 21,100,446 31,621,309 75,420,033 -22,461,971 -36,075,852 -59,210,771 -12,138,548 -16,165,306 -20,023,749 -30,177,563 -37,088,354 3,728,000 5,772,600 9,692,700 1,996,900 2,560,200 3,264,500 5,024,200 11,734,500 11,850,262 6,037,702 21,140,229 5,514,625 3,125,473 9,875,675 11,827,012 16,142,621 1,204,649,503 310,383,920 1,984,636,953 415,357,737 153,344,646 712,898,182 1,033,146,288 1,842,486,506 4,336,297 6,865,126 11,399,351 2,344,760 2,983,463 3,901,708 6,160,847 13,948,793 1,197,695,756 290,842,695 1,966,025,853 410,970,627 148,823,984 703,007,024 1,013,593,438 1,811,377,762 2,617,450 12,676,100 7,211,750 2,042,350 1,537,200 5,989,450 13,392,000 17,159,950 71,546,600 108,864,850 184,673,250 38,079,650 48,984,200 61,908,450 94,257,600 223,631,750 74,164,050 121,540,950 191,885,000 40,122,000 50,521,400 67,897,900 107,649,600 240,791,700 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

228 Tables 8. Income and Expenses of Federal Reserve Banks, 1914-83 Dollars Assessments by Period, or Federal Current Operating Net additions Board of Governors Reserve Bank income expenses' or deductions (-) Board Federal Reserve expenditures currency costs • 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 -6,314,7% 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 24,914,037 -3,637,668 721,724 1,714,421 1927 43,024,484 24,894,487 -2,457,792 779,116 1,844,840 1928 64,052,860 25,401,233 -5,026,029 697,677 805,900 1929 70,955,496 25,810,067 -4,861,642 781,644 3,099,402 1930 36,424,044 25,357,611 -93,136 809,585 2,175,530 1931 29,701,279 24,842,964 311,451 718,554 1,479,146 1932 50,018,817 24,456,755 -1,413,192 728,810 1,105,816 1933 49,487,318 25,917,847 -12,307,074 800,160 2,504,830 1934 48,902,813 26,843,653 -4,430,008 ,372,022 1,025,721 1935 42,751,959 28,694,965 -1,736,758 ,405,898 1,476,580 1936 37,900,639 26,016,338 485,817 ,679,566 2,178,119 1937 41,233,135 25,294,835 -1,631,274 ,748,380 1,757,399 1938 36,261,428 25,556,949 2,232,134 ,724,924 1,629,735 1939 38,500,665 25,668,907 2,389,555 ,621,464 1,356,484 1940 43,537,805 25,950,946 11,487,697 ,704,011 1,510,520 1941 41,380,095 28,535,547 720,636 ,839,541 2,588,062 1942 52,662,704 32,051,226 -1,568,208 ,746,326 4,826,492 1943 69,305,715 35,793,816 23,768,282 2,415,630 5,336,118 1944 104,391,829 39,659,4% 3,221,880 2,2%,357 7,220,068 1945 142,209,546 41,666,453 -830,007 2,340,509 4,710,309 1946 150,385,033 50,493,246 -625,991 2,259,784 4,482,077 1947 158,655,566 58,191,428 1,973,001 2,639,667 4,561,880 1948 304,160,818 64,280,271 -34,317,947 3,243,670 5,186,247 1949 316,536,930 67,930,860 -12,122,274 3,242,500 6,304,316 1950 275,838,994 69,822,227 36,294,117 3,433,700 7,315,844 1951 394,656,072 83,792,676 -2,127,889 4,095,497 7,580,913 1952 456,060,260 92,051,063 1,583,988 4,121,602 8,521,426 1953 513,037,237 98,493,153 -1,058,993 4,099,800 10,922,067 1954 438,486,040 99,068,436 -133,641 4,174,600 6,489,895 1955 412,487,931 101,158,921 -265,456 4,194,100 4,707,002 1956 595,649,092 110,239,520 -23,436 5,339,800 5,603,176 1957 763,347,530 117,931,908 -7,140,914 7,507,900 6,374,195 1958 742,068,150 125,831,215 124,175 5,917,200 5,973,240 1959 886,226,116 131,848,023 98,247,253 6,470,600 6,384,083 1960 1,103,385,257 139,893,564 13,874,702 6,533,700 7,455,011 1961 941,648,170 148,253,719 3,481,628 6,265,100 6,755,756 1962 1,048,508,335 161,451,206 -55,779 6,654,900 8,030,028 1963 1,151,120,060 169,637,656 614,835 7,572,800 10,062,901 1964 1,343,747,303 171,511,018 725,948 8,655,200 17,229,671 1965 1,559,484,027 172,110,934 1,021,614 8,576,3% 23,602,856 1966 1,908,499,896 178,212,045 9%,230 9,021,600 20,167,481 1967 2,190,403,752 190,561,166 2,093,876 10,769,5% 18,790,084 1968 2,764,445,943 207,677,768 8,519,9% 14,198,198 20,474,404 1969 3,373,360,559 237,827,579 -557,553 15,020,084 22,125,657 For notes see end of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 229 8.—Continued Payments to U.S. Treasury Transferred Transferred Dividends paid Franchise Under Interest on to surplus to surplus tax section 13b Federal Reserve (section 13b) (section 7) 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 22,535,597 4,283,231 10,268,598 -2,297,724 10,029,760 17,308 -7,057,694 9,282,244 11,020,582 8,874,262 2,011,4i8 -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 75,233,818 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 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

230 Tables 8. Income and Expenses of Federal Reserve Banks, 1914-83—Continued Dollars Assessments by Period, or Federal Current Operating Net additions Board of Governors Reserve Bank income expenses' or deductions (-) Board Federal Reserve expenditures currency costs1 1970 3,877,218,444 276,571,876 11,441,829 21,227,800 23,573,710 1971 3,723,369,921 319,608,270 94,266,075 32,634,002 24,942,528 1972 3,792,334,523 347,917,112 -49,615,790 35,234,499 31,454,740 1973 5,016,769,328 416,879,377 -80,653,488 44,411,700 33,826,299 1974 6,280,090,965 476,234,586 -78,487,237 41,116,600 30,190,288 1975 6,257,936,784 514,358,633 -202,369,615 33,577,201 37,130,081 1976 6,623,220,383 558,128,811 7,310,500 41,827,700 48,819,453 1977 6,891,317,498 568,851,419 -177,033,463 47,366,100 55,008,163 1978 8,455,390,401 592,557,841 -633,123,486 53,321,700 60,059,365 1979 10,310,148,406 625,168,261 -151,148,220 50,529,700 68,391,270 1980 12,802,319,335 718,032,836 -115,385,855 62,230,800 73,124,423 1981 15,508,349,653 814,190,392 -372,879,185 63,162,700 82,924,013 1982 16,517,385,129 926,033,957 -68,833,150 61,813,400 98,441,027 1983 16,068,362,117 1,023,678,474 -400,365,922 71,551,000 152,135,488 Total, 1914-83 147,685,709,771 12,001,908,729 -2,145,034,886 847,903,508 1,115,466,550 Aggregate for each Bank, 1914-83 Boston 6,959,299,512 812,716,592 -76,058,745 32,954,686 63,679,783 New York 40,182,917,501 2,505,494,145 -500,655,778 222,523,986 226,982,118 Philadelphia 6,923,765,117 636,733,549 -94,309,948 42,058,918 63,557,812 Cleveland 11,125,309,061 845,045,162 -182,513,817 72,273,990 72,496,580 Richmond 11,361,899,515 934,179,581 -126,027,983 44,021,476 110,583,452 Atlanta 6,420,773,185 974,718,339 -158,983,028 58,736,660 91,296,529 Chicago 22,748,603,310 1,583,429,222 -345,458,455 124,048,072 156,784,773 St. Louis 5,549,361,124 667,293,830 -75,776,994 27,412,772 48,472,913 Minneapolis 2,897,711,721 512,698,153 -64,649,400 23,980,815 22,587,213 Kansas City 6,417,145,196 742,577,670 -95,232,227 35,687,009 57,562,838 Dallas 7,898,839,932 641,819,838 -134,857,672 48,240,273 64,785,541 San Francisco 19,200,084,599 1,145,202,646 -290,510,840 115,964,851 136,676,998 Total 147,685,709,771 12,001,908,729 -2,145,034,886 847,903,508 1,115,466,550 1. Assessments by the Board for the cost of Federal tions to capital of the Federal Deposit Insurance Reserve currency, heretofore included in operating ex- Corporation (1934), and $3,657 net upon elimination penses, is now identified as a separate item. Accord- of sec. 13b surplus (1958); and was increased by ingly, the operating expenses item for 1982 and for $11,131,013 transferred from reserves for contingenearlier years has been restated. cies (1945), leaving a balance of $1,464,112,298 on 2. The $1,592,784,499 transferred to surplus was Dec. 31, 1983. reduced by direct charges of $500,000 for charge-off NOTE. Details may not add to totals because of on Bank premises (1927), $139,299,557 for contribu- rounding. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 231 8.—Continued Payments to U.S. Treasury Dividends Transferred Transferred paid Franchise Under Interest on to surplus to surplus tax section 13b Federal Reserve (section 13b) (section 7) notes 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 85,151,835 14,228,816,297 106,633,100 1,611,678,033 149,138,300 2,188,893 128,219,610,033 -3,657 1,592,784,4992 71,918,981 7,111,395 280,843 5,844,585,300 135,411 49,857,775 446,830,155 68,006,262 369,116 35,817,796,232 -433,412 394,693,121 90,880,855 5,558,901 722,406 5,904,348,996 290,661 85,303,072 143,128,592 4,842,447 82,930 9,690,334,307 -9,906 114,601,143 79,858,764 6,200,189 172,493 9,980,883,235 -71,517 80,043,858 100,087,946 8,950,561 79,264 4,901,107,877 5,491 126,807,490 225,701,798 25,313,526 151,045 20,080,490,983 11,682 207,213,754 52,941,901 2,755,629 7,464 4,629,484,510 -26,515 45,241,628 42,987,872 5,202,900 55,615 2,171,086,268 64,874 54,398,613 66,179,796 6,939,100 64,213 5,340,873,166 -8,674 72,037,850 86,901,684 560,049 102,083 6,809,590,374 55,337 111,927,078 204,259,689 7,697,341 101,421 17,049,028,786 -17,089 250,659,117 1,611,678,033 149,138,300 2,188,893 128,219,610,033 -3,657 1,592,784,4992 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

232 Tables 9. Revenue and Expense of Priced Services at Federal Reserve Banks, 1983 and 1982 Millions of dollars Service Wire Total Commercial transfer Item check and net collection settlement 1983 1982 1983 1982 1983 1982 Revenue3 581.1 421.6 436.7 308.5 67.2 53.7 Expense3 533.6 456.8 393.6 324.7 57.1 51.4 Net revenue 47.5 -35.3 43.1 -16.2 10.1 2.3 Private sector adjustment4 59.1 55.7 44.5 40.7 8.2 7.7 Net revenue after private sector adjustment.. -11.6 -90.9 -1.4 -56.9 1.9 -5.4 MEMO: Net revenue after private sector adjustment, with allowance for ACH and cash transportation programs !»2 -1.9 -78.8 1. The Board established an incentive pricing pro- penses plus the private sector adjustment would exgram for the commercial automated clearinghouse ceed revenue during the program. service that provides for fee structures designed to 3. Total System revenue for 1983 and 1982 respecrecover an increasing share of expenses over a period tively comprises $496.2 million and $386.7 million of of several years. Revenue for the commercial ACH income from fees for services, and $84.9 million and service was expected to represent approximately 40 $34.8 million of income related to clearing balances percent and 20 percent of expenses plus the private established by depository institutions. Total System sector adjustment for 1983 and 1982 respectively. expenses include $71.8 million and $28.3 million of 2. The Board adopted a transitional support pro- earnings credits granted to depository institutions on gram, which was concluded at the end of 1983, for the clearing balances. Data for 1982 have been restated to cash transportation service, and anticipated that ex- distribute the income and cost of clearing balances Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 233 9.—Continued Service Definitive Book- Cash Commercial safekeeping Coin ACH1 and noncash se e cu n r tr it y ies tr t a a n ti s o p n o 2 r- wrapping collection 1983 1982 1983 1982 1983 1982 1983 1982 1983 1982 7.7 1.4 19.1 15.8 21.8 14.5 27.1 26.4 1.6 1.3 14.5 9.7 20.8 21.4 18.0 17.1 28.3 31.3 1.4 1.2 -6.8 -8.3 -1.7 -5.6 3.8 -2.6 -1.2 -4.9 .2 .1 .7 1.5 2.7 2.9 2.5 2.6 .2 .2 .2 .1 -7.5 -9.8 -4.4 -8.5 1.3 -5.2 -1.4 -5.1 .0 .0 .6 - .9 .2 -1.9 across services to present data consistent with those 4. This adjustment is an imputed cost intended to for 1983. reflect the taxes that would have been paid and the Check collection expense includes float costs. Ex- return on capital that would have been provided had a penses attributable to check collection include the private firm furnished the services. value of holdover check float (1) in excess of 1 percent NOTE. Revenue and expenses of priced services ofof the total dollar value of checks processed during the fered by the Federal Reserve Banks are derived from period from Feb. 24 to June 30, 1983, (2) in excess of the income and expense data shown in table 7. Exone-half of 1 percent of the total value of checks pro- penses for priced services are based primarily on the cessed and of interterritory check float billed directly Federal Reserve Planning and Control System, which to institutions for July 1 to Sept. 30, 1983, and (3) all provides for the allocation of expenses to the principal check float since Oct. 1, 1983. areas of operation of the Banks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

234 Tables 10. Volume of Operations in Principal Departments of Federal Reserve Banks, 1980-83 Operation 1983 1982 1981 1980 Millions of pieces Loans (') (') O (') Currency received and counted 11,464 10,679 10,277 9,432 Currency verified and destroyed 4,403 4,147 3,510 3,197 Coin received and counted 17,712 16,859 17,023 17,700 Checks handled U.S. government checks 612 655 683 705 Postal money orders 115 126 126 117 All other 2 15,900 15,178r 15,880 15,721 Issues, redemptions, and exchanges of U.S. government securities 168 156 188 301 Transfers of funds 3 62 58 54 43 Food stamps redeemed 2,684 2,565 2,625 2,541 Amounts (millions of dollars) Loans 214,190 184,997 236,532 267,957 Currency received and counted 141,684 128,8O3r 117,901 104,333 Currency verified and destroyed 36,224 31,258 24,912 20,183 Coin received and counted 2,795 2,714 3,184 2,703 Checks handled U.S. government checks 552,493 628,639 611,403 598,569 Postal money orders 7,854 6,645 6,030 6,164 All other 10,694,906 8,722,369 9,454,638 9,365,649 Issues, redemptions, and exchanges of U.S. government securities 51,352,275 26,550,780 12,728,458 10,326,013 Transfers of funds 143,177,719 121,239,371 93,968,246 78,594,862 Food stamps redeemed 10,861 9,869 9,547 9,268 1. Number handled (in thousands): 1983, 22; 1982, The 1983 and 1982 figures include 1.25 million and 24; 1981, 36; and 1980, 25. 0.9 million checks respectively that were handled by 2. The 1982 and 1983 volumes reflect the number of more than one Reserve Bank. Comparable data are other checks handled, whether individually or in pre- not available for years before 1982. sorted bundles. Before 1982, however, the number of 3. Includes the volume processed at both sending items in pre-sorted bundles was not reported; there- and receiving offices of Federal Reserve Banks. The fore, the 1980 and 1981 volumes include pre-sorted number of priced wire transfers in 1983 was 38 million. bundles counted as one item. r Revised. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 235 11. Federal Reserve Bank Interest Rates, December 31, 1983 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 ... 8*4 9Vi 10 Yi New York. Philadelphia Cleveland... Richmond Atlanta... Chicago . St. Louis. Minneapolis. Kansas City . Dallas V V V San Francisco 8»/2 9!/2 \0Vl 1. Rates applied to short-term advances for the pur- 2. Applicable to advances when exceptional circumpose of meeting temporary funding requirements and stances or practices involve only a particular deposito longer-term advances made to smaller institutions tory institution and to advances when an institution for the purpose of meeting seasonally recurring needs is under sustained liquidity pressures. See section for funds. See sections 201.3(a) and 201.3(b)(l) of 201.3(b)(2) of Regulation A. Regulation A. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

236 Tables 12. Reserve Requirements of Depository Institutions Percent of deposits Through July 13, 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. 16 191/2 15 10/2 4/2 1937—Mar. 1 223/A HVi 12/4 5/4 May 1 26 20 14 6 1938—Apr. 16 223/4 17/2 12 5 1941—Nov. 1 26 20 14 6 1942—Aug. 20 24 Sept. 14 22 Oct. 3 20 1948_Feb. 27 22 June 11 24 Sept. 24,16 ... 26 22 16 7/2 1949—May 5,1 24 21 15 7 June 30, July 1. 20 14 6 Aug. 1 13 11,16.... 23/2 19/2 12 18 23 19 25 22/2 18/2 Sept. 1 22 18 1951—Jan. 11,16 .... 23 19 13 25, Feb. 1. 24 20 14 1953—July 9,1 22 19 13 1954_jUne 24,16.... 21 July 29, Aug. 1 20 18 12 1958—Feb. 27, Mar. 1 19/2 17/2 11/2 Mar. 20, Apr. 1 19 17 11 Apr. 17 18/2 24 18 16/2 I960—Sept. 1 17/2 Nov. 24 12 Dec. 1 1/2 1962—July 28 o Oct. 25, Nov. 1 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 time Savings 0-5 Over 5 0-5 Over 5 0-5 Over 5 1966-July 14,21 . 16/25 125 Sept. 8,11 . 1967-Mar.2 3/2 3/2 16.... 3 3 1968-Jan. 11,18 . 16/2 17 12 12/2 1969-Apr. 17 .... 17 17/2 12/2 13 1970-Oct. 1 1. Reserves required during the period from incep- All required reserves were held on deposit with tion of the Federal Reserve System until June 20, Federal Reserve Banks from June 21, 1917, until late 1917, were not strictly comparable with later require- 1959. Since then, member banks were allowed to ments; they were based on aggregate amounts of de- count vault cash as reserves, as follows: country banks posits, and reserve balances with the Reserve Banks —in excess of 4 and 2/2 percent of net demand were increased in stages. deposits effective Dec. 1, 1959, and Aug. 25, 1960, When two dates are shown, the first applies to the respectively; central reserve city and reserve city banks change at central reserve or reserve city banks and the —in excess of 2 and 1 percent effective Dec. 3, 1959, second to the change at country banks. and Sept. 1, 1960, respectively. All institutions were 2. Demand deposits subject to reserve require- allowed to count all vault cash as reserves effective ments, beginning Aug. 23, 1935, were total demand Nov. 24, 1960. deposits minus cash items in process of collection and In graduated requirement schedules, each deposit demand balances due from domestic banks (also interval applies to that part of the deposits of each Digitizedm foinru Fs RwaArS loEaRn and Series E bond accounts during the bank. http://fraspeerri.osdt loAupirs. fe13d,. o1r9g4/3 —June 30, 1947). Beginning Oct. 16, 1969, Regulation M required Federal Reserve Bank of St. Louis

Tables 237 12.—Continued Nov. 9, 1972, through Nov. 12, 1980 (deposit intervals in millions of dollars) Net demand deposits2'6 Time and savings deposits4 Time7 0-5, by Over 5, by Effective date maturityi maturity (\ <* 10- 100- Over Sav- 0-2 2-10 100 400 400 ings 30- 180 4 yrs. 30- 180 4 yrs. 179 days or 179 days or days to more days to more 4 yrs. 4 yrs. 1972-Nov. 9 8 10 12 WAl 17!/2 35 35 55 16 13 1973-July 19 10 Vi nvi 13 Vi 18 1974-Dec. 12 17»/2 6 3 1975-Feb. 13 7»A 10 12 13 I6V2 Oct. 30 3 I9 3 I9 1976-Jan.8.. 3 1W 2!/29 Dec. 30 7 9!/2 IP/4 123/4 16!4 Beginning Nov. 13, 1980 Depository institution requirements after implementation of the Type of deposit, and deposit interval10 Monetary Control Act" Percent Effective date Net-transaction accounts*1'li $0-$28.9 million .. 3 12/29/83 Over $28.9 million 12 12/29/83 Nonpersonal time deposits1* By original maturity Less than Wi 3 10/6/83 1 Vi years or more 0 10/6/83 Eurocurrency liabilities All types 3 11/13/80 reserves against (a) net balances due from domestic of- defined in the Board's Regulation Q as savings deposfices to their foreign branches and (b) foreign-branch its beginning Jan. 1, 1974. Effective with the reserve loans to U.S. residents; Regulation D imposed a simi- computation period beginning Nov. 16, 1978, domeslar requirement against (c) borrowings from foreign tic deposits of Edge corporations were subject to the banks by domestic offices of a member bank. Limited same reserve requirements as deposits of member reserve-free base amounts were originally permitted banks. under Regulation M but were eliminated for (b) effec- 5. This rate had been established in the earlier structive June 21, 1973, and were lowered in steps for (a) ture. It remained the same in the new structure estaband (c) until eliminated effective Mar. 4, 1974. Begin- lished this date. ning June 21, 1973, loans aggregating $100,000 or less 6. Effective Nov. 9, 1972, a new criterion was to any U.S. resident were excluded from computa- adopted to designate reserve cities, and on the same tions, as were total loans of a bank to U.S. residents if date requirements for reserves against net demand not exceeding $1 million. The applicable reserve per- deposits of member banks were restructured to procentage, which was originally 10 percent, was in- vide that each member bank maintain reserves related creased to 20 percent on Jan. 7, 1971; reduced to 8 to the size of its net demand deposits. The new reserve percent on June 21, 1973, to 4 percent on May 22, city designations were as follows: A bank having net 1975, and to zero on Aug. 24, 1978. Effective Dec. 1, demand deposits of more than $400 million was con- 1977, the reserve required against deposits that foreign sidered to have the character of business of a reserve branches of U.S. banks use for lending to U.S. resi- city bank, and the presence of the head office of such dents was reduced to 1 percent, and on Aug. 24, 1978, a bank constituted designation of that place as a it was reduced to zero. For details see Regulation D reserve city. Cities in which there were Federal Reserve and M as described in "Record of Policy Actions of Banks or branches were also reserve cities. Any bank, the Board of Governors," in previous ANNUAL wherever located, having net demand deposits of $400 REPORTS. million or less was considered to have the character of 3. Authority of the Board of Governors to classify business of banks outside of reserve cities and was peror reclassify cities as central reserve cities was termi- mitted to maintain reserves at ratios set for banks not nated effective July 28, 1962. in reserve cities. 4. Time deposits such as Christmas and vacation 7. Effective Nov. 2, 1978, a supplementary reserve club accounts became subject to the same require- requirement of 2 percent was added to the existing re- Digitizedm foenr tFs RaAs SsaEvRin gs deposits, effective Jan. 5, 1967. quirements for time deposits of $100,000 or more and http://frasNeerc.osrtilaohuleis oferdde.ro orgf /w ithdrawal fNOW^ nrconnts were for rwtnin nthpr liahiiitioc Thic cnnnlomanton, «, Federal Reserve Bank of St. Louis

238 Tables 12. Reserve Requirements of Depository Institutions—Continued Percent of deposits quirement was eliminated with the maintenance period percent reserve requirement each year for the next sucbeginning July 24, 1980. ceeding calendar year by 80 percent of the percentage From June 21, 1973, through Dec. 11, 1974, mem- increase in the total reservable liabilities of all deposiber banks, except as noted below, were subject to a tory institutions, measured on an annual basis as of marginal reserve requirement against increases in the June 30. No corresponding adjustment is to be made aggregate of the following types of obligations: (a) in the event of a decrease. outstanding time deposits of $100,000 or more, (b) Effective Dec. 9, 1982, the amount of the exempoutstanding funds obtained by the bank through issu- tion was established at $2.1 million. ance by a bank's affiliate of obligations subject to the Beginning Dec. 15, 1983, for quarterly reporters existing reserve requirements on time deposits, and (c) and Dec. 29, for weekly reporters, the amount of the beginning July 12, 1973, funds from sales of finance exemption was $2.2 million. In determining the reserve bills. For the period June 21 through Aug. 29, 1973, requirements of a depository institution, the exemp- (a) included only single-maturity time deposits. The tion shall apply in the following order: (1) nonperrequirement applied to balances above a specified sonal money market deposit accounts (MMDAs) base, but was not applicable to banks having obliga- authorized under 12 CFR section 1204.122; (2) net tions of these types aggregating less than $10 million. negotiable order of withdrawal (NOW) accounts (that Including the basic requirement (5 percent during the is, NOW accounts less allowable deductions); (3) net entire period), requirements were as follows: 8 percent other transaction accounts; and (4) nonpersonal time for (a) and (b) from June 21 through Oct. 3,1973, and deposits or Eurocurrency liabilities starting with those for (c) from July 12 through Oct. 3, 1973; 11 percent with the highest reserve ratio. With respect to NOW from Oct. 4 through Dec. 26, 1973; and 8 percent accounts and other transaction accounts, the exempfrom Dec. 27, 1973 through Sept. 18, 1974. Beginning tion applies only to such accounts that would be sub- Sept. 19, the 8 percent requirement applied only to ject to a 3 percent reserve requirement. those obligations in (a), (b), and (c) with initial maturi- 11. For nonmember banks and thrift institutions ties of less than 120 days, and effective Dec. 12, 1974, that were not members of the Federal Reserve System the remaining marginal reserve was removed on this on or after July 1, 1979, a phase-in period ends Sept. type of obligation issued to mature in less than 4 3, 1987. For banks that were members on or after July months. For details, see "Record of Policy Actions of 1, 1979, but withdrew on or before Mar. 31, 1980, the the Board of Governors" in 1973 and 1974 ANNUAL phase-in period established by Public Law 97-320 REPORTS. ends on Oct. 24, 1985. For existing member banks the Effective with the reserve maintenance period be- phase-in period is about three years, depending on ginning Oct. 25, 1979, a marginal reserve requirement whether their new reserve requirements are greater or of 8 percent was added to managed liabilities in excess less than the old requirements. All new institutions of a base amount. This marginal requirement was in- will have a two-year phase-in beginning with the date creased to 10 percent beginning Apr. 3, 1980, was de- that they open for business, except for those institucreased to 5 percent beginning June 12, 1980, and was tions that have total reservable liabilities of $50 million eliminated beginning July 24, 1980. Managed liabili- or more. ties are defined as large time deposits, Eurodollar 12. Transaction accounts include all deposits on borrowings, repurchase agreements against U.S. which the account holder is permitted to make withgovernment and federal agency securities, federal drawals by negotiable or transferable instruments, funds borrowings from nonmember institutions, and payment orders of withdrawal, and telephone and precertain other obligations. In general, the base for the authorized transfers (in excess of three per month) for marginal reserve requirement was originally the the purpose of making payments to third persons or greater of (a) $100 million or (b) the average amount others. However, MMDAs and similar accounts ofof the managed liabilities held by a member bank, fered by institutions not subject to the rules of the De- Edge corporation, or family of U.S. branches and pository Institutions Deregulation Committee (DIDC) agencies of a foreign bank for the two reserve com- that permit no more than six preauthorized, autoputation periods ending Sept. 26, 1979. For the com- matic, or other transfers per month of which no more putation period beginning Mar. 20, 1980, the base was than three can be checks—are not transaction aclowered by (a) 7 percent or (b) the decrease in an insti- counts (such accounts are savings deposits subject to tution's U.S. office gross loans to foreigners and gross time deposit reserve requirements). balances due from foreign offices of other institutions 13. The Monetary Control Act of 1980 requires that between the base period (Sept. 13-26, 1979) and the the initial amount of $25 million of transaction acweek ending Mar. 12, 1980, whichever was greater. counts against which the 3 percent reserve requirement For the computation period beginning May 29, 1980, applies be modified annually by 80 percent of the the base was increased 7 Vi percent above the base used percentage increase in transaction accounts held by all to calculate the marginal reserve in the statement week depository institutions determined as of June 30 each of May 14-21, 1980. In addition, beginning Mar. 19, year. Effective on the following dates, the amount was 1980, the base was reduced to the extent that foreign increased accordingly from $25 million: Dec. 31,1981, loans and balances declined. to $26 million; Dec. 30, 1982, to $26.3 million; and 8. The \6Vi percent requirement applied only for Dec. 29, 1983, to $28.9 million. one week and solely to former reserve city banks. For 14. In general, nonpersonal time deposits are time other banks, the 13 percent requirement was con- deposits, including savings deposits, that are not tinued in this deposit interval. transaction accounts and in which a beneficial interest 9. The average of reserves on savings and other time is held by a depositor that is not a natural person. Also deposits had to be at least 3 percent, the legal mini- included are certain transferable time deposits held by mum at that time. natural persons, and certain obligations issued to de- 10. The Garn-St Germain Depository Institutions pository institution offices located outside the United Act of 1982 (Public Law 97-320) provides that $2 States. For details, see section 204.2 of Regulation D. million of reservable liabilities (transaction accounts, NOTE. Required reserves must be held in the form o? nonpersonal time deposits, and Eurocurrency liabili- deposits with Federal Reserve Banks or vault cash. ties) of each depository institution be subject to a zero Nonmembers may maintain reserve balances with a Digitized fpoerr cFeRntA rSesEerRve requirement. The Board is to adjust Federal Reserve Bank indirectly on a pass-through http://frasethre.s atmloouuisnfte odf .roersger/ vable liabilities subject to this zero basis with certain approved institutions. Federal Reserve Bank of St. Louis

Tables 239 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)1 Type and maturity of deposit In effect In effect Dec. 31, 1983 Dec. 31, 1983 Effective Effective Percent date Percent date Savings 7/1/79 7/1/79 Negotiable order of withdrawal accounts 5% 12/31/80 5 V* 12/31/80 Negotiable order of withdrawal accounts of $2,500 or more2 1/5/83 1/5/83 Money market deposit account3 12/14/82 12/14/82 Time accounts by maturity 7-31 days of less than $2,5004 . 9/1/82 5Vi 9/1/82 7-31 days of $2,500 or more2.. 1/5/83 1/5/83 More than 31 days 10/1/83 10/1/83 1. Effective Oct. 1, 1983, restrictions on the maxi- tions. No minimum maturity period is required for mum rates of interest payable by commercial banks this account, but depository institutions must reserve and thrift institutions on various categories of deposits the right to require seven days notice before withwere removed. For information regarding previous in- drawals. When the average balance is less than $2,500, terest rate ceilings on all categories of accounts, see the account is subject to the maximum ceiling rate of earlier issues of the Federal Reserve Bulletin, the interest for negotiable order of withdrawal accounts; Federal Home Loan Bank Board Journal, the Annual compliance with the average balance requirement may Report of the Federal Deposit Insurance Corporation, be determined over a period of one month. Depository and the ANNUAL REPORT of the Board of Governors of institutions may not guarantee a rate of interest for the Federal Reserve System. this account for a period longer than one month or 2. Effective Dec. 1, 1983, IRA/Keogh (H.R. 10) condition the payment of a rate on a requirement that Plan accounts are not subject to minimum deposit re- the funds remain on deposit for longer than one quirements. month. 3. Effective Dec. 14, 1982, depository institutions 4. Deposits of less than $2,500 issued to governmenare authorized to offer a new account with a required tal units continue to be subject to an interest rate ceilinitial balance of $2,500 and an average maintenance ing of 8 percent. balance of $2,500 not subject to interest rate restric- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

240 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 T only T only2 1934—Oct. 1 25-45 (3) 1936—Feb. 1 25-55 (») Apr. 1 55 O 1937—Nov. 1 40 50 1945_Feb.5 50 50 July 5 75 75 1946—Jan. 21 100 100 1947—Feb. 21 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—May6 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 scribed by the Board. Regulation T was adopted effec- Board of Governors pursuant to the Securities Ex- tive Oct. 15, 1934; Regulation U, effective May 1, change Act of 1934, limit the amount of credit to pur- 1936; Regulation G, effective Mar. 11, 1968; and chase and carry "margin securities" and "margin Regulation X, effective Nov. 1, 1971. stock" (as defined in the regulations) when such credit 2. The margin is expressed as a percent of the curis collateralized by securities. Margin requirements are rent market value of the stock underlying the option. the difference between the market value (100 percent) 3. The requirement was the margin "customarily reand the maximum loan value of collateral as pre- quired" by the brokers and dealers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 241 15. Principal Assets and Liabilities, and Number of Insured Commercial Banks, by Class of Bank, June 30, 1983 and 19821 Asset and liability items shown in millions of dollars Insured commercial banks Insured Item Member banks nonmember Total banks Total National State June 30, 1983 Loans and investments, total 1,535,523 1,116,225 868,227 247,998 419,298 Loans Gross 1,146,275 864,826 671,375 193,451 281,449 Net 1,114,967 842,177 653,912 188,263 272,793 Investments 389,247 251,397 196,851 54,546 137,849 U.S. Treasury securities 149,214 95,404 73,825 21,579 53,810 Other2 240,033 155,993 123,026 32,967 84,039 Cash assets, total 207,225 163,449 121,948 41,501 43,777 Deposits, total 1,439,210 1,021,684 805,103 216,581 417,526 Interbank 61,480 57,493 38,051 19,442 3,986 Other demand 327,463 245,413 185,860 59,553 82,049 Other time 1,050,268 718,777 581,192 137,585 331,491 Total equity capital 134,522 97,200 75,029 22,171 37,323 Number of banks 14,497 5,758 4,714 1,044 8,739 June 30, 1982 Loans and investments, total 1,395,835 1,008,940 780,647 228,293 386,894 Loans Gross 1,063,385 795,927 613,941 181,986 267,458 Net 1,031,985 773,816 596,948 176,868 258,169 Investments 332,449 213,014 166,706 46,308 119,436 U.S. Treasury securities. 102,446 62,795 48,582 14,213 39,651 Other2 230,004 150,219 118,124 32,095 79,785 Cash assets, total 188,056 149,218 111,774 37,444 38,838 Deposits, total 1,291,822 916,016 720,651 195,365 375,805 Interbank 60,564 57,201 37,910 19,291 3,363 Other demand 307,095 226,010 172,171 53,839 81,085 Other time 924,163 632,805 510,570 122,235 291,357 Total equity capital.. 123,089 88,495 68,614 19,881 34,594 Number of banks ... 14,413 5,538 4,507 1,031 8,875 1. All insured commercial banks in the United NOTE. Details may not add to totals because of States. 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

242 Tables 16. Reserves of Depository Institutions, Federal Reserve Bank Credit, and Related Items—Year-End 1918-83, and Month-End 1983 Millions of dollars Factors supplying reserve funds Federal Reserve Bank credit outstanding Spe- U.S. government cial Treasecurities1 draw- sury Period Other Gold ing cur- Bought u H n e d l e d r Loans Float3 ot A he ll r4 R Fe e d se e r r v a e l Total stock6 c ri e g r h ti t f s - r o en u c t- y Total r o ig u h t- t2 r c e h p a u s r e - assets5 ic ac a - te st i a n n g d 7 agree- count ment 239 239 0 1,766 199 294 2,498 2,873 1,795 300 300 0 2,215 201 575 3,292 2,707 1,707 287 287 0 2,687 119 262 3,355 2,639 1,709 234 234 0 1,144 40 146 1,563 3,373 1,842 436 436 0 618 78 273 1,405 3,642 1,958 134 80 54 723 27 355 ,238 3,957 2,009 540 536 4 320 52 390 ,302 4,212 2,025 375 367 643 63 378 ,459 4,112 1,977 315 312 3 637 45 384 ,381 4,205 1,991 617 560 57 582 63 393 ,655 4,092 2,006 228 197 31 1,056 24 500 ,809 3,854 2,012 511 488 23 632 34 405 ,583 3,997 2,022 1930 ... 739 686 43 251 21 372 ,373 4,306 2,027 1931 ... 817 775 42 638 20 378 ,853 4,173 2,035 1932 1,855 1,851 4 235 14 41 2,145 4,226 2,204 1933 ... 2,437 2,435 2 98 15 137 2,688 4,036 2,303 1934 ... 2,430 2,430 0 7 5 21 2,463 8,238 2,511 2,431 2,430 1 5 12 38 2,486 10,125 2,476 2,430 2,430 0 3 39 28 2,500 11,258 2,532 2,564 2,564 0 10 19 19 2,612 12,760 2,637 2,564 2,564 0 4 17 16 2,601 14,512 2,798 2,484 2,484 0 7 91 11 2,593 17,644 2,963 2,184 2,184 0 3 80 2,274 21,995 3,087 2,254 2,254 0 3 94 10 2,361 22,737 3,247 6,189 6,189 0 6 471 14 6,679 22,726 3,648 11,543 11,543 0 5 681 10 12,239 21,938 4,094 18,846 18,846 0 80 815 4 19,745 20,619 4,131 24,252 24,262 0 249 578 2 15,091 20,065 4,339 23,350 23,350 0 163 580 1 24,093 20,529 4,562 22,559 22,559 0 85 535 1 23,181 22,754 4,562 23,333 23,333 0 223 541 1 24,097 24,244 4,589 18,885 18,885 0 78 534 2 19,499 24,427 4,598 20,778 20,725 53 67 1,368 3 22,216 22,706 4,636 23,801 23,605 196 19 1,184 5 25,009 22,695 4,709 24,697 24,034 663 156 967 4 25,825 23,187 4,812 25,916 25,318 598 28 935 2 26,880 22,030 4,894 24,932 24,888 44 143 808 1 25,885 21,713 4,985 24,785 24,391 394 108 1,585 29 26,507 21,690 5,008 24,915 24,610 305 50 1,665 70 26,699 21,949 5,066 24,238 23,719 519 55 1,424 66 25,784 22,781 5,146 26,347 26,252 95 64 1,296 49 27,755 20,534 5,234 26,648 26,607 41 458 1,590 75 28,771 19,456 5,311 27,384 26,984 400 33 1,847 74 29,338 17,767 5,398 28,881 30,478 159 130 2,300 51 31,362 16,889 5,585 30,820 28,722 342 38 2,903 110 33,871 15,978 5,567 33,593 33,582 11 63 2,600 162 36,418 15,513 5,578 37,044 36,506 538 186 2,606 94 39,930 15,388 5,405 Digitized foFr oFr RnAotSesE sRee last two pages of table. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 243 16.—Continued Factors absorbing reserve funds Deposits, other Member bank than reserves, with Cur Federal Reserve Banks Other reserves Trea- Other Re- Federal rency sury Federal quired Reserve in cash Reserve clear- liac c u i l r a - - h in o g ld s8 - Trea- For- Other co a u c n - ts5 b in al g - bi a li n t d ies F W ed i e t r h al r C en u c r y - Re- Exsury eign ances capital5 Reserve and quired" cess11-12 Banks coin10 4,951 288 51 96 25 118 0 0 1.636 0 1,585 51 5,091 385 31 73 28 208 0 0 ,890 0 1,822 68 5,325 218 57 5 18 298 0 0 1,781 0 0 0 4,403 214 96 12 15 285 0 0 1,753 0 1,654 99 4,530 225 11 3 26 276 0 0 1,934 0 0 0 4,757 213 38 4 19 275 0 0 1,898 0 1,884 14 4,760 211 51 19 20 258 0 0 2,220 0 2,161 59 4,817 203 16 8 21 272 0 0 2,212 0 2,256 -44 4,808 201 17 46 19 293 0 0 2,194 0 2,250 -56 4,716 208 18 5 21 301 0 0 2,487 0 2,424 63 4,686 202 23 6 21 348 0 0 2,389 0 2,430 -41 4,578 216 29 6 24 393 0 0 2,355 0 2,428 -73 4,603 211 19 6 22 375 0 0 2,471 0 2,375 96 5,360 222 54 79 31 354 0 0 1,961 0 1,994 -33 5,388 272 8 19 24 355 0 0 2,509 0 1,933 576 5,519 284 3 4 128 360 0 0 2,729 0 1,870 859 5,536 3,029 121 20 169 241 0 0 4,096 0 2,282 1,814 5,882 2,566 544 29 226 253 0 0 5,587 0 2,743 2,844 6,543 2,376 244 99 160 261 0 0 6,606 0 4,622 1,984 6,550 3,619 142 172 235 263 0 0 7,027 0 5,815 1,212 6,856 2,706 923 199 242 260 0 0 8,724 0 5,519 3,205 7,598 2,409 634 397 256 251 0 0 11,653 0 6,444 5,209 8,732 2,213 368 1,133 599 284 0 0 14,026 0 7,411 6,615 11,160 2,215 867 774 586 291 0 0 12,450 0 9,365 3,085 15,410 2,193 799 793 485 256 0 0 13,117 0 11,129 1,988 20,499 2,303 579 1,360 356 339 0 0 12,886 0 11,650 1,236 25,307 2,375 440 1,204 394 402 0 0 14,373 0 12,748 1,625 28,515 2,287 977 862 446 495 0 0 15,915 0 14,457 1,458 28,952 2.272 393 508 314 607 0 0 16,139 0 15,577 562 28,868 1,336 870 392 569 563 0 0 17,899 0 16,400 1,499 28,224 1,325 1,123 642 547 590 0 0 20,479 0 19,277 1,202 27,600 1,312 821 767 750 106 0 0 16,568 0 15,550 1,018 27,741 1,293 668 895 565 714 0 0 17,681 0 16,509 1,172 29,206 1,270 247 526 363 746 0 0 20,056 0 19,667 389 30,433 1,270 389 550 455 111 0 0 19,950 0 20,520 -570 30,781 761 346 423 493 839 0 0 20,160 0 19,397 763 30,509 7% 563 490 441 907 0 0 18,876 0 18,618 258 31,158 767 394 402 554 925 0 0 19,005 0 18,903 102 31,790 775 441 322 426 901 0 0 19,059 0 19,089 -30 31,834 761 481 356 246 998 0 0 19,034 0 19,091 -57 32,193 683 358 272 391 1,122 0 0 18,504 0 18,574 -70 32,591 391 504 345 694 841 0 0 18,174 310 18,619 -135 32,869 377 485 217 533 941 0 0 17,081 2,544 18,988 637 33,918 422 465 279 320 1,044 0 0 17,387 2,544 18,988 96 35,338 380 597 247 393 1,007 0 0 17,454 3,262 20,071 645 37,692 361 880 171 291 1,065 0 0 17,049 4,099 20,677 All 39,619 612 820 229 321 1,036 0 0 18,086 4,151 21,663 574 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

244 Tables 16. Reserves of Depository Institutions, Federal Reserve Bank Credit, and Related Items—Year-End 1918-83, and Month-End 1983—Continued Millions of dollars Factors supplying reserve funds Federal Reserve Bank credit outstanding Spe- U.S. government cial Treasecurities1 draw- sury Period Other Gold ing cur- Bought u H n e d l e d r Loans Float3 ot A he ll r4 R Fe e d se e r r v a e l Total stock6 c ri e g r h ti t f s - r o e u nc t- y Total r o ig u h t t - 2 r c e h p a u s r e - assets5 ic a a c t - e st i a n n g d 7 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 57,1542 0 183 3,440 64 2,743 64,584 10,367 0 6,852 1970 .... 62,142 62,142 0 335 4,261 57 1,123 67,918 10,732 400 7,147 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 63,659 11,148 4,618 13,786 1983 .... 160,795 159,203 1,592 918 1,563 418 8,766 172,460 11,121 4,618 13,786 1983 Jan. .. 141,296 141,296 0 354 1,006 0 9,881 152,537 11,144 4,618 13,786 Feb. .. 144,484 144,484 0 1,155 -2,664 0 10,961 153,936 11,139 4,618 13,786 Mar... 145,566 145,566 0 2,808 486 0 9,187 158,047 11,138 4,618 13,786 Apr... 150,706 146,772 3,934 848-1,124 704 10,732 161,866 11,135 4,618 13,786 May.. 150,088 150,088 0 1,260 850 0 8,630 160,828 11,132 4,618 13,786 June.. 150,778 149,401 1,377 3,610 1,020 203 8,426 164,037 11,131 4,618 13,786 July .. 153,135 153,135 0 1,113 1,066 0 8,579 163,893 11,131 4,618 13,786 Aug... 155,421 152,968 2,453 3,633 979 209 7,536 167,778 11,128 4,618 13,786 Sept. . 164,711 155,908 9,803 1,625 -60 1,122 8,357 175,755 11,128 4,618 13,786 Oct. .. 154,827 154,827 0 387 750 0 9,303 165,267 11,126 4,618 13,786 Nov... 158,086 158,086 0 1,059 898 0 8,438 168,481 11,123 4,618 13,786 Dec. .. 160,795 159,203 1,592 918 1,563 418 8,766 172,460 11,121 4,618 13,786 1. Beginning Dec. 1, 1966, these securities include counts"; thereafter, "Other Federal Reserve assets" federal agency obligations held under repurchase and "Other Federal Reserve liabilities and capital" are agreements and beginning Sept. 29, 1971, federal shown separately. agency issues bought outright. 6. Before Jan. 30, 1934, data include gold held in 2. Includes, beginning 1969, securities loaned— Federal Reserve Banks in circulation. fully guaranteed by U.S. government securities pledged 7. These figures include currency and coin (other with Federal Reserve Banks—and excludes (if any) than gold) issued directly by the Treasury. The largest securities sold and scheduled to be bought back under components are fractional and dollar coins. For dematched sale-purchase transactions. tails see the regular table, "Currency and Coin in Cir- 3. Beginning with 1960, figures reflect a minor culation," in the Treasury Bulletin. change in concept; see Federal Reserve Bulletin, vol. 8. This category consists of the coin and paper cur- 47 (February 1961), p. 164. rency held by the Treasury, as well as any gold in ex- 4. Data consist principally of acceptances and, until cess of the gold certificates issued to the Reserve Bank. Aug. 21, 1959, industrial loans, authority for which 9. Beginning November 1979, includes reserves or expired on that date. member banks, Edge Act corporations, and U.S. agen- 5. Before Apr. 16, 1969, this category includes the cies and branches of foreign banks. Beginning Nov. 13, total of Federal Reserve capital paid in, surplus, other 1980, includes reserves of all depository institutions. capital accounts, and other liabilities and accrued divi- 10. Between Dec. 1, 1959, and Nov. 23, 1960, part dends less the sum of bank premises and other assets, of the amount was allowed as reserves; thereafter all Digitizeda fnodr FwRasA SreEpoRrt ed as "Other Federal Reserve ac- was allowed. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 245 16.—Continued Factors absorbing reserve funds Deposits, other Member bank than reserves, with reserves' Cur- Federal Reserve Banks Other Trea- Other Re- Federal rency sury Federal quired Reserve in cash Reserve clear- liac c u i l r a - - h in o g ld s8 - Trea- For- Other co a u c n - ts5 b in a g l- bi a li n t d ies F W ed i e t r h al r C en u c r- y Re- Extion sury eign ances capital5 Reserve and quired" cess11'12 Banks coin10 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 1,123 135 563 -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 0 22,085 5,187 28,173 -901 57,903 431 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 9812 72,497 317 2,542 251 1,41913 0 0 2,669 27,060 6,781 35,268 -1,360 79,743 185 2,113 418 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 -1.10314 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 1,328 170,005 463 3,661 191 845 0 1,013 5,394 20,413 17,821 39,179 -945 150,511 448 2,627 366 603 0 478 4,850 22,201 17,195 40,484 -1,088 151,872 465 2,856 352 486 0 535 4,988 21,924 16,064 39,308 -1,320 154,307 498 3,572 425 535 0 601 4,834 22,816 16,148 37,296 1,668 155,307 524 6,015 322 796 0 641 5,253 22,547 16,686 38,935 298 158,634 532 4,372 445 679 0 711 5,144 19,847 16,455 37,743 -1,441 160,419 533 8,764 279 470 0 775 5,111 17,220 16,799 38,069 -4,050 159,973 495 3,815 369 566 0 830 5,178 22,201 17,040 38,454 787 161,122 490 4,189 248 465 0 845 5,112 24,839 16,880 38,353 3,366 161,046 468 16,557 297 438 0 911 5,800 19,769 17,482 37,534 -283 162,515 478 4,841 339 749 0 956 5,691 19,227 17,512 37,827 -1,088 166,682 475 2,896 360 610 0 983 5,432 20,569 17,707 38,198 78 170,005 463 3,661 191 845 0 1,013 5,394 20,413 17,821 39,179 -945 11. These figures are estimated through 1958. Before connection with voluntary participation by nonmem- 1929, they were available only on call dates (in 1920 ber institutions in the Federal Reserve System's proand 1922, the call dates were Dec. 29). Beginning gram of credit restraint. Sept. 12, 1968, the amount is based on close-of-busi- As of Dec. 12, 1974, the amount of voluntary nonness figures for the reserve period 2 weeks previous to member bank and foreign-agency and branch deposits the report date. at Federal Reserve Banks that are associated with mar- 12. Beginning with the week ending Nov. 15, 1972, ginal reserves are no longer reported. However, two figures include $450 million of reserve deficiencies on amounts are reported: (1) deposits voluntarily held as rewhich Federal Reserve Banks are allowed to waive serves by agencies and branches of foreign banks operpenalties for a transition period in connection with ating in the United States, and (2) Eurodollar liabilities. bank adaptation to Regulation J as amended, effective 14. Beginning with the week ending Nov. 19, 1975, Nov. 9, 1972. Allowable deficiencies (beginning with figures are adjusted to include waivers of penalties for first statement week of quarter) included are (in mil- reserve deficiencies, in accordance with change in lions): 1973—Ql, $279; Q2, $172; Q3, $112; Q4, $84; Board policy that became effective Nov. 19, 1975. and 1974—Ql, $67, and Q2, $58. The transition peri- NOTE. For a description of figures and discussion of od ended after the second quarter of 1974. their significance, see "Member Bank Reserves and 13. Beginning July 1973, this item includes certain Related Items." Section 10 of Banking and Monetary deposits of domestic nonmember banks and foreign- Statistics, 1941-1970 (Board of Governors of the Fedowned banking institutions held with member banks eral Reserve System, Sept. 1, 1976), pp. 507-23. and redeposited in full with Federal Reserve Banks in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

246 Tables 17. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1983 United Counties Trust Company, Elizabeth, With respect to convenience and needs fac- New Jersey, to merge with Kenilworth State tors, Applicant plans to provide at the offices Bank, Kenilworth, New Jersey now operated by Bank several new or enhanced services such as credit cards, cash management, SUMMARY REPORT BY THE ATTORNEY GENERAL and a wide array of trust services, as well as ex- (12/30/82) pansion of Bank's lending activities. The proposed transaction would not be signifi- The financial and managerial resources of cantly adverse to competition. Applicant, its parent, and Bank are regarded BASIS FOR APPROVAL BY THE FEDERAL RESERVE as generally satisfactory and their prospects ap- BANK (1/18/83) pear favorable. As a result, the banking factors United Counties Trust Company (Applicant), are consistent with approval. with assets of $738 million, proposes to merge Kenilworth State Bank (Bank), with assets of First Virginia Bank, Falls Church, Virginia, to $57 million. merge with Farmers and Merchants State Bank, The relevant market in the proposal is the Fredericksburg, Virginia Greater Newark market, in which Applicant ranks sixth among thirty-seven commercial SUMMARY REPORT BY THE ATTORNEY GENERAL banking organizations, with 5.1 percent of (2/18/83) market deposits. The proposed merger would The proposed transaction would not be signifinot alter Applicant's rank in the market; cantly adverse to competition. however, the continuing bank would hold 5.7 BASIS FOR APPROVAL BY THE FEDERAL RESERVE percent of market deposits. The merger would BANK (3/30/83) not have a significant effect on competition. First Virginia Bank (Applicant), with assets of Both Applicant and Bank are in satisfactory $869 million, proposes to merge Farmers and condition, and the condition of the resulting Merchants State Bank (Bank), with assets of bank would be satisfactory. Convenience and $82 million. Applicant is a subsidiary of First needs considerations are consistent with ap- Virginia Bank, Inc., Falls Church (FVB), proval. which is the sixth largest commercial banking organization in Virginia, holding 7.4 percent of 1st Source Bank, South Bend, Indiana, to the deposits in the state. merge with The First National Bank of Misha- The relevant market in the proposal is the waka, Mishawaka, Indiana Fredericksburg area market, in which FVB SUMMARY REPORT BY THE ATTORNEY GENERAL ranks sixth among eleven commercial banking (2/4/83) organizations, with 5.1 percent of deposits in The proposed transaction would not be signifithe market. If the proposed merger is consumcantly adverse to competition. mated, FVB would rank first, with 29.4 percent BASIS FOR APPROVAL BY THE BOARD OF GOVER- of market deposits. If the deposits of thrift in- NORS (3/25/83) stitutions were added to those of commercial 1st Source Bank (Applicant), with assets of banks, FVB would rank second following the $520 million, proposes to merge The First Na- merger, with 17.4 percent of the area's comtional Bank of Mishawaka (Bank), with assets bined deposits. The proposed transaction would of $143 million. Applicant has concurrently ap- eliminate some competition between Bank and plied for membership in the Federal Reserve FVB, however, because several large banking System. organizations are represented in the Fredericks- Applicant and Bank compete in the Elkhart- burg market and because thrift institutions Niles-South Bend banking market, in which provide a noticeable amount of competition to Applicant ranks first among twenty-one com- commercial banks, overall the merger would mercial banking organizations and controls not have substantially adverse effects on com- 15.5 percent of market deposits. Upon con- petition. summation of the proposed merger, Applicant With respect to convenience and needs, Apwould control 20.3 percent of total deposits in plicant would offer customers of Bank lower this market, which has a relatively low level of interest rates on several kinds of loans and concentration. The Board concludes that the higher interest rates on some deposit accounts. proposed merger would not have a significant The financial condition of Applicant, its effect on existing or potential competition. parent, and Bank is generally satisfactory, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 247 17.—Continued and the condition of the resulting bank would satisfactory condition, and the condition of the be satisfactory. resulting bank would be satisfactory. Convenience and needs considerations are also con- The Bank of West Point, West Point, Virginia, sistent with approval. to merge with First Settlers Bank, Hayes, Virginia Western Bank, Sioux Falls, South Dakota, to acquire certain assets and assume substantially SUMMARY REPORT BY THE ATTORNEY GENERAL all of the liabilities of Community Bank, Hart- (4/8/83) ford, South Dakota The proposed transaction would not be significantly adverse to competition. SUMMARY REPORT BY THE ATTORNEY GENERAL No report received. Requests for reports on the BASIS FOR APPROVAL BY THE FEDERAL RESERVE competitive factors were dispensed with, as BANK (4/29/83) authorized by the Bank Merger Act, to permit The Bank of West Point (Applicant), with the Reserve Bank to act immediately to safeassets of $62 million, proposes to merge First guard depositors of Community Bank. Settlers Bank (Bank), with assets of $13 million. BASIS FOR APPROVAL BY THE FEDERAL RESERVE The relevant market in this proposal is the BANK (6/18/83) Western Bank (Applicant), with assets of $115 Newport News-Hampton banking market, in million, proposes to acquire Community Bank which Bank holds the smallest share of deposits (Bank), with assets of $32 million. held by fourteen banks and Applicant is not represented. The proposal would not have a In view of the financial condition of Bank, significant effect on competition. the Acting Director of the Division of Banking With respect to convenience and needs, Ap- and Finance for the State of South Dakota has plicant plans to provide extended-term auto recommended immediate action by the Federal loans at the offices now operated by Bank and Reserve System to prevent the probable failure to replace the trailer branch at Gloucester with of Bank. a building. The financial condition of Applicant and Bank One of Mansfield, Mansfield, Ohio, to Bank is generally satisfactory, and the condi- merge with The Peoples Bank, Mount Gilead, tion of the resulting bank would be satisfac- Ohio tory. SUMMARY REPORT BY THE ATTORNEY GENERAL (6/10/83) Hempstead Bank, Hempstead, New York, to The proposed transaction would not be signifimerge with Nassau Trust Company, Glen cantly adverse to competition. Cove, New York BASIS FOR APPROVAL BY THE FEDERAL RESERVE SUMMARY REPORT BY THE ATTORNEY GENERAL BANK (7/8/83) (4/29/83) Bank One of Mansfield (Applicant), with The proposed transaction would not be signifi- assets of $187 million, proposes to merge The cantly adverse to competition. Peoples Bank (Bank), with assets of $58 mil- BASIS FOR APPROVAL BY THE SECRETARY OF THE lion. Applicant is a subsidiary of Bane One Cor- BOARD OF GOVERNORS (6/1/83) poration, Columbus, which is the third largest Hempstead Bank (Applicant), with assets of commercial banking organization in Ohio, $324 million, proposes to merge Nassau Trust holding 11.4 percent of deposits in the state. Company (Bank), with assets of $190 million. Applicant is not represented in the Mount Applicant is a subsidiary of Norstar Bancorp, Gilead banking market, but of the two banks Inc. (Norstar), Albany, New York. operating offices there, Bank holds the larger The relevant market in the proposal is the share (78.4 percent) of market deposits. The Metropolitan New York area, in which Norstar proposal would have no significant effect on holds 0.4 percent of market deposits. After the competition. merger, Norstar would still hold less than 1 Both Applicant and Bank are in satisfactory percent. Clearly, the merger would not have a condition, and the condition of the resulting significant effect on competition. bank would be satisfactory. Applicant plans to Both Applicant and Bank are in generally expand banking hours at the offices now oper- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

248 Tables 17. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1983 ated by Bank and to install automatic teller ma- BASIS FOR APPROVAL BY THE SECRETARY OF THE chines at some of them. The proposal would BOARD OF GOVERNORS (8/11/83) have a positive effect on the convenience and United Virginia Bank (Applicant), with assets needs of the Mount Gilead banking market. of $5 billion, proposes to merge State Bank of Keysville (Bank), with assets of $23 million. Applicant is a subsidiary of United Virginia United Virginia Bank, Richmond, Virginia, to Bankshares, Incorporated, Richmond (UVB), merge with Bankers Trust Company, Rocky which ranks first among banking organizations Mount, Virginia in Virginia, with about 14.4 percent of deposits SUMMARY REPORT BY THE ATTORNEY GENERAL in the state. (6/3/83) The closest offices of the participating banks The proposed transaction would not be signifi- are 45 miles apart, and there is no meaningful cantly adverse to competition. competition between them. Bank ranks fourth BASIS FOR APPROVAL BY THE SECRETARY OF THE among six banks in the market, which is ap- BOARD OF GOVERNORS (7/12/83) proximated by the counties of Charlotte, United Virginia Bank (Applicant), with assets Lunenberg, and Prince Edward, and Bank of $5 billion, proposes to merge Bankers Trust holds 8.8 percent of market deposits. The pro- Company (Bank), with assets of $60 million. posed merger would not have a significant ef- Applicant is a subsidiary of United Virginia fect on competition. Bankshares Incorporated, Richmond (UVB), With respect to convenience and needs, which ranks first among banking organizations following the proposed merger Applicant in Virginia, with about 14.4 percent of deposits would substantially raise the lending limit at in the state. the office currently operated by Bank. Other The relevant market in this proposal is the new or enhanced services to be offered include Roanoke Ranally Metro Area, as defined by investment advisory services and more lending Rand McNally Commercial Atlas, in which for mortgages, construction, and leasing. Applicant ranks sixth among fourteen com- Applicant and its parent company are conmercial banks, with 4.7 percent of market sidered to be in satisfactory financial condideposits. If the proposed merger took place, tion, and the proposed merger would not alter Applicant would continue to rank sixth in the that condition. market and would increase its share of market deposits to 8.4 percent. The proposal would Valley Bank and Trust Company, Salt Lake have no significant effect on competition. City, Utah, to acquire the assets and assume Applicant plans to improve the services at the liabilities of the Brigham City Branch of Bank's current offices by substantially increas- Bank of Utah, Ogden, Utah ing the lending limit at these offices and by of- SUMMARY REPORT BY THE ATTORNEY GENERAL fering new or enhanced services such as invest- (9/9/83) ment advisory services; more mortgage and The proposed transaction would not be significonstruction lending; leasing; automated clear- cantly adverse to competition. inghouse services; and automatic teller machines. The proposal would have a positive ef- BASIS FOR APPROVAL BY THE FEDERAL RESERVE fect on the convenience and needs of customers BANK (10/3/83) Valley Bank and Trust Company (Applicant), of Bank. with assets of $469 million, proposes to acquire The financial and managerial resources of the Brigham City Branch (Branch) of Bank of Applicant are satisfactory, and the banking Utah (Bank). Branch has $3 million in deposits. factors are consistent with approval. The relevant market in this proposal is the Box Elder County market, in which Bank United Virginia Bank, Richmond, Virginia, to ranks fifth among six competitors, with 2.3 merge with State Bank of Keysville, Keysviile, percent of market deposits. Because Applicant Virginia is not now represented in this market, the pro- SUMMARY REPORT BY THE ATTORNEY GENERAL posal would have no significant effect on com- (7/15/83) petition. The proposed transaction would not be signifi- The proposal would not alter the generally cantly adverse to competition. satisfactory condition of Applicant, and it Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 249 17.—Continued would allow continued operation of an office market, with 8.8 percent of market deposits. that Bank intended to close if a buyer could not Because five of Bank's branches are in this be found. Thus the proposal would have a market, following the proposed acquisition, positive effect on the convenience and needs of the continuing bank would rank third, with the area immediately surrounding Branch. 11.6 percent of market deposits. Two branches of Bank are in the Greene County market, in which Applicant is not First Virginia Bank-Colonial, Richmond, Vir- represented. These branches together rank first ginia, to acquire the assets and assume the among six commercial banking organizations, deposit liabilities of the Azalea Mall Branch of with 26.7 percent of market deposits. The pro- Virginia National Bank, Norfolk, Virginia posed acquisition would have no significant effect on competition. SUMMARY REPORT BY THE ATTORNEY GENERAL (9/16/83) Consummation of the proposal would not The proposed transaction would not be signifi- alter the satisfactory condition of Applicant. cantly adverse to competition. With respect to convenience and needs, Applicant plans to reduce rates for consumer install- BASIS FOR APPROVAL BY THE FEDERAL RESERVE ment loans, as well as to lower service charges BANK (10/12/83) on transaction accounts at the seven branches First Virginia Bank-Colonial (Applicant), with following effectuation of the instant proposal. assets of $102 million, proposes to acquire the Azalea Mall Branch of Virginia National Bank (Branch). Branch has $8 million in deposits. Central Fidelity Bank, Norfolk, Virginia, to Applicant ranks eighth among fifteen banks merge with Rappahannock Bank, Fredericksin the Richmond Metro Area market, with 2.0 burg, Virginia percent of market deposits. If the proposed acquisition is consummated, the continuing bank SUMMARY REPORT BY THE ATTORNEY GENERAL (9/23/83) would not alter its market rank; however, its The proposed transaction would not be signifishare of market deposits would rise to 2.2 percantly adverse to competition. cent. The proposal would have no significant competitive effects. BASIS FOR APPROVAL BY THE FEDERAL RESERVE The proposal would not alter the satisfactory BANK (10/25/83) condition of Applicant. With respect to con- Central Fidelity Bank (Applicant), with assets venience and needs, Applicant plans to extend of $497 million, proposes to merge with Rapbanking hours at Branch on Saturday morn- pahannock Bank, which will be the successor ings. to Rappahannock Savings and Loan Association (Bank), with deposits of $33 million. Applicant is a subsidiary of Central Fidelity Banks, Inc., Richmond, which ranks seventh The Schenectady Trust Company, Schenecamong banking organizations in Virginia, with tady, New York, to acquire certain assets and about 7.8 percent of deposits in the state. assume certain liabilities of seven branches of The Bank of New York, New York, New York The closest offices of a banking subsidiary of Applicant to Fredericksburg are 35 miles dis- SUMMARY REPORT BY THE ATTORNEY GENERAL tant. Applicant is not represented in the Fred- (9/30/83) ericksburg market, where Bank ranks fifth The proposed transaction would not be signifi- among banks and thrift institutions, with 4.9 cantly adverse to competition. percent of market deposits. The proposed BASIS FOR APPROVAL BY THE FEDERAL RESERVE transaction would have no significant effect on BANK (10/18/83) competition. The Schenectady Trust Company (Applicant), The proposal would improve services at with assets of $342 million, proposes to acquire Bank's two offices. One new service Applicant seven branches of The Bank of New York will offer is transaction deposit accounts. Con- (Bank). The branches have $95 million in venience and needs factors lend weight to apdeposits. proval. Applicant ranks fourth among twenty com- The banking factors are consistent with apmercial banking organizations in the Albany proval. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

250 Tables 17. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1983 The Peoples Bank and Trust Company, Selma, ty of seminars for persons aged 60 or older. Alabama, to merge with The Bank of Green- The other helps individuals organize their fiville, Greenville, Alabama nancial affairs at difficult times such as divorce, death, or retirement. Convenience and SUMMARY REPORT BY THE ATTORNEY GENERAL needs factors are consistent with approval. (10/6/83) The financial and managerial resources of The proposed transaction would not be signifi- Applicant and its parent are regarded as gencantly adverse to competition. erally satisfactory and their prospects appear BASIS FOR APPROVAL BY THE FEDERAL RESERVE favorable. As a result, the banking factors are BANK (10/26/83) consistent with approval. The Peoples Bank and Trust Company (Applicant), with assets of $123 million, proposes to merge The Bank of Greenville (Bank), with Bank of Virginia, Richmond, Virginia, to acassets of $55 million. quire the assets and assume the liability to pay The relevant market in this proposal is the deposits in the Court House Branch, Virginia Greenville market, in which Bank ranks second Beach, and the Great Bridge Branch, Chesaamong three banks, with 35.2 percent of the peake, of First & Merchants National Bank, area's commercial bank deposits. Applicant is Richmond, Virginia not represented in the Greenville market. The SUMMARY REPORT BY THE ATTORNEY GENERAL proposal would not have a significant effect on (10/14/83) competition. The proposed transaction would not be signifi- With respect to convenience and needs, fol- cantly adverse to competition. lowing the proposed merger a higher lending limit would be available to customers of the of- BASIS FOR APPROVAL BY THE FEDERAL RESERVE fices now operated by Bank. BANK (11/7/83) The financial condition of Applicant is gen- Bank of Virginia (Applicant), with assets of $3 erally satisfactory, and banking factors are billion, proposes to acquire the Court House consistent with approval. Branch and Great Bridge Branch of First & Merchants National Bank.1 Together the branches have deposits of $37 million. Bank of Virginia, Richmond, Virginia, to ac- The relevant market in the proposal is the quire the assets and assume the liabilities of theNorfolk market, in which Applicant ranks Beaufont Mall Branch, Chesterfield County, fourth among seventeen banks, with 8.2 perof Virginia National Bank, Norfolk, Virginia cent of market deposits. The proposed acquisi- SUMMARY REPORT BY THE ATTORNEY GENERAL tions would not alter Applicant's rank in the (10/14/83) market; however, the continuing bank would The proposed transaction would not be signifi- hold 9.8 percent of market deposits. The acquicantly adverse to competition. sitions would not have a significant effect on competition. BASIS FOR APPROVAL BY THE FEDERAL RESERVE With respect to convenience and needs, Ap- BANK (11/7/83) plicant proposes to offer two new services to Bank of Virginia (Applicant), with assets of $3 customers of the branches to be acquired. One billion, proposes to acquire the Beaufont Mall is regularly scheduled group travel, social ac- Branch (Branch) of Virginia National Bank. tivities, and a variety of seminars for persons Branch has $5 million in deposits. aged 60 or older. The other helps individuals The relevant market in this proposal is the organize their financial affairs at difficult times Richmond market, in which Applicant ranks such as divorce, death, or retirement. Conventhird among fifteen banks, with 18.8 percent of ience and needs factors are consistent with apmarket deposits. Acquisition of Branch by Approval. plicant would add 0.2 percent to its share of market deposits and would not have a significant effect on competition. With respect to convenience and needs, Applicant proposes to offer two new services to 1. On January 3, 1984, First & Merchants National customers of Branch. One is regularly sched- Bank and Virginia National Bank merged to form uled group travel, social activities, and a varie- Sovran Bank, National Association. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 251 17.—Continued Flagship Bank of Tampa, Tampa, Florida, to would not have a significant effect on competiacquire certain assets and assume certain de- tion. posit liabilities of Sun Bank/Hillsborough, Both Applicant and Bank are in satisfactory Tampa, Florida condition, and the condition of the resulting bank would be satisfactory. Convenience and SUMMARY REPORT BY THE ATTORNEY GENERAL needs considerations are consistent with ap- (10/14/83) The proposed transaction would not be signifi- proval. cantly adverse to competition. Northwestern Bank of Commerce, Duluth, BASIS FOR APPROVAL BY THE FEDERAL RESERVE Minnesota, to merge with North Shore State BANK (11/16/83) Bank, Duluth, Minnesota Flagship Bank of Tampa (Applicant), with assets of $363 million, proposes to acquire SUMMARY REPORT BY THE ATTORNEY GENERAL Sun Bank/Hillsborough (Bank), with assets (10/14/83) of $184 million; three offices of Bank will be The proposed transaction would not be signifisold to another institution. Also, Sun City Cen- cantly adverse to competition. ter Bank, with assets of $64 million, will be BASIS FOR APPROVAL BY THE FEDERAL RESERVE merged into Bank before Applicant acquires BANK (11/29/83) Bank. Northwestern Bank of Commerce (Applicant), The relevant market in the proposal is the with assets of $37 million, proposes to merge Tampa market, where following consumma- with North Shore State Bank (Bank), with tion the continuing bank would rank third assets of $17 million. among commercial banking organizations, The relevant market is approximated by the with 13 percent of market deposits. Sixteen Minnesota counties of Carlton and Lake and savings and loan associations hold market de- the southern one-third of St. Louis County, as posits of $1.3 billion. There would be no sig- well as the Wisconsin County of Douglas. Apnificant effect on competition as a result of plicant ranks fifth among seventeen banking these proposals. organizations, with 3.7 percent of market de- The financial condition of Applicant and posits. If the proposed merger is consum- Bank is generally satisfactory, and the condi- mated, Applicant would not alter its rank in tion of the resulting bank would be satisfac- the market but would then control 5.5 percent tory. Further, the convenience and needs fac- of market deposits. The proposal would have tors are consistent with approval. no significant effect on competition. The banking factors and convenience and needs considerations are consistent with ap- Everly State Bank, Everly, Iowa, to merge with proval. Peterson State Bank, Peterson, Iowa First Georgia Bank, Atlanta, Georgia, to ac- SUMMARY REPORT BY THE ATTORNEY GENERAL (10/21/83) quire the assets and assume the liabilities of The proposed transaction would not be signifi- Capital City Bank, Hapeville, Georgia cantly adverse to competition. SUMMARY REPORT BY THE ATTORNEY GENERAL (10/14/83) BASIS FOR APPROVAL BY THE FEDERAL RESERVE The proposed transaction would not have a sig- BANK (11/21/83) Everly State Bank (Applicant), a proposed nificantly adverse effect on competition. state member bank, with assets of $17 million, BASIS FOR APPROVAL BY THE FEDERAL RESERVE proposes to merge Peterson State Bank, with BANK (11/29/83) assets of $10 million. First Georgia Bank (Applicant), with assets of In the relevant market in the proposal, Ap- $282 million, proposes to acquire the assets and plicant ranks fourth among ten commercial assume the liabilities of Capital City Bank, banks, with 6.9 percent of the area's commer- with assets of $28 million. Applicant is a subcial bank deposits. The proposed merger would sidiary of First Railroad & Banking Company not alter Applicant's rank in the market; how- of Georgia, Augusta, Georgia (First Railroad). ever, the continuing bank would hold 10.9 per- The relevant market in this proposal is the cent of market deposits. The proposed merger Atlanta Metro area, in which First Railroad Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

252 Tables 17. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1983 ranks sixth among twenty-seven banking orga- Applicant is a subsidiary of First Virginia nizations, with 2.7 percent of the area's com- Banks, Inc., Falls Church (FVB), which is the mercial bank deposits. The proposed transac- sixth largest commercial banking organization tion would not alter First Railroad's rank in the in Virginia, with 7.9 percent of deposits at market and would not substantially increase its banking offices in the state. FVB controls the share of market deposits. The proposal would smallest share (1.6 percent) of deposits held by have no significant effect on competition. six banking organizations in the Williamsburg The financial condition of First Railroad, market. If the proposed acquisition is consum- Applicant, and Bank is generally satisfactory, mated, FVB would not alter its market rank; and the condition of the resulting bank would however, its share of market deposits would be satisfactory. rise to 3.7 percent. The proposal would have no significant competitive effects. The Merrill Trust Company, Bangor, Maine, The satisfactory condition of FVB would not to acquire the assets and assume the deposit be altered by the acquisition. Convenience and liabilities of the Boothbay Harbor Branch of needs factors are consistent with approval. Canal Bank and Trust Company, Portland, Maine The Merchants Bank, Kansas City, Missouri, SUMMARY REPORT BY THE ATTORNEY GENERAL to merge with Broadway National Bank, Kan- (11/18/83) sas City, Missouri; The Metropolitan Bank, The proposed transaction would not be signifi- Kansas City, Missouri; and The University cantly adverse to competition. Bank, Kansas City, Missouri BASIS FOR APPROVAL BY THE FEDERAL RESERVE SUMMARY REPORT BY THE ATTORNEY GENERAL BANK (11/29/83) (11/4/83) The Merrill Trust Company (Applicant), with The proposed transaction would not be signifiassets of $411 million, proposes to acquire the cantly adverse to competition. Boothbay Harbor Branch of Canal Bank and Trust Company (Branch). Branch has $6 BASIS FOR APPROVAL BY THE FEDERAL RESERVE million in deposits. BANK (12/1/83) Branch is in the Boothbay Harbor banking The Merchants Bank (Applicant), with assets market, where it ranks second among three of $94 million, proposes to merge Broadway commercial banking organizations, with 23.4 National Bank (Broadway Bank), with assets percent of market deposits. Because Applicant of $69 million; The Metropolitan Bank, with is not now represented in this market, the pro- assets of $62 million; and The University Bank, posal would have no significant effect on com- with assets of $57 million. petition. The condition of the banks participating in Applicant proposes to expand commercial, this proposal is generally satisfactory. Finanreal estate, consumer, and municipal lending at cial factors and convenience and needs factors Branch. Convenience and needs factors and fi- are consistent with approval. nancial factors are consistent with approval. All of the banks involved are members of a chain of affiliated organizations, and they are situated in the Kansas City Ranally Metro First Virginia Bank of the Peninsula, Grafton, Area, as defined by the Rand McNally Com- Virginia, to acquire the assets and assume the mercial Atlas. Consummation of the mergers deposit liabilities of the Williamsburg Branch would have no significant effect on competiof Virginia National Bank, Norfolk, Virginia tion. SUMMARY REPORT BY THE ATTORNEY GENERAL No report received. First Virginia Bank-Eastern Shore, Onancock, BASIS FOR APPROVAL BY THE FEDERAL RESERVE Virginia, to merge with The Peoples Trust BANK (11/29/83) Bank, Exmore, Virginia First Virginia Bank of the Peninsula (Applicant), a newly organized bank, proposes to ac- SUMMARY REPORT BY THE ATTORNEY GENERAL quire the Williamsburg office (Branch) of (11/4/83) Virginia National Bank. Deposits at Branch The proposed transaction would not be signifiamount to $3 million. cantly adverse to competition. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 253 17.—Continued BASIS FOR APPROVAL BY THE FEDERAL RESERVE United National Bank, Sioux Falls, South BANK (12/6/83) Dakota First Virginia Bank-Eastern Shore (Applicant), SUMMARY REPORT BY THE ATTORNEY GENERAL with assets of $32 million, proposes to merge No report received. The Peoples Trust Bank (Bank), with assets of $26 million. BASIS FOR APPROVAL BY THE FEDERAL RESERVE The relevant market in the proposal includes BANK (12/9/83) Farmers State Bank of Irene (Applicant), a Accomack and Northampton Counties in Virproposed state member bank, with assets of ginia, as well as the southern portion of Wor- $15 million, proposes to acquire the Viborg cester County, Maryland, in which Applicant Branch of United National Bank, Sioux Falls, ranks fourth among thirteen banks, with 8.4 South Dakota (Branch). Branch has $12 milpercent of market deposits. Following the prolion in deposits. posed merger, the continuing bank would rank third in the market, with 15.1 percent of mar- Applicant and Branch are situated about ten ket deposits. The proposed merger would have miles apart in the Sioux Falls market, where no significant effect on competition. Applicant ranks seventeenth among thirty banking organizations, with 0.4 percent of Applicant and its parent are considered to be market deposits. If the proposed acquisition is in satisfactory financial condition, and the proconsummated, the continuing bank would rank posed merger would not alter that condition. ninth in the market, with 0.8 percent of market Applicant plans to pay higher interest rates on deposits. Principals of Applicant also own concertain time deposits at Bank's office and to trol of one other bank in the relevant market. provide a wider variety of loan services. This The continuing bank would hold about 1 perproposal would have a positive effect on the cent of market deposits. The proposed acquisiconvenience and needs of the area immediately tion would have no significant effect on comsurrounding Bank. petition. The financial condition of Applicant is gen- Davenport Bank and Trust Company, Daven- erally satisfactory, and the condition of the port, Iowa, to acquire the assets and assume resulting bank would be consistent with apthe liabilities of Security State Trust and Sav- proval. Convenience and needs considerations ings Bank, Bettendorf, Iowa are also consistent with approval. SUMMARY REPORT BY THE ATTORNEY GENERAL (12/12/83) SouthTrust Bank of Marion County, Hamil- The proposed transaction would not be signifi- ton, Alabama to acquire certain assets and cantly adverse to competition. assume substantially all of the liabilities of Bank of Hackleburg, Hackleburg, Alabama BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (12/9/83) SUMMARY REPORT BY THE ATTORNEY GENERAL Davenport Bank and Trust Company (Appli- No report received. Requests for reports on the cant), with assets of $685 million, proposes to competitive factors were dispensed with, as merge Security State Trust and Savings Bank authorized by the Bank Merger Act, to permit (Bank), with assets of $28 million. the Reserve Bank to act immediately to safe- In view of the financial condition of Bank, guard depositors of Bank of Hackleburg. the Iowa Superintendent of Banking has rec- BASIS FOR APPROVAL BY THE FEDERAL RESERVE ommended expeditious action by the Federal BANK (12/13/83) Reserve System to prevent the failure of Bank. SouthTrust Bank of Marion County (Appli- Thus the Chicago Federal Reserve Bank recant), with assets of $58 million, proposes to quested that reports about competitive factors acquire certain assets and assume substantially be furnished within ten days. The convenience all of the liabilities of Bank of Hackleburg and needs factors, as well as the competitive (Bank), with assets of $7 million. factors, are consistent with approval. In view of the financial condition of Bank, the Alabama Superintendent of Banks has rec- Farmers State Bank of Irene, Irene, South ommended immediate action by the Federal Dakota, to acquire the assets and assume the Reserve System to prevent the probable failure deposit liabilities of the Viborg Branch of of Bank. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

254 Tables 17. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1983 Bank has experienced financial problems pany. In each case, the Summary Report by the that have reduced its competitiveness. The fi- Attorney General indicates that the transaction nancial and managerial resources and pros- would not have a significantly adverse effect on pects of the proposed organization would bene- competition because the proposed merger is fit the operations at the office now occupied by essentially a corporate reorganization. The Bank without diminishing Applicant's pros- Board of Governors, the Federal Reserve pects, and Bank's customers would be served Bank, or the Secretary of the Board of Goverby a stronger organization. nors, whichever approved the application, determined that the competitive effects of the Mergers Approved Involving Wholly Owned proposed transaction, the financial and man- Subsidiaries of the Same Bank Holding Com- agerial resources, and the prospects of the pany banks concerned, as well as the convenience The following transactions involve banks that and needs of the community to be served, were are subsidiaries of the same bank holding com- consistent with approval. Date of Name of bank, type of transaction, Assets approval by and other banks involved1 (millions Board or of dollars) Reserve Bank United Jersey Bank, Hackensack, New Jersey 2,186 1-18-83 Merger United Jersey Bank/North, Montvale, New Jersey 114 The Wakeman Bank Company, Wakeman, Ohio 21 1-18-83 Merger The Erie County Bank, Vermilion, Ohio 75 Bank of Virginia, Richmond, Virginia 3,474 3-10-83 Merger The Bank of Vienna, Vienna, Virginia 25 Citizens Bank, Sheboygan, Wisconsin 293 4-11-83 Merger Citizens Bank of Manitowoc, Manitowoc, Wisconsin . 7 Citizens Bank, Sheboygan, Wisconsin 293 4-11-83 Merger Citizens South Side Bank, Sheboygan, Wisconsin 18 Valley Bank and Trust Company, Salt Lake City, Utah 469 4-18-83 Merger Utah Valley Bank, Orem, Utah 10 Citizens Bank, Sheboygan, Wisconsin 293 4-27-83 Merger Citizens North Side Bank, Sheboygan, Wisconsin 35 Hempstead Bank, Hempstead, New York 324 5-13-83 Merger Island State Bank, Patchogue, New York 108 Peninsula National Bank, Cedarhurst, New York 111 Security Bank of Monroe, Monroe, Michigan 178 8-8-83 Merger Security Bank-Monroe County, Newport, Michigan .. 26 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 255 17.—Continued Date of Name of bank, type of transaction, Assets approval by and other banks involved1 (millions Board or of dollars) Reserve Bank Central Fidelity Bank, Norfolk, Virginia 497 10-7-83 Merger Central Fidelity Bank, National Association, Richmond, Virginia 1,075 Trust Company Bank, Atlanta, Georgia 2,811 10-20-83 Merger Bank of Woodstock, Woodstock, Georgia 14 Peachtree Bank and Trust Company, Chamblee, Georgia 212 Central Fidelity Bank, Norfolk, Virginia 497 11-10-83 Merger Central Fidelity Bank, National Association, Lynchburg, Virginia 1,006 First Virginia Bank of the Peninsula, Grafton, Virginia (2) 11-29-83 Merger Four offices of First Virginia Bank of Tidewater, Norfolk, Virginia 14 First Virginia Bank-Central, Charlottesville, Virginia 28 11-29-83 Merger First Virginia Bank of Orange, Orange, Virginia 12 1. Each proposed transaction was to be effected 2. This is a newly organized bank, not in operation. under the charter of the first-named bank. The table is in chronological order of approval. Mergers Approved Involving a Nonoperating the acquisition of the surviving bank by the Institution with an Existing Bank holding company, the merger would have no The following transactions have no significant effect on competition. The Board of Govereffect on competition; they merely facilitate the nors, the Federal Reserve Bank, or the Secreacquisition of the voting shares of a bank (or tary of the Board of Governors, whichever apbanks) by a holding company. In such cases, proved the application, determined that the the Summary Report by the Attorney General proposal would, in itself, have no adverse comindicates that the transaction will merely com- petitive effects, and that the financial and conbine an existing bank with a nonoperating insti- venience and needs factors were consistent with tution; in consequence, and without regard to approval. Date of Name of bank, type of transaction, Assets approval by and other banks involved1 (millions Board or of dollars) Reserve Bank Am-Ba-Co, Inc., Lake Wales, Florida (2) 1-14-83 Merger American Bank of Lake Wales, Lake Wales, Florida 27 The Allegheny Bank, Lewisburg, West Virginia O 1-17-83 Merger Greenbrier Valley Bank, Lewisburg, West Virginia 39 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

256 Tables 17. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1983 Date of Name of bank, type of transaction, Assets approval by and other banks involved1 o ( f m d il o li ll o a n r s s) Re B se o r a v r e d B o a r nk C.C. State Bank, Celina, Ohio o 3-28-83 Merger The Citizens Commercial Bank & Trust Company, Celina, Ohio 107 The Bristol Bank, Bristol, New Hampshire 4-15-83 18 Merger First BNH Acquisition Bank, Manchester, New Hampshire New Peoples Bank of Greensburg, Greensburg, Kentucky 5-2-83 Merger The Peoples Bank & Trust Company, Greensburg, Kentucky... 37 Planters Bank & Trust Company, Hopkinsville, Kentucky 153 5-20-83 Merger The Big Friendly Bank Corporation, Hopkinsville, Kentucky... Heritage Interim Bank, Norfolk, Virginia 5-31-83 Merger Heritage Bank & Trust, Norfolk, Virginia 26 Ottawa County Banking Company, Genoa, Ohio (2) 6-23-83 Merger The Genoa Banking Company, Genoa, Ohio 29 WB Financial Corp., Wayne, Michigan (2) 7-12-83 Merger Wayne Bank, Wayne, Michigan 64 The State Bank and Trust Company, Defiance, Ohio 93 8-10-83 Merger Defiance Interim Bank, Defiance, Ohio (2) Forest Bank, Forest, Virginia (2) 8-11-83 Merger The Community Bank of Forest, Forest, Virginia 7 Comerica Bank-Detroit, Detroit, Michigan 5,452 9-7-83 Merger Commonwealth State Bank, Detroit, Michigan (2) Bank of the Commonwealth, Detroit, Michigan 880 9-7-83 Merger BOC State Bank, Detroit Michigan (2) Commonwealth State Bank, Detroit, Michigan (2) 9-7-83 Merger Bank of the Commonwealth, Detroit, Michigan 880 PBS State Bank, Port Byron, Illinois (2) 9-15-83 Merger Port Byron State Bank, Port Byron, Illinois 23 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 257 17.—Continued Date of Name of bank, type of transaction, Assets approval by and other banks involved1 (millions Board or of dollars) Reserve Bank Farmers Interim Bank, Lancaster, Pennsylvania 10-31-83 Merger The Farmers Trust Company of Lebanon, Lebanon, Pennsylvania 56 American Bank of Bloomington, Bloomington, Illinois (2) 11-3-83 Merger American State Bank, Bloomington, Illinois 90 First Citizens Interim Bank, Oneonta, Alabama. (2) 11-10-83 Merger The Citizens Bank, Oneonta, Alabama 40 1700 Bank, Jenkintown, Pennsylvania (2) 11-14-83 Merger Industrial Valley Bank and Trust Company, Philadelphia, Pennsylvania 1,823 Northwest Interim Bank, Tallahassee, Florida (2) 11-30-83 Merger Citizens Commercial Bank of Tallahassee, Tallahassee, Florida... 12 Marine Interim Bank, Antigo, Wisconsin (2) 11-30-83 Merger The Fidelity Savings Bank of Antigo, Wisconsin, Antigo, Wisconsin 51 The Bank of St. Albans, St. Albans, West Virginia 102 12-12-83 Merger Kanalban Bank Co., St. Albans, West Virginia O Oberlin Interim Bank, Oberlin, Ohio (2) 12-14-83 Merger The Oberlin Savings Bank Company, Oberlin, Ohio 58 Valley Community Bank, McMinnville, Oregon 8 12-17-83 Merger Valley Community Interim Bank, McMinnville, Oregon. 1. Each proposed transaction was to be effected 2. This is a newly organized bank, not in operation. under the charter of the first-named bank. The table is in chronological order of approval. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

259 The Federal Reserve System Boundaries of Federal Reserve Districts and their Branch Territories o 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

262 Directories and Meetings Board of Governors of the Federal Reserve System December 31, 1983 Term expires PAUL A. VOLCKER of New Jersey, Chairman1 January 31,1992 PRESTON MARTIN of California, Vice Chairman1 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 LYLE E. GRAMLEY of Missouri January 31, 1994 OFFICE OF BOARD MEMBERS OFFICE OF STAFF DIRECTOR JOSEPH R. COYNE, Assistant to the Board FOR FEDERAL RESERVE BANK DONALD J. WINN, Assistant to the Board ACTIVITIES STEVEN M. ROBERTS, Assistant to the THEODORE E. ALLISON, Staff Director Chairman JOSEPH W. DANIELS, SR., Adviser, FRANK O'BRIEN, JR., Deputy Assistant Equal Employment Opportunity to the Board Programs ANTHONY F. COLE, Special Assistant to the Board WILLIAM R. JONES, Special Assistant to OFFICE OF THE SECRETARY the Board WILLIAM W. WILES, Secretary NAOMI P. SALUS, Special Assistant to the BARBARA R. LOWREY, Associate Secretary Board JAMES MCAFEE, Associate Secretary OFFICE OF STAFF DIRECTOR LEGAL DIVISION FOR MONETARY AND MICHAEL BRADFIELD, General Counsel FINANCIAL POLICY J. VIRGIL MATTINGLY, JR., Associate STEPHEN H. AXILROD, Staff Director General Counsel DONALD L. KOHN, Deputy Staff GILBERT T. SCHWARTZ, Associate General Director Counsel STANLEY J. SIGEL, Assistant to the Board RICHARD M. ASHTON, Assistant General NORMAND R.V. BERNARD, Special Counsel Assistant to the Board NANCY P. JACKLIN, Assistant General Counsel MARYELLEN A. BROWN, Assistant to the OFFICE OF STAFF DIRECTOR General Counsel FOR MANAGEMENT S. DAVID FROST, Staff Director STEPHEN R. MALPHRUS, Assistant Staff DIVISION OF RESEARCH Director AND STATISTICS EDWARD T. MULRENIN, Assistant Staff JAMES L. KICHLINE, Director Director EDWARD C. ETTIN, Deputy Director MICHAEL J. PRELL, Deputy Director JOSEPH S. ZEISEL, Deputy Director 1. The designations as Chairman and Vice Chairman expire on August 6, 1987, 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 263 DIVISION OF RESEARCH DIVISION OF BANKING AND STATISTICS—Continued SUPERVISION AND REGULATION JARED J. ENZLER, Associate Director JOHN E. RYAN, Director ELEANOR J. STOCKWELL, Associate WILLIAM TAYLOR, Deputy Director Director FREDERICK R. DAHL, Associate Director DAVID E. LINDSEY, Deputy Associate DON E. KLINE, Associate Director Director JACK M. EGERTSON, Assistant Director FREDERICK M. STRUBLE, Deputy ROBERT A. JACOBSEN, Assistant Director Associate Director ROBERT S. PLOTKIN, Assistant Director HELMUT F. WENDEL, Deputy Associate THOMAS A. SIDMAN, Assistant Director Director SIDNEY M. SUSSAN, Assistant Director MARTHA BETHEA, Assistant Director SAMUEL H. TALLEY, Assistant Director ROBERT M. FISHER, Assistant Director LAURA M. HOMER, Securities Credit SUSAN J. LEPPER, Assistant Director Officer THOMAS D. SIMPSON, Assistant Director LAWRENCE SLIFMAN, Assistant Director DIVISION OF CONSUMER STEPHEN P. TAYLOR, Assistant Director AND COMMUNITY AFFAIRS PETER A. TINSLEY, Assistant Director LEVON H. GARABEDIAN, Assistant GRIFFITH L. GARWOOD, Director Director (Administration) JERAULD C. KLUCKMAN, Associate Director GLENN E. LONEY, Assistant Director DIVISION OF INTERNATIONAL DOLORES S. SMITH, Assistant Director FINANCE EDWIN M. TRUMAN, Director DIVISION OF PERSONNEL ROBERT F. GEMMILL, Senior Associate Director DAVID L. SHANNON, Director JOHN R. WEIS, Assistant Director CHARLES J. SIEGMAN, Senior Associate Director CHARLES W. WOOD, Assistant Director LARRY J. PROMISEL, Associate Director DALE W. HENDERSON, Deputy Associate DIVISION OF SUPPORT SERVICES Director DONALD E. ANDERSON, Director SAMUEL PIZER, Staff Adviser ROBERT E. FRAZIER, Associate Director RALPH W. SMITH, JR., Assistant Director WALTER W. KREIMANN, Associate Director DIVISION OF FEDERAL RESERVE BANK OPERATIONS OFFICE OF THE CONTROLLER CLYDE H. FARNSWORTH, JR., Director GEORGE E. LIVINGSTON, Controller ELLIOTT C. MCENTEE, Associate Director BRENT L. BOWEN, Assistant Controller DAVID L. ROBINSON, Associate Director C. WILLIAM SCHLEICHER, JR., Associate Director DIVISION OF DATA PROCESSING WALTER ALTHAUSEN, Assistant Director CHARLES L. HAMPTON, Director CHARLES W. BENNETT, Assistant Director BRUCE M. BEARDSLEY, Deputy Director ANNE M. DEBEER, Assistant Director GLENN L. CUMMINS, Assistant Director JACK DENNIS, JR., Assistant Director NEAL H. HILLERMAN, Assistant Director EARL G. HAMILTON, Assistant Director RICHARD J. MANASSERI, Assistant JOHN F. SOBALA, Assistant Director2 Director WILLIAM C. SCHNEIDER, JR., Assistant Director ROBERT J. ZEMEL, Assistant Director 2. On loan from the Federal Reserve Bank of New York. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

264 Directories and Meetings Federal Open Market Committee December 31, 1983 Members PAUL A. VOLCKER, Chairman, Board of Governors ANTHONY M. SOLOMON, Vice Chairman, elected by Federal Reserve Bank of New York LYLE E. GRAMLEY, Board of Governors ROGER GUFFEY, elected by Federal Reserve Banks of Minneapolis, Kansas City, and San Francisco SILAS KEEHN, elected by Federal Reserve Banks of Chicago and Cleveland PRESTON MARTIN, Board of Governors FRANK E. MORRIS, elected by Federal Reserve Banks of Boston, Philadelphia, and Richmond J. CHARLES PARTEE, Board of Governors EMMETT J. RICE, Board of Governors THEODORE H. ROBERTS, elected by Federal Reserve Banks of Atlanta, St. Louis, and Dallas NANCY H. TEETERS, Board of Governors HENRY C. WALLICH, Board of Governors Officers STEPHEN H. AXILROD, RICHARD G. DAVIS, Staff Director and Secretary Associate Economist NORMAND R.V. BERNARD, THOMAS E. DAVIS, Assistant Secretary Associate Economist NANCY M. STEELE, ROBERT EISENMENGER, Deputy Assistant Secretary Associate Economist MICHAEL BRADFIELD, EDWARD C. ETTIN, General Counsel Associate Economist JAMES H. OLTMAN, MICHAEL J. PRELL, Deputy General Counsel Associate Economist JAMES L. KICHLINE, KARL A. SCHELD, Economist Associate Economist EDWIN M. TRUMAN, CHARLES J. SIEGMAN, Economist (International) Associate Economist ANATOL BALBACH, 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 1983, 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 265 Federal Advisory Council December 31, 1983 Members District No. 1—WILLIAM S. EDGERLY, Chairman of the Board and President, State Street Bank and Trust Company, Boston, Massachusetts District No. 2—LEWIS T. PRESTON, Chairman of the Board and Chief Executive Officer, Morgan Guaranty Trust Company of New York, 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, Vice Chairman and Chief Executive Officer, Bane One Corporation, Columbus, Ohio District No. 5—VINCENT C. BURKE, JR., Chairman of the Executive Committee and Director, Riggs National Corporation, and Director, The Riggs National Bank of Washington, D.C., Washington, D.C. District No. 6—PHILIP F. SEARLE, Chairman and Chief Executive Officer, Flagship Banks, Inc., Miami, Florida District No. 7—ROGER E. ANDERSON, Chairman and Chief Executive Officer, Continental Illinois National Bank and Trust Company of Chicago, Chicago, Illinois District No. 8—RONALD TERRY, Chairman, First Tennessee Bank, N.A., Memphis, Tennessee District No. 9—E. PETER GILLETTE, JR., Vice Chairman, Norwest Corporation, and Chairman, Norwest Bank Minneapolis, N.A., Minneapolis, Minnesota District No. 10—N. BERNE HART, President, Chairman of the Board and Chief Executive Officer, United Banks of Colorado, Inc., Denver, Colorado 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 RONALD TERRY, President WILLIAM S. EDGERLY, Vice President HERBERT V. PROCHNOW, Secretary WILLIAM J. KORSVIK, Associate Secretary Directors T.C. FROST, JR. JOHN G. MCCOY JOHN H. WALTHER Meetings of the Federal Advisory Council sentatives of the banking industry, one were held on February 3-4, May 5-6, from each Federal Reserve District, is re- September 8-9, and November 3-4, quired by law to meet in Washington at 1983. The Board of Governors met with least four times a year and is authorized the council on February 4, May 6, Sep- by the Federal Reserve Act to consult and tember 9, and November 4, 1983. The advise the Board on all matters within the council, which is composed of 12 repre- jurisdiction of the Board. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

266 Directories and Meetings Consumer Advisory Council December 31, 1983 Members ARTHUR F. BOUTON, KENNETH V. LARKIN, Little Rock, Arkansas San Francisco, California JAMES G. BOYLE, TIMOTHY D. MARRINAN, Austin, Texas Minneapolis, Minnesota GERALD R. CHRISTENSEN, STANLEY L. MULARZ, Salt Lake City, Utah Chicago, Illinois THOMAS L. CLARK, JR., WILLIAM J. O'CONNOR, JR., New York, New York Buffalo, New York WlLLARD P. OGBURN, JEAN A. CROCKETT, Boston, Massachusetts Philadelphia, Pennsylvania ELVA QUUANO, JOSEPH N. CUGINI, San Antonio, Texas Westerly, Rhode Island JANET J. RATHE, SUSAN PIERSON DEWITT, Portland, Oregon Chicago, Illinois JANET M. SCACCIOTTI, MEREDITH FERNSTROM, Providence, Rhode Island New York, New York GLENDA G. SLOANE, ALLEN J. FISHBEIN, Washington, D.C. Washington, D.C. HENRY J. SOMMER, E.C.A. FORSBERG, SR., Philadelphia, Pennsylvania Atlanta, Georgia NANCY Z. SPILLMAN, LUTHER R. GATLING, Los Angeles, California New York, New York WINNIE F. TAYLOR, RICHARD F. HALLIBURTON, Gainesville, Florida Kansas City, Missouri MICHAEL M. VAN BUSKIRK, CHARLES C. HOLT, Columbus, Ohio Austin, Texas CLINTON WARNE, GEORGE S. IRVIN, Cleveland, Ohio Denver, Colorado FREDERICK T. WEIMER, HOAfRfiRcYe rNs. JACKSON, Chicago, Illinois Minneapolis, Minnesota SUSAN PIERSON DEWITT, Chairman WILLIAM J. O'CONNOR, JR., Vice Chairman Meetings of the Consumer Advisory sumer and community interests, as well as Council with members of the Board of academics. It was established pursuant to Governors were held on March 16-17, the 1976 amendments to the Equal Credit July 20-21, and October 26-27, 1983. Opportunity Act to advise the Board on The council is composed of representa- matters related to consumer financial tives of the financial industry, and of con- services. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 267 Thrift Institutions Advisory Council December 31, 1983 Members HARRY W. ALBRIGHT, Chairman, Dime Savings Bank of New York, New York, New York JAMES A. ALIBER, Chairman and Chief Executive Officer; First Federal of Michigan, Detroit, Michigan GENE R. ARTEMENKO, President, United Airlines Employees' Credit Union, Chicago, Illinois THOMAS R. BOMAR, President, AmeriFirst Federal Savings and Loan Association, Miami, Florida JOHN R. EPPINGER, President and Chief Executive Officer, Mainline Federal Savings and Loan Association, Villanova, Pennsylvania MARY A. GRIGSBY, Chairman and Chief Executive Officer, United Savings of Texas, Houston, Texas NORMAN M. JONES, President, Metropolitan Federal Savings and Loan Association, Fargo, North Dakota ROBERT R. MASTERTON, President, The One Maine Savings Bank, Portland, Maine JAMES F. MONTGOMERY, Chairman of the Board, Great Western Financial Corporation, Beverly Hills, California FRED A. PARKER, President, Heritage Federal Savings and Loan Association, Monroe, North Carolina Officers HARRY W. ALBRIGHT, President THOMAS R. BOMAR, Vice President The members of the Thrift Institutions loan associations, and savings banks, con- Advisory Council met with the Board of suits with and advises the Board on issues Governors on March 22, June 7, Septem- pertaining to the thrift industry and on ber 22, and November 29, 1983. The various other matters within the Board's Council, which is composed of represent- jurisdiction, atives from credit unions, savings and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

268 Directories and Meetings Officers of Federal Reserve Banks, Branches, and Offices December 31, 1983' BANK, Chairman2 President Vice President branch, or office Deputy Chairman First Vice President in charge of branch BOSTON3 Robert P. Henderson Frank E. Morris Thomas I. James A. Atkins Mclntosh NEW YORK3 John Brademas Anthony M. Solomon Gertrude G. Thomas M. Michelson Timlen Buffalo . M. Jane Dickman John T. Keane PHILADELPHIA .... Robert M. Landis Edward G. Boehne Nevius M. Richard L. Curtis Smoot CLEVELAND3 J.L. Jackson Karen N. Horn William H. William H. Knoell Hendricks Cincinnati Clifford R. Meyer Robert E. Showalter 4 Pittsburgh Milton G. Hulme, Jr. Harold J. Swart4 RICHMOND3 Steven Muller Robert P. Black William S. Jimmie R. Lee III Monhollon Baltimore Edward H. Covell Robert D. McTeer, Jr. 4 Charlotte Henry Ponder Albert D. Tinkelenberg 4 Culpeper 5 John G. Stoides * ATLANTA William A. Fickling, Robert P. Jr. Forrestal John H. (Temporarily Weitnauer, Jr. vacant) Birmingham Samuel R. Hill, Jr. Fred R. Herr Jacksonville Joan W. Stein Charles D. East Miami . Eugene E. Cohen Patrick K. Barron Nashville Robert C.H. Mathews Jeffrey J. Wells Jr. New Orleans Roosevelt Steptoe James D. Hawkins Atlanta Delmar Harrison CHICAGO John Sagan Silas Keehn Stanton R. Cook Daniel M. Doyle Detroit Russell G. Mawby William C. Conrad 4 ST. LOUIS W.L. Hadley Griffin Theodore H. Roberts Mary P. Holt Joseph P. Garbarini Little Rock Richard V, Warner John F. Breen Louisville William C. James E. Conrad Ballard, Jr. Memphis G. Rives Neblett Paul I. Black, Jr. MINNEAPOLIS William G. Phillips E. Gerald Corrigan John B. Davis, Thomas E. Gainor Jr. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 269 BANK, Chairman2 President Vice President Deputy Chairman First Vice President in charge of branch branch, or office Gene J. Etchart Robert F. McNellis Helena Paul H. Henson Roger Guffey KANSAS CITY. Doris M. Drury Henry R. Czerwinski Denver James E. Nielson Wayne W. Martin 4 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 Chester J. Kesey Joel L. Koonce, Jr. Houston Paul N. Howell J.Z. Rowe 4 San Antonio Carlos A. Zuniga Thomas H. Robertson SAN FRANCISCO. Caroline L. John J. Balles Ahmanson Richard T. Alan C. Furth Griffith Los Angeles .. Bruce M. Schwaegler Richard C. Dunn 4 Portland John C. Hampton Angelo S. Carella Salt Lake City Wendell J. Ashton A. Grant Holman Seattle John W. Ellis Gerald R. Kelly 4 1. A current list of these officers appears each Orishkany, New York; Columbus, Ohio; Columbia, month in the Federal Reserve Bulletin. South Carolina; Charleston, West Virginia; Des 2. The Chairman of a Federal Reserve Bank, by Moines, Iowa; Indianapolis, Indiana; and Milwaukee, statute, also serves as Federal Reserve Agent. Wisconsin. 3. Additional offices of these Banks are located at 4. This officer is a Senior Vice President. Lewistown, Maine; Windsor Locks, Connecticut; 5. Culpeper Communications and Records Center Cranford, New Jersey; Jericho, New York; Utica at is a facility. Conference of Chairmen conference and a member of the Executive Committee; and Stanton R. Cook was The chairmen of the Federal Reserve elected as the other member of the Execu- Banks are organized into a Conference of tive Committee. Chairmen that meets to consider matters of common interest and to consult with Conference of Presidents and advise the Board of Governors. Such meetings, attended also by the deputy The presidents of the Federal Reserve chairmen, were held in Washington on Banks are organized into a Conference of June 2-3 and December 1-2, 1983. Presidents that meets periodically to con- The Executive Committee of the Con- sider matters of common interest and to ference of Chairmen during 1983 com- consult with and advise the Board of Govprised Robert P. Henderson, Chairman, ernors. On September 15, 1982, Anthony William G. Phillips, Vice Chairman, and M. Solomon, President of the Federal Steven Muller, member. Reserve Bank of New York, was elected On December 2, 1983, William G. Chairman, and William F. Ford, Presi- Phillips was elected chairman of the con- dent of the Federal Reserve Bank of ference and of its Executive Committee to Atlanta, was elected Vice Chairman for serve for the succeeding year; William H. 1983. Bradley K. Sabel of the Federal Knoell was elected vice chairman of the Reserve Bank of New York was appointed Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

270 Directories and Meetings Secretary, and William B. Estes of the Directors Federal Reserve Bank of Atlanta was ap- Class A and Class B directors are elected pointed Assistant Secretary. On Septemby the member banks of a Federal Reserve ber 16, 1983, E. Gerald Corrigan, Presi- District. Class C directors are appointed dent of the Federal Reserve Bank of by the Board of Governors of the Federal Minneapolis, was elected Vice Chairman, Reserve System. One term in each class of replacing Mr. Ford on October 1, 1983, directors expires each year. Directors are and Kathleen J. Balkman of the Federal chosen without discrimination as to race, Reserve Bank of Minneapolis replaced creed, color, sex, or national origin. Mr. Estes as Assistant Secretary. The Class A directors are chosen as representatives of member banks and, as a matter of practice, are active officers of Conference of member banks. Class B and Class C direc- First Vice Presidents tors represent the public and are selected The Conference of First Vice Presidents of with due, but not exclusive, consideration the Federal Reserve Banks was organized to the interests of agriculture, commerce, in 1969 to meet periodically for the con- industry, services, labor, and consumers. sideration of operational and other Class B and Class C directors may not be matters. On October 8, 1982, Thomas M. officers, directors, or employees of any Timlen, First Vice President of the bank, nor may Class C directors be stock- Federal Reserve Bank of New York, was holders of any bank. Annually, the Board elected Chairman, and Robert P. Forres- of Governors designates one Class C tal, First Vice President of the Federal director of each Reserve Bank to serve as Reserve Bank of Atlanta, was elected Vice chairman of the Bank and one to serve as Chairman for 1983. Bradley K. Sabel of deputy chairman. the Federal Reserve Bank of New York Branches of Federal Reserve Banks was appointed Secretary, and William B. have either five or seven directors, of Estes of the Federal Reserve Bank of whom a majority are appointed by the Atlanta was appointed Assistant Secre- board of directors of the parent Federal tary. On September 26, 1983, Thomas E. Reserve Bank. The others are appointed Gainor, First Vice President of the by the Board of Governors of the Federal Federal Reserve Bank of Minneapolis, Reserve System. The chairmen of branch was elected Vice Chairman, replacing Mr. boards are selected from among directors Forrestal on October 1, 1983, and appointed by the Board of Governors. Kathleen J. Balkman of the Federal A list of the current directors appears in Reserve Bank of Minneapolis was elected the March issue of the Federal Reserve Assistant Secretary, replacing Mr. Estes. Bulletin each year. Term expires District 1—BOSTON Dec. 31 Class A 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 William W. Treat President, Bank Meridian, N.A., Hampton, Digitized for FRASER New Hampshire 1985 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 271 Term expires Class B Dec. 31 Joseph A. Baute Chairman and Chief Executive Officer, Markem Corporation, Keene, New Hampshire 1983 GeorgeN. Hatsopoulos .. .Chairman of the Board and President, Thermo Electron Corporation, Waltham, Massachusetts , 1984 Matina S. Horner President, Radcliffe College, Cambridge, Massachusetts 1985 Class C Michael J. Harrington Harrington Company, Peabody, Massachusetts 1983 Robert P. Henderson Vice Chairman of the Board of Directors, Greylock Management Corporation, Boston, Massachusetts 1984 Thomas I. Atkins General Counsel, National Association for the Advancement of Colored People, Brooklyn, New York 1985 District 2—NEW YORK Class A 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 Alfred Brittain Chairman of the Board, Bankers Trust Company, New York, New York 1985 Class B John R. Opel Chairman 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 William S. Cook President and Chief Executive Officer, Union Pacific Corporation, New York, New York 1985 Class C Clifton R. Wharton, Jr. .. .Chancellor, State University of New York System, Albany, New York 1983 Gertrude G. Michelson Senior Vice President, R.H. Macy & Company, Inc., New York, New York 1984 John Brademas President, New York University, New York, New York 1985 BUFFALO BRANCH Appointed by Federal Reserve Bank Carl F. Ulmer President, The Evans National Bank of Digitized for FRASER Angola, Angola, New York 1983 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

272 Directories and Meetings Term expires Edward W. Duffy Chairman of the Executive Committee, Dec. 31 Marine Midland Bank, N.A., Buffalo, New York 1984 Frederick G. Ray Chairman of the Board, Rochester Community Savings Bank, Rochester, New York 1985 Donald I. Wickham President, Tri-Way Farms, Inc., Stanley, New York 1985 Appointed by Board of Governors John R. Burwell President, Rollins Container Corporation, Rochester, New York 1983 George L. Wessel President, Buffalo AFL/CIO Council, Buffalo, New York 1984 M. Jane Dickman Partner, c/o Touche Ross & Co., Buffalo, New York 1985 District 3—PHILADELPHIA Class A Roger S. Hillas Chairman and President, Provident National Bank, Philadelphia, Pennsylvania 1983 Douglas Eugene Johnson .. Chairman and President, Ocean County National Bank, Point Pleasant Beach, New Jersey 1984 JoAnne Brinzey Cashier and Chief Executive Officer, The First National Bank at Gallitzin, Gallitzin, Pennsylvania 1985 Class B 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 Eberhard Faber IV Chairman of the Board and Chief Executive Officer, Eberhard Faber, Inc., Wilkes-Barre, Pennsylvania 1985 Class C Robert M. Landis Partner, Dechert, Price & Rhoads, Philadelphia, Pennsylvania 1983 George E. Bartol III Chairman of the Board, Hunt Manufacturing Company, Philadelphia, Pennsylvania.. 1984 Nevius M. Curtis .President and Chief Executive Officer, Delmarva Power & Light Company, Wilmington, Delaware 1985 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 273 Term expires District 4—CLEVELAND Dec. 31 Class A J. David Barnes Chairman of the Board, Mellon Bank, N.A., Pittsburgh, Pennsylvania 1983 Raymond D. Campbell President and Chief Executive Officer, Independent State Bank of Ohio, Columbus, Ohio 1984 William A. Stroud President, First-Knox National Bank, Mount Vernon, Ohio 1985 Class B 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 John W. Kessler President, John W. Kessler Company, Columbus, Ohio 1985 Class C William H. Knoell President and Chief Executive Officer, Cyclops Corporation, Pittsburgh, Pennsylvania 1983 J.L. Jackson President and Chief Operating Officer, Diamond Shamrock Corporation, Dallas, Texas 1984 John D. Anderson Senior Partner, The Andersons, Maumee, Ohio 1985 CINCINNATI BRANCH Appointed by Federal Reserve Bank O.T. Dorton President, Citizens National Bank, Paintsville, Kentucky 1983 Richard J. Fitton President and Chief Executive Officer, First National Bank of Southwestern Ohio, Hamilton, Ohio 1984 Sherrill Cleland President, Marietta College, Marietta, Ohio 1984 Clement L. Buenger President, The Fifth Third Bank, Cincinnati, Ohio 1985 Appointed by Board of Governors Clifford R. Meyer President and Chief Operating Officer, Cincinnati Milacron Inc., Cincinnati, Ohio 1983 Don Ross Owner, Dunreath Farm, Lexington, Kentucky 1984 Sister Grace Marie Hiltz .. .President, Sisters of Charity Health Care Systems, Inc., Cincinnati, Ohio 1985 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

274 Directories and Meetings Term expires PITTSBURGH BRANCH Dec. 31 Appointed by Federal Reserve Bank 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 Vice Chairman, Aluminum Company of America, Pittsburgh Pennsylvania 1984 A. Dean Heasley President and Chief Executive Officer, Century National Bank & Trust Co., Rochester, Pennsylvania 1985 Appointed by Board of Governors Milton G. Hulme, Jr President and Chief Executive Officer, Mine Safety Appliances Company, Pittsburgh, Pennsylvania 1983 Vacant Robert S. Kaplan Dean, Graduate School of Industrial Administration, Carnegie-Mellon University, Pittsburgh, Pennsylvania 1985 District 5—RICHMOND Class A 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 Willard H. Derrick President and Chief Executive Officer, Sandy Springs National Bank and Savings Institution, Sandy Springs, Maryland 1985 Class B 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, Commercial Credit Company, Baltimore, Maryland 1984 Vacant Class C 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 Robert A. Georgine President, Building and Construction Trades Department, AFL-CIO, Washington, D.C.. 1985 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 275 Term expires BALTIMORE BRANCH Dec. 31 Appointed by Federal Reserve Bank Joseph M. Gough, Jr President, The First National Bank of St. Mary's, Leonardtown, Maryland 1983 Pearl C. Brackett Deputy Manager (retired), Baltimore Regional Chapter of the American Red Cross, Baltimore, Maryland 1984 Hugh D. Shires Senior Vice President (retired), The First National Bank of Maryland, Cumberland, Maryland 1985 Howard I. Scaggs Chairman of the Board, American National Building and Loan Association, Baltimore, Maryland 1985 Appointed by Board of Governors Robert L. Tate Chairman, Tate Industries, Baltimore, Maryland 1983 Thomas H. Maddux Executive Vice President and Chief Operating Officer, Easco Corporation, Baltimore, Maryland 1984 Edward H. Covell President, The Covell Company, Easton, Maryland 1985 CHARLOTTE BRANCH Appointed by Federal Reserve Bank 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 and Chief Executive Officer, The Citizens & Southern National Bank of South Carolina, Columbia, South Carolina 1984 John G. Medlin, Jr President, Wachovia Bank and Trust Company, N.A., Winston-Salem, North Carolina 1985 J. Donald Collier President, First National Bank in Orangeburg, Orangeburg, South Carolina 1985 Appointed by Board of Governors Wallace J. Jorgenson President, Jefferson-Pilot Broadcasting Co., Charlotte, North Carolina 1983 Henry Ponder President, Benedict College, Columbia, South Carolina 1984 G. Alex Bernhardt President, Bernhardt Industries, Lenoir, North Carolina 1985 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

276 Directories and Meetings Term expires District 6—ATLANTA Dec. 31 Class A 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 Dan B. Andrews President, First National Bank, Dickson, Tennessee 1985 Class B Harold B. Blach, Jr President, Blach's Inc., Birmingham, Alabama 1983 Horatio C. Thompson President, Horatio Thompson Investment, Inc., Baton Rouge, Louisiana 1984 Bernard F. Sliger President, Florida State University, Tallahassee, Florida 1985 Class C 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 John H. Weitnauer, Jr Chairman and Chief Executive Officer, Richway, Atlanta, Georgia 1985 BIRMINGHAM BRANCH Appointed by Federal Reserve Bank 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 Grady Gillam Chairman, The American National Bank, Gadsden, Alabama 1985 G. Mack Dove President, AAA Cooper Transportation Co., Dothan, Alabama 1985 Appointed by Board of Governors 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 Martha A. Mclnnis Executive Vice President, EnviroSouth, Inc., Montgomery, Alabama 1985 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 277 Term expires JACKSONVILLE BRANCH Dec. 31 Appointed by Federal Reserve Bank Gordon W. Campbell Vice Chairman, NCNB National Bank of Florida, Tampa, Florida 1983 Lewis A. Doman President, The Citizens and Peoples National Bank, Pensacola, Florida 1984 E.F. Keen, Jr Vice Chairman and President, Ellis Banking Corporation, Bradenton, Florida 1985 George C. Boone, Jr President and Chief Executive Officer, Security First Federal Savings and Loan Association, Daytona Beach, Florida 1985 Appointed by Board of Governors Joan W. Stein Chairman, Regency Square Properties, Inc., Jacksonville, Florida 1983 Jerome P. Keuper President, Florida Institute of Technology, Melbourne, Florida 1984 E. William Nash, Jr President, South Central Operations, The Prudential Insurance Company, Jacksonville, Florida 1985 MIAMI BRANCH Appointed by Federal Reserve Bank Daniel S. Goodrum Senior Executive Vice President, Sun Banks of Florida, Inc., Ft. Lauderdale, Florida ... 1983 E. Llwyd Ecclestone, Jr.... President and Chief Executive Officer, National Investment Co., West Palm Beach, Florida 1984 Stephen G. Zahorian President, Barnett Bank of Lee County, N.A., Fort Myers, Florida 1984 D.S. Hudson, Jr Chairman, First National Bank and Trust Company of Stuart, Stuart, Florida 1985 Appointed by Board of Governors Eugene E. Cohen Chief Financial Officer and Treasurer, Howard Hughes Medical Institute, Coconut Grove, Florida 1983 Roy Vandegrift, Jr President, Roy Van, Inc., Pahokee, Florida 1984 Sue McCourt Cobb ... Attorney, Greenberg, Traurig, Askew, Hoffman, Lipoff, Quentel, and Wolff, P.A., Miami, Florida 1985 NASHVILLE BRANCH Appointed by Federal Reserve Bank James F. Smith, Jr Chairman and Chief Executive Officer, First American National Bank of Knoxville, Knoxville, Tennessee 1983 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

278 Directories and Meetings Term expires Michael T. Christian President and Chief Executive Officer, Dec. 31 Commerce Union Bank of Greeneville, Greeneville, Tennessee 1984 Owen G. Shell, Jr President and Chief Executive Officer, First American National Bank of Nashville, Nashville, Tennessee 1985 Samuel H. Howard Vice President and Treasurer, Hospital Corporation of America, Nashville, Tennessee 1985 Appointed by Board of Governors Robert C.H. Mathews, Jr. .Managing General Partner, R.C. Mathews, Nashville, Tennessee 1983 C. Warren Neel Dean, College of Business Administration, The University of Tennessee, Knoxville, Tennessee 1984 Condon S. Bush President, Bush Brothers & Company, Dandridge, Tennessee 1985 NEW ORLEANS BRANCH Appointed by Federal Reserve Bank Paul W. McMullan Chairman and Chief Executive Officer, First Mississippi National Bank, Hattiesburg, Mississippi 1983 Jerry W. Brents President and Chief Executive Officer, First National Bank, Lafayette, Louisiana .. 1984 Philip K. Livingston President and Chief Executive Officer, Citizens National Bank, Hammond, Louisiana 1985 Tom Burkett Scott, Jr President and Chief Executive Officer, Unifirst Federal Savings and Loan Association, Jackson, Mississippi 1985 Appointed by Board of Governors Leslie B. Lampton President, Ergon, Inc., Jackson, Mississippi .. 1983 Roosevelt Steptoe Professor of Economics, Southern University, Baton Rouge, Louisiana 1984 Sharon A. Perlis Attorney, Metairie, Louisiana 1985 District 7—CHICAGO Class A Ollie Jay Tomson President, The Citizens National Bank of Charles City, Charles City, Iowa 1983 Charles M. Bliss Chairman of the Board and Chief Executive Officer, Harris Trust and Savings Bank, Chicago, Illinois 1984 Patrick E. McNarny President, First National Bank of Logansport, Logansport, Indiana 1985 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 279 Term expires Class B Dec. 31 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 Mary Garst Manager of Cattle Division, Garst Company, Coon Rapids, Iowa 1985 Class C 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 Stanton R. Cook President, Tribune Company, Chicago, Illinois 1985 DETROIT BRANCH Appointed by Federal Reserve Bank 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 Charles T. Fisher III Chairman and President, National Bank of Detroit, Detroit, Michigan 1985 Appointed by Board of Governors Karl D. Gregory Professor, School of Economics and Management, Oakland University, Rochester, Michigan 1983 Robert E. Brewer Executive Vice President Finance, K Mart Corporation, Troy, Michigan 1984 Russell G. Mawby President and Trustee, W. K. Kellogg Foundation, Battle Creek, Michigan 1985 District 8—ST. LOUIS Class A 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 Donald L. Hunt President, First National Bank of Marissa, Marissa, Illinois 1985 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

280 Directories and Meetings Term expires Class B Dec. 31 Frank A. Jones, Jr President, Dietz Forge Company, Memphis, Tennessee 1983 Jesse M. Shaver Consultant, Allis-Chalmers Corporation, Louisville, Kentucky 1984 Robert J. Sweeney President and Chief Operating Officer, Murphy Oil Corporation, El Dorado, Arkansas 1985 Class C W.L. Hadley Griffin Chairman of the Board, Brown Group, Inc., St. Louis, Missouri 1984 Mary P. Holt President, Clothes Horse, Little Rock, Arkansas 1985 Robert L. Virgil, Jr Dean, School of Business, Washington University, St. Louis, Missouri 1985 LITTLE ROCK BRANCH Appointed by Federal Reserve Bank 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 Wilbur P. Gulley, Jr Chairman of the Board and Chief Executive Officer, Savers Federal Savings and Loan Association, Little Rock, Arkansas 1984 D. Eugene Fortson Chairman and Chief Executive Officer, Worthen Bank and Trust Company, N.A., Little Rock, Arkansas 1985 Appointed by Board of Governors Richard V. Warner Group Vice President, Wood Products Group, Potlatch Corporation, Warren, Arkansas .. 1983 Sheffield Nelson Chairman of the Board and Chief Executive Officer, Arkla, Inc., Little Rock, Arkansas. 1984 Shirley J. Pine Department of Communicative Disorders, University of Arkansas at Little Rock, Little Rock, Arkansas 1985 LOUISVILLE BRANCH Appointed by Federal Reserve Bank Frank B. Hower, Jr Chairman of the Board and Chief Executive Officer, Liberty National Bank and Trust Company, Louisville, Kentucky 1983 R.I. Kerr, Jr Chairman of the Board, President, and Chief Executive Officer, Great Financial Federal, Louisville, Kentucky 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 281 Term expires John E. Darnell, Jr Chairman of the Board, The Owensboro Dec. 31 National Bank, Owensboro, Kentucky 1984 Allan S. Hanks President, Anderson National Bank, Lawrenceburg, Kentucky 1985 Appointed by Board of Governors 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 Henry F. Frigon President, BATUS, Inc., Louisville, Kentucky 1985 MEMPHIS BRANCH Appointed by Federal Reserve Bank 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 WilliamM. Matthews, Jr.. .Chairman of the Board and Chief Executive Officer, Union Planters National Bank of Memphis, Memphis, Tennessee 1984 William H. Brandon, Jr. . .President, First National Bank of Phillips County, Helena, Arkansas 1985 Appointed by Board of Governors Donald B. Weis President, Tamak Transportation Corp., West Memphis, Arkansas 1983 G. Rives Neblett Attorney, Neblett, Bobo & Chapman, Shelby, Mississippi 1984 Patricia W. Shaw President, Universal Life Insurance Company, Memphis, Tennessee 1985 District 9—MINNEAPOLIS Class A 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, Baldwin, Wisconsin 1984 Curtis W. Kuehn President, The First National Bank in Sioux Falls, Sioux Falls, South Dakota 1985 Class B Harold F. Zigmund Chairman, Blandin Paper Company, Grand Rapids, Minnesota 1983 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

282 Directories and Meetings Term expires William L. Mathers President, Mathers Land Co., Inc., Dec. 31 Miles City, Montana 1984 Richard L. Falconer . .District Manager, Northwestern Bell, Bismarck, North Dakota 1985 Class C JohnB. Davis, Jr President, Macalester College, St. Paul, Minnesota 1983 William G. Phillips Chairman and Chief Executive Officer, International Multifoods, Minneapolis, Minnesota 1984 Sister Generose Gervais .. .Administrator, St. Mary's Hospital, Rochester, Minnesota 1985 HELENA BRANCH Appointed by Federal Reserve Bank Roger H. Ulrich President, The First State Bank of Malta, Malta, Montana 1983 Harry W. Newlon President, First National Bank, Bozeman, Montana 1984 Seabrook Pates President and Chief Executive Officer, Midland Implement Co., Inc., Billings, Montana 1984 Appointed by Board of Governors Gene J. Etchart Past President, Hinsdale Livestock Company, Glasgow, Montana 1983 Ernest B. Corrick Vice President and General Manager, Champion International Corporation, Timberlands-Rocky Mountain Operation, Missoula, Montana 1984 District 10—KANSAS CITY Class A Wayne D. Angell Chairman of the Board, First State Bank, Pleasanton, Kansas 1983 John D. Woods Chairman and Chief Executive Officer, The Omaha National Bank, Omaha, Nebraska.. 1984 Howard K. Loomis President, The Peoples Bank, Pratt, Kansas .. 1985 Class B James G. Harlow, Jr Chairman of the Board and President, Oklahoma Gas and Electric Co., Oklahoma City, Oklahoma 1983 Duane C. Acker President, Kansas State University, Manhattan, Kansas 1984 Charles C. Gates President and Chairman of the Board, Gates Corporation, Denver, Colorado 1985 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 283 Term expires Class C Dec. 31 John F. Anderson Consultant to the President, Farmland Industries, Inc., Liberty, Missouri 1983 Doris M. Drury Professor of Economics, University of Denver, Englewood, Colorado 1984 Paul H. Henson Chairman, United Telecommunications, Inc., Kansas City, Missouri 1985 DENVER BRANCH Appointed by Federal Reserve Bank Delano E. Scott Chairman, IntraWest Bank of Steamboat Springs, N.A., Steamboat Springs, Colorado 1983 Kenneth C. Naramore Chairman of the Board and Chief Executive Officer, Stockmen's Bank & Trust Company, Gillette, Wyoming 1983 Donald D. Hoffman Chairman and Chief Executive Officer, Central Bank of Denver, Denver, Colorado. 1984 George S. Jenks President and Chief Executive Officer, First New Mexico Bancshare Corporation, Albuquerque, New Mexico 1985 Appointed by Board of Governors Ralph F. Cox Executive Vice President, Atlantic Richfield Company, Denver, Colorado 1983 James E. Nielson President and Chief Executive Officer, JN Incorporated, Cody, Wyoming 1984 Alvin F. Grospiron Denver, Colorado 1985 OKLAHOMA CITY BRANCH Appointed by Federal Reserve Bank William H. Crawford President and Chief Executive Officer, First National Bank and Trust Company, Frederick, Oklahoma 1983 Marcus R. Tower Vice Chairman of the Board and Chairman of the Credit Policy Committee, Bank of Oklahoma, N.A., Tulsa, Oklahoma 1984 William O. Alexander President and Chief Executive Officer, Continental Federal Savings & Loan Association, Oklahoma City, Oklahoma ... 1984 Appointed by Board of Governors Christine H. Anthony Oklahoma City, Oklahoma 1983 Samuel R. Noble Chairman of the Board, Noble Affiliates, Inc., Ardmore, Oklahoma 1984 OMAHA BRANCH Appointed by Federal Reserve Bank Joseph J. Huckfeldt Chairman of the Board, Gering National Bank and Trust Company, Gering, Nebraska 1983 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

284 Directories and Meetings Term expires William W. Cook, Jr President, Beatrice National Bank and Trust Dec. 31 Company, Beatrice, Nebraska 1983 Donald J. Murphy Director, United States National Bank of Omaha, Omaha, Nebraska 1984 Appointed by Board of Governors Kenneth Morrison President, Morrison-Quirk Grain Corporation, Hastings, Nebraska 1983 Robert G. Lueder Chairman of the Board, Lueder Construction Company, Omaha, Nebraska 1984 District 11—DALLAS Class A 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., Fort Worth, Texas 1984 John P. Gilliam Chairman of the Board and Chief Executive Officer, First National Bank in Valley Mills, Valley Mills, Texas 1985 Class B 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 Robert Ted Enloe III President, Lomas & Nettleton Financial Corporation, Dallas, Texas 1985 Class C John V. James Chairman of the Executive Committee, Dresser Industries, Inc., Dallas Texas 1983 Gerald D. Hines Owner, Gerald D. Hines Interests, Houston, Texas 1984 Robert D. Rogers President, Texas Industries, Inc., Dallas, Texas 1985 EL PASO BRANCH Appointed by Federal Reserve Bank David L. Stone President, The Portales National Bank, Portales, New Mexico 1983 Ernest M. Schur Chairman of the Executive Committee, InterFirst Bank of Odessa, N.A., Odessa, Texas 1984 Gerald W. Thomas President, New Mexico State University, Las Cruces, New Mexico 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 285 Term expires Stanley J. Jarmiolowski .. .Chairman of the Board and Chief Executive Dec. 31 Officer, InterFirst Bank in El Paso, N.A., El Paso, Texas 1985 Appointed by Board of Governors 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 S. Lee Ware, Jr Ruidoso, New Mexico 1985 HOUSTON BRANCH Appointed by Federal Reserve Bank Raymond L. Britton Professor of Law, University of Houston, Houston, Texas 1983 Ralph E. David Chairman of the Board and Chief Executive Officer, Freeport, Texas 1984 Thomas B. McDade Vice Chairman, Texas Commerce Bancshares, Inc., Houston, Texas 1984 Will E. Wilson Chairman of the Board and Chief Executive Officer, First Security Bank of Beaumont, N.A., Beaumont, Texas 1985 Appointed by Board of Governors Paul N. Howell Chairman of the Board, Howell Corporation, Houston, Texas 1983 George V. Smith, Sr President, Smith Pipe & Supply, Inc., Houston, Texas 1984 Robert T. Sakowitz Chairman of the Board and President, Sakowitz Inc., Houston, Texas 1985 SAN ANTONIO BRANCH Appointed by Federal Reserve Bank John H. Garner President and Chief Executive Officer, Corpus Christi National Bank, Corpus Christi, Texas 1983 Charles E. Cheever, Jr Chairman of the Board, Broadway National Bank, San Antonio, Texas 1984 Joe D. Barbee President and Chief Executive Officer, Barbee-Neuhaus Implement Company, Weslaco, Texas 1984 George Brannies Chairman of the Board and President, The Mason National Bank, Mason, Texas 1985 Appointed by Board of Governors 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., Digitized for FRASER Laredo, Texas 1984 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

286 Directories and Meetings Term expires Robert F. McDermott Chairman of the Board and President, Dec. 31 United Services Automobile Association, San Antonio, Texas 1985 District 12—SAN FRANCISCO Class A Ole R. Mettler President and Chairman of the Board, Farmers & Merchants Bank of Central California, Lodi, California 1983 Robert A. Young Chairman of the Board and President, Northwest National Bank, Vancouver, Washington 1984 Spencer F. Eccles Chairman, President, and Chief Executive Officer, First Security Corporation, Salt Lake City, Utah 1985 Class B J.R. Vaughan Senior Member, Richards, Watson, Dreyfuss & Gershon, Los Angeles, California 1983 George H. Weyerhaeuser . .President and Chief Executive Officer, Weyerhaeuser Company, Tacoma, Washington 1984 Togo W. Tanaka Chairman, Gramercy Enterprises, Inc., Los Angeles, California 1985 Class C Fred W. Andrew Chairman of the Board, President, and Chief Executive Officer, Superior Farming Company, Bakersfield, California 1983 Alan C. Furth President, Southern Pacific Company, San Francisco, California 1984 Caroline L. Ahmanson Chairman of the Board, Caroline Leonetti, Ltd., Hollywood, California 1985 LOS ANGELES BRANCH Appointed by Federal Reserve Bank James D. McMahon President and Chief Executive Officer, Western United National Bank, Encino, California 1983 Robert R. Dockson Chairman and Chief Executive Officer, California Federal Savings, Los Angeles, California 1984 Bram Goldsmith Chairman of the Board, City National Bank, Beverly Hills, California 1985 William L. Tooley Managing Partner, Tooley and Company, Los Angeles, California 1985 Appointed by Board of Governors Lola M. McAlpin-Grant.. .Attorney, Los Angeles, California 1983 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 287 Term expires Bruce M. Schwaegler President, Bullock's-Bullock's Wilshire, Dec. 31 Los Angeles, California 1984 Thomas R. Brown, Jr Chairman and Chief Executive Officer, Burr-Brown Research Corporation, Tucson, Arizona 1985 PORTLAND BRANCH Appointed by Federal Reserve Bank 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 and Chief Executive Officer, United States National Bank of Oregon, Portland, Oregon 1984 HermanC. Bradley, Jr. .. .President and Chief Executive Officer, Tri-County Banking Company, Junction City, Oregon 1985 Appointed by Board of Governors John C. Hampton President, Willamina Lumber Company, Portland, Oregon 1983 Carolyn S. Chambers Executive Vice President and Treasurer, Liberty Communications, Inc., Eugene, Oregon 1984 G. Johnny Parks Northwest Regional Director, International Longshoremen's & Warehousemen's Union, Portland, Oregon 1985 SALT LAKE CITY BRANCH Appointed by Federal Reserve Bank Albert C. Gianoli President and Chairman of the Board, The First National Bank of Ely, Ely, Nevada ... 1983 Lela M. Ence Executive Director, University of Utah Alumni Association, Salt Lake City, Utah .. 1984 John A. Dahlstrom Chairman of the Board, Tracy-Collins Bank and Trust Company, Salt Lake City, Utah.. 1985 Fred C. Humphreys President and Chief Executive Officer, The Idaho First National Bank, Boise, Idaho ... 1985 Appointed by Board of Governors J.L. Terteling President, The Terteling Company, Inc., Boise, Idaho 1983 Wendell J. Ashton Publisher, Deseret News, Salt Lake City, Utah 1984 David A. Nimkin Executive Director, Salt Lake Neighborhood Housing Services, Inc., Salt Lake City, Utah 1985 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

288 Directories and Meetings Term expires SEATTLE BRANCH Dec. 31 Appointed by Federal Reserve Bank Lonnie G. Bailey Executive Vice President and Chief Operating Officer, 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 William W. Philip Chairman, President, and Chief Executive Officer, Puget Sound Bancorp, Tacoma, Washington 1985 Appointed by Board of Governors 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 Byron I. Mallott Chairman and Chief Executive Officer, Sealaksa Corporation, Juneau, Alaska 1985 NOTE. A complete list of directors who will serve during 1984 is scheduled to appear in the March 1984 issue of the Federal Reserve Bulletin. 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

291 Index Acceptances, bankers (See Bankers ac- Board of Governors (See also Federal ceptances) Reserve System) Administrative Procedure Act, 173 Consumer Advisory Council, 154, Assets and liabilities 163, 266 Banks, by class, 241 Delegated authority, 185, 188, 191, 197 Board of Governors, 207 Financial statements, 206-11 Federal Reserve Banks, 214-19 Interpretations (See Interpretations) Legislative recommendations, 151, Balance of payments, review of 1983, 166-69 22-27 Litigation, 170-75 Bank Export Services Act, 68, 74, 75, Members and officers, 262 188, 196 Policy actions and statements, 65-78 Bank holding companies Publications (See Publications) Capital adequacy guidelines, 74, 182 Regulations (See Regulations) Control of, changes, 186, 197 Regulatory improvement and simplifi- Examination, inspection, and regula- cation, 67, 71, 72, 73, 192, tion, 178-80, 182-84, 185-90 195-98 International banking operations, Salaries, 208 68, 179, 187, 188 Training (See Training) Investments, 68 Branch banks Legislation, legislative recommenda- Federal Reserve tions, 166 Bank premises, 204, 223 Litigation, 170-71 Construction costs, legislative Number and assets, 178 recommendation, 168 Regulation Y (See Regulations) Directors, 270-88 Stock repurchases by, 191 Vice presidents in charge, 268 Bank Holding Company Act, 169, 174, Foreign, of U.S. banking organiza- 184, 185, 187, 188 tions, 179, 187 Bank Merger Act, 185 Foreign banks, 75, 179, 187 Bank mergers and consolidations, Bretton Woods agreement, 176 185, 190, 197, 246-57 Bank Service Corporation Act, 73, Capital accounts 189 Banks, by class, 241 Bankers acceptances Federal Reserve Banks, 215, 216, 218 Authority to purchase and enter into Capital adequacy guidelines, 74, 177, 181 repurchase agreements, 79-80, Certificates of deposit, 73, 195 102-03 Change in Bank Control Act of 1978, Federal Reserve Banks 185, 186 Earnings, 205, 224 Check clearing and collection (See Holdings, 205, 214, 216, 218 Transfers of funds) Interpretation, 74, 75 Commercial banks Open market transactions, 220 Assets and liabilities, 241 Repurchase agreements, 214, 216, Number, by class, 241 218, 220 Supervision and regulation by Federal Reserve requirements, 66 Reserve System, 178-94 Banking supervision and regulation by Transfers of funds (See Transfers of Federal Reserve System, 178-94 funds) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

292 Index Community Reinvestment Act, 150, 154, Economy in 1983, 5-11 162, 163, 164 Educational activities, 154, 164, 184 Condition statement of Federal Reserve Electronic Fund Transfer Act, 150, 159, Banks, 214-19 161, 165 Consumer Advisory Council, 154, Electronic fund transfers (See Transfers 163, 266 of funds) Consumer and community affairs, Equal Credit Opportunity 150-65 Act, 150, 152, 159, 160, 165 Consumer leasing, 151, 154, 163, Regulation B (See Regulation B) 167, 198 Examinations and inspections Credit (See also Loans) Bank holding companies, 178, 183 Equal Credit Opportunity (See Equal Federal Reserve Banks, 203 Credit Opportunity) Improvements, 154, 180-83 Stocks, 67, 68, 71, 72, 192-94, 195 International activities, 179 Truth in Lending (See Truth in Specialized, 179 Lending) Staff training, 154, 164, 184 State member banks, 178, 179-82, Depository Institutions Management 183-84 Interlocks Act of 1978, 69 Expenses Depository institutions Board of Governors, 206-11 Interest on deposits (See Interest on Federal Reserve Banks, 203, 224, deposits) 228, 230 Interlocking relationships, 69, 196 Export trading companies, 68, 69, Reserve requirements, 65-67, 71, 188, 196 195, 236 Depository Institutions Deregulation Federal Advisory Council, 265 and Monetary Control Act of 1980, Federal agency securities 65, 67, 167, 172, 195, 202 Authority to purchase and enter into Depository Institutions Deregulation repurchase agreements, 79-81, Committee, 66, 67, 71, 195 101-03, 141, 148-49 Depository Institutions Management Federal Reserve Bank holdings and Interlocks Act, 69 earnings, 205, 214, 216, 218, 222 Deposits Federal Reserve open market trans- Banks, by class, 241 actions, 220 Federal Reserve Banks, 215, 216, Repurchase agreements, 214, 216, 218, 243, 245 218, 220, 222 Interest rates (See Interest on Federal Financial Institutions Examinadeposits) tion Council, 155, 181, 182, 185, 191 Reserve requirements (See Reserve Federal Financing Bank, 80, 102 requirements) Federal funds, interpretation, 73 Directors, Federal Reserve Banks and Federal Open Market Committee branches Audit, Open Market Account, 203 Legislative recommendation, 167 Continuing authorizations, review, 101 List, 270-88 Litigation, 175 Discount rates at Federal Reserve Meetings, 79, 264 Banks (See Interest rates) Members and officers, 264 Discounts and advances by Federal Policy actions, 79-149 Reserve Banks (See Loans) Federal Reserve Act, 79, 167, 168, Dividends, Federal Reserve Banks, 204, 174, 184, 187, 190 226, 229, 231 Federal Reserve Agents, 268-69 Federal Reserve Banks Earnings of Federal Reserve Banks (See Assessments for expenses of Board of Income of Federal Reserve Banks) Governors, 208, 226, 228, 230 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index 293 Federal Reserve Banks— Financial Institutions Regulatory and Continued Interest Rate Control Act of 1978, Bank premises, 204, 214, 216, 218, 70 223 Financial Institutions Supervisory Act Branches (See Branch banks) of 1966, 172, 184 Capital accounts, 215, 216, 218 Financial markets and monetary policy, Chairmen, deputy chairmen, 268, 269 12-21 Condition statement, 214-19 Financial Regulation Simplification Act Delegated authority, 185, 188, 191, 197 of 1980, 195 Directors, 167, 270-88 Float, 202 Dividends, 204, 226, 229, 231 Foreign banks, 75, 168, 179, 187 Examination or audit, 203 Foreign currencies Income and expenses, 203, 224, 228, Authorization and directive for opera- 230 tions, 79, 82-84, 103, 128 Interest rates, 76-78, 235 Federal Reserve earnings, 224 Loans, 214, 216, 218, 224, 242, 244 Review, 101 Officers and employees, number and Freedom of Information Act, 173 salaries, 222 Full Employment and Balanced Growth Operations, volume, 234 Act of 1978, 3, 28 Presidents and vice presidents, 268, 269, 270 Garn-St Germain Depository Institutions Pricing of services and developments Act of 1982, 67, 69, 70, 73, 152, 190 in payments mechanism, 199-203, Glass-Steagall Act, 169, 172, 174 224, 232 Gold certificate accounts of Reserve Profit and loss, 226 Banks and gold stock, 214, 216, Securities and loans, holdings and 218, 242, 244 earnings, 205 Training, 154, 164, 184 Home mortgage disclosure, 152, 155 U.S. government securities (See U.S. government securities) Income of Federal Reserve Banks, 203, Federal Reserve notes 224, 228 Condition statement data, 214-19 Individual retirement accounts, 71 Cost of issuance and redemption, 208 Insured commercial banks, assets and Interest paid to U.S. Treasury, 204, liabilities, 241 226, 229, 231 Interest on deposits (See also Interest Litigation, 174, 175 rates) Federal Reserve Reform Act of 1977, 167 Maximum rates payable on time and Federal Reserve System (See also Board savings deposits, table, 239 of Governors) Regulation Q, 67, 70, 187, 195 Banking supervision and regulation Interest rates (See also Interest on by, 178-94 deposits) Consumer affairs (See Consumer and Federal Reserve Banks community affairs) Changes, 76-78 Foreign currency operations (See Table on rates, 235 Foreign currencies) Interlocking relationships, 69, 196 Map, Federal Reserve Districts, 259 International Banking Act of 1978, 168 Membership, 194 International banking facilities, 187 Pricing of Federal Reserve services International banking operations, 68, and developments in payments 179, 187, 196 mechanism, 199-203, 224, 232 International developments, review, Training (See Training) 22-27 Federal Trade Commission Act, International Lending Supervision Act responsibilities under, 150, 155-59 of 1983, 177, 183 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

294 Index International Monetary Fund, 176, 183 Member banks—Continued Interpretations, 73, 74, 75, 151, 153, 194 Number, 241 Investments Reserve requirements (See Reserve Bank holding companies, 68, 73 requirements) Banks, by class, 241 Reserves and related items, 242-45 Federal Reserve Banks, 214, 216, 218 State member banks (See State mem- Foreign, by U.S. banking organiza- ber banks) tions, 187 Transfers of funds (See Transfers of IRAs (See Individual retirement accounts) funds) Mergers and consolidations, 185, 189, 246-57, 197 Keogh plan, 71 Monetary Control Act (See Depository Institutions Deregulation and Labor markets, 9 Monetary Control Act of 1980) Leasing, consumer, 151, 154, 163, 167, Monetary policy 198 Financial markets relative to, 12-21 Legislation (See also specific act) Reports to Congress, 28-61 Enacted, 176-77 Review of 1983, 3-11 Recommended, 166-69 Money market deposit accounts, 65, 71 Legislative recommendations Board of Governors, 151, 166-69 National banks (See also Member Regulations B, E, and Z, 164 banks) Litigation Assets and liabilities, 241 Bank holding companies, 170-71 Capital adequacy guidelines, 74, 182 Board procedures and regulations, Foreign branches, 187 challenges, 172-75 Number, 241 Loans (See also Credit) Negotiable order of withdrawal ac- Banks, by class, 241 counts, 71, 73 Commercial, interpretation, 73 Nonmember depository institutions Executive officers of member banks, Assets and liabilities, 241 69, 190, 197 Number, 241 Federal Reserve Banks Reserve requirements, 65 Discounts and advances, 214, 216, 218, 224, 242, 244 Over-the-counter stocks, 192, 193 Holdings and earnings, 205, 224 Interest rates, 235 Payments mechanism, developments, Volume, 214, 216, 218, 234, 242, 199-203 244 Policy actions Board of Governors Margin requirements Discount rates at Federal Reserve Securities credit, 67, 71, 72, 192-94, Banks, 76-78 195 Regulations (See Regulations) Table, 240 Statements and other actions, 74-76 Member banks (See also National Federal Open Market Committee banks) Authority to effect transactions in Assets, liabilities, and capital System Open Market Account accounts, 241 Domestic operations, 79-82, 85, Borrowings from Federal Reserve 94, 101, 104, 112, 122, 128, Banks (See Loans) 135, 141, 142, 148 International banking, 179, 187, 196 Foreign currency operations, 79, Loans to executive officers, 69, 190, 82-84, 103, 128 197 Review, 101 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index 295 Presidents and vice presidents of Fed- Regulations—Continued eral Reserve Banks X, Borrowers of Securities Credit, Conference of Presidents and Confer- 72, 192, 194, 195 ence of First Vice Presidents, Y, Bank Holding Companies and 269, 270 Change in Bank Control, 72, 189, List, 268 191, 197 Salaries of presidents, 222 Z, Truth in Lending, 73, 150, 152, Prices, 10 153, 154, 155, 159, 164-65 Pricing of Federal Reserve services Regulatory Flexibility Act, 195 and developments in payments Regulatory improvement and simplificamechanism, 199-203, 224, 232 tion, 67, 71, 72, 73, 192, 195-98 Profit and loss, Federal Reserve Banks, Repurchase agreements 226 Authority to purchase and to enter Publications and videotapes into, 79-81, 102-03 Consumer protection aids, 155 Bankers acceptances, 79-80, 214, 216, Examination manual, 182 218, 220 Over-the-counter stocks, 192 Federal agency securities, 79-81, 214, Securities Credit Transactions 216, 218, 220 Handbook, 194 U.S. government securities, 214, 216, 218, 220, 222, 242, 244 Reserve requirements, depository insti- Regulations (See also Regulatory im- tutions provement and simplification) Changes, 65-67, 71, 195 B, Equal Credit Opportunity, 152, Table, 236 160, 163, 164, 197 Reserves and related items, 242-45 C, Home Mortgage Disclosure, 152, Retirement accounts, 71 153 D, Reserve Requirements of Deposi- Salaries tory Institutions, 65-67, 71, 187, Board of Governors, 208 195 Federal Reserve Banks, 222 E, Electronic Fund Transfers, 154, Schools (See Training) 161, 164, 165 Securities (See also specific types) F, Securities of Member State Credit, 67, 68, 71, 72, 192-94, Banks, 190 195 G, Securities Credit by Persons Other Regulation, 192-94 than Banks, Brokers, or Dealers, Securities Exchange Act of 1934, 71-72, 67, 192, 193, 195 190, 192, 194 K, International Banking Operations, Special drawing rights, 214, 216, 218, 68, 187, 196 242, 244 L, Management Official Interlocks, State member banks (See also Member 69, 196 banks) M, Consumer Leasing, 154, 198 Applications by, 191 O, Loans to Executive Officers, Di- Assets and liabilities, 241 rectors, and Principal Sharehold- Capital adequacy guidelines, 74, 182 ers of Member Banks, 69, 191, 197 Consumer complaints against, 155-57 Q, Interest on Deposits, 67, 70, Control of, changes, 186 187, 195 Examination, 178, 179-82, 183-84 T, Credit by Brokers and Dealers, 68, Executive officers, loans to, 69, 71, 192, 193, 194, 195 190, 197 U, Credit by Banks for the Purpose Financial disclosures, 190 of Purchasing or Carrying Margin Mergers and consolidations, 185, Stocks, 67, 192, 193, 195 246-57 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

296 Index State member banks— Transfers of funds- Continued Continued Number, 178, 241 Electronic fund transfers, 154, 161, Stock market credit, 67, 68, 71, 72, 182, 200 192-94, 195 Federal Reserve operations, volume, Stock repurchases by bank holding 234 companies, 191 Negotiable order of withdrawal ac- Supervision and regulation (See Banking counts, 71, 73 supervision and regulation by Fed- Pricing of Federal Reserve services eral Reserve System) and developments in payments System Open Market Account mechanism, 199-203, 224, 232 Audit, 203 Truth in Lending Authority to effect transactions Act, 150, 151, 152, 159, 165 Domestic operations, 79-82, 85, 94, Regulation Z (See Regulation Z) 101, 104, 112, 122, 128, 135, 141, 142, 148 U.S. balance of payments, review, 22-27 Foreign currency operations, 79, U.S. government securities 82-84, 103, 128 Authority to buy, to enter into repur- Review, 101 chase agreements, and to lend, 79-81, 101-03, 141, 148-49 Thrift institutions, 167 Bank holdings, by class of bank, 241 Thrift Institutions Advisory Council, Federal Reserve Banks 267 Authority to buy directly from U.S. Time and savings deposits at federally Treasury, 80-81, 102 insured institutions, interest rates, Earnings, 205, 224 239 Holdings, 205, 214, 216, 218, 222, Trade, 68 242, 244 Training, 154, 164, 184 Open market transactions, 220 Transfers of funds Repurchase agreements, 214, 216, Check collection, 199, 200 218, 220, 222, 242, 244 FRB 1—11,500—0484 C Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis