Annual Report of the Federal Reserve Board, 1984

1984 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., June 21,1985 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 Seventy-First Annual Report of the Board of Governors of the Federal Reserve System. This report covers operations of the Board during calendar year 1984. 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 1984 3 INTRODUCTION 5 THE ECONOMY IN 1984 5 Household sector 7 Business sector 8 Government sector 8 Foreign sector 9 Labor markets 10 Prices 12 MONETARY POLICY AND FINANCIAL MARKETS 12 Monetary aggregates 17 Aggregate credit flows 20 INTERNATIONAL DEVELOPMENTS 22 U.S. international transactions 24 Foreign currency operations 26 MONETARY POLICY REPORTS TO CONGRESS 26 Report on February 7, 1984 47 Report on July 25, 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Part 2 Records, Operations, and Organization 67 RECORD OF POLICY ACTIONS OF THE BOARD OF GOVERNORS 67 Regulation D (Reserve Requirements of Depository Institutions) 67 Regulation E (Electronic Fund Transfers) 68 Regulation G (Securities Credit by Persons Other than Banks, Brokers, or Dealers), Regulation T (Credit by Brokers and Dealers), and Regulation U (Credit by Banks for the Purpose of Purchasing or Carrying Margin Stocks) 68 Regulation J (Collection of Checks and Other Items and Wire Transfers of Funds) 69 Regulation K (International Banking Operations) 70 Regulation T (Credit by Brokers and Dealers) 70 Regulation U (Credit by Banks for the Purpose of Purchasing or Carrying Margin Stocks) 70 Regulation Z (Truth in Lending) 70 Policy statements and other actions 72 1984 discount rates 78 RECORD OF POLICY ACTIONS OF THE FEDERAL OPEN MARKET COMMITTEE 78 Authorization for domestic open market operations 80 Domestic policy directive 81 Authorization for foreign currency operations 83 Foreign currency directive 84 Meeting held on January 30-31, 1984 92 Meeting held on March 26-27, 1984 100 Meeting held on May 21-22, 1984 106 Meeting held on July 16-17, 1984 115 Meeting held on August 21, 1984 122 Meeting held on October 2, 1984 128 Meeting held on November 7, 1984 136 Meeting held on December 17-18, 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

145 CONSUMER AND COMMUNITY AFFAIRS 146 Regulatory actions 148 Reduction of the regulatory burden 148 Improvements in enforcement 149 Community affairs and the Community Reinvestment Act 150 Collection of data 151 Compliance with consumer regulations 154 Economic impact of Regulation E 155 Complaints against state member banks 157 Unregulated practices 157 Community Reinvestment Act 158 Consumer Advisory Council 159 Legislative recommendations 161 LEGISLATIVE RECOMMENDATIONS 161 Bank holding company legislation 162 Increasing the number of Class C directors 162 Amendments to the Consumer Leasing Act 163 Federal Reserve Bank branches 163 Amendments to the International Banking Act 164 Return check notification 165 LITIGATION 165 Bank holding companies—Antitrust action Bank Holding Company Act—Review of Board actions 169 Other litigation involving challenges to Board procedures and regulations 172 LEGISLATION ENACTED 172 Repurchase agreements 172 Secondary Mortgage Market Enhancement Act of 1984 173 BANKING SUPERVISION AND REGULATION 173 Supervision for safety and soundness 180 Regulation of the U.S. banking structure 185 Enforcement of other laws and regulations 187 Federal Reserve membership 188 REGULATORY SIMPLIFICATION 188 Periodic review program 189 New regulatory actions 192 Regulatory impact studies 192 Informational services 194 FEDERAL RESERVE BANKS 194 Developments in the pricing of Federal Reserve Services and in the payment mechanism 198 Examination 198 Income and expenses 199 Federal Reserve Bank premises 199 Holdings of securities and loans 200 Volume of operations Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

201 EXPENSES, EMPLOYMENT, AND PRODUCTIVITY 201 Overall trends 204 Planning, budgeting, monitoring, and control 209 The budget for 1985 211 BOARD OF GOVERNORS 211 Financial statements 217 STATISTICAL TABLES 218 1. Detailed statement of condition of all Federal Reserve Banks combined, December 31, 1984 220 2. Statement of condition of each Federal Reserve Bank, December 31, 1984 and 1983 224 3. Federal Reserve open market transactions, 1984 226 4. Federal Reserve Bank holdings of U.S. government and federal agency securities, December 31, 1982-84 226 5. Number and salaries of officers and employees of Federal Reserve Banks, Decembers, 1984 227 6. Bank premises of Federal Reserve Banks and Branches, December 31, 1984 228 7. Income and expenses of Federal Reserve Banks, 1984 232 8. Income and expenses of Federal Reserve Banks, 1914-84 236 9. Revenue and expense of priced services at Federal Reserve Banks, 1984 and 1983 238 10. Operations in principal departments of Federal Reserve Banks, 1981-84 238 11. Federal Reserve Bank interest rates, December 31, 1984 239 12. Reserve requirements of depository institutions 241 13. Maximum interest rates payable on time and savings deposits at federally insured institutions 242 14. Margin requirements 243 15. Principal assets and liabilities, and number of insured commercial banks, by class of bank, June 30, 1984 and 1983 244 16. Reserves of depository institutions, Federal Reserve Bank credit, and related items—Year-end 1918-84, and month-end 1984 248 17. Changes in number of banking offices in the United States, 1984 250 18. Mergers, consolidations, and acquisitions of assets or assumptions of liabilities approved by the Board of Governors, 1984 260 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 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Introduction Nineteen eighty-four was another tain groups-—for example, teenagers year of substantial economic growth and blacks—remains well above the in the United States. Production and average. Sectors of the economy facemployment gains were large, making ing intense competition from abroad, the expansion of the last two years the such as agriculture and certain mining strongest cyclical upswing since the and manufacturing industries, have early 1950s. Moreover, the continued not participated in the rapid economvigor of the economy was accompa- ic expansion and have been under nied by signs of some further lower- strong financial stress. Strains also reing of inflationary expectations. Ag- main evident among financial institugregate price measures rose about 4 tions: the quality of loan portfolios at percent in 1984, about the same as some depository institutions has deduring the two preceding years. While teriorated, and the earnings of thrift prices of services continued to rise 5 institutions remain constrained by to 6 percent, prices of many goods low-yielding assets accumulated in were relatively flat, and underlying earlier years. Although it was not an wage trends seemed to be moderating. impediment to economic expansion in Among the monetary and credit ag- 1984, the exceptionally rapid growth gregates, growth rates of Ml and M2 in credit has meant that many housewere well within the target ranges holds and businesses have accumulatestablished by the Federal Reserve, but ed substantial indebtedness, often in growth rates of M3 and domestic non- short-term or variable-rate forms that financial debt exceeded their ranges. make borrowers especially vulnerable Credit growth in 1984 was the most to unexpected economic developments. rapid on record and much larger rela- Many of the problems afflicting tive to the expansion of gross national particular industries have causes and product than historical trends would complications that, at least in part, have suggested. must be handled in direct and specific The strong gains in overall activity ways. But it is also evident that the during the year drew attention away enormous imbalances in our federal from a number of continuing prob- fiscal posture and in our trade and lems, but those problems are nonethe- current account positions have aggraless real and serious. The overall rate vated the problems and made conof unemployment is still uncomforta- structive solutions to them much bly high, and joblessness among cer- more difficult. In an expanding economy requiring additional private credit, the need to finance the large federal NOTE. This discussion of economic and fi- deficits has contributed to the presnancial developments in 1984 is adapted from sures that have held real interest rates the Monetary Policy Report to the Congress at historically high levels. The failure Pursuant to the Full Employment and Balanced to deal with budgetary deficits also Growth Act of 1978 (Board of Governors, February 1985). has sustained doubts in the minds of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Introduction the public about the ability of the ment. But, at the same time, the government to continue to curb infla- strong demand for the dollar has tion over the long run. driven its value on foreign exchange The large federal deficits are mir- markets to extremely high levels. As rored in our external imbalance. The the dollar has appreciated, the decomparatively high real rates of re- mand for our exports has suffered turn offered on dollar-denominated and our purchases of imported goods assets have attracted many foreign in- have increased dramatically; the revestors, and U.S. lending abroad has sult has been strong competitive presbeen reduced. Other forces stimulat- sures in a number of sectors and calls ing capital inflows have been at work for protectionist measures. Moreover, as well, including political and eco- the sizable capital inflows have led to nomic uncertainties in other countries mounting financial claims of foreignand the relative stability and vigor of ers that the nation must be prepared our economy. The shift in capital to deal with in future years through flows has supplemented domestic sav- reducing imports or increasing exing and helped finance the federal ports, either of which will lower government deficit and private invest- domestic consumption. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Economy in 1984 The economy recorded major gains in ployment in the economy as well as 1984, with real gross national product the adjustments of wages in some secup nearly 6 percent and the unemploy- tors to the realities of forces associment rate down more than 1 percen- ated with deregulation and foreign tage point over the year. The growth competition. Wage changes also rein output and employment was excep- flected the favorable feedback effect tionally strong in comparison with of lower inflation on anticipatory or other expansions since the Korean catch-up pay demands. Finally, mod- War. But even more striking was the erately rapid increases in nonfarm great rise in domestic spending, which business productivity helped to hold again outstripped growth in domestic unit labor costs to only a modest rise. production. Over the course of the year such spending rose about 6V2 Household Sector percent in real terms. Consumers and businesses purchased greatly increased The household sector continued to quantities of imported goods, whose benefit in 1984 from the economic exrelative prices were lowered by the ap- pansion. Adjusted for inflation, the preciation of the dollar in exchange rise in disposable income from the markets, and the U.S. trade deficit fourth quarter of 1983 to the fourth reached record proportions. quarter of 1984 was 5Vi percent, sur- Economic growth was extraordi- passing the large gain in 1983. This narily rapid in the first half of 1984 strong increase in income supported a and then slowed abruptly at about rapid rise in spending for consumer midyear. Although some slowing was goods even as the personal saving rate widely anticipated, the abruptness of rose. the change raised questions about the Outlays by the household sector in continuing strength of expansionary this expansion have been tilted more forces. However, during the last few toward durable goods than has been months of the year, output and em- typical. In the 1980-82 period, a time ployment were clearly rising, though of relatively slow growth in income at a more moderate pace than earlier and of high unemployment, consumin the year. ers curtailed their discretionary pur- The economic gains in 1984 were chases of household goods. Since the achieved without a pickup in infla- end of 1982, however, strong employtionary pressures, partly because of ment and income growth and rising the rise in the exchange value of the consumer confidence have been transdollar. Ample availability of indus- lated into an appreciable restocking trial capacity here and abroad helped of household durables. to contain price increases. Labor cost The strength of automobile purpressures also were limited, as wage chases in 1984 was a part of this reincreases were slightly smaller than a stocking process. As the stock of existyear earlier. Labor markets continued ing autos has aged, replacement deto reflect the still considerable unem- mand has grown, and recent reduc- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

6 The Economy in 1984 Indicators of Fxonomic Performance Percent change, Q4 to Q4 Percent change, Q4 to Q4 Real GNP Real gross domestic purchases ; + -0 Percent change, Q4 to Q4 Percent change, Q4 to Q4 IjReal personal income and consumption Real business fixed investment 6 Producers' durable equipment -- Disposal 20 income + expenditures - 0 Annual rate, millions of units Billions of 1972 dollars rotal private housing starts Change in real business inventories A i 1 2.0 I I 15 L_L 5 Percent Percent change, Q4 to Q4 Jnemployment rate GNP prices 1980 1982 1984 1980 1982 1984 All data are seasonally adjusted, and those that in- Labor; the other data are from the U.S. Department volve dollar amounts are in 1972 dollars. The un- of Commerce, employment data are from the U.S. Department of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Economy in 1984 7 tions in gasoline prices have lowered 1983. In fact, the rise in gross capital operating costs. Automobile sales in outlays by business over these two 1984 rose to lOVi million units, the years combined was much larger than highest level since 1979. The foreign that in any other economic expansion share of the market shrank, largely since World War II. Profits in the because of limitations on Japanese nonfinancial corporate sector were up imports during a period of expanding substantially in 1984, although by sales. Indeed, demand for domestic year-end the level had fallen back a autos proved so strong that producers bit because of the slowing in sales had difficulty in supplying many of growth. the more popular models, even though Expansion in business spending for auto companies operated some fac- fixed investment was strongest in the tories at nearly full capacity over first half of the year but continued at most of the year. Total auto produc- close to a double-digit pace in real tion was up 14 percent from the pre- terms in the second half. For the year ceding year despite brief strikes in the as a whole, outlays on both equipautumn. ment and structures showed large Spending for new homes slowed gains. The vigor of total spending reover the course of 1984; rising mort- flected several factors, including the gage interest rates through midyear more favorable tax laws enacted in were a factor reducing housing activi- 1981, the desire to take advantage of ty. However, declines in interest rates technological advances, and the furduring the fall led to some signs of ther narrowing of the margin of unimprovement in the housing sector at used factory capacity stemming from year-end. From the fourth quarter of strong growth in demand. Continued 1983 to the fourth quarter of 1984, competitive pressure from foreign residential construction outlays were producers provided additional imup 2lA percent in real terms after an petus for rapid modernization. At the extremely rapid advance in 1983. For same time, many U.S. producers of 1984 as a whole, 1.7 million new capital equipment, especially those housing units were started; this was outside the high-technology area, did below the peak rates in the 1970s but not benefit fully from this spending. a marked improvement over the per- Instead, foreign manufacturers capformance of the first years of the tured an increasing share of capital 1980s, as housing demand continued goods purchased by U.S. firms; for to be supported by favorable demo- equipment, this share—approximategraphic factors and expanding in- ly 25 percent—was nearly twice that comes. Moreover, relatively stable of the late 1970s. house prices and the growing use of Business accumulated inventories adjustable-rate mortgages made home in 1984 after reducing stocks in the purchases more attainable for many preceding two years. In real terms, households. business inventories rose $25 billion. The buildup of stocks was especially large in the first half of the year, Business Sector when the expansion of final demand Business spending for plant and equip- was especially rapid. When sales ment increased more in 1984 than in growth slackened in the summer and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

8 The Economy in 1984 autumn, businesses quickly cut back Government Surpluses and Deficits on orders and production to avoid Billions of dollars severe imbalances. Federal government Some of the nation's basic industries remained under marked financial strains, in many cases related to the high exchange value of the dollar. Farmers continued to face less favor- 100 able export conditions in 1984 than in much of the previous decade, land prices fell further on average, and 200 farm income remained depressed. As a result, farmers with large debts remaining from the late 1970s continued State and local government to face serious debt-servicing prob- 10 lems. The metals and agricultural implement industries and some other equipment industries also still had significant financial problems. Government Sector 1980 1982 1984 The expanding economy lifted federal The data on the federal government deficit are for government receipts in 1984. At the fiscal years and are on a unified budget basis; they are from the U.S. Department of the Treasury. same time, growth in outlays was lim- The data on state and local governments are for ited by further declines in recession- operating budgets. They are on a national income acrelated expenditures and by a drop in counts basis, and they come from the U.S. Department of Commerce. agricultural support payments. Nonetheless, the federal budget deficit revices rose 3 percent in 1984 after two mained enormous, nearly 5 percent of years of no change. The renewed GNP and larger than total domestic growth in such spending followed an personal saving. Moreover, at the end appreciable improvement in the fiscal of the year the deficit was again rising. position of state and local govern- Federal government purchases of ments. These units had a sizable opergoods and services, the component of ating and capital surplus in 1983 and the budget that directly adds to GNP early 1984 owing to the economic and accounts for about a third of recovery as well as to increases in tax total federal outlays, rose strongly rates. last year. Excluding changes in farm inventories held by the Commodity Foreign Sector Credit Corporation, federal purchases were up 53A percent after adjustment The appreciation of the dollar over for inflation. A major addition to the last four years contributed directly federal purchases came from defense to the imbalance between exports and spending, which increased 7 percent imports in 1984. On a trade-weighted in real terms. average basis, the dollar climbed a At the state and local government further 12 percent during the course level, real purchases of goods and ser- of the year, bringing the cumulative Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Economy in 1984 9 appreciation since the end of 1980 to rate was 7.2 percent in the fourth 68 percent. The relative dynamism of quarter, more than 1 percentage point the U.S. economy and success in below the rate for the fourth quarter curbing inflation helped attract of 1983. Indeed, since the recession capital from abroad. At the same low in late 1982, nonfarm payroll time, the relatively slow economic growth elsewhere, together with economic and political uncertainties Labor Market Conditions in various countries, also may have Millions of persons contributed to the dollar's appreciation throughout the year. Payroll employment Notwithstanding a further weakening of the international competitive position of U.S. firms owing to the dollar's appreciation, and despite the sluggishness of foreign economies, the volume of U.S. merchandise exports increased 9 percent in 1984. Percent o\ change from year earlier Economic growth in many developing Union settlements and aggregate countries, oil producers as well as wage change others, was limited by their debt- 10 servicing problems, and demand by Average hourly those countries for U.S.-produced earnings index goods remained generally depressed. The vigorous expansion of the U.S. economy and the strength of the dol- Percent change, Q4 to Q4 lar pushed the volume of merchandise Compensation per hour imports sharply higher. Consumer goods, materials, and capital equip- 10 ment all shared in the increase, and the 1984 merchandise trade deficit rose to about $110 billion. In addition to the growing trade deficit, net service receipts were reduced and the current account deficit, which was Output per hour $42 billion in 1983, reached about $100 billion in 1984. Labor Markets Developments in labor markets continued to be favorable during the sec- 1980 1982 1984 ond year of expansion. Reflecting the Payroll employment covers the total nonfarm strength of activity and improved em- sector; union settlements cover union contracts of 1,000 or more workers in private industry; the average ployment prospects, growth of the hourly earnings index covers production and nonlabor force picked up in 1984. But the supervisory workers in the private nonfarm sector; number of new jobs expanded even and hourly compensation and output cover the nonfarm business sector. All data are from the U.S. more rapidly, and the unemployment Department of Labor. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

10 The Economy in 1984 employment has increased by nearly 7 nonfarm business sector increased million. 2Vi percent, in part reflecting a cycli- In 1984, employment growth con- cal adjustment to higher levels of outtinued to be widespread across indus- put and apparently some improvetries. The trade and service sectors ment in the underlying trend rate of each added more than 1 million jobs, growth from the very slow pace of the and construction employment also 1970s. The combination of moderate showed a gain, in large part because increases in compensation and favorof a rise in nonresidential building. able developments in productivity Government employment was up a held down cost pressures on prices; quarter of a million, reflecting the unit labor costs rose somewhat less rise in spending by state and local than 2 percent over 1984, less than a units. The manufacturing sector, fifth of the rate in 1979 and 1980. which has borne the brunt of the increase in foreign competition, regis- Prices tered a large gain of almost three During 1984, the consumer price index quarters of a million in 1984; even so, rose 4 percent, and the implicit GNP the level of manufacturing employdeflator rose 3lA percent. The inment remained below its prerecession creases in these broad indexes reprepeak. sent little change from inflation rates Wage developments in 1984 were that have prevailed since the beginmore favorable to the control of inning of the expansion. The producer flation; even though labor market price index for finished goods, which slack was reduced substantially furexcludes the prices of services, rose ther during the year, wage rates inless than 2 percent last year; basic creased less than in 1983. The employment cost index, a comprehensive measure of change in wages and bene- Prices fits, rose just 4 percent in 1984, nearly Percent change, Dec. to Dec. 1 percentage point less than the year Consumer earlier. Moreover, major collective bargaining agreements during the year showed no acceleration in nominal wage rates, even in those industries with improved economic conditions. These wage developments suggest continued moderation of inflation expectations; to an increasing degree, workers and managers appear to be Producer focusing on improving job security 12 and on enhancing productivity, often in an attempt to remain competitive with foreign producers. Productivity increases in 1984 were substantial in the first half of the year, when output grew rapidly, and they helped restrain overall cost pressures. Over the course 1980 1^2 i 984 of the year, labor productivity in the The data are from the U.S. Department of Labor. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Economy in 1984 11 commodity prices, which had ad- jumped sharply because farm supplies vanced more than 30 percent early in were limited by the 1983 summer 1983, fell during most of 1984. drought and a winter freeze. How- The relative softness of demand in ever, with more favorable harvests world markets and the strength of and sagging export volume, supplies the dollar against foreign currencies again became plentiful as the year played a large role last year in holding progressed. down prices of basic commodities. The increase in consumer prices Energy prices in particular, which other than food and energy was little have been a major factor in overall changed from a year earlier. Prices of inflation for more than a decade, services rose more rapidly in 1984 moved down. Since 1981 the weak- than in 1983, although the rate of inness of world demand, together with flation in the sector remained well conservation measures and additions below the rates recorded in the early to oil production capacity in many 1980s. The rise in consumer goods countries, has restrained energy prices slowed appreciably, in part prices. because of the relatively small in- Food prices at the retail level rose crease in prices of imported goods about in line with overall prices in and the accompanying competitive 1984. Early in the year, food prices pressures on domestic products. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

12 Monetary Policy and Financial Markets Monetary policy in 1984 aimed at during the latter part of the cyclical supporting sustainable economic downswing and early phase of the growth within the context of long- economic recovery. However, all of term progress toward price stability. the monetary and credit measures The target growth ranges chosen for continued to be evaluated in light of the monetary and credit aggregates by the outlook for the economy and for the Federal Open Market Committee domestic and international financial in February 1984 and reaffirmed in markets. July were Vi to 1 percentage point below those set for 1983. Measured Monetary Aggregates from the fourth quarter of 1983 The actual growth rate of Ml over through the fourth quarter of 1984, 1984 was 5.2 percent, somewhat bethe ranges for the monetary aggrelow the midpoint of the target range, gates were 4 to 8 percent for Ml and 6 and M2 increased 7.7 percent, a bit to 9 percent for both M2 and M3. The above the midpoint of its range. associated monitoring range for total Growth of M3, however, at 10.5 perdebt of the domestic nonfinancial sec- cent, exceeded its range.1 The relator was fixed at 8 to 11 percent. tively wide divergence between the Underlying these objectives was the growth rates for M2 and M3 reflected Committee's expectation that the spemainly the substantial issuance of cial factors distorting monetary growth large certificates of deposit (CDs) and rates in 1982 and 1983 would be less other managed liabilities by thrift important in 1984 and that relationinstitutions and commercial banks, ships among the monetary aggregates which faced heavy credit demands. —particularly Ml—and economic ac- The behavior of Ml velocity in 1984 tivity and inflation would be more was broadly consistent with past cycliconsistent with historical trends and cal patterns. In contrast to its unusual cyclical patterns. Portfolio adjustweakness in the previous two years, ments associated with the introducthe velocity of Ml increased 4 percent tion of new deposit accounts and with over 1984, a little above the average the steep drop in interest rates during rate of growth during the second year the 1982 recession appeared to have of previous economic expansions. The ended. Furthermore, the economic velocity of M2 increased 1 Vi percent, expansion seemed to be reducing unreversing two consecutive yearly decertainties about employment and inclines. The strengthening of velocity come prospects that earlier had boostover 1984 apparently reflected, in ed demands for liquid precautionary balances. Over the year, the evidence increasingly suggested that Ml was in fact 1. The figures cited for the monetary aggrebehaving more in line with historical gates are based on revisions in benchmarks and experience. As a result, this aggregate in seasonal adjustment factors early in 1985. Before those revisions, the 1984 increases were was given more weight in policy immeasured at 5.0 percent for Ml, 7.5 percent for plementation than had been the case M2, and 9.9 percent for M3. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets 13 part, some unwinding of the precau- Monetary Aggregates, Nonfinancial tionary and other motives that had Sector Debt, and Reserves swelled demands for liquid assets in Billions of dollars 1982 and early 1983; it also appears to have reflected the rise of short-term interest rates in the first part of the year and, in the case of M2, the abatement of the dramatic inflows to money market deposit accounts that had been associated with the initial authorization of these accounts. Demands for Ml balances and for bank reserves to support deposit growth were robust early in the year as the economy expanded rapidly. Credit demands also were very strong, and market interest rates began rising even as the Federal Reserve through open market operations was keeping the degree of pressure on bank reserve positions unchanged. In early spring, with credit and money demands continuing unabated,2 and with economic growth continuing at an extraordinary pace, the FOMC adopted a posture of somewhat greater restraint toward supplying reserves, Total domestic nonfinaniiciSnecuTaebt and both short- and long-term inter- 5900 est rates rose further as banks relied more heavily on credit at the discount 5600 window to meet their reserve needs. Borrowing for adjustment and sea- 5300 sonal purposes increased to about $1 billion in March and April after averaging about $650 million during the first two months of the year. In April the discount rate was raised Vi percentage point, to 9 percent, to bring it into better alignment with short-term market rates. Despite the absence of any further tightening of reserve availability by 1984 the Federal Reserve, pressures on pri- The ranges adopted by the FOMC for the monetary aggregates and for total debt of the domestic nonfinancial sector were for the period from 1983:4 to 1984:4. The reserve aggregates have been adjusted to 2. Annual seasonal and benchmark revisions remove discontinuities associated with changes in to the monetary aggregates subsequently lowreserve requirements. Nonborrowed reserves include ered somewhat the growth of Ml in the first extended credit. The shaded area is adjustment and half of 1984 relative to what was estimated dur- seasonal borrowing, excluding borrowing by Conti- Digitizedi nfog rt FheR ApeSrEioRd . nental Illinois Bank beginning in May 1984. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

14 Monetary Policy and Financial Markets vate short-term interest rates intensi- ened and as some banks adopted fied around early May in reaction to more cautious lending and funding the well-publicized liquidity problems policies in light of the strains on of Continental Illinois Bank.3 Uncer- financial markets. tainties related to the international Initially, the slowing in Ml was not debt situation also added to market resisted, because it reversed a spurt concerns. In this environment, quality that had brought Ml growth well differentials between yields on private above the midpoint of the FOMC's money market instruments and Trea- target range. However, by late August sury securities widened substantially. and early September, with evidence While growth of Ml early in the of much slower economic growth, year remained in the upper part of the financial tensions high, and the dollar FOMC's target range, M2 increased rising rapidly on foreign exchange at a pace slightly below the midpoint markets, the Federal Reserve moved of its range even as the economy ex- to lessen the degree of restraint on panded rapidly. Growth of M2 rela- bank reserve positions. That process tive to income may have been damped continued through much of the rest by substantial inflows to individual of the year. Borrowing at the discount retirement accounts and Keogh ac- window receded, reaching levels of counts, which are excluded from the about $575 million by late 1984. Total monetary aggregates. Also, as market reserves and nonborrowed reserves, interest rates firmed, sizable spreads which had shown little expansion developed between these rates and since June, increased markedly in the yields on retail deposits and money final two months of the year. market mutual funds, probably en- Mirroring the easing of reserve couraging some investors to place market conditions, short-term interest funds directly in credit market in- rates dropped considerably from their struments. Meanwhile, M3 pushed late-summer highs. Moreover, quality above its longer-run range as banks spreads on various money market inand thrift institutions issued large struments returned to normal ranges CDs and other managed liabilities to as the Continental Illinois Bank probaccommodate rapidly rising credit lem remained tractable and progress demands. was made in Latin American debt After midyear, and particularly negotiations. Responding to the produring the summer, economic expan- vision of reserves and the reduced sion slowed markedly, tending to re- rates on alternative outlets for liquid duce transaction demands for money. funds, Ml-type balances rose rather Growth of M3, though remaining sharply in late 1984. Growth of M2 somewhat above the upper limit of its also was very rapid as open market range, also moderated as demands interest rates fell below average yields for short-term business credit slack- on money market deposit accounts, small-denomination time deposits, and money market mutual fund shares. 3. Large borrowing at the discount window The easing in financial markets by Continental Illinois Bank, beginning in May, during the second half of 1984 was was offset in terms of its impact on overall reserve supplies through open market operations. reflected in, and to an extent en- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets 15 Reserves, Money Stock, and Debt Aggregates Annual rate of change based on seasonally adjusted data unless otherwise noted, in percent' 1983 1984 Item 1982 1983 1984 Q4 Ql Q2 Q3 Q4 Depository institution reserves2 Total 6.1 6.5 5.7 .8 7.7 8.6 6.8 -.7 Nonborrowed 7.0 5.9 -4.8 8.2 9.0 -10.8 -44.6 30.7 Required 5.7 6.3 5.3 .3 5.3 10.3 6.6 -1.5 Monetary base3 7.6 9.3 7.1 7.8 9.5 7.0 7.2 3.9 Concepts of money4 Ml 8.8 10.4 5.2 6.3 6.2 6.5 4.5 3.4 Currency and travelers checks . 8.2 10.4 7.2 10.8 8.2 7.5 7.3 5.0 Demand deposits .9 2.7 1.1 -.5 2.0 3.3 .3 -1.0 Other checkable deposits 34.0 28.5 10.7 14.3 11.7 11.3 9.0 9.1 M2 9.1 12.2 7.7 8.4 7.2 7.1 6.8 9.0 Non-Mi component 9.3 12.8 8.5 9.0 7.5 7.2 7.6 10.8 MMDAs (n.s.a.), savings, and small-denomination time deposits 6.2 18.1 7.6 8.0 8.2 8.9 4.8 7.9 General-purpose and broker/dealer money market mutual fund assets (n.s.a.) 31.1 -26.3 17.2 -1.2 9.8 15.5 10.6 29.1 Overnight RPs and Eurodollars (n.s.a.) 19.4 31.7 7.1 24.6 23.1 .7 2.8 1.4 M3 10.0 10.0 10.4 9.8 9.2 10.5 9.5 11.0 Non-M2 component 13.6 1.1 22.2 16.0 18.2 24.9 20.3 18.9 Large-denomination time deposits 10.1 -2.0 26.1 19.6 20.7 30.4 25.7 18.8 Institution-only money market mutual fund assets (n.s.a.) 46.7 -16.6 33.6 17.4 11.1 8.1 9.7 97.4 Large-denomination term RPs (n.s.a.) -2.0 39.1 45.6 57.1 30.8 54.2 33.4 39.6 Term Eurodollars (n.s.a.) . 21.3 8.2 -8.2 -10.0 5.4 7.1 -22.1 -23.0 Domestic nonfinancial sector debt 9.1 10.8 13.4 10.9 13.1 13.1 12.5 12.6 Federal 17.3 21.5 15.9 14.6 16.6 13.1 14.7 15.6 Nonfederal 7.2 8.0 12.7 9.9 12.1 13.1 11.8 11.7 1. Changes are calculated from the average amounts withdrawal and automatic transfer service accounts outstanding in each quarter. at depository institutions, credit union share draft ac- 2. Data on reserves and the monetary base incorpo- counts, and demand deposits at thrift institutions. M2 rate adjustments for discontinuities associated with is Ml plus money market deposit accounts (MMDAs); the implementation of the Monetary Control Act and savings and small-denomination time deposits at all other regulatory changes to reserve requirements. depository institutions, including retail repurchase 3. The monetary base consists of total reserves plus agreements (retail RPs), from which have been subrequired clearing balances and adjustments to com- tracted all individual retirement accounts (IRAs) and pensate for float at Federal Reserve Banks plus the Keogh accounts at commercial banks and thrift insticurrency component of the money stock less the tutions; taxable and tax-exempt general-purpose and amount of vault cash holdings of thrift institutions broker/dealer money market mutual funds, excluding that is included in the currency component of the IRAs and Keogh accounts; overnight and continuingmoney stock plus, for institutions not having required contract RPs issued by commercial banks; and overreserve balances, the excess of current vault cash over night Eurodollars issued to U.S. residents by foreign the amount applied to satisfy current reserve require- branches of U.S. banks worldwide. M3 is M2 plus ments. large-denomination time deposits at all depository 4. Ml consists of currency in circulation; travelers institutions; assets of institution-only money market checks of nonbank issuers; demand deposits at all mutual funds; large-denomination term RPs issued by commercial banks other than those due to domestic commercial banks and thrift institutions; and term banks, the U.S. government, and foreign banks and Eurodollars held by U.S. residents in Canada and the official institutions, less cash items in the process of United Kingdom and at foreign branches of U.S. collection and Federal Reserve float; and other check- banks elsewhere. able deposits, which consist of negotiable orders of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

16 Monetary Policy and Financial Markets couraged by, two reductions in the clined in the second half of the year, discount rate, first to SVi percent in in part reflecting some moderation of November and then to 8 percent in inflationary expectations. But for the December. By year-end, short-term year as a whole, most long-term rates interest rates were 2Vi to 3 Vi percent- declined by less than Vi percentage age points lower than they had been point and remained above their earlier during the summer, 3A to 1 Vi percent- cyclical lows. The still relatively high age points below their levels at the level of long-term rates appears to be beginning of the year, and in some influenced by the continuing budgetcases near their cyclical lows of early ary uncertainties, current strong de- 1982. mand for credit, and lingering, though Long-term interest rates also de- lessened, fears of inflation. Interest Rates Percent per annum Short-term A IT ' 18 14 Long-term A rated utility bonds Recently offered State and local government bonds 1980 1982 1984 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 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets 17 Aggregate Credit Flows ond half of the year, merger financing slowed and the decline in interest Total debt of the domestic nonfinan- rates contributed to some movement cial sector increased 13.4 percent toward longer-term debt; however, from the fourth quarter of 1983 to the the maturities of new issues tended to fourth quarter of 1984, a rate outside be much shorter than they had been the monitoring range of 8 to 11 per- in previous years, and many offerings cent. An unusually large volume of carried provisions that essentially mergers and related activity involving transformed these obligations into nonfinancial corporations, including short-term or variable-rate debt. leveraged buyouts, accounted for Gross issuance of new equity in 1984 about 1 percentage point of the weakened as stock prices declined growth of overall debt. early in the year and then failed to Even after allowing for the unusu- surpass earlier highs when they rallied ally large volume of merger-related in the summer. Meanwhile, nonfinanborrowing, it is clear that total credit cial corporations liquidated about demands were exceptionally strong in $75 billion of equity in the merger 1984. Federal debt expansion, at process, with much of it replaced, at nearly 16 percent, was unprecedented least for a time, with short-term debt. for the second year of an economic In addition, they retired more than expansion, both in absolute terms $10 billion of equity through share and in relation to income. Federal repurchases, frequently in defensive government tax and spending policies maneuvers to ward off unfriendly have greatly stimulated aggregate de- takeover attempts. After accounting mands for goods and services, but in for the retirement of equity associcredit markets the deficits have added ated with merger activity and share strongly to the demands for funds repurchases, the net issuance of stock and have been one important force was decidedly negative in 1984. keeping interest rates high. Total debt As a result of these financing patof domestic nonfinancial sectors terns, the traditional balance-sheet other than the federal government ratios used to assess aggregate busigrew about 11 Vi percent (abstracting ness financial strength worsened over from growth of merger-related debt the year: the ratio of loans and shortissues), again a rate that was faster term paper to total debt of nonfinanthan, though much closer to, the rate cial corporations rose, as did the ratio at comparable stages of previous of debt to equity. recoveries. Growth of household indebtedness Businesses relied heavily on external picked up noticeably last year, and sources of credit in 1984 to finance consumer installment debt as a share the increases in capital expenditures of disposable income moved close to that outstripped the growth in inter- the peak set in the late 1970s. In the nally generated funds. They favored home mortgage sector, variable-rate shorter-term borrowing in the first instruments became increasingly pophalf of 1984, as they elected to fi- ular. Adjustable-rate mortgages nance mergers initially through bank (ARMs) accounted for almost twoloans and commercial paper, and as thirds of the number of conventional high long-term interest rates dis- first mortgages originated at major couraged bond issuance. In the sec- institutions in 1984, up considerably Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

18 Monetary Policy and Financial Markets from only one-quarter the previous Nonetheless, the proportion of probyear. lem loans in the home mortgage mar- Thrift institutions, in particular, ket has not receded from its recession preferred to acquire ARMs rather high, and there is some special conthan fixed-rate mortgages in an at- cern about prospects in this area owing tempt to reduce their acute exposure to the added risk exposure of hometo interest rate risk. The widespread owners who took on mortgages carryacceptance of ARMs by consumers ing adjustable features, especially was attributable partly to substantial mortgages made with sizable initial initial rate advantages offered on concessions on interest rates. The sus- ARMs compared with fixed-rate mort- tained high level of mortgage loan gages, as well as to other features that delinquencies appears attributable limited borrower exposure to higher not so much to adjustable-rate loans future interest payments, at least for as to a combination of still high unseveral years. Large initial rate dis- employment and real estate prices counts became less prevalent after the that have been more stable than some adoption of somewhat tighter stand- borrowers anticipated. ards both for purchases by federal Borrowing by state and local govcredit agencies and for the under- ernments in 1984 matched the strong writing of ARMs by private mortgage 1983 volume. Financing activity in insurers. Yet, despite both the shift the municipal bond market was boltoward ARMs during 1984 and in- stered, in addition, by heavy issuance creased consumer and business lend- of industrial development bonds ing, the assets of thrift institutions (IDBs). Tax-exempt offerings were remained heavily concentrated in in- relatively light over the first half of struments having relatively low yields. the year as authority to issue single- The second year of strong growth family housing revenue bonds lapsed in income and spending was accom- and as the market anticipated the panied by significant changes in retroactive imposition of ceilings on household balance sheets. Late in the issuance of IDBs. But volume re- 1983 and in the first half of 1984, bounded in early summer after pasfinancial assets declined relative to in- sage of the Deficit Reduction Act, come primarily because of the slug- which reauthorized housing bonds gish performance of stock prices, and and stimulated a flood of issues reversed a portion of the strong gains toward year-end to avoid stricter made earlier in the recovery. How- rules for IDBs and student loan bonds ever, the subsequent rise in equity —effective January 1, 1985. prices helped to restore household Foreign savings financed a large asset positions to their previous high share of the domestic borrowing in levels. 1984. Net inflows of capital from Despite the rise in indebtedness, abroad were more than double the there were few signs of increased fi- already advanced pace of 1983, thus nancial stress in the household sector. supplementing domestic saving and The incidence of payment difficul- enabling the massive federal deficits ties on consumer installment debt re- to be financed at the same time that mained historically low, and home private investment expanded rapidly. mortgage delinquency rates were about Banks continued to intermediate subunchanged for the year as a whole. stantial amounts of these inflows, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy and Financial Markets 19 and sales of Eurobonds by U.S. cor- obligations and from selective sales of porations reached record levels. assets of the merged companies. Direct investment in the United States Strains on some sectors of the econalso was very strong and included omy, as well as the effects of overly several large takeovers of domestic aggressive lending policies by some firms by foreign corporations. institutions, continued to be reflected With strong demands for business, in relatively high levels of nonperreal estate, and consumer loans, total forming and other troubled loans at a loans at commercial banks grew more number of depository institutions. As than 14 percent. Given only moderate the year wore on, there were signs of inflows to core deposits in the face of more forceful efforts to deal with this brisk growth in loans, commer- these problems and their consecial banks increased their outstanding quences. Loan-loss provisions were CDs in 1984 by more than 13 percent, significantly increased, and steps after having allowed a large volume were taken to correct weaknesses in of CDs to run off during 1983. Re- credit standards. The largest bank flecting a wave of bank-financed holding companies generally improved mergers, credit growth at banks was their capital positions over the year, especially rapid during the first half partly in response to supervisory of last year. The bulk of the CD issu- guidelines that raised capital ratios. ance was concentrated in this period These approaches will take time to and likely would have been even bear full fruit, and progress in greater had not banks also borrowed strengthening balance sheets will deheavily from their foreign offices. In pend on reasonable profitability as the second half, loan expansion slack- well as on developments external to ened appreciably, and growth in large the banking system. In that connectime deposits tapered off, as some tion, the strains on agriculture, on earlier merger-related loans were re- heavily indebted foreign countries, paid with the proceeds from issuance and on some sectors of the energy inof commercial paper and other debt dustry pose continuing challenges. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

20 International Developments The year 1984 was marked by con- the growth of GDP during the subsetinued economic recovery in foreign quent months more than made up the industrial countries and a further loss. In the United Kingdom, where reduction in their rate of inflation. the coal miners' strike began in During the year, the situation im- March and was not settled until early proved for several developing coun- 1985, real output fell during the sectries with large debts, but the adjust- ond quarter of the year but rose slowment process is far from complete. ly through the second half. Although stronger demand from The moderate pace of the recovery abroad contributed to a 9 percent in- abroad was insufficient to reduce uncrease in the value of U.S. exports, employment rates in foreign industhe rapid growth in the U.S. economy trial countries. Unemployment rates and the lagged impact of the previous in Canada, Germany, and Japan reappreciation of the dollar resulted in mained essentially unchanged from a much larger increase in U.S. im- their very high levels at the end of ports and a current account deficit of 1983, while in France and the United about $100 billion. Despite the improvement in economic performance abroad, the attractiveness of dollar GNP and Prices assets and the strength of the U.S. 1970=100 economy led to a substantial net in- Gross national product flow of private capital into the United States and a further 12 percent appreciation of the dollar; this brought the dollar's trade-weighted appreciation since the fourth quarter of 1980 140 to 68 percent. The pace of economic activity continued to vary considerably among the industrial countries. Japan, Percent change from previous year whose economy was stimulated by Consumer price index strong export demand from the 15 United States and elsewhere, accounted for much of the average advance in the rate of real growth in foreign industrial countries in 1984. In West Germany and the United United States Kingdom, major strikes interrupted growth in real output. The metal- 1980 1982 1984 workers' strike in Germany, which Foreign data are multilaterally weighted averages lasted from May to July, caused a for 10 industrial countries, using 1972-76 total trade substantial drop in real gross domes- weights. Data for the United States are from the U.S. Detic product during that period, but partments of Commerce and Labor. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

International Developments 21 Kingdom unemployment rates rose. recovery, or at least a slower rate of The high unemployment rates abroad, decline, of imports. Such developparticularly in Europe, also reflect ments, together with continued modstructural problems in labor markets. erate capital inflows, contributed to The rate of inflation in foreign in- sizable increases in the international dustrial countries declined somewhat reserves of some of these countries further in 1984. The moderate pace of and to prospects of reduced demands the recovery, idle capacity, and the for extraordinary external financing softness in world commodity markets in the future. At the same time, some through much of the year all contrib- of those countries managed to achieve uted to restraining price increases, de- positive growth in their domestic spite the substantial depreciation, on economies, but they made only average, of foreign currencies against limited progress in reducing inflation. the dollar. Growth of foreign mone- Against this background of progtary aggregates was held to stated tar- ress in debt management, several of gets in most cases. The main factors the major borrowing countries have influencing fiscal policies abroad con- been able to move to a second phase in tinued to be efforts to lessen the role their adjustment and financing proof government in the economy and to grams. One important element in this reduce government deficits as a frac- second phase has been the develoption of gross national product. ment of long-term or multiyear re- A counterpart to the increase in the structuring of outstanding debts on U.S. current account deficit was the terms that presume stronger creditincrease in the current account sur- worthiness and that will allow debtor pluses of several foreign industrial countries more confidence in plancountries. Japan, where the current ning for the future. Commercial account surplus rose from approxi- banks have reached agreement in mately $20 billion to more than $30 principle with Mexico and Venezuela billion, experienced the largest in- on such arrangements; the banks crease. In contrast, the German cur- have begun serious negotiations with rent account surplus rose only slightly Brazil and Yugoslavia; and the fiand that of the United Kingdom de- nancing packages prepared by the clined, in part because of the effects banks for Argentina and the Philipof the miners' strike on the U.K. pines contain some longer-term eletrade balance. ments. The external accounts of the devel- However, developments in 1984 oping countries in general continued and the first months of 1985 show to improve in 1984. Mexico, Vene- that, for many developing countries, zuela, Yugoslavia, and Hungary reg- the process of adjustment that began istered current account surpluses last in 1982 is far from complete, particuyear; Brazil's deficit was essentially larly on the internal side. Continued eliminated, and the deficits of several progress depends on cooperation other countries were reduced. The among borrowing countries, commerprogress by countries with large exter- cial banks, multilateral institutions, nal debt was facilitated in many cases and creditor countries. A sustained by significant increases in exports, recovery and resistance to protecparticularly to the United States, and tionist pressures in industrial counin most cases was accompanied by a tries are also extremely important to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

22 International Developments the progress of these adjustment ef- U.S. International Trade forts, to which financial markets will Billions of dollars remain sensitive. U.S. balances on trade and current account U.S. International Transactions The U.S. merchandise trade and current account deficits continued to widen rapidly in 1984. A $20 billion increase in merchandise exports and an increase of about $70 billion in merchandise imports yielded a trade deficit of almost $110 billion, compared with about $60 billion in 1983. The current account deficit was about Ratio scale, billions of 1972 dollars $100 billion, up from about $40 billion in 1983. U. S. merchandise trade The expansion of exports in 1984 Total import^ reflected largely the growth of vol- 80 ume and was concentrated in non- Total exports agricultural products. From 1983:4 to 1984:4, exports to developed coun- 1980 1984 tries expanded nearly 7 percent, Data are seasonally adjusted at annual rates and are mainly as a result of increased ship- from the U.S. Department of Commerce. ments to Canada. Part of the rise was in exports of automotive parts and capital goods and consumer durables. other intermediate products destined The average price of non-oil imports to be assembled into finished goods was 2 percent higher in 1984:4 than in and imported back into the United 1983:4. By area, most of the increase States. A rebound in shipments to in non-oil imports came from devel- Mexico was largely responsible for oped countries; those from Latin the increase of 10 percent from 1983:4 America rose about %2Vi billion, or to 1984:4 in exports to developing 10 percent, fourth quarter to fourth countries. quarter, and $51/2 billion, or 25 per- As with exports, the expansion of cent, for the year as a whole. The imports in 1984 reflected predomi- volume of oil imports in 1984:4 was nantly volume growth, which was little changed from that in 1983:4, but stimulated in large part by the expan- the price per barrel was about 3 persion of the U.S. economy and the pre- cent lower. vious appreciation of the dollar. The Among the nontrade components volume of non-oil imports increased of the current account, income from 12 percent from the fourth quarter of direct investment remained depressed 1983 through the fourth quarter of in the face of a strong dollar and slug- 1984 and for 1984 as a whole was gish economic activity abroad, while more than 25 percent greater than in net income from portfolio invest- 1983. The expansion of these imports ments eroded further; as a result, net was spread widely across commodity investment income declined about $5 groups but was especially rapid for billion in 1984. The balance from Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

International Developments 23 other services transactions declined located in the United States decreased by $6 billion. somewhat further, to about $20 bil- The recorded $102 billion current lion, while net inflows reported by account deficit for 1984 was balanced other transactors rose sharply. To by recorded net capital inflows of $72 some extend, the shift in the composibillion and a statistical discrepancy of tion of capital flows reflected the $30 billion. The year-end outcome of growing activities of intermediaries recorded private capital transactions other than U.S. banks and the continwas a net inflow of $77 billion: net in ued introduction of new financial inflows reported by the banking offices struments and markets. These devel- U.S. International Transactionsl Billions of dollars, seasonally adjusted Quarter Year Transaction 1983 1984 1983 19842 Q4 Ql Q2 Q3 Q42 Current account -41.6 -101.6 -17.2 -19.7 -24.7 -33.6 -23.7 Merchandise trade balance -61.1 -107.4 -19.4 -25.8 -25.8 -32.9 -22.9 Exports 200.3 220.3 51.8 53.9 54.5 55.6 56.2 Imports -261.3 -327.8 -71.2 -79.7 -80.4 -88.6 -79.1 Investment income (net)3 5.1 7.7 2.9 4.0 Other services (including military 23.5 18.1 3.5 transactions) .2 .6 -.7 Unilateral transfers, private 4.6 -1.2 -.2 and government -3.0 -2.1 -2.9 -4.0 -8.7 -11.2 -2.2 Private capital flows 14.8 19.2 22.9 11.6 Bank-reported capital, net 33.1 77.2 23.6 (outflows, -) 14.1 10.7 11.5 -2.1 U.S. net purchases (-) of foreign 23.7 20.2 .2 securities -1.0 .6 -1.3 -3.3 Foreign net purchases (+) of -7.7 -4.8 -.8 U.S. Treasury securities 1.7 1.4 5.1 9.5 Foreign net purchases of U.S. 8.7 22.5 6.5 corporate bonds .7 .3 2.6 10.1 Foreign net purchases of U.S. 2.2 13.6 .6 corporate stocks 6.4 -.6 .4 1.2 -1.0 -.8 U.S. direct investment abroad3.... -4.9 -6.0 -1.6 -3.5 2.1 1.9 -6.4 Foreign direct investment in United States3 11.3 21.2 2.3 2.4 8.8 5.3 4.7 Other corporate capital flows, net . -6.7 11.1 -1.9 6.1 6.2 -1.1 n.a. Foreign official assets in United States (increase, +)... 5.3 3.0 6.6 -2.8 -.3 -.8 7.0 U.S. official reserve assets, net (increase, -) -1.2 -3.1 -1.0 -.7 -.6 -.8 -1.1 Reserve position in IMF -4.4 -1.0 -2.0 -.2 -.3 -.3 -.1 Convertible currencies and other reserve assets 3.2 -2.1 1.0 -.5 _ 2 -.5 -1.0 U.S. government foreign credits and other claims, net -5.0 -5.5 -1.4 -2.0 -1.2 -1.4 -.7 Seasonal adjustment discrepancy . 2.7 -.2 -.1 -2.4 2.7 Statistical discrepancy 9.3 30.0 -4.4 6.2 3.4 16.2 4.2 1. Details may not add to totals because of rounding. * Less than $50 million. 2. Data for the fourth quarter are preliminary. SOURCE. U.S. Department of Commerce, Bureau of 3. Includes reinvested earnings. Economic Analysis. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

24 International Developments opments, in turn, were influenced by Weighted Average Exchange Value of concerns about the capital adequacy the Dollar and Interest Rate Differential of banks, the repeal of the withhold- Percent per annum March 1973 = 100 ing tax on interest payments to foreigners, the introduction of foreign- Weighted average exchange value of the dollar —*targeted securities by the U.S. Trea- 140 sury and U.S. government agencies, and other tax and regulatory changes. Long-term real interest rate differential In the United States, net purchases of foreign securities declined further in 1984; abroad, private net purchases of U.S. Treasury securities doubled 100 from the 1983 level. Sales of Eurobonds by U.S. corporations also reached a record level during the year. In addition, foreign direct in- 1980 1982 1984 vestment in the United States rose Exchange value of the U.S. dollar is the index of the sharply; for the most part, however, weighted average exchange value of the dollar against this rise resulted not from spending currencies of the other Group of Ten (G-10) countries plus Switzerland, using 1972-76 total trade weights. on new plant and equipment in the Differential is rates on long-term U.S. government United States but instead from sev- or public authority bonds minus rates on comparable eral large takeovers and a shift in foreign securities, both adjusted for expected inflation estimated by a 36-month centered moving average of intracompany financial transactions. actual inflation or by staff forecasts where needed. Foreign official assets in the United States increased $3 billion in 1984, although reserve holdings by members 6 percent against the Japanese yen of the Organization of Petroleum Ex- and the Canadian dollar, about 13 porting Countries declined about $8 percent against the German mark, billion. U.S. official reserve assets in- and nearly 21 percent against the creased more than $3 billion: the U.S. pound. reserve position in the International Very early in the year the dollar Monetary Fund rose $1 billion, and weakened somewhat as signs (later interest earnings contributed to an in- proved false) that the U.S. recovery crease of about $2 billion in holdings was slowing pulled dollar interest of convertible currencies and other rates down. When U.S. interest rates reserve assets. Other net claims by the headed up in the early spring and Ml U.S. government on foreigners, main- stayed well within its target ranges, ly credits to developing countries, in- the dollar moved up strongly; it concreased more than $5 billion. tinued to do so until late in the year, when concern arose again that the economy might be slowing down. Foreign Currency Operations Over the year as a whole, the dollar In 1984, the trade-weighted average continued to be bolstered by the high exchange value of the dollar continued level of real interest rates, an apto advance, gaining 12 percent from parent downward revision in inflation December 1983 to December 1984. expectations, and favorable prospects The dollar rose against every major for investment in the U.S. economy. currency; its appreciation was nearly The view of the United States as a so- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

International Developments 25 Weighted Average Exchange Values proxy used to estimate inflation exand Dollar Exchange Rates pectations may not fully capture Index, December 1979=100 short-run changes in those expecta- German mark tions. average value 100 The trade-weighted average value of the yen continued to rise in 1984; the mark showed a small overall depreciation, and the pound continued its steady depreciation of recent years. Intervention transactions in ex- Japanese yen change markets by major foreign central banks included net sales of about $214 billion in 1984. The United States intervened on eight days in 1984, mainly selling dollars to buy German marks. Net dollar sales by the United States amounted to $288 U.K. pound million, half of which was for the account of the Federal Reserve and half for the account of the U.S. Treasury's Exchange Stabilization Fund. Holdings of foreign currencies by the Federal Reserve at year-end, essentially all of which consisted of German marks, Japanese yen, and 1980 1984 Swiss francs, amounted to $3,597 The weighted average value for each currency is its million valued at year-end exchange exchange value against the currencies of the other rates. The valuation losses on these G-10 countries plus Switzerland, using 1972-76 total holdings, about $1,346 million for the trade weights. year, reflected the appreciation of the called safe haven for investment prob- dollar against these foreign currenably also contributed to the dollar's cies. In addition, the System realized strength. The general correlation be- a small loss, $18 million, on its 1984 tween differentials in real long-term interventions in exchange markets. interest rates and the strength of the There were no drawings or repaydollar is evident from the accompany- ments on the Federal Reserve Swap ing chart, though the mechanical Network during 1984. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

26 Monetary Policy Reports to Congress Given below are reports submitted to stability. The more stringent and the Congress by the Federal Reserve meaningful test will come as we seek on February 7, 1984, and on July 25, to maintain the momentum of expan- 1984, pursuant to the Full Employ- sion and the progress toward stability ment and Balanced Growth Act of while the margin of unemployed re- 1978. sources diminishes. Moreover, developments in 1983 were marred by Report on February 7, 1984 certain structural imbalances, particularly in the federal budget and in The Outlook for the foreign trade, that represent risks to Economy in 1984 orderly progress. Conditions in the national economy At present, the prospects for extook a decided turn for the better in tending the economic gains of the 1983. Real gross national product past year into 1984 appear, by and rose 6 percent over the four quarters large, to be good. Economic growth of the year, close to the experience slowed in the final quarter of 1983, during the first years of past cyclical with real GNP up AVi percent at an recoveries but well above earlier pro- annual rate. A continuation of jections. Although unemployment re- growth in that general range would be mained painfully high, rising produc- consistent with significant progress tion spurred gains in employment toward lower unemployment this year large enough to cut the unemploy- and with sustained expansion in a ment rate 2Vi percentage points over framework of greater price stability the course of the year. At the same in the years beyond. time, most broad measures of prices As is typical, the composition of and wages recorded further progress toward lower inflation. In short, the performance of the economy in 1983 Objectives for Money and Credit Growth for 1984' suggested that the immediate objective of permitting sufficient growth in Percent monetary and credit aggregates to New Tentative Ranges for foster a solid economic recovery, Monetary ranges ranges for 1983 estabaggregate for 1984 set in lished in while not encouraging developments 1984 July 1983 July 1983 that would rekindle inflationary pres- M2. 6 to 9 6V2 to 9Vi 7 to 10 2 sures, was achieved. M3. 6 to 9 6 to 9 6V£ to 9Vi But success cannot be measured by Ml. 4 to 8 4 to 9 5to93 performance during any one year, Domestic and in some respects the first year of non financial sector debt . 8 to 11 8 to 11 WitoWA recovery—beginning in the context of 1. Ranges apply to periods from fourth quarter to excess capacity and high unemployfourth quarter, except as specified. ment—provided the most favorable 2. Range applies to period from February-March environment for combining economic 1983 to fourth quarter of 1983. 3. Range applies to period from second quarter of growth with progress toward price 1983 to fourth quarter of 1983. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 27 output is likely to change as the mained at lower levels thus far in the cyclical expansion moves through its recovery. These factors all provide second year. Business investment in favorable portents for the future, but plant and equipment can be expected they will be tested as economic expanto provide a greater share of the im- sion continues. The firmer labor and petus to economic growth, reflecting product markets that are normally continuing gains in sales, rising associated with the second year of an capacity utilization, and improved economic recovery could cause some profitability. Conversely, 1984 prob- cyclically sensitive prices to rise; a ably will see smaller contributions to social security tax increase for emgrowth from those sectors that lent ployers will boost labor costs; food early strength to the recovery. Hous- prices are likely to be higher than they ing activity surged early in 1983, otherwise might have been because of largely in reaction to the sizable the effects of last summer's drought decline in mortgage rates that started on meat prices. in mid-1982; absent an appreciable While these latter forces need not movement in mortgage rates from in and of themselves mean the undercurrent levels, homebuilding can be lying trend toward lower rates of inexpected to be more stable this year. flation has ended, they could, if Consumption spending, whose up- associated with other factors, tend to swing strongly boosted aggregate de- increase inflation expectations and mand in 1983, is likely to decelerate in generate broader pressures on prices the coming year: for the first time in and wages. One of the possibilities is several years, spendable income will that the competitive forces associated not be enhanced by a major federal with the appreciation of the dollar tax cut, and any considerable further and the ample availability of goods decline in the saving rate appears im- from abroad—which have been exertprobable. Inventory behavior is ing downward pressures on the rate always uncertain; however, with the of inflation—could recede. More funliquidation and initial accumulation damentally, as margins of excess phases of the cycle complete, inven- capacity diminish—to the vanishing tory investment in 1984 is likely to point in a few industries—and as the add less to economic growth than it availability of experienced labor dedid in 1983. Stocks will probably re- clines, there may be temptations to main low relative to sales, since high revert to the pricing and wage barfinancing costs and new methods of gaining patterns characteristic of inventory control are a restraining earlier years of rapid inflation. influence. Furthermore, as time passes, the The prospects for continued progress imbalances associated with the curagainst inflation have been improved rent expansion will pose increasing by better productivity performance, risks. The second year of an expanmore realistic wage bargaining, and a sion of economic activity is likely to more competitive environment for bring with it growing business credit price decisions. The supply-demand demands. At the same time, unless situation in the oil market suggests decisive action is taken, the federal that another inflationary shock from government deficit will continue to that source is unlikely, and indicators drain off an extremely large portion of inflation expectations have re- of available net saving in the econ- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

28 Monetary Policy Reports omy. With no easing of the tensions the trade balance could be sustained, in credit markets, interest-sensitive it is not at all clear that the consesectors, such as housing and long-term quences for American industry would business investment, in all probability be acceptable. will continue to operate well below Moreover, the federal deficit and their underlying potential and below associated high U.S. interest rates will the levels consistent with sustained, continue to aggravate the debt servicbalanced economic growth and a ing problems of major international strong productivity performance. debtors. To be sure, the approval of The large federal government defi- funding for the International Monecit has had repercussions for the in- tary Fund, the support of official ternational economy as well. By add- creditors, and the widespread coing to pressures on domestic credit operation of the private banking markets, it has helped induce an in- community have been constructive. flow of capital from abroad, exerting But, while key developing countries upward pressure on the dollar, even have put in place economic adjustas our trade and current account ment policies that have resulted in balances have deteriorated. Further necessary reductions in their imports, deterioration in the external balance such progress has been achieved at is expected this year, and that trend high cost to their domestic econoand level of imbalance cannot be sus- mies. Thus countries with heavy debt tained indefinitely. Under these cir- burdens still confront the task of recumstances, it certainly is ques- storing growth of real income as tionable whether we can count on the structural adjustments proceed. An continuing eagerness of foreigners to important contribution to this effort, invest in increasing amounts of dollar- as well as to our own long-run ecodenominated assets, and this has nomic health, is the continued access significant implications for potential of these nations to the financial and developments in credit and exchange goods markets of industrial countries. markets. Even if the recent trends in The Economic Projections oftheFOMC Federal Reserve Objectives for Money and While recognizing the risks implicit in Credit in 1983 and Actual Growth the budgetary and international cir- Percent cumstances outlined above, the members of the Federal Open Market Ranges for Actual growth Monetary 1983 estab- Committee (together with other aggregate lished in Revised Old Reserve Bank presidents) believe the July 1983 data data most probable course of develop- M2 . 7 to 10 ' 8.3 7.8 M3 6!/2 to 9Vi 2 9.7 9.2 ments during 1984 is further growth, Ml 5to93 7.2 5.5 significant reduction in unemploy- Domestic ment, and only modest—and essennonfinancial tially cyclical—increases in price sector debt... 8!/2 to ll!/2 10.5 10.5 pressures. The central tendency of 1. Range applies to period from February-March forecasts shows real GNP growth in a 1983 to fourth quarter of 1983. 2. Range applies to period from fourth quarter of range of 4 to AVA percent this year. 1982 to fourth quarter of 1983. This growth rate is similar to the first 3. Range applies to period from second quarter of view expressed by the members last 1983 to fourth quarter of 1983. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 29 Economic Projections for 1984 credit aggregates for 1984 established last July. The ranges for M2 and M3 Percent were set at 6 to 9 percent, 1 percent FOMC members and and Vi percent respectively, below the other FRBPresidents Economic Adminis- ranges for 1983. The tentative Ml indicator tration Central Range tendency growth range of 4 to 8 percent was confirmed for the same period. A Change, fourth quarter to monitoring range of 8 to 11 percent, fourth as anticipated in July, was established quarter Nominal for growth in the outstanding debt of GNP 8 to IOV2 9 to 10 9.8 domestic nonfinancial sectors. RealGNP... 3!/2 to 5 4 to 43/4 4.5 GNP deflator 4 to 6 AVi to 5 5.0 The ranges for 1984 are intended to be consistent with the basic policy Average unemployment objective of achieving long-lasting rate in the fourth economic expansion in a context of quarter ... IV*. to 8 IVi to 73/4 7.7 continuing control of inflationary pressures. They assume that relationsummer, but, of course, would follow ships between monetary and credit significantly faster growth in 1983 growth and economic activity and inthan anticipated. The unemployment flation will be broadly consistent with rate is expected to continue to decline past trends and cyclical developin 1984, and given the progress in ments. There is reason to expect that reducing joblessness last year, the ex- the special considerations affecting pected level of unemployment in the monetary growth rates last year—infourth quarter of this year—generally cluding important institutional changes between IVi and IVA percent—is sub- in the financial system—will be less stantially lower than had been significant in 1984. Specifically, the anticipated. large-scale shifts of funds associated FOMC members expect the GNP with the introduction of MMDAs implicit deflator to rise a bit more (money market deposit accounts) and rapidly this year than in 1983—gen- Super NOW (negotiable order of witherally in the range of 4Vi to 5 percent. drawal) accounts appear, for all prac- While some members have expressed tical purposes, to be completed. Some concern that recent labor force trends of the other influences that had speand pressures on capacity in a few in- cial effects particularly on the dedustries could lead to a more signifi- mand for Ml last year—uncertainties cant pickup in inflation, such a de- about the economic and financial velopment generally is perceived to be outlook early in the year and the lagged only a risk rather than the most likely effect of the sharp decline of interest outcome. rates in late 1982—are behind us. No further regulatory or statutory changes that would significantly affect growth The Federal Reserve's rates of the monetary aggregates ap- Objectives for the Growth pear imminent. Some proposals—such of Money and Credit as payment of interest on demand de- At its meeting of January 30-31, the posits or on required reserve balances FOMC modified only slightly the ten- —would have important impacts on tative ranges for the monetary and the aggregates and would require re- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

30 Monetary Policy Reports consideration of the ranges, especial- appropriate on the assumption of ly for Ml, if they were enacted to be relatively normal velocity growth; if effective in 1984. velocity growth remains weak com- A further reduction of Vi percent pared with historical experience, Ml in the growth range for M2 for 1984 growth might appropriately be higher from that tentatively set last July in the range. was influenced by technical consider- In recent quarters, the velocity of ations. Last year's range—though it Ml has shown a moderately rising was based on February-March to ab- tendency, in contrast to sharp destract from the bulk of distortions clines in 1982 and early 1983. Still, connected with the introduction of the rise in Ml velocity in the first year MMDAs—necessarily had allowed of the current economic recovery was for some residual shifting into such decidedly less than in earlier postaccounts as the year progressed, World War II cyclical expansions. which in fact took place. In any Velocity behavior over the past 18 event, M2 in 1983 was maintained months appears to have reflected rewell within its target range, and sponses to the declines of interest growth in 1984 should not be in- rates in the latter part of 1982; the fluenced by that special factor. subsequent leveling off of rates; The Committee anticipates that changing precautionary attitudes; both M2 and M3, which will continue and to some degree perhaps, more to receive substantial weight in policy lasting changes in motives for holding implementation, may well fluctuate Ml, as the composition of that aggrein the upper part of their ranges in the gate has shifted. current year. The actual growth of Since their introduction on a na- M2 and M3 will depend in part on the tionwide basis, interest-bearing acstrategies and on the aggressiveness counts with full checking privileges with which depository institutions (NOW accounts) have become an inseek deposits in an environment of creasingly important element in Ml. deregulated deposit interest rates. Most of these accounts are subject to Growth of the broader aggregates a ceiling rate, though a growing prowill also be influenced by the pattern portion (Super NOWs) pay market of net capital inflows from abroad. rates. All of the accounts contain For example, nonresident holdings of funds placed for long-term savings Eurodollars are not included in M2 purposes as well as funds used prior M3, and should banks bid aggres- marily for transactions. In light of sively for funds through that channel, these structural changes, it is not yet as seems possible, growth in those ag- clear how the public's demand for Ml gregates would tend to be restrained might be affected, for any given level relative to growth in bank credit and of income, by variations in credit nominal GNP. Limited allowance was market or other conditions that afmade for that development in setting fected savings preferences, or how it the ranges. might be affected by variations in the As tentatively agreed in July, the level of income itself; nor is it clear range for Ml was reduced 1 percen- how quickly or in what ways depositage point from the range set for the tory institutions might themselves relast half of 1983. Growth around the spond to such variations by altering midpoint of the range would appear terms on deposit offerings. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 31 While there is evidence of more the debt of domestic nonfinancial sec- "normal" and predictable patterns tors during 1984. This range is Vi perreappearing, the Committee felt that centage point below the correspondmore time would be required for as- ing range for 1983, reflecting the sessing the impact of recent structural moderating trend that, based on hischanges on public and institutional torical relationships, would be exbehavior before full or primary weight pected to accompany progress toward could be placed on Ml as a policy price stability and sustainable growth guide. Thus the Committee decided in in production. The range allows for setting a range for Ml that its growth of debt in 1984 that might behavior should be evaluated in the outpace expansion in nominal GNP, context of movements in the broader as often occurs in the second year of a monetary aggregates, which for the cyclical recovery. time being would continue to be given substantial weight in policy Implications for Credit Markets implementation. Developments in credit markets and The FOMC also considered whether interest rates, as always, will be subthe procedures of System open marject to a variety of influences at home ket operations should be altered in and abroad. The ranges specified for light of the shift to the new contemthe monetary and credit aggregates, poraneous reserve requirement syswhich are felt to be broadly consistent tem (CRR) on February 2, a system with the expectations of members of that potentially would permit somethe FOMC about the course of ecowhat closer short-run control of Ml. nomic activity and prices, will not in It was the Committee's view that and of themselves determine the adaptation of open market procecourse of interest rates and the degree dures does not depend on the techniof credit market pressures. Whether cal characteristics of the reserve reinterest rates fall or rise—or remain quirement system in place but rather stable—will depend importantly on on broader policy judgments about the strength and composition of dethe relative weight to be given to Ml mands on the economy, actual and as a target and the desirability of anticipated price pressures, and credit seeking close short-run control of that demands. aggregate. Taking account of policy Dominating the outlook for credit judgments about the role of Ml and flows in the year ahead is the prospect other monetary aggregates under curthat—in the absence of immediate acrent circumstances, as well as uncertion by the fiscal authorities—the tainties in the period of transition to federal deficit will approach the CRR, the Committee agreed to make record level of the past year. The no substantial change in current federal deficit was nearly 6 percent of operating procedures at this time.1 GNP in 1983, the high for the post- The Committee set a monitoring World War II years, and is likely to range of 8 to 11 percent for growth in be only slightly lower in 1984, the second year of cyclical expansion. In the comparable stage of earlier cyclical 1. A statement issued on January 13, 1984, recoveries, this percentage generally on the policy implications of CRR appears as appendix A to this report. dropped rapidly or was at much lower Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

32 Monetary Policy Reports levels—providing room for additional business capital spending. They also borrowing to support expanding busi- —to the extent higher interest rates ness capital outlays and housing. lead to a strong dollar on exchange While debt formation by the private markets—retard our export indussector may proceed at a somewhat tries. And, finally, high interest rates more rapid pace this year than in contribute to strains on the domestic 1983, the expected pickup is modest and international financial system by the standards of earlier recoveries. from the lingering heavy indebtedness That expectation is partly a reflection incurred during inflationary expanof the fact that the massive federal sion of earlier years. presence in the credit markets, unlike Actions taken to reverse the upward the pattern in previous expansions, trend in the structural budgetary will continue to absorb the bulk of deficit clearly would work to reduce the net saving available to the domes- potential credit market pressures, to tic economy. The federal deficit over help assure a balanced and sustainthe past two years absorbed an un- able economic expansion, and to prousually large proportion of the saving mote a more orderly readjustment of available to the domestic economy, our balance of payments position. and this will continue into 1984. The The timing and magnitude of the favavailability of domestic saving to orable impact naturally would depend finance the growing federal deficit on the scheduling, force, and proand expanding private investment has spective "carry through" of any acremained limited, and expansion of tion to reduce the budgetary deficit as total saving in line with financing well as on the surrounding economic needs last year was dependent on environment. large increases in net funds obtained Ordinarily, the principal effect of a from abroad. Further such increases lower budget deficit on credit markets will again be required this year. And and the economy would be expected if present trends continue, the gov- to occur as the programs—whether ernment will continue to drain off on the spending or tax side—actually much more of the nation's domestic become effective. Gains could occur saving than at any time in the preced- earlier, however, in anticipation of ing three decades, apart from the first reduced federal credit demands. For year of recovery from the 1973-75 example, actions taken this year that recession. would clearly reduce structural The persistence of large deficits in federal deficits beginning in fiscal the face of strengthening private years 1985 and 1986 could work in credit demands would tend to exert some degree in 1984 to lower interest pressures on domestic credit markets, rates, particularly longer-term rates. keeping interest rates higher than they This would result from favorable efotherwise would be. Put another way, fects on inflation expectations as well large deficits are an offset to other as the anticipated relief from the forces working toward lower interest weight of governmental pressure on rates. These pressures stemming from credit markets. the federal deficit work to restrain ex- A decline in the structural federal pansion in areas of the economy that deficit would in the first instance reare more sensitive to interest rates— duce one source of economic stimusuch as housing, autos, and long-term lus. However, any such effects should Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 33 be associated with lower interest rates and historically high credit costs that than otherwise, encouraging offsetting prevailed as the year began. increases in spending by businesses The impressive progress in reducand households for capital goods, ing inflation in 1982 extended into homes, and consumer durables. 1983. The consumer price index rose The positive effects from small re- VA percent in 1983, the smallest inductions in the federal deficit would crease in more than a decade. The be difficult to isolate in our large, continued slowing in inflation was active credit markets. However, as aided by favorable price developstructural deficits are reduced by sub- ments in energy markets and by the stantial amounts—say $50 billion to damping effect on food prices of $100 billion—the counterpart rise in abundant supplies of livestock prodprivate credit may be most noticeable ucts. However, 1983 also saw iminitially in mortgage markets at the provements in broader forces affectlower, long-term interest rates that ing prices and wages. With important are likely to evolve. In addition, busi- lags, business and labor involved in nesses would be in a position to in- key contract settlements seemed to be crease bond and stock offerings as adapting constructively to the less inthey take advantage of the more fav- flationary environment, and overall orable capital market atmosphere to wage and compensation increases improve their liquidity and balance were considerably smaller than those sheet positions. Prospects for busi- of the previous year. At the same ness spending for plant and equip- time, productivity improved, thereby ment would be improved—an impor- helping to limit increases in unit labor tant factor in maintaining growth and costs, and average real incomes rose. productivity over the years ahead. As While the performance of the econtime went on, the export sector of the omy in 1983 marked a strong and eneconomy also should benefit as an as- couraging advance toward the goal of pect of the readjustment in our pres- sustained, noninflationary growth, ent unbalanced external position. several areas of concern remained. Although labor market conditions improved markedly, unemployment continued to be unacceptably high— The Performance of the especially for younger job seekers and Economy in 1983 minorities. In addition, 1983 saw a Output and employment registered sharp—and worrisome—increase in sharp gains in 1983, lifting the econ- the federal deficit. For the fiscal year omy out of one of the most severe ending in September, the deficit (not recessions since World War II. These including off-budget programs) gains brought a considerable reduc- climbed to almost $200 billion. This tion in the unemployment rate, which deficit represented about 6 percent of fell 2Vi percentage points over the GNP; the highest deficit so measured year to 8.2 percent by year-end. The in the previous three decades had first year of recovery was marked by been 4 percent in 1976. The borrowbroadly based increases in spending ing necessary to finance the deficit, in by consumers and businesses; these combination with continuing huge advances were stronger than generally prospective government credit deanticipated, given the low confidence mands, exerted pressures on market Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

34 Monetary Policy Reports interest rates—offsetting the effects terest rates were lower on average, of lower inflation and other factors— and less variable, in 1983 than during thereby tending to temper expansion the preceding few years, although of credit-sensitive private sectors of most rates were somewhat higher at the economy. the end of the year than they were at Firms tied closely to world markets the start. also did not share proportionately in Short-term yields were relatively the U.S. economic recovery in 1983. stable early in 1983, following a Large federal deficits and associated marked decline during the second high domestic interest rates helped in- half of 1982. In late spring, economic duce sizable inflows of foreign capital growth accelerated sharply, and the to the United States throughout the monetary aggregates, looked at as a year and contributed to a further rise whole, were continuing to grow at a in the exchange value of the dollar. relatively rapid pace. In those circum- The strong dollar, in turn, put pres- stances, the Federal Reserve began to sures on industries facing competition restrain somewhat its provision of from foreign imports and, in an envi- reserves to depository institutions, ronment of sluggish economic growth and short-term interest rates rose in other countries, made it difficult moderately during the summer for U.S. industries to sell their prod- months. For the remainder of the ucts abroad. Consequently, imports year, most short-term rates fluctuated increased dramatically relative to ex- in a generally narrow range, ending ports in 1983; this shift had a signifi- 1983 around 1 percentage point cant moderating influence on the higher than a year earlier. growth in domestic output. The decline in long-term interest The international debt situation re- rates that had commenced in mid-1982 mained a major concern in 1983. continued through the early months Some countries with serious debt of 1983. These rates also began movproblems made considerable progress ing up in the spring, climbing fairly in formulating and implementing in- steadily through August. Thereafter, ternal adjustment policies, and they long rates fluctuated in a range somecontinued to receive a moderate flow what above that of the first half of of new financing. Nonetheless, his- the year. At the end of 1983, long torically high interest rates in the rates generally were 1 to 1 Vi percent- United States continued to place age points above their levels of a year heavy burdens on the many develop- earlier. Exceptions to this pattern ing countries with outstanding debt were mortgage rates and yields on concentrated in dollars. municipal bonds, which were down on balance from their levels at the close of 1982. Long-term interest Financial Markets rates remained quite high relative to Partly reflecting the ready availability the current rate of inflation throughof funds from abroad, financial mar- out 1983; continuing uncertainties kets absorbed the increase in demand regarding the speed of the economic for credit associated with both the expansion and its possible implicafinancing of the record federal deficit tions for future inflation, as well as and the upturn in the economy in concerns about the outlook for 1983 without undue stress. In fact, in- federal deficits, were factors. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 35 Household Sector constrained by import restrictions on Most households experienced finan- Japanese models, edged up a bit in cial and economic gains in 1983. With 1983, regaining their prequota (1980) unemployment down and gains in level. Consumer spending for other employment sizable, growth in per- goods and services also strengthened, sonal income rebounded smartly dur- paced by large gains in housinging the past year. Further decelera- related items such as furniture and tion of inflation, lower interest rates, appliances as well as brisk advances and the cumulative 25 percent reduc- in general merchandise and apparel tion in federal tax rates on personal sales. income during the past three years all Demand for housing surged in helped raise the purchasing power of 1983, as early in the year long-term household income. In addition, house- mortgage interest rates fell below 13 hold net worth rose substantially in percent for the first time since the 1983, primarily reflecting the surge in summer of 1980. The sharpness of the stock market prices that began in upturn reflected the considerable 1982 and carried into 1983. volume of demand postponed from These gains no doubt were instru- the preceding few years of high credit mental in boosting consumer confi- costs and uncertain economic condidence, which surveys indicated rose tions. New housing construction rose sharply in 1983 to its highest level in a considerably in response to rising decade. This improved mood encour- sales during the first three quarters of aged households to finance major the year. The rate of housing starts purchases by borrowing and to de- leveled off in the final quarter, invote a larger proportion of current in- fluenced by the backup in mortgage come to consumption rather than sav- interest rates during the second half ing. As a result, the personal saving of the year. However, for the year as rate fell from 5.8 percent of dispos- a whole, total private housing starts able income in 1982 to 4.8 percent in rose 60 percent, the sharpest annual 1983. increase in almost 40 years. The con- The improved economic and finan- struction activity generated by the incial status of households fostered a crease in starts was an important facsubstantial upswing in consumer tor in GNP growth, as is typical in the spending. Much of the strength came first year of an economic recovery. in the automobile sector, as sales The expansion in housing construcrecovered from several years of slug- tion in 1983 was supported by ingish performance. Sales of domestic creased lending by thrift institutions models quickened in the first half of (where deposit growth was much imthe year, spurred by financing incen- proved) and by continued growth of tives from dealers and lower rates on secondary mortgage markets. The bank loans. Lower gasoline prices gains also reflected the popularity of and the introduction of new and bet- financing techniques that provided ter American products also appeared homebuyers with initial interest rates to help. The recovery in domestic lower than those quoted for fixedautomobile sales continued through rate, conventional loans. The record the second half of the year, despite volume of tax-exempt, revenue bonds the withdrawal of financing incen- issued by states and localities last year tives. Sales of imported models, still to finance single-family mortgages Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

36 Monetary Policy Reports provided many homebuyers with rates limited this adjustment, and risreduced-cost mortgage financing. ing credit costs later in the year sharp- Further, as market rates rose during ly reduced the volume of long-term the year, homebuyers increasingly debt financing. switched to adjustable-rate mort- A marked shift in inventory investgages. Many such instruments of- ment from liquidation to accumulafered an initial rate advantage of 2 tion took place in 1983, further percentage points or more. By year- boosting GNP. Firms had undertaken end, 55 percent of all conventional massive reductions in stocks during mortgage loans closed had a variable- 1982 and early 1983. With final rate feature of some kind. When demands strengthening, inventory mortgage rates were at their recent reduction slowed markedly in the seclow point in the spring of 1983, only ond quarter of the year; and after 30 percent of conventional loans midyear, firms began to rebuild their closed were adjustable. In addition, inventories. With sales and shipment such interest-reducing mechanisms as quite strong during the second half of builder buydowns and seller financ- the year, the actual stocks of invening remained important features of tories remained quite lean, and invenhousing finance during the year. tory-sales ratios fell to historically low levels. Business Sector Business spending on plant and Economic and financial conditions in equipment did not reach its cyclical the business sector also improved trough until the first quarter of 1983, markedly in 1983, as firms started the but such expenditures grew rapidly process of rebuilding their balance throughout the rest of the year. Oversheets from the recession. Sales and all, business fixed investment inproduction rose sharply, bringing in- creased almost 111/2 percent in real creased capacity utilization and pro- terms between the fourth quarter of ductivity. These gains helped propel 1982 and the fourth quarter of 1983. before-tax profits, which had been At year-end, rising new orders and depressed in the early 1980s, to an surveys showing that businesses unusually rapid increase for the first planned higher investment spending year of an economic expansion. With suggested that the recovery in investeffective corporate tax rates lower, ment had developed momentum that businesses were able to retain a larger would carry it into 1984. proportion of their profits than in The strength in investment spendprevious recoveries. Much-improved ing was concentrated in the equipcash flows and lower interest rates ment sector early in 1983, especially put firms in a much better position to in motor vehicles, high-technology service their outstanding debt in 1983. office equipment, and computing ma- Further, the corporate sector im- chinery. The recovery in equipment proved its overall capital position in spending became more broadly based 1983 by issuing new stock in vastly as the year progressed, as it spread to improved equity markets. During the traditional heavy equipment. Expendfirst half of the year, firms strength- itures for new structures also turned ened their balance sheets by shifting up in the second half of the year, led borrowing toward longer maturities. by investment in stores and ware- However, historically high interest houses. Construction of new office Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 37 buildings declined sharply during the about $40 billion. Essentially, rapid first half of 1983 and held at that re- increases in demand in the United duced pace during the second half of States were partly satisfied by increasthe year, as vacancy rates remained ing imports, limiting gains in U.S. quite high. output. International Trade The Government Sector The rising exchange value of the dol- Government purchases of goods and lar was a major influence on U.S. ex- services were lower in real terms in ports and imports in 1983. On a 1983 than in 1982. However, this weighted-average basis, the dollar decline stemmed largely from a rerose an additional 10 percent during duction in crop inventories held by the course of the year, bringing the the Commodity Credit Corporation cumulative appreciation since 1980 to (CCC) that was associated in part 50 percent. The sustained strength of with the Payment-in-Kind (PIK) prothe dollar has reflected economic pol- gram. Excluding CCC, real federal icies here and abroad as well as the at- purchases in 1983 were up AVi pertractiveness of dollar investments in a cent, led by a 5 VA percent increase in time of international political and fi- defense spending. Purchases by state nancial uncertainty. and local governments picked up a Despite a comparatively good in- bit, after two years of weakness inflation performance, the competitive duced by the recession and cutbacks position of firms in the United States in federal support. eroded further in 1983. After declin- An especially important developing more than 15 percent in 1982, the ment in the government sector in 1983 volume of U.S. exports remained was the shifting fiscal positions of weak last year. Exports to industrial governments. The federal deficit balcountries, which account for almost looned to $195 billion in the fiscal two-thirds of the U.S. total, recov- year ending in September 1983. This ered somewhat in response to a mod- figure was nearly twice as large as the erate pickup in aggregate demand previous year's deficit, which itself abroad. However, economic growth was of record proportions. In part, in many developing nations was lim- the increase in the deficit in fiscal year ited by their debt service problems, 1983 reflected the lagged effects of and demand by those countries for the recession on receipts and transfer imports from the United States re- payments, but other factors also were mained depressed. In contrast, the important. Revenue growth was limvigorous expansion in the U.S. econ- ited by the cumulative effects of three omy and the strength of the dollar years of sizable tax reductions, and pushed both the volume and the value spending was buoyed by increases in of imports significantly higher. As a outlays for defense, social insurance result, the U.S. trade deficit increased expenditures, and interest payments from an annual rate of about $45 bil- on national debt. lion in the fourth quarter of 1982 to a At the state and local level, operatrate of about $75 billion in the fourth ing budgets (excluding social insurquarter of 1983. The U.S. current ac- ance funds) moved dramatically from count registered a corresponding shift, deficit into surplus. This shift resultwith the deficit for the year reaching ed largely from the combination of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

38 Monetary Policy Reports tax increases and cost-cutting efforts contracts. As a result, the size of the adopted during the recession as well "new settlements" component of as an unanticipated increase in the tax union wage increases was reduced to base as the economy expanded at a less than 1 percent. At the same time, surprisingly rapid pace. cost-of-living adjustments slowed, reflecting the continued moderation in prices. Labor Markets On average, however, wage gains The recovery of production in 1983 in 1983 exceeded price increases, so was translated into an impressive imthat most workers experienced improvement in labor markets. Three proved purchasing power. Rising real million workers were added to nonwages mirrored improvements in agricultural payrolls in the 12 months labor productivity. Although a good ending in December 1983. The most deal of the gain in output per hour rapid gains were registered in durable worked was attributable to the pickup goods manufacturing and in construcnormal during the early stages of an tion, the sectors hit hardest during the economic recovery, there is reason to recession. Service jobs also contribbelieve that longer-run improvements uted importantly to overall employalso were in train. Revisions in work ment growth during the year. rules at many establishments during Despite the rapid expansion in job the recession contributed to effiopportunities, the rise in the labor ciency, and in 1983 both business and force was relatively moderate, labor appeared to sustain their efforts damped by the long-term slowing in to trim costs and improve quality. Rethe growth of the young adult popuflecting wage and productivity devellation and by stability in labor force opments, unit labor costs rose only participation rates. As a result, the 1V* percent in 1983. This was the best first year of the recovery was marked performance since the mid-1960s. by an unusual concentration of hiring from the pool of those who reported Prices that they had permanently lost their The continued moderation in labor last job. Because such workers typicosts, a principal determinant of price cally are out of work for extended movements, helped to unwind further periods, the number of long-term unthe wage-price spiral that fueled inemployed workers also fell sharply flation throughout the 1970s. Houselast year. hold surveys during 1983 revealed Nominal wage increases continued that, despite some increase in the secto decelerate in 1983. Hourly comond half of the year, expectations pensation rose at a rate of 5 percent about inflation throughout 1983 reover the four quarters of 1983—the mained lower than they had been in slowest pace since 1965. The easing of some time. Ample productive capaciwage increases reflected slack in labor ty and a strong dollar also contribmarkets in general as well as adjustuted to further progress in reducing ments in several major collective barthe rate of inflation. gaining agreements. Nearly 40 percent of workers who negotiated major That progress was reflected in most union settlements during 1983 ac- key price measures. Increases in the cepted wage freezes or outright pay consumer price index remained in a cuts for the first year of their new much reduced range in 1983. The Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 39 brighter inflation picture in part nomic activity had diverged sharply reflected transitory factors. Slack de- from historical trends, raising doubts mand and large worldwide inventor- about the usefulness of that aggregate ies caused a sharp decline in petro- —at least over the near term—as a leum prices early in the year, and policy target; the effects of newly inprices of food at the consumer level troduced Super NOWs and money were relatively stable throughout market deposit accounts (MMDAs) 1983. However, the agricultural pic- on the behavior of Ml also were subture turned less favorable in the wake ject to considerable uncertainty. In of the summer drought. The resulting addition, it was evident early in 1983 depletion of grain stocks, coming on that M2 was being swelled by massive top of the effects of the federal gov- shifts of funds from outside that agernment's PIK program designed to gregate into MMDAs, but it was imreduce agricultural production, put possible to predict the precise timing upward pressures on the prices of and volume of such shifts. many agricultural commodities in the Reflecting these special factors and latter part of the year that can be ex- uncertainties, in early 1983 the pected to affect consumer food prices Federal Open Market Committee dein 1984. In addition, severe December parted from past practice in establishweather promised to adversely affect ing monetary objectives for 1983. The the supply of fresh fruits and vege- Committee agreed that the uncertaintables early in 1984. ties regarding Ml continued to war- The deceleration of prices in 1983 rant the practice, begun in October was not limited to the food and 1982, of placing principal weight on energy sectors. The consumer price the broader monetary aggregates— index excluding those sectors rose less M2 and M3—in the implementation than 5 percent—about half the pace of monetary policy. Although the of just three years earlier. Producer demands of the public for those agprices in general were little changed in gregates might be affected by shifts in 1983, as price increases of capital asset preferences that were rooted in equipment as well as of consumer regulatory changes or other causes, it goods slowed markedly. seemed that such effects would be smaller and more predictable for the broader aggregates than for Ml. The Growth of Money and In the case of M2, an annual target Credit in 1983 range of 7 to 10 percent was estab- In its reports to the Congress in lished. The FOMC believed that per- February and July 1983, the Federal formance of the aggregate would Reserve indicated that monetary most appropriately be measured over policy during that year would be con- a period when it would be less inducted with the aim of fostering a fluenced by the initial, highly agrecovery in economic activity and en- gressive marketing of MMDAs. Thus couraging further progress toward the Committee chose the average level price stability. Establishing specific of February and March as the base objectives for growth in the monetary for measuring growth, rather than the aggregates was fraught with difficul- fourth quarter, the period that genties, however. Beginning in 1982, the erally had been used in the past. It behavior of Ml in relation to eco- was anticipated that the range for Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

40 Monetary Policy Reports M2, which was 1 percentage point sured from December 1982 to Decemhigher than the range for 1982, would ber 1983, would be appropriate. This allow for some residual shifting of range was thought to be about in line funds to MMDA accounts over the with expected growth in nominal remainder of the year. GNP, reflecting the historically The range for M3, to be measured similar growth trends of each. It was as usual from the fourth quarter to recognized that, in the early stages of the fourth quarter, was established at other postwar recoveries, growth in 6V2 to 9lA percent. This range was the GNP had exceeded growth in debt by same as that established in the pre- an appreciable margin; but in the curvious year, but encompassed growth rent circumstances—including the below the actual outcome in 1982. In financial condition of the private secadopting this range, the Committee tor as the recession ended and the assumed that any net shift of funds prospective huge volume of federal during the year into the new types of borrowing—expansion in the debt agdeposit accounts from market instru- gregate might run in the upper half of ments would be largely offset by re- the stated range during 1983. ductions in managed liabilities (such The behavior of Ml in early 1983 as large CDs) included in M3. continued to diverge from prece- In light of difficulties in gauging dents. (The analysis here—as elsethe relation between transaction where in this section—is based on balances and economic activity, the recently revised data for the monetary range for Ml was set in February at 4 aggregates, but the same finding to 8 percent, a band 1 percentage holds for the data that were available point wider than usual. As noted during 1983.)2 As apparently was the above, the Committee agreed that, in case during the second half of the preimplementing monetary policy, less vious year, precautionary motives than customary weight would be stemming from highly uncertain emassigned to Ml; instead, the Commit- ployment and income prospects evitee would rely primarily on the dently continued to swell demands broader aggregates, at least until Ml for liquid balances relative to the rate had evidenced more regular and pre- of spending on goods and services; in dictable behavior. Moreover, the addition, the lagged effects of earlier Committee emphasized that, in im- declines in interest rates contributed plementing policy, the significance it to increased demands for money. Ml attached to movements in the various expanded rapidly through late spring; monetary measures necessarily would growth was dominated by its highly depend on evidence about the strength liquid, interest-earning other checkof economic recovery, the outlook able deposit (OCD) component. for prices and inflationary expecta- Growth in OCDs during the first half tions, and emerging conditions in of the year accounted for more than domestic and international financial half of the expansion in Ml, a contrimarkets. The Committee also set forth for the first time its expectations for 2. Appendix B to this report provides detailed information on the recent benchmark growth of the total debt of domestic and seasonal adjustment revisions of monetary nonfinancial sectors, indicating that a data for 1983, as well as on the impact of a range of 8V2 to 11VI percent, mea- redefinition of M3 to include term Eurodollars. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 41 bution well out of proportion to the began to abate, reflecting improved importance of this component. In confidence arising from the recovery; turn, inflows to Super NOW ac- a moderate rise in interest rates, which counts, which had been authorized in began in late spring, also curbed early January, exceeded growth in demands for money. Demand de- OCDs during the year as a whole. posits peaked in July and edged Even so, the introduction of the new down, on balance, during the second deposit accounts appears in retro- half; the growth of OCDs fell to a spect to have had little effect on the fraction of the rapid first-half pace. overall growth rate of Ml, as inflows Thus Ml entered its newly established from outside Ml into Super NOWs monitoring range in late summer and probably were roughly offset by finished the year in the middle of that outflows from Ml to MMDAs. range. In light of the rapid expansion in During the first quarter of 1983, Ml through midyear, and referring the velocity of Ml continued to back to its recognition that appropri- decline at nearly the extraordinary ate growth rates for the aggregates rate of 1982. These declines exceeded would depend on judgments about those implied by models of past beunfolding economic and financial de- havior, even taking into account the velopments, the FOMC in July estab- effects of the large reduction in the lished a new monitoring range for Ml opportunity cost of holding money for the second half of 1983. This balances brought about by sharp range of 5 to 9 percent was based on drops in market rates and the introthe average for the second quarter, duction of ceiling-free Super NOW rather than that for the fourth accounts. As the year progressed, the quarter of 1982. The decision to velocity of Ml began to increase, adopt a new base for monitoring Ml slowly at first but more rapidly by the growth reflected a judgment that the last quarter. Even with this accelerarecent rapid growth of Ml would ap- tion, growth in Ml velocity in the full propriately be treated as a one-time year following the business cycle phenomenon, which was expected to trough in the fourth quarter of 1982 be neither reversed nor extended. It was well below the experience typical appeared, in retrospect, that the surge in a recovery. in Ml might largely have reflected an As was evident when the target adjustment by the public of its cash ranges were first established early in balances in response to the pro- 1983, the dramatic response to the nounced drop in the opportunity cost authorization of MMDAs substanof holding low-yielding demand tially boosted M2. Competition for deposits and regular NOW accounts. these funds was intense: promotional The FOMC emphasized that it still activity was heavy and, in some regarded the behavior of Ml as sub- regions, introductory interest rates ject to substantial uncertainties, and were far above yields on market init reaffirmed its decision to place vestments. Inflows to MMDAs in principal weight on the broader ag- January alone totaled $147 billion, gregates in the implementation of and by March outstandings had monetary policy. reached $321 billion. However, most After midyear, precautionary de- of the inflow to MMDAs appears to mands for liquid balances apparently have come from other instruments in- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

42 Monetary Policy Reports Growth of Money and Creditl drop in interest rates offered on these accounts. At the same time, the less Percentage changes liquid small time deposit component Domestic of M2 increased quite rapidly over the non- Period Ml M2 M3 financial second half of the year, as a result of sector debt2 the steepening yield curve and more attractive rates on such deposits. Base to fourth quarter, 19833 7.2 8.3 9.7 10.5 However, the removal on October 1 of all remaining restrictions on small Fourth quarter to fourth quarter time deposits with original maturities 1978 8.2 8.0 11.8 13.0 or notice periods longer than 31 days 1979 7.5 8.1 10.3 12.0 1980 7.4 9.0 9.6 9.5 had little noticeable impact on 1981 5.1 9.3 1? 1 9.6 deposit flows. (2.5) * 1982 8.7 9.5 10.5 9.2 Reflecting MMDA inflows, M2 1983 10.0 12.1 91 10.5 growth from the fourth quarter of Quarterly growth rates 1982 through the fourth quarter of 1983-1 12.8 20.5 10.8 8.8 2 11.6 10.6 9 1 12.0 1983 was 12 percent. However, from 3 9.5 6.9 74 9.9 the February-March period used by 4 4.8 8.5 10.0 9.8 the FOMC as the base for its target 1. Ml, M2, and M3 incorporate effects of benchgrowth range, expansion through the mark and seasonal adjustment revisions. M3 incorporates a definitional change as well, the inclusion of fourth quarter was at an 8 lA percent term Eurodollars. See appendix B to this report for annual rate, well within its range. detailed information. After declining at a record rate in 2. Growth rates of domestic nonfinancial sector debt are measured between last months of periods. the first quarter, M2 velocity rose 3. The base for measuring growth in Ml was the during the rest of the year; over the second quarter of 1983; for M2, February-March; for M3, the fourth quarter of 1982; and for domestic non- year as a whole, velocity fell slightly. financial sector debt, December 1982. As was the case for Ml, the velocity 4. Ml figure in parentheses is adjusted for shifts to of M2 failed by a wide margin to keep NOW accounts in 1981. pace with the average increase during eluded in M2. Analysis by the the first year of a business recovery. Board's staff suggests that as much as However, correction for the volume four-fifths of that inflow may have of funds thought to have been atbeen transferred from savings de- tracted to MMDAs from outside M2 posits, small time deposits, and suggests that velocity movements money market mutual funds. (Over were in reasonably close corresponthe course of the year, assets of dence with experience. money market mutual funds dropped M3 growth picked up a bit in the 25 percent.) Still, a sizable volume of first quarter from its late 1982 pace, funds came from outside M2 and had owing to the explosion in M2. But an evident impact on growth in that until the closing months of the year, aggregate. expansion in this aggregate was re- In the face of the heavy deposit in- strained by sharp runoffs in managed flows and relative sluggishness of liabilities—especially large CDs—in business loan demand at commercial response to the rapid buildup early in banks, institutions dropped their ag- the year of MMDA balances and gressive promotion of MMDAs. The limited loan demand at commercial aggregate level of MMDAs barely in- banks. On the other hand, thrift increased after June, reflecting a sharp stitutions continued to issue large Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 43 CDs at a rapid pace in response to vanced by thrift institutions, in parrobust mortgage demands and a cost ticular, rose sharply from a depressed incentive to pay down advances from 1982 pace. Commercial bank credit the Federal Home Loan Banks. On also expanded more rapidly in 1983; balance, M3 moved on a track near purchases of government securities the upper end of its target range dur- accounted for more than one-third of ing 1983; growth from fourth quarter net credit extended by banks. Atto fourth quarter was 93A percent, tracted by relatively high U.S. interest just outside the target range.3 rates, funds advanced by the foreign Domestic nonfinancial sector debt sector also increased substantially increased lOVi percent in 1983, a bit during 1983. above the pace of the previous year. Thus each of the monetary and The outstanding debt of the federal credit aggregates finished the year government grew almost 20 percent, close to or within the ranges set by the about matching the pace of 1982; this FOMC. (Indeed, for the data before expansion accounted for about 40 the recent benchmark, seasonal, and percent of the increase in all domestic definition revisions, all of the money nonfinancial debt last year. State and stock measures were well within their local government financing activity ranges at the end of 1983.) Achievesurged to a new record; some of the ment of these objectives and the borrowing reflected efforts on the broader goals of the Federal Reserve part of the issuers to market debt was brought about by relatively small before the imposition of anticipated changes in the reserve position of the constraints, including requirements banking system and was accompanied for bond registration and proposed by generally stable conditions in limits on revenue bond issuance. A financial markets. Interest rates flucstepped-up pace of investment in tuated far less than in the previous housing and consumer durables led to few years. Moreover, although most a near doubling of borrowing by the interest rates rose moderately during household sector. But issuance of the year as the economic recovery nonfinancial business debt slowed to progressed, on average interest rates a quite slow pace, as internal cash were substantially lower in 1983 than flows of corporations exceeded in 1982. For example, rates on levelcapital expenditures for much of the payment home mortgages averaged year, and relatively high stock prices nearly 3 percentage points below their encouraged issuance of new equity 1982 levels; business borrowing costs shares. likewise declined significantly. The proportion of credit intermedi- Other indicators attested to a ated by depository institutions grew greater degree of stability and confisubstantially, rising from about one- dence in financial markets and the third in 1982 to about one-half in economy. Broad measures of stock 1983. This increase reflected both the prices increased about 20 percent. impact of MMDA inflows and a surge The balance of bond downgradings in demands for mortgages. Funds ad- and upgradings by the principal rating agencies became much more favorable. Spreads between interest 3. M3 has been redefined to include term rates on private and federal govern- Eurodollars, previously included only in the ment debt obligations narrowed draaggregate L. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

44 Monetary Policy Reports matically during 1983, as did spreads ing some of the severe mismatch in between yields on lower- and higher- asset and liability durations. Neverrated private securities. The strong theless, profit positions remain stock market enabled many large marginal and highly sensitive to firms to strengthen their balance changes in interest rates. sheets and many young companies to make initial public offerings of their Appendix A: Federal Reserve shares. Press Release of January 13, 1984, Commercial banks adapted to im- Regarding Contemporaneous portant changes in their environment Reserve Requirements in 1983. The new deposit accounts Beginning Thursday, February 2, the were successful in attracting funds to new contemporaneous reserve reboth banks and thrift institutions. At quirement (CRR) system will become the same time, banks experienced effective. In that connection, quesrelatively soft demand for business tions have been raised about the imloans—especially in the first half of plications of this change for the the year—and, hence, invested heavily Federal Reserve's open market in government securities, other maroperating procedures. This issue has ket instruments, and loans to conbeen considered by the Federal Open sumers. However, credit problems in- Market Committee. Taking account tensified in energy-related businesses, of technical transitional uncertainties and the financial condition of a numas well as policy judgments about the ber of foreign borrowers remained role of Ml and other monetary aggretroubling. A widespread increase, gates under current circumstances, relative to historical experience, octhe Committee agreed to make no curred in loan-loss provisions. A sizsubstantial change in current able number of banks—mostly small operating procedures at this time. —experienced credit-quality problems so severe that they were closed Background or merged into other institutions. The new CRR system differs from the Nonetheless, earnings of commercial present lagged reserve requirement banks in general appear to have been structure in two principal ways. First, well maintained in 1983. required reserves against transaction The condition of the thrift industry deposits will have to be held on an began to improve last year as lower essentially contemporaneous basis, average interest rates significantly instead of being lagged by two weeks. reduced operating losses. As a result Second, the reserve holding period of the MMDA, these institutions have has been lengthened from one week enjoyed a substantial increase in core to two weeks (with the relevant period deposits, and their improved profit for deposits also lengthened to position has enabled them to expand roughly the same two weeks—the large time deposits at reasonable cost. two-week deposit period running In contrast to commercial banks, from Tuesday to the second Monday, thrift institutions saw a heavy de- and the reserve period running from mand for loans last year. For the first Thursday to the second Wednesday). time, in 1983 a large proportion of This structural change in the reserve mortgages that they made carried accounting system has tightened the adjustable-rate features, thus repair- linkage between reserves and the cur- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 45 rent behavior of transaction deposits which may influence demands for ex- —demand deposits and interest- cess reserves, attitudes toward the disbearing accounts with full checking count window, and the speed of asset privileges (NOW and similar ac- and liability adjustments generally. It counts). These deposits, along with can be expected that some time will currency held by the public, comprise elapse before banks and other deposi- M1, the measure of money most nearly tory institutions have fully adjusted related to the transaction needs of the their reserve management, as well as economy. But because of NOW and portfolio and liability management, similar accounts, which have grown to the new system. Money managers substantially in volume over the past have to become accustomed to operfew years, Ml is also affected by sav- ating without certain knowledge of ing propensities and patterns. The their required reserves for a full re- Committee has been placing less serve averaging period during most of weight than formerly on Ml because that period. In addition, usual startof the institutional changes that have up problems with new data systems altered its composition, affected its will probably add to uncertainties at behavior, and increased uncertainties least for a while. Such data problems about its relationship to the economy. would also affect the timing and Other, broader aggregates—-M2 reliability of figures available to the and M3—encompass Ml plus other Federal Reserve. highly liquid assets and forms of sav- These technical issues aside, the ing, such as money market fund ac- new reserve requirement structure counts and time and savings deposits would potentially permit somewhat held at banks and thrift institutions. closer short-term control of Ml in Some of these other assets also, in particular. With CRR, if open market one degree or another, serve transac- operations were geared primarily to tion purposes, though they are not by Ml, an "automatic" tightening or law subject to transaction reserve re- easing of reserve positions that quirements. In general, the bulk of worked to bring Ml under control the assets in the broad aggregates are would tend to occur somewhat more not subject to reserve requirements, promptly than with lagged reserve although nonpersonal time deposits accounting. bear a relatively small lagged require- Whether operating procedures ment. should be adapted for this purpose does not depend on the technical Open Market Operations characteristics of the reserve requireand CRR ment system in place but rather on Adaptations in open market operating broader policy judgments about the procedures to CRR must take ac- relative weight to be given to Ml as a count of certain technical and transi- target and the desirability of seeking tional issues as well as the policy issue close short-run control of that aggreabout the weight to be given Ml and gate. To the extent less weight continother monetary aggregates in opera- ues to be placed on Ml, and relatively tions. The more technical and transi- more on broader aggregates less tional issues involve how the deposi- closely related to reserves, "autotory system as a whole adjusts to the matic" changes in reserve pressures in new reserve requirement system— response to short-run movements in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

46 Monetary Policy Reports Ml alone may not be appropriate. well as a definitional change affecting In light of these various considera- M3. This appendix discusses these tions, the Committee agreed that no revisions and presents tables comparsubstantial change would be made in ing growth rates of the old and new open market operating procedures at series. this time. These operating procedures Definitional Change will be reviewed after a transitional The definition of M3 has been changed period in the context of the role to include term Eurodollars held by played by the monetary aggregates, U.S. residents in Canada and the particularly Ml, in policy implemen- United Kingdom and at foreign tation and the potential implicit in branches of U.S. banks elsewhere. A CRR for achieving closer short-run recent reporting change provides data control of Ml. on term Eurodollars at a panel of branches of large U.S. banks on a Appendix B: Money Stock schedule similar to other M3 ele- Revisions ments. The inclusion of term Euro- Measures of the money stock have dollars raised the level of M3 about been revised to reflect annual seasonal $90 billion but had a minimal effect factor and benchmark revisions, as on M3 growth in 1983. Comparison of Revised and Old Growth Rates for Ml Percentage changes at annual rates Revised Old Difference Differences Period Ml Ml (1 - 2) Benchmark Seasonals (1) (2) (3) (4) (5) Monthly 1982—October .. 17.3 14.2 3.1 .5 2.6 November 15.8 13.6 2.2 .8 1.4 December. 10.3 10.6 -.3 -.4 .1 1983—January .. 11.5 9.8 1.7 -2.4 4.1 February . 14.8 22.4 -7.6 .2 -7.8 March.... 13.0 15.9 -2.9 0 -2.9 April 3.6 -2.7 6.3 1.7 4.6 May 21.0 26.3 -5.3 .5 -5.8 June 10.2 10.2 0 1.4 -1.4 July 9.4 8.9 .5 .9 -.4 August ... 5.8 2.8 3.0 0 3.0 September 3.5 .9 2.6 .6 2.0 October .. 6.2 1.9 4.3 1.6 2.7 November 3.2 .9 2.3 0 2.3 December. 5.3 6.5 -1.2 -1.0 -.2 Quarterly 1982:4 15.4 13.1 2.3 .2 2.1 1983:1 12.8 14.1 -1.3 -.7 -.6 2 11.6 12.2 -.6 .8 -1.4 3 9.5 8.9 .6 .8 -.2 4 4.8 2.1 2.7 .6 2.1 Annual 1983 1982:4 to 1983:4 . 10.0 9.6 .4 .4 0 Semiannual 1982:4 to 1983:2 . 12.4 13.3 -.9 0 _ Q 1983:2 to 1983:4 . 7.2 5.5 1.7 .7 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 47 Comparison of Revised and Old Growth Rates for M2 Percentage changes at annual rates Differences Period Revised Old Difference M2 M2 (1 - 2) Benchmark Seasonals (1) (2) (3) (4) (5) Monthly 1982—October 9.3 7.9 1.4 -.1 1.5 November 10.5 9.5 1.0 .4 .6 December 12.1 8.9 3.2 .5 2.7 1983—January 31.9 30.9 1.0 -.6 1.6 February 21.7 24.4 -2.7 -.9 -1.8 March 7.8 11.2 -3.4 .0 -3.4 April 8.4 2.8 5.6 1.9 3.7 May 11.8 12.4 -.6 .1 -.7 June 8.4 10.4 -2.0 -.1 -1.9 July 5.4 6.8 -1.4 .0 -1.4 August 4.9 6.0 -1.1 .0 -1.1 September 7.1 4.8 2.3 .6 1.7 October 10.8 9.1 1.7 .9 .8 November 8.2 7.2 1.0 .0 1.0 December 8.2 5.5 2.7 .3 2.4 Quarterly 1982:4 10.6 9.3 1.3 1.0 1983:1 20.5 20.3 .2 .4 2 10.6 10.1 .5 .0 3 6.9 7.8 _ Q -1.0 4 8.5 7.0 L5 Annual 1982:4 to 1983:4 12.1 11.7 .4 .1 February-March 1983 to 1983:4 8.3 7.8 .5 -.1 Benchmark Revisions small time deposits-—in order to Deposits have been benchmarked to reduce distortions caused by portfolio recent call reports; further revisions shifts arising from financial change in to deposits stem from changes to Sys- recent years, especially shifts to tem reporting procedures made in money market deposit accounts in 1983, largely related to reduced re- 1983. A similar procedure has been porting under the Garn-St Germain used to seasonally adjust the non-M2 Act of 1982. In addition, the currency portion of M3. component was revised to reflect revisions to figures on the amount of coin in circulation. The net impact of these revisions was to raise the levels and Report on July 25, 1984 boost the growth rates of each of the The Outlook for the Economy aggregates in 1983. As reviewed in later sections of this Seasonal Revisions report, the nation's economy in the Seasonal factors have been updated first half of 1984 was characterized by using the X-ll ARIMA procedure marked strength in sales, production, adopted in 1982. Nontransaction M2 and employment, and by relatively has been seasonally adjusted as a low inflation. Moreover, economic whole—instead of being built up activity still appeared to have subfrom seasonally adjusted savings and stantial forward momentum at mid- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

48 Monetary Policy Reports Comparison of Revised and Old Growth Rates for M3 ! Percentage changes at annual rates Differences Revised Old Difference M2 M2 (1 -2) Benchmark Seasonals (1) (2) (3) (4) (5) Monthly 1982—October .. 11.7 9.3 2.4 2.4 November 7.7 9.3 -1.6 -.8 December. 5.7 3.7 2.0 -.3 2.3 1983—January ... 14.4 13.0 1.4 -1.2 2.6 February .. 13.1 13.7 -.6 1.4 -2.0 March 7.2 8.1 -.9 1.2 -2.1 April 8.7 3.3 5.4 2.8 2.6 May 9.6 10.9 -1.3 .5 -1.8 June 10.3 11.0 -.7 .2 -.9 July 5.1 5.5 -.4 -.2 -.2 August 6.1 8.8 -2.7 -.3 -2.4 September . 8.8 7.6 1.2 -.5 1.7 October ... 9.4 8.6 .8 -1.0 1.8 November . 14.1 11.9 2.2 2.7 -.5 December.. 8.8 6.6 2.2 .3 1.9 Quarterly 1982:4 10.0 9.5 .5 -.3 .8 1983:1.... 10.8 10.2 .6 .7 2.... 9.3 8.1 1.2 1.5 -.3 3.... 7.4 8.4 -1.0 -.1 -.9 4.... 10.0 9.0 1.0 .1 .9 Annual 1982:4 to 1983:4 9.7 9.2 .5 .5 1. Revised M3 includes term Eurodollars; the inclu- by no more than 0.1 percentage point. sion of term Eurodollars boosted M3 growth in 1983 year, and the strong growth of the the federal government and the rapidly U.S. economy was helping to encour- growing private sector, have risen age recovery abroad as well. Amid from what already were high levels the favorable overall performance, historically, adding to stresses on however, some important structural some sectors of the U.S. economy imbalances and financial strains were and on heavily indebted foreign counapparent that need attention lest they tries. As labor and capital resources impair the sustainability of orderly have become much more fully utilized, growth. In particular, extraordinary and as real growth has continued exincreases in domestic demand have ceptionally rapid, the possibility of been accompanied by a further deteri- demand pressures contributing to oration of our trade and current ac- renewed inflationary tendencies has count deficits, which has contributed become a concern to many. to dangerous protectionist pressures. For the near term, the prospects for The persistent strength of the dollar continuing good gains in economic in foreign exchange markets has activity appear favorable. Consumers helped to keep inflation quiescent, seem to be willing to spend, and they but that strength has been dependent have the wherewithal to do so. The on a pattern of massive capital in- rising trend of contracts and orders flows. Interest rates, under pressure points to further sizable increases in from the combined credit demands of business plant and equipment spend- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 49 ing. And inflation should remain Committee agreed that, while flexibilrelatively subdued in the period im- ity and sensitivity might be required mediately ahead, given the recent in conducting monetary policy during behavior of labor and material costs. this crucial period, Federal Reserve However, as we look beyond the policy would need to remain basically near term, the stresses and im- oriented toward encouraging growth balances in the economy give rise to in a context of maintaining progress significant uncertainties in assessing over time toward price stability. The the economic and price outlook and specific monetary objectives outlined pose substantial challenges for public in the next section provided part of policy. The members of the Federal the assumptions underlying the pro- Open Market Committee recognized jections. this fact as they prepared their eco- At this time, the members of the nomic projections for the remainder FOMC (including those Reserve Bank of 1984 and for 1985 at their meeting presidents who are not at present earlier this month, emphasizing that voting members) generally foresee apthe probability of maintaining highly preciable gains in economic activity satisfactory performance could only over the remainder of 1984, but with be assured by timely decisions in a growth of real gross national product number of public policy areas. In less rapid than in the first half of the formulating its own policy plans, the year. While clear evidence of substantial moderation in the pace of expan- Economic Projections for 1984 and 1985 ! sion is still limited, some slowing seems likely in light of some softening FOMC members and of demand in the housing market, the other FRB presidents probable tendency for inventory in- Item Central vestment to level off after a sharp Range tendency surge in the first half, and other fac- 1984 tors. The central tendency of Com- Percent change, fourth mittee members' forecasts is for an quarter to fourth increase in real output of about 6V2 quarter N R Im e o a p m l l i i G c n i N a t l d P G ef N la P tor for GNP 9 31 !/ 4 6 2 t t t o o o 4 7 ll ^ ! 2 /2 10 6 ! ! / 4 2 4 t t t o o o 6 A 1 3 1 V /4 i p un er e c m en p t l o f y o m r e t n h t e r y a e t a e r , a w s h a ic h w h a o v l e e r . a g T e h d e about 7 Vi percent in the second quar- A verage level in the fourth quarter, percent ter of 1984, is expected to fall further Unemployment rate 61/2to71/4 63/4to7 in coming months, although much 1985 will depend on the highly uncertain behavior of labor force participation Percent change, fourth quarter to fourth rates and productivity growth, as well quarter Nominal GNP 63/4 to 9Vi 8 to 9 as on the strength of demand in the Real GNP 2 to 4 lioVA economy. The implicit deflator for Implicit deflator for GNP 31/2to61/2 VAioSVi gross national product is expected to Average level in the fourth rise slightly faster than in the first quarter, percent Unemployment rate 61/4to71/4 6^2 10 7 half of 1984, but even so, the central tendency of Committee members' in- 1. The administration has yet to publish its Mid- Session Budget Review document, and consequently flation forecasts shows an increase the customary comparison of FOMC forecasts and ad- for the year that—at around 4lA perministration economic goals is not included in this report. cent—would be only slightly above Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

50 Monetary Policy Reports the 1983 rise and would be lower than no specific assumptions were made generally expected at the start of this regarding further deficit-reducing year. steps in 1985, it was recognized that Members of the FOMC believe that additional, substantial budgetary acgrowth in activity is likely to continue tions will be needed to enhance the in 1985, though at a slower pace. That prospects for sustained, orderly slower pace would be satisfactory to economic growth. the extent it reflected the settling of the economy into a sustainable pattern of longer-run expansion after a The Federal Reserve's rebound from an exceptionally deep Objectives for Growth recession. Specifically, the central of Money and Credit tendency of FOMC forecasts calls for real growth of 3 to VA percent next The Federal Open Market Committee year and some further decline in the has reviewed its target ranges for unemployment rate. The Committee 1984 and established tentative ranges expects price increases to be some- for 1985 in light of its objective of what larger in 1985 than this year, achieving sustained growth in the with the central tendency of mem- context of continuing progress bers' forecasts being 5lA to 5Yi per- toward reasonable price stability over cent, on the assumption that the time. The behavior of Ml and M2 in dollar would remain in the trading the first half of 1984 was broadly conrange of the past year or so; the ex- sistent with the Committee's expectapectation of some pickup in price in- tions and objectives. Although difficreases in fact partly reflects the culties in anticipating demands for assumption that the inflation-damp- various measures of money and credit ing influence of dollar appreciation under changing economic circumwill abate, but on the basis of past ex- stances remained, partly reflecting perience some cyclical pressures on the new deposit accounts introduced wages and prices might also be antici- in the recent period of deregulation pated as a result of reduced slack in and changing financial practices, no labor and product markets. developments were foreseen that The behavior of the dollar in for- would call for changes in the 1984 tareign exchange markets is only one of gets for Ml and M2. Consequently, the uncertainties in the outlook for the Committee reaffirmed the exist- 1985. Strains in financial markets ing target ranges for 1984 for those have been aggravated by the histori- aggregates. cally large current and prospective M3 expanded above its target range federal budget deficits, and interna- and domestic nonfinancial sector tional debt problems will continue to debt ran well above its monitoring require attention. With respect to the range during the first half of the year. federal budget, Committee members The unexpectedly brisk expansion of are assuming that the Congress and spending appears to be a factor inthe administration will soon complete fluencing credit expansion. But in action on a series of measures that addition, this rapid growth is partly represent an initial "down payment" attributable to the unusual amount of toward reducing current and prospec- corporate mergers and buyouts, tive federal budget deficits. Although which also have led to a sharp reduc- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 51 tion in corporate equity shares out- The Committee also discussed the standing. Some of this rapid debt ex- ranges for the aggregates to be estabpansion may have influenced M3, as lished on a tentative basis for 1985. banks issued CDs, for example, to The Committee reaffirmed its intenfinance credit expansion, though it tion to lower over time growth of is always difficult to evaluate how money and credit to rates appropriate institutions or depositors would to progress toward price stability in have behaved if circumstances had an environment of sustainable ecodiffered. nomic growth. Consistent with these It appears that the factors that led goals, the FOMC established tentato growth in M3 and in debt above tive ranges for Ml and M2 that were the upper limits of their ranges in the somewhat below those for 1984. For first half could be less important dur- Ml, the upper limit was lowered one ing the second half. Credit flows asso- percentage point, and the range was ciated with corporate acquisition ac- set at 4 to 7 percent. For M2, the uptivity should diminish, partly because per limit was lowered one-half point, of higher prevailing interest rates and and a tentative range of 6 to 8 Vi perpartly because of greater caution on cent was established. the part of lenders in evaluating the The width of the Ml range was soundness of proposed transactions. brought more in line with the dimen- It also seems likely that growth of sions of the ranges for the other aghousehold spending and consumer gregates. This reflected experience and mortgage credit demands will over the past year in which the behavmoderate somewhat. However, given ior of Ml has been more consistent the levels of the money and credit ag- with previous cyclical patterns than gregates at midyear, it is unlikely that was the case in the recent recession. M3 and debt will be within their Consequently, the Committee felt ranges by year-end, although some that it would be appropriate to give deceleration toward the upper limits roughly equal weight to all of the of the ranges is expected to occur. monetary aggregates in implementing Under the circumstances, the Com- policy. Nonetheless, it was recognized mittee considered the question of that uncertainties remained about the whether increases in the ranges for behavior of Ml, as well as of the other 1984 for M3 and domestic nonfinan- aggregates, in periods of changing cial sector debt would be appropriate. market conditions. For instance, On balance, the Committee was of should market interest rates change the view that the broad direction of considerably, it is possible that funds policy would best be communicated would flow quickly into or out of by retaining the current range for M3 such fixed interest deposits as NOW and the associated monitoring range accounts, leading to sizable movefor domestic nonfinancial sector debt. ments in Ml—but, with limited experi- While the Committee anticipated ence to date with the present account growth somewhat above the ranges structure, the extent of these movefor the year as a while, it was felt that ments cannot be projected with confihigher "target" ranges would provide dence. Moreover, the process of fian improper benchmark for evaluat- nancial deregulation continues. At ing desired longer-term trends in these the beginning of 1985, the minimum aggregates. denomination for Super NOW ac- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

52 Monetary Policy Reports counts and MMDAs is scheduled to cit would help to relieve credit market decline from $2,500 to $1,000; it was pressures. assumed that this change will have no The Committee felt that implemenmore than a minimal impact on Ml tation of monetary policy would reand M2. Should legislative action per- quire continuing appraisal of the mit interest on reserves or on demand progress of economic activity and deposits, this interest would tend to prices and of conditions in domestic affect—perhaps significantly—the and international financial markets— demand for monetary aggregates, especially in light of the sensitive state particularly Ml. of these markets and of a number of The Committee retained for 1985 economic sectors. The Committee the current target range for M3 and emphasized, however, the importance the current monitoring range for of appropriate restraint in monetary domestic nonfinancial sector debt. As and credit growth. A good start has noted above, these aggregates might been made in reversing the debilitatbe somewhat above their ranges in ing trends of rising inflation and lan- 1984. Thus, growth next year within guishing productivity that plagued their ranges would represent an actual our economy for so many years. But slowing from this year's pace. The monetary vigilance—in combination Committee noted that some decelera- with determined action to reduce the tion in growth of these aggregates is federal presence in the credit markets both desirable and likely, reflecting a —is essential to the achievement of slowing in expansion of nominal durable reductions in interest rates, GNP and a drop in corporate merger overall financial and economic staactivity. Still, business demands for bility, and sustained growth of the external finance are likely to remain economy. strong, and absent a substantial improvement in the stock and bond mar- The Performance of the Economy kets would tend to continue to be in the First Half of 1984 concentrated at banks and in shortterm credit markets generally. Al- The economic expansion gained furthough household borrowing is ex- ther momentum in the first half of pected to moderate somewhat in 1985, 1984, as the growth of real gross nastate and local government borrowing tional product accelerated to an anmay be heavier than in 1984, and the nual rate of almost 9 percent. Emfederal budget implies the continua- ployment also increased rapidly, and tion of exceptionally large Treasury the unemployment rate dropped to its borrowing. lowest level in more than four years. In its discussion, the Committee Price increases continued to be relanoted that only limited progress has tively moderate. been made recently in reducing fed- In 1983, the economy had followed eral budget deficits, and that current a path that was fairly typical of previand prospective structural deficits re- ous postwar recoveries; with the conmain huge. The massive fiscal stimu- tinued rapid growth of activity in lus and credit demands associated 1984, the current expansion has proved with these structural deficits will tend stronger than during comparable cyto hold interest rates at high levels. clical periods since World War II, the Further progress in lowering the defi- only exception being the period of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 53 Korean war buildup. Real GNP has spite the continuation of favorable grown faster, and the levels of eco- wage and price patterns through the nomic slack have declined more rap- first half of 1984. One cause for conidly, than in the usual expansion. In cern is that growth in the demands addition, real gross domestic spend- placed on the economy could continue ing rose even more rapidly than pro- at a pace that, if maintained for long, duction during the first half—about would damage the prospects for sus- 10!4 percent at an annual rate—and taining real growth, achieving better was reflected in a surge in the demand balance in financial markets, and for imports as well as strong demands making further progress toward price for the goods and services being pro- stability—central objectives of public duced domestically. These gains, of policy. Inflationary pressures would course, followed a deep recession. be intensified if the exchange value of The civilian unemployment rate at the U.S. dollar were to decline sharpmidyear—at just over 7 percent—had ly from its current high level in the dropped about 3% percentage points face of unprecedentedly large current from its peak, but is still above "full account deficits. These concerns are employment" levels. The capacity importantly related to the strains on utilization rate in manufacturing is real and financial markets stemming slightly below the postwar average. from federal budget deficits, actual The strong growth, reduced unem- and potential, which, among other ployment, and more stable prices of implications, now complicate the conthe past year and a half have been re- duct of monetary policy. flected in rising productivity and higher real incomes for most Ameri- The Household Sector cans. After the immediate hardships Strength in the household sector conassociated with the recession, prog- tinued to provide a strong impetus for ress toward our long-range goals has expansion in the first half of 1984. been apparent. Even so, the economy Personal income, in nominal terms, still faces a number of serious prob- rose at an annual rate of about 103/4 lems and, in some respects, these percent during the first half of the problems have grown more worri- year, and with inflation low, most of some over time. During the current that nominal gain translated directly expansion, there has been an enor- into sizable increases in real purchasmous increase in federal debt and an ing power. In addition, despite the reunprecedented deterioration in our cent upswing in interest rates and balance of trade. A number of domes- some decline in stock market wealth, tic producers have not shared fully in consumers remain generally optimisthe expansion, and many developing tic about future business conditions. nations still are burdened by large ex- Reflecting that optimism, they have ternal debts. Concern about financial continued to consume heavily out of stress in both the domestic and inter- current income and have become innational economies has heightened creasingly willing to take on higher this year as interest rates have risen levels of debt. As a result, personal from levels that already were high by consumption expenditures, in real historical standards. terms, rose rapidly in the first half of Widespread concern about the out- 1984—at an annual rate of nearly 6 look for inflation also persists, de- percent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

54 Monetary Policy Reports Consumer spending for new cars stock prices, and household debt has was particularly robust in the first been growing much more rapidly half of 1984 as unit auto sales rose to than in 1983. In addition, there are the highest level since mid-1979. With troubling aspects to some of the requotas limiting the imports of foreign cent patterns of household credit models, most of the rise in spending growth. Consumer credit has been was channeled into sharply higher rising much faster than income this purchases of domestically produced year, and some of the recent innovaautomobiles, and in light of strong tions in mortgage lending, while supsales, many domestic auto plants op- portive of current housing activity, erated near full capacity in the first also increase the level of borrower exhalf of 1984. Auto output, in real posure to adverse movements in interterms, was about 50 percent above est rates or unexpected shortfalls in the depressed level of 1982. future household incomes. Spending for housing also continued to advance in the first half of The Business Sector 1984, thereby maintaining the vigor- Economic conditions in the business ous cyclical expansion that was ap- sector have strengthened during the parent during 1983. Housing starts past year and a half. Output, sales, spurted to a six-year high in January profits, productivity, and investment and February, and outlays for resi- spending have all been rising throughdential construction rose in both the out the expansion. By the first quarfirst and second quarters. All told, ter of 1984, after-tax profits in the the rebound in housing activity over domestic nonfinancial corporate secthe past year and a half has been tor were about twice the levels of late stronger than generally expected and 1982. Fixed investment spending, in has exceeded the gains experienced real terms, has risen roughly 25 perduring most previous housing recov- cent during the first year and a half of eries. During this period, demograph- the recovery. ic influences and relatively stable The rise in business investment house prices provided underlying sup- spending during the current expanport for housing demand, and inno- sion has been much stronger than vations in housing finance helped to generally expected. Unused capacity soften the effect of high mortgage in- was at a particularly high level when terest rates. While home sales ap- the expansion began and appeared peared to be moving lower toward likely to inhibit new capital outlays midyear, there should continue to be for some time. However, as the ecoa supporting influence in housing nomic expansion started to look more markets from some of the same fac- durable during the course of 1983, tors that have helped to boost activity businesses began rushing to modernto a high level during the early phases ize old units or to add to capacity. In of the expansion. addition, other factors, such as the Household balance sheets are no 1982-83 stock market boom and longer strengthening as they did dur- changes in tax laws, contributed to ing the recession and early phases of the ebullience in investment spending. the recovery. Some of the earlier gains The widespread adoption of new in stock market wealth have been re- computer-based technologies, which versed during this year's decline in was evident even during the recession, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 55 also has continued to provide an ele- heavily reliant on short-term credit as ment of strong support in the capital its source of finance and is still relagoods sector, and, more generally, tively vulnerable to adverse interestbusinesses have recognized a need to rate developments. invest in new technologies in order to Financial problems of a more severe remain competitive with foreign pro- nature are evident in particular secducers. Reflecting these influences, tors of the economy. In farming, for spending for new capital equipment example, export developments have recorded particularly strong gains continued to be discouraging, land during the past year and a half, and prices are falling in important agriculspending for structures also has tural areas, and many farmers who strengthened markedly in recent had accumulated large volumes of quarters. debt during the more inflationary Inventory accumulation during 1983 years are, at present, facing severe fiwas less rapid than in the early phases nancial strains. of many previous recoveries, but, in light of lengthening delivery times The Government Sector and the sustained strength of sales, With the cyclical strengthening in ecobusinesses appear to have become nomic activity, federal tax revenues more willing to rebuild stocks in the have increased, and the rate of growth first half of 1984. In real terms, busi- in federal spending for income supness inventories rose at an annual rate port programs has slowed markedly. of more than $30 billion in the first Nevertheless, federal debt has continquarter of the year, and a further siz- ued to accumulate at an enormous able accumulation was apparent in rate, reflecting both an underlying the second quarter. Even so, stocks in uptrend in federal outlays and the most industries still appear lean rela- series of tax reductions that took eftive to the recent pace of sales. fect during the past three years. Fed- Despite the impressive improvement eral debt outstanding has risen more in activity over the past year and a than 80 percent since the end of 1979. half, businesses have not restored Net interest payments on the debt their financial ratios to positions have more than doubled over that comparable to pre-inflation and pre- same period, rising to an annual rate recession levels. As is typical in the of about $110 billion by the first half early phases of economic expansions, of 1984. Current prospects are for many businesses began moving to further sizable increases in both outstrengthen their balance sheets in standing debt and net interest pay- 1983, but the period of balance sheet ments in coming years. restructuring in the current expansion These spending and revenue poliappears to have been unusually brief. cies of the federal government have A downturn in stock prices this year provided an extraordinary stimulus to has made equity financing less attrac- aggregate demand for goods and sertive, and rising long-term interest rates vices, but they also have contributed have inhibited bond financing. Merg- to high interest rates, unsettled condiers and so-called "leveraged buy- tions in financial markets, and a starouts" have resulted in a disturbing tling deterioration in our balance of net retirement of equity so far this trade. Recognizing the dangers posed year. The business sector has remained by current policies, the Congress and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

56 Monetary Policy Reports the administration have sought appro- billion in the first quarter of 1984. priate ways to reduce federal budget The U.S. current account deficit regdeficits, but the actions taken to date istered a corresponding shift during are only a limited beginning toward this period, with the first-quarter defidealing with the full magnitude of the cit reaching an annual rate of nearly problem. $80 billion. Data through May indi- The underlying thrust toward high- cate that the trade balance remained er federal spending has been obscured weak into the second quarter. The in some of the recent data. For exam- magnitudes of these trade and current ple, in real terms, federal purchases account deficits are without historical of goods and services in the first half precedent. of 1984 were slightly below year- While the gains in exports in recent earlier levels as outlays early in the quarters have not fully reversed the year were depressed by an unusually declines that occurred during the last rapid liquidation of the farm inven- recession, imports have surged far tories held by the government's Com- above their prerecession peak. A mamodity Credit Corporation. For other jor influence on these trade patterns goods and services, federal purchases has been the tremendous appreciation in the first half were nearly 4 percent in the exchange value of the U.S. dolmore than a year earlier, after adjust- lar in recent years. Buoyed by high ment for inflation. Real outlays for U.S. interest rates and an eagerness defense were up about 514 percent of foreigners to invest in dollarfrom a year earlier. denominated assets, the dollar rose The financial situation of state and about 45 percent against other curlocal governments has improved mark- rencies from late 1980 to late 1983 edly during the expansion. In real and, after turning down temporarily terms, state and local outlays, though in early 1984, rose to new highs up moderately in the first half of 1984, around midyear. This appreciation, still have shown only a small real gain through its impact on relative prices, over the past three years as a whole; has been both a depressant of exports these cautious spending patterns, cou- and a strong stimulant to import pled with increased tax revenues asso- growth. ciated with the expansion, have re- Recent trade developments also resulted in large operating surpluses for flect the sharply divergent growth state and local governing units as a patterns in the world economy. The whole. exceptional strength of the U.S. economy over the past year and a half has been manifested partly in a surge of The Foreign Sector import buying. In contrast, the eco- After falling sharply in 1981 and 1982, nomic recovery in other industrial nathe volume of U.S. exports rose mod- tions has been substantially less rapid erately during 1983 and increased fur- than in the United States, and exports ther in the early part of this year. to those nations have lagged. Many However, imports have grown much developing countries that are burfaster, and as a result the trade defi- dened with huge external debts have, cit increased from an annual rate of necessarily, sharply constrained imroughly $40 billion in the first quarter ports, including those from the of 1983 to a rate of more than $100 United States. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 57 Labor Market Developments the start of the decade, fell sharply in Labor market developments in the 1982 as unemployment rose to nearly first half of 1984 were shaped both by 11 percent of the labor force. As the the vigorous expansion in economic economy has expanded, the rate of activity and by widespread restraint wage increase has remained close to on increases in nominal wages and those lower levels. Year-to-year insalaries. Employment rose rapidly, creases in the employment cost index, work schedules lengthened, and un- a fairly comprehensive measure of employment declined. Thus far in the wage and benefit change, held at current expansion, payroll employ- about 53A percent from September ment has risen a little more rapidly 1983 through March 1984; the hourly than in most previous postwar recov- earnings index, a measure of wage eries; the average workweek, another change for production and nonsuperindicator of labor demand, has in- visory workers, has slowed a little furcreased much faster than usual. ther in the first half of this year to an The slack economic conditions dur- annual rate of about VA percent. ing the recession and the early phases By the 1970s, large annual increases of the recovery may have discouraged in nominal wages had become almost many persons from seeking new jobs, automatic in a number of industries, but as the expansion has lengthened thereby imparting strong momentum into 1984, new jobseekers started en- to the inflationary process. However, tering the labor force at a faster pace. as labor markets weakened in the early However, employment opportunities 1980s and price expectations moderrose even faster and, as a result, un- ated, there were marked changes in employment rates continued to fall. patterns of wage determination. Out- By June the civilian unemployment right declines in wages occurred in rate had dropped to nearly 7 percent, many troubled industries, and workits lowest level since April 1980. ers in general became more concerned Notwithstanding the general im- about job security than about autoprovement in labor market conditions, matic wage increases. Workers and there are wide disparities in the job managers alike took new interest in situations across different regions. measures to improve productivity and Unemployment is still quite high in to enhance competitiveness in foreign many of the traditional industrial markets. states, and problems of longer-term With labor markets now tightenunemployment remain especially acute ing, a key question in the outlook is in communities where plants were whether the recent conservative patpermanently closed during the reces- terns of wage determination will be sion. Jobless rates for blacks and maintained or, alternatively, whether teenagers also remain exceptionally there will be a reversion to the more high. inflationary patterns of the previous Recent wage developments appear decade. Important signs regarding the to have been affected both by changes outlook for wages should emerge later in behavior that first were evident this year, as new collective bargaining during the recession period and by the negotiations get under way, including moderation of price increases. Nomi- some in industries in which economic nal wage increases, which were run- conditions have strengthened markning close to 10 percent per year at edly during the expansion. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

58 Monetary Policy Reports Price Developments ticularly acute in the 1970s. Because Inflation rates fell dramatically dur- of spare capacity in world oil markets, ing 1982 and-—by the standards of the a protracted war in the Persian Gulf past decade—have remained relatively has, to date, had little effect on the moderate through the first year and a prices of oil or petroleum products; half of the expansion. The consumer consumer energy prices, in relative price index rose at an annual rate of terms, have continued to decline this about 4 Vi percent during the first five year. Similarly, the slack export demonths of 1984; the price deflator for mand for U.S. farm products has gross national product was up at a helped to damp price pressures in the rate of only VA percent in the first food sector; despite the severe drought half. The rate of increase in the CPI of last summer and a damaging freeze was slightly above the pace experi- this past winter, the rise in consumer enced during 1983; the GNP deflator food prices in the first half of the year has risen at the same rate this year as was not much different from the genin 1983. Producer prices, after rising eral rate of inflation. only fractionally in 1983, increased at All told, the nation is enjoying a close to a 3 percent rate in the first better price performance than for any half of this year; basic commodity other sustained period in more than a prices have been declining in recent decade. The fact that inflation rates weeks, reversing some of the sharp and underlying wage trends have readvances that occurred earlier in the mained moderate during a particularexpansion. ly robust expansion is an encouraging Taken together, these and other development. However, there typicalprice data suggest that inflation in the ly has been little price acceleration in first half remained in the range that the first two years of business expanhas generally prevailed since early sions; the dangers have become great- 1982 and is running at little more than er in the later stages of expansion. one-third of the peak inflation rates Moreover, while the foreign sector of the period from 1979 to 1981. Price has provided an important restraining behavior over the past year and a half influence on domestic prices thus far has been constrained by highly com- in the current expansion, that influpetitive markets, as well as by the am- ence has been dependent on an excepple plant capacity and labor resources tionally strong dollar and a high level generally available during the recov- of capital inflows from abroad. Thus, ery period. In addition, because of although current price trends are the sharp rise of the dollar in exchange favorable, important tests of progress markets, the dollar prices of imported toward greater price stability remain goods have increased only slightly ahead. thus far in the expansion and have been a greater restraining influence on domestic prices than in past ex- Money, Credit, and Financial pansions. Markets in the First Half of 1984 Imbalances between supply and demand have been an important influ- Earlier this year, the Federal Open ence on price developments in food Market Committee established specifand energy markets, sectors in which ic growth objectives for the monetary inflationary pressures had been par- and credit aggregates for 1984. These Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 59 objectives were 4 to 8 percent for Ml, Growth of Money and Credit 6 to 9 percent for both M2 and M3, Percentage changes and 8 to 11 percent for domestic nonfinancial sector debt. The ranges were Domestic nonset Vi or a full percentage point below Period Ml M2 M3 financial sector the ranges for 1983, to be consistent debt with continued restraint on inflation- Fourth quarter to ary pressures while encouraging sus- June 1984 7.5 7.0 9.7 13.1e tainable expansion in economic Fourth quarter to second quarter activity. 1984 6.7 6.9 9.7 13.1e In setting these objectives, the Fourth quarter to FOMC assumed that special factors fourth quarter that had contributed to strong de- 1978 8.2 8.0 11.8 13.3 1979 7.5 8.1 10.3 12.1 mands for money in 1982 and 1983 1980 7.4 9.0 9.6 9.6 1981 5.1 9.3 12.3 9.9 would not be nearly so important in (2.5)l 1984. The massive shifts of funds 1982 8.7 9.5 10.5 9.0 1983 10.0 12.1 9.7 10.8 brought about by the introduction of the new deposit accounts were largely Quarterly growth rates 1983:1 12.8 20.5 10.8 8.9 completed last year. The continuing 2 11.6 10.6 9.3 10.4 strength of the economic rebound 3 9.5 6.9 7.4 11.8 4 4.8 8.5 9.8 10.3 and the size of federal budget deficits made it appear that further substan- 1984:1. 7.2 7.0 9.0 12.5 2. 6.1 6.8 10.2 13.3 e tial declines in interest rates, such as 1. Ml figure in parentheses is adjusted for shifts to those that had accompanied the reces- NOW accounts in 1981. sion in 1982 and had contributed to e Estimated. sharp declines in monetary velocity, were unlikely over the near term. activity and prices, and overall credit Moreover, greatly improved prospects market developments. for employment and incomes seemed In the first part of the year, credit to be reducing the uncertainties that demands proved to be exceptionally earlier had swelled demands for pre- strong, reflecting the continued rapid cautionary balances. Consequently, expansion in private sectors of the the relationships of the monetary ag- economy, coupled with sustained, gregates to income and interest rates large federal borrowing needs. Inwere expected to fall more into line deed, growth in the debt of domestic with historical norms. nonfinancial sectors accelerated in Even though, as 1984 began, there the first quarter and remained at an was some evidence that the velocity of advanced pace of around 13 percent Ml was behaving more in accord with at an annual rate through the first past patterns, the Committee decided half, significantly above the range set that it would not yet be appropriate by the FOMC at the beginning of the to place full weight on that aggregate year. The debt of private sectors inas a policy guide and that its growth creased at about a \2Vi percent anwould need to be interpreted in light nual rate in the first half of the yearof growth in the other aggregates. some 4 Vi percentage points more than Moreover, growth of all the aggre- last year—while federal debt expangates needed to be appraised in the sion remained strong at an annual context of the outlook for economic rate of about \A2A percent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

60 Monetary Policy Reports In appraising credit growth over parison with the past two years, rethe first half of the year, account flecting a lapse in authority to issue needs to be taken of an unusually mortgage revenue bonds and anticilarge volume of merger activity. Sev- pated legislative limits on industrial eral large mergers and many smaller development and student loan bonds ones were financed largely with debt retroactive to January. and led to liquidation of a sizable The strength of total credit deamount of equity. Such mergers are mands exerted upward pressures on estimated to have accounted for interest rates. These pressures were roughly one percentage point of the reflected in a rise of about 1 to 2 perannual growth rate of domestic non- centage points in short-term rates financial sector debt in the first half over the first half of the year. Longof the year. term rates also rose about that Much of the debt expansion was amount, reflecting in part the weight concentrated in short-term markets. of Treasury financing and uncertain- Growth in bank credit accelerated to ties about the budgetary and economa 14 percent annual rate in the first ic outlook generally, whereas they quarter of the year, though it slowed normally rise much less than shortsomewhat in the spring as banks liqui- term rates. dated securities to a greater extent in The Federal Reserve in implemenaccommodating loan demands. Large tation of monetary policy added amounts of credit also were raised in moderately to pressures on the rethe commercial paper market. Corpo- serves of the banking system around rate borrowers—which as a group the end of the first quarter to mainhad not had any significant need for tain appropriate growth of money net external financing in the previous and credit. To meet credit demand two years—this year began to experi- and deposit growth, institutions had ence a rise in the financing gap, as to turn somewhat more to the disspending for inventories and plant count window; borrowing for adjustand equipment came to outpace inter- ment and seasonal purposes at the nally generated funds. window rose to around $1 billion in While borrowing in short-term mar- March and April after averaging only kets particularly strengthened, the de- about $640 million during the first mand for funds in longer-term debt two months of the year. The narrowmarkets remained large relative to the er monetary aggregates—Ml and M2 supply of savings in those instruments. —have remained within their ranges. Mortgage borrowing by households However, under the pressure of rose sharply, and corporate bond is- strong public and private credit desuance picked up somewhat from its mands, both M3 and total domestic pace of the second half of last year. credit have been expanding at a more Meanwhile, the federal government rapid rate than anticipated. continued to market a sizable amount As reserve pressures increased, of longer-term debt obligations to growth of total reserves and the meet its continuing large cash needs monetary base slowed substantially and to roll over maturing debt. On during the early spring. Part of the the other hand, activity in the slowing in growth of total reserves remunicipal bond market was subdued flected the return of excess reserves to during the first half, at least by com- more usual levels after they had ex- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 61 panded sharply in February, at the struments generally. More recently, time of the introduction of contem- yield spreads have narrowed, as progporaneous reserve accounting. In May ress has been made on debt questions and June, growth in the reserve aggre- and the Continental Illinois situation gates accelerated, partly reflecting the has remained unique and contained. upward impact on required reserves Ml has grown generally in the upof shifts in the deposit mix as banks per half of the 4 to 8 percent range relied relatively more heavily on large adopted by the Committee. From the time deposits and as government and fourth quarter of 1983 through June interbank deposits also rose. The of this year, that aggregate grew at a large borrowing by Continental Illi- IVi percent annual rate, close to the nois Bank over this period was offset rate of growth during the second half in open market operations by reduced of 1983, but significantly lower than holdings of U.S. government securi- during 1983 as a whole. Growth in ties, so that borrowing by depository currency, demand deposits, and travinstitutions apart from that bank re- elers checks (essentially the narrow mained close to the level reached in measure of money used before 1980) early spring. has remained near last year's 5lA per- The federal funds rate rose from cent pace. about 9Vi percent in the early part of However, other checkable deposits the year to around 10 percent in early (OCDs) have decelerated sharply spring and to around 11 percent in from the nearly 30 percent rate of June and early July. The Federal Re- growth of 1983 to around 14 percent serve discount rate was raised from this year. OCDs—primarily consist- %Vi to 9 percent in April. While the ing of NOW accounts—are interest rise in the funds rate—which is sensi- earning, and tend to be used not only tive to banks' day-to-day demands for transactions but also as a reposifor reserves relative to supply—in tory for liquid savings. This year's part reflected somewhat greater re- slowing apparently reflects a waning straint by the Federal Reserve in the of the motives that led to heavy deprovision of reserves through open mands for liquid assets in 1982 and market operations during the spring, 1983, as well as recent increases in the it also reflected the increased willing- opportunity cost of holding such balness of banks to pay more for federal ances as interest rates on other instrufunds as credit demands remained ments have risen. strong, and as other sources of funds While Ml growth has slowed relabecame relatively expensive. tive to last year, its income velocity— The loss of confidence in the Con- measured by the ratio of gross nationtinental Illinois Bank and well- al product to money—increased rappublicized problems related to on- idly, given the strength of the economy going international debt negotiations and associated demands for money in May led to a widening in the spread and credit. Over the first half of the of yields on certificates of deposit year the income velocity of Ml has inissued by depository institutions over creased at about a 5 Vi percent annual Treasury securities of similar maturity. rate, a little more rapid than usually Indeed, investors increasingly seemed has occurred in the second year of an to show a preference for government expansion. Nonetheless, the level of securities relative to private credit in- Ml velocity still remains about 3 per- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

62 Monetary Policy Reports cent below the peak reached during tinued to issue large CDs at a rapid 1981, and about 10 percent below an pace, owing to heavy acquisitions of extrapolation of its pre-1982 trend- mortgages and mortgage-backed sesuggesting that at least some relatively curities and moderate growth of core permanent, sizable increase in demand deposits. Loan growth at commercial for Ml may have stemmed from the banks strengthened further in the first impact on the public's money prefer- half of 1984. Commercial banks, ences of the sharp drop of market which last year ran off about $40 interest rates in 1982 as inflation billion of large CDs in response to the abated, given the comparatively low flood of money market deposit acopportunity cost of holding Ml that count money and sluggish loan dedeveloped with the larger role of mand, increased outstandings $25 bilinterest-bearing transaction accounts lion in the first six months of the year in that aggregate. to fund the surge in loan demand. Growth in M2 also has been well Growth in M3 would probably have below that of GNP over the first half been even more rapid had not comof 1984. To some degree, expansion mercial banks supplemented deposit in M2 appears to have been restrained funds by heavy borrowing from forby heavy inflows to individual retire- eign offices, amounting to $15 billion ment accounts (IRAs) and Keogh ac- over the first half of 1984. counts, which are excluded from In general, the rapid further expanmoney stock measures. Inflows to sion of the economy in the first half IRA and Keogh accounts at deposi- of 1984 has been financed by an acceltory institutions alone surged more erated rise in velocity of money and than $20 billion over the first half of by large-scale extensions of credit, all the year, much of which likely has not accompanied by further increases in yet been taken into account by sea- interest rates and by an unusually sonal adjustment factors. The com- large share of credit raised abroad. In position of growth in the nontransac- the process, greater stresses, or their tion component of M2 has tended in potential, have been evident this year recent months to shift toward small in the financial position of some ecotime deposits, perhaps reflecting a nomic sectors. willingness of investors to sacrifice li- Depository institutions as a group quidity in order to receive higher have not been under pressure from yields. At the same time, the fact that disintermediation as they often were depository institutions have lagged in in the past when interest rates rose beraising their offering rates on time cause regulatory ceilings on yields deposits relative to market interest payable by depository institutions rates probably has encouraged some have largely been removed. Thus, desavers to invest in market instruments posit flows have been well maintained. instead. Still the profits of banks and thrifts However, M3 growth—like growth deteriorated in the first half of 1984— in total debt—has pushed above the in the case of banks, partly because of upper end of its range. This aggregate continuing problem loans, and in the comprises, in addition to all of the case of thrifts, mainly because of risassets in M2, large CDs and certain ing interest rates. other borrowings by depository insti- With regard to the corporate busitutions. Thrift institutions have con- ness sector, the reduction in equity Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Reports 63 shares outstanding thus far this year, traced all of its decline and more, together with the concentration of establishing bilateral record highs overall borrowing in short-term mar- against several currencies. The ket sectors, has in some degree re- dollar's rebound appears partly relatversed the progress made last year to- ed to increases in dollar interest rates ward stronger balance sheet positions. relative to yields on assets denominat- In the household sector, rapid growth ed in foreign currencies. Demand for in consumer credit and in mortgage the dollar may have been spurred also debt, especially adjustable-rate mort- by the favorable inflation perforgages, has increased the actual and mance in the United States and a perpotential share of income devoted to ception that monetary policy will condebt service. tinue to resist inflationary pressures. There has been a sharp upswing in In addition, part of the dollar's use of adjustable-rate mortgages, strength may reflect labor relations most of which are made at initial problems that have affected Eurorates well below the cost of fixed-rate pean currencies, as well as military financing, that has tended to support conflicts in the Mideast. Reports of a housing activity and mortgage lend- widening trade deficit may have weaking. Nearly two-thirds of convention- ened the dollar, but on balance the al mortgages originated by savings forces mentioned above more than and loan institutions in early 1984 offset the effects of the deficit. were of the adjustable-rate variety. The large net inflow of funds that Thrifts also have been originating and foreigners have been willing to place holding a growing volume of consum- in the United States has been an imer loans. Both of these types of assets portant factor enabling credit marcarry yields that more closely track kets to finance the faster rise in current market yields than do long- private borrowing needs, while still term fixed-rate mortgages. Despite accommodating the unusually large the shift away from origination of and continuing federal credit defixed-rate mortgages, however, the mands. Thus, the imbalance, at curasset stocks of thrift institutions re- rent interest rates, between domestic main heavily concentrated in such in- savings and domestic demands on struments, leaving industry earnings that saving from the federal budgevulnerable to rising interest rates. tary deficit and private spending for The foreign exchange value of the investment has been accommodated dollar on a trade-weighted basis de- by a large further rise in debt owed to clined somewhat during the first few foreigners. months of the year, but has since re- 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

67 Record of Policy Actions of the Board of Governors Regulation D $29.8 million the amount of transac- (Reserve Requirements of tion balances to which the 3 percent Depository Institutions) reserve requirement applies. The Garn-St Germain Depository October 31, 1984—Amendments Institutions Act of 1982 established a The Board amended Regulation D, zero percent reserve requirement on effective January 1, 1985, (1) to in- the first $2 million of an institution's crease the amount of transaction reservable liabilities. It also provided balances to which the lower reserve for annual adjustments to that exrequirement applies; and (2) to in- emption based on nationwide deposit crease the amount of reservable growth. Recent growth in deposits inliabilities subject to a zero percent dicated that the amount subject to a reserve requirement. zero percent reserve requirement should be increased from $2.2 million Votes for these actions: Messrs. Wallich, Partee, Rice, Gramley, and Ms. Seger. to $2.4 million, and the Board Votes against these actions: None. amended Regulation D accordingly. Absent and not voting: Messrs. Volcker and Martin. Regulation £ (Electronic Fund Transfers) Under the Monetary Control Act October 4, 1984—Amendments of 1980, depository institutions, Edge and agreement corporations, and The Board amended Regulation E to U.S. agencies and branches of foreign expand coverage, modify error-resolubanks are subject to reserve require- tion procedures, and provide addiments set by the Board. Initially, tional flexibility in the disclosure of reserve requirements were set at 3 per- charges for electronic fund transfer cent of an institution's first $25 (EFT) services. million in transaction balances and 12 Votes for these actions: Messrs. Volcker, percent on balances above that level. Martin, Wallich, Partee, Rice, and The act directed the Board to adjust Gramley. Votes against these actions: annually the amount of transaction None. Absent and not voting: Ms. Seger. balances subject to the lower reserve requirement to reflect changes in the The amendments to Regulation E amount of transaction balances in the (1) expand coverage of the regulation banking system nationwide. By the to include all transfers resulting from beginning of 1984, the amount had debit card transactions, including been raised to $28.9 million. Recent those that do not involve an elecgrowth in such balances indicated tronic terminal at the time of the that a further increase of $0.9 million transaction; (2) extend the period of was warranted. The Board, therefore, time allowed for resolving errors amended Regulation D to increase to resulting from point-of-sale debit Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

68 Board Policy Actions card transactions; (3) exempt con- criteria developed by the National sumer asset accounts that are subject Association of Securities Dealers and to Regulation T (Credit by Brokers approved by the Securities and Exand Dealers) from the provisional re- change Commission. To facilitate crediting requirements; and (4) pro- development of that system, the vide more flexibility in disclosing on Board amended the margin regulaconsumers' periodic statements tions to make any NMS security eligicharges for electronic fund transfers. ble for trading on margin. In two The last three amendments cited related actions, the Board changed to above were effective October 16, a quarterly schedule for publishing its 1984. The provisions in the first List of Marginable OTC Stocks, and amendment that affected restrictions amended Regulations G and U to on issuance of debit cards and on provide protection in the interim beliability for unauthorized transac- tween the quarterly publication dates tions were effective November 16, to lenders who may not have received 1984; the other requirements applica- notice of a stock's designation as an ble to transfers resulting from debit NMS security. card transactions that do not involve electronic terminals were to be effective April 16, 1985. Regulation J (Collection of Checks and Other Items and Wire Transfers of Funds) Regulation G (Securities Credit January 25, 1984—Amendment by Persons Other than Banks, The Board amended Regulation J, ef- Brokers, or Dealers), fective April 2, 1984, to permit Regulation T (Credit by Brokers Reserve Banks to charge for checks and Dealers), and they present to institutions that Regulation U (Credit by Banks regularly close one day in midweek for the Purpose of Purchasing or and to defer credit to institutions Carrying Margin Stocks) depositing checks drawn on banks that September 5, 1984—Amendments close for state or local holidays that The Board amended Regulations G, are not observed nationally. T, and U, effective November 13, Votes for this action: Messrs. Volcker, 1984, to make any stock designated as Martin, Wallich, Partee, Mrs. Teeters, a National Market System security Messrs. Rice, and Gramley. Votes against this action: None. automatically eligible for margin credit. The Board also made certain other changes in conjunction with Under the first action, a Reserve Bank may charge an institution for these amendments. checks made available to it on a week- Votes for these actions: Messrs. Volcker, day on which the institution regularly Martin, Wallich, Partee, Gramley, and is closed but the Reserve Bank is Ms. Seger. Votes against these actions: None. Absent and not voting: open. Alternatively, the institution Mr. Rice. may elect to pay for the float generated by its midweek closing, using the Securities are included in the Na- System's procedures for recovery of tional Market System (NMS) under interterritory float. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 69 The second action allows a Reserve ting forth the framework for requir- Bank to delay credit for one day to ing country exposure reports by depositing institutions for checks banking institutions. The content and drawn on institutions closed for format of the reports will be develnonstandard holidays on which the oped jointly by the Board and the Reserve Bank is open. The value of other federal banking agencies. any remaining float attributable to The Board delayed, for further such holidays will be added to the comment, action on the related issue cost base of the Reserve Bank's check of whether U.S. branches, agencies, collection services. or commercial lending subsidiaries of foreign banks should be subject to the same reserve and disclosure require- Regulation K (International ments as U.S. banks. Banking Operations) February 2, 1984—Amendments March 21, 1984—Amendments The Board amended Regulation K, The Board amended Regulation K to effective February 13, 1984, to re- establish uniform requirements for quire the establishment of reserves accounting for the fees associated against certain international assets with certain international loans. and to establish reporting and disclo- Votes for these actions: Messrs. Volcker, sure requirements for certain interna- Martin, Wallich, Partee, and Rice. tional assets that are subject to the Votes against these actions: None. risks associated with the wire transfer Absent and not voting: Mrs. Teeters of funds. and Mr. Gramley. Votes for these actions: Messrs. Volcker, The changes supplement actions Martin, Wallich, Partee, Mrs. Teeters, Messrs. Rice, and Gramley. Votes taken in February to implement the against these actions: None. International Lending Supervision Act of 1983. The amendments pro- The amendments implement provi- hibit bank holding companies, memsions of the International Lending ber banks, and Edge and agreement Supervision Act of 1983 that require corporations from charging, in conbanking institutions to maintain re- nection with the restructuring of an serves against certain foreign assets if international loan, any fee that exit is determined that the quality of ceeds the administrative cost of the those assets has been impaired by a loan. They also establish accounting protracted inability of public or pri- rules to ensure that appropriate porvate borrowers in a foreign country to tions of other fees charged in connecmake payments on their internal or tion with international loans are acexternal debts, or when no definite crued as income over the life of the prospects exist for orderly restoration loan. of debt service. The Federal Deposit The new accounting regulations Insurance Corporation and the Office were effective June 30, 1984, except of the Comptroller of the Currency for the provisions relating to accountadopted similar requirements for ing for fees on restructured internabanks under their jurisdictions. tional loans, which were effective The Board also adopted a rule set- March 29, 1984. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

70 Board Policy Actions Regulation T (Credit by that the provisions governing is- Brokers and Dealers) suance of credit cards and liability for their unauthorized use are applicable March 7, 1984—Amendment to all credit cards, even those cards The Board amended Regulation T, used for transactions that otherwise effective April 13, 1984, to permit an are exempt from the regulation. options clearing agency to accept cer- Votes for this action: Messrs. Martin, tain approved margin securities in Wallich, Partee, Rice, Gramley, and satisfaction of its deposit require- Ms. Seger. Votes against this acments. tion: None. Absent and not voting: Mr. Volcker. Votes for this action: Messrs. Volcker, Wallich, Partee, Rice, and Gramley. Votes against this action: None. Absent The amendment principally affects and not voting: Mr. Martin and Mrs. credit cards used for two classes of Teeters. transactions that are generally exempt from the regulation: credit extended The Board amended Regulation T by public utilities and credit of more in recognition of action by the Securithan $25,000 not secured by real propties and Exchange Commission that erty. The Board amended the regulaallowed an options clearing agency to tion to make clear that all credit cards accept from its members certain marare covered by the provisions that gin securities to meet the agency's deprohibit unsolicited issuance of credit posit requirements. Previously, only cards and that limit a consumer's liathe securities underlying the options bility for the unauthorized use of a contracts could be used. The amendcard, regardless of use or cardholder ment permits brokers and dealers to status. The cards most immediately accept the deposit of any margin affected by the amendment are telesecurity if it also meets the criteria of phone credit cards. the SEC for clearing deposits. September 5, 1984—Amendments Policy Statements and These actions are discussed under Other Actions Regulation G. February 15, 1984—Delayed Disbursement Practices Regulation U (Credit by Banks The Board issued a policy statement for the Purpose of Purchasing or emphasizing its opposition to delayed Carrying Margin Stocks) disbursement practices. September 5, 1984—Amendments Votes for this action: Messrs. Volcker, These actions are discussed under Martin, Wallich, Partee, Mrs. Teeters, Regulation G. Messrs. Rice, and Gramley. Votes against this action: None. Regulation Z (Truth in Lending) Delayed disbursement involves the practice followed by some businesses November 21, 1984—Amendment and individuals of establishing check- The Board amended Regulation Z, ing accounts at depository institueffective December 31,1984, to clarify tions that are located far from the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 71 payees in order to delay payment of March 21, 1984—Advertisements their checks. Delayed disbursement for Multiple-Rate Time Deposits reduces the efficiency of the payments The Board issued a policy statement system by increasing processing and concerning the advertisement by state transportation costs. member banks of interest rates on The Board issued the policy statecertain time deposits. ment to express its concern about the increased use of delayed disburse- Votes for this action: Messrs. Volcker, ment practices in recent years and to Martin, Wallich, Partee, and Rice. Votes against this action: None. Absent affirm its commitment to accelerate and not voting: Mrs. Teeters and Mr. the check collection process. Gramley. The policy statement resulted from several recent advertisements by de- March 21, 1984—Delayed pository institutions offering a high Availability of Funds effective interest rate on individual re- The Board issued a policy statement tirement accounts (IRAs) for a short, jointly with the Federal Deposit In- initial period, and a much lower rate surance Corporation, the Comptrol- for the time remaining until maturity. ler of the Currency, and the Federal In such advertisements the initial, Home Loan Bank Board that asked higher rates appeared in large type, financial institutions to avoid un- while the lower rates were stated in necessary delays in making funds de- much smaller type. The new policy reposited by check available to their quires that the two rates be stated in customers. type of equal size and that the advertisements also indicate the average Votes for this action: Messrs. Volcker, annual yield of the deposit. Further- Martin, Wallich, Partee, and Rice. more, banks may not refer to individ- Votes against this action: None. Absent ual retirement account contributions and not voting: Mrs. Teeters and Mr. Gramley. as "tax exempt." In adopting this policy, the Board The four agencies were concerned indicated it was considering incorabout the practice by some depository porating the substance of the stateinstitutions of limiting their custom- ment into the advertising rules of ers' ability to withdraw funds de- Regulation Q (Interest on Deposits). posited by check to their accounts. The other regulators of financial in- Institutions often delay availability of stitutions were expected to take funds to allow sufficient time to similar actions in the near future. determine whether checks will be returned unpaid. In issuing the policy statement, the agencies asked that March 26, 1984—Use of the financial institutions review their Federal Reserve's Wire delayed availability practices, disclose Transfer Network them to their customers, and refrain from imposing unnecessary delays on The Board issued a policy statement checks deposited, particularly on indicating that it is inappropriate for social security and other government depository institutions to use the checks. Federal Reserve's wire transfer Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

72 Board Policy Actions system to avoid System efforts to pluses or deficits that the System may reduce transfer risk. incur in connection with the provision of priced services. Votes for this action: Messrs. Volcker, Martin, Wallich, Partee, Mrs. Teeters, Messrs. Rice, and Gramley. Votes Votes for this action: Messrs. Wallich, against this action: None. Partee, Rice, Gramley, and Ms. Seger. Votes against this action: None. Absent and not voting: Messrs. Volcker The Board was concerned about and Martin. the growing use of payments networks that transfer extremely large The policy statement confirmed amounts of funds by wire each day, that fees for Federal Reserve services both domestically and internationally. are established to provide sufficient Because of the lag between the time a revenue to cover the anticipated costs payment message is sent and final setduring the year of providing the sertlement is effected, there is a risk of vices, including the private sector adnonpayment from failure to settle, justment factor. Fees are not estabnot only for institutions using the lished to offset surpluses or deficits wire transfer system but for other secincurred in previous years. Adoption tors of the economy as well. The of the statement represented a formal Federal Reserve operates a transfer announcement of existing policy network and three other systems are rather than a change in policy. operated by private sector groups. In addition to issuing the policy statement, the Board sought public 1984 Discount Rates comment on several alternative pro- The Board approved three changes in posals that would reduce the risk of the basic discount rate during 1984: failure to settle. One proposal would an increase from SVi to 9 percent in limit the amount of overdrafts a net- April and reductions to SVi percent in work participant could incur (sender November and to 8 percent in Decemnet debit limits) and another would ber. During the year the Board voted permit a receiving institution to limit at eight meetings to turn down rethe amount of intraday credit it quests for changes in the basic diswould extend to a sending institution count rate submitted by individual (bilateral net credit limits). Federal Reserve Banks. As described In a related action, the Board rebelow, the Board also approved cerscinded the moratorium that had tain modifications in the structure prevented new wire transfer networks of rates under the extended credit from having access to the System's program. net settlement services. New networks The reasons for the Board's decimay have access if they agree to essions are reviewed below. Those decitablish net debit and credit limits and sions were made in the context of provide appropriate data on transbroad economic and financial develactions to the Federal Reserve. opments that are covered in greater detail elsewhere in this REPORT. A list- October 31, 1984—Priced Services ing of the Board's discount rate ac- The Board issued a policy statement tions during 1984, including the votes concerning the treatment of any sur- on those actions, follows this review. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 73 Actions on the Mid-April to Mid-November: Basic Discount Rate No Change No further change in the discount rate January to March: No Change was approved until the latter part of Early in the year the Board disapthe year. From late May through midproved two separate requests submit- September, the Board turned down six ted by one Federal Reserve Bank to requests by individual Reserve Banks reduce the basic discount rate from 82/2 percent, the level in effect since to raise the discount rate by Vi percentage point to 9Vi percent. Market mid-December 1982, to 8 percent. interest rates continued to rise on bal- The other eleven Banks had proposed ance through midsummer, but borthat the current rate be maintained. rowing, apart from extended credit to The Board decided that a lower disa major bank that was experiencing count rate was not warranted by insevere liquidity problems, showed litterest rate developments or, more tle trend during this period. The generally, by prevailing economic and Board's disapprovals also took acfinancial conditions, including the becount of broader economic and finanhavior of the monetary aggregates. cial developments, including growing Growth in Ml had picked up in earlier evidence of considerable slowing in weeks after several months of reduced the rate of economic expansion and expansion, while increases in the reduced growth in the monetary agbroader monetary aggregates appeared gregates, especially Ml, after midto be continuing at rates that were in line with those contemplated by the year. By late summer short-term mar- Federal Open Market Committee. ket interest rates began to decline and borrowing from the Federal Reserve Banks also tended to fall. Early April: Increase in Basic Discount Rate November-December: Reductions During February and March, market in Basic Discount Rate interest rates rose appreciably in asso- The Board approved reductions of Vi ciation with a pronounced strengthen- percentage point, to %Vi percent on ing of economic activity and rising November 21 and to 8 percent on credit demands. The higher market December 21. The reductions were rates also reflected disappointment in made in the context of a tendency for efforts to reduce the federal budget short-term market rates to decline deficit and increasing concerns about and against the background of suba possible intensification of inflation stantial reduction in the pace of busipressures. The rise in short-term in- ness expansion; the restrained trend terest rates was accompanied by a of wages and prices, including relaconsiderable increase in adjustment tive stability or declines in sensitive and seasonal borrowing from the Re- commodity prices; and the strength serve Banks. On April 6, the Board of the dollar on foreign exchange approved an increase in the discount markets. The Board also noted that rate from 8 Vi to 9 percent to bring it while the expansions of both Ml and into better alignment with short-term M2 were well within desired ranges market rates. for the year as a whole, growth in Ml Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

74 Board Policy Actions had been relatively sluggish on aver- plus 1 percentage point. The flexible age since mid-1984. rate was expected to be uniform among the Federal Reserve Districts. Modifications in Extended Votes on Reserve Bank Credit Program Actions to Change the Discount Rate In mid-May the Board approved a change in the program for making ad- Under the provisions of the Federal vances at a rising schedule of rates to Reserve Act, the boards of directors depository institutions that are bor- of the Federal Reserve Banks are rerowing for extended periods. A major quired to establish rates on discounts bank in Chicago was experiencing nu- for, and advances to, depository inmerous withdrawals of large deposits stitutions at least every 14 days and to and was borrowing on a very substan- submit such rates to the Board for retial scale from the Chicago Federal view and determination. The Board Reserve Bank to cover its needs for votes listed below are those that infunds. Because the borrowing was ex- volved approval or disapproval of acpected to be outstanding for an un- tions to change rates. usually long period and to remain The basic discount rate noted in relatively large, the Board agreed on this report is the rate on discounts for, the desirability of permitting a short- and advances to, depository instituening of the usual time period for tions for short-term adjustment credit. which each rate in the extended rate The basic rate also applies to seasonal structure might be applied. credit, which may be provided for During August the Board approved periods longer than those permitted a further change to allow a flexible under adjustment credit to assist rate related to market rates in excep- smaller institutions in meeting regular tional cases when market rates are needs for funds arising from certain above the normal rate for extended expected movements in their deposits credit. The flexible rate was intended and loans. The other category of disto avoid giving the borrowing institu- count window credit relates to adtion an unfair competitive advantage vances made over extended periods to in funding. It was initially set at 11 VA depository institutions that are under percent on August 21 and later re- sustained liquidity pressure. Such exduced as market rates declined. tended credit may also be provided In early November the Board ap- when exceptional circumstances or proved a further modification in the practices adversely affect a particular extended credit program. When the depository institution. flexible, market-related rate is above As of December 31,1984, the structhe basic rate plus 2 percentage points, ture of rates was as follows: a basic it will ordinarily apply only to larger rate of 8 percent for short-term adinstitutions that have access to na- justment credit and for seasonal credtional money markets. When it is be- it; and a rate on extended credit at the low the basic rate plus 2 percentage basic rate of 8 percent for the first 60 points, it can be applied to all deposi- days of borrowing, 9 percent for the tory institutions. In no case will the next 90 days of borrowing, and 10 flexible rate be less than the basic rate percent after 150 days. As an alterna- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 75 tive, for loans outstanding for more against this action: None. Absent and than 150 days, a Federal Reserve Bank not voting: Messrs. Wallich, Partee, and Mrs. Teeters. may charge a flexible rate that takes into account rates on market sources The Board subsequently approved of funds; at the end of 1984, this flexsimilar actions taken by the directors ible rate was 9 percent. When it is anof the Federal Reserve Banks of ticipated that credit provided to a de- Cleveland and Atlanta, effective pository institution will be outstand- April 10, and the Federal Reserve ing for an unusually prolonged period Banks of Kansas City and San Franand in relatively large amounts, the cisco, effective April 13, 1984. period during which each rate under this structure is applied may be May 16, 1984 shortened. The Board approved a modification January 4, 1984 in the schedule of rates on extended The Board disapproved an action borrowing to permit the Federal Retaken by the directors of the Federal serve Bank of Chicago to apply the Reserve Bank of Chicago on Decem- higher rates in the schedule to borrowber 29, 1983, to reduce the basic dis- ing by a major bank without regard count rate to 8 percent (a reduction to the 60- and 90-day time periods. from 8V2 percent). Votes for this action: Messrs. Martin, Votes for this action: Messrs. Volcker, Partee, Mrs. Teeters, Messrs. Rice, and Martin, Wallich, Rice, and Gramley. Gramley. Votes against this action: Votes against this action: None. Absent None. Absent and not voting: Messrs. and not voting: Mr. Partee and Mrs. Volcker and Wallich. Teeters. May 29, 1984 January 16, 1984 The Board disapproved an action The Board disapproved an action taken by the directors of the Federal taken by the directors of the Federal Reserve Bank of Cleveland on May Reserve Bank of Chicago on January 24, 1984, to increase the basic dis- 12, 1984, to reduce the basic discount count rate to 9Vi percent. rate to 8 percent. Votes for this action: Messrs. Volcker, Votes for this action: Messrs. Martin, Martin, Wallich, Mrs. Teeters, Messrs. Wallich, Mrs. Teeters, and Mr. Rice. Rice, and Gramley. Votes against this Votes against this action: None. Absent action: None. Absent and not voting: and not voting: Messrs. Volcker, Partee, Mr. Partee. and Gramley. June 11, 1984 April 6, 1984 The Board disapproved an action Effective April 9, 1984, the Board aptaken by the directors of the Federal proved actions taken by the directors Reserve Bank of Cleveland on June 7, of the Federal Reserve Banks of Bos- 1984, to increase the basic discount ton, New York, Philadelphia, Richrate to 9Vi percent. mond, Chicago, St. Louis, Minneapolis, and Dallas to increase the Votes for this action: Messrs. Volcker, basic discount rate to 9 percent. Partee, Rice, and Gramley. Votes against this action: None. Absent and Votes for this action: Messrs. Volcker, not voting: Messrs. Martin, Wallich, Martin, Rice, and Gramley. Votes and Mrs. Teeters. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

76 Board Policy Actions June 25, 1984 Seger. Votes against this action: None. The Board disapproved an action Absent and not voting: Messrs. Volcker and Rice. taken by the directors of the Federal Reserve Bank of St. Louis on June September 10, 1984 22, 1984, to increase the basic dis- The Board disapproved an action count rate to 9Vi percent. taken by the directors of the Federal Votes for this action: Messrs. Martin, Reserve Bank of St. Louis on Septem- Partee, Mrs. Teeters, Messrs. Rice, and ber 7, 1984, to increase the basic dis- Gramley. Votes against this action: count rate to 9Vi percent. None. Absent and not voting: Messrs. Volcker and Wallich. Votes for this action: Messrs. Volcker, Martin, Partee, Rice, Gramley, and Ms. August 20, 1984 Seger. Votes against this action: None. Absent and not voting: Mr. Wallich. The Board approved the establishment by the Federal Reserve Bank of September 17, 1984 Chicago of a flexible rate, related to The Board disapproved an action market rates on alternative sources of taken by the directors of the Federal funds, for borrowings by a deposi- Reserve Bank of St. Louis on Septemtory institution that are expected to ber 13, 1984, to increase the basic be outstanding for an unusually prodiscount rate to 9Vi percent. longed period and in unusually large amounts. Votes for this action: Messrs. Volcker, Martin, Wallich, Partee, and Ms. Votes for this action: Messrs. Volcker, Seger. Votes against this action: None. Martin, Wallich, Partee, Rice, Gramley, Absent and not voting: Messrs. Rice and Ms. Seger. Votes against this action: and Gramley. None. November 8, 1984 On August 20, 1984, the Board also On November 8, 1984, the Board apapproved a request by the directors of proved a modification of its extended the Federal Reserve Bank of San credit program to permit Federal Re- Francisco to disregard, if deemed serve Banks to charge an alternative necessary under exceptional circumflexible rate on loans outstanding stances, the 60- and 90-day time perimore than 150 days. The flexible rate ods for extended credit surcharges. will be determined periodically and Votes for this action: Messrs. Volcker, will be somewhat above the effective Martin, Wallich, Partee, Rice, Gramley, rate paid by depository institutions and Ms. Seger. Votes against this action: that are raising funds in national None. money markets on a variety of liabilities. When the flexible rate is above August 27, 1984 the basic rate plus the 2 percent sur- The Board disapproved an action charge, it will ordinarily apply to taken by the directors of the Federal larger institutions that normally have Reserve Bank of St. Louis on August access to national money markets. 23, 1984, to increase the basic dis- The flexible rate may be applied to all count rate to 9Vi percent. institutions when it is below the basic rate plus the 2 percent surcharge. In Votes for this action: Messrs. Martin, Wallich, Partee, Gramley, and Ms. no case may the rate be less than the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board Policy Actions 77 basic rate plus 1 percentage point. and Ms. Seger. Votes against this action: The flexible rate is expected to be uni- None. form among Federal Reserve Dis- The Board subsequently approved tricts. The period for which each rate similar actions taken by the directors in the extended credit rate structure of the Federal Reserve Banks of Bosapplies may be shortened at the ton and Atlanta, effective November discretion of the Reserve Bank when 23, and the Federal Reserve Bank of it is anticipated that borrowing by Cleveland, effective November 26, a particular depository institution 1984. will be outstanding for an unusually long period and in unusually large amounts. December 21, 1984 Effective December 24, 1984, the Votes for this action: Messrs. Volcker, Board approved actions taken by the Wallich, Partee, Rice, and Gramley. directors of all the Federal Reserve Votes against this action: None. Absent and not voting: Mr. Martin and Ms. Banks to reduce the basic discount Seger. rate to 8 percent. November 21, 1984 Votes for this action: Messrs. Volcker, Effective November 21, 1984, the Martin, Wallich, Partee, and Rice. Vote against this action: Mr. Gramley. Ab- Board approved actions taken by the sent and not voting: Ms. Seger. directors of the Federal Reserve Banks of New York, Philadelphia, Mr. Gramley dissented from this Richmond, Chicago, St. Louis, Min- action because he was opposed to any neapolis, Kansas City, Dallas, and further easing of monetary policy San Francisco to reduce the basic dis- under prevailing economic and financount rate to %Vi percent. cial conditions, or to any signal of Votes for this action: Messrs. Volcker, such easing through a reduction in the Martin, Wallich, Partee, Rice, Gramley, discount rate. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

78 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 1984 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 1984, 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 1984. 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, 1984 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 Committee were equallv agreed as to Reserve Bank of New York, to the extent Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 79 necessary to carry out the most recent warehouse receipt or similar document domestic policy directive adopted at a conveying title to the underlying goods; meeting of the Committee: provided that the aggregate amount of (a) To buy or sell U.S. Government bankers acceptances held at any one time securities, including securities of the Fed- shall not exceed $100 million; eral Financing Bank, and securities that (c) To buy U.S. Government securiare direct obligations of, or fully guaran- ties, obligations that are direct obligations teed as to principal and interest by, any of, or fully guaranteed as to principal and agency of the United States in the open interest by, any agency of the United market, from or to securities dealers and States, and prime bankers acceptances of foreign and international accounts main- the types authorized for purchase under tained at the Federal Reserve Bank of l(b) above, from dealers for the account New York, on a cash, regular, or deferred of the Federal Reserve Bank of New York delivery basis, for the System Open Mar- under agreements for repurchase of such ket Account at market prices and, for securities, obligations, or acceptances in such Account, to exchange maturing U.S. 15 calendar days or less, at rates that, Government and Federal agency securities unless otherwise expressly authorized by with the Treasury or the individual agen- the Committee, shall be determined by cies or to allow them to mature without competitive bidding, after applying reareplacement; provided that the aggregate sonable limitations on the volume of amount of U.S. Government and Federal agreements with individual dealers; proagency securities held in such Account (in- vided that in the event Government cluding forward commitments) at the securities or agency issues covered by any close of business on the day of a meeting such agreement are not repurchased by of the Committee at which action is taken the dealer pursuant to the agreement or a with respect to a domestic policy directive renewal thereof, they shall be sold in the shall not be increased or decreased by market or transferred to the System Open more than $5.0 billion1 during the period Market Account; and provided further commencing with the opening of business that in the event bankers acceptances on the day following such meeting and covered by any such agreement are not ending with the close of business on the repurchased by the seller, they shall conday of the next such meeting; tinue to be held by the Federal Reserve (b) When appropriate, to buy or sell Bank or shall be sold in the open market. in the open market, from or to acceptance 2. In order to ensure the effective condealers and foreign accounts maintained duct of open market operations, the Fedat the Federal Reserve Bank of New York, eral Open Market Committee authorizes on a cash, regular, or deferred delivery and directs the Federal Reserve Banks to basis, for the account of the Federal Re- lend U.S. Government securities held in serve Bank of New York at market dis- the System Open Market Account to Govcount rates, prime bankers acceptances ernment securities dealers and to banks with maturities of up to 9 months at the participating in Government securities time of acceptance that (1) arise out of the clearing arrangements conducted through current shipment of goods between coun- a Federal Reserve Bank, under such intries or within the United States, or (2) structions as the Committee may specify arise out of the storage within the United from time to time. States of goods under contract of sale or 3. In order to ensure the effective conexpected to move into the channels of duct of open market operations, while trade within a reasonable time and that assisting in the provision of short-term inare secured throughout their life by a vestments for foreign and international accounts maintained at the Federal Reserve Bank of New York, the Federal 1. Pursuant to an action taken by the Com- Open Market Committee authorizes and mittee at its meeting on December 19-20, 1983, directs the Federal Reserve Bank of New the limit on changes between Committee meet- York (a) for System Open Market Acings in System Account holdings of U.S. gov- count, to sell U.S. Government securities ernment and federal agency securities was set at to such foreign and international accounts $5.0 billion for the period through the close of on the basis set forth in paragraph 1 (a) business on January 31, 1984, at which time it under agreements providing for the resale reverted to $4.0 billion. by such accounts of those securities within Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

80 FOMC Policy Actions 15 calendar days on terms comparable to summer months, growth in M2 and M3 those available on such transactions in the strengthened in October and November. market; and (b) for New York Bank ac- Ml continued to grow at a sluggish pace count, when appropriate, to undertake in November but increased substantially with dealers, subject to the conditions im- in early December. Through November, posed on purchases and sales of securities M2 was at a level in the lower portion of in paragraph 1 (c), repurchase agreements the Committee's range for 1983, M3 was in U.S. Government and agency securi- close to the upper limit of its range, and ties, and to arrange corresponding sale Ml was near the lower end of the Comand repurchase agreements between its mittee's monitoring range for the second own account and foreign and interna- half of the year. Most interest rates have tional accounts maintained at the Bank. risen somewhat since mid-November. Transactions undertaken with such ac- The Federal Open Market Committee counts under the provisions of this para- seeks to foster monetary and financial graph may provide for a service fee when conditions that will help to reduce inflaappropriate. tion further, promote growth in output on a sustainable basis, and contribute to a Domestic Policy Directive sustainable pattern of international transactions. At its meeting in July the Com- In Effect January 1, 19842 mittee reconsidered the growth ranges for monetary and credit aggregates established The information reviewed at this meeting earlier for 1983 in furtherance of these obsuggests that real GNP has grown at a rela- jectives and set tentative ranges for 1984. tively rapid pace in the current quarter, al- The Committee recognized that the relathough the rate of expansion appears to tionships between such ranges and ultihave moderated since the spring and sum- mate economic goals have become less mer. In November, industrial production predictable; that the impact of new deposit and nonfarm payroll employment increased accounts on growth of monetary aggreappreciably further and the civilian unem- gates cannot be determined with a high ployment rate declined 0.4 percentage degree of confidence; and that the availpoint to 8.4 percent. Retail sales rose ability of interest on large portions of substantially in November following siz- transaction accounts may be reflected in able gains in September and October. some changes in the historical trends in Housing starts increased in November to a velocity. level close to their third-quarter average. Against this background, the Commit- Recent data indicate continuing expansion tee at its July meeting reaffirmed the folin business capital spending. Producer lowing growth ranges for the broader agprices were little changed on average in gregates: for the period from February- October and November, and consumer March of 1983 to the fourth quarter of prices continued to increase in October at 1983, 7 to 10 percent at an annual rate for about the same pace as in other recent M2; and for the period from the fourth months. The index of average hourly quarter of 1982 to the fourth quarter of earnings changed little in November after 1983, 6V2 to 91/ percent for M3. The 2 rising somewhat faster in September and Committee also agreed on tentative growth October than in previous months; over the ranges for the period from the fourth first eleven months of the year the index quarter of 1983 to the fourth quarter of has risen more slowly than in 1982. 1984 of 6Vi to 9Vi percent for M2 and 6 to The foreign exchange value of the dollar 9 percent for M3. The Committee considhas risen considerably further since mid- ered that growth of Ml in a range of 5 to 9 November against a trade-weighted aver- percent from the second quarter of 1983 age of major foreign currencies. In Octo- to the fourth quarter of 1983, and in a ber the U.S. foreign trade deficit was range of 4 to 8 percent from the fourth markedly higher than in the third quarter, quarter of 1983 to the fourth quarter of reflecting a sharp rise in imports. 1984, would be consistent with the ranges After slowing substantially over the for the broader aggregates. The associated range for total domestic nonfinancial debt was reaffirmed at %Vi to WVi percent for 2. Adopted by the Committee at its meeting 1983 and tentatively set at 8 to 11 percent on December 19-20, 1983. for 1984. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 81 In implementing monetary policy, the A. To purchase and sell the following Committee agreed that substantial weight foreign currencies in the form of cable would continue to be placed on the be- transfers through spot or forward transhavior of the broader monetary aggre- actions on the open market at home and gates. The behavior of Ml and total abroad, including transactions with the domestic nonfinancial debt will be moni- U.S. Treasury, with the U.S. Exchange tored, with the degree of weight placed on Stabilization Fund established by Section Ml over time dependent on evidence that 10 of the Gold Reserve Act of 1934, with velocity characteristics are resuming more foreign monetary authorities, with the predictable patterns. The Committee un- Bank for International Settlements, and derstood that policy implementation would with other international financial instituinvolve continuing appraisal of the rela- tions: tionships between the various measures of Austrian schillings Italian lire money and credit and nominal GNP, in- Belgian francs Japanese yen cluding evaluation of conditions in domes- Canadian dollars Mexican pesos tic credit and foreign exchange markets. Danish kroner Netherlands guilders Pounds sterling Norwegian kroner The Committee seeks in the short run to French francs Swedish kronor maintain at least the existing degree of re- German marks Swiss francs serve restraint. The action is expected to be associated with growth of M2 and M3 B. To hold balances of, and to have at annual rates of around 8 percent from outstanding forward contracts to receive November to March. The Committee an- or to deliver, the foreign currencies listed ticipates that Ml growth at an annual rate in paragraph A above. of around 6 percent from November to C. To draw foreign currencies and to March will be consistent with its objec- permit foreign banks to draw dollars tives for the broader aggregates, and that under the reciprocal currency arrangeexpansion in total domestic nonfinancial ments listed in paragraph 2 below, prodebt would continue at around its recent vided that drawings by either party to any pace. Depending on evidence about the such arrangement shall be fully liquidated continuing strength of economic recovery within 12 months after any amount outand other factors bearing on the business standing at that time was first drawn, unand inflation outlook, somewhat greater less the Committee, because of exceptionrestraint would be acceptable should the al circumstances, specifically authorizes a aggregates expand more rapidly. The delay. Chairman may call for Committee consul- D. To maintain an overall open positation if it appears to the Manager for tion in all foreign currencies not exceeding Domestic Operations that pursuit of the $8.0 billion. For this purpose, the overall monetary objectives and related reserve open position in all foreign currencies is paths during the period before the next defined as the sum (disregarding signs) of meeting is likely to be associated with a net positions in individual currencies. The federal funds rate persistently outside a net position in a single foreign currency is range of 6 to 10 percent. defined as holdings of balances in that currency, plus outstanding contracts for future receipt, minus outstanding con- Authorization for Foreign tracts for future delivery of that currency, Currency Operations i.e., as the sum of these elements with due regard to sign. In Effect January 1, 1984 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 Open Market Account, to the extent periods up to a maximum of 12 months necessary to carry out the Committee's with the following foreign banks, which foreign currency directive and express are among those designated by the Board authorizations by the Committee pur- of Governors of the Federal Reserve Syssuant thereto, and in conformity with tem under Section 214.5 of Regulation N, such procedural instructions as the Com- Relations with Foreign Banks and Bankmittee may issue from time to time: ers, and with the approval of the Com- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

82 FOMC Policy Actions mittee to renew such arrangements on 5. Foreign currency holdings shall be maturity: invested insofar as practicable, considering needs for minimum working balances. Such investments shall be in liquid form, Amount of arrangement and generally have no more than 12 months Foreign bank (millions of remaining to maturity. When appropriate dollars equivalent) in connection with arrangements to pro- Austrian National Bank 250 vide investment facilities for foreign cur- National Bank of Belgium 1,000 rency holdings, U.S. Government secu- Bank of Canada 2,000 rities may be purchased from foreign National Bank of Denmark 250 central banks under agreements for re- Bank of England 3,000 Bank of France 2,000 purchase of such securities within 30 cal- German Federal Bank 6,000 endar days. Bank of Italy 3,000 6. All operations undertaken pursuant Bank of Japan 5,000 Bank of Mexico 700 to the preceding paragraphs shall be re- Netherlands Bank 500 ported promptly to the Foreign Currency Bank of Norway 250 Subcommittee and the Committee. The Bank of Sweden 300 Foreign Currency Subcommittee consists Swiss National Bank 4,000 Bank for International Settlements of the Chairman and Vice Chairman of Dollars against Swiss francs 600 the Committee, the Vice Chairman of the Dollars against authorized European Board of Governors, and such other currencies other than Swiss francs 1,250 members of the Board as the Chairman may designate (or in the absence of 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 operatem holdings of foreign currencies, the tions between the System and the Trea- Federal Reserve Bank of New York shall sury; not commit itself to maintain any specific B. To keep the Secretary of the Treabalance, unless authorized by the Federal sury fully advised concerning System for- Open Market Committee. Any agree- eign currency operations, and to consult ments or understandings concerning the with the Secretary on policy matters relatadministration of the accounts main- ing to foreign currency operations; tained by the Federal Reserve Bank of C. From time to time, to transmit New York with the foreign banks desig- appropriate reports and information to nated by the Board of Governors under the National Advisory Council on Inter- Section 214.5 of Regulation N shall be national Monetary and Financial Policies. referred for review and approval to the 8. Staff officers of the Committee are Committee. authorized to transmit pertinent infor- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 83 mation on System foreign currency op- eign central banks and with the Bank for erations to appropriate officials of the International Settlements. Treasury Department. C. Cooperate in other respects with 9. All Federal Reserve Banks shall par- central banks of other countries and with ticipate in the foreign currency operations international monetary institutions. for System Account in accordance with 3. Transactions may also be underparagraph 3G(1) of the Board of Gover- taken: nors' Statement of Procedure with Re- A. To adjust System balances in light spect to Foreign Relationships of Federal of probable future needs for currencies. Reserve Banks dated January 1, 1944. B. To provide means for meeting System and Treasury commitments in particular currencies, and to facilitate operations of the Exchange Stabilization Foreign Currency Directive Fund. In Effect January 1, 1984 C. For such other purposes as may be expressly authorized by the Committee. 1. System operations in foreign curren- 4. System foreign currency operations cies shall generally be directed at count- shall be conducted: ering disorderly market conditions, pro- A. In close and continuous consultavided that market exchange rates for the tion and cooperation with the United U.S. dollar reflect actions and behavior States Treasury; consistent with the IMF Article IV, B. In cooperation, as appropriate, Section 1. with foreign monetary authorities; and 2. To achieve this end the System shall: C. In a manner consistent with the A. Undertake spot and forward pur- obligations of the United States in the chases and sales of foreign exchange. International Monetary Fund regarding B. Maintain reciprocal currency exchange arrangements under the IMF ("swap") arrangements with selected for- Article IV. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

84 FOMC Policy Actions Meeting Held on lets remained strong, but were about January 30-31, 1984 offset by declines at food and apparel stores and gasoline stations. Although Domestic Policy Directive the reported data for retail sales in the The information reviewed at this preholiday weeks proved weaker than meeting indicated that growth in real had been suggested by qualitative regross national product had moderated ports, real personal consumption exto an annual rate of about 4Vi percent penditures for the fourth quarter as a in the fourth quarter of 1983, follow- whole rose at an annual rate of about ing expansion at annual rates of about 6V2 percent. One factor in that rise 93/4 percent and IVi percent in the was a strengthening in automobile desecond and third quarters respective- mand; sales of new domestic autos ly. Strength in personal consumption rose to an annual rate of about 13A expenditures and further substantial million units in December, after averexpansion in business fixed invest- aging about 7 million units in other ment in the fourth quarter were major recent months. In the last 20 days of factors in the continued growth of December, auto sales were at an aneconomic activity. Price and wage in- nual rate of nearly 8 million units, a creases generally remained moderate, selling pace that was maintained though advances in some indexes through the first 20 days of January. were somewhat larger than in the Private housing starts declined spring and summer. about 5 percent in December, but for The index of industrial production the fourth quarter were at a rate close increased Vi percent in December, to the 1.7 million units recorded for following gains of about VA percent in the year as a whole. Sales of new and October and November. Production existing homes, which had changed of consumer durable goods strength- little in November, rose about 28 perened in December, as auto assemblies cent and 8V4 percent respectively in increased substantially, and output of December. The exceptional rise in business equipment continued to rise sales of new homes reflected a record at a relatively rapid pace; production volume of activity in the South; sales changed little in most other major in other regions held steady or demarket groupings. clined. Nonfarm payroll employment ad- Recent data indicate very considervanced about 230,000 further in able strength in business capital December, compared with an average spending. Shipments of nondefense monthly increase of about 325,000 capital goods increased markedly in since the first quarter. Employment November and December. Real exgains continued to be widespread penditures on equipment rose at an across industry groupings and were exceptionally rapid pace in the fourth particularly marked in manufacturing quarter, when they registered one of and service industries. The civilian the largest quarterly increases in the unemployment rate declined 0.2 per- postwar period. Strong sales of heavy centage point further to 8.2 percent. industrial machinery and communica- The nominal value of retail sales tions equipment and a continued brisk was reported to have changed little in pace of truck sales contributed to the December, after large gains in preced- fourth-quarter gain. ing months. Sales at furniture and ap- The producer price index for finplicance stores and at automotive out- ished goods was unchanged on bal- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 85 ance in November and December. For within the tentative range of 8 to 11 the year 1983 the index increased percent established for the year 1984. about Vi percent. The consumer price It was agreed that, depending on eviindex rose marginally less in Novem- dence about the continuing strength ber and December than the VA per- of economic recovery and other faccent rate recorded for the year as a tors bearing on the business and inflawhole. The rise in the index of aver- tion outlook, somewhat greater reage hourly earnings was somewhat straint would be acceptable should larger in the fourth quarter than in the aggregates expand more rapidly. the preceding two quarters, but over M2 and M3 expanded at annual 1983 the index rose a little less than 4 rates of about 8 percent and 8 Vi perpercent, compared with 6 percent cent respectively in December and apover 1982. parently continued to grow at moder- In foreign exchange markets the ate rates in January.1 Expansion in trade-weighted value of the dollar Ml accelerated in January, after against major foreign currencies had several months of reduced growth. By appreciated on balance about 1 per- the fourth quarter of 1983, M2 was at cent further since the latter part of a level close to the midpoint of the December, with most of the rise oc- Committee's range for the year, M3 curring in early January. After mid- was around the upper limit of its January the dollar receded from its range, and Ml was near the middle of peak and then moved somewhat erratically, partly reflecting uncertainties among market participants regarding 1. The growth rates cited are based on revised the outlook for economic activity and data for the monetary aggregates, reflecting interest rates in the United States. new benchmarks and revised seasonal factors The U.S. foreign trade deficit was and a minor change in the definition of M3 to higher in the fourth quarter than in include term Eurodollars that U.S. residents hold in Canada and the United Kingdom and at the third; a sharp rise in non-oil imforeign branches of U.S. banks elsewhere. ports accounted for the increase, as The monetary aggregates are defined as oil imports declined and exports follows: Ml comprises demand deposits at changed little. commercial banks and thrift institutions, cur- At its meeting on December 19-20, rency in circulation, travelers checks of nonbank issuers, negotiable order of withdrawal 1983, the Federal Open Market Com- (NOW) and automatic transfer service (ATS) mittee had decided that in the short accounts at banks and thrift institutions, and run, open market operations should credit union share draft accounts. M2 contains be directed toward maintaining at Ml and savings and small-denomination time deposits (including money market deposit acleast the existing degree of reserve counts (MMDAs)) at all depository institurestraint. The members anticipated tions, overnight repurchase agreements (RPs) that such a policy would be associated at commercial banks, overnight Eurodollars with growth of both M2 and M3 at held at foreign branches of U.S. banks by U.S. annual rates of around 8 percent residents other than banks, and money market mutual fund shares other than those restricted from November to March, and that to institutions. M3 is M2 plus large-denominagrowth of Ml at an annual rate of tion time deposits at all depository institutions, about 6 percent over the four-month large-denomination term RPs at commercial period was likely to be consistent with banks and savings and loan associations, institution-only money market mutual funds, the objectives for the broader aggreand term Eurodollars held by U.S. residents in gates. Expansion in total domestic Canada and the United Kingdom and at nonfinancial debt was expected to be foreign branches of U.S. banks elsewhere. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

86 FOMC Policy Actions the Committee's monitoring range private short-term debt and on corfor the second half of the year. porate and municipal bonds declined The debt of domestic nonfinancial about Vi to 5/g percentage point, while sectors expanded at an annual rate of yields on most Treasury securities fell about 10 percent in both November about VA percentage point. Average and December. For the year ending rates on new commitments for fixed- December 1983, debt grew 10 Vi per- rate conventional home mortgage cent, well within the Committee's loans also fell slightly over the intermonitoring range of %Vi percent to meeting period. WVi percent. Growth in total credit The staff projections presented at at U.S. commercial banks remained this meeting continued to indicate strong in December, at an annual rate that real GNP would grow at a of about 13 percent, as additional moderate pace in 1984. Consumption lending activity offset a reduced pace expenditures, new residential conof securities acquisition. The increased struction, and business inventory inloan demand reflected a further pick- vestment were projected to expand at up in all major categories of loans— reduced rates in 1984. Business fixed business, consumer, and real estate. investment was expected to remain a Businesses continued to rely heavily source of strength, and export deon external financing as expenditures mand was believed likely to improve for inventories and fixed investment in conjunction with rising world evidently began to outpace growth in economic activity and an expected internally generated funds. In addi- drop in the foreign exchange value of tion to the expansion in borrowing the dollar. A decline in the unemployfrom banks, commercial paper issued ment rate was anticipated over the by nonfinancial corporations rose projection period. Prices were exsharply in December. pected to increase marginally more Nonborrowed reserves expanded at than in 1983. a modest rate on average in December In the Committee's discussion of and January while total reserves grew the economic situation and outlook, only slightly, as the average level of the members agreed that growth in adjustment plus seasonal borrowing real GNP was likely to moderate in declined somewhat. Borrowing tem- 1984 and that the rate of unemployporarily bulged to $1.3 billion in the ment would probably fall somewhat reserve statement week that encom- further by year-end. The members passed the year-end statement date, referred to the performance of real but averaged about $650 million dur- GNP in the fourth quarter and to ing the other weeks of the inter- other recent data that suggested meeting interval. slower economic expansion. On the The federal funds rate averaged other hand, it was observed that close to 9Vi percent over the inter- domestic final demands were well meeting period, little changed from maintained in the fourth quarter and the level prevailing just before the that economic activity would con- December meeting. Most other mar- tinue to be sustained by a stimulative ket rates moved somewhat lower, re- fiscal policy. flecting a perception of a slowing in Most of the members expected the economic expansion and an abate- prices to rise somewhat faster on ment of seasonal pressures after the average in 1984 than in 1983, reflectmid-December tax date. Yields on ing growing cost pressures likely to be Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 87 associated with the cyclical rise in the deficits, federal financing needs capacity utilization rates and declin- would continue to absorb a large part ing unemployment and special cir- of available net savings in the econcumstances such as the impact of omy and curtail the availability of adverse weather conditions on food credit to private borrowers at a time prices. Concern was also expressed in the cyclical expansion when busithat a possible decline in the foreign ness credit demands were likely to be exchange value of the dollar could growing. The result would be to inalso tend to have some inflationary crease pressures in financial markets impact on the domestic economy; that with potentially adverse consequences impact, one member commented, for interest-sensitive sectors of the would be greater if it occurred at a economy such as housing and longtime when the economy had a re- term business investment. Moreover, duced margin of idle capacity. unprecedented net capital inflows For this meeting, the individual from abroad, which helped to finance members of the Committee had pre- domestic credit needs, might well pared specific projections of eco- prove to be unsustainable, and their nomic activity, the rate of unemploy- eventual diminution or reversal could ment, and average prices. For the have highly unsettling effects on period from the fourth quarter of domestic credit markets. Concern 1983 to the fourth quarter of 1984, was also expressed about the risks to the central tendency of the members' the domestic economy and financial projections for growth in real GNP markets from other international was in a range of 4 to 43A percent, conditions, such as the severe debtwhile the range for all members was servicing problems of several devel- 3 Vi to 5 percent. The central tendency oping countries. for the GNP deflator was a range of At this meeting the Committee AVi to 5 percent, and for growth in completed the review, begun at the nominal GNP it was a range of 9 to December meeting, of the 1984 10 percent. Projections for the rate of growth ranges for the monetary and unemployment in the fourth quarter credit aggregates that it had tentaof 1984 varied from 7!4 to 8 percent, tively set in July within the framewith a central tendency of 11A to 13A work of the Full Employment and percent. These projections were based Balanced Growth Act of 1978 (the on the Committee's objectives for Humphrey-Hawkins Act). Those tenmonetary and credit growth estab- tative ranges included growth of 6Vi lished at this meeting, and on the as- to 9lA percent for M2 and 6 to 9 persumption that any legislation to cent for M3 during the period from reduce substantially the deficit in the the fourth quarter of 1983 to the federal budget would affect mainly fourth quarter of 1984. The Committhe years beyond 1984. tee had indicated that growth of Ml The members expressed a great deal in a range of 4 to 8 percent over the of concern at this meeting about the same period was likely to be consisrisks that unprecedented deficits in tent with the ranges for the broader the federal budget posed for the sus- aggregates. The associated range for tainability of the economic expansion total domestic nonfinancial debt was and the stability of financial markets, provisionally set at 8 to 11 percent for domestic and international. Unless 1984. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions nearly all the members indicated that text of the emerging performance of the ranges tentatively established for the economy, the outlook for infla- 1984 remained acceptable, although tion, and conditions in domestic and some expressed a preference for international financial markets. The slightly lower ranges for one or more members also recognized that recent of the aggregates. The members regulatory and institutional developviewed the various ranges under con- ments might be reflected in some sideration as broadly consistent with permanent changes in the underlying the objectives of promoting sustain- trends of velocity, particularly that of able growth in economic activity and Ml. Those changes were not yet encouraging progress toward price knowable, given the limited experistability. While all of the tentative ence under the deregulated instituranges for 1984 represented reduc- tional structure. tions from the 1983 ranges, slight fur- In this situation most members ther reductions would, in the view of agreed that for the time being subsome members, help to underscore stantial weight should continue to be the Committee's commitment to an placed on M2 and M3 in policy impleanti-inflationary policy. With regard mentation, while growth in Ml should to the range for M2, a small addi- be evaluated in light of the perfortional reduction was also favored on mance of the broader aggregates. The technical grounds to make the result- view was expressed that emphasis on ing range for 1984 more consistent the broader aggregates appropriately with the reduced ranges contemplated recognized the remaining uncertainfor the other monetary aggregates. ties with respect to the relationship The 1983 range for M2 had been set between Ml and economic activity, slightly on the high side to allow for and it was also observed that the use some residual shifting of funds into of a relatively wide range for Ml that aggregate associated with the in- tended to work in the same direction. troduction of money market deposit However, one member urged placing accounts; those shifts had in fact oc- primary emphasis on Ml and also curred to about the extent expected, supported a narrower range for that but they now appeared to have been aggregate, noting that the introducvirtually completed. tion of contemporaneous reserve ac- The ranges under consideration for counting provided an opportunity to 1984 assumed that the relationships exert closer control over its short-run between the monetary aggregates and behavior. A number of other memnominal GNP—the velocity of money bers supported giving Ml greater —would be broadly consistent with weight, if not primary emphasis, in past trends and cyclical patterns fol- light of what they viewed as the lowing atypical behavior in 1982 and emergence of a more predictable patearly 1983. A tendency for velocity to tern in its velocity, at least in relation rise as 1983 progressed suggested a to that of M2 and of M3. Still other return toward earlier velocity pat- members were not prepared to interns, but several Committee mem- crease the policy role of Ml, at least bers believed that more experience at this time. In the view of these memwas needed before that trend was bers, the prospective behavior of Ml confirmed. Accordingly, they empha- velocity remained subject to unusual sized the desirability of interpreting uncertainties, in part because of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 89 increased role in Ml of NOW (negoti- expansion might appropriately be able order of withdrawal account) higher in the range. The actual and Super NOW components, which growth of M2 and M3 would be afbear interest and serve both a transac- fected by the aggressiveness with tions and a longer-term savings func- which depository institutions sought tion. These and related changes made to influence their share of total credit it difficult to anticipate the public's growth in an environment where indemand for cash balances under vary- terest rate ceilings had largely been ing circumstances or the response of deregulated. Growth in the broader depository institutions in altering aggregates was also thought likely to terms on the newer components of Ml. be affected by inflows of capital from Nearly all the members agreed that abroad. In particular, a portion of the Committee should not increase bank credit expansion during 1984 the weight given to the behavior of might be funded through nonresident total domestic nonfinancial debt but placements in the Eurodollar market should continue to monitor the ex- rather than directly in domestic pansion in such debt. However, one deposits. Such expansion would not member favored giving primary em- be reflected in M2 or M3, and growth phasis to this variable. Most of the in those aggregates would therefore members endorsed a reduction in its tend to be somewhat restrained relarange for 1984 in light of its historical tive to growth in bank credit and relationship with nominal GNP. The nominal GNP. upper part of the tentative range At the conclusion of its discussion allowed for the possibility that its the Committee adopted the ranges for growth might outpace that of nomi- monetary and credit growth in 1984 nal GNP in 1984 as had often oc- that had been tentatively approved in curred in the second year of past July, but with a reduction of Vi percyclical recoveries. centage point in the range for M2 After further discussion most of from the tentative target. The bethe members indicated that they havior of all of the aggregates would favored or found acceptable the re- be interpreted against the background duced ranges for monetary and credit of economic and financial developgrowth that the Committee had ten- ments, including conditions in tatively approved in July for 1984, domestic credit and international subject to a further reduction of Vi markets. The Committee did not anpercentage point in the range for M2. ticipate any further regulatory or A few members would have preferred statutory changes that would signifian additional reduction of Vi percent- cantly affect monetary growth rates age point in the range for Ml. It was in 1984. However, if some outstandanticipated that actual growth of the ing proposals for change were broader aggregates and total debt of enacted and took effect in 1984, such domestic nonfinancial sectors might as the payment of interest on demand fluctuate in the upper part of their deposits and/or on reserve balances, ranges. For Ml, growth around the the Committee would have to reconmidpoint of its range appeared likely sider its monetary growth ranges, on the assumption of relatively nor- especially for Ml. mal growth in its velocity, but if The following paragraphs relating velocity growth remained weak com- to the longer-run ranges were appared with historical experience, Ml proved: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

90 FOMC Policy Actions The Committee established growth jectives for the year. With regard to ranges for the broader aggregates of 6 to 9 deviations in pressure on reserve posipercent for both M2 and M3 for the tions toward lesser or greater restraint period from the fourth quarter of 1983 to in response to incoming information, the fourth quarter of 1984. The Committee also considered that a range of 4 to 8 many members endorsed a symmetripercent for Ml would be appropriate for cal approach that would relate any the same period, taking account of the deviation in either direction to the possibility that, in the light of the changed behavior of the monetary aggregates composition of Ml, its relationship to GNP over time may be shifting. Pending and to emerging indications of the further experience, growth in that ag- strength of the business expansion gregate will need to be interpreted in the and inflationary pressures in the light of the growth in the other monetary economy. Other members preferred aggregates, which for the time being would continue to receive substantial somewhat more asymmetrical apweight. The associated range for total proaches. A few members would give domestic nonfinancial debt was set at 8 to more weight to the potential need for 11 percent for the year 1984. easing of reserve conditions should The Committee understood that policy monetary growth prove weaker than implementation would require continuing anticipated, while being a bit more appraisal of the relationships not only among the various measures of money tolerant, up to a point, of some and credit but also between those ag- tendency for the aggregates to gregates and nominal GNP, including strengthen. Other members believed evaluation of conditions in domestic the Committee should be prepared to credit and foreign exchange markets. move promptly toward restraint if Votes for this action: Messrs. Volcker, monetary growth should accelerate, Solomon, Gramley, Guffey, Keehn, particularly in the context of a more Martin, Partee, Rice, Roberts, Mrs. ebullient economy. No member antic- Teeters, and Mr. Wallich. Vote against this action: Mr. Morris. ipated developments that would call for a substantial change in the degree Mr. Morris dissented from this ac- of reserve pressure over the weeks tion because he believed that regula- ahead. tory changes and financial innova- In their discussion the members tions had made Ml, M2, and M3 un- took note of uncertainties associated suitable targets for monetary policy with the introduction of contemposince, in his view, they were no longer raneous reserve accounting on Februpredictably related to nominal GNP. ary 2. The members agreed that no Accordingly, he preferred to focus on substantial changes would be made in total domestic nonfinancial debt and open market operating procedures at total liquid assets as intermediate this time, but they anticipated the targets for monetary policy. passage of some time before deposi- In the Committee's discussion of tory institutions fully adjusted their policy for the short run, all of the reserve management to the new acmembers indicated that they could counting system. In that interval, for support a policy directed toward instance, depository institutions might maintaining essentially the existing want to hold more excess reserves degree of restraint on reserve posi- than usual. The members agreed that tions. Such a policy was thought likely such developments would need to be to be associated with short-run accommodated by adjustments to regrowth in the monetary aggregates serve paths. consistent with the Committee's ob- At the conclusion of the Commit- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 91 tee's discussion, the members indi- December following sizable gains in precated their acceptance of a short-run ceding months. Housing starts declined in December but for the fourth quarter as a policy directed at maintaining the exwhole were close to their average for the isting degree of restraint on reserve year. Recent data indicate substantial positions. The members expected strength in business capital spending. Prosuch a policy to be associated with ducer prices were about unchanged on average in November and December, and growth of both M2 and M3 at an anconsumer prices increased at about the nual rate of about 8 percent for the moderate pace recorded for the year as a period from December to March and whole. The index of average hourly earngrowth of Ml at an annual rate of ings rose somewhat faster in the fourth about 7 percent over the three-month quarter than in the previous quarter, but for the year 1983 the index increased more period. The rate of expansion in total slowly than in 1982. domestic nonfinancial debt was The foreign exchange value of the thought likely to be within the Com- dollar against a trade-weighted average of mittee's monitoring range for 1984. major foreign currencies has appreciated The members agreed that lesser re- somewhat further since the latter part of December, with most of the rise occurring straint on reserve conditions would be in early January. In the fourth quarter the acceptable in the event of a signifi- U.S. foreign trade deficit was markedly cant shortfall in the growth of the ag- higher than in the third quarter, reflecting gregates over the period ahead, while a sharp rise in non-oil imports. somewhat greater restraint might be M2 and M3 have expanded at moderate rates over the past two months. Expanacceptable in the context of more sion in Ml apparently accelerated in rapid growth in the aggregates. In January, following several months of either case, the need for lesser or reduced growth. By the fourth quarter M2 greater restraint on reserves would was at a level close to the midpoint of the Committee's range for 1983, M3 was also be evaluated against the backaround the upper limit of its range, and ground of developments relating to Ml was around the middle of the Comthe strength of the business expansion mittee's monitoring range for the second and of inflationary pressures. It was half of the year. Most interest rates have declined somewhat since the latter part of agreed that the intermeeting range for December. the federal funds rate, which provides The Federal Open Market Committee a mechanism for initiating consulta- seeks to foster monetary and financial tion of the Committee, would remain conditions that will help to reduce inflaat 6 to 10 percent. tion further, promote growth in output on a sustainable basis, and contribute to an The following directive, embodying improved pattern of international transacthe Committee's longer-run ranges tions. The Committee established growth and its short-run operating instruc- ranges for the broader aggregates of 6 to 9 tions, was issued to the Federal percent for both M2 and M3 for the period from the fourth quarter of 1983 to Reserve Bank of New York. the fourth quarter of 1984. The Committee also considered that a range of 4 to 8 percent for Ml would be appropriate for The information reviewed at this the same period, taking account of the meeting indicates that the advance in real possibility that, in the light of the changed GNP moderated in the fourth quarter, composition of Ml, its relationship to following rapid expansion in the spring GNP over time may be shifting. Pending and summer. In December, industrial pro- further experience, growth in that agduction and nonfarm payroll employment gregate will need to be interpreted in the increased somewhat further and the civil- light of the growth in the other monetary ian unemployment rate declined 0.2 per- aggregates, which for the time being centage point to 8.2 percent. Retail sales would continue to receive substantial Digitized wfoer rFeR rAeSpEoRrt ed to have changed little in weight. The associated range for total http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

92 FOMC Policy Actions domestic nonfinancial debt was set at 8 to interest rates over the period. It was 11 percent for the year 1984. noted that economic activity in most The Committee understood that policy sectors was rising with considerable implementation would require continuing momentum, helping to generate appraisal of the relationships not only among the various measures of money strong demands for credit. While and credit but also between those ag- measures of monetary growth have gregates and nominal GNP, including remained broadly in line with objecevaluation of conditions in domestic tives for the year, it was also felt that, credit and foreign exchange markets. in the light of current and prospective In the short run, the Committee seeks to maintain the existing degree of pressure developments, the Committee would on bank reserve positions, anticipating need to remain alert to the possibility that approach will be consistent with of excessive growth in credit and growth of M2 and M3 each at annual rates money. Against that background, it of about 8 percent and Ml at an annual was the consensus of the Committee rate of about 7 percent during the period from December to March. Growth in non- that, in the short interval until the financial debt is expected to be within the next scheduled meeting, pursuit of range established for the year. Lesser the degree of reserve restraint and restraint would be acceptable in the conassociated reserve paths, consistent text of a shortfall in monetary and credit growth from current expectations, while with the money and credit objectives somewhat greater restraint might be ac- set at the January 30-31 meeting, ceptable with more rapid expansion of the should not be constrained by a aggregates, both viewed in the context of federal funds rate at or above the the strength of the business expansion and monitoring range set at that meeting. inflationary pressures. In implementing policy in the weeks ahead, the Manager was instructed to take account of the uncertainties associated Meeting Held on with the introduction of the system of March 26-27, 1984 more contemporaneous reserve requirements, particularly including the possibil- 1. Domestic Policy Directive ity that depository institutions, during a transition period, may desire to hold more The information reviewed at this excess reserves. meeting indicated that growth in real The Chairman may call for Committee GNP had accelerated markedly in the consultation if it appears to the Manager for Domestic Operations that pursuit of first quarter from the 5 percent anthe monetary objectives and related nual rate of expansion in the fourth reserve paths during the period before the quarter of 1983. The latest data sugnext meeting is likely to be associated with gested that demands for goods and a federal funds rate persistently outside a range of 6 to 10 percent. services might remain relatively strong in the months ahead, though Votes for the short-run operational real growth was expected to slow paragraphs: Messrs. Volcker, Solomon, from the first-quarter pace. The rise Gramley, Guffey, Keehn, Martin, Morris, Partee, Rice, Roberts, Mrs. in average prices, as measured by the Teeters, and Mr. Wallich. Votes against fixed-weight index for gross domestic this action: None. business product, appeared to have increased somewhat, but wage in- On March 20, the Committee held creases generally remained moderate. a telephone conference to review The index of industrial production monetary and economic develop- rose 1 VA percent in both January and ments following the January 30-31 February, after average monthly inmeeting, including some increase in creases of about Vi percent in the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 93 fourth quarter. Gains in output were annual rate of nearly 2.2 million widespread across major product and units, the highest level in almost six material categories, with especially years and well above the rate of 1.7 large increases in construction sup- million units recorded in the fourth plies, consumer goods, and durable quarter and in 1983 as a whole. Buildgoods materials. Despite relatively ing permits for residential construclean inventories at automobile deal- tion also rose in both January and ers, auto production was little changed February, and home sales remained in January and February from the 8 high. million unit rate recorded in Decem- In the business sector, capital outber, as some plants producing the more lays have continued to grow, though popular large-size cars were encoun- at rates below the unusually rapid extering capacity constraints. The rate pansion in the last half of 1983. Shipof capacity utilization in manufactur- ments of nondefense capital goods ing rose one percentage point further weakened in the first two months of in February to 81.0 percent—the high- the year but remained at high levels. est level since May 1981 and only Other recent information, including a slightly below the 81.8 percent aver- rising trend in new orders and survey age for the 1967-82 period. reports of upward revisions in busi- In January and February gains in ness spending plans, generally sugnonfarm payroll employment aver- gests continuing strength in business aged 325,000, substantially above the fixed investment. average monthly increases of about The producer price index for 250,000 in the fourth quarter. Manu- finished goods and the consumer facturing employment continued to price index both increased about Vi rise by more than 100,000 in each percent per month in January and month, and the factory workweek, February. The rise in prices was faster which had jumped 0.5 hour in than in the fourth quarter of 1984, January to 41.0 hours, held steady in with increases concentrated in the February at its highest level since food sector. The index of average 1967. The civilian unemployment rate hourly earnings rose only slightly declined 0.2 percentage point each over the first two months of the year, month to 7.8 percent in February. although total compensation costs Consumer spending has contrib- apparently increased more rapidly, in uted substantially to recent gains in part because of higher payroll taxes economic activity. Retail sales grew at for social security. an exceptional pace in January and In foreign exchange markets the changed little in February. The auto- trade-weighted value of the dollar mobile market was particularly against major foreign currencies destrong, with sales of domestic models clined about 7 percent from the end in January and February, at an an- of January through the first week of nual rate of Wi million units, up over March. Concerns about inflation 1 million units from the average pace prospects in the United States, given during the fourth quarter. Sales dur- large budget deficits and a strengthing the first 20 days of March con- ening private economy, were cited by tinued relatively strong, at a pace of market participants as factors weakabout 8 million units. ening the dollar. More recently, part Private housing starts surged in of that decline was retraced, appar- January and February, reaching an ently aided by rises in U.S. interest Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

94 FOMC Policy Actions rates relative to foreign rates. The The debt of domestic nonfinancial merchandise trade deficit rose sharply sectors apparently increased in Januin January, mainly because of larger ary and February at a pace substannon-oil imports. tially above the Committee's moni- At its meeting on January 30-31, toring range for the year. Total credit 1984, the Federal Open Market Com- at U.S. commercial banks continued mittee had agreed that in the short to expand rapidly, at an annual rate run policy should be directed at main- of about 11 percent in January and 15 taining the existing degree of restraint percent in February. Loan demand on reserve positions. The members continued to be brisk in all major anticipated that such a policy would categories of loans—business, conbe associated with growth of both M2 sumer, and real estate. Even after adand M3 at an annual rate of about 8 justing for the loan growth in Februpercent for the period from December ary that was associated with mergerto March and growth of Ml at an an- related financing, business borrowing nual rate of about 7 percent over the at banks and in the commercial paper three-month period. The rate of ex- market remained substantial. pansion in total domestic nonfinan- The implementation in early Febcial debt was thought likely to be ruary of contemporaneous reservewithin the Committee's monitoring requirement accounting, and also the range of 8 to 11 percent for the year legislated phasedown to lower reserve 1984. It was also agreed that the need requirements for member banks for lesser or greater restraint on under the Monetary Control Act at reserves would be evaluated against the same time, apparently prompted a the background of developments re- cautious approach to reserve managelating to the strength of the business ment by depository institutions, enexpansion and of inflationary pres- tailing for a time, as anticipated, an sures. The intermeeting range for the unusually high level of excess refederal funds rate, which provides a serves. In large part because of the mechanism for initiating consultation high volume of excess reserves, but of the Committee, was retained at 6 also reflecting the strength in required to 10 percent. reserves accompanying growth in Data available through mid-March transaction deposits, total and nonindicated that since December Ml borrowed reserves expanded rapidly and M3 had been expanding some- in February. They appeared to be what more rapidly than anticipated at changing little in March, however, as the January meeting. Tentative esti- excess reserves declined. Borrowing mates suggested that in the first at the discount window averaged quarter as a whole Ml and M3 grew about $600 million over the first three at annual rates of about 7 VA percent reserve maintenance periods followand SVi percent from the fourth ing the previous meeting, but moved quarter, well up in their longer-run up to an average of somewhat over $1 ranges of 4 to 8 percent and 6 to 9 billion in the current maintenance percent respectively established by the period, which began in mid-March. Committee for 1984. Growth in M2 Market interest rates moved conappeared to have been less rapid than siderably higher over the intermeeting previously expected and was esti- period, generally rising about % to 1 mated to be at a rate in the lower part percentage point in both short- and of the 6 to 9 percent range for 1984. long-term markets. The increases ap- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 95 peared to be induced by the strength large federal deficits—of exceptionof economic activity and private ally heavy credit demands. Consecredit demands, disappointment over quently, the sustainability of the exthe absence of significant progress to pansion would be jeopardized. The curb the federal deficit, concern that view that the present rate of economic prices might rise more rapidly, and growth could be expected to moderexpectations that monetary policy ate was widely shared, but several would not accommodate rapid growth members suggested that it might rein money and credit. Federal funds main significantly faster than generally traded in a range of 9Vi to 9VA per- anticipated, at least over the months cent during most of the intermeeting immediately ahead. It was noted, for interval; most recently, however, the instance, that business investment funds rate tended to fluctuate around and inventory rebuilding might well 10 percent and was occasionally provide greater stimulus to economic somewhat higher. Against the back- activity than many expected. Moreground of generally rising market over, members indicated particular rates and brisk business loan demand, concern that fiscal policy was likely to commercial banks raised their "prime remain unduly stimulative in the conloan" rate from 11 to 11 Vi percent in text of an economy with rapidly rising mid-March. Average rates on new levels of resource utilization, includcommitments for fixed-rate conven- ing a few industries that were begintional home mortgage loans rose ning to experience pressures on existnearly lA percentage point on balance ing capacity. over the intermeeting period. At the same time, several members The staff projections presented at observed that, in the light of various this meeting suggested that growth in imbalances and distortions, both doreal GNP would moderate consider- mestic and international, the econably over the course of the year but omy might be vulnerable to large and that the rate of price increase might sudden increases in interest rates and pick up somewhat from its recent pressures on financial markets. The pace. It was expected that inventory emergence of strong business credit investment and auto demand would demands on top of a continuing large level off and that housing activity rate of increase in consumer and mortwould decline from the advanced gage credit and massive Treasury pace of the first quarter. The impetus financings accentuated these risks. for continued economic expansion Housing and the thrift industry that was expected to come from business serviced it were likely to be seriously fixed investment, from government affected by any further marked rise in purchases and, with rising world eco- interest rates, especially in an ennomic activity, from export demand. vironment in which variable rate and In the Committee's discussion of other new financing instruments were the economic situation and outlook, exposing a growing number of bormembers expressed concern that the rowers to unaccustomed financial current pace of the economic expan- risks. Reference was also made to the sion, if maintained for long, would vulnerability of commercial construclead to growing imbalances, to price tion, notably that involving office and wage pressures in some sectors of structures, given the considerable the economy and to continuation— volume of new building in several against the background of persisting sections of the country that were ex- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

96 FOMC Policy Actions periencing high vacancy rates. In ag- should it materialize following the riculture, a sizable number of farmers slow growth in 1983, combined with a were experiencing serious debt prob- rate of unemployment that was still lems that were being worsened by relatively high by historical standpressures on earnings and on lower ards, would also tend to curb inflaland prices. On the international tionary pressures. side, higher U.S. interest rates would In the Committee's discussion of clearly exacerbate the debt servicing policy for the period ahead, there was problems of several less developed a relatively narrow range of prefercountries. The very large foreign ences with regard to monetary growth trade deficit was also seen as a threat objectives for the second quarter. All to the continuing health of the of the members wanted to maintain economy. growth within the Committee's The members expressed a good deal longer-run ranges; while, as earlier, of concern about the possibility of an growth in the broader aggregates in intensification of price and wage the upper part of their ranges was pressures. While price increases had considered acceptable, there was a accelerated only slightly in recent desire to see Ml closer to the middle months and wage advances had re- of its range over a period of time. A mained relatively restrained, a num- number of members suggested that ber of members commented that in- the degree of reserve pressure might flationary expectations appeared to be attuned a bit more rapidly than be worsening. Capacity utilization over the past year to deviations in rates were already high in some sec- monetary aggregates from objectives, tors of the economy and, more gen- but no member advocated that the erally, were approaching levels that degree of reserve restraint be adjusted had been associated with rising rates automatically and related solely to of inflation in previous periods of the performance of the monetary ageconomic expansion. In this situa- gregates. Some members emphasized tion, an environment conducive to their concern that growth in the agmore aggressive pricing could develop gregates was more likely to exceed despite the increase in profit margins than to fall short of the secondof many companies during the expan- quarter objectives if the expansion in sion period. The trend in wage settle- economic activity remained excepments would be a key element in that tionally strong. The Committee, it respect, with potentially trend-setting was argued, should in that event be wage negotiations scheduled for later prepared to lean cautiously, in the in the year. The ready availability of present environment, against excesimports was a material factor re- sive monetary growth as it emerged. straining prices for a wide range of The point was also emphasized by goods, but a sharp decline in the some members that significant shortforeign exchange value of the dollar falls in monetary growth might desircould aggravate inflationary pres- ably lead to some easing of interest sures. In evaluating the price outlook rate pressures. There was general acit was also noted that, in contrast to ceptance of an approach that would the experience in some earlier years, take into account such factors as the oil prices were not contributing to in- apparent strength of economic activflation, and one member observed ity and of inflationary pressures in that faster growth in the labor force, any adjustment of the degree of re- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 97 serve restraint. A number of members greater restraint, given the sensitive also called attention to the rate of state of domestic and international credit growth, which had accelerated credit markets and uncertainties considerably in early 1984 and which about the underlying strength of deappeared to be an important factor in mand pressures. recent interest rate increases. In light of recent market develop- With regard to preferences for the ments, the members agreed that the Committee's operational approach, intermeeting range for the federal there were some differences of view funds rate should be raised from the 6 about whether the recent degree of re- to 10 percent that had been specified serve restraint should be maintained since mid-November 1982. It was or altered in the period ahead, and understood that the federal funds under what conditions. Many felt range is essentially a mechanism for that maintenance of something like initiating Committee consultations the degree of restraint that had devel- when its limits look as if they might oped in recent days offered a reason- be persistently exceeded. In that conable prospect for achieving the mone- text, however, members indicated diftary growth and financial market fering views, within a narrow range, conditions that would foster a sus- as to the appropriate "consultation tainable pace of economic expansion, point." Some members preferred a help to contain inflation, and mini- smaller increase in that limit to promize the potential damage to interest- vide for earlier consultation of the sensitive sectors of the economy. Committee should significant further However, several of these members pressures develop in financial marforesaw economic and monetary de- kets; others favored a bit more leeway velopments that might call for some in the degree of pressure that would further restraint during the intermeet- be acceptable before a consultation ing period, and they wanted to be would be triggered. In general, it was prepared to move promptly in that understood that the federal funds rate event. Some members did not want to was likely to fluctuate in response not rule out the possibility of lesser only to conditions in the reserve restraint, but most regarded such a market, partly in the context of the development as less likely. newly introduced two-week reserve Other members of the Committee, period, but also to changing market viewing demand pressures on the expectations about the course of economy as stronger and posing a credit and money demands and more immediate threat of rising price monetary policy. In the discussion of pressures and growing imbalances, the degree of reserve restraint that felt that some intensification in the would be consistent with the Commitdegree of reserve restraint was called tee's money and credit objectives, it for at this time. This would, it was was noted that reserve paths might maintained, reduce the risk that much have to be considered in light of more vigorous restraint would be changes in the discount rate that needed later, with sharply adverse might subsequently be made by the consequences for sectors of the econ- Board of Governors, depending on omy that were vulnerable to rising in- such surrounding circumstances as terest rates. These members were, the intensity of bank demands for nonetheless, concerned about moving borrowing, overall money and credit too aggressively in the direction of demands, and whether the market Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

98 FOMC Policy Actions had already adjusted to any new dis- ness fixed investment. Prices rose somecount rate. what faster in early 1984 than in the fourth quarter, with increases concentrated in the At the conclusion of its discussion food sector. The index of average hourly the Committee decided to seek to earnings rose only slightly over the first maintain pressures on reserve posi- two months of the year, although total tions that were deemed to be consis- compensaton costs appear to have increased more rapidly. tent with growth of Ml, M2, and M3 The foreign exchange value of the from March to June at annual rates dollar against a trade-weighted average of of about 6K2, 8, and SVi percent re- major foreign currencies declined considspectively; initially those pressures erably from the end of January through should be close to those that had the first week of March, but part of that decline was retraced more recently. The emerged in recent days. The members merchandise trade deficit rose sharply in agreed that greater restraint on re- January, mainly because of larger non-oil serve conditions would be acceptable imports. in the context of more substantial Data available through mid-March indigrowth in the monetary aggregates, cate that Ml and M3 have expanded somewhat more rapidly than anticipated while somewhat lesser restraint might at the previous meeting; since the fourth be acceptable if monetary growth quarter of 1983, Ml and M3 are tentawere significantly slower. In either tively estimated to have grown at rates event, the need for greater or lesser close to the upper limits of the Commitrestraint would also be appraised tee's ranges for 1984. Growth in M2 appears to have been less rapid than preagainst the background of developviously expected and was estimated to be ments relating to the continuing at a rate in the lower part of its longer-run strength of the business expansion range. In January and February, growth and of inflationary pressures and the of total domestic nonfinancial debt apparently rose at a pace substantially above rate of expansion in total credit. It the Committee's monitoring range for the was agreed that the intermeeting year, and bank credit continued to expand range for the federal funds rate would at a relatively rapid rate. Interest rates be raised to IVi to IIV2 percent. have risen considerably since late January. The Federal Open Market Committee At the conclusion of the meeting seeks to foster monetary and financial the following domestic policy direc- conditions that will help to reduce inflative was issued to the Federal Reserve tion further, promote growth in output on Bank of New York: a sustainable basis, and contribute to an improved pattern of international transac- The information reviewed at this meet- tions. The Committee established growth ing indicates that growth in real GNP has ranges for the broader aggregates of 6 to 9 accelerated markedly in the current quar- percent for both M2 and M3 for the ter and suggests that demand for goods period from the fourth quarter of 1983 to and services may remain relatively strong the fourth quarter of 1984. The Commitin the months ahead. In January and Feb- tee also considered that a range of 4 to 8 ruary, industrial production rose at a con- percent for Ml would be appropriate for siderably faster pace than in the fourth the same period, taking account of the quarter, and gains in nonfarm payroll em- possibility that, in the light of the changed ployment were large over the two-month composition of Ml, its relationship to period. The civilian unemployment rate GNP over time may be shifting. Pending declined 0.2 percentage point each month further experience, growth in that aggreto 7.8 percent in February. Retail sales gate will need to be interpreted in the light grew at an exceptional pace in January of the growth in the other monetary agand changed little in February. Housing gregates, which for the time being would starts rose substantially in both months to continue to receive substantial weight. the highest rate in several years. Informa- The associated range for total domestic tion on outlays and spending plans gener- nonfinancial debt was set at 8 to 11 per- Digitizeda lfolyr FsRugAgSeEstRs continuing strength in busi- cent for the year 1984. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 99 The Committee understood that policy ability of key sectors of the economy implementation would require continuing to rising interest rates. Thrift instituappraisal of the relationships not only tions, housing, agriculture, and also among the various measures of money problems associated with less develand credit but also between those aggregates and nominal GNP, including evalu- oped country debt were examples that ation of conditions in domestic credit and he cited. In his view, slightly higher foreign exchange markets. objectives for monetary growth need- In the short run the Committee seeks to ed to be established for the second maintain pressures on bank reserve positions judged to be consistent with growth quarter. in Ml, M2, and M3 at annual rates of around 61/2, 8, and SVi percent, respec- 2. Review of Continuing tively, during the period from March to Authorizations June. Greater reserve restraint would be acceptable in the event of more substan- The Committee followed its customtial growth of the monetary aggregates, ary practice of reviewing all of its while somewhat lesser restraint might be acceptable if growth of the monetary ag- continuing authorizations and direcgregates slowed significantly; in either tives at this first regular meeting of case, such a change would be considered the Federal Open Market Committee in the context of appraisals of the continuafter the election of new members ing strength of the business expansion, infrom the Federal Reserve Banks to flationary pressures, and the rate of credit growth. serve for the year beginning March 1, The Chairman may call for Committee 1984. The Committee reaffirmed the consultation if it appears to the Manager authorization for domestic open marfor Domestic Operations that pursuit of ket operations, the authorization for the monetary objectives and related reforeign currency operations, the forserve paths during the period before the next meeting is likely to be associated with eign currency directive, and the proa federal funds rate persistently outside a cedural instructions with respect to range of IVi to ll!/2 percent. foreign currency operations in the forms in which they were currently Votes for this action: Messrs. Volcker, Solomon, Boehne, Boykin, Corrigan, outstanding. The Committee also re- Mrs. Horn, Messrs. Partee, Rice, and affirmed its agreement with the Trea- Mrs. Teeters. Votes against this action: sury to warehouse foreign currencies Messrs. Gramley, Martin, and Wallich. on the terms adopted on March 18, 1980, with the understanding that the Messrs. Gramley and Wallich disagreement would continue to be subsented from this action because they ject to annual review. preferred a directive calling for a somewhat greater degree of reserve Votes for these actions: Messrs. Volcker, restraint and slightly lower objectives Solomon, Boehne, Boykin, Corrigan, Gramley, Mrs. Horn, Messrs. Martin, for monetary growth in the second Partee, Rice, Mrs. Teeters, and Mr. quarter. In their view the strength of Wallich. Votes against these actions: the economic expansion warranted None. more restraint now to help avert more serious inflation and financial pres- 3. Authorization for Domestic sures later. Open Market Operations Mr. Martin dissented because he was concerned that implementation At this meeting, the Committee apof the Committee's policy was likely proved a temporary increase from $4 to lead to more restraint than would billion to $6 billion in the limit on be desirable in light of the vulner- changes between Committee meetings Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

100 FOMC Policy Actions in System Account holdings of U.S. quarter. Thus far in 1984, average government and federal agency secu- prices as measured by the fixed-weight rities specified in paragraph l(a) of index for gross domestic business the authorization for domestic open product, appeared to be increasing at market operations. The increase was about the same rate as in 1983. effective for the intermeeting period Industrial production rose nearly ending with the close of business 1 Vi percent in April, after slowing to on May 22, 1984. Subsequently, on an increase of Vi percent in March. April 18, 1984, the Committee voted Gains in April were widespread across to increase the limit for the intermeet- most major product and material cateing period by an additional $1 billion gories. Auto production declined, to $7 billion. however, primarily reflecting reduced output at plants producing small cars Votes for these actions: Messrs. Volcker, and the less popular large-size models. Solomon, Boehne, Boykin, Corrigan, Gramley, Mrs. Horn, Messrs. Martin, Some plants producing fast-selling Partee, Rice, Mrs. Teeters, and Mr. models were encountering capacity Wallich. Votes against these actions: constraints. The rate of capacity util- None. ization in manufacturing rose 1 percentage point further in April to 82.3 These actions were taken on the percent, somewhat above the 81.8 perrecommendation of the Manager for cent average for the 1967-82 period. Domestic Operations. The Manager Nonfarm payroll employment had advised that substantial net pursurged 400,000 in April. The rise was chases of securities were likely to be attributable in large part to a rebound required over the intermeeting interin employment at construction sites val to accommodate large reserve after a weather-related decline in needs resulting from an expected March and to substantial employment bulge in Treasury balances at Federal gains in service industries. In manu- Reserve Banks. By April 18, the leefacturing, employment rose 100,000, way for further purchases had been about the same as the average monthreduced to about $100 million, as the ly increase over the previous twelve increase in Treasury balances proved months, and the length of the average to be somewhat larger than had been factory workweek reached 41.2 hours, anticipated earlier. The Manager reits highest level in nearly two decades. quested the additional $1 billion in- Despite continued gains in employcrease in the limit to provide for fleximent, the civilian unemployment rate bility in the normal course of open was unchanged at 7.8 percent in market operations. March and April, as the labor force increased appreciably. Meeting Held on Total retail sales climbed 2.9 per- May 21-22, 1984 cent in April, about offsetting declines in the preceding two months. Domestic Policy Directive Sales gains were reported at all major The information reviewed at this types of stores but were particularly meeting suggested that growth in real strong at automotive outlets and at GNP, while moderating from the an- general merchandise, apparel, and nual rate of 8% percent recorded for furniture and appliance stores. Sales the first quarter, was continuing at a of new domestic automobiles, which relatively rapid pace in the current had dipped in March, rebounded in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 101 April to an annual rate of 814 million hourly earnings increased at about units and then surged to a rate of the same pace as in 1983. about 83/4 million units in early May. In foreign exchange markets the In April, private housing starts trade-weighted value of the dollar recovered from a sizable decline in against major foreign currencies had March and, at an annual rate of near- increased about 5 VA percent since late ly 2 million units, matched their ad- March to a level close to its peak for vanced first-quarter pace. Building the floating-rate period, reached in permits for residential construction the first part of January. Increases in were unchanged in April at an annual U.S. interest rates relative to foreign rate of slightly more than 1.7 million rates, together with labor unrest in units, somewhat below the level ear- some European countries and conflict lier in the year. In the first quarter, in the Persian Gulf area, apparently sales of new houses continued at contributed to the dollar's appreciaabout the same pace as in the fourth tion. The merchandise trade deficit quarter of 1983, while sales of exist- widened further in the first quarter, ing homes rose appreciably. as a surge in non-oil imports exceeded Business investment spending mod- a rise in exports. erated from the extraordinarily rapid At its meeting on March 26-27, rate of expansion in the second half 1984, the Federal Open Market Comof 1983, but remained brisk. In real mittee had decided to seek to mainterms, fixed investment spending rose tain pressures on reserve positions that at an annual rate of about 14% per- were deemed to be consistent with cent in the first quarter. Data on ship- growth of Ml, M2, and M3 from ments and new orders of nondefense March to June at annual rates of capital goods have moved erratically about 61/2, 8, and %Vi percent respecin recent months; both series declined tively; it was decided that initially sharply in April after exhibiting con- those pressures should be close to siderable strength in some earlier those that had emerged in the days months of 1984. But other recent in- preceding the March meeting. The formation, including survey reports members had agreed that greater rethat indicate upward revisions in busi- straint on reserve conditions would be ness spending plans, generally sug- acceptable in the event of more subgests continuing strength in business stantial growth of the monetary agfixed investment. gregates, while somewhat lesser re- The producer price index for fin- straint might be acceptable if growth ished goods was unchanged in April, of the aggregates slowed significantly. after increases of about Vi percent It was also agreed that the need for per month in the first quarter. A re- greater or lesser restraint would be versal of the sharp runup in food considered in the context of the conprices contributed to the favorable tinuing strength of the business experformance in April. The consumer pansion, inflationary pressures, and price index rose Vi percent in April, the rate of credit growth. The interslightly more than the average rate in meeting range for the federal funds the first quarter; large increases in rate, which provides a mechanism for prices of energy-related items and initiating consultation of the Comsome commodities accounted for the mittee, was set at IVi to 11 Vi percent. April rise. Over the first four months Ml changed little in April, but data of the year, the index of average available for early May suggested a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

102 FOMC Policy Actions considerable strengthening. Given the reserve maintenance periods ending pickup in early May, it was estimated May 9, adjustment plus seasonal borthat growth of Ml since March was rowing at the discount window averroughly in line with the 6!/2 percent aged somewhat less than $1.2 billion annual rate of expansion sought by compared with about $1.1 billion at the Committee for the March-to-June the time of the previous meeting. In period. Expansion in M2 was at an the current two-week statement periannual rate of about 7!4 percent in od ending May 23, average borrowing April, close to the rate specified by was running considerably higher, in the Committee for the three-month excess of $4 billion, because of adperiod, while growth in M3, at an an- vances to a large bank that was expenual rate of IO3A percent in April, riencing substantial outflows of funds was well above its %Vi percent March- caused by market uncertainties about to-June growth path. From the fourth the bank's underlying condition. quarter of 1983 through April, Ml The federal funds rate rose from an grew at a rate a little below the mid- average of about 10 percent in the pepoint of the Committee's range of 4 riod immediately preceding the March to 8 percent for 1984; M2 increased at FOMC meeting to about \0Vi percent a rate in the lower part of its 6 to 9 recently. Most other interest rates percent longer-run range; and M3 ex- moved considerably higher over the panded at a rate a bit above the 9 per- intermeeting interval, generally rising cent upper limit of its range. about Vi to 1 VA percentage points in Total domestic nonfinancial debt both short- and long-term markets. appeared to be growing at a pace Commercial banks raised their "prime" above the Committee's monitoring rate twice during the period, a total of range for the year. Credit growth ac- 1 percentage point, to l2Vi percent. celerated in April because of a faster On April 6 the Federal Reserve anpace of borrowing by the federal nounced an increase of Vi percentage government; business borrowing also point in the discount rate to 9 percent. remained brisk, with most borrowing The increases in market rates apstill concentrated in the short-term parently reflected continuing strong area. Growth in business loans at credit demands as economic activity domestic offices of U.S. commercial expanded, the absence of rapid probanks slowed from the vigorous pace gress in reducing the federal deficit, of recent months, as banks booked a and related concerns about future insizable volume of loans offshore and flationary pressures and a possible firms shifted more of their borrowing need for a more restrictive provision to the commercial paper market. In of reserves. Late in the intermeeting the household sector, consumer in- period, market conditions also reflectstallment credit expanded at an an- ed a heightened degree of anxiety and nual rate of about 17 percent in the sensitivity to potential liquidity strains, first quarter and appeared to have re- and especially the persistent rumors mained strong in April; mortgage bor- that a major bank was in serious firowing also was continuing to grow at nancial difficulty. There were also rea rapid pace. newed concerns about the possible Total reserves showed little net implications of continuing internachange in April, as a decline in excess tional debt problems, particularly in reserves offset further increases in re- the light of increased interest rates. quired reserves. In the three complete The staff projections presented at Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 103 this meeting continued to suggest that potential liquidity problems, could real GNP would grow at a much more have a considerable effect, after some moderate pace over the balance of the lag, in curbing expenditures in interyear and in 1985, in line with the est-sensitive sectors of the economy slower pattern characteristic of ma- and, more broadly, in fostering more turing business expansions. The un- cautious consumer and investor attiemployment rate was projected to tudes. Developments in financial mardecline over the period and, while kets had already contributed to a more current evidence of growing cost and guarded investor climate in some reprice pressures was limited, the rate spects, as reflected in some declines in of price increase was expected to pick stock prices and a tendency among inup modestly from its recent pace. vestors to back away from the long- In the Committee's discussion of term debt markets. The problems of a the economic situation and outlook, major commercial bank had sensithe members noted that the expansion tized markets to other potential probin economic activity did indeed ap- lem areas such as outstanding loans pear to be moderating from an unsus- to less developed countries that were tainable pace in the first quarter, but experiencing debt servicing difficulthe extent of the slowdown remained ties. In general, it was difficult in question as did the prospective de- to evaluate how such uncertainties— gree of upward price pressures as the which were seen as likely to persist for expansion continued. In the course of some time even if the most immedithe discussion, the members gave con- ately pressing problems were resolved siderable emphasis to uncertainties —would affect business and consuminherent in the unusually sensitive er spending. conditions in financial markets and Most of the members, as they had volatile market attitudes. at previous meetings, expressed con- It was noted that growth in nominal cern that growing capacity constraints, GNP might moderate relatively little declining unemployment, and the prosif business and consumer spending re- pect of reduced productivity growth mained strongly buoyed by a highly might be conducive to greater inflastimulative fiscal policy. In that con- tionary pressures over time. Individnection members commented that ual members also commented on the credit growth had shown no sign of development of price and wage presslowing so far and there were, as yet, sures in some industries and occupano significant indications of a stiffen- tions. While indications of greater ining in loan standards and credit avail- flationary pressures were still limited, ability; in fact, there were indications there was a danger that they might beof aggressive lending practices in real come more widespread later in the estate and other areas. On the other year. In that connection some memhand, some members stressed the bers commented that the terms of the cyclical tendency for a maturing ex- wage settlements in the automotive pansion to slow and they saw some industry later in the year, should they evidence already pointing in that prove to be higher than the generally direction. It was also pointed out that restrained pattern to date, might have there had been a sizable rise in interest a pervasive effect on other settlerates over the past several weeks; cur- ments, while others thought the cirrent rate levels, particularly against cumstances in that industry were the background of concerns about unique. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

104 FOMC Policy Actions A more optimistic view of the out- to a staff analysis, implementation of look for inflation emphasized the approximately the current degree of possibility of currently relatively reserve restraint was likely to confavorable wage-cost developments tinue to be consistent with attainment continuing for some time. In particu- of the growth objectives for Ml and lar, productivity growth might not M2 that the Committee had previousdiminish as much as some observers ly established for the second quarter. expected, given the prospect that Growth in M3 was expected to exceed many businesses would continue their the second-quarter objective because efforts toward greater operating effi- depository institutions were currently ciencies. One member also observed making more active use of managed that the relatively rapid growth in the liabilities than had been anticipated labor force over the course of recent to finance their share of the large rise months, if it persisted, would have in total credit. favorable wage-cost implications. A few members favored raising the In the Committee's discussion of current intermeeting range for the policy for the weeks ahead, most of federal funds rate a small amount as a the members supported a proposal to technical adjustment to bring the maintain the current degree of re- present trading level of the federal straint, although some sentiment in funds rate closer to the midpoint of favor of marginally greater restraint the range. However, most of the was also expressed. In the view of members preferred to retain the curmost members, no significant change rent range, which they believed was in policy—in either direction—was likely to encompass the probable desirable at this time in light of the trading range over the intermeeting performance of the economy, the be- period. havior of the monetary aggregates, At the conclusion of the discussion, and conditions in financial markets. all but one member agreed that no Under present circumstances, it was change should be made at this time in argued, any significant further re- the existing degree of pressure on restraint would produce added strains serve positions. The members anticiin interest-sensitive sectors of the pated that this policy would continue economy such as housing and agricul- to be associated with growth of Ml ture and would incur an undue risk of and M2 at annual rates of about 6V2 a pronounced effect on already some- and 8 percent for the period from what unsettled financial markets, with March to June and with growth of adverse effects on economic activity. M3 at an annual rate of about 10 per- At the same time, the apparent cent, somewhat above the objective strength of the ongoing expansion set in March for the second quarter. and inflationary concerns argued It was agreed that the intermeeting against any significant easing. An range for the federal funds rate would argument advanced in favor of slight- remain at IVi to WVi percent. It was ly greater restraint was that such a also recognized that, within the conpolicy would tend to improve the text of this overall policy approach, prospects of achieving a desirable operations might need to be modified moderation in the rate of business ex- if unusual financial strains appeared pansion and progress over time in to be developing. containing inflation. In keeping with the Committee's The members noted that, according usual practice, the members contem- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 105 plated that operations might be ad- the lower part of its longer-run range, justed during the intermeeting period while M3 expanded at a rate a bit above the upper limit of its range. Total domestoward implementing somewhat greattic nonfinancial debt apparently is grower or somewhat lesser restraint on reing at a pace above the Committee's moniserves if monetary growth should toring range for the year, with borrowing prove to be significantly faster or by businesses continuing to be concentratslower than targeted for the current ed in the short-term markets. Interest rates have risen considerably further since quarter. In the view of most members, late March. On April 6, the Federal Rethe implementation of open market serve announced an increase in the disoperations should be equally sensitive count rate from SYi to 9 percent. Recentto the potential need for greater or ly, day-to-day market conditions have reflected considerable sensitivity to potenlesser restraint over the weeks ahead. tial liquidity strains, as highlighted by Any such adjustment should not be problems of one large bank, and to uncermade automatically but should be tainties about the financial and budgetary undertaken only after an appraisal of outlook generally. the strength of economic activity and The foreign exchange value of the dollar against a trade-weighted average of major inflationary pressures, and evaluaforeign currencies has risen considerably tions of conditions in financial and further since late March to a level close to banking markets and the rate of the peak in early January. The merchangrowth in total domestic nonfinancial dise trade deficit widened further in the debt. first quarter, as a sharp rise in non-oil imports offset a substantial rise in exports. At the conclusion of the meeting, The Federal Open Market Committee the following domestic policy direc- seeks to foster monetary and financial tive was issued to the Federal Reserve conditions that will help to reduce infla- Bank of New York: tion further, promote growth in output on a sustainable basis, and contribute to an The information reviewed at this meet- improved pattern of international transacing suggests that growth in real GNP, tions. The Committee established growth while moderating from the unusually ranges for the broader aggregates of 6 to 9 strong first-quarter pace, remains relative- percent for both M2 and M3 for the period ly rapid in the current quarter. In April, from the fourth quarter of 1983 to the industrial production and nonfarm pay- fourth quarter of 1984. The Committee roll employment rose substantially follow- also considered that a range of 4 to 8 pering decreased growth in March; the civil- cent for Ml would be appropriate for the ian unemployment rate was unchanged at same period, taking account of the possi- 7.8 percent in March and April as the bility that, in the light of the changed labor force increased appreciably. Retail composition of Ml, its relationship to sales grew rapidly in April after two GNP over time may be shifting. Pending months of decline, and housing starts re- further experience, growth in that aggrecovered to a rate equaling their first- gate will need to be interpreted in the light quarter average. Information on outlays of the growth in the other monetary aggreand spending plans generally suggests con- gates, which for the time being would continuing strength in business fixed invest- tinue to receive substantial weight. The ment. Since the beginning of the year, associated range for total domestic nonprices and wages have continued to rise at financial debt was set at 8 to 11 percent about the same pace as in 1983. for the year 1984. Ml changed little in April on average, The Committee understood that policy but data available for early May suggest a implementation would require continuing considerable strengthening. In April M2 appraisal of the relationships not only grew about in line with expectations while among the various measures of money M3 expanded more rapidly than antici- and credit but also between those aggrepated. From the fourth quarter of 1983 gates and nominal GNP, including evaluthrough April, Ml grew at a rate a little ation of conditions in domestic credit and below the midpoint of the Committee's foreign exchange markets. Digitized r a fo n r g F e R f A o S r E 1 R 9 84; M2 increased at a rate in In the short run, the Committee seeks http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

106 FOMC Policy Actions to maintain existing pressures on bank re- percent indicated by the preliminary serve positions. This is expected to be con- estimate of the Commerce Departsistent with growth in Ml, M2, and M3 at ment. Although the expansion in ecoannual rates of around 61/2, 8, and 10 pernomic activity was continuing at a cent, respectively, during the period from March to June. Somewhat greater reserve strong pace, in late spring and early restraint might be acceptable in the event summer there were indications of of more substantial growth of the mone- moderation in some sectors. Average tary aggregates, while somewhat lesser reprices, as measured by the fixedstraint might be acceptable if growth of the monetary aggregates slowed signifi- weight price index for gross domestic cantly. In either case, such a change business product, appeared to have would be considered only in the context of risen more slowly in the first half of appraisals of the continuing strength of 1984 than in 1983. the business expansion, inflationary pressures, financial market conditions, and Industrial production rose about Vi the rate of credit growth. The Chairman percent in both May and June, after may call for Committee consultation if it average increases of about 1 percent appears to the Manager for Domestic Opper month earlier in the year. Output erations that pursuit of the monetary objectives and related reserve paths during of business equipment and defense the period before the next meeting is likely and space products continued to show to be associated with a federal funds rate sizable gains, while production of persistently outside a range of IVi to 11 Vi durable consumer goods and conpercent. struction supplies leveled off. The Votes for this action: Messrs. Volcker, rate of capacity utilization in manu- Solomon, Boehne, Corrigan, Gramley, facturing edged up 0.1 percentage Mrs. Horn, Messrs. Martin, Partee, point in each month to 81.8 percent in Rice, and Wallich. Vote against this ac- June, the average for the 1967-82 tion: Mr. Boykin. (Absent and not voting: Mrs. Teeters.) period. The rise in total retail sales slowed Mr. Boykin dissented because he in the May-June period from an exbelieved a directive calling for some- traordinarily rapid pace in April. In what greater reserve restraint and the second quarter as a whole, sales marginally lower monetary growth advanced about 23A percent, after a would improve the prospects for curb- rise of 3 Vi percent in the first quarter. ing inflation and achieving sustain- Sales gains were reported at all major able expansion without incurring a types of stores in the second quarter, material risk of unsettling financial but were particularly strong at genmarkets. eral merchandise, apparel, and furniture and appliance stores. Sales of new domestic automobiles continued Meeting Held on at an annual rate of about 8V4 million July 16-17, 1984 units, the same pace as in the first quarter. Domestic Policy Directive Housing starts declined in May, the The information reviewed at this latest month for which data were meeting suggested that growth in real available, to a level about 10 percent GNP in the second quarter, though below the average for the first four moderating from the annual rate of months of the year. Sales of both new about 9VA percent currently recorded and existing homes edged down in for the first quarter, would be strong- May, apparently in response to the er than the annual rate of about 53A rising cost of mortgage credit. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 107 In contrast to the slowing in the the vulnerability of large U.S. banks housing sector, business fixed invest- to international debt problems. Subment, in real terms, appeared to have sequently, indications of more strength grown quite rapidly in the second in U.S. economic activity than had quarter, perhaps faster than the an- been anticipated and increases in U.S. nual rate of 16 percent reported for short-term interest rates contributed the first quarter. Shipments of non- to an appreciation of the dollar to a defense capital goods increased sharp- level above its peak in early January. ly in May, more than offsetting a de- The U.S. merchandise trade deficit cline in April, and data on new orders rose further in the April-May period pointed to further gains in the months relative to the first quarter; an inahead. Recent surveys on spending crease in oil and non-oil imports explans also suggested continued strength ceeded a slight rise in exports. in business fixed investment. At its meeting on May 21-22, 1984, Nonfarm payroll employment, ad- the Committee had decided that, in justed for strike activity, rose 300,000 the period immediately ahead, policy further in both May and June. Em- should be directed toward maintainployment gains in services and trade ing existing pressures on reserve posiaccounted for a major part of the in- tions. That action was expected to be crease in each month. In manufactur- consistent with growth in Ml, M2, ing, employment in durable goods in- and M3 at annual rates of about 6Vi, dustries advanced somewhat further, 8, and 10 percent respectively during but employment in nondurable goods the period from March to June. The firms was flat. The civilian unemploy- Committee also agreed that somewhat ment rate fell appreciably over the greater restraint might be acceptable two-month period, to 7.1 percent in in the event of more substantial June. growth of the monetary aggregates, The producer price index for fin- while somewhat lesser restraint might ished goods was unchanged in June be acceptable if growth of the monefor the third consecutive month. In tary aggregates slowed significantly. the second quarter as a whole, a Any such adjustment would be conmarked decline in prices of consumer sidered only in the context of appraisfoods offset an increase in prices of als of the continuing strength of the energy-related items, as most other business expansion, inflationary prescomponents of the index changed lit- sures, financial market conditions, tle. The rise in the consumer price in- and the rate of credit growth. The index slowed in May to 0.2 percent termeeting range for the federal funds from 0.5 percent in April. The index rate, which provides a mechanism for of average hourly earnings increased initiating consultation of the Commore slowly over the first half of this mittee, was retained at IVi to \\Vi year than in 1983. percent. In foreign exchange markets, the Ml grew at an annual rate of about trade-weighted value of the dollar 12V4 percent on average in May and against major foreign currencies had June, after having changed little in risen about 31/2 percent on balance April. As a result, expansion in Ml since the Committee's meeting in over the March-to-June period was at May. The dollar weakened for a brief an annual rate of about 8 VA percent, period early in the intermeeting inter- above the Committee's expectation val, partly reflecting rumors about for that period. Growth in the broad- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

108 FOMC Policy Actions er aggregates was about in line with regularly over the intermeeting periexpectations, as M2 and M3 grew at od, from an average of about \QVi estimated annual rates of IVA and percent at the time of the May meet- 10!4 percent respectively over the ing to a range of about 11 to 11 Vi perthree-month period. Relative to the cent in recent weeks. Pressures in the Committee's longer-run ranges for money market were especially marked 1984, Ml by June was somewhat around the mid-June tax date and in below its upper limit, M2 was a little the reserve maintenance period conbelow the midpoint of its range, and taining the quarter-end statement date M3 was above the upper limit of its and the July 4 holiday. The federal range. funds rate moved higher over the Total domestic nonfinancial debt intermeeting interval despite little continued to expand in the second change in the average level of adjustquarter at a pace above the Commit- ment plus seasonal borrowing at the tee's monitoring range for the year, discount window. In addition to usual with both federal and private borrow- end-of-quarter and holiday pressures ing very strong. Borrowing that was in the federal funds market, banks related to business mergers and ac- apparently became willing to pay quisitions accounted for some of the more for federal funds as credit derapid private credit growth but even mands continued strong and other after adjustment for such borrowing, sources of funds remained relatively the rate of expansion in total debt was expensive. On balance, rates on bank estimated to have exceeded the upper CDs and other private short-term limit of the Committee's range. securities rose about Vi to 3A percen- Growth in total reserves picked up tage point further, while rates on in May and accelerated further in Treasury bills were about unchanged. June, reflecting increased demand for The heightened uncertainties in finanexcess reserves and rapid expansion cial markets, reflecting concerns of required reserves associated with about international debt problems strong growth in demand deposits in and shifting perceptions about the June and a surge in large time depos- outlook for economic activity and its that began in May. The increase in credit demands, led to a widening of reserves provided by discount window differentials between yields on private credit, extended because of the special instruments and Treasury obligations situation of one large bank, was offset and to considerable day-to-day rate by reduced reserve provision through fluctuation. In long-term debt maropen market operations, so that there kets, rates moved over an exceptionwas little change in other borrowing. ally wide range but over the inter- Adjustment plus seasonal borrowing meeting period as a whole rates on (excluding advances to the large bank) most private obligations changed little continued to average close to $1 bil- on balance, while those on Treasury lion in the three complete reserve bonds declined about 15 to 40 basis maintenance periods after the previ- points. Commercial banks raised their ous Committee meeting. In the first "prime" rate Vi percentage point to part of the current two-week state- 13 percent in the last week of June. ment period ending July 18, average The average rate on conventional borrowing was running lower, at fixed-rate mortgage loans at savings about $670 billion. and loan associations rose about 5/s The federal funds rate moved up ir- percentage point over the intermeet- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 109 ing interval to a little above 145/s per- ment, and average prices. With recent. gard to growth in real GNP, the pro- The staff projections presented at jections had a central tendency of 6*4 this meeting suggested that growth in to 6% percent for 1984 as a whole real GNP would moderate appreciably and 3 to 314 percent for 1985, all over the second half of the year and measured from fourth quarter to into 1985 to a sustainable rate of ex- fourth quarter. The central tendency pansion. The staff continued to ex- for the rate of unemployment was an pect a decline in unemployment over average rate in a range of 6% to 7 the period and, given recent strong percent for the fourth quarter of 1984 gains in employment, the projected and 6Vi to 7 percent for the fourth level of unemployment was somewhat quarter of 1985. The members' prolower than previously anticipated. Al- jections for the implicit GNP deflator though current evidence of wage and centered on a rise of 4 to AVi percent price pressures was limited, the rate for the year 1984 and about one perof increase in prices was expected to centage point higher for the year pick up modestly from its recent pace 1985, assuming that the value of the as the economy continued to move to- dollar in foreign exchange markets ward fuller utilization of its produc- would remain generally in the trading tive resources. range experienced over the past year. In the Committee's discussion of The projections also took into acthe economic situation and outlook, count the monetary policy decisions the members commented that the ex- made at this meeting. pansion appeared to have a good deal The members recognized that there of momentum, but with limited indi- were a number of threats to the realcations of some moderation. For the ization of the relatively favorable ecomonths immediately ahead, the mem- nomic developments implied by their bers generally expected a slower, al- projections and that the maintenance though relatively sizable, rate of ex- of a satisfactory economic perforpansion in economic activity and a mance for an extended period could comparatively subdued rate of infla- only be assured by timely actions in a tion. Most believed that appreciably number of policy areas. Given the slower but sustainable growth with persisting strength of domestic desome pickup in the rate of inflation mands, which had been growing fastwere probable, though by no means er than GNP as reflected in the widencertain, prospects for 1985. Several ing deficit in external trade, several observed, however, that uncertainties members indicated their concern about created by various imbalances and fi- the risks that those demands might nancial strains in the economy made proceed too long at an unsustainable forecasting economic activity and pace, with potentially adverse impliprices particularly difficult at this cations for inflationary pressures and time, and less confidence should be for the continuation of the expansion placed in any particular forecast. itself. On the other hand, most mem- In keeping with the usual practice bers clearly did not want to rule out for meetings when the Committee the possibility that relatively high inconsiders its longer-run objectives for terest rates, partly related strains in monetary growth, the members had international and domestic financial prepared specific projections of eco- markets, and cautionary attitudes that nomic activity, the rate of unemploy- might be emerging in economic sec- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

110 FOMC Policy Actions tors such as housing might result in However, their sustainability was more substantial slowing than was subject to doubt, and their eventual typically indicated. Various imbal- decrease, especially if associated with ances and distortions in the economic a sudden and sharp fall in the value of and financial picture, notably the the dollar, could have adverse repermassive deficits in the federal budget cussions for the economy. and in the current account of the bal- While the members generally anticance of payments, were also viewed ipated a small increase in wages and as particular sources of concern. prices over the period through the end With regard to the federal budget, of 1985, they discussed possible decurrent legislation was cited as a wel- velopments that could produce a difcome development, but further mea- ferent outcome. Some members, who sures were deemed essential to reduce were relatively optimistic about the the widening structural deficit. Fed- outlook for inflation, emphasized eral financing requirements would such factors as the remaining margins otherwise continue to absorb a large of unemployed resources in the econpart of available net savings in a peri- omy, which might in fact be underod of heavy demands for credit by estimated by current measures of businesses and households. The re- capacity utilization, the impact of sulting pressures in financial markets competition from abroad, and the would aggravate the strains on thrift prospects for faster gains in producand some other financial institutions tivity than many observers expected. and would impair the creditworthi- They also suggested that wage settleness of both potential new borrowers ments might continue to be relatively such as homebuyers and the growing restrained, to the extent that workers' number of borrowers with outstand- wage demands had been reduced siging loans or commitments on a vari- nificantly by back-to-back recessions able interest rate basis. Relatively high in the past few years and concomitant interest rates would also worsen fi- high unemployment and a recent perinancial pressures in the agricultural od of relatively low inflation. Several sector where many farmers were ex- members noted, however, that imporperiencing serious debt problems. In tant negotiations currently under way addition, high U.S. interest rates or about to begin, especially in the tended to exacerbate the already se- automobile industry, could have a vere debt-servicing problems of sev- significant precedential impact on eral developing countries and, in the subsequent wage negotiations. All of process, to lessen confidence in U.S. the members recognized that inflabanks with sizable loans to such tionary pressures would be greater countries. than otherwise, perhaps substantially With regard to the balance of pay- so, if growth in demands for goods ments and related capital flows, the and services for too long exceeded unprecedented volume of capital at- sustainable rates or if the value of the tracted from abroad was contributing dollar were to decline substantially to the appreciation of the dollar de- over the projection period. spite enlarged deficits in the trade and At this meeting the Committee recurrent accounts. Such inflows were viewed its target ranges for 1984 and helping to finance domestic credit established tentative ranges for 1985 needs and were contributing to mod- within the framework of the Full Emeration of inflationary pressures. ployment and Balanced Growth Act of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 111 1978 (the Humphrey-Hawkins Act).2 measures, especially domestic debt, At its meeting on January 30-31, was still believed likely to exceed the 1984, the Committee had adopted existing ranges for the year as a whole. growth ranges of 6 to 9 percent for Accordingly, some members favored both M2 and M3 for the period from raising the ranges somewhat to reflect the fourth quarter of 1983 to the first-half developments and the Comfourth quarter of 1984, and a range mittee's expectations for the year. of 4 to 8 percent for Ml over the same However, a majority preferred to reperiod. It was understood at that time tain the existing ranges on the ground that substantial weight would con- that higher ranges would provide an tinue to be placed on M2 and M3 in inappropriate benchmark for judging policy implementation and that, for the long-run growth desired by the some interim period, the behavior of Committee. It was also suggested that Ml would be evaluated in light of the raising these ranges might be misread performance of the broader aggre- as an easing of monetary policy gates. Because of the changed com- rather than as a technical adjustment position of Ml, reflected in the rela- to past developments, including the tively rapid growth of its NOW and unusual extent of merger-related and Super NOW components, its relation- leveraged buyout financings, which ship to GNP remained uncertain and were estimated to have added about 1 required further observation. The percentage point to the rate of credit monitoring range for total domestic growth during the first half of the nonfinancial debt had been set at 8 to year. 11 percent for the year 1984. At the conclusion of this discus- With regard to the target ranges for sion, the Committee voted as follows 1984, all of the members favored the to reaffirm the ranges for the moneretention of the existing ranges for tary aggregates and the associated Ml and M2, both of which had grown range for total domestic nonfinancial at rates within the Committee's tar- debt that were established at the Jangets over the first half of 1984. The uary meeting: members continued, however, to rec- The Committee agreed at this meeting ognize the difficulty of anticipating to reaffirm the ranges for monetary growth the ongoing relationships of these ag- that it had established in January: 4 to 8 gregates with broad economic mea- percent for Ml and 6 to 9 percent for both sures under changing economic and M2 and M3 for the period from the fourth quarter of 1983 to the fourth quarter of financial circumstances, particularly 1984. The associated range for total doin light of the rapid expansion of new mestic nonfinancial debt was also reafdeposit accounts in a period of dereg- firmed at 8 to 11 percent for the year 1984. ulation and of marked changes in fi- It was anticipated that M3 and nonfinancial debt might increase at rates somewhat nancial practices. above the upper limits of their 1984 ranges, The members expected expansion given developments in the first half of the in M3 and total domestic nonfinan- year, but the Committee felt that higher cial debt to moderate during the sec- target ranges would provide inappropriate benchmarks for evaluating longer-term ond half of 1984, but growth in both trends in M3 and credit growth. Votes for this action: Messrs. Volcker, 2. The Board's Midyear Monetary Policy Solomon, Boehne, Boykin, Corrigan, Report pursuant to this legislation was transmit- Gramley, Mrs. Horn, Messrs. Martin, ted to the Congress on July 25, 1984. That Partee, Rice, Ms. Seger, and Mr. Wal- Digitizedd foocru FmReAnSt EapRp ears elsewhere in this REPORT. lich. Votes against this action: None. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

112 FOMC Policy Actions Turning to the establishment of would be consistent with the memtentative ranges for 1985, the mem- bers' projections of lower growth in bers stressed the desirability of taking nominal GNP for 1985. On the other further action, in line with previously hand, it was argued in support of restated Committee intentions, to re- taining the 1984 range that the recentduce growth in money and credit over ly prevailing relationship between M2 time to rates that would be consistent and nominal GNP was at odds with with maintaining reasonable price sta- historical trends and a reduction in bility and sustainable economic ex- the M2 range would incur too much pansion. However, individual mem- of a risk that actual growth might exbers expressed some small differences ceed the range, even with much slower in their views about the amount or expansion in nominal GNP during timing of specific reductions in the 1985. ranges for 1985. A majority of the members were in In discussion of the tentative range favor of not changing the current for Ml growth for 1985, the members ranges for M3 and total domestic generally favored lowering the upper nonfinancial debt for 1985, but a few limit and narrowing the range to a members proposed small reductions width more consistent with the ranges in the range for M3 and additional for the other aggregates. Discussion members favored marginal reduccentered on whether the range should tions in the monitoring range for nonbe reduced to 4 to 7 percent or 4 to financial debt. In support of retaining IVi percent. Members who preferred the current ranges, it was pointed out the range with a 7 percent upper limit that, given the expectation that actual commented that it would represent an growth was likely to exceed both appropriate reduction from 1984 be- ranges in 1984, expansion within cause it would signal more clearly the those ranges next year would repre- Committee's intention to reduce mon- sent a significant slowdown. Howetary growth to rates more consistent ever, some members expressed conwith reasonable price stability while cern about the implications of rapid encouraging further expansion of eco- debt expansion this year, which apnomic activity. Those who preferred peared to be reflected to some extent the smaller reduction in the upper in M3, and they believed that reduced limit felt that a cautious approach ranges would be desirable and consiswas warranted in light of the many tent with overall policy objectives. uncertainties bearing on the economic In the course of discussion about outlook and developments with re- the appropriate ranges for the aggrespect to velocity. They also noted that gates, the members noted that in rethe ranges would be reviewed next cent quarters the behavior of Ml in February and could then be reduced relation to nominal GNP had been further if circumstances warranted. more consistent with previous cyclical Most members favored a small re- patterns than had been the case durduction for M2 in 1985, although a ing 1982 and early 1983. As a result it few expressed an initial preference for was concluded that Ml should be no change. A lower range for M2 given roughly equal weight with the would be in keeping with the Com- broader monetary aggregates in the mittee's intention to reduce monetary implementation of monetary policy. growth over time and, at least on the However, the behavior of Ml as well basis of the recent behavior of M2, as that of the broader aggregates Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 113 would still continue to be appraised in Some members commented that the light of developments in the economy risks of intensified inflationary presand financial markets, the outlook sures as the economy moved closer to for inflation, and the rate of credit capacity limits would, in other cirgrowth. cumstances, warrant some increase of At the conclusion of its discussion, reserve restraint; but the current the Committee took the following ac- behavior of the monetary aggregates tion to establish tentative ranges for and the prospect that earlier increases 1985 that included reductions from in market interest rates would tend 1984 in the upper limits of the ranges after some lag to be reflected in for Ml and M2 by 1 and Vi percent- growth at sustainable rates, together age point respectively and no changes with the relatively sensitive conditions in the range for M3 and the associ- in some financial markets, were facated range for total domestic non- tors that argued in favor of an essenfinancial debt: tially unchanged approach to policy implementation. For 1985 the Committee agreed on ten- With regard to possible deviations tative ranges of monetary growth, measured from the fourth quarter of 1984 to in pressure on reserve positions the fourth quarter of 1985, of 4 to 7 per- toward greater or lesser restraint in cent for Ml, 6 to %lA percent for M2, and response to incoming information, 6 to 9 percent for M3. The associated some members endorsed a symmetrirange for nonfinancial debt was set at 8 to 11 percent. cal approach that would relate any The Committee understood that policy deviation in either direction to the implementation would require continuing behavior of the monetary aggregates appraisal of the relationships not only judged in the context of developamong the various measures of money ments in economic activity, inflaand credit but also between those aggregates and nominal GNP, including tionary pressures, financial market evaluation of conditions in domestic conditions, and the rate of growth in credit and foreign exchange markets. credit. However, most of the mem- Votes for this action: Messrs. Volcker, bers preferred a somewhat asymmet- Solomon, Boehne, Boykin, Corrigan, rical approach that would involve a Gramley, Mrs. Horn, Messrs. Martin, more prompt response to the poten- Partee, Rice, Ms. Seger, and Mr. Waltial need for a move toward somelich. Vote against this action: None. what greater restraint if monetary growth should accelerate in associa- In the Committee's discussion of tion with continued indications of an policy implementation for the weeks ebullient economy. In this view, immediately ahead, most of the mem- policy implementation should be relabers indicated that they could support tively tolerant, for a time, of some an approach directed toward main- shortfall in monetary growth because taining the existing degree of restraint the latter might well prove to be temon reserve positions. Such an ap- porary if the present apparent proach was thought likely to be asso- momentum in the economy were to ciated with growth in the monetary continue. aggregates from June to September at In light of recent market developrates that were consistent with the ments, the members generally fav- Committee's objectives for the year ored, for technical reasons, raising and below those experienced over the the intermeeting range for the federal second quarter, particularly for Ml. funds rate by a small amount. The Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

114 FOMC Policy Actions members regard the federal funds The information reviewed at this meetrange as essentially a mechanism for ing suggests that the expansion in economic activity is continuing at a strong initiating Committee consultation pace, but there are indications of moderawhen its limits are persistently extion in some sectors. In May and June, inceeded. In recent weeks federal funds dustrial production and retail sales exhad tended to trade well up in the cur- panded further, though at a somewhat rent IVi to HI/2 percent range, and slower pace than earlier in the year. Nonfarm payroll employment rose substanoccasionally above that range, despite tially further in both months and the civila relatively unchanged level of bor- ian unemployment rate fell to 7.1 percent rowing at the discount window (apart in June. Housing starts declined in May to from special borrowing by one large a rate appreciably below the average in the first four months of 1984. Information on bank). A small upward adjustment outlays and spending plans continues to was deemed advisable to provide suggest strength in business fixed investsome leeway above the recent trading ment. Since the beginning of the year, level before triggering a consultation average prices and the index of average hourly earnings have risen more slowly of the Committee. than in 1983. At the conclusion of the Commit- Ml grew rapidly in May and June after tee's discussion, the members indi- having changed little in April, while M2 cated their acceptance of a directive continued to expand moderately. M3 that called for maintaining the exist- growth slowed somewhat in June but was relatively strong over the second quarter. ing degree of restraint on reserve From the fourth quarter of 1983 through positions. The members expected such June, Ml grew at a rate somewhat below an approach to be associated with the upper limit of the Committee's range growth of Ml, M2, and M3 at annual for 1984; M2 increased at a rate a little below the midpoint of its longer-run rates of about 5 Vi, 7 Vi, and 9 percent range, while M3 expanded at a rate above respectively in the period from June the upper limit of its range. Total to September. The members agreed domestic nonfinancial debt continued to that somewhat greater restraint on re- grow in the second quarter at a pace above serve conditions would be acceptable the Committee's monitoring range for the year, reflecting very large government in the context of more substantial borrowing along with strong private credit growth in the monetary aggregates, growth. Interest rates have fluctuated while somewhat lesser restraint might considerably since the May meeting of the be appropriate if monetary growth Committee. Financial markets were affected by concerns arising from internawere significantly slower. In either tional debt problems. On balance, rates event, the need for greater or lesser on private short-term securities rose furrestraint would be considered only ther, while rates on Treasury bills were against the background of develop- about unchanged; in long-term debt marments relating to the continuing kets, rates on most private obligations changed little while those on Treasury strength of the business expansion, bonds declined. inflationary pressures, conditions in The foreign exchange value of the financial markets, and the rate of dollar against a trade-weighted average of credit growth. It was agreed that the major foreign currencies has risen considerably further since mid-May to a level intermeeting range for the federal above its peak in early January. The merfunds rate would be raised to 8 to 12 chandise trade deficit rose further in percent. April-May compared with the first At the conclusion of the meeting quarter; an increase in oil and non-oil imports exceeded a slight rise in exports. the following domestic policy direc- The Federal Open Market Committee tive was issued to the Federal Reserve seeks to foster monetary and financial Bank of New York: conditions that will help to reduce infla- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 115 tion further, promote growth in output on meeting is likely to be associated with a a sustainable basis, and contribute to an federal funds rate persistently outside a improved pattern of international transac- range of 8 to 12 percent. tions. In furtherance of these objectives the Committee agreed at this meeting to Votes for this action: Messrs. Volcker, reaffirm the ranges for monetary growth Solomon, Boehne, Boykin, Corrigan, that it had established in January: 4 to 8 Gramley, Mrs. Horn, Messrs. Partee, percent for Ml and 6 to 9 percent for both Rice, Ms. Seger, and Mr. Wallich. Vote M2 and M3 for the period from the fourth against this action: Mr. Martin. quarter of 1983 to the fourth quarter of 1984. The associated range for total Mr. Martin dissented from this acdomestic nonfinancial debt was also reaftion because he wanted to give more firmed at 8 to 11 percent for the year 1984. It was anticipated that M3 and nonfinan- weight to the possible need for some cial debt might increase at rates somewhat easing of reserve conditions in light of above the upper limits of their 1984 the vulnerability of key sectors of the ranges, given developments in the first economy and of financial markets to half of the year, but the Committee felt high interest rates. He also believed that higher target ranges would provide inappropriate benchmarks for evaluating that somewhat higher objectives for longer-term trends in M3 and credit monetary growth should be estabgrowth. For 1985 the Committee agreed lished for the third quarter. on tentative ranges of monetary growth, measured from the fourth quarter of 1984 to the fourth quarter of 1985, of 4 to 7 Meeting Held on percent for Ml, 6 to %Vi percent for M2, August 21, 1984 and 6 to 9 percent for M3. The associated range for nonfinancial debt was set at 8 to 1. Domestic Policy Directive 11 percent. The information reviewed at this The Committee understood that policy implementation would require continuing meeting suggested that the expansion appraisal of the relationships not only in economic activity was continuing among the various measures of money at a relatively strong pace, though and credit but also between those agmoderating from the annual rate of gregates and nominal GNP, including about IVi percent recorded for the evaluation of conditions in domestic credit and foreign exchange markets. second quarter. Thus far in 1984, In the short run, the Committee seeks average prices, as measured by the to maintain existing pressures on reserve fixed-weight price index for gross positions. This action is expected to be domestic business product, appeared consistent with growth in Ml, M2, and M3 at annual rates of around 5Vi IVi, to have risen more slowly than in 9 and 9 percent respectively during the 1983. period from June to September. Some- Industrial production rose 0.9 perwhat greater reserve restraint would be accent in July, the same as the increase ceptable in the event of more substantial in the preceding month, which had growth of the monetary aggregates, while somewhat lesser restraint might be accept- been revised upward. Production of able if growth of the monetary aggregates durable consumer goods increased slowed significantly. In either case, such a sharply, while output of nondurable change would be considered only in the goods rose little on balance. Output context of appraisals of the continuing strength of the business expansion, infla- of business equipment remained siztionary pressures, financial market condi- able though somewhat below the adtions, and the rate of credit growth. The vanced pace of other recent months. Chairman may call for Committee consul- The rate of capacity utilization in tation if it appears to the Manager for manufacturing reached 82.6 percent Domestic Operations that pursuit of the monetary objectives and related reserve in July, its highest level since early paths during the period before the next 1980. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

116 FOMC Policy Actions Labor market reports for July gave pand quite rapidly, and commitments mixed signals. Nonfarm payroll em- for future spending remained high. ployment rose 300,000 further, just a Shipments of nondefense capital little less than the average gain over goods rose further in June and were the first six months of the year. How- up nearly 6 percent for the second ever, the civilian unemployment rate, quarter as a whole. New orders for which had plunged to 7.1 percent in such goods increased about 5 percent June, returned to its May level of 7.5 in the quarter and the backlog of percent, as the survey of households outstanding orders continued to rise. showed a sharp drop in employment Incoming information on prices after two months of especially large and wages indicated a continuation of increases. For the three-month period recent favorable trends. The producer ending in July, both measures of em- price index for finished goods inployment reported a sizable increase creased 0.3 percent in July, after of nearly 1 million jobs. three months of virtually no change. Retail sales fell 0.9 percent in July, Data on consumer prices in July were after rising considerably in both the not yet available, but in June the confirst and the second quarters of the sumer price index had risen 0.2 peryear. Sales declines were reported at cent for the second consecutive nearly all major types of stores but month. Over the first seven months were especially pronounced at general of 1984, producer prices increased at merchandise, apparel, and furniture an annual rate of about 3 percent, and appliance stores where growth and over the first half of the year, had been especially strong earlier. consumer prices and the index of Sales of new domestic automobiles average hourly earnings rose at anwere a little above the annual rate of nual rates of about 4 percent and 3 Vi about 8!4 million units recorded for percent respectively. the first half of the year; but they In the period after the July FOMC dropped back to a rate of about IVi meeting, the foreign exchange value million units in the first 10 days of of the dollar against a trade-weighted August, in part because some popular average of major foreign currencies models were in short supply. rose about 2 percent further to a new Housing starts fell in July to a rate high in early August; subsequently appreciably below the average in the the dollar's value fluctuated in a second quarter. Starts of single- range a little below the peak. Over family units, declining for the third most of the intermeeting interval exmonth in a row, were nearly 14 per- change markets were quite volatile, cent below the second-quarter aver- apparently reflecting changing perage; multifamily starts, though edging ceptions among market participants down in July, remained above the about the outlook for interest rates, average in the preceding quarter. New- inflation, and economic activity in ly issued building permits declined the United States. The merchandise almost 12 percent in July, with issu- trade deficit in June was somewhat ance down by comparable margins for above the May level, and for the seboth single-family and multifamily cond quarter as a whole the deficit construction. was little changed from the high first- In contrast to the slowing in the quarter rate. consumer and housing sectors, busi- At its meeting on July 16-17, 1984, ness fixed investment continued to ex- the Committee had decided that open Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 117 market operations in the period until range of 6 to 9 percent. Over the same this meeting should be directed ini- period, M3 expanded at a rate sometially toward maintaining existing what above the upper limit of its pressures on reserve positions. That range of 6 to 9 percent. action was expected to be consistent Expansion of total domestic nonwith growth in Ml, M2, and M3 at financial debt was estimated to have annual rates of about 5!/2, IVi, and 9 remained at an annual rate of about percent respectively during the period 13 percent in July, keeping growth from June to September. The Com- thus far in 1984 at a pace above the mittee also agreed that somewhat Committee's monitoring range of 8 to greater restraint would be acceptable 11 percent for the year. A pickup in in the event of more substantial growth of federal debt offset some growth of the monetary aggregates, slowing in expansion of private debt, while somewhat lesser restraint might as merger-related borrowing lessened. be acceptable if growth of the mone- Total credit at U.S. commercial tary aggregates slowed significantly. banks expanded at an estimated an- Any such adjustment would be con- nual rate of 9V4 percent in July, after sidered only in the context of ap- rising only slightly in June. The acpraisals of the continuing strength of celeration primarily reflected a shift the business expansion, inflationary from liquidation to accumulation in pressures, financial market condi- holdings of U.S. Treasury securities; tions, and the rate of credit growth. growth in business and consumer The intermeeting range for the loans showed little change from the federal funds rate, which provides a pace in June. mechanism for initiating consultation Total reserves decreased in July at of the Committee, was set at 8 to 12 an annual rate of about 2 percent, percent. after expanding rapidly over the two Ml contracted at an annual rate of preceding months. The contraction Wi percent in July, after increasing reflected a marked deceleration in at an average annual rate of about 12 growth of required reserves, associpercent in May and June. Data for ated with weakness in transaction acearly August, however, suggested counts as demand deposits fell folsome rebound in Ml growth. Growth lowing a sharp increase in June, and a in M2 was at an annual rate of about reduction in excess reserves from the 5 percent in July, a relatively slow relatively high June level. In the two pace that was due in part to the slug- complete reserve maintenance periods gishness in Ml, while expansion in since the July FOMC meeting, adjust- M3 was relatively well maintained at ment plus seasonal borrowing conan annual rate of a little below 9 per- tinued to average in the neighborhood cent. Despite the decline in Ml and of $1 billion. comparatively slow growth in M2 in Despite little change in the average July, these aggregates remained well level of borrowing from the discount within the Committee's objectives for window, the federal funds rate tended the year. From the fourth quarter of to drift higher over the intermeeting 1983 through July, Ml grew at a rate period; recently funds traded in a a bit above the midpoint of the Com- range of W/i to \VA percent, up mittee's range of 4 to 8 percent for from about WA percent at the time 1984; M2 increased at a rate a little of the Committee meeting in July, as below the midpoint of its longer-run banks seemed to be somewhat reluc- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

118 FOMC Policy Actions tant to borrow from the discount win- and international financial markets. dow and they bid more aggressively A number of members pointed to for funds in the market. Some other indications—such as in housing, very short-term rates rose slightly retail sales, and steel production— over the intermeeting period but most that the rate of expansion might be short- and long-term rates declined, moderating appreciably, and some with yields on bonds falling about 5/g members commented on the emergto VA percentage point. Stock price in- ence of more cautious attitudes dexes advanced 9 to 10 percent over among businessmen in many parts of the interval on record trading vol- the country. Members also referred to ume, as the market reacted positively the cyclical tendency for expansions to interpretations of the future course to lose momentum over time and to of monetary policy in connection the risks inherent in the various imwith the Federal Reserve's midyear balances and financial strains that report to the Congress, and to incom- were affecting the economy. Some ing data on economic activity, prices, members, however, continued to view and money supply growth. the risks as mainly in the direction of The staff projections presented at more rapid expansion than was genthis meeting continued to suggest that erally expected, given the economy's expansion in real GNP would moder- current momentum, the strength of ate over the balance of the year and in business investment, and a highly 1985, a pattern of growth often char- stimulative fiscal policy. With regard acteristic of maturing business expan- to the nearer-term outlook, it was sions and rising utilization of produc- noted that a prolonged strike in the tive resources. The unemployment automobile industry could have a rate was projected to decline some- considerable impact, at least temwhat further over the period and, porarily, in retarding the overall though current information on cost expansion. and price pressures remained quite The members expressed somewhat favorable, the rate of price increase diverging views on the outlook for inwas expected to pick up a little from flation. Some placed considerable its recent pace. stress on the prospect that price and In their discussion of the economic wage pressures might increase as the situation and outlook, Committee economy's productive resources bemembers generally agreed that the ex- came more fully employed. An inflapansion in economic activity was con- tionary threat was also seen in the tinuing at a relatively strong pace, possibility of a sizable decline in the although they expected the rate of foreign exchange value of the dollar. growth to slow appreciably over the Likewise, a number of members exnext several quarters. They recog- pressed concern that an excessive nized, however, that the outlook for wage settlement in the automobile ineconomic activity and for prices and dustry, if it were to occur, would tend wages remained subject to substantial to have an inflationary impact on uncertainties. These were especially other wage negotiations, with widepronounced because of the distortions spread consequences for wage-cost created by unprecedented deficits in pressures in the economy. the federal budget and the balance of Members who were relatively optipayments, the strength of the dollar, mistic about the outlook for inflation and the sensitive state of domestic stressed, among other factors, the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 119 prospects for continued good gains in range for total domestic nonfinancial productivity. They commented in debt. particular about the renascent and In the Committee's discussion of apparently strong determination of policy implementation for the weeks businessmen to hold down their costs immediately ahead, a majority of the and to improve the efficiency of their members expressed a preference for operations. Moreover, the large in- continuing to maintain about the curvestments in capital during recent rent degree of restraint on reserve quarters would, it was argued, help to positions. A number of members, enhance productivity over time. One while finding the current approach to member also observed that, while a policy implementation acceptable, sizable decline in the foreign ex- nonetheless were prepared to look change value of the dollar would tend toward some slight easing of reserve to increase upward price pressures, conditions, either currently or soon such a result might well be more should monetary growth fail to pick limited or delayed longer than usual up from recent trends. They believed in light of the relatively sluggish pace that such an approach would likely be of economic activity abroad and con- consistent with attainment of the sequent efforts by foreign competi- third-quarter objectives for monetary tors to retain recently enhanced U.S. growth that had been set at the July market shares through aggressive meeting, given the shortfall in the agpricing. gregates since the meeting, and would At its meeting in July, the Commit- also be consistent with signs of some tee had reviewed and reaffirmed the weakening in the rate of economic basic policy objectives that it had growth relative to expectations. established in January for growth of Moreover, in the view of at least some the monetary and credit aggregates in of these members, some lessening in 1984 and had set tentative objectives the degree of reserve restraint would for growth in 1985. For 1984 the appropriately tend to offset the unpolicy objectives included growth of 4 usual pressures that had developed in to 8 percent for Ml and 6 to 9 percent the federal funds market during June for both M2 and M3 for the period and July. Those pressures were not from the fourth quarter of 1983 to the associated with any change in the fourth quarter of 1984. The associ- degree of reserve restraint, but they ated range for growth in total domes- appeared to reflect the emergence of tic nonfinancial debt was also reaf- more conservative reserve managefirmed at 8 to 11 percent for the year ment attitudes on the part of banks. 1984. Given developments in the first Other members commented, howhalf of the year, the Committee antic- ever, that any active effort to ease ipated that M3 and particularly non- reserve conditions would be undesirfinancial debt might increase at rates able at present, and could well be somewhat above the upper limits of misinterpreted, unless clearly related their 1984 ranges. The tentative to emerging weakness in monetary ranges established for 1985 included growth in the context of appreciably reductions of 1 and Vi percentage slower-than-expected expansion in point from the upper limits of the economic activity. 1984 ranges for Ml and M2 re- One Committee member indicated spectively, and no changes in the a preference for somewhat tighter range for M3 and in the associated reserve conditions so as to help assure Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

120 FOMC Policy Actions moderate rates of monetary expan- the strength of economic activity and sion. In this view, the near-term inflationary pressures, and evaluapressure on interest rates that might tions of conditions in domestic and result from such an approach to international financial and banking policy implementation could well pre- markets and the rate of credit growth. clude the need for greater, and more At the conclusion of the discussion, disruptive, rate increases later. On the all but one member indicated their acother hand, other members com- ceptance of a directive specifying no mented that further restraint would change at this time in the degree of be undesirable except in the context pressure on reserve positions, but of rapid monetary growth against a calling for a response to any signifibackground of greater strength in cant deviation in the aggregates from economic activity. It was viewed that expectations against the background current reserve conditions had become of economic and financial developrestrictive enough, as pressures on ments. The members anticipated that financial institutions and borrowers this approach to policy implementahad cumulated over a number of tion would be consistent with growth months, so that the risk of an unduly of the various aggregates at rates for rapid spurt of money and credit the quarter close to those specified at growth was relatively low. the previous meeting. Specifically, In discussing how operations might Ml was expected to grow at an anbe adjusted during the intermeeting nual rate of about 5 percent or slightperiod if monetary growth should ly less for the period from June to prove to be significantly faster or September, a little less than expected slower than targeted for the current at the previous meeting reflecting the quarter, most members felt that the contraction in Ml in July. The annual implementation of open market oper- rates of growth for M2 and M3 in the ations should be sensitive to the third quarter would continue to be potential desirability of somewhat IVi and 9 percent respectively. The lesser restraint over the weeks ahead, intermeeting range for the federal as well as to the possible need for funds rate was left unchanged at 8 to some greater restraint should mone- 12 percent. It was also recognized tary growth resume at an excessive that, within the context of this overall rate against a background of greater approach, operations might need to economic ebullience than seemed to be modified if unusual financial be taking place currently. As com- strains appeared to be developing. pared with conditions at the time of At the conclusion of the meeting the previous meeting, the monetary the following domestic policy direcaggregates had weakened—with Ml, tive was issued to the Federal Reserve for example, closer to the middle of Bank of New York: its longer-run range—and there were The information reviewed at this meetmore indications of a moderation in ing suggests that the expansion in ecothe expansion of economic activity. It nomic activity is continuing at a strong was understood that any intermeeting pace, but there are indications of a moderadjustment in reserve pressures would ation in the rate of growth. In July, indusnot be made automatically in response trial production and nonfarm payroll employment rose further, but retail sales fell to the behavior of the monetary agafter rising considerably in earlier months gregates, but would be undertaken and housing starts declined to a rate aponly in the context of appraisals of preciably below the average in the second Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 121 quarter. The civilian unemployment rate first half of the year, but the Committee increased 0.4 percentage point to 7.5 per- felt that higher target ranges would procent. Information on outlays and spend- vide inappropriate benchmarks for evaluing plans continues to suggest strength in ating longer-term trends in M3 and credit business fixed investment. Since the growth. For 1985 the Committee agreed beginning of the year, average prices and on tentative ranges of monetary growth, the index of average hourly earnings have measured from the fourth quarter of 1984 risen more slowly than in 1983. to the fourth quarter of 1985, of 4 to 7 In July, Ml declined after two months percent for Ml, 6 to SV2 percent for M2, of rapid growth, though data for early and 6 to 9 percent for M3. The associated August suggested some rebound, while range for nonfinancial debt was set at 8 to M2 expanded at a relatively slow pace. M3 11 percent. growth, however, remained comparatively The Committee understood that policy sizable. From the fourth quarter of 1983 implementation would require continuing through July, Ml grew at a rate a bit appraisal of the relationships not only above the midpoint of the Committee's among the various measures of money range for 1984; M2 increased at a rate a and credit but also between those aglittle below the midpoint of its longer-run gregates and nominal GNP, including range, while M3 expanded at a rate above evaluation of conditions in domestic the upper limit of its range. Growth in credit and foreign exchange markets. total domestic nonfinancial debt appears In the implementation of policy in the to be continuing at a pace above the Com- short run, the Committee seeks to mainmittee's monitoring range for the year, tain existing pressures on reserve posireflecting very large government borrow- tions. This action is expected to be consising along with strong private credit tent with growth in Ml at an annual rate growth. Most interest rates have fallen of around 5 percent or slightly less, and in considerably since the July meeting of the M2 and M3 at annual rates of around IVi Committee, with the largest declines and 9 percent respectively during the generally in intermediate and long-term period from June to September. Somebond markets. what greater reserve restraint would be ac- The foreign exchange value of the ceptable in the event of more substantial dollar against a trade-weighted average of growth of the monetary aggregates, while major foreign currencies rose further to a somewhat lesser restraint would be acceptnew high in early August and since then able in the event of significantly slower has fluctuated in a range just below the growth. In either case, such a change peak. The merchandise trade deficit in would be considered only in the context of June was somewhat above the May level, appraisals of the continuing strength of and for the second quarter as a whole the the business expansion, inflationary deficit was little changed from the high pressures, financial market conditions, first-quarter rate. and the rate of credit growth. The Chair- The Federal Open Market Committee man may call for Committee consultation seeks to foster monetary and financial if it appears to the Manager for Domestic conditions that will help to reduce infla- Operations that pursuit of the monetary tion further, promote growth in output on objectives and related reserve paths dura sustainable basis, and contribute to an ing the period before the next meeting is improved pattern of international transac- likely to be associated with a federal funds tions. In furtherance of these objectives rate persistently outside a range of 8 to 12 the Committee agreed at the July meeting percent. to reaffirm the ranges for monetary growth that it had established in January: Votes for this action: Messrs. Volcker, 4 to 8 percent for Ml and 6 to 9 percent Solomon, Boehne, Boykin, Corrigan, for both M2 and M3 for the period from Gramley, Mrs. Horn, Messrs. Martin, the fourth quarter of 1983 to the fourth Partee, Rice, and Ms. Seger. Vote quarter of 1984. The associated range for against this action: Mr. Wallich. total domestic nonfinancial debt was also reaffirmed at 8 to 11 percent for the year Mr. Wallich dissented from this ac- 1984. It was anticipated that M3 and nontion because he preferred a directive financial debt might increase at rates somewhat above the upper limits of their calling for a somewhat greater degree 1984 ranges, given developments in the of reserve restraint and marginally Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

122 FOMC Policy Actions lower monetary growth in the third third quarter from the annual rate of quarter. In his view such a directive about 814 percent recorded in the was more likely to help avert more first half of the year. The slowing was serious inflation and financial most marked in final sales, which pressures later. seemed to grow little during the quarter, while the rate of inventory 2. Authorization for Domestic accumulation appeared to have accel- Open Market Operations erated. Thus far in 1984, the rise in various measures of prices and wages At this meeting, the Committee apappeared to be close to, or slightly proved a temporary increase from $4 below, the pace in 1983. billion to $6 billion in the limit on Industrial production edged up 0.2 changes between Committee meetings percent in August, after climbing 0.9 in System Account holdings of U.S. percent in both June and July. Outgovernment and federal agency secuput of consumer durable goods fell rities specified in paragraph l(a) of markedly in August, largely reflecting the authorization for domestic open fewer assemblies of automobiles and market operations. The increase was light trucks, and production of noneffective for the intermeeting period durable consumer goods also declined. ending with the close of business on In contrast, production of equipment October 2, 1984. for business and defense continued to Votes for this action: Messrs. Volcker, advance briskly, and output of con- Solomon, Boehne, Boy kin, Corrigan, struction supplies edged up. With Gramley, Mrs. Horn, Messrs. Martin, production gains moderating in Partee, Rice, Ms. Seger, and Mr. Wallich. Votes against this action: None. August, capacity utilization in manufacturing was unchanged, after a siz- This action was taken on the rec- able increase in July. At 82.8 percent, ommendation of the Manager for the utilization rate was slightly higher Domestic Operations. The Manager than the 1967-82 average and 14 perhad advised that projected increases centage points above the postwar low in required reserves and currency registered in late 1982. might require net purchases of securi- Gains in employment slowed in reties over the intermeeting interval in cent months. As measured by the esamounts close to the usual $4 billion tablishment survey, nonfarm payroll leeway. A likely rise in Treasury bal- employment (adjusted for strikes) ances at Federal Reserve Banks would rose a little over 200,000 per month in add to the need for System purchases July and August, about two-thirds of securities. Accordingly, the Man- the average monthly increase during ager requested the temporary increase the first half of 1984. As measured by in the limit to provide the necessary the survey of households, employleeway for handling that contingency. ment fell sharply in both July and August, partly reversing exceptionally Meeting Held on large increases in the two preceding October 2, 1984 months. In August, the drop was about equal to the decline in the Domestic Policy Directive civilian labor force—a decline ac- The information reviewed at this counted for by youths under 25, apmeeting indicated that growth in real parently related to their leaving jobs HMP VmH cirm orM"*rAr»ic»Hl\7 in tYit* anH rptnrnino tn cn\\nr\\ anH Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 123 civilian unemployment rate was un- in business spending plans in the changed at 7.5 percent. latest Department of Commerce sur- Consumer spending, after rapid vey suggested further growth in growth earlier, was notably weaker capital expenditures. during the summer. The advance re- Incoming information on prices port on retail sales in August sug- and wages generally indicated a congested a decline of about 3A percent; tinuation of recent favorable trends. moreover, the decline in sales in July, The producer price index for finished originally reported to be about 1 per- goods edged down 0.1 percent in Aucent, was revised substantially to 2 gust; the index had risen 0.3 percent percent. Sales of new domestic auto- in July but had shown no change in mobiles, hindered by a shortage of the three preceding months. The conpopular models, dropped to an an- sumer price index rose 0.5 percent in nual rate of 7.6 million units in August after an increase of 0.3 per- August. However, a rebound to an cent in July. Thus far in 1984, pro- 8.5 million unit pace was reported for ducer and consumer prices had risen the first 20 days of September, re- at annual rates of about 2!/2 and 43A flecting in part the early introduction percent respectively, and the index of of 1985 models by some major pro- average hourly earnings had increased ducers. at an annual rate of about 23A percent. Housing starts fell appreciably in The foreign exchange value of the August to 1.5 million units. Starts of dollar fluctuated widely in often single-family units, declining for the volatile market conditions but rose fourth consecutive month, were more sharply on balance over the interthan 20 percent below their average in meeting period. By September 20 the the second quarter. Multifamily dollar had risen 7 percent to a new starts, which had changed little on high; since then, it had declined balance over the spring and early somewhat to a level about 5 percent summer, fell to a level about 17 per- above its value at the time of the Aucent below their second-quarter pace. gust FOMC meeting. In this environ- Newly issued building permits for ment, monetary authorities interboth types of structures moved down vened, some on a substantial scale, in for the second straight month. exchange markets. The U.S. foreign Information on outlays and spend- trade deficit increased to a record ing plans suggested that the expan- high rate in the July-August period, sion in business fixed investment in as a further surge in non-oil imports the third quarter had been slower overwhelmed a moderate increase in than the exceptionally rapid pace over exports. the preceding year. In August, orders At its meeting on August 21, 1984, placed at U.S. manufacturers for the Committee had adopted a direcnondefense capital goods fell for the tive specifying no change in the third consecutive month, and ship- degree of pressure on reserve posiments edged off further after an ap- tions in the period immediately preciable decline in July; in contrast, ahead, but calling for a response to purchases of equipment from abroad any significant deviation in the agcontinued to climb. Backlogs of un- gregates from expectations, viewed filled orders, which were still relatively against the background of economic large, continued good levels of cor- and financial developments. The porate profits, and reported increases members had anticipated that this ap- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

124 FOMC Policy Actions proach to policy implementation rising dollar in foreign exchange marwould be consistent with growth of kets, open market operations were Ml, M2, and M3 over the period conducted, as the intermeeting period from June to September at annual progressed, so as to lessen pressures rates of about 5 percent or slightly on bank reserve positions. In the two less, IVi percent, and 9 percent complete reserve maintenance periods respectively. The intermeeting range ending in September, adjustment plus for the federal funds rate was left un- seasonal borrowing averaged about changed at 8 to 12 percent. $750 million, down from an average As the intermeeting period pro- of about $1 billion over the previous gressed, incoming information intermeeting period. The easing in pointed to continuing substantial bank reserve positions was reflected shortfalls in growth of the monetary in a decline in the federal funds rate aggregates relative to the Committee's from the area of 11 Vi to 113A percent expectations for the third quarter. at the time of the August FOMC Growth of Ml in August turned out meeting to a range about 11 percent to be quite small, and while there ap- recently, though day-to-day trading peared to be a moderate acceleration levels fluctuated widely. In shortin September, expansion over the term markets, yields on Treasury three-month period from June to securities fell about lA percentage September was running well below point over the intermeeting interval, the Committee's expectations. Growth and those on private instruments deof M2 and M3 also appeared to have clined about Vi percentage point. picked up in September after expand- Most long-term interest rates declined ing at relatively sluggish rates over the about 5 to 30 basis points, while previous two months, but growth in yields on municipal bonds increased these broader aggregates over the under heavy supply pressure. Most summer was also lower than expected. major banks reduced their "prime" Expansion of total domestic non- lending rate from 13 to 12% percent. financial debt was estimated to have The staff projections presented at been at an average annual rate of this meeting suggested that real GNP about 1314 percent in July and Au- would expand at a moderate pace gust, keeping growth thus far in 1984 over the remainder of the year and in at a pace well above the Committee's 1985. The unemployment rate was monitoring range of 8 to 11 percent projected to decline somewhat furfor the year. Expansion of private ther over the period, and the rate of debt was estimated to have eased a bit price increase was expected to pick up from the rapid rates recorded earlier a little from its recent pace, as the in the year, as the growth of mortgage economy continued to move toward and consumer borrowing slowed fuller utilization of its productive somewhat and merger financing resources. abated. Expansion in business bor- The Committee's discussion of the rowing remained at a relatively rapid economic situation and outlook pace, however, and growth of federal focused on the implications of recent debt surged. indications of appreciably slower Against the background of mone- growth in the context of an economic tary growth that was weaker than an- outlook that was already complicated ticipated, evidence of a slowing pace by unusually large, sustained federal of economic advance, and a rapidly deficits, a strengthening dollar on ex- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 125 change markets, and sensitive domes- and farmers to financial strains. Reftic and international financial mar- erence was also made to the related kets. Many members commented that possibility that consumers might tend the economy appeared to be adjusting to curtail their spending if uncertainto a reduced, but potentially more ties about economic and financial sustainable, rate of expansion and conditions should intensify. In that that the moderation was likely in turn event growth in business spending to be associated with relatively sub- might also be scaled back, with invendued rates of wage and price infla- tories especially likely to become a tion. It was noted that many past ex- less expansive factor. pansions had been interrupted by a Several members referred to the "pause" in the rate of economic progress that had been made in congrowth. Although no one could say taining inflation, although some with certainty whether this most threats to future progress remained, recent experience represented a and a few members commented that "pause" and, if so, how long it inflation was still the main economic would last, a number of members be- problem for the longer run. In this lieved that a modest rebound was a connection, concern was expressed likely prospect for the next quarter or that too strong a resurgence in spendtwo followed by some moderation in ing, though not viewed as a likely the rate of expansion later. Other development, would intensify inflamembers gave more weight to ele- tionary pressures and would set in ments of slowing in the current eco- motion forces, which could threaten nomic situation, and they saw a the sustainability of the expansion greater likelihood of sluggish growth itself. Moreover, as the foreign exin the period ahead. change value of the dollar rose, the While acknowledging a greater possibility increased that a subsepotential for adverse developments, a quent decline in the exchange rate number of members stressed various could be precipitous when it occurred, factors that seemed conducive to con- which would exert significant uptinued satisfactory expansion in eco- ward pressures on domestic prices. nomic activity. Among these were the Prior experience suggested that those direct economic stimulus provided by pressures would emerge after some fiscal policy; a high level of consumer lag, but one member commented that confidence sustained by continued the lag might well be shorter than growth in disposable incomes and usual as many domestic producers atrelatively strong financial positions; tempted to restore profit margins that and a favorable climate for business were held down by foreign competiinvestment fostered by generally good tion. On the favorable side, it was profit levels, substantial tax incen- noted that apparently diminished intives, and reduced margins of unused flationary expectations, relatively capacity. Other members, who were restrained wage settlements, and a somewhat more concerned about the business climate favoring improveprospects for economic activity, ments in productivity had enhanced placed more emphasis on the retard- the prospects for containing inflaing influences of lower housing ex- tion. penditures, the competition of im- At its meeting in July, the Commitports, and the vulnerability of some tee had reviewed and reaffirmed the depository institutions, businesses, basic policy objectives that it had Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

126 FOMC Policy Actions established in January for growth of market interest rates, excessive the monetary and credit aggregates in money growth, and an unsustainably 1984 and had set tentative objectives strong rebound in economic activity. for growth in 1985. For the period These members noted the risk that from the fourth quarter of 1983 to the such a decline in interest rates might fourth quarter of 1984, the policy ob- have to be strongly reversed later with jectives included growth of 4 to 8 per- damaging consequences for the financent for Ml and 6 to 9 percent for cial system and the economy. Some both M2 and M3. Through Septem- members, however, favored a prompt ber, Ml apparently grew at a rate further lessening of reserve restraint. close to the midpoint of the range for They deemed such an approach to opthe year, M2 at a rate somewhat be- erations to be desirable for a number low the midpoint of its range, and M3 of reasons, including the recent beat a rate near the upper limit of its havior of the monetary aggregates, range. For 1985 the Committee had the progressive slowdown in the ecoestablished tentative ranges that in- nomic expansion since the first quarcluded reductions from the upper ter, the relatively favorable outlook limits of the 1984 ranges for Ml and for inflation, and the strength of the M2 of 1 and Vi percentage point re- dollar in foreign exchange markets. spectively and no change in the range In the course of discussing how for M3. For both years the associated operations should respond to incomrange for growth in total domestic ing information, most of the memnonfinancial debt was set at 8 to 11 bers agreed that the Committee percent. should be prepared to respond a little In the Committee's discussion of more promptly in an easing than in a policy implementation for the weeks tightening direction, should monetary immediately ahead, most of the mem- developments deviate significantly bers favored directing open market from expectations. In this view policy operations, at least initially, toward implementation, given recent shortmaintaining the lesser degree of falls in money growth, should be relareserve restraint that had been sought tively tolerant, up to a point, of any in recent weeks. Such an approach to tendency for expansion in the monepolicy was expected to be associated tary aggregates to strengthen more with expansion in the monetary ag- than expected, especially if such gregates from September to Decem- growth were not accompanied by ber at rates that were somewhat clear indications of a strengthening of above those experienced over the inflationary pressures or economic third quarter, especially in the case of activity and if the dollar remained Ml. It was noted in this connection under strong upward pressure in the that the degree of reserve restraint foreign exchange markets. Others, had been eased appreciably in recent while not disagreeing that there might weeks and that any further easing be a need to reduce restraint over the should be contingent upon clear coming intermeeting period, emphaevidence of further weakness in the sized that policy implementation monetary aggregates and the econ- should also be alert to potential develomy. A number of members expressed opments that might call for greater particular concern that under current restraint and that any move in either conditions appreciably lesser restraint direction should be carried out in a might well induce a sharp decline in cautious and probing manner. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 127 At the conclusion of the Commit- unemployment rate was unchanged in Autee's discussion, a majority of the gust at 7.5 percent. Information on outlays and spending plans suggest slower exmembers indicated that they favored pansion in business fixed investment, or could accept a directive that called following exceptionally rapid growth in for maintaining the lesser degree of recent quarters. Since the beginning of the restraint on reserve positions that had year, average prices and the index of been attained over recent weeks. The average hourly earnings have risen more slowly than in 1983. members expected that such an ap- In August the monetary aggregates exproach to policy implementation panded at relatively slow rates, but data would be consistent with growth of available for September suggested some Ml, M2, and M3 at annual rates of strengthening. From the fourth quarter of about 6, ll/2 and 9 percent respec- 1983 through September, Ml apparently 9 grew at a rate close to the midpoint of the tively for the period from September Committee's range for 1984, M2 at a rate to December. Somewhat lesser re- somewhat below the midpoint of its straint would be acceptable if growth longer-run range, and M3 at a rate near the upper limit of its range. Growth in of the monetary aggregates should total domestic nonfinancial debt appears fall significantly short of expectato be continuing at a pace above the Comtions, with any adjustment in opera- mittee's monitoring range for the year, tions to be evaluated in the context of reflecting large government borrowing the strength of the business expansion along with relatively strong private credit growth. Interest rates generally have and inflationary pressures, conditions fallen somewhat further since the August in domestic and international finan- meeting of the Committee. cial markets, and the rate of credit Over the past month, the foreign exgrowth. Conversely, greater restraint change value of the dollar against a trademight be acceptable in the event of weighted average of major foreign currencies has fluctuated widely under often substantially more rapid growth in volatile market conditions, reaching a new the monetary aggregates than was high in the latter part of September; since currently expected, provided such then the dollar has declined somewhat. growth was associated with evidence The merchandise trade deficit rose sharply to a record high rate in the July-August that economic activity and inflaperiod. tionary pressures were strengthening The Federal Open Market Committee significantly. It was agreed that the seeks to foster monetary and financial intermeeting range for the federal conditions that will help to reduce inflation further, promote growth in output on funds rate, which provides a mechaa sustainable basis, and contribute to an nism for initiating consultation of the improved pattern of international transac- Committee, should be left unchanged tions. In furtherance of these objectives at 8 to 12 percent. the Committee agreed at the July meeting At the conclusion of the meeting to reaffirm the ranges for monetary growth that it had established in January: the following directive was issued to 4 to 8 percent for Ml and 6 to 9 percent the Federal Reserve Bank of New for both M2 and M3 for the period from York: the fourth quarter of 1983 to the fourth quarter of 1984. The associated range for The information reviewed at this meet- total domestic nonfinancial debt was also ing suggests that the expansion in eco- reaffirmed at 8 to 11 percent for the year nomic activity slowed appreciably in the 1984. It was anticipated that M3 and nonthird quarter from a strong pace earlier in financial debt might increase at rates the year. In August, industrial production somewhat above the upper limits of their rose only slightly and gains in nonfarm 1984 ranges, given developments in the payroll employment moderated further; first half of the year, but the Committee retail sales and housing starts declined for felt that higher target ranges would pro- Digitized t h fo e r F se R c A o S nd E R m onth in a row. The civilian vide inappropriate benchmarks for evaluhttp://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

128 FOMC Policy Actions ating longer-term trends in M3 and credit reserve restraint and marginally faster growth. For 1985 the Committee agreed monetary growth in the fourth quaron tentative ranges of monetary growth, ter. In their view some additional easmeasured from the fourth quarter of 1984 ing of reserve positions would be apto the fourth quarter of 1985, of 4 to 7 percent for Ml, 6 to 8K2 percent for M2, propriate given the reduction in and 6 to 9 percent for M3. The associated monetary growth over the third quarrange for nonfinancial debt was set at 8 to ter and indications of further slowing 11 percent. in the rate of economic expansion. The Committee understood that policy Somewhat lesser restraint would not implementation would require continuing appraisal of the relationships not only incur a significant risk of stimulating among the various measures of money inflation and would also be desirable and credit but also between those aggre- in light of current conditions in dogates and nominal GNP, including evalumestic and international financial ation of conditions in domestic credit and foreign exchange markets. markets. Mr. Martin in particular ex- In the implementation of policy in the pressed concern about strains now short run, the Committee seeks to main- being experienced by some financial tain the lesser degree of restraint on institutions. reserve positions sought in recent weeks. This action is expected to be consistent with growth in Ml, M2, and M3 at annual Meeting Held on rates of around 6, IVi, and 9 percent, November 7, 1984 respectively, during the period from September to December. A somewhat further Domestic Policy Directive lessening of restraint on reserve positions would be acceptable in the event of signif- The information reviewed at this icantly slower growth in the monetary ag- meeting indicated a mixed pattern of gregates, evaluated in relation to the developments but on balance sugstrength of business expansion and inflagested that economic activity was tionary pressures, domestic and international financial market conditions, and continuing to expand, though at a the rate of credit growth. Conversely, considerably more moderate pace greater restraint might be acceptable in than earlier in the year. Final dethe event of substantially more rapid mands appeared to have picked up a monetary growth and indications of sigbit in early autumn after a lull during nificant strengthening of economic activity and inflationary pressures. The Chair- the summer. However, domestic proman may call for Committee consultation duction was apparently being damped if it appears to the Manager for Domestic by strong and growing competition Operations that pursuit of the monetary from imported products and by partobjectives and related reserve paths during the period before the next meeting is ly related efforts in a few sectors to likely to be associated with a federal funds reduce inventories. Thus far in 1984, rate persistently outside a range of 8 to 12 broad measures of prices generally percent. have continued to rise at rates close to the reduced rates recorded in 1983. Votes for this action: Messrs. Volcker, Solomon, Boehne, Boykin, Corrigan, Nonfarm payroll employment rose Gramley, Mrs. Horn, Messrs. Partee, 440,000 in October, following averand Wallich. Votes against this action: age monthly gains of about 200,000 Messrs. Martin, Rice, and Ms. Seger. in the third quarter. The October advance was most pronounced in the Messrs. Martin, Rice, and Ms. service and retail trade industries, but Seger dissented from this action be- employment in manufacturing also cause they preferred a directive call- increased somewhat after falling ing for a somewhat lesser degree of sharply in September. The civilian Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 129 unemployment rate was unchanged in quarter as a whole, however, follow- October at 7.4 percent, as an increase ing exceptional increases over the prein the civilian labor force offset a sub- ceding year. Recent indicators of outstantial rise in employment. lays and spending plans suggested a Industrial production fell 0.6 per- continuation of the slower expansion cent in September, after edging up 0.1 in business fixed investment, and inpercent in August. About half of the vestment in inventories, which had September decline was due to a de- risen relative to sales in recent months, crease in the production of motor also appeared to be slowing. vehicles, which had been affected by The producer price index for fina short strike and by continuing prob- ished goods fell 0.2 percent in Seplems related to the availability of tember and had remained essentially quality parts. Production of nondur- unchanged over the past two quarters. able goods and construction supplies The consumer price index rose 0.4 also fell, while output of equipment percent in September, continuing its for business and defense continued to pattern of increasing in recent months advance. Available information sug- at an annual rate of 4 to 5 percent. gested that industrial production in- Various measures of wage inflation, creased little in October. including the index of average hourly Retail sales rebounded in Septem- earnings and the employment cost inber, rising an estimated 1.6 percent dex, have continued to rise more after two consecutive monthly de- slowly in 1984 than in 1983. clines. Gains were recorded at nearly The foreign exchange value of the all types of retail outlets and included dollar fluctuated widely over the insharp increases at stores selling large- termeeting period, rising to a new ly discretionary items such as apparel high in mid-October, but subsequentand general merchandise. Sales of ly declining to a level about 2% pernew domestic automobiles, curtailed cent below that prevailing at the time by a variety of supply factors, were at of the previous meeting. Factors conan annual rate of about IVA million tributing to the dollar's recent deunits in September and fell in October cline included an apparent perception to a rate of about 11A million units. among market participants of slower Housing starts rose substantially in economic activity in the United States September after dropping in both than previously anticipated and a July and August. The advance was judgment that U.S. interest rates broadly based: starts of single-family might decline somewhat further. The and multifamily units rose by similar U.S. foreign trade deficit in the third margins, and all major geographic re- quarter was substantially above the gions of the country recorded in- rate in the first half of the year, as a creases. Sales of new homes rose sharp rise in non-oil imports exceeded nearly 22 percent in September, more further growth in exports. than offsetting the declines of the At its meeting on October 2, 1984, previous two months. the Committee had adopted a direc- Business fixed investment picked tive that called for maintaining the up in September, with shipments of lesser degree of reserve restraint that equipment and expenditures on non- had been sought in the weeks just beresidential construction both expand- fore that meeting. The members exing appreciably. Investment spending pected that such an approach to polslowed considerably during the third icy implementation would be consis- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

130 FOMC Policy Actions tent with growth of Ml, M2, and M3 the Committee's monitoring range of at annual rates of about 6, IVi, and 9 8 to 11 percent for the year. percent respectively for the period Over much of the intermeeting infrom September to December. The terval borrowing by banks at the dis- Committee agreed that somewhat count window averaged slightly below lesser restraint would be acceptable in levels in the weeks preceding the the event of significantly slower meeting. However, despite indications growth in the monetary aggregates, of reduced pressure on reserve posievaluated in relation to the strength tions and narrowing spreads between of the business expansion and infla- the discount rate and short-term martionary pressures, conditions in do- ket rates, borrowing at times was mestic and international financial sizable. Banks apparently became markets, and the rate of credit growth. more willing borrowers at the window Conversely, greater restraint might be following the more cautious approach acceptable in the event of substantial- to reserve management, particularly ly more rapid monetary growth and on the part of large banks, that had indications of significant strengthen- developed in late spring. Toward the ing of economic activity and infla- end of the intermeeting interval, open tionary pressures. The intermeeting market operations were conducted to range for the federal funds rate was further reduce pressures to borrow in left unchanged at 8 to 12 percent. recognition of the extended weakness Growth in the monetary aggregates of Ml, and to a degree M2, against strengthened in September from the the background of incoming economsluggish pace in August. But data ic and financial indicators suggesting, available for October indicated that on balance, a marked slowing in the Ml declined during the month; as a pace of economic expansion. As a result, Ml was running well below the result of these developments, together Committee's expectations for growth with market expectations of monetary in the fourth quarter. Expansion in easing and a drop in other short-term M2 was also below the Committee's rates, the federal funds rate moved expectations, although to a much down irregularly from about 11 perlesser extent, while growth in M3 ap- cent just before the October meeting peared to be at a pace somewhat to about 10 percent most recently, above the Committee's expectations. with trading on several days in the Expansion of total domestic non- area of 9Vi percent or below. At the financial debt moderated to an esti- same time, other short-term rates fell mated annual rate of about \\XA per- about WA to Wi percentage points cent in September from an average over the period. Long-term rates on pace of about 13 percent in the pre- taxable securities generally declined ceding two months. Government bor- about V* percentage point, respondrowing remained large, while private ing in part to expectations of an imcredit growth, though relatively proved outlook for inflation as oil strong, moderated. At commercial prices weakened as well as to the signs banks, credit expansion slowed as the of moderating economic expansion. pace of consumer lending slackened Most major banks reduced their and growth in business borrowing "prime" lending rate in several steps eased. Thus far in 1984, total domes- from \2VA percent to 12 percent, and tic nonfinancial debt appeared to be a few banks lowered their rate to WA growing at a rate appreciably above percent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 131 The staff projections presented at improve in conjunction with the forththis meeting suggested that real GNP coming holiday season. A failure of would grow somewhat more rapidly consumer spending to revive in line in the fourth quarter than in the third with expectations would have adverse and that the expansion would con- implications for economic growth betinue at a moderate pace in 1985. Per- yond the fourth quarter, as it would sonal consumption expenditures were reinforce a recent tendency by busiexpected to pick up in the near term, nesses to curb their accumulation of and growth over the coming year was inventories or possibly induce them to also expected to be sustained by con- attempt to reduce previously accepttinued expansion in business fixed in- able inventory levels. vestment, though at a much slower Members who were relatively oppace than in recent quarters, and by timistic about the prospects for ecodefense spending. The unemployment nomic activity noted the favorable rate was projected to decline some- impact that recent declines in interest what further over the period, and the rates were likely to have on interestrate of price increase was expected to sensitive sectors of the economy such rise a little from its recent pace if the as housing. They also noted that the dollar depreciates significantly on ex- basic forces that had given impetus to change markets following its strong the expansion over the last several rise during the past year. quarters were still largely present. In the Committee's discussion of These included rising consumer inthe economic situation and outlook, comes, a high degree of consumer members commented that a mixed confidence and relatively strong fipattern of developments had fostered nancial positions, a subdued rate of increased uncertainty about the pros- inflation, a favorable outlook for inpects for economic activity. While vestment in plant and equipment, and most agreed that the staff projection a large federal deficit that, at least in of moderate growth in real GNP was the short run, provided a strong stima reasonable expectation, much of ulus to the expansion. A number of the discussion focused on the risks of members observed, however, that an appreciable deviation from the while underlying factors favored susprojection under prevailing circum- tained expansion, the timing of a stances. A few members believed that pickup in economic growth following the chances of a deviation were tilted the "pause" experienced in recent in the direction of somewhat faster months remained uncertain and growth expansion than the staff was project- might well remain relatively sluggish ing, but others expressed concern that in the current quarter. Moreover, the rate of growth might remain quite even a substantial increase in retail sluggish in the near term with some sales over the period ahead might not possibility of a rise in the rate of contribute to significant short-run unemployment. improvement in domestic production The outlook for consumer expendi- to the extent that inventories were tures was cited as a key area of uncer- drawn down or that a rising share of tainty. Several members felt that evi- sales was accounted for by imported dence of general improvement was goods. However, a strong rise in still lacking after the summer slow- retail sales that tended to deplete indown. It was noted, however, that a ventories would have a favorable efnumber of retailers expected sales to fect on production in 1985. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

132 FOMC Policy Actions Members who were somewhat less associated range for growth in total optimistic about the economic out- domestic nonfinancial debt was set at look noted that the surge in imports 8 to 11 percent. was having a strong impact on a num- During the Committee's discussion ber of important domestic industries, of policy implementation for the both in terms of inhibiting their sales weeks immediately ahead, a number and curbing their investment plans. of members expressed concern about The current value of the dollar to- the persisting weakness in Ml, espegether with relatively weak economic cially in the context of the concurrent growth in foreign countries were also "pause" or "lull" in the economic inhibiting demands for U.S. exports. expansion, and they saw a need for Moreover, some concern was ex- some easing of reserve conditions to pressed that rising consumer debt encourage a resumption in Ml growth. burdens might tend increasingly to Other members, while not necessarily curtail consumer spending. disagreeing, nonetheless noted that Several members commented that the recent expansion of M2 had been the outlook for inflation remained much closer to the Committee's exrelatively favorable. While inflation- pectations and that growth in M3 had ary expectations appeared to have been somewhat faster. A few memsubsided further in recent months, bers cautioned against putting too the need to be alert to inflationary much emphasis on Ml in light of its potential remained. It was noted, for typically volatile behavior, the diffiinstance, that a sizable decline in the culties of achieving accurate seasonal foreign exchange value of the dollar, adjustments, and the often unpredictif it were to occur, would in time exert able relationship of Ml to aggregate upward pressure on domestic prices. measures of economic performance. At its meeting in July, the Commit- Most members felt that the potentee had reviewed and reaffirmed the tial for a sharp upward surge in busibasic policy objectives that it had ness activity had diminished appreestablished in January for growth of ciably for the time being and with it the monetary and credit aggregates in the possible need for a near-term 1984 and had set tentative objectives reversal of easing steps already taken. for expansion in 1985. For the period On balance, nearly all of the members from the fourth quarter of 1983 to the favored further easing from the refourth quarter of 1984, the policy ob- duced degree of reserve restraint jectives included growth of 4 to 8 per- sought recently. While preferences cent for Ml and 6 to 9 percent for with regard to the extent of such easboth M2 and M3. Through October, ing differed somewhat, a majority Ml grew at a rate in the lower half of urged that the lesser restraint be imthe range for the year, M2 at a rate plemented in limited steps, pending somewhat below the midpoint of its an evaluation of its impact on finanrange, and M3 at a rate a bit above cial markets and of incoming inforthe upper limit of its range. For 1985 mation on the economy and the monthe Committee had established tenta- etary aggregates. A number of memtive ranges that included reductions bers, who suggested slightly more of 1 and Vi percentage point from the aggressive steps, stressed that the upper limits of the 1984 ranges for Ml risks of stimulating an intensification and M2 respectively and no change in of inflationary pressures were relathe range for M3. For both years the tively small under forseeable circum- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 133 stances and that, on balance, more pend upon clear evidence of substanweight needed to be given to the risks tial strengthening in economic activity. of inadequate monetary and econom- Members noted that, along with ic growth. With regard to the latter, other interest rates, the federal funds some members noted that the econ- rate had declined appreciably during omy appeared to have the capacity recent weeks. Accordingly, most of for somewhat faster expansion than the members favored a reduction in was generally expected without gener- the intermeeting range of the federal ating significantly greater inflationary funds rate from the current 8 to 12 pressures. percent that had been set initially at A differing view placed more em- the July meeting, thus technically phasis on prospects for some strength- providing a more symmetrical range ening in economic activity, partly in around recent levels. The members light of the sizable declines in interest regard the federal funds range as a rates that had already occurred. In mechanism for initiating Committee this view, little or no easing of reserve consultation when its boundaries are conditions would be desirable at this persistently exceeded. time, although the Committee needed At the conclusion of the Committo remain sensitive to possible indica- tee's discussion, all but one member tions of further weakness in monetary indicated that they favored or could growth and in economic performance. accept a directive that called for a It was pointed out that any very sub- somewhat reduced degree of restraint stantial decline of interest rates over on reserve positions. The members the near term might have to be re- expected such an approach to policy versed later, with potentially unset- implementation to continue to be tling consequences for financial mar- consistent with growth of M2 and M3 kets and institutions, in order to at annual rates of about IVi and 9 restrain a resurgence of monetary percent respectively as established at growth and inflationary pressures. the early October meeting for the In the course of the Committee's period from September to December. discussion, the members generally Given the appreciable decline in Ml agreed that under prevailing econom- during October, its growth over the ic and financial conditions, policy im- three-month period was now expected plementation should be particularly to be at an annual rate of about 3 alert to the possible need for adjust- percent, down from the 6 percent rate ment toward lesser restraint. It was anticipated at the October meeting. felt that any such adjustment should The members recognized the volatility be made promptly, although not of this monetary measure and indiautomatically, depending on the be- cated that more rapid growth would havior of the monetary aggregates be acceptable for the quarter. Lesser and continuing indications of rela- restraint on reserve conditions would tively sluggish economic activity. In be sought if the monetary aggregates this view, policy implementation grew significantly below expectashould be relatively tolerant, for a tions, evaluated in the context of the time, of a substantial rebound in strength of the business expansion monetary growth, given the unex- and inflationary pressures, conditions pected weakness of Ml in October. in domestic and international finan- Any adjustment of operations in a cial markets, and the rate of growth tightening direction should also de- in domestic nonfinancial debt. Con- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

134 FOMC Policy Actions versely, greater restraint might be ac- it of its range. Growth in total domestic ceptable in the event of substantially nonfinancial debt appears to be continuing above the Committee's monitoring more rapid growth in the monetary range for the year, reflecting large governaggregates than was currently expect- ment borrowing; private credit growth, ed, provided such growth was associ- though relatively strong, has moderated in ated with evidence that economic ac- recent months. Interest rates have fallen substantially further since the meeting of tivity and inflationary pressures were the Committee on October 2. strengthening significantly. It was Over the past month, the foreign exagreed that the intermeeting range for change value of the dollar against a tradethe federal funds rate should be re- weighted average of major foreign currenduced by one percentage point to 7 to cies has continued to fluctuate widely, rising to a new high in mid-October but sub- 11 percent. sequently declining to somewhat below its At the conclusion of the meeting, level at the time of the previous meeting. the following domestic policy direc- The merchandise trade deficit in the third tive was issued to the Federal Reserve quarter was substantially above the firsthalf rate as a sharp rise in non-oil imports Bank of New York: exceeded some further growth in exports. The Federal Open Market Committee The information reviewed at this meet- seeks to foster monetary and financial ing indicates a mixed pattern of develop- conditions that will help to reduce inflaments but on balance suggests that eco- tion further, promote growth in output on nomic activity is continuing to expand, a sustainable basis, and contribute to an though at a considerably more moderate improved pattern of international transacpace than earlier in the year. Nonfarm tions. In furtherance of these objectives payroll employment rose substantially the Committee agreed at the July meeting outside of manufacturing in October, fol- to reaffirm the ranges for monetary growth lowing a moderate increase in September, that it had established in January: 4 to 8 and the civilian unemployment rate was percent for Ml and 6 to 9 percent for both unchanged at 7.4 percent. Industrial pro- M2 and M3 for the period from the fourth duction fell in September, partly because quarter of 1983 to the fourth quarter of of strikes, and available information sug- 1984. The associated range for total dogests little increase in October. Retail sales mestic nonfinancial debt was also reafand housing starts rebounded in Septem- firmed at 8 to 11 percent for the year 1984. ber after two months of decline. Informa- It was anticipated that M3 and nonfinantion on outlays and spending plans sug- cial debt might increase at rates somewhat gests slower expansion in business fixed above the upper limits of their 1984 ranges, investment, following exceptionally rapid given developments in the first half of the growth earlier, and inventory investment, year, but the Committee felt that higher having risen relative to sales in recent target ranges would provide inappropriate months, also appears to be slowing. Since benchmarks for evaluating longer-term the beginning of the year, broad measures trends in M3 and credit growth. For 1985 of prices generally have continued to rise the Committee agreed on tentative ranges at rates close to, or somewhat above, of monetary growth, measured from the those recorded in 1983, and the index of fourth quarter of 1984 to the fourth average hourly earnings has risen some- quarter of 1985, of 4 to 7 percent for Ml, what more slowly. 6 to 8 Vi percent for M2, and 6 to 9 percent Growth of the monetary aggregates for M3. The associated range for nonstrengthened in September, but data avail- financial debt was set at 8 to 11 percent. able for October indicated that Ml de- The Committee understood that policy clined during the month, growth of M2 implementation would require continuing slowed somewhat, and expansion of M3 appraisal of the relationships not only picked up further. From the fourth quar- among the various measures of money ter of 1983 through October, Ml grew at a and credit but also between those aggrerate in the lower half of the Committee's gates and nominal GNP, including evaluarange for 1984, M2 at a rate somewhat be- tions of conditions in domestic credit and low the midpoint of its longer-run range, foreign exchange markets. Digitizeda fnodr FMRA3 SaEt Ra rate a bit above the upper lim- In the implementation of policy in the http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 135 short run, the Committee seeks to reduce economic activity and money growth somewhat existing pressures on reserve picked up again. positions. This action is expected to be consistent with growth of M2 and M3 at annual rates of around IVi and 9 percent Authorization for Domestic during the period from September to De- Open Market Operations cember. Ml is expected to grow over the period at an annual rate of around 3 per- During the intermeeting period, the cent, less than anticipated earlier in view of the decline in October. In light of that Committee approved temporary indecline, more rapid growth of Ml would creases in the $4 billion limit on be acceptable. Lesser restraint on reserve changes between Committee meetings positions would be sought in the event of in System Account holdings of U.S. significantly slower growth in the monegovernment and federal agency secutary aggregates, evaluated in relation to the strength of the business expansion and rities specified in paragraph l(a) of inflationary pressures, domestic and inter- the authorization for domestic open national financial market conditions, and market operations. The first increase the rate of credit growth. Conversely, from $4 billion to $6 billion was efgreater restraint might be acceptable in the event of substantially more rapid fective on November 21, 1984, and monetary growth and indications of sig- the second from $6 billion to $8 bilnificant strengthening of economic activi- lion on December 5, 1984. Both inty and inflationary pressures. The Chaircreases applied to the period ending man may call for Committee consultation with the close of business on December if it appears to the Manager for Domestic Operations that pursuit of the monetary 18, 1984. They were approved on the objectives and related reserve paths dur- recommendation of the Manager for ing the period before the next meeting is Domestic Open Market Operations. likely to be associated with a federal funds During the first part of the intermeetrate persistently outside a range of 7 to 11 percent. ing period, substantial net purchases of securities were undertaken to pro- Votes for this action: Messrs. Volcker vide reserves in association with sea- Solomon, Boehne, Boy kin, Corrigan, sonal increases in required reserves Mrs. Horn, Messrs. Martin, Partee, and in currency in circulation. The Rice, Ms. Seger, and Mr. Wallich. Vote need to provide reserves through open against this action: Mr. Gramley. market operations had been augmented this year by some reduction in Mr. Gramley dissented from this borrowing on an extended basis at the action because he preferred a direc- Federal Reserve Banks. By November tive that called for maintaining ap- 21, immediately contemplated purproximately the existing degree of re- chases would have nearly exhausted serve restraint. Despite the pause in the $4 billion leeway in the authorizathe current expansion, underlying tion and the Manager believed that forces in the economy, together with additional purchases were likely to be the decline in interest rates that had required before the next Committee already occurred, were likely to pro- meeting. Subsequently, in early Deduce a resumption of economic ex- cember the Manager advised that a pansion in the reasonably near future. greater need to provide reserves than In those circumstances, he was con- previously expected had arisen from a cerned that further easing of reserve combination of factors, all working positions might lead to a significant in the same direction, that included decline in interest rates that would further declines in extended credit at subsequently have to be reversed as the discount window, anticipated Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

136 FOMC Policy Actions changes in vault cash, currency, and aging about 200,000 in the third quarrequired reserves, and an increased ter. There were large gains in the pool of overnight investment funds of service and retail trade industries, but foreign official accounts. employment in manufacturing rose only slightly. The civilian unemploy- Votes for the action effective Novemment rate fell 0.2 percentage point to ber 21, 1984: Messrs. Volcker, Solomon, Boehne, Boykin, Corrigan, Gramley, 7.2 percent, following four months of Mrs. Horn, Messrs. Martin, Partee, virtually no change. Rice, Ms. Seger, and Mr. Wallich. Votes Retail sales, after changing little in against this action: None. October, rose an estimated 1.8 per- Votes for the action effective Decem- cent in November according to the ber 5, 1984: Messrs. Volcker, Solomon, advance report of the Census Bu- Boehne, Boykin, Corrigan, Gramley, reau. The November gain was broad- Martin, Partee, Rice, Ms. Seger, Messrs. ly based, but sales were especially Wallich and Keehn. Votes against this action: None. (Mr. Keehn voted as al- strong at stores selling primarily disternate for Mrs. Horn.) cretionary items such as apparel and general merchandise. Sales of new domestic automobiles were at an an- Meeting Held on nual rate of about IVA million units in December 17-18, 1984 both October and November, but rebounded to an annual rate of nearly Domestic Policy Directive SVA million units in the first ten days The information reviewed at this of December. Nevertheless, sales thus meeting indicated a mixed pattern of far in the fourth quarter were running developments, with some sectors at an annual rate about Vi million showing a pickup from the lull of units below the third-quarter rate of earlier months. On balance, however, nearly 8 million units. economic activity appeared to be ex- Total private housing starts, at an panding in the current quarter at a annual rate of 1.5 million units in rate approximating the considerably November, were about unchanged reduced pace recorded in the third from the reduced October pace. quarter. Broad measures of prices However, newly issued building pergenerally continued to increase at mits for residential construction rose rates close to those in 1983. nearly 11 percent in November. The After two months of decline, in- declines in mortgage rates over recent dustrial production increased about months apparently helped to bolster 0.4 percent in November, largely home sales: in October, sales of new reflecting a rebound in auto produc- homes rose slightly further after a tion from strike-reduced levels. Pro- surge in September and sales of existduction of business equipment and ing homes leveled off after declining construction supplies declined fur- for five consecutive months. ther, while output of materials turned The rise in business fixed investup and production of defense and ment spending had slowed substanspace equipment continued to ad- tially in recent months, following exvance strongly. ceptionally rapid growth earlier. Ship- The rise in nonf arm payroll employ- ments and orders of equipment from ment exceeded 300,000 in November domestic capital goods producers defor the second month in a row, com- clined markedly in October. Neverpared with monthly increases aver- theless, recent surveys of business Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 137 spending plans for 1985 indicated con- ble decline in Ml in October, its tinued, though moderating, growth in growth over the three-month period expenditures in the quarters ahead. was expected to be at an annual rate The producer price index for fin- of about 3 percent, rather than the 6 ished goods rose 0.5 percent in No- percent rate anticipated at the Ocvember, after declining 0.2 percent in tober meeting; however, the members each of the preceding two months. indicated that more rapid growth in The reversal reflected in part a 0.7 Ml than currently anticipated would percent increase in food prices, which be acceptable for the quarter. Lesser had declined on balance since July; restraint on reserve positions would prices for a variety of other consumer be sought if growth in the monetary goods also picked up in November. aggregates was significantly below ex- Thus far in 1984 producer prices for pectations, evaluated in the context finished goods had risen at an annual of the strength of the business expanrate of less than 2 percent. Through sion and inflationary pressures, con- October, the latest month for which ditions in domestic and international data on consumer prices were avail- financial markets, and the rate of able, the CPI had increased at an an- growth in domestic nonfinancial debt. nual rate of about 4lA percent. The Conversely, greater restraint might be index of average hourly earnings over acceptable in the event of substantialthe first 11 months of the year rose at ly more rapid growth than expected in an annual rate of about 3 percent, the monetary aggregates and evidence compared with an increase of 4 per- that economic activity and inflationcent in 1983 as a whole. ary pressures were strengthening sig- The foreign exchange value of the nificantly. The intermeeting range for dollar appreciated about 5 percent the federal funds rate was set at 7 to over the intermeeting interval; this 11 percent. rise reversed most of the previous de- In November Ml increased at an cline from the peak in mid-October. annual rate of about SVi percent, off- The dollar moved up during the peri- setting the decline in October. Since od despite a narrowing in the differ- early summer Ml had grown little on ential between U.S. and foreign inter- balance, and from the fourth quarter est rates. In October the U.S. foreign of 1983 through November its growth trade deficit was significantly reduced was in the lower half of the Commitfrom the rate in the third quarter, tee's range for 1984. Growth in M2 mainly because of a sharp decline in and M3 was especially rapid in Nonon-oil imports. vember, at annual rates of about 15 At its meeting on November 7, and 16 percent respectively, bringing 1984, the Committee had adopted a M2 to the midpoint of its longer-run directive that called for a somewhat range and M3 a bit further above the reduced degree of restraint on reserve upper limit of its range. Expansion in positions. The members expected that total domestic nonfinancial debt was such an approach to policy imple- estimated to have picked up to an anmentation would be consistent with nual rate of about 14 percent in Nogrowth of M2 and M3 at annual rates vember, reflecting very large governof about 1V2 and 9 percent respective- ment borrowing and continued strong ly, as established at the early October growth in private credit. Thus far in meeting for the period from Septem- 1984, expansion in domestic nonfiber to December. Given the apprecia- nancial debt was running appreciably Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

138 FOMC Policy Actions above the Committee's monitoring somewhat slower than previously anrange for the year. ticipated as some final demands were Open market operations over the expected to be satisfied by reductions intermeeting interval were directed at of inventories rather than through achieving some reduction in pressures current production. For the year 1985, on bank reserves against the back- however, the staff continued to exground of lagging growth in the nar- pect a moderate rate of expansion in row money supply, generally sluggish economic activity. The unemployment expansion in the economy, subdued rate was projected to edge down over inflation, and continued strength of the period and the rate of price inthe dollar in foreign exchange mar- crease to remain close to that experikets. The average level of borrowing enced in 1984. by depository institutions at the dis- In the Committee's discussion of count window moved down on bal- the economic situation and outlook, ance over the period, and in Novem- the members differed to some extent ber nonborrowed and total reserves on the prospects for economic activity increased at annual rates of about in 1985, but they generally agreed 17Vi and 1114 percent respectively. that underlying economic conditions The decline in borrowing, along with favored further moderate growth a reduction in the discount rate from during the year, especially in the con- 9 to 8 Vi percent on November 21, was text of a stimulative fiscal policy and associated with a drop in the federal the decline in interest rates that had funds rate from the 9Vi to 10 percent occurred. While various measures of area at the time of the November economic activity continued to indi- FOMC meeting to about S3A per- cate a mixed pattern of developments, cent recently, with trading on the some recent information suggested a days immediately preceding this less sluggish overall performance meeting somewhat below that level. than earlier. With reference to the Other short-term interest rates also staff projection, a few members felt moved down, declining about 50 to that the risks of a deviation were 90 basis points; intermediate-term in the direction of somewhat faster rates fell about 45 to 65 basis points, growth. Some others saw those risks while most long-term rates declined as about evenly balanced, while sevonly modestly. At savings and loan eral believed there were more risks of associations, however, the average a shortfall. Many members were conrate on new commitments for fixed- cerned that the projected rate of exrate conventional home mortgage pansion was in any event inadequate loans—which typically move in lagged in light of the availability of labor response to changes in market yields and capacity and other factors. —declined 65 basis points over the The members continued to give period. Most commercial banks re- considerable emphasis to the many duced their "prime" rate in several risks that could lead to an unexpected steps by 75 basis points to 11 VA per- outcome, especially in view of potencent, and a few banks were lowering tial complications associated with their rates further at the time of this massive and sustained federal deficits meeting. and very large imbalances in the na- The staff projection presented at tion's foreign trade. Other areas of this meeting suggested that growth in uncertainty related to various finanreal GNP in the short run would be cial strains or other problems in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 139 several sectors of the economy, in- fluence on economic activity than it cluding energy-related industries and had been in recent quarters, and the especially agriculture, which was ex- view was expressed that some revival periencing serious difficulties in many in housing construction was a reasonparts of the country. It was also noted able prospect for 1985. It was noted, that the recent tax proposals of the though, that uncertainties about fu- U.S. Treasury might tend to alter ture tax legislation could exert some business spending plans in uncertain restraining effect on housing, notably ways as the likelihood of implementa- with regard to certain financing activtion of various elements of the pro- ities and particular types of housing posals was assessed. such as second homes. The members recognized that the As they had at previous meetings, performance of the economy in the the members gave a good deal of atmonths immediately ahead would tention to the effects of the continudepend in important measure on ing strength of the dollar in foreign consumer expenditures. The rising exchange markets. The related surge incomes of consumers, their large in imports was having a very negative holdings of liquid assets, and an ap- impact on production in many domesparently high degree of consumer tic industries, while expansion in exconfidence pointed to continuing ports was being curbed by the appregrowth in consumer spending. In the ciated value of the dollar as well view of at least some members, how- as by relatively slow economic growth ever, such spending might remain abroad. Some members commented relatively sluggish during the year that they saw little or no prospect for ahead. They noted in this regard that significant improvement in the trade consumer expenditures often tended balance in 1985. If the foreign exto falter during the third year of an change value of the dollar were to expansion and that the substantial decline moderately, foreign suppliers rise that had already occurred in con- were viewed as likely to absorb some sumer debt might inhibit further in- of the exchange loss through their creases in debt-financed expenditures. profits, at least in the short run, in Moreover, a substantial portion of order to protect their market shares in consumer demand might in any event the United States, in the process modcontinue to be met from imports, erating any inflationary impact of the with adverse consequences for domes- dollar's decline. It was noted that a tic production. rapid decline of the dollar might have Members noted that growth in busi- undesirable effects on confidence or ness fixed investment had moderated on the stability of markets if it led to considerably in recent months from a worsening of inflationary expectaan exceptionally rapid pace earlier. tions. While continuing growth could be ex- The members continued to regard pected in 1985, it would probably the outlook for inflation as relatively contribute much less than earlier to favorable in the sense that a moderate overall gains in economic activity, but expansion in economic activity was uncertainties connected with the re- not seen as likely to be associated with cent tax proposals might affect the renewed upward pressures on wages extent of the slowdown. On the other and prices or, absent a sharp decline hand, reduced mortgage rates would in the dollar, strong new price presmake housing a less constraining in- sures from other sources. Members Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

140 FOMC Policy Actions noted that prices of sensitive com- those ranges—in the expectation that modities were still declining and that at its next meeting it would reassess there appeared to have been a down- and set specific ranges for the year ward shift in inflationary expecta- within the framework of the Full Emtions in recent months, with favorable ployment and Balanced Growth Act implications for future progress in of 1978 (the Humphrey-Hawkins containing wage and price increases. Act). Indeed, a number of members com- During the Committee's discussion mented that somewhat faster eco- of policy implementation for the innomic growth than was generally ex- termeeting period ahead, most of the pected at this time might also be members expressed a preference for compatible with little or no additional directing open market operations toinflationary pressures in 1985. At the ward some further easing of reserve same time, it was emphasized that the conditions to encourage satisfactory rate of inflation was still too high and growth in Ml and to improve the needed to be reduced over time. One prospects for economic expansion in member also expressed the view that 1985. The views of these members improvements in productivity were differed to some extent on the degree likely to contribute to diminishing in- of easing that should be sought. A flationary pressures over the longer few members, though, wanted essenrun. On the negative side, a sizable tially to maintain, pending new dedecline in the value of the dollar velopments, the lesser degree of rewould in time exert upward pressure serve restraint that had been achieved on domestic prices, although given recently. the lags that were involved, any such In the discussion of the pressures to impact might be relatively limited be sought on reserve positions, some during 1985. Reference was also members stressed the risks of inademade to uncertainties about produc- quate economic expansion in 1985 tivity improvements and to a desire to and commented that even a relatively raise profit margins in many indus- rapid pace of economic growth next tries, even though competitive fac- year would not be likely to incur tors, both domestic and international, much risk of stimulating a significant might well continue to hold prices intensification of inflationary presdown for a time. sures. Some observed that despite At its meeting in July the Commit- sizable declines in nominal interest tee had agreed on policy objectives rates, real interest rates were still that called for tentative growth ranges quite high, partly because of a downfor the period from the fourth quarter ward shift in inflationary expectaof 1984 to the fourth quarter of 1985 tions, and were exerting considerable of 4 to 7 percent for Ml, 6 to 8 Vi per- restraint on economic activity. A cent for M2, and 6 to 9 percent for number of members also commented M3. The associated range for total that domestic considerations in favor domestic nonfinancial debt was pro- of lesser restraint were reinforced by visionally set at 8 to 11 percent for the need to take account of the 1985. At this meeting the Committee strength of the dollar in foreign reviewed background factors bearing exchange markets and the severe on the ranges for 1985—including debt-servicing problems of several dehow experience in 1984 may affect the veloping countries. Other members, establishment and implementation of particularly those who preferred little Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 141 or no easing of reserve conditions, considerably in recent weeks and noted the possibility that the expan- might fall a little more if pressures on sion might turn out to be more vigor- reserve positions were eased someous than was generally expected. The what further. Under the circumimpact of reduced interest rates had stances, most of the members were in not yet been fully reflected in the favor of a technical downward adjusteconomy and more time was needed ment in the current intermeeting range to gauge that impact as the Commit- of 7 to 11 percent. It was suggested tee endeavored to steer an appropriate during this discussion that a rise in policy course that would encourage the federal funds rate to about the upexpansion in economic activity while per limit of the existing range would avoiding an intensification of infla- imply reserve conditions that were intion. consistent with the Committee's ob- The members concurred that growth jectives for monetary growth. On the in Ml might accelerate over the other hand, some members cautioned months ahead, partly in lagged re- that a decline in the rate that was too sponse to sizable declines in short- precipitous or sizable might signal term interest rates during recent more of an easing to markets than months, but several were of the view was needed to achieve the Committhat some additional easing of reserve tee's objectives. conditions was probably needed to At the conclusion of the Commithelp assure adequate growth in Ml. It tee's discussion, a majority of the was noted that there was as yet no members indicated that they favored clear evidence that the recent easing or could accept a directive that called of reserve conditions and accompany- for some further reduction in the ing decline in short-term interest rates degree of restraint on reserve posiwould foster a sustained rebound in tions. The members expected that Ml growth. On the other hand, growth such an approach to policy implein the broader aggregates appeared to mentation would be consistent with be exceeding the Committee's expec- growth of Ml at an annual rate of tations for the fourth quarter by a about 7 percent during the foursubstantial margin and it was suggest- month period from November to ed that the performance of Ml needed March and with expansion of both to be evaluated in light of that de- M2 and M3 at an annual rate of velopment. With respect to the out- about 9 percent during the same look for the broader aggregates, the period. Because of the currently members generally anticipated appre- estimated shortfall in Ml growth in ciable slowing from the unusually the fourth quarter compared with the rapid growth experienced in recent members' expectations at the beginweeks, largely because they expected ning of the quarter, the Committee inflows of funds to money market de- decided that somewhat more rapid posit accounts and money market growth of Ml would be acceptable mutual funds to slow substantially as for the period ahead, particularly if the interest rates paid on such ac- the faster growth occurred in the concounts were adjusted down to bring text of sluggish expansion in ecothem into better alignment with short- nomic activity and continued strength term market rates. of the dollar in foreign exchange mar- Along with other short-term rates, kets. The Committee also indicated the federal funds rate had declined that greater restraint on reserve posi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

142 FOMC Policy Actions tions might be acceptable in the event run range and M3 a bit further above the of substantially more rapid growth in upper limit of its range. Expansion in total domestic nonfinancial debt is continuing the monetary aggregates than was above the Committee's monitoring range currently expected and indications for the year, reflecting very large governthat economic activity and infla- ment borrowing and strong private credit tionary pressures were strengthening growth. Interest rates have fallen further since the November meeting of the Comsignificantly. It was agreed that the mittee, with the largest declines concenintermeeting range for the federal trated in short-term markets. On Novemfunds rate, which provides a mecha- ber 21, the Federal Reserve approved a nism for initiating consultation of the reduction in the discount rate from 9 to Committee when its boundaries are SYi percent. Since early November the foreign expersistently exceeded, should be change value of the dollar against a tradereduced by one percentage point to 6 weighted average of major foreign currento 10 percent. cies has appreciated substantially, revers- At the conclusion of the meeting, ing most of the previous decline from its mid-October peak. The merchandise trade the following domestic policy direcdeficit in October was significantly retive was issued to the Federal Reserve duced from the rate in the third quarter, Bank of New York: mainly reflecting a sharp decline in nonoil imports. The information reviewed at this meet- The Federal Open Market Committee ing indicates a mixed pattern of develop- seeks to foster monetary and financial ments but on balance suggests that eco- conditions that will help to reduce inflanomic activity is continuing to expand in tion further, promote growth in output on the current quarter at a rate approximat- a sustainable basis, and contribute to an ing the considerably reduced pace re- improved pattern of international transaccorded in the third quarter. Nonfarm pay- tions. In furtherance of these objectives roll employment rose substantially further the Committee agreed at the July meeting outside of manufacturing in November, to reaffirm the ranges for monetary growth and the civilian unemployment rate fell that it had established in January: 4 to 8 from 7.4 to 7.2 percent. After two months percent for Ml and 6 to 9 percent for both of decline industrial production increased M2 and M3 for the period from the fourth somewhat in November, largely reflecting quarter of 1983 to the fourth quarter of a rebound in auto production from strike- 1984. The associated range for total doreduced levels. Retail sales registered a mestic nonfinancial debt was also reaflarge gain in November after changing lit- firmed at 8 to 11 percent for the year 1984. tle in October. Information on outlays It was anticipated that M3 and nonfinansuggests substantially slower expansion in cial debt might increase at rates somewhat business fixed investment, following ex- above the upper limits of their 1984 ranges, ceptionally rapid growth earlier. Since the given developments in the first half of the beginning of the year, broad measures of year, but the Committee felt that higher prices generally have continued to rise at target ranges would provide inappropriate rates close to, or somewhat above, those benchmarks for evaluating longer-term recorded in 1983, and the index of average trends in M3 and credit growth. For 1985 hourly earnings has risen somewhat more the Committee agreed on tentative ranges slowly. of monetary growth, measured from the Growth of the monetary aggregates fourth quarter of 1984 to the fourth strengthened markedly in November. The quarter of 1985, of 4 to 7 percent for Ml, November expansion in Ml offset the de- 6 to 8 Vi percent for M2, and 6 to 9 percent cline in October, and this aggregate has for M3. The associated range for nongrown little on balance since early sum- financial debt was set at 8 to 11 percent. mer; from the fourth quarter of 1983 The Committee understood that policy through November, Ml grew at a rate in implementation would require continuing the lower half of the Committee's range appraisal of the relationships not only for 1984. Growth in the broader aggre- among the various measures of money gates was especially rapid in November, and credit but also between those aggrebringing M2 to the midpoint of its longer- gates and nominal GNP, including evalua- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

FOMC Policy Actions 143 tions of conditions in domestic credit and strength of the economy, together foreign exchange markets. with the ongoing effects of earlier In the implementation of policy in the declines in interest rates, provided the short run, the Committee seeks to reduce basis for a likely rebound in economic pressures on reserve positions consistent with growth of Ml, M2, and M3 at annual growth during 1985. He also believed rates of around 7, 9, and 9 percent, re- that the Committee needed to take spectively, during the period from No- greater account of the broader monevember to March. Somewhat more rapid tary aggregates whose expansion apgrowth of Ml would be acceptable in light of the currently estimated shortfall in peared to be exceeding the Commitgrowth for the fourth quarter relative to tee's expectations by a substantial the Committee's expectations at the be- margin in the fourth quarter. Under ginning of the period, particularly in the current circumstances he was concontext of sluggish growth in economic cerned that significant further easing activity and continued strength of the dollar in exchange markets. Greater of reserve conditions would foster adrestraint on reserve positions might be ac- ditional declines in interest rates that ceptable in the event of substantially more would have to be reversed later as rapid monetary growth and indications of economic growth picked up again. significant strengthening of economic activity and inflationary pressures. The On January 18,1985, the Committee Chairman may call for Committee consul- held a telephone conference to discuss tation if it appears to the Manager for Dorecent foreign exchange market develmestic Operations that pursuit of the opments in the context of the anmonetary objectives and related reserve paths during the period before the next nouncement made by the G-5 Minismeeting is likely to be associated with a ters of Finance and Central Bank federal funds rate persistently outside a Governors. Against the background range of 6 to 10 percent. of various measures that could con- Votes for this action: Messrs. Volcker, tribute to greater exchange rate stabil- Boehne, Boykin, Corrigan, Mrs. Horn, ity, that announcement reaffirmed, in Messrs. Martin, Partee, Rice, Ms. Seger, light of recent developments, the and Mr. Wallich. Votes against this accommitment made at the Williamstion: Messrs. Solomon and Gramley. burg Summit to undertake coordinated intervention in exchange markets as necessary. It was noted in the Mr. Solomon dissented from this course of discussion that the Commitaction because, although he thought tee's authorizations for foreign cursome further easing would be appro- rency operations provided adequate priate over the coming period, he scope for any actions in exchange believed such action should be rela- markets that might be undertaken by tively gradual. In particular, he was the System in this context. concerned that the provision of reserves sought by the Committee risk- Authorization for Domestic ed an excessive decline in short-term Open Market Operations rates and an overreaction in the financial markets. He therefore pre- At this meeting the Committee voted ferred a more cautious probing to increase from $4 billion to $6 towards easier reserve conditions. billion the limit on changes between Mr. Gramley dissented because he Committee meetings in System Accould not accept a directive that called count holdings of U.S. government for further easing of reserve condi- and federal agency securities specified tions. In his view the underlying in paragraph l(a) of the authorization Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

144 FOMC Policy Actions for domestic open market operations, This action was taken on the effective for the intermeeting period recommendation of the Manager for ending with the close of business on Domestic Operations. The Manager February 13, 1985. had advised that substantial net sales of securities were likely to be necessary during the weeks ahead in Votes for this action: Messrs. Volcker, order to absorb reserves that had Solomon, Boehne, Boy kin, Corrigan, been provided recently to meet in- Gramley, Mrs. Horn, Messrs. Martin, Partee, Rice, Ms. Seger, and Mr. Wal- creased seasonal needs for currency in lich. Votes against this action: None. circulation and required reserves. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

145 Consumer and Community Affairs In 1984, the Board used a variety in transactions otherwise exempt of regulatory and nonregulatory ap- from the regulation—for example, proaches to maintain statutory pro- transactions in which consumers use tections for consumers, to ease regu- credit cards issued by telephone comlatory burdens, and to increase both panies. The Board issued a proposal efficiency and effectiveness in exami- to amend Regulation AA (Unfair or nations of state member banks for Deceptive Acts or Practices) that compliance with consumer regula- would implement for banks the tions. "credit practices rule" adopted by As discussed further in this report, the Federal Trade Commission. At the Board proposed an amendment to year-end, the Board was engaged in a Regulation Q (Interest on Deposits) review of Regulation B (Equal Credit that would prohibit potentially mis- Opportunity) under its Regulatory leading advertisements of time depos- Improvement Project. A revised verits with multiple or variable rates of sion of the regulation is likely to be interest. The Board amended Regula- proposed for public comment in early tion E (Electronic Fund Transfers) to 1985. ensure basic protections for consum- To ease the burdens of compliance, ers using debit cards in point-of-sale the Board continued to maintain the transactions and in other transactions official staff commentaries for Reguthat are not initiated at electronic ter- lation Z and Regulation E and to minals. To reduce the delay in the develop pamphlets written in plain availability to consumers of funds English to explain selected bank prothat they deposit by check, the Board cedures required by consumer protecproposed an amendment to Regula- tion laws. The Board also worked tion J (Collection of Checks and with the Federal Home Loan Bank Other Items and Wire Transfers of Board and 21 organizations, which Funds); the Board also joined with included trade and consumer groups other supervisory agencies in issuing a and several government agencies, to policy statement that encourages fi- develop a "Consumer Handbook on nancial institutions to review and dis- Adjustable Rate Mortgages," a close their policies on delayed avail- booklet for consumers on the advanability of funds. Regulation Z (Truth tages and disadvantages of this in Lending) was amended by the Board relatively new mortgage instrument. to ensure protection against liability Other efforts to inform consumers infor unauthorized use of credit cards cluded the continued distribution of a wide variety of consumer education pamphlets, teaching packages, and NOTE. This section, "Consumer and Community Affairs," fulfills the statutory require- videotapes. ments for annual reports under the Truth in To reduce the costs of examinations Lending Act, the Equal Credit Opportunity for consumer compliance and to in- Act, the Electronic Fund Transfer Act, the crease the time available for oversight Community Reinvestment Act, and the Federal Trade Commission Improvement Act. of banks with less-than-satisfactory Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

146 Consumer and Community Affairs ratings for compliance, the Board interest rates. In advertising time deestablished a flexible policy that per- posits that offer an initial rate for a mits limited-scope examinations of few months and then a lower rate for banks that have strong histories of the remaining term, the proposed satisfactory or better-than-satisfactory amendment would require that the compliance with consumer-related reg- two rates appear in type of the same ulations. The Board also adopted a size and that advertisements conspicupolicy to reduce expenses by allowing ously state the average effective anexaminers to handle some procedures nual yield based on a compounding at the Reserve Banks rather than at of interest at least annually. For acthe bank being examined. counts with a variable interest rate In the area of community affairs, determined by an index, the amendthe System instituted several improve- ment would require those advertisements. These included strengthening ments that show the initial interest the role of the Community Affairs rate to include statements explaining Officers at the Federal Reserve Banks when the initial rate applies, and the and enhancing the training of exam- method of determining future rates iners in that area. and when those rates would apply. In This report also discusses special advertisements of accounts with an efforts by the Board to collect data initial fixed rate followed by a varirelated to consumer finance; the ex- able rate, the proposed amendment tent of compliance by institutions would require disclosure, in type of with Regulation B, Regulation E, and the same size used for the fixed rate, Regulation Z; the economic impact of of the way the variable rate is deter- Regulation E; the Federal Reserve mined. Also, advertisements of such System's implementation of the Com- accounts would have to state conmunity Reinvestment Act; the activi- spicuously when the fixed and varities of the Consumer Advisory Coun- able rates would apply. Finally, the cil; and legislative recommendations amendment would prohibit institufrom the Board and other agencies tions from advertising individual rewith enforcement responsibilities un- tirement accounts (IRAs) as tax free der the Truth in Lending, Equal or tax exempt because IRA contribu- Credit Opportunity, and Electronic tions and earnings are deferred—not Fund Transfer Acts. In addition, this exempt—from federal income taxes. section presents a statistical summary At the time the proposal was issued, of consumer complaints handled by the Board set forth a parallel policy the Board and describes the way the statement to encourage financial in- Board monitors acts or practices by stitutions to comply voluntarily with banks that may be unfair or deceptive. the proposed rules. As part of its effort to encourage banks to speed the availability to con- Regulatory Actions sumers of funds deposited by check, In March, the Board issued for public the Board in June proposed an amendcomment a proposal to amend Regu- ment to Regulation J (Collection of lation Q (Interest on Deposits) to pro- Checks and Other Items and Wire hibit potentially misleading practices Transfers of Funds). The proposed in advertising time deposits, especially amendment would require payor inthose with multiple fixed or variable stitutions to provide notification Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 147 directly to the institution of first de- alleged errors must be completed posit when they are returning checks within 90 days. Another amendment of $2,500 or more that are collected provides an exemption from the prothrough the Federal Reserve System. visional recrediting requirements for The amendment also generally would consumer asset management accounts require notification within 48 hours involving the purchase or sale of after the time by which the payor in- securities subject to Regulation T. In stitution must return the check. A addition, the amendments permit fipayor institution that fails to exercise nancial institutions to itemize the ordinary care in providing timely and electronic fund transfer (EFT) charge accurate notification to the institu- for each transaction on periodic statetion of first deposit could be liable for ments. losses, up to the amount of the item, In November, the Board amended incurred by the institution of first Regulation Z (Truth in Lending) to deposit. To help payor institutions ensure two basic statutory protections meet this requirement, Reserve Banks for consumers in their use of all credit would enhance the current notifica- cards. The amendment provides that tion service. no class of credit cards may be issued Earlier in the year, the Federal Re- without an oral or written request serve Board joined with other federal from the consumer and that the confinancial supervisory agencies in issu- sumer is liable for a maximum of $50 ing a policy statement encouraging of unauthorized charges. The amendbanks and savings and loan institu- ment includes those credit cards used tions to review their policies on funds for transactions that are exempt from availability to eliminate any unneces- all other provisions of the regulation, sary delay in allowing consumers ac- such as telephone credit cards. cess to funds deposited by check. The In November, the Board requested policy statement suggested that insti- public comment on a proposed amendtutions disclose their funds-availability ment to Regulation AA (Unfair or policies to customers and refrain from Deceptive Acts or Practices) that imposing unnecessary delays on social would implement for banks the credit security checks and other government practices rule adopted by the Federal payments to established accounts. Trade Commission (FTC). The Fed- In October, the Board amended eral Trade Commission Improvement Regulation E (Electronic Fund Trans- Act requires the Board to adopt a rule fers) to ensure basic protections for substantially similar to the FTC's consumers in all debit card transac- unless the Board finds that the govtions, including transactions that do erned practices are not unfair or denot involve an electronic terminal at ceptive as engaged in by banks or that the point of sale or at the time the a similar rule for banks would seritransaction is originated. The amend- ously conflict with essential monetary ments also extend the time for resolv- or payments policies of the Federal ing errors in transactions involving Reserve. The proposed amendment debit cards at the point of sale: dis- would prohibit banks from including puted amounts in these transactions in consumer credit contracts any of must be provisionally recredited to the following provisions: the consumer's account within 20 • A "confession of judgment" business days, and investigations of clause, by which the consumer agrees Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

148 Consumer and Community Affairs in advance to permit the creditor to filed in federal courts in 1984 was 8 obtain a judgment in event of default percent lower than the total number without giving the debtor prior notice filed the previous year. Because lessor an opportunity to be heard in court. ening litigation was a part of the • A "waiver of exemption," by Board's goal in simplifying the reguwhich the consumer waives or limits lation, the continued reduction in the state law exemptions sheltering the number of cases is particularly significonsumer's home or other necessities cant. To reduce the regulatory burfrom attachment. den, the Board continued to provide • A provision by which the debtor legal interpretations and guidance assigns future wages to the creditor in through the official staff commentarthe event of default. ies on Regulation Z and Regulation E. • A provision permitting creditors The commentaries integrate all of the to repossess any of the consumer's Board's official guidance and are uphousehold goods beyond those for dated at regularly scheduled intervals. which the creditor is extending credit. Generally, the commentaries are re- The amendment would also forbid vised annually, with revisions effec- "pyramiding" late charges, which oc- tive October 1. This approach appears curs when a charge arising from one to have enabled financial institutions late payment is taken out of a subse- and others that must comply with the quent timely payment; this can cause regulations to increase the efficiency a series of subsequent payments to be of their compliance programs. incomplete and therefore subject to The Board also distributed a variety late charges. Finally, the proposed of "plain English" pamphlets to help amendment would prohibit misrepre- financial institutions better undersentation of a cosigner's liability and stand the procedures that are necesrequire the creditor to give the co- sary for compliance with the consumsigner a notice that explains the er regulations. The eight pamphlets nature of the cosigner's obligation distributed through Federal Reserve and potential liability. Banks in 1984 focused on Regulation In 1984, the Board also monitored B, the Right to Financial Privacy Act, the status of two other trade regula- the Community Reinvestment Act, tion rules proposed by the FTC to and the responsibilities of a bank's determine the need for substantially board of directors for consumer regusimilar rules applicable to banks. lations. These pamphlets are avail- These rules are the Used Car Rule and able from the Federal Reserve Banks. an amendment to the Holder-in-Due- Course Rule. Improvements in Enforcement In October, the Board established a Reduction of the policy that permits Federal Reserve Regulatory Burden examiners to review a smaller sample In 1984, the second full year of man- of loan and other documents during datory compliance with the simplified alternate examinations of banks that version of Regulation Z, the Board have a history of good compliance continued to monitor the positive ef- with consumer regulations. These fect of simplification on litigation. "limited scope" examinations will The number of truth-in-lending cases allow Reserve Banks to increase their Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 149 available resources for oversight of forms, and other documents off site banks with less-than-satisfactory before the rest of the examination is compliance records. To qualify for a conducted on the bank's premises. limited-scope examination, a bank The policy is designed to reduce travel must meet or exceed each of the fol- time and costs related to examinations lowing eligibility tests: and to minimize the inconvenience • The bank must have a stable or and disruption of examinations for improving compliance history with at state member banks. The off site apleast satisfactory ratings for the last proach does not mean that less time two examinations, and those exami- will be devoted to consumer complinations must have been conducted by ance examinations or that examinathe Federal Reserve System. tions will be of reduced quality. Each • The bank must have a strong Reserve Bank will decide whether, compliance program with demon- and to what extent, to use the offsite strated support from bank manage- approach. ment and effective programs ensuring internal controls, periodic reviews for Community Affairs and the compliance adequacy, and staff train- Community Reinvestment Act ing in appropriate areas of consumer compliance. In February 1984, the Board an- • The bank must have promptly nounced measures to strengthen the corrected all deficiencies noted in System's enforcement of the Comearlier examinations. munity Reinvestment Act (CRA). • If the bank was required in the These measures included strengthenmost recent examination to reimburse ing the role of the Federal Reserve's any of its customers, the reimburse- Community Affairs Officers (CAOs), ments must have occurred promptly improving the means for detecting and must have involved only small lender practices that illegally disamounts; similarly, any corrective ac- courage loan applications, and ention required by the Supervisory En- hancing the training of examiners in forcement Policy for the Equal Credit the area of community affairs. These Opportunity Act and the Fair Hous- actions were based on recommendaing Act must have occurred promptly tions from the Board's Consumer and must have involved only a few Advisory Council. violations. In strengthening the role of the Banks that qualify for limited-scope CAOs, the Board reaffirmed its supexaminations will nonetheless receive port for the CAOs in a letter to each a complete assessment of perfor- Reserve Bank. The Board also develmance related to the Community Re- oped a statement of the community investment Act. affairs activities and responsibilities Also in October, the Federal Re- of the Federal Reserve Banks. The serve Banks implemented a new pol- majority of these activities are educaicy that allows examiners to perform tional efforts directed toward banks, certain parts of compliance examina- bank holding companies, local govtions at the Reserve Banks instead of ernments, and community groups. at the bank being examined. The new The CAO is responsible for gathering policy establishes procedures that information about the primary develmay be used to review bank policies, opment needs of communities served Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

150 Consumer and Community Affairs by state member banks and bank property managers or sales agents in holding companies in the CAO's dis- order to detect differential treatment trict; for offering information to state or other evidence of discrimination; member banks and bank holding testing programs can be conducted in companies about government and person or by telephone. In appropriother programs designed to assist ate instances, the Reserve Banks will community development; and for consult with the Board's staff to depromoting the goals of the Commu- termine whether the facts of the situanity Reinvestment Act by fostering tion warrant the use of testers to obcommunications among borrowers, tain information about the absence or local governments, development or- presence of illegal discrimination. ganizations, and community financial The Board also announced meainstitutions in communities served by sures to broaden the training of exstate member banks. The CAOs also aminers in the area of community afprovide community and neighbor- fairs. It has requested that the CAOs hood organizations with general in- participate actively in the training of formation about the CRA and the examiners and that each Reserve Bank procedures followed by the Federal involve all new examiners in meetings Reserve System in handling applica- with the CAO on community contacts tions and protests. Finally, the CAOs and in other community outreach provide information and assistance to programs. bank holding companies interested in forming community development corporations. Collection of Data In 1984, the Board invited other In 1984, the Board published the refinancial supervisory agencies to join sults of the 1983 Survey of Consumer in a review of the systems used by Finances, which was sponsored by the each of the agencies to gather infor- Board, the Department of Health and mation on the race, national origin, Human Services, and five other fedsex, marital status, and age of appli- eral agencies. No study since the cants for credit. These data are used Board's 1962 Survey of Financial by the agencies to monitor compliance Characteristics of Consumers has colwith the Fair Housing Act and the lected a more comprehensive inven- Equal Credit Opportunity Act. The tory of consumers' assets than that Board believes that a unified data contained in the 1983 survey. The notation system would reduce the latest survey obtained information on burden for creditors while supplying the assets and liabilities of 3,824 ranuseful information to the agencies' domly selected American households. examiners. It also collected information on the The Board published a statement in use by consumers of financial serwhich it noted that the use of testers vices, on their reactions to consumer in examinations for credit discrimina- credit regulations, and on consumer tion may be appropriate when an ex- pension rights and benefits. Some of amination reveals possible illegal dis- the findings of the survey were sumcrimination. Testing is a process marized in the September 1984 and whereby matched pairs of individuals, December 1984 issues of the Federal usually white and nonwhite, simulate Reserve Bulletin. a search for housing from rental In early January 1984, the House Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 151 Banking Committee asked the Federal agencies on compliance with these Reserve and several other agencies to acts during the 1984 reporting period, collect information from financial in- July 1, 1983, to June 30, 1984.1 stitutions about changes in service fees and related policies from 1978 Truth in Lending through 1983. Focusing on state (Regulation Z) member banks, Federal Reserve personnel collected the following infor- Reports of the Board and those from mation: the Office of the Comptroller of the • From call reports or similar Currency (OCC), the National Credit sources, service charges and fee in- Union Administration (NCUA), and come. the Federal Home Loan Bank Board • From Federal Reserve files, the (FHLBB) indicate that slightly more number of consumer complaints than 40 percent of all institutions exabout fees for deposit and loan ser- amined had no violations, a percenvices and about policies on funds tage equal to that reported in 1983. availability. The three agencies that were able to • From selected state member provide ranges of violations (the banks, the dollar amount of fees re- Board, the OCC, and the NCUA) lated to deposit accounts and loans as reported that 75 percent of the examwell as information about any free ined institutions were in full or subservices; current information about stantial compliance, having committransaction-posting procedures and ted no more than five violations. The procedures for notifying customers agencies that reported decreases in regarding account overdrafts; policies compliance with Regulation Z are the on funds availability; the number of Board, the Federal Deposit Insurance consumer complaints received by an Corporation (FDIC), and the OCC; institution concerning deposit and the FHLBB and the NCUA reported loan services and fees and policies increases in compliance. regarding the availability of funds; Summaries of examination findings copies of brochures on fees and poli- compiled by the Board, the OCC, the cies regarding the availability of FDIC, the FHLBB, and the NCUA funds. indicate that the most frequent violations of Regulation Z are the following: Compliance with Consumer • Failure to disclose accurately the Regulations payment schedule. Based on reports from the five federal • Failure to disclose accurately the agencies that supervise financial insti- finance charge on closed-end credit. tutions and from other supervisory • Failure to disclose the annual agencies, overall compliance with the percentage rate as required by the reg- Truth in Lending Act and the Equal ulation. Credit Opportunity Act remained unchanged from compliance levels in 1983, and overall compliance with the 1. Although all federal agencies that regu- Electronic Fund Transfer Act im- late financial institutions do not use the same method to summarize compliance data, the proved somewhat in 1984. This secdata they provide support the general conclution summarizes the reports of the sions presented here. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

152 Consumer and Community Affairs • Failure to disclose accurately the plied, and these inquiries may result amount financed for closed-end credit. in law enforcement actions. The FTC • Failure to disclose accurately the also continued a similar compliance total of payments on closed-end credit. program directed to advertisers of • Failure to disclose the fact that automobile credit. Among its other the creditor will acquire a security in- activities under Regulation Z, the terest in the property purchased. FTC reports pending nonpublic investigations of compliance by lenders • Failure to disclose within the preoffering loans secured by mortgages. scribed tolerance the annual percen- In 1984, the FTC also issued final tage rate on closed-end credit. orders against three major creditors • Failure to disclose clearly and for alleged violations of the Fair conspicuously the required informa- Credit Billing Act. Finally, to tion. heighten consumer and creditor aware- • Failure to make timely disclo- ness of rights and responsibilities sures in residential mortgage transac- established by the Truth in Lending tions subject to the Real Estate Settle- Act, the FTC published and distribment Procedures Act. uted a booklet titled "Using Ads to • Failure to provide a separate Shop for Home Financing" and rewritten itemization of the amount printed a booklet for creditors titled financed. "How to Advertise Consumer Credit.'' Two agencies reported supervisory In 1984, the Farm Credit Adminisenforcement actions: the Board tration (FCA) notified two federal issued one cease-and-desist order in- land banks of its intent to order reimvolving violations of Regulation Z bursements to customers for Truth in and the FDIC issued three. The Lending violations. The FCA also Board also entered into one formal reports that violations of disclosure written agreement with a state requirements were found in 13 of the member bank that involved Regula- 16 federal land bank associations in tion Z violations. Of the institutions one district, and the federal land supervised by the Board, the FDIC, bank for that district has instituted and the FHLBB, 319 reimbursed some corrective action, which was more than $2 million on 22,743 ac- being reviewed by the FCA at yearcounts under the Regulation Z en- end. forcement policy, compared with The other agencies that enforce the about $2 million on 38,821 in 1983. Truth in Lending Act—the Civil In 1984, the Federal Trade Commis- Aeronautics Board (CAB) and the sion (FTC) continued its program to Packers and Stockyards Administraincrease voluntary compliance with tion of the United States Department the Truth in Lending Act as it applies of Agriculture (USDA)—report no to the advertising of real estate loans. significant compliance difficulties. According to the FTC, the vast With the dissolution of the CAB on majority of noncomplying lenders December 31, 1984, the Department contacted in 1983 and early 1984 vol- of Transportation assumes the CAB's untarily brought their advertisements enforcement responsibilities for the into compliance. The FTC staff has Truth in Lending, Equal Credit Opinitiated nonpublic investigations of portunity, and Electronic Fund Transthose companies that have not com- fer Acts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 153 Equal Credit Opportunity to challenge restrictive loan terms to (Regulation B) the elderly on the grounds that the restrictions are not reasonably related Reports from the five federal agencies to creditworthiness. The action was that supervise financial institutions taken against a major finance comshow that the level of compliance pany, which required applicants over with the Equal Credit Opportunity age 70 to repay loans within three Act (ECOA) in 1984 is unchanged months and applicants between ages from 1983, when 76 percent of the in- 66 and 70 to repay loans within twelve stitutions examined had no violations. months. The FTC also settled one of The most frequent violations of Reg- the two ECOA complaints filed last ulation B were the following: year against a large department store • Failure to provide a written chain. The retailer was enjoined, notice of adverse action that includes under the consent decree, from proa statement of the action taken, the viding inadequate statements of the ECOA statement, and the name and reasons for adverse action and from address of the federal agency that en- failing to provide disclosures required forces compliance. by the Fair Credit Reporting Act. The • Failure to provide sufficiently retailer also agreed to pay a civil specific reasons for adverse action. penalty of $122,000 and to take cor- • Illegally requiring the signature rective action. of an applicant's spouse or other per- To determine the existence of illegal son. discrimination, the FTC conducted a • Illegally requesting the sex of an number of major investigations using applicant. statistical analysis and "testing" by • Failure to provide the required auditors who applied for credit. Issues notice before requesting information under FTC investigation include the about other income, such as alimony, illegal discouragement of elderly apchild support, or separate mainte- plicants, failure to retain applicanance payments. tions, statements of nonspecific rea- • Failure to observe the prohibi- sons for adverse action, and illegal tion against requesting the race, color, requirements for spousal liability on a religion, or national origin of an ap- credit note. plicant. The other agencies responsible for • Requesting the marital status of enforcing the Equal Credit Opportua person applying for individual, un- nity Act—the CAB, the FCA, the secured credit, or failure to use only Packers and Stockyards Administrathe terms "married," "unmarried," tion of the USDA, the Interstate and "separated" in permitted in- Commerce Commission, the Securiquiries about marital status. ties and Exchange Commission, and The FDIC issued one cease-and- the Small Business Administrationdesist order involving violations of report no significant problems with Regulation B, and the Board entered compliance. into one formal written agreement calling for corrective action for viola- Electronic Fund Transfers tions. (Regulation E) In 1984, the FTC brought the first enforcement action under the ECOA The financial regulatory agencies re- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

154 Consumer and Community Affairs ported some improvement in compli- fer services to which the act applies; ance with the Electronic Fund Trans- these include preauthorized electronic fer Act. Of the institutions examined, transfers and access to automated 87 percent were in compliance, up teller machines (ATMs). Approxifrom 84 percent in 1983. mately 65,000 ATMs are in use The following violations of Regula- throughout the nation, an increase of tion E occurred most frequently: about a third from a year earlier. • Failure to provide consumers Larger institutions are more likely to with initial disclosures of terms and offer a full range of consumer EFT conditions before the consumers make services than are smaller ones; smaller their first electronic fund transfer. institutions are likely to provide most • Failure to provide the address and kinds of EFT services to consumers telephone number to be used when through shared networks and other making inquiries or giving notice of joint ventures. errors on periodic statements. Consumer demand for EFT ser- • Failure to indicate on the initial vices continued to grow during 1984. disclosure the financial institution's Available evidence indicates that at business days. least 70 percent of households have a • Failure to summarize on the ini- savings or transaction account with tial disclosure the consumer's right to an EFT feature that is used at least receive documentation of transfers. occasionally. The number of transac- • Failure to disclose notice of error tions conducted through ATMs has resolution procedures and the con- increased substantially, and the numsumer's rights under them. ber of consumers electing to receive The other agencies that are respon- payroll or government transfer paysible for enforcing the Electronic ments by electronic direct deposit has Fund Transfer Act—the CAB and the grown. The development of point-of- FTC—report no significant instances sale EFT and home banking systems of noncompliance. is also accelerating. The benefits to consumers from the Electronic Fund Transfer Act are dif- Economic Impact of ficult to measure because they cannot Regulation E be isolated from consumer protec- In accordance with the requirements tions that would have been provided of the Electronic Fund Transfer Act, otherwise. Compliance statistics from the Board monitors the costs and ben- examination reports do not suggest efits of the act to financial institutions any widespread compliance problem and consumers. The economic impact or violation of the consumer rights of the act increased during 1984 as established by the act. The five fedmore financial institutions offered eral agencies that regulate financial electronic fund transfers (EFTs) and institutions reported decreases or no more consumers used them. Approxi- change from the preceding year in the mately two-thirds of the nation's de- percentage of institutions not in full pository financial institutions now compliance. The most frequent violaprovide EFT services that are covered tions involved failure to provide one by the compliance requirements of or more information disclosures to the act. A large percentage of deposi- consumers. Moreover, the majority tory institutions in each size class of- of institutions cited for noncompli- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 155 ance had from one to five violations, Consumer Complaints Received by the a good record in light of the volume Federal Reserve System, by Subject, of consumer EFT transactions. 1984 Data from the Board's Consumer Subject Number Complaint Control System offer further evidence that consumers have no Regulation B (Equal Credit Opportunity) 166 serious problems with EFT. Of the Regulation C (Home Mortgage 2,337 complaints processed in 1984, Disclosure) 18 Regulation E (Electronic Fund 80 involved EFTs. The Federal Re- Transfers) 80 Regulation M (Consumer Leasing) 2 serve System forwarded 27 of these Regulation Q (Interest on Deposits) 118 complaints to other agencies for Regulation X (Borrowers of Securities Credit) 0 resolution; of the remaining 53, 4 Regulation Z (Truth in Lending) 461 involved a possible violation of the Regulation BB (Community Reinvestment) 1 regulation. Costs associated with the act are Fair Credit Reporting Act 65 Fair Debt Collection Practices Act 10 also difficult to quantify because the Fair Housing Act 3 Holder in due course 3 costs of industry practices that would Real Estate Settlement Procedures have evolved in the absence of statu- Act(RESPA) 2 Transfer agents 3 tory requirements are unknown. The Municipal securities dealer regulation .. 2 compliance cost of an EFT transac- Unregulated bank practices 1,351 Other' 52 tion is probably not high enough to compromise the cost advantage EFT Total 2,337 transactions may otherwise have over 1. "Other" refers primarily to miscellaneous comcheck-based transactions. As EFT plaints against business entities. systems mature, as transaction volume builds, and as start-up costs for received by mail, 479 by telephone, compliance are amortized, compli- and 17 in person. ance costs for each EFT transaction In 1984, the Board responded to are likely to fall. The cost per transac- 225 written inquiries requesting infortion and per dollar of transferred mation and answers to questions confunds imposed by the act is therefore cerning matters such as consumer likely to decline. credit laws and banking policies and procedures. In responding to both Complaints against inquiries and complaints, the staff State Member Banks members provide consumers with in- The Federal Reserve System investi- dividualized explanations of laws, gates and resolves complaints against regulations, banking practices, and, state member banks and forwards to when available, printed materials releappropriate enforcement agencies any vant to the consumer's concerns. complaints it receives that involve Staff members of the Board's Diviother creditors or businesses. In 1984, sion of Consumer and Community the System received a total of 2,337 Affairs regularly review and evaluate complaints (see the accompanying a sample of the complaints resolved table). This Systemwide figure repre- by the Reserve Banks for compliance sents complaints filed against state with the System's procedures and member banks, nonmember banks, guidelines concerning the handling of and other creditors and businesses. complaints. To obtain the feedback Of the 2,337 complaints, 1,841 were necessary for improving this func- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

156 Consumer and Community Affairs lion, the results of the review are dis- Reserve staff; and 85 percent would cussed with the appropriate Reserve contact the Federal Reserve again if Bank. they should encounter another prob- To assess attitudes of complainants lem with the bank. Twenty-six perconcerning the handling of their com- cent of the respondents found the plaints, the Board sent questionnaires resolution of their complaints accepto consumers whose complaints against table. These responses suggest that state member banks were handled by while many complainants were not the System. In 1984, consumers re- satisfied with the outcome of their turned 57 percent of these question- complaints, they generally found the naires; in 1983, the return rate was 45 System's handling of their dispute to percent. Of those responding, ap- have been acceptable. Many of these proximately 52 percent reported that cases involved banking practices that, the explanations they received were although objectionable to the conclear and understandable; 59 percent sumer or difficult to understand, are were satisfied with the promptness permitted by the relevant law. with which the complaint was han- The following table summarizes the dled; 96 percent believed that they nature and resolution of the comwere treated courteously by Federal plaints filed against state member Consumer Complaints Received by the Federal Reserve System, by Function and Resolution, 1984 Type of complaint Total Loan functions Elec- Type of resolution p c l o ai m nt - s Dis- f D un e c p t o io si 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 2,337 188 964 679 80 10 416 Total concerning state member banks 994 112 380 282 53 5 162 Insufficient information' 28 1 4 12 1 0 10 Information furnished2 102 6 46 30 1 0 19 Bank legally correct No accommodation 373 66 138 103 21 4 41 Accommodation made3 103 12 50 19 2 0 20 Clerical error, corrected 155 6 59 52 18 1 19 Factual dispute4 48 3 12 18 3 0 12 Bank violation, resolved3 13 2 5 4 2 0 0 Possible bank violation, unresolved6 7 12 4 0 0 0 Customer error 8 12 2 10 2 Pending, December 31 157 14 62 38 4 0 39 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. Con- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 157 banks in 1984. The complaints are crediting of deposits to accounts (68, categorized by bank functions: loans, or 5 percent); excessive time to clear deposits, electronic fund transfers, checks, including delayed availability trust services, and other. Approxi- of funds (65, or 5 percent); and sermately 50 percent of the complaints vice charges (53, or 4 percent). against state member banks concerned The two largest categories of comlending functions: 23 percent alleged plaints involving unregulated bank discrimination on a prohibited basis; practices were those concerned with and 27 percent dealt with credit denial credit denial based on credit history on a nonprohibited basis (such as and discrepancies in accounts. In the length of residency), disclosures of first category, many of the complaints credit costs, and other general lending indicated that credit applicants did practices (such as the release or use of not fully understand the impact of a credit information). About 28 percent negative credit history on a lender's of the complaints filed against state decision to extend credit. Complaints member banks involved disputes con- in the second category generally incerning the interest banks pay for de- volved factual disputes regarding the posits and general practices concern- amount or timing of a deposit. Each ing deposit accounts, such as early of these categories accounts for a withdrawal penalties for savings ac- small fraction (5 percent or less) of all counts or certificates of deposit. consumer complaints received by the System. Unregulated Practices Community Reinvestment Act Under section 18f of the Federal Trade Commission Act, the Board is The Board is required by the Comrequired to identify unfair or decep- munity Reinvestment Act (CRA) to tive banking practices and to adopt encourage the institutions under its regulations that prohibit such prac- jurisdiction to help meet the credit tices. To carry out these responsibili- needs in their communities—including ties, the Board has implemented a low- and moderate-income neighborcomputer system for tracking com- hoods—consistent with the safety and plaints. The computer system is pro- soundness of the institutions. The grammed to identify, using a coding CRA requires the Board to assess the system, the types of unregulated prac- record of the institution in meeting tices that were the subject of 15 or such needs and to take that record inmore complaints per quarter, or 50 to account in deciding certain appliannually. The computer reports indi- cations that the institution files. cate that the System received 1,351 During the 1984 reporting period complaints about unregulated prac- (July 1, 1983, through June 30, 1984) tices, of which 458 fell into one of the Federal Reserve System personnel exfollowing six categories: complaints amined 782 state member banks for about credit denial based on credit CRA compliance. These institutions history (123, or 9 percent); discrepan- are ranked for compliance on a scale cies in accounts (75, or 5.5 percent); of 1 through 5, with 5 representing credit denial based on other nonpro- the lowest level of performance and hibited factors, such as the lack of 3, less-than-satisfactory performance. sufficient assets (74, or 5.5 percent); No bank was ranked in the lowest Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

158 Consumer and Community Affairs category, and less than 2 percent the applicant's record was satisfacfailed to achieve at least a satisfactory tory. The Board stated that branch performance. To assure a balanced closings should be accomplished in perspective on whether a bank is re- accordance with an overall objective sponding to the needs of its commu- that is consistent with a bank's connity, Federal Reserve examiners often tinuing and affirmative obligation to interview community representatives help meet the banking needs of its enas part of the CRA examination. In tire community, including low- and the 1984 reporting period, 1,105 such moderate-income neighborhoods. interviews were conducted with gov- During the 1984 reporting period, ernment officials, community-based the Board took several other actions organizations, community develop- relating to CRA. In January 1984, the ment corporations, and civil rights Board adopted changes to its proceand consumer advocates. dures for processing applications. In the 1984 reporting period, three Among other things, the changes faapplications that the Federal Reserve cilitate efforts by the Reserve Banks System processed were protested un- to arrange meetings between applider the CRA. One of the protests was cants and protestants. Also, the against a bank holding company that Board's Division of Consumer and was being acquired by another bank Community Affairs distributed supholding company. The protest was plemental procedures for examiners determined to be nonsubstantive be- to use in assessing a bank's perforcause the subsidiary banks of the mance in opening and closing branch holding company acquiring the pro- offices. tested company had satisfactory CRA records; the application was ap- Consumer Advisory Council proved. The second application that was protested involved two holding The Consumer Advisory Council met companies. The protestants alleged in March, July, and October to disthat one of the parties to the merger cuss issues related to the rulewriting had not lived up to a previous com- and enforcement responsibilities of mitment to the neighborhood. The the Board under the Consumer Credit Board approved the application based Protection Act. The 30 members of on its review of the record, which the council represent a wide spectrum showed that the bank had made a of the interests of consumers and a good-faith effort to adhere to the wide variety of financial service proagreement and that the bank's record viders. The council's meetings are was generally satisfactory. The final open to the public. application involved a protest against In 1984, the council considered the actions taken by the applicant's sub- following issues: sidiary bank to close branch offices. • Increased service charges im- A coalition of neighborhood organi- posed on consumers by financial inzations alleged that the bank was sys- stitutions. tematically closing offices in lower- • Recommendations of Vice Presiincome and minority areas while dent Bush's Task Group on Regulaopening offices in more affluent tion of Financial Services. areas. After reviewing all the avail- • Second-mortgage lending pracable facts, the Board determined that tices. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer and Community Affairs 159 • Branch office closings and the fer credit card surcharges. More spe- Community Reinvestment Act. cifically, the Board recommended • The Board's review of Regula- that merchants be permitted to offer tion B, Equal Credit Opportunity. price differences of up to 5 percent of • Implications of adjustable-rate the cash price to encourage payment mortgages. by cash rather than by credit card. • Credit card surcharges and cash The Board believes that merchants discounts. should not be required to characterize • Incentives for institutions to the price difference as a discount inachieve exemplary performance under stead of a surcharge; neither should the Community Reinvestment Act. merchants be required to treat the • Adjustable-rate mortgages and amount as a finance charge under the variable-rate lending. Truth in Lending Act or state law. In the Board's view, allowing a limited Council members were concerned surcharge and moderating disclosure in 1984 about the effects on consum- requirements might help to end the ers of deregulation of the financial in- present subsidization by cash customdustry and in particular about in- ers of credit card users. The Board's creasing charges imposed by banks study, Credit Cards in the U.S. Econfor financial services. At its July omy: Their Impact on Costs, Prices, meeting, the council voted to recom- and Retail Sales, found that the size mend that the Board conduct a study of the subsidy by cash customers is to review the issue of increased ser- between Vi and 1V4 percent of the vice charges, the impact of those price of an item. charges upon consumers, and the As in past years, the Board asked need for disclosures of service fees. the agencies with enforcement re- Council members are gathering data sponsibilities under Regulations B, E, about the need, cost, composition, and Z for any recommendations conand market for basic, or "lifeline," cerning the underlying statutes. The banking services; they are also assem- Office of the Comptroller of the Curbling information about issues related rency (OCC) recommends a review of to subsidies for, and the mandatory section 909 of the Electronic Fund provision of, lifeline services. In addi- Transfer Act, which governs contion, council members are preparing sumer liability for unauthorized elecmodel service charge disclosures and tronic fund transfers. This provision guidelines for disclosures of these establishes a three-tier structure for charges in periodic statements and for determining consumer liability that, special notices of changes in fees. according to the OCC, is complex and confusing for both consumers and financial institutions. The OCC Legislative Recommendations believes that the provision creates dif- In the spring of 1984, the Board rec- ficulties for financial institutions in ommended to the Senate Committee establishing consumer liability beon Banking, Housing, and Urban Af- cause the financial institution must fairs and to the House Committee on prove when the consumer learned of Banking, Finance and Urban Affairs the loss or theft of the access device that the Truth in Lending Act be and, in some instances, must also amended to permit merchants to of- show that the losses would not have Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

160 Consumer and Community Affairs occurred if the consumer had notified The Federal Trade Commission the institution. (FTC) recommends the permanent The OCC also believes that clarifi- elimination from provisions of the cation of congressional intent is need- Truth in Lending Act of any prohibied with regard to section 909. The act tion of credit card surcharges imposed puts the burden of proof upon the by the Cash Discount Act of 1981. financial institution in a lawsuit in- According to the FTC, experience volving the consumer's liability—to confirms that the continued ban on show that a transfer was in fact au- credit surcharges does not benefit the thorized. The OCC suggests a clarifi- general public and in fact may uncation to indicate whether this re- necessarily confuse both consumers quirement applies only in a judicial and businesses about the requirements procedure or also in pretrial stages of of the act. a consumer complaint. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

161 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, for safety and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

162 Legislative Recommendations soundness reasons, establish limits approval of new activities, and setting with respect to the ability of states to out new and simplified criteria for authorize state-chartered institutions determining the permissibility of new to engage in activities that are beyond activities generally. the powers permitted under federal law to depository institutions and their holding companies. Increasing the Number of Class C Directors Powers The Board has recommended that the The Board has supported proposed Federal Reserve Act be amended to legislation that would permit bank increase the number of Class C direcholding companies to engage in a tors at each Federal Reserve Bank broader range of activities including from three to five. The proposal aims the following: to diversify further the backgrounds • The expansion of securities pow- and interests represented on the ers, specifically underwriting revenue boards of directors of the Reserve bonds and mortgage-backed securities Banks as a way of accomplishing one and mutual investment fund powers. of the objectives of the Federal Re- • Insurance brokerage and certain serve Reform Act of 1977. That act underwriting activities with some provides for the representation of the constraints on the size combinations interests of consumers, labor, and of banks and insurance firms. services, in addition to agriculture, • Real estate brokerage and the ex- commerce, and industry, on the boards ercise of limited real estate investment of the Reserve Banks. powers. The Board also has recommended • The operation of thrift institu- that thrift institutions be added to the tions insured by the Federal Savings groups that should be considered in and Loan Insurance Corporation. selecting Class C directors in view of • Any activity determined by the the changes made by the Monetary Board to be of a financial nature or Control Act of 1980. That act applied closely related to banking. reserve requirements to such institutions and made Federal Reserve credit and services available to them. Procedures The Board favors streamlining the procedures for dealing with bank Amendments to the holding company applications. By re- Consumer Leasing Act cent changes in the regulation governing holding company activities, the The Board has submitted to the Con- Board has gone as far as it believes it gress draft legislation to simplify and can, consistent with present law, to improve the Consumer Leasing Act. speed up procedures and lessen regu- The Board suggested that the law, latory burdens. The Board has rec- which requires disclosure of the terms ommended legislation eliminating the and cost of leasing personal property ' 'benefits and burdens" test of present by consumers, could benefit from the law, limiting bank holding company kind of streamlining that characterized examinations and reports, providing the simplification of the Truth in for expedited notice procedures for Lending Act in 1980. The Board's Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legislative Recommendations 163 proposal would accomplish the nancial system and the public, includfollowing: ing the distribution of coin and cur- • Emphasize disclosure of the es- rency, the clearing of checks, and the sential cost information in a straight- processing of electronic payments. forward manner. The current statutory limitation will • Reduce both the number and the prevent needed renovation and new complexity of the required disclosures construction at branch buildings. and concentrate on information most likely to be used in shopping and deci- Amendments to the sionmaking. International Banking Act • Require disclosures to be pre- The International Banking Act of sented separately from other infor- 1978 (IBA) provided a federal regulamation so as to highlight them for the tory framework governing the operaconsumer. tions of foreign banks within the One major change recommended by United States and also contained prothe Board is to expand the coverage visions relating to the organization of the act to include "rental-purchase and operations of Edge corporations. agreements." These are short-term As required by the IBA, the Board in (usually week-to-week or month-to- 1980 submitted to the Congress a remonth) rentals of television sets or port containing its recommendations other goods; the agreement may be to improve the implementation of the canceled by the consumer at any time IBA. The Board's current recommenbut provides that the consumer will dations include the following eleown the goods after a certain number ments: of payments. Because of the need for • Authorize access for Edge corcost information for these increasingly porations to the Federal Reserve dispopular transactions and because of count window without requiring them the similarity of rental-purchase to become members of the Federal agreements to longer-term leases, the Reserve System. Board has recommended that they be • Authorize the Board to permit covered by the act. majority ownership of an Edge corporation by a U.S. bank that is con- Federal Reserve Bank Branches trolled by foreign individuals. The Board has recommended that the • Eliminate the statutory limita- Federal Reserve Act be amended with tion on investments by a member respect to the limit on the cumulative bank in Edge corporations and dollar amount that may be spent on authorize the Board to determine construction of Federal Reserve Bank amounts of aggregate and individual branch buildings. The System incurs investments in Edge corporations. expenses for branch construction • Clarify the Board's authority to principally for additions to, or re- require prior approval or notice of a placements for, existing branch facili- change in ownership or control of an ties. The current limitation, set in Edge corporation, and revise the Edge 1974, will be exhausted by projects act to provide rules applicable to that are under way or that are cur- ownership of Edge corporations that rently at an advanced planning stage. are comparable to those applicable to Branches of Federal Reserve Banks owners of other U.S. banking instituprovide important services to the fi- tions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

164 Legislative Recommendations • Eliminate the statutory require- turned checks and help shorten holdment that Edge corporations be ex- ing periods on checks. The procedure amined at least annually. would require that when a check of • Authorize the Board to impose $2,500 or more is returned unpaid, reserve requirements on all foreign the institution upon which the check banking institutions in the United is drawn must provide timely notice States, including commercial lending to the institution at which the check companies and agencies of foreign was originally deposited. The Board banks with consolidated worldwide adopted the procedure as an amendassets of less than $1 billion. ment to Regulation J (Collection of • Provide specifically by statute Checks and Other Items and Wire that the banking agencies may exempt Transfers of Funds). The proposed from disclosure information obtained legislative recommendation is that the from foreign banking organizations procedure be extended beyond checks that is not disclosed, either by law or covered under Regulation J to those by custom, in their home countries. not originally collected through the • Authorize the banking agencies Federal Reserve. to exchange examination and other The Board believes that the notifisupervisory information with foreign cation procedure for returned checks banking authorities about banks and will reduce the risk to depository inbank holding companies under suit- stitutions and their customers because able agreements to maintain confi- the institutions will receive notice dentiality of that information. more rapidly that a large-denomination check is being returned. Also, the procedure should make it easier for Return Check Notification depository institutions to make funds The Board has recommended that the available sooner to their customers Federal Reserve Act be amended to because the institutions will not need establish a procedure that would help to impose extended holds on all checks reduce the risk associated with re- to protect themselves from loss. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

165 Litigation During 1984, the Board of Governors eral Reserve Bulletin, volume 68, was named in forty pending lawsuits, April 1982, page 253). The court set compared with thirty-two in 1983. Of aside the Board's order in an opinion the new lawsuits filed in 1984, twenty- dated February 21, 1984 (728 F.2d two raised questions under the Bank 434). The Board's petition for rehear- Holding Company Act, compared ing and suggestion for rehearing en with five such actions filed in 1983. bane was denied on June 5, 1984. As of December 31, 1984, fourteen In Wyoming Bancorporation v. cases were pending, eight of which in- Board of Governors, No. 82-1634 volve questions under the Bank Hold- (10th Circuit, filed May 20, 1982), ing Company Act. A brief description petitioner sought judicial review of of each of these cases and of those the Board's order dated April 27, disposed of in 1984 follows. 1982 {Federal Reserve Bulletin, volume 68, May 1982, page 313), disapproving petitioner's application to ac- Bank Holding Companiesquire the American State Bank of Antitrust Action Powell, Powell, Wyoming. Petitioner In 1984, the U.S. Department of Jus- challenged the Board's definition of tice filed no challenges under the anti- the relevant geographic market for trust laws of the United States to assessing the competitive impact of bank holding company acquisitions the proposal. On March 12, 1984, the or mergers that had been approved court affirmed the Board's order (729 previously by the Board, and no such F.2d 687). cases were pending from previous In Association of Data Processing years. Service Organizations, Inc. v. Board of Governors, Nos. 82-1910 and 82- 2108 (D.C. Circuit, filed August 6, Bank Holding Company Actand September 20, 1982), petitioners Review of Board Actions sought judicial review of the Board's In First Bancorporation v. Board of orders approving an application by Governors, No. 82-1401 (10th Cir- Citicorp, New York, New York, to cuit, filed April 9, 1982), petitioner engage, through a subsidiary, in cersought judicial review of the Board's tain data processing activities (Fedorder approving petitioner's applica- eral Reserve Bulletin, volume 68, tion to acquire an industrial loan August 1982, page 505), and amendcompany, subject to the conditions ing the Board's Regulation Y to desigthat the industrial loan company not nate those activities as closely related both offer negotiable order of with- to banking and thus permissible for drawal accounts and engage in the bank holding companies generally business of commercial lending, and (Federal Reserve Bulletin, volume 68, that NOW accounts offered be sub- September 1982, page 552). On Octoject to federal limitations on interest ber 2, 1984, the court affirmed the rates and reserve requirements (Fed- Board's orders (745 F.2d 677). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

166 Litigation In Securities Industry Association will engage in industrial bank activiv. Board of Governors, No. 83-614 ties. The case is pending. (Supreme Court, filed February 3, In Dimension Financial Corpora- 1983), plaintiff sought judicial review tion v. Board of Governors, No. 83of the Board's order, dated January 7, 2696 (10th Circuit, filed December 30, 1983, approving an application by 1983); First Bancorporation v. Board BankAmerica Corporation, San Fran- of Governors, No. 84-1011 (10th Circisco, California, to acquire the cuit, filed January 5,1984); Colorado Charles Schwab Corporation, San Industrial Bankers Association v. Francisco, California, which owns a Board of Governors, No. 84-1122 discount securities brokerage firm, (10th Circuit, filed January 27,1984); Charles Schwab & Co., Inc. (Federal Financial Institutions Assurance Cor- Reserve Bulletin, volume 69, February poration v. Board of Governors, No. 1983, page 105). The court of appeals 84-1407 (10th Circuit, filed Januissued an opinion on July 15, 1983, ary 27, 1984); Ohio Deposit Guaranupholding the Board's order (716 tee Fund v. Board of Governors, No. F.2d 92). On June 28, 1984, the Su- 84-1257 (10th Circuit, filed Janupreme Court affirmed the decision of ary 28, 1984); and State of Ohio v. the court of appeals (104 S. Ct. 3003). Board of Governors, No. 84-1270 In Independent Insurance Agents (10th Circuit, filed January 30, 1984), of America, Inc. v. Board of Gover- petitioners challenge the definition of nors, Nos. 83-1818 and 83-1819 (8th "commercial loan" and "demand de- Circuit, filed June 21, 1983), peti- posit' ' in an amendment to the Board's tioners sought judicial review of the Regulation Y that was approved by Board's orders, dated May 31, 1983, the Board on December 14, 1983 approving applications by Commerce (Federal Reserve Bulletin, volume 70, Bancshares, Inc., Kansas City, Mis- February 1984, page 121). The court souri, and St. Louis, Missouri, and set aside the definitions challenged in Mercantile Bancorporation, Inc., St. Regulation Y on September 24, 1984 Louis, Missouri, to engage in the sale (744 F.2d 1402). of property and casualty insurance In Huston v. Board of Governors, directly related to financial services No. 84-1084 (8th Circuit, filed Januprovided by the applicants' subsidi- ary 17, 1984), petitioner seeks review aries (Federal Reserve Bulletin, vol- of the Board order, dated November 8, ume 69, June 1983, page 447). On 1983, approving an application by June 13, 1984, the court affirmed the KSAD, Inc., Council Buffs, Iowa, to Board's orders (736 F.2d 468). become a bank holding company In Oklahoma Bankers Association (Federal Reserve Bulletin, volume 70, v. Federal Reserve Board, No. 83- January 1984, page 44). The case is 2591 (10th Circuit, filed December 13, pending. 1983), plaintiff seeks judicial review In Independent Insurance Agents of the Board's order, dated Novem- of America v. Board of Governors, ber 17, 1983, approving the applica- No. 84-1083 (D.C. Circuit, filed tion of Citicorp, New York, New March 5,1984), petitioners challenged York, to acquire de novo Citicorp a provision of the Board's revised Savings and Trust Company, Tulsa Regulation Y relating to acquisitions and Oklahoma City, Oklahoma, a by state banks. By order dated Aulimited-purpose trust company that gust 2, 1984, the court of appeals dis- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Litigation 167 missed the case for lack of jurisdiction. April 20, 1984), petitioners seek re- In First Tennessee National Corpo- view of the Board's order, dated ration v. Board of Governors, No. March 23, 1984, approving an appli- 84-3201 (6th Circuit, filed March 6, cation by U.S. Trust Corporation, 1984), petitioner sought review of the New York, New York, to expand the Board's order, dated February 7, activities of its subsidiary, U.S. Trust 1984, approving an application by Company of Florida, N.A., Palm Citicorp, New York, New York, to Beach, Florida, to include the accepacquire an industrial bank in Tennes- tance of time and demand deposits see (Federal Reserve Bulletin, volume and the making of consumer loans 70, March 1984, page 231). The case (Federal Reserve Bulletin, volume 70, was dismissed by stipulation of the April 1984, page 371). The case is parties. pending. In Huston v. Board of Governors, In Girard Bank v. Board of Gover- No. 84-1361 (8th Circuit, filed March nors, No. 84-3262 (3d Circuit, filed 20, 1984), petitioner seeks review of a May 2, 1984), petitioners sought re- Board letter issued on February 21, view of the Board's order denying an 1984, in which the Board declined to application by Mellon National Corissue control proceedings with respect poration, Pittsburgh, Pennsylvania, to a nonvoting investment by First to acquire Heritage Bank, N.A., Bank System, Minneapolis, Minne- Jamesburg, New Jersey (Federal Resota, in Banks of Iowa, Des Moines, serve Bulletin, volume 70, May 1984, Iowa. The case is pending. page 441). On November 27, 1984, In Northeast Bancorp, Inc. v. the court of appeals affirmed the Board of Governors, Nos. 84-4047, Board's order. 84-4051, and 84-4053 (2d Circuit, In Citicorp v. Board of Governors, filed March 27, 1984), petitioners No. 84-4081 (2dCircuit, filedMay22, seek review of the Board's orders, 1984), petitioner challenged the condated March 26, 1984, approving the stitutionality of the Connecticut Intermerger of Bank of New England Cor- state Banking Act and the Board's poration, Boston, Massachusetts, approval of the application of Bank and CBT Corporation, Hartford, of Boston Corporation, Boston, Mas- Connecticut, and the acquisition by sachusetts, to acquire Colonial Ban- Hartford National Corporation, Hart- corp, Inc., Waterbury, Connecticut ford, Connecticut, of Arltru Bancor- (Federal Reserve Bulletin, volume 70, poration, Lawrence, Massachusetts June 1984, page 524). On June 18, (Federal Reserve Bulletin, volume 70, 1984, the court consolidated the case April 1984, pages 374 and 353 respec- with Northeast Bancorp, Inc. v. tively). On August 1, 1984, the court Board of Governors. By order dated of appeals upheld the Board's orders July 11, 1984, the court upheld the (740 F.2d 203). A petition for writ of Board's order. certiorari (No. 84-363, filed Septem- In Bank of Boston Corporation v. ber 6, 1984) was granted by the Su- Board of Governors, No. 84-4089 (2d preme Court on January 7, 1985 (53 Circuit, filed June 14, 1984), petition- U.S.L.W. 3367). er sought review of the Board's deci- In Florida Bankers Association v. sion on June 11, 1984, which stayed Board of Governors, Nos. 84-3269 approval of petitioner's interstate acand 84-3270 (11th Circuit, filed on quisition of Colonial Bancorp, Inc., Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

168 Litigation Waterbury, Connecticut, pending No. 84-3550 (3d Circuit, filed August outcome of related litigation. The 31,1984, transferred to the 2d Circuit case was withdrawn from active con- on October 3, 1984), petitioners seek sideration with prejudice to reinstate- review of the Board's order, dated ment. August 20,1984, approving the appli- In Bank of New York Company, cation by Bank of Boston Corpora- Inc. v. Board of Governors, No. tion, Boston, Massachusetts, to ac- 84-4091 (2d Circuit, filed June 14, quire RIHT Financial Corporation, 1984), petitioner sought review of the Providence, Rhode Island (Federal Board's order denying the interstate Reserve Bulletin, volume 70, Septemacquisition of Northeast Bancorp, ber 1984, page 737). Parties withdrew Inc., New Haven, Connecticut, by the case from active consideration by Bank of New York Company, Inc., stipulation, pending a decision by the New York, New York. On July 12, U.S. Supreme Court in Northeast 1984, the parties stipulated to with- Bancorp, Inc. v. Board of Governors. draw the case from active considera- In Citicorp v. Board of Governors, tion pending the decision in Northeast No. 84-4145 (2d Circuit, filed Oc- Bancorp, Inc. v. Board of Governors. tober 12, 1984), petitioner seeks In Old Stone Corporation v. Board review of the Board's order approvof Governors, No. 84-1498 (1st Cir- ing the acquisition of Fleet National cuit, filed June 20, 1984), petitioner Bank of Boston, Boston, Massachusought review of the Board's order, setts, and Fleet National Bank of dated June 5, 1984, denying petition- Connecticut, Hartford, Connecticut, er's application to acquire First Fed- by Fleet Financial Group, Inc., Provieral Savings and Loan Association of dence, Rhode Island (Federal Reserve Catawba County, Conover, North Bulletin, volume 70, November 1984, Carolina {Federal Reserve Bulletin, page 834). The parties in the case stipvolume 70, July 1984, page 593). The ulated entry of decision based on the case was dismissed on October 25, Second Circuit's opinion in Northeast 1984, by stipulation of the parties. Bancorp, Inc. v. Board of Governors. In Seattle Bancorporation v. Board Citicorp's petition for certiorari with of Governors, No. 84-7535 (9th Cir- the U.S. Supreme Court is pending. cuit, filed August 15,1984), petitioners In Florida Department of Banking seek review of the Board's order, v. Board of Governors, No. 84-3831 dated July 16,1984, denying petition- (11th Circuit, filed November 30, ers' application to acquire Alaska 1984), petitioner seeks review of the Pacific Bancorporation, Anchorage, Board's order, dated November 1, Alaska, based on the Board's finding 1984, approving the application by that the transaction is, in substance, Bank of Boston Corporation, Boston, an acquisition by Alaska Pacific Ban- Massachusetts, to expand the activicorporation of Seattle Bancorpora- ties of its subsidiaries, Bank of Bostion, Seattle, Washington (Federal ton Trust Company of Southeast Reserve Bulletin, volume 70, August Florida, N.A., Deerfield Beach, Flor- 1984, page 667). The case is pending. ida, and Bank of Boston Trust Com- In Citicorp v. Board of Governors, pany of Southwest Florida, N.A., No. 84-4121 (2d Circuit, filed Au- Sarasota, Florida, to include the acgust 27, 1984), and David Bolger Re- ceptance of time and demand deposits vocable Trusty. Board of Governors, and the making of consumer loans Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Litigation 169 {Federal Reserve Bulletin, volume 71, for the phase-in of reserve require- January 1985, page 55). The case is ments for nonmember banks. On Depending. cember 26, 1984, the court granted In Florida Department of Banking the Board's motion for summary v. Board of Governors, No. 84-3832 judgment, upholding the Board's de- (11th Circuit, filed November 30, termination that plaintiff is ineligible 1984), petitioner seeks review of the for relief and finding that the Mone- Board's order, dated November 1, tary Control Act is constitutional. 1984, approving the application by Bankers Trust New York Corpora- Financial Institutions tion, New York, New York, to ex- Supervisory Act of 1966 pand the activities of its subsidiary, In Wolfson v. Board Governors, No. Bankers Trust Company of Florida, 81-913 CWTK (M.D. Fla., filed Sep- N.A., Palm Beach, Florida, to intember 28, 1981), plaintiff sought clude the acceptance of time and dedeclaratory and injunctive relief and mand deposits and the making of concompensatory damages in connection sumer loans {Federal Reserve Bullewith the Board's issuance of an order tin, volume 71, January 1985, page pursuant to the Financial Institutions 51). The case is pending. Supervisory Act of 1966. By order In Citicorp v. Board of Governors, dated July 13, 1983, the district court No. 84-4173 (2d Circuit, filed Decemgranted the Board's motion for sumber 31, 1984), petitioner seeks review mary judgment. On appeal (No. 83of the Board's order, dated November 3570), the court of appeals affirmed 19, 1984, approving the application per curiam, on November 14, 1984, of Hartford National Corporation, the summary judgment order. Hartford, Connecticut, to acquire Rhode Island Bancorp, Inc., Hartford, Connecticut {Federal Reserve The Glass-Steagall Act Bulletin, volume 71, January 1985, In A. G. Becker, Inc. v. Board of Govpage 43). The parties in the case stipu- ernors, No. 80-2614 (D.D.C., filed lated entry of decision based on the October 14, 1980), and Securities In- Second Circuit's opinion in Northeast dustry Association v. Board of Gov- Bancorp, Inc. v. Board of Governors. ernors, No. 80-2732 (D.D.C., filed Citicorp's petition for certiorari with October 24, 1980), plaintiffs sought the U.S. Supreme Court is pending. review of the Board's statement, dated September 26, 1980, denying in Other Litigation Involving part plaintiffs' petition that the Board Challenges to Board prohibit Bankers Trust Company, a Procedures and Regulations state member bank, from selling thirdparty commercial paper as an agent The Monetary Control Act of 1980 of the issuer, pursuant to the Glass- In First Bank & Trust Co. v. Board of Steagall Act. In an opinion and order Governors, No. 81-38 (E.D. Ky., filed dated July 28, 1981 (519 F. Supp. February 24, 1981), plaintiff sought 602), the district court declined to declaratory and injunctive relief from order the Board to initiate enforcethe Board's determination that plain- ment proceedings against Bankers tiff is ineligible under the provisions Trust, but invalidated the legal conof the Monetary Control Act of 1980 clusions contained in the Board's Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

170 Litigation statement. The Board and A.G. Circuit vacated the decision of the dis- Becker appealed the district court's trict court and remanded the case to judgment (Nos. 81-2058, 81-2070, the district court (721 F.2d 1). Plainand 81-2096). In an opinion and order tiff's motion for rehearing or reheardated November 2, 1982, the U.S. ing en bane was denied on December Court of Appeals for the District of 28, 1983. The case is pending. Columbia Circuit reversed the action of the district court and upheld the Administrative Procedure Act Board's statement under the Glass- In Sundorph Aeronautical Corp. v. Steagall Act (693 F.2d 136). The Su- Federal Reserve Bank of Chicago, preme Court granted certiorari (No. No. C83-4723 (N.D. Ohio, filed 82-1766), and on June 28,1984, over- November 18, 1983), an unsuccessful ruled the Board's decision and rebidder for a private transportation manded the case to the court of apcontract with the Federal Reserve peals (104 S. Ct. 2979). By order dated Bank of Chicago alleged that the Re- August 6, 1984, the court of appeals serve Bank and the Board violated the remanded the case to the district Administrative Procedure Act and court, and by order dated October 19, federal procurement law in the solici- 1984, the district court remanded the tation process for service contracts case to the Board. The case is pending. with the Reserve Bank. The case was dismissed by the court on February 3, Freedom of Information Act 1984, based on stipulation of the parties. In 9 to 5 Organization for Women Office Workers v. Board of Gover- Other Actions nors, No. 80-2905-C (D. Mass., filed December 30, 1980), plaintiff seeks In The Committee for Monetary Redisclosure under the Freedom of In- form v. Board of Governors, No. formation Act of records containing 83-1730 (D.D.C., filed June 16,1983), information regarding a wage survey plaintiff challenges the constitutionconducted by a consortium of em- ality of the Federal Open Market ployers in Massachusetts and used by Committee and the Board's regulathe Board in approving salaries of the tion of the nation's money supply. Federal Reserve Bank of Boston. By The court granted the defendant's orders dated December 21, 1981 (527 motion to dismiss for lack of standing F. Supp. 1163), June 17 and Septem- on October 26,1983, and the plaintiff ber 30 (547 F. Supp. 846), and De- has appealed the dismissal to the cember 2, 1982 (551 F. Supp. 1006), court of appeals (No. 84-5067). The the district court partially granted case is pending. and partially denied each of the par- In a case filed in the U.S. District ties' cross-motions for summary judg- Court for the District of Minnesota, ment. The Board appealed the district No. 4-83-995 (filed November 16, court's decision that data from salary 1983), that was placed under seal by surveys were not protected from dis- court order, plaintiff alleges that the closure under exemption (b)(4) of the Board reviewed and copied his finan- Freedom of Information Act (No. cial records at a national bank in vio- 83-1171). On November 2, 1983, the lation of the Right to Financial Priva- U.S. Court of Appeals for the First cy Act. The case is pending. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Litigation 171 In De Young v. Owens, No. Committee, No. 84-1335 (D.D.C., SC 9782-20-6 (Iowa District Court, filed April 30, 1984), plaintiff chalfiled March 8, 1984), plaintiff chal- lenges the constitutionality of the lenges the constitutionality of the Fed- Federal Open Market Committee. On eral Reserve System and of Federal September 26, 1984, the court stayed Reserve notes. The case was removed consideration of the case pending the to the U.S. District Court for the decision of the court of appeals in Northern District of Iowa (CA-C84- Committee for Monetary Reform v. 4074), where the Board's motion to Board of Governors. dismiss was granted on October 25, In Lamb v. Pioneer First Federal 1984. An appeal (No. 84-2437 NI) Savings and Loan, No. 84-2-01551-7 filed with the U.S. Court of Appeals (Snohomish County Superior Court, for the Eighth Circuit was dismissed Washington, filed May 8, 1984), for lack of jurisdiction on Novem- plaintiff challenges the issuance of ber 30, 1984. The plaintiffs petition U.S. currency in the form of Federal to the U.S. Supreme Court for cer- Reserve notes. On July 2, 1984, the tiorari is pending. Board filed a motion to dismiss. The In Melcher v. Federal Open Market case is pending. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

172 Legislation Enacted Repurchase Agreements act includes the following provisions, among others: Subtitle F of title III of Public Law • Permits private issuers to pool 98-353, the Bankruptcy Amendments and market mortgages. and Federal Judgeship Act of 1984, • Preempts provisions in the laws approved July 10, 1984, exempts reof various states that may put private purchase agreements with a term of sector participants at a competitive one year or less from the automaticdisadvantage with the Federal Nastay provisions of the Bankruptcy tional Mortgage Association, the Code. Repurchase agreements are Federal Home Loan Mortgage Corcontractual agreements for the sale or poration, and the Government Naloan of a security that include a provitional Mortgage Association. sion requiring the seller or lender to • Requires that the mortgagetake back the security at a fixed price backed securities be rated in the top plus, in many cases, an additional sum two categories by a national rating representing a yield on the investorganization and be registered with ment. The exemption covers repurthe Securities and Exchange Commischase agreements involving certifision. cates of deposit, bankers acceptances, • Eases margin requirements by and securities that are direct obligaproviding that forward trading of up tions of, or fully guaranteed by, the U.S. government or its agencies. Re- to 180 days will not constitute borpurchase agreements are an impor- rowing or an extension of credit. The tant tool in Federal Reserve open Federal Reserve Board may issue market operations and in financing rules or regulations restricting this the national debt. The exemption is period or otherwise limiting these intended to protect the repurchase provisions. market from unnecessary disruption • Requires the Department of in the event of the bankruptcy of one Housing and Urban Development in of its participants. consultation with the Federal Reserve Board and other specified agencies to study the impact that prepayment Secondary Mortgage Market penalties may have on the secondary Enhancement Act of 1984 mortgage market. The Federal Re- Public Law 98-440, the Secondary serve, at the request of the House Mortgage Market Enhancement Act Committee on Energy and Commerce, of 1984, approved October 3,1984, is also will monitor, and report to the intended to expand the participation Congress on, the competitive effect of private issuers, including banks of mortgage-related securities on the and savings and loan associations, in availability of long-term corporate the secondary mortgage market. The financing. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

173 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 1984, there were 1,071 state panies; and the U.S. banking and member banks, accounting for about nonbanking operations of foreign 7 percent of all insured commercial banks. Many of these supervisory ac- banks. Because these banks typically tivities are coordinated with those of were larger than the average, they other federal and state regulatory held about 18 percent of total assets agencies. A description of how the of insured commercial banks. System fulfilled these responsibilities State member banks are examined during 1984 follows. every 18 months, except when significant weaknesses or other conditions call for more frequent examination. Supervision for In 1984, System personnel conducted Safety and Soundness 756 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 1984, the number of bank spections, surveillance and monitor- holding companies increased by 775 ing activities, and enforcement and to a total of 6,146. These organizaother supervisory actions. tions control commercial banks that hold about 89 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 manageand 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 assessment of the key financial fac- the responsibility of the Board's Division of 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

174 Banking Supervision and Regulation assets of insured commercial banks in fices are performed at least every the United States. three years. In 1984, the Federal Re- Most large bank holding compa- serve examined 7 foreign branches of nies, as well as small companies with state member banks and 13 foreign significant nonbank assets, are in- subsidiaries of Edge corporations and spected at least every 18 months; bank holding companies. others are inspected at least every U.S. activities of foreign banks. In three years. The inspection focuses on recent years, foreign entities have the operations of the parent holding rapidly expanded their operations in company and its nonbank subsidiar- the United States and have become a ies; the subsidiary banks are exam- significant element in the U.S. bankined by the appropriate federal bank- ing system. As of December 31, 1984, ing regulatory agency. During the 248 foreign banks operated 361 stateyear, System examiners conducted licensed uninsured branches and 1,568 inspections of bank holding agencies, 35 state-licensed branches companies. insured by the Federal Deposit Insurance Corporation (FDIC), and 84 International Activities branches and agencies licensed by the The Federal Reserve oversees a num- Office of the Comptroller of the Curber of international banking activi- rency (OCC), of which 3 have FDIC ties. insurance, and 25 Edge corporations. Edge and agreement corporations. Foreign banks also owned a majority Edge corporations are chartered by interest in 69 U.S. banks. Together, the Board to conduct an international these foreign banks controlled apbanking business to provide all seg- proximately 15 percent of U.S. bankments of the U.S. economy with a ing assets as of June 30, 1984. means of financing international The Federal Reserve has broad retrade, exports in particular. An agree- sidual and oversight authority for the ment corporation is a company that supervision and regulation of foreign enters into an agreement with the banks that engage in banking in the Board not to exercise any power that United States through branches, agenis impermissible for an Edge corpora- cies, commercial lending companies, tion. During 1984, the Federal Re- Edge corporations, or banks. In exerserve conducted 129 examinations of cising this authority, the Federal Edge and agreement corporations and Reserve relies on examinations contheir branches. ducted by the appropriate federal Foreign office operations of U.S. regulatory agency for insured branches banking organizations. Examinations and for federally licensed branches of the international operations of and agencies, or commercial bank state member banks, Edge corpora- subsidiaries, and on examinations by tions, and bank holding companies the appropriate state authority for are conducted principally at the bank- state-licensed branches and agencies. ing organization's head office in the Although the states have primary au- United States, where the ultimate thority for examining state-licensed responsibility for foreign offices lies. uninsured branches and agencies, the To verify and supplement the results Federal Reserve participated in the of the head office examinations, on- examination of 112 such offices in site reviews of important foreign of- 1984. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 175 Specialized Examinations A clearing agency acts as a custodian of securities for the settlement of The Federal Reserve conducts specialsecurity transactions by bookkeeping ized examinations in the following entries. The three agencies registered areas of bank activity. with the Board were examined in 1984. Electronic Data Processing Transfer Agents Under the Interagency EDP Exami- System examiners conduct separate nation Program, the Federal Reserve reviews of state member banks and examines the electronic data process- bank holding companies that act as ing (EDP) activities of state member transfer agents. Transfer agents banks, Edge and agreement corpora- countersign and monitor the issuance tions, and independent centers that of securities, register the transfer of provide EDP services to these institu- securities, and exchange or convert tions. During the year, System exam- securities. During 1984, the Board exiners conducted 354 on-site EDP re- amined 109 such banks and bank views. In addition, the Federal Re- holding companies. serve reviews EDP examination reports issued by other bank regula- Improvements to Examinations tory agencies on organizations that and Inspections provide data processing services to During the year, the Federal Reserve state member banks. took a number of steps to enhance its examination and inspection programs. Trust Activities The Federal Reserve examines trust Supervisory Reporting departments of state member banks, Requirements trust companies that are members of In March 1984, the Federal Reserve, the Federal Reserve System, and cer- under the auspices of the Federal tain trust company subsidiaries of Financial Institutions Examination bank holding companies. These ex- Council (FFIEC), implemented the aminations review the trust functions final phase of a major revision of the to ensure that they are conducted in commercial bank reports of condition accordance with law, regulations, and and income (the "call report").2 The applicable fiduciary principles. Dur- Federal Reserve, the Office of the ing the year, the Board examined 265 Comptroller of the Currency, and the such institutions. Federal Deposit Insurance Corporation concurrently implemented the Municipal Securities Dealers identical reports. The call report is and Clearing Agents filed quarterly and is available to Under the Securities Acts Amend- bank depositors, customers, and the ments of 1975, the Board is responsi- general public. ble for supervising state member banks and bank holding companies that act as municipal securities deal- 2. The Federal Financial Institutions Examiers or as clearing agencies. In 1984, nation Council comprises the Office of the the Board examined 34 of the 51 state Comptroller of the Currency, the Federal member banks registered with the Deposit Insurance Corporation, the Federal Reserve System, the Federal Home Loan Board that deal in municipal securi- Bank Board, and the National Credit Union ties for their trading accounts. Administration. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

176 Banking Supervision and Regulation The revisions to the call report were ture information that assists examinaccomplished in three phases: the first ers in analyzing the interest rate senwith the December 1982 implementa- sitivity of banks' interest-bearing liation of the report on past-due, non- bilities. In addition, several brokered accrual, and renegotiated loans and deposit items were added. These items lease financing receivables; the sec- are used by the bank supervisors to ond, in June 1983, with the addition determine the extent to which banks of two quarterly schedules, repricing are dependent on such deposits to opportunities for selected balance fund themselves and the amounts of sheet categories, and commitments such deposits that are covered by and contingencies; and the final phase FDIC insurance. with changes to the content, frequen- Effective March 1984, the income cy, and format of existing schedules statement on the report of income was and the elimination of detail not re- reformatted to conform to Securities quired for supervisory or regulatory and Exchange Commission guidelines, purposes. These revisions yield infor- which require reporting institutions mation necessary for supervisory pur- to report income on a net interest poses, improve the information avail- basis and to report a single net inable to the public, and update the come with gains and losses on securireports to reflect changes in bank and ties treated "above the line." These accounting practices and changes in changes reduced the reporting burden deposits resulting from deregulation for some banks by eliminating two of of interest rates. In developing the the differences that existed between reporting requirements, the banking the banking agencies' condition reagencies have also attempted to mini- port and the report required by the mize the disruption to reporting sys- SEC (10-K). tems and the burden that such require- The addition of the new schedule ments can impose on banks. of quarterly averages aids examiners Beginning in March 1984, banks and supervisors in determining the filed a revised deposit schedule, a re- yields of a bank's assets and liabilities formatted income statement, and a and in analyzing the impact that those new schedule of quarterly averages. yields may have on a bank's financial Line items also were added to the bal- condition. However, in developing ance sheet and income statement to the call report, the banking agencies reflect the reporting treatment of al- recognized the burden on small banks located transfer-risk reserves as pro- associated with producing quarterly vided for in the International Lending averages for loan detail. To alleviate Supervision Act of 1983. Small banks the burden while permitting superviwere permitted to report certain in- sors to analyze a bank's loan yields, formation less frequently and in less the banking agencies allow small detail than large banks and to report banks to report detailed information certain information in a way that was in a way consistent with their own consistent with their own bookkeep- bookkeeping system, not only on the ing systems, rather than in a specific schedule of quarterly averages but format. also on several other schedules, in- The deposit schedule has been re- cluding the income statement. Public vised to reflect changes in the types of availability of reports of condition accounts offered by banks and to cap- and income has helped to make bank Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 177 customers and investors more knowl- dix will make extensive use of readily edgeable about a bank's financial available information, examinations condition and thus has reinforced the will be more efficient and examiners self-discipline of the marketplace. will be able to spend more time on problem areas requiring special supervisory attention. Uniform Commercial Bank Report of Examination Amendments to The Federal Financial Institutions Capital-Adequacy Guidelines Examination Council approved a uni- In July 1984, the Federal Reserve proform commercial bank report of ex- posed for public comment revisions amination for use by the Federal to its capital-adequacy guidelines, Reserve, the Federal Deposit Insur- which were originally implemented ance Corporation, and the Office of in 1981. These guidelines are used the Comptroller of the Currency. The in examining and supervising wellreport was approved in 1984 and is managed banks and bank holding scheduled for field testing and im- companies. The principal change plementation by the three federal would be to raise the minimum pribanking agencies in 1985. It is to be mary capital ratio for multinational used in reporting the examination and regional banking organizations findings of all federally insured com- from 5.0 to 5.5 percent, and the mercial banks in the United States; it minimum total capital ratio for these will also be available to state banking organizations from 5.5 to 6.0 percent. agencies for reporting their examina- The minimum primary capital ratio tion findings of state-chartered or for community banking organizastate-licensed commercial banks. tions would be reduced from 6.0 to The uniform report has two sec- 5.5 percent. Taken together, these tions. The first section is the "core" steps would establish common standand must be included in each exami- ards for primary and total capital that nation report prepared by the federal apply to all banking organizations banking agencies. This mandatory regardless of size. Both the OCC and section consists of comments and the FDIC proposed similar amendconclusions, followed by a discussion ments to their capital-adequacy proof each of the components of the uni- grams, thereby establishing consistent form interagency bank rating system: standards for bank capital among the management/administration, asset federal banking agencies. quality, liquidity/funds management, Banking organizations are generally earnings, and capital adequacy. expected to maintain capital ratios The second portion of the uniform above the minimum guidelines. Instireport is the appendix. The appendix tutions with excessive amounts of contains specific financial schedules on- or off-balance-sheet risks are exto be used at the discretion of each pected to support these activities with agency. It permits extensive use of capital that exceeds the minimum financial information filed quarterly requirements. by state member banks on the reports The proposal for an increase in the of condition and income and of data capital guidelines that are applicable provided from the uniform bank per- to multinational and regional banking formance report. Because the appen- organizations is part of an ongoing Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

178 Banking Supervision and Regulation effort by the banking agencies to re- Supervision of quire large banks to strengthen their International Lending capital positions. The Federal Reserve During 1984, banks and borrowing also issued for comment proposed regcountries continued to make progress ulations for enforcing the capital in dealing with the international debt guidelines and for implementing the problems that had begun to worsen in authority to issue capital directives the second half of 1982. A number of (supervisory orders to raise additional countries instituted or continued capital) as provided in the Internationmeasures designed to restore their inal Lending Supervision Act of 1983. ternational creditworthiness and their debt-service capability, generally as Joint Policy Statement part of International Monetary Fund on Interagency Exchange programs. Where borrowing counof Information tries adopted suitable adjustment In 1984, the Federal Reserve Board, programs, banks cooperated by the Federal Deposit Insurance Corporenegotiating existing loans and in ration, the Office of the Comptroller many cases by providing new money. of the Currency, and the Federal The progress of these efforts and Home Loan Bank Board, under the their impact on the quality of bank auspices of the Federal Financial Inassets were monitored by the Federal stitutions Examination Council, Reserve through its supervisory and adopted a joint policy statement on reporting procedures. the exchange of supervisory informa- In 1984, the Federal Reserve tion among the regulatory agencies. amended Regulation K to implement The policy statement covers the shiftmeasures contained in the Internaing of subquality assets among depostional Lending Supervision Act of itory institutions, the change in con- 1983. Under the regulation and the trol of depository institutions, the act, banks must (1) establish specific initiation of formal and informal enreserves against loans to countries forcement actions against depository with protracted debt-service probinstitutions by regulatory agencies, lems; (2) amortize most fees on interand criminal referrals involving innational loans over the life of the siders of depository institutions. The loan; and (3) report quarterly on federal agencies also agreed to make country exposure and disclose to the available to participating state superpublic large exposures to individual visory authorities pertinent informacountries. tion when state-chartered or statelicensed financial institutions and Surveillance and their holding companies are affected. Monitoring Program Although the banking agencies have previously exchanged information, In line with the overall supervisory the formal guidelines will bring the objective of maintaining a safe and Federal Home Loan Bank Board and sound banking system, the Federal participating states into the agreement Reserve System is engaged in a surand will enhance communication and veillance program that is geared to coordination in areas of mutual con- monitoring changes in the financial cern and aid in implementing appro- condition of member banks quarterly, priate corrective actions. large bank holding companies semi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 179 annually, and smaller bank holding by a bank, and twenty by individuals. companies on an annual basis. This The Board made available to the program supplements the examina- public a description of all formal tion program through computerized supervisory actions completed during screening systems that trigger the the year and the reasons for them. financial analyses of institutions that This step was taken to achieve the have poor or deteriorating financial fullest public disclosure of informaconditions. If it is determined that tion consistent with confidentiality. serious financial problems exist, the examination schedule of these institu- Staff Training tions may be accelerated. The surveillance system further aids in the System training continued to emphaachievement of a more efficient allo- size analytical and supervisory themes cation of System resources by length- common to the four areas of superviening examination schedules of bank- sion and regulation—examinations, ing institutions that are judged to be inspections, applications, and surveilfinancially sound, and by focusing lance—and to stress the interdependtime and resources on organizations ence among these areas. During 1984, that warrant closer supervision. the Federal Reserve conducted twenty-one schools, ten of which offered core banking courses—three Enforcement Actions and introductory, four intermediate, and Civil Money Penalties three advanced. Other programs in- Under the Financial Institutions Su- cluded two schools dealing with credit pervisory Act of 1966, the Board of analysis, two with bank holding com- Governors has the authority to enter pany applications, and four with coninto written agreements with, or issue sumer compliance examinations (two cease-and-desist orders against, state introductory and two advanced), and member banks, bank holding compa- three seminars for senior examiners nies, and persons associated with such (one on fraud and insider abuse, one organizations that engage in unsafe on contingent liabilities, and one on or unsound practices or that violate trust activities). In addition to the two applicable laws or regulations. The sessions of the credit analysis school Board may also assess civil money held in Washington, regional sessions penalties for violations of a cease- were conducted at three Reserve and-desist order, of the Bank Hold- Banks for 52 students. ing Company Act, or of certain pro- Courses in specialized areas, invisions of the Federal Reserve Act. cluding trust activities, international In 1984, the Reserve Banks recom- banking, electronic data processing, mended and the Board's staff initi- payment system risks, activities of ated 155 enforcement actions, most municipal securities dealers, managedealing with unsafe or unsound bank- ment, and instructor training, were ing practices; 80 were completed by conducted by the FFIEC. year-end. In 1984, the Federal Reserve trained Also, the Board assessed and col- 589 persons, including 32 from state lected civil money penalties totaling banking departments and foreign $37,002. Of the penalties, two were central banks, in System training propaid by bank holding companies, one grams, and 325 in FFIEC schools. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

180 Banking Supervision and Regulation Regulation of the serve Banks, the Director of the U.S. Banking Structure Board's Division of Banking Supervision and Regulation, and the Board's The Board of Governors administers Office of the Secretary—acted on the Bank Holding Company Act, the 2,278 bank holding company applica- Bank Merger Act, and the Change in tions. The System approved 959 pro- Bank Control Act for state member posals to organize holding companies banks and bank holding companies. and denied 4; approved 437 bank ac- In doing so, the Federal Reserve acts quisitions by existing bank holding on a variety of proposals that directly companies and denied 7; and approved or indirectly affect U.S. banking 766 requests to acquire nonbank comstructure at the local, regional, and panies that are closely related to national levels. The Board also has banking and denied 6. Data on holdprimary responsibility for regulating ing company decisions are shown in the international operations of dothe accompanying table. mestic banking organizations and the U.S. operations of foreign banks that engage in banking in the United States, either directly through a branch Bank Merger Act or agency, or indirectly through a The Bank Merger Act requires that all subsidiary commercial lending comproposed bank mergers receive the pany. In addition, the Board has prior approval of the appropriate established regulations for the interfederal bank regulatory agency. If the state banking activities of these forbank surviving the merger is a state eign banks and for foreign banks that member bank, the Federal Reserve control a U.S. subsidiary commercial has primary jurisdiction. bank. Before approving a bank merger, the Federal Reserve considers the community's convenience and needs, Bank Holding Company Act the financial and managerial resources By law, a company must obtain the and prospects of the existing and pro- Board's approval to form a bank posed institutions, and the competiholding company through securing tive effects of the proposal. The Board control of one or more banks. More- must also consider the views of cerover, once formed, a bank holding tain other agencies on the competitive company must receive the Board's factors involved in the transaction. approval before acquiring additional During 1984, the Federal Reserve banks or nonbanking companies. approved 67 merger applications: 3 In reviewing an application filed by were approved by the Board, 4 by the a bank holding company, the Board Secretary of the Board under deleconsiders the convenience and needs gated authority, and 60 by the of the community, the applicant's Reserve Banks under delegated aufinancial and managerial resources, thority. As required by law, each the prospects of both the applicant merger is described in table 18 in the and the firm to be acquired, and the Statistical Tables section of this competitive effects of the proposal. REPORT. In 1984, the Board—and, under When the Office of the Comptroller delegated authority, the Federal Re- of the Currency (OCC) or the Federal Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 181 Bank Holding Company Decisions by the Federal Reserve, Domestic Applications, 1984 Direct action Delegated authority by the Office of Proposal Board of Division Director' the Federal Total Governors Secretary Reserve Banks Approved Denied Approved Denied Approved Approved Permitted Formation of holding company 69 4 7 883 963 Merger of holding company 19 2 2 31 54 Retention of bank 1 1 Acquisition Bank 94 7 28 315 444 Nonbank 148 6 12 130 476 772 Acquisition of bank service corporation2 34 34 Other ... 3 1 5 .... 1 10 Total 367 20 5 .... 50 1,360 476 2,278 1. This heading refers to decisions approved or 2. Approved under the Bank Service Corporation denied by the Director of the Division of Banking Act, which contains standards patterned after those of Supervision and Regulation. the Bank Holding Company Act. Deposit Insurance Corporation control should be denied include the (FDIC) has jurisdiction over a financial condition, competence, exmerger, the Board is asked to com- perience, and integrity of the acquirment on the competitive factors to ing person, and the effect on competiassure comparable enforcement of tion. the antimonopoly provisions of the In 1984, 167 changes in ownership act. On behalf of the Board, the of the stock of state member banks Reserve Banks submitted 842 reports and holding companies were reporton competitive factors to the OCC ed; all but 8 were processed by the Reand the FDIC in 1984. The Board and serve Banks. There were no denials. those agencies have adopted standard terminology for assessing competitive factors in bank merger cases to assure International Activities consistency in administering the Bank of U.S. Banking Organizations Merger Act. The Board has four principal statutory responsibilities in supervising the Change in Bank Control Act international operations of U.S. The Change in Bank Control Act of banking organizations: to approve 1978 gave the federal banking agen- the establishment of foreign branches cies the authority to disapprove of member banks and regulate the changes in the control of banks and scope of their activities; to charter bank holding companies. The Federal and regulate Edge corporations and Reserve is the agency responsible for their investments; to authorize and changes in the control of state mem- regulate overseas investments by ber banks and bank holding compa- member banks, Edge corporations, nies. Factors to be considered in and bank holding companies; and to determining whether a transfer of authorize and regulate investments by Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

182 Banking Supervision and Regulation bank holding companies in export Edge and Agreement Corporations trading 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 review. In re- ers in two areas: (1) they may conduct viewing 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 1984, the Board approved the open- foreign investments than member ing of 23 foreign branches. banks do because they can invest in By the end of 1984, 163 member foreign financial organizations, such banks were operating 905 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. By the end of 1984, there were thirty-one national banks were oper- 146 Edge corporations, which had ating 790 of these branches, while 32 138 branches. The Board requires state member banks were operating each Edge corporation that is enthe remaining 115 branches. gaged in banking to maintain a ratio of equity to risk assets of at least 7 International Banking Facilities percent. At midyear, half of the Effective December 3, 1981, the banking corporations had ratios that Board amended its Regulations D and were more than 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 1984 the Board autory institutions, by Edge and agreethorized 128 foreign investments by ment corporations, and by U.S. member banks, Edge and agreement branches and agencies of foreign corporations, and bank holding combanks. panies. In most cases, the applicant An IBF is essentially a set of asset requested permission to increase an and liability accounts that is segreexisting investment. gated from other accounts of the establishing office. In general, deposits from and credit extended to Export Trading Companies foreign residents or other IBFs can be In 1982, the Bank Export Services booked at these facilities free from Act amended section 4 of the Bank domestic reserve requirements and in- Holding Company Act to permit terest rate limitations. By the end of bank holding companies, their sub- 1984, 523 IBFs had been established. sidiary Edge or agreement corpora- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 183 tions, and bankers' banks to invest in Timely Processing export trading companies, subject to of Applications certain limitations and after Board review. The purpose was to allow ef- The System implemented revised profective participation by bank holding cedures and schedules for applicacompanies in the financing and de- tions, effective January 1, 1984, velopment of export trading compa- which reduced internal processing nies. On June 2, 1983, the Board targets by one-third. The processing adopted regulations to achieve the time was shortened from 90 to 60 objectives set forth in the law: to days for applications acted on by the facilitate the export of goods and Board and from 45 to 30 days for apservices produced in the United States plications acted on under delegated and to minimize potential adverse ef- authority. The new targets applied to fects on the subsidiary banks of the all applications accepted for processbank holding companies involved. In ing on or after January 1,1984. These 1984, the Board acted affirmatively changes served to reduce the burden on the 19 notifications received for on applicants and to make more effithe establishment of export trading cient use of the staff at the Board and companies. At year-end, 33 bank the Reserve Banks. In addition, the holding companies had investments number of nonbanking proposals in export trading companies. acted upon declined 24 percent as a result of the elimination of filing requirements for many de novo notifications. As a result, the number of Delegation of Applications applications by holding companies In exercising its responsibility to for- decreased 10 percent from 1983, to mulate policies and procedures in the 2,278; otherwise, applications would applications area, the Board has dele- have increased 2 percent from 1983. gated certain regulatory functions— Of the applications in 1984, the including the authority to approve, System acted on 95 percent within the but not that to deny, certain types of goals that were set for processing applications—to the Reserve Banks, time. and to the Board's Division of Bank- In 1984, 66 of the 67 applications ing Supervision and Regulation and for bank mergers were processed Office of the Secretary. within 60 days; the application that The delegation of responsibility for took longer involved a protest. The applications permits a more efficient System also prepared 842 reports on use of staff resources at both the the competitive factors of proposed Board and the Reserve Banks by re- mergers for the other two banking moving routine cases from the Board's agencies; all but a few were comagenda. During 1984, almost 84 per- pleted within 30 days. Of the 167 cent of the applications were acted change-of-control notices, 149 were upon under delegated authority; this handled within 60 days. proportion was somewhat smaller The System also measures its perthan that for recent years, reflecting formance in processing international the increasing complexity of applica- applications against a 60-day standtions and the simplification of filing ard. During 1984, 90 percent of the requirements. 221 international applications on Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

184 Banking Supervision and Regulation which the Federal Reserve acted were and therefore are not prohibited from acted upon within the applicable time engaging in banking activities by the period. Bank Holding Company Act. A number of interstate holding company Board Policy Decisions proposals were also approved because and Developments newly enacted state laws creating in Bank-Related Activities regional compacts serve to exempt During 1984, the Board approved by such acquisitions from the limitations order the expansion of several activi- of the Bank Holding Company Act ties previously approved for holding on interstate expansion. Litigation incompanies: issuing money orders and volving the constitutionality of some similar instruments up to $10,000 of the state laws has precluded conbrokering of foreign currency op- summation of most of the interstate tions, and acting as a futures commis- proposals. In other matters, indussion merchant for futures contracts trial banks were barred from providon municipal bond indexes and offer- ing a full range of commercial banking related advice. The Board also ap- ing services, and limitations were proved the acquisition by a holding placed on the ability of a holding company of two financially distressed company to expand across state lines savings and loan associations, but through the use of an acquired comdenied a proposal by another bank pany's grandfathered rights. The holding company to acquire a sound Board also had in suspense two applisavings and loan association. cations by holding companies to ac- Public comments were requested quire South Dakota banks and thereby on a proposal to add six activities to to engage in interstate insurance activithe list of those permissible for hold- ties prohibited to the parent directly. ing companies: check guaranty, consumer financial counseling, armored Public Notice car services, tax planning and preparaof Board Decisions tion, collection agency and credit bureau operations, and acting as a com- Each action by the Board on a case modity trading advisor. The Board involving a bank holding company, also proposed to expand property ap- bank merger, change in control, or praisal and advice by a futures com- international banking proposal is efmission merchant, and to clarify per- fected by an order or announcement. missible insurance powers. Orders set forth the essential facts of The Board decided a number of ap- the application, the basis for the deciplications that involved attempts by sion, and the decision. Announceholding companies to expand their in- ments state merely the action taken terstate banking presence. The Board by the Federal Reserve. All orders reluctantly approved six "nonbank and announcements are released imbanks" after they received chartering mediately to the public and are reapproval from other agencies and ported in the Board's weekly H.2 staafter a congressionally imposed tistical release, *'Actions of the moratorium had expired. These insti- Board; Applications and Reports," tutions offer most banking services and in the monthly Federal Reserve but do not both make commercial Bulletin. Actions taken by the Reloans and accept demand deposits, serve Banks are also reported in the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 185 H.2 statistical release and in the The accompanying table summarizes Bulletin. Announcements of applica- these data for the last quarter of 1983 tions and notices received by the and the first three quarters of 1984. System but not yet acted on are also made in the H.2 release. Applications by State Member Banks Enforcement of Other The Board's authority over state Laws and Regulations member banks covers permission to open new domestic branches, to make The preceding sections have discussed investments in bank premises that exthe Board's activities in carrying out ceed 100 percent of capital stock, and its statutory responsibilities for the to add to the capital base from sales supervision of bank safety and of subordinated debt; it also covers soundness and the regulation of the waiver of the six months' notice banking structure. This section of intention to withdraw from memdescribes the enforcement of other bership in the System. The Federal laws, rules, and regulations. Reserve employs the application or notification process to administer Financial Disclosure these statutory provisions. by State Member Banks With few exceptions, these matters The Board's Regulation F deals with are handled under delegated authorithe disclosure requirements for state ty by the Federal Reserve Banks or, in member banks that have securities the case of proposed sales of suborregistered under the Securities Ex- dinated debt, by the Director of the change Act of 1934. Forty-four state Board's Division of Banking Supervimember banks, most of which are of sion and Regulation. small or medium size, were registered with the Board under this regulation. Stock Repurchases by These institutions must file certain Bank Holding Companies materials, such as financial reports A bank holding company sometimes and proxy statements, that are of inpurchases its own shares from its terest to investors. The Board's staff shareholders. Often such stock repurreviews these filings for compliance chases are financed through borrowwith the regulation. ings, so that the net effect of the The disclosure rules under Regulatransaction is to increase the debt of tion F are similar to those issued the bank holding company at the very by the Securities and Exchange time that its equity decreases. Because Commission. relatively large repurchases may adversely affect the financial condition Loans to Executive Officers of a bank holding company and its Under section 22(g) of the Federal bank subsidiary, the Board, by regu- Reserve Act, each state member bank lation, requires holding companies to must include with each quarterly re- give advance notice of repurchases port of condition a report of all exten- that retire 10 percent or more of their sions of credit made by the bank to its consolidated equity capital. Revisions executive officers since the date of the to Regulation Y, adopted by the bank's previous report of condition. Board during 1983, allow the Board Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

186 Banking Supervision and Regulation Interest rates Total loans to executive officers charged Period (percent) Number Amount (dollars) Low High October 1-December 31,1983 1,000 9,464,851 7 25 January 1-March 31,1984 8% 14,760,590 7 21 April 1-June 30,1984 1,202 17,885,034 8 22 July 1-September 30,1984 931 10,617,578 7 20 to object to stock repurchases if the The Board, the National Credit holding company that files the notice Union Administration, the Farm fails to meet the standards that the Credit Administration and, since Board applies in the applications pro- May 3, 1984, the Federal Home Loan cess, including the Board's capital Bank Board, examine other lenders guidelines. under their respective jurisdictions The Federal Reserve reviewed 141 for compliance with Regulation G. At such notifications during 1984, all but the end of 1984, there were 537 such 4 of which were acted on by the lenders, of which 294 were subject to Reserve Banks on the Board's behalf. the Board's supervision. Of these 294, 198 are subject to regular inspection by the Federal Reserve System. Securities Regulation During the year, Federal Reserve ex- Under the Securities and Exchange aminers inspected 60 lenders for com- Act of 1934, the Board is responsible pliance with the Federal Reserve's for regulating credit used to purchase margin requirements (these lenders or carry securities. In fulfilling its are inspected on either a biennial or responsibility under the act, the triennial basis, according to the type Board limits the amount of credit that of credit extended). may be provided by securities brokers Regulations U and G, in general, and dealers (Regulation T), by banks impose credit limitations on banks (Regulation U), and by other lenders and other lenders only for loans (Regulation G). Regulation X extends whose purpose is purchasing or carrythese credit limitations, or margin re- ing publicly held equity securities and quirements, to certain borrowers and that are secured by such securities. certain credit extensions, such as Regulation T limits the amount of credit obtained from foreign lenders credit that brokers and dealers may by U.S. citizens. extend when securities serve as col- The Securities and Exchange Com- lateral. This collateral must consist of mission, the National Association of stocks and bonds traded on national Securities Dealers, and the national securities exchanges, of certain oversecurities exchanges examine brokers the-counter stocks that the Board and dealers for compliance with designates as having characteristics Regulation T. The three bank super- similar to those of stocks listed on navisory agencies examine banks for tional exchanges, or of bonds meeting compliance with Regulation U, with certain requirements. the Board being responsible for state The Board published revised lists member banks that extend margin of over-the-counter stocks subject to credit secured by margin stock. its margin regulations on February Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Banking Supervision and Regulation 187 21, June 18, and November 13, 1984. of registered securities. During the The current list, which is redesignated year, the Board processed eight T-l the List of Marginable OTC Stocks, and T-2 agreements. consists of 2,245 stocks. The Board's In 1984, the Securities Regulation Division of Banking Supervision and Section of the Board's Division of Regulation monitors the market ac- Banking Supervision and Regulation tivity of all OTC stocks to determine issued 50 interpretations of the what stocks to place on this list. In margin regulations. Those that 1985, the Board will publish the list in presented sufficiently important or February, May, August, and Novem- novel issues were published in the ber. "Securities Credit Transactions In 1984, the Board amended Regu- Handbook," which is part of the lations G, T, and U to permit brokers Federal Reserve Regulatory Service. and dealers to extend credit on OTC These interpretations, published securities designated as eligible for monthly, serve as a guide to comtrading in the National Market Sys- pliance with the margin regulations. tem portion of the National Associa- The staff also issued a question-andtion of Securities Dealers Automated answer guide explaining the applica- Quotations (NASDAQ). Loans by tion of Regulation G. This guide has banks and Regulation G lenders to been printed in the Federal Reserve purchase such securities, if secured by Regulatory Service for the conventhose securities, are now subject to ience of examiners and Regulation G the margin regulations. lenders. Under section 8 of the Securities Exchange Act, a broker or dealer may not borrow from a bank on the collat- Federal Reserve Membership eral of registered securities unless the bank is either a member of the Fed- At the end of 1984, 5,983 banks were eral Reserve System or one that files members of the Federal Reserve Sysan agreement with the Board under- tem, a net increase of 177 from the taking to comply with all statutes, previous year. Member banks operatrules, and regulations applicable to ed 26,698 branches on December 31, member banks with respect to credit 1984, a net increase of 660 for the on securities. Domestic and foreign year. nonmember banks must file these Member banks accounted for 39 agreements, designated T-l and T-2 percent of all commercial banks in respectively, before they can lend to the United States, and for 64 percent brokers and dealers on the collateral of commercial banking offices. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

188 Regulatory Simplification Action that the Board of Governors In 1984, the Board continued systook in 1984 to comply with the Finan- tematically analyzing each regulation cial Regulation Simplification Act of periodically to reduce or eliminate 1980 is reported here, as required by burdens. In taking new regulatory acsection 805 of that act. This report also tions, the Board kept burdens to a discusses the Board's efforts under minimum principally by making few the Regulatory Flexibility Act and the changes in the existing regulatory Board's Statement of Policy Regard- structure. When changes were found ing Expanded Rulemaking Proce- necessary, the Board eased the addures. These acts and the Board's verse impact in most cases by issuing policy statement are intended to im- policy statements instead of formal prove the regulatory process. regulations, by offering alternative Under the Financial Regulation methods of satisfying the regulatory Simplification Act, each federal fi- objectives, or by granting generous nancial regulatory agency must assure adjustment periods for compliance. that its regulations impose no more burdens than are necessary, that they are adopted only after interested per- Periodic Review Program sons are heard, and that they are writ- Margin Regulations ten simply and clearly. The act also requires each agency periodically to As reported in last year's ANNUAL REreview how well its regulations meet PORT, the Board completed the revithese objectives. sions of all its margin regulations Compliance with the act is assured (Regulations G, T, U, and X) to simthrough a permanent Regulatory Im- plify their language and substance. provement Project, to which the Board This year, the Board considered two has given a mandate to improve its staff studies that addressed the funregulations and rulemaking proce- damental question of whether, in gendures. Under the Project, each regu- eral, federal margin regulations are lation undergoes a zero-based review necessary. One report, A Study of the once every five years. Regulatory Effects on the Economy of Trading in analyses of existing and proposed Futures and Options, was written regulations are also evaluated to jointly with the Securities and Exdetermine whether the need for and change Commission and the Comthe purpose of the provisions have modity Futures Trading Commission. been established and whether alterna- The other, Review and Evaluation of tives have been considered. Minimiz- Federal Margin Regulations, considing compliance costs, paperwork, and ered the scope and effectiveness of other burdens, as well as simplifying margin regulations. These studies and clarifying the regulatory lan- were undertaken in light of the introguage, is an essential part of this re- duction of new financial instruments view process. and changes in the structures of finan- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Regulatory Simplification 189 cial markets since margins were first this review has been undertaken to regulated in 1934. determine whether changes are desirable to ensure or improve the com- Bank Holding Companies and petitive positions of Edge corpora- Change in Bank Control tions. Four alternative proposals were The Board recently issued the first offered for expanding the ability of comprehensive revision of Regulation an Edge corporation to provide a Y, which deals with bank holding broad range of services in the United companies. In response to comments States. Other major proposals includreceived during its review, the Board ed an increase in the Edge Corporaproposed in 1984 to amend the regu- tion's lending limit and a relaxation lation by listing several additional of the limits on investments by such nonbanking activities as generally corporations in foreign companies. permissible for bank holding compa- The language has been simplified, and nies. The activities include commod- the organization of the provisions has ity trading advisory services, check been improved. guaranty services, consumer financial counseling, armored car services, tax New Regulatory Actions planning and tax preparation, and This section reports on significant operating a credit agency or credit final regulatory actions taken by the bureau. The Board also proposed to Board in 1984 and on related prodefine and clarify permissible insurposed actions. (Adoption of pricing ance activities in conformity with the schedules for Federal Reserve services Garn-St Germain Depository Instituis discussed in the section on Federal tions Act of 1982. Reserve Banks.) Equal Credit Opportunity Monetary Policy and In 1983, preliminary steps were taken Payments System toward the first revision of the regula- Delayed Disbursement and tion for equal credit opportunity Availability of Funds (Regulation B) since its adoption in The Board issued a policy statement 1977. Comments were solicited on the encouraging the banking industry to issues to be addressed. In 1984, staff seek further improvements in check work progressed in developing altercollection and funds availability and native model forms and a commento avoid delayed-disbursement artary to be used as a guide to the regurangements. Some of these arrangelation. In addition, the Consumer ments have been designed to delay the Advisory Council discussed the recollection and final settlement of view of this regulation at length. checks by permitting checks to be drawn on institutions located at sub- International Banking Operations stantial distances from the payee In 1984, the Board proposed revisions when more efficient payment arrangeof its regulation governing the inter- ments are available. national operations of U.S. banking In addition, the Board, together organizations (Regulation K). In re- with the other banking agencies, offisponse to a statutory requirement, cially advised banks of customers' Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

190 Regulatory Simplification complaints about delays in the avail- The proposals include other issues ability of funds. The Board asked surrounding advertising and disclobanks to review and disclose their sure that may warrant consideration policies and to refrain from imposing in view of the removal of federal limunnecessary holds. Recognizing that itations on deposit interest rates. banks operate on different schedules according to their capabilities, and that banks might actually incur check Securities Credit losses by complying with schedules Margin Eligibility for the National imposed by regulation, the agencies Market System avoided specific regulatory require- The Board adopted a change in the ments. definition of "margin security" to include automatically stocks designated Reduction of Float by the Securities and Exchange Com- To reduce float, the Board adopted mission as qualified for trading in the an amendment of Regulation J (Check national market system for over-the- Collection and Funds Transfer) to counter stocks. This change will expecharge for checks made available to a dite the determination of securities paying bank by a Reserve Bank on a that are eligible for margin credit. weekday when the paying bank is reg- (The Board will continue to publish ularly closed but the Reserve Bank is its List of Marginable OTC Stocks open. To reduce the impact of this periodically, to reflect the eligibility change on small institutions, the Board of other OTC securities for margin gave banks the option of compensat- trading.) ing the System for the float generated by their midweek closing, rather than Securities Eligible for Deposit with requiring them to maintain check op- Options Clearing Agencies erations on that day. The Board also amended its margin regulations to permit an options clear- Advertising of Interest on Deposits ing agency regulated by the SEC to (Regulation Q) accept for fulfilling the agency's de- Along with the other federal banking posit requirements any margin secuagencies, the Board issued a policy rity that meets SEC criteria for that statement directed at bank advertis- purpose. (An options clearing agency ing of the interest rates on time de- issues options contracts and guaranposits in individual retirement ac- tees their performance.) This amendcounts (IRAs) that pay more than one ment facilitates the SEC's approval fixed rate over the term of the deposit. of a proposed Options Clearing Cor- This action was necessary to prevent poration program that will expand consumers from being misled or con- the class of securities eligible for defused about the interest they would posit requirements. The program will receive and the tax aspects of the ac- generally permit brokers and dealers counts. At the same time, the Board to deposit the same kind of securities proposed regulations to incorporate with the clearing agency that they the policy statement and requested deposit with banks in obtaining loans comment on alternative approaches. secured by customer securities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Regulatory Simplification 191 Banking Structure and form format for the weekly bulletin Supervision published by the Reserve Banks detailing applications received. This International Lending Supervision notice will now identify Reserve Bank The Board adopted amendments of personnel who can provide further in- Regulation K (International Banking formation and will list publications Operations) to govern banks with reconcerning the Commuity Reinvestspect to the maintenance of reserves ment Act. These new rules will impose against certain international assets, no operational burdens on banking disclosure of information on internaorganizations and should eliminate tional assets, and accounting rules for unnecessary delays. fees on certain international loans. These regulations, which are part of a joint program of the federal banking Consumer and agencies, implement the International Community Affairs Lending Supervision Act of 1983 and are designed to prevent unsafe situa- Electronic Fund Transfers tions in international lending. These In view of uncertainty and requests rules should not affect small banks for clarification, the Board amended because such institutions generally do Regulation E (EFT) to cover money not hold international assets covered transfers resulting from point-of-sale by the regulation. debit card transactions that are pro- As a related matter, in implement- cessed electronically but do not go ing the International Lending Super- through an electronic terminal at the vision Act, the Board proposed point of sale. To ease compliance, the amended capital-adequacy guidelines Board has doubled the time allowed for bank holding companies and state in the regulation for resolving errors member banks. Developed in con- that result from such transactions. junction with the other federal bank- Moreover, to avoid conflict with ing agencies, the proposal is aimed at other regulations, it has exempted establishing uniform minimum capi- consumer asset-management accounts tal levels for all federally regulated from provisional recrediting requirebanks. ments if the account is subject to margin regulations. Another action in this area gives Procedures for Handling financial institutions the option to Protested Applications disclose charges for electronic fund The Board amended its policies to transfers on periodic statements either provide the public with clearer and transaction by transaction or as a easier procedures for filing protests to total. This amendment responds to branch applications, acquisitions, requests from financial institutions and other proposals, and for requestfor such flexibility. ing meetings and hearings. The changes incorporate most of the recommendations of the Consumer Ad- Truth in Lending visory Council for bringing banking In response to questions from both applications to public notice. One of the public and the private sectors, the the changes calls for an expanded uni- Board amended Regulation Z (TIL) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

192 Regulatory Simplification to clarify that all credit cards, includ- bank service charges and fees. The ing those issued for transactions that study compared the 1983 information are generally exempt from the regula- with that from a similar survey in tion, are subject to the provisions that 1977, and it drew upon the 1984 Curprohibit the unsolicited issuance of rency and Transaction Account Usage credit cards and that limit the card- Survey and Functional Cost Analysis holder's liability for unauthorized use data to evaluate the impact of bank to $50. This amendment applies pri- service charges and fees on commermarily to telephone calling cards. To cial bank profits. prevent unnecessary costs of compliance, the Board allowed the issuers of Colloquium on the Future of the 50 million telephone cards now in Small Depository Institutions use to wait until they normally re- The Board sponsored a conference place the cards to correct any statethat focused on the future of small ments on the cards that are inconsisdepository institutions in an era of tent with the regulation. technological change, deregulation, Commentaries to Regulations and financial innovation. More than The Board also updated the official 100 representatives from financial instaff commentaries to Regulation E stitutions , research organizations, and Regulation Z. These commentar- and the banking agencies particiies have been designed to facilitate pated. A general conclusion was that, compliance with the regulations by despite their limited planning staff or coherently and systematically address- expertise, many small banks will suring a variety of questions that have vive and prosper by adapting to arisen since the last updates. change and identifying profitable new markets in which they can establish niches. The proceedings of the con- Regulatory Impact Studies ference are available from the Board. Surveys on Consumer Use of Bank Services Informational Services In 1983, the Board conducted a Sur- Pamphlet on Adjustablevey of Consumer Finances to gain in- Rate Mortgages formation on consumers' financial obligations and assets and their ex- To help potential homebuyers, the periences with financial institutions. Federal Reserve issued a pamphlet In 1984, data from that survey were jointly with the Federal Home Loan reported in the September and De- Bank Board that explains how adjustcember issues of the Bulletin to pre- able-rate mortgages work—including sent highlights of the debts and net such features as index rates, interest worth of a representative sample of rate and payment caps, and negative nearly 4,000 families and their selec- amortization. The pamphlet describes tion and use of financial services. In the risks and advantages of ARMs addition, the data from the survey and ways for consumers to reduce were used to prepare a study request- risk. It is available from the Board ed by the Consumer Advisory Coun- and has been widely distributed cil on the impact on consumers of through lending institutions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Regulatory Simplification 193 Shopping Guide for Credit again after one year to assess their response. The Board initiated a program to see whether the publication of interest rates charged by different depository Guide to Regulation G institutions would help consumers shop for credit. As an experiment, The Board issued a short guide to Federal Reserve Banks in three mar- Regulation G, which governs margin ket areas began to compile interest credit extended by savings banks, inrates from financial institutions in surance companies, and certain other their area and to make them available lenders. The guide, prepared in a to newspapers. The Board surveyed question-and-answer format, is writconsumers in these areas before pub- ten in simple language as an introlication and distribution of the shop- duction to the basic areas of the pers' guides and will survey them regulation. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

194 Federal Reserve Banks Developments in the Banks from all priced services was Pricing of Federal Reserve $697.0 million, and total cost was Services and in the $677.6 million. These figures include Payment Mechanism the income and expenses related to clearing balances, the private sector Improved operations and better cost adjustment factor (the taxes and controls resulted in a significant im- costs of capital the Federal Reserve provement in the Federal Reserve's would incur if it were a private firm), performance in 1984. For the year, and the value of priced float. With the Reserve Banks recovered 103.9 allowances for a temporary suppercent of costs for priced services, port program for the automated compared with 99.7 percent in 1983. clearing house service, the Federal Table 9, in the Statistical Tables sec- Reserve had a net revenue of $26.3 tion of this REPORT, presents reve- million. nue and expenses by major category During 1984, the Federal Reserve of service. System continued to take steps to im- For 1984, total revenue at Reserve prove the efficiency of the nation's Recovery of Costs for Priced Services of Federal Reserve Banks 11984 Commercial check collection J1983 31982 Wire transfer and net settlement _J Commercial ACH Definitive safekeeping and noncash collection Book-entry securities Cash services Total IVrcem In accordance with System policy, revenue is shown cent in 1982. The cost of cash services is adjusted for as 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

Federal Reserve Banks 195 payment mechanism. Federal Reserve Automated Clearing operations during 1984 in connection House Service with the payment mechanism are dis- During 1984, commercial ACH volcussed below. ume continued to grow rapidly, reaching 214.4 million transactions, an in- Check Collection crease of 37.0 percent over the 1983 level. Total commercial ACH costs The revised fee schedules for check amounted to $20.9 million, and revecollection services implemented in nues were $13.8 million. After an ad- December 1983 remained in place justment to costs for the Board's inthroughout 1984. Total check costs, centive pricing policy, costs exceeded including the cost of float and the revenues by $0.1 million. private sector adjustment factor Automated clearing house (ACH) (PSAF), amounted to $507.6 million services offered by the Federal Rein 1984, while total revenues were serve were improved through the im- $529.6 million. The number of checks plementation of later deposit deadprocessed by Federal Reserve Banks lines and expansion of the use of elecincreased by 3.0 percent in 1984 to tronic transmissions for the receipt 14.7 billion. and delivery of ACH transactions. In In April, the Federal Reserve imaddition, work continued on a new plemented a proposal designed to acoperating system, which will be imcelerate the collection of checks plemented during 1985, and plans drawn on certain depository instituwere developed to convert ACH tions located outside of Federal Repaper return items to automated form serve cities. This program has achieved beginning in February 1985. its objective: by the end of 1984, over On December 27, 1984, a new fee $1 billion was being collected one day structure for the ACH was estabearlier than it otherwise would have lished. The new structure eliminated been. In conjunction with this prothe concept of benefit-flow pricing gram, each Reserve Bank offers a and set explicit charges for instituvariety of payor bank services to tions depositing paper return items. depository institutions, which enable In accordance with the Board's incenthem in turn to offer cash managetive pricing policy, the new fees were ment services to their customers. set to recover 80 percent of commer- In June, the Board requested comcial ACH costs, including the PSAF ment on an amendment to Regulation and certain categories of float. J that would require an institution that returns a check of $2,500 or more drawn on it and collected Wire Transfer of Funds and through the Federal Reserve to notify Net Settlement Service promptly the institution at which the check was first deposited. This pro- In 1984, funds transfer volume grew posal was designed to reduce the risk at a rate of 9.4 percent, reaching 41.6 to depository institutions associated million transactions. Total costs of with the return of checks and allow funds transfers, including the PSAF, them to make funds available to their were $71.7 million, and revenue was depositor sooner. (The Board adopted $75.2 million, resulting in a net surthis proposal in early 1985.) plus of $3.5 million. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

196 Federal Reserve Banks During 1984, the Board approved a Reserve's limited cash transportation reduction in the basic fee for originat- subsidy was eliminated, except for ing or receiving a funds transfer from locations outside the contiguous 48 $0.65 to $0.60, effective September states. By the end of 1984, 8 Reserve 27, 1984. Effective December 27, Banks decided to cease contracting 1984, the transaction fee was further directly for transportation of currenreduced to $0.55 in conjunction with cy and coin and instead assist deposithe implementation of monthly elec- tory institutions in making arrangetronic connection fees in January ments at lower cost. 1985. Coin wrapping service was offered The number of depository institu- by five Reserve Banks in 1984. In adtions with on-line connections to the dition, 4 Reserve Banks offered spe- Federal Reserve continued to grow. cial cash packaging and acceptance of By the end of 1984, nearly 5,000 in- later orders for cash. stitutions were electronically linked Total costs for the cash services, to the Reserve Banks. During 1984, including the PSAF, were $25.9 milthe Reserve Banks began changing lion. Revenues exceeded costs by $0.3 their local communications networks million. and installing new operating sys- Over the past three years, the Fedtems. These changes will enable the eral Reserve has embarked on a rigor- Banks to provide services to deposi- ous program to improve the quality tory institutions more efficiently and of the nation's currency. During the securely. first quarter of 1984, installation of Interim guidelines for offering net the full complement of high-speed settlement services to large-dollar processing machines was completed, funds transfer networks were issued allowing note-by-note inspection of in March 1984 along with a request all currency deposits according to for public comment on proposals to Federal Reserve standards. These acreduce risk in the payment system. tions, coupled with increased produc- The Board was expected to act on this tion and issuance of new currency, proposal in 1985. have significantly improved the Based on the interim guidelines, quality of currency in circulation. same-day finality for settlement entries for Bankwire's Cash Wire service was approved. In addition, ap- Definitive Securities and proval was granted to provide same- Noncash Collection Services day net settlement services to the California Bankers Clearing House Several improvements to securities Association, which will begin offer- services were introduced during 1984. ing large-dollar transfers during 1985. In noncash, the enhancements in- Net settlement services, based on cluded a mixed-deposit product and next-day finality, were also approved improved credit availability. Definifor three automated teller machine tive safekeeping was improved by a networks. Systemwide expansion of the reregistration service, and a safekeeping ser- Coin and Currency Services vice for mortgage-backed securities. On December 31, 1983, the Federal The fee schedules for the securities Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Banks 197 service did not change during 1984. total revenues were approximately However, on November 15, the Board $29.2 million. requested comment on a new fee structure for definitive safekeeping and Federal Reserve Float noncash collection services, which would introduce a registration fee, Federal Reserve float fell from a daily permit a higher charge for safekeep- average of $1.5 billion in 1983 to a ing of coupon-bearing securities, and daily average of $400 million in 1984. establish a fee for noncash return The Federal Reserve implemented a items. program in April 1984 to eliminate the The Reserve Banks maintained midweek closing float arising from its 151.4 thousand issues of definitive check collection. The cost of float securities in their vaults and pro- associated with the collection of cessed over 4.3 million noncash col- coupons and noncash items was lection transactions in 1984. The total recovered beginning in May. The cost of these services, including the recovery of delayed-file float from PSAF, was approximately $24.5 mil- ACH operations was phased in durlion, reflecting an increase of 4.2 ing 1984. The only Federal Reserve percent. Total revenues were approxi- float remaining to be priced includes mately $23.0 million. The volume of small amounts of float associated definitive safekeeping continued to with ACH return items and holidays, decline while that of noncash collec- which was to be included in the cost tion increased. base for this service beginning in January 1985. Book-Entry Securities Administrative Matters During 1984, the U.S. Treasury directed the Federal Reserve to treat On August 16, 1984, two papers on the transfer of U.S. government the payment system and priced sersecurities as a service the Federal vices were published by the Board of Reserve provides as fiscal agent for Governors. One paper, "The Federal the Treasury rather than as a priced Reserve in the Payments System," service. Accordingly, the Treasury details the rationale for the Federal will establish the fees to be charged Reserve's role in the payment mechadepository institutions for transfer- nism, the cost-recovery objectives in ring these securities. The Treasury providing priced services, and the proposed new fees for transferring procedures for deciding whether to these securities in December. In addi- offer new services or enhancements tion, the Board requested public com- to existing ones. The second paper, ment in December on a proposed fee "Standards Related to Priced Serfor the accounting transactions asso- vices Activities of the Federal Reserve ciated with the securities transfer. Banks," discusses standards for During 1984, on-line book-entry avoiding conflicts or the appearance transfers totaled 5.7 million, a 13.0 of conflicts between the Federal percent increase over 1983. The book- Reserve's role as a provider of serentry securities service incurred costs, vices and its role as a supervisor, including the PSAF, of $27.1 million; regulator, and lender. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

198 Federal Reserve Banks In November, the Board approved Income and Expenses a PSAF of $61.1 million for 1985. The accompanying table summarizes This figure represents an increase of the income, expenses, and distribu- $2.3 million, or approximately 4 pertion of net earnings of the Federal cent, from the approved PSAF of Reserve Banks for 1984 and 1983. $58.8 million for 1984. Current income of $18,069 million in 1984 was 12.5 percent higher than that in 1983. The principal changes in Examination earnings were increases of $1,537 The Board's Division of Federal million on the System's holdings of Reserve Bank Operations examined U.S. government obligations and of the 12 Reserve Banks and their 25 $437 million on loans, and a reducbranches during 1984, as required by tion of $57 million on assets denomisection 21 of the Federal Reserve Act. nated in foreign currencies. In conjunction with the examina- Total expenses amounted to $1,185 tion of the Federal Reserve Bank of million ($984 million for operating New York, the Board's examiners expenses, $119 million for earnings audited the accounts and holdings re- credits granted to depository institulated to the Federal Reserve System tions, and $82 million for assessment Open Market Account and the foreign for expenditures by the Board of currency operations conducted by that Governors). The cost of Federal Re- Bank in accordance with policies for- serve currency amounted to $163 milmulated by the Federal Open Market lion. Income from financial services Committee, and furnished copies of was $575 million. these reports to the Committee. The The profit and loss account showed procedures that were followed by the a net deduction of $413 million, due Board's examiners were surveyed and primarily to a $455 million loss on appraised by a private firm of certi- assets denominated in foreign currenfied public accountants, pursuant to cies, which was related almost entirethe policy of having such reviews ly to revaluation of these assets to made annually. market exchange rates. There was a Income, Expenses, and Distribution of Net Earnings of Federal Reserve Banks, 1984 and 1983l Thousands of dollars Item 1984 1983 Current income 18,068,820 16,068,362 Current expenses 1,102,444 1,023,678 Operating expenses 983,731 951,919 Earnings credits granted 118,713 71,759 Current net income 16,966,376 15,044,684 Net deduction from current net income 412,943 400,366 Assessments by the Board of Governors 244,722 223,686 For expenditures of Board 82,116 71,551 For cost of Federal Reserve currency 162,606 152,135 Net income before payments to U.S. Treasury 16,308,711 14,420,631 Dividends paid 92,620 85,152 Payments to U.S. Treasury (interest on Federal Reserve notes) 16,054,095 14,228,816 Transferred to surplus 161,9% 106,663 1. Details may not add to totals because of rounding. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Banks 199 net gain of $49 million on sales of Bank of Kansas City sold its surplus U.S. government obligations. Statu- real estate property, and the Board of tory dividends to member banks Governors authorized construction of totaled $93 million, $7 million more a new building for the Omaha Branch than in 1983. This rise reflected an in- of the Federal Reserve Bank of Kancrease in the capital and surplus of sas City and for the Los Angeles member banks and a consequent in- Branch of the Federal Reserve Bank crease in the paid-in capital stock of of San Francisco. the Reserve Banks. Table 6, in the Statistical Tables Payments to the U.S. Treasury as section of this REPORT, shows the cost interest on Federal Reserve notes and book values of premises owned totaled $16,054 million for the year, or occupied by the Federal Reserve compared with $14,229 million in Banks and branches, and of real 1983. This sum consists of all net in- estate acquired for future bankingcome after dividends and the amount house purposes. necessary to bring surplus to the level of paid-in capital. A detailed statement of the income Holdings of Securities and Loans and expenses of each Federal Reserve The accompanying table presents Bank for 1984 is shown in table 7, in holdings, earnings, and average interthe Statistical Tables section of this est rates on securities and loans of the REPORT, and a condensed historical Federal Reserve Banks for years 1982, statement appears in table 8. A de- 1983, and 1984. tailed statement of assessments and Average daily holdings of securities expenditures of the Board of Goverand loans during 1984 amounted to nors appears next, in the Financial $165,002 million, an increase of Statements section of this REPORT. $12,476 million over 1983. Holdings of U.S. government securities in- Federal Reserve creased $9,818 million, loans increased Bank Premises $2,688 million, and acceptances de- During 1984, the Federal Reserve creased $30 million. Securities and Loans of Federal Reserve Banks, 1982-84 Millions of dollars, except as noted U.S. Accep- Item and year Total government Loans securities1 tances Average daily holdings2 1982 140,968 139,772 1,047 149 1983 152,526 151,429 1,038 59 1984 165,002 161,247 3,726 29 Earnings 1982 15,631 15,493 120 18 1983 15,250 15,150 94 6 1984 17,080 16,688 389 3 Average interest rate (percent) 1982 11.09 11.08 11.49 12.08 1983 10.00 10.00 9.05 10.17 1984 10.35 10.35 10.44 10.94 1. Includes federal agency obligations. 2. Based on holdings at opening of business. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

200 Federal Reserve Banks From 1983 to 1984, the average Volume of Operations rate of interest on all types of holdings increased: on U.S. government Table 10, in the Statistical Tables secsecurities, from 10.00 to 10.35 per- tion of this REPORT, shows the volume cent; on loans, from 9.05 to 10.44 of operations in the principal departpercent; and on acceptances, from ments of the Federal Reserve Banks 10.17 to 10.94 percent. for the years 1981-84. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

201 Expenses, Employment, and Productivity In its ANNUAL REPORT, the Board of Total Employment and Expenses Governors of the Federal Reserve Sys- Billions of dollars tem has traditionally provided details Expenses on expenses for the previous calendar Nominal year. This section of the REPORT presents, for the first time, information on the budget that the Board of Governors has approved for the current budget year. In addition, it describes Federal Reserve expenses, employment, and productivity for the years 1974 to 1984 to provide a better basis Thousands of persons for comparison of System expenses Employment over time. Most of the information 28 has been available from other sources, including Federal Reserve Planning and Control System reports and mem- 26 oranda on the budget for the coming year released at public Board meet- 24 ings. However, it is hoped that providing the information in a conve- 1980 1984 nient and consolidated form will foster better understanding of the Federal Reserve's stewardship of public funds.' average annual rate of only 0.7 percent in real terms.2 Over the decade, the average number of full-time em- Overall Trends ployees declined 3,671, or 13 percent. The variations in the rate at which Although there were substantial yearexpenses grew reflected important deto-year variations over the 1974-84 velopments affecting the Federal Reperiod as a whole, as the accompanyserve System. The 1974-79 period ing chart shows, expenses grew at an was characterized by improvements in efficiency resulting from automa- 1. Throughout this section, all data in contion at the Federal Reserve Banks and stant dollars are deflated by the GNP implicit at the Board of Governors and by a price deflator (1972 = 100). (See the historical table on expenses, pages 202-03, top.) multiyear cost control program. In All data cover the expenses of the Federal real terms, costs actually declined Reserve Banks and of the Board of Governors from 1977 through 1979. However, combined. The data are derived from two sepathe implementation of the Monetary rate accounting systems. The Reserve Bank accounting system classifies expenses into four Control Act (MCA) in 1980 resulted major service lines. For consistency, the ex- in significant transitional costs in the penses of the Board of Governors were allocated into the same categories. (See the table on 1984 expenses by Bank and by category, pages 2. This percentage change excludes currency Digitized2 f0o2r- F03R, AbSoEttRo m.) costs for reasons noted later. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

202 Expenses, Employment, and Productivity Total Expenses of the Federal Reserve System, Nominal and Real* Millions of dollars, except as noted Reserve Banks2 Board3 Year Nominal Real Nominal Real 1974 519.0 450.9 31.6 27.4 1975 562.1 447.2 36.0 28.6 1976 609.6 460.8 40.4 30.5 1977 626.9 447.8 45.6 32.6 1978 654.6 435.2 49.5 32.9 1979 . . .. 693.9 424.7 53.9 32.9 1980 792.8 444.4 60.4 33.9 1981 886.1 453.0 62.4 31.9 1982 973.6 469.4 67.9 32.7 1983 1,028.5 477.7 72.2 33.5 1984 1,067.8 478.0 77.9 34.9 MEMO Average annual growth, 1974-84 (percent) 7.5 .6 9.4 2.4 1985 budget5 1,122.3 484.2 82.1 35.4 Percent change, 1985 budget from 1984 actual 5.1 1.3 5.4 1.6 1. Data for the Reserve Banks and the Board of ported elsewhere in this ANNUAL REPORT and total ex- Governors are derived from two separate accounting penses as shown in this table are due to the exclusion systems. Total System expenses are defined as Reserve of cost of earnings credits in the PACS reports and Bank expenses presented in the PACS, including minor timing adjustments, or to the netting of minor depreciation; operating expenses of the Board of receipts against expenses in the PACS reports while Governors and estimated depreciation; and Federal other parts of the ANNUAL REPORT list gross receipts Reserve currency costs. Constant-dollar data were and expenses. calculated using the GNP implicit price deflator 3. Under the Board's current budgeting and ac- (1972=100). counting procedures all items purchased are expensed 2. Any differences between total expenses as re- in the year they are received. Because this procedure Summary of PACS Expenses, by Major Program, 1984 Annual1 Monetary and economic U.S. Treasury and policy other government agencies Federal Reserve Bank Total Percent Total Percent cost change cost change (dollars) from 1983 (dollars) from 1983 Boston 6,065,791 -1.25 6,663,841 1.66 New York .... 29,408,963 3.33 28,897,593 2.89 Philadelphia .. 5,578,334 -2.27 9,647,593 31.61 Cleveland 4,826,793 4.36 8,193,675 .35 Richmond 5,312,852 3.52 8,076,408 6.32 Atlanta 7,790,894 7.19 9,276,697 5.96 Chicago 8,902,115 -3.33 16,160,109 7.28 St. Louis 5,343,559 -16.06 6,920,153 7.80 Minneapolis ., 4,426,928 -12.93 4,530,964 -.74 Kansas City .. 5,750,423 -.42 7,098,289 6.28 Dallas 5,487,053 -2.09 6,286,475 .14 San Francisco , 10,457,292 -5.52 14,555,538 -1.41 Total, all Reserve Banks 99,350,997 -1.09 126,307,335 5.03 1. Does not include reimbursements. The PACS by object of expense. The PACS reports are pubclassifies expenses into four major service lines and lished for each quarter and for the year as a whole. A Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Expenses, Employment, and Productivity 203 Total Expenses of the Federal Reserve System, Nominal and Real1—Continued Total, Federal Reserve Total System Banks and Board currency4 expenses Nominal Real Percent Nominal Real Nominal Real Percent change, real change, real 550.6 478.4 30 2 26.2 580.8 504.6 598.1 475.8 _ ^ 37.2 29.6 635.2 505.3 .1 650.0 491.3 3.3 48.8 36.9 698.8 528.2 4.5 672.5 480.4 -2.2 55.0 39.3 727.5 519.6 -1.6 704.1 468.1 -2.5 60.1 39.9 764.2 507.4 -2.3 747.8 457.6 -2.2 68.4 41.9 816.2 499.5 -1.6 853.2 478.2 4.5 73.1 41.0 926.3 519.2 3.9 948.5 484.9 1.4 82.9 42.4 1,031.4 527.3 1.5 1,041.5 502.2 3.5 98.4 47.4 1,139.9 549.6 4.2 1,100.7 511.2 1.8 152.1 70.6 1,252.8 581.9 5.9 1,145.7 512.8 .3 162.6 72.8 1,308.3 585.6 .6 7.6 .7 18.3 10.7 8.5 1.5 1,204.4 519.6 174.2 75.2 1,378.6 594.8 5.1 1.3 7.2 3.3 5.4 1.6 can distort the trend in operating expenses when large $30.4 million of currency costs in earlier years were capital items (buildings and computers) are involved, recognized in 1983. Beginning in 1983, currency costs the Board's operating budget shows these items sepa- include the full cost of equipment purchased by the rately from operating expenses. In the treatment here, Bureau of Engraving and Printing in the year of puran estimated depreciation schedule was developed for chase. This equipment is expected to benefit the Fedthe Board's acquisitions of large capital items over the eral Reserve over future periods. decade 1974-84. These items include constructing the 5. An increase of 3.75 percent in the GNP implicit Martin Building, renovating the Eccles Building, and price deflator was assumed for deflating the 1985 purchasing and upgrading computer systems. budget numbers. 4. As a result of an accounting change in 1983, Summary of PACS Expenses, by Major Program, 1984 Annual1—Continued Financial institutions Supervision and Total, all and the public regulation expenses Total Percent Total Percent Total Percent cost change cost change cost change (dollars) from 1983 (dollars) from 1983 (dollars) from 1983 44,585,138 5.52 7,095,682 4.90 64,410,454 4.37 131,867,580 4.12 27,329,387 5.00 217,503,494 3.96 33,005,392 1.34 7,139,647 9.68 55,371,009 6.24 39,919,191 1.36 7,929,922 5.57 60,869,580 1.98 59,489,170 5.29 8,925,775 4.17 81,804,270 5.15 66,637,670 5.04 10,871,674 8.42 94,576,935 5.69 85,844,370 -1.62 20,101,910 10.12 131,008,648 .94 36,220,805 3.67 6,020,654 -1.01 54,505,189 1.30 36,721,921 7.23 7,919,024 8.87 53,598,872 4.75 44,226,168 1.21 11,358,924 8.56 68,433,674 2.73 44,168,682 3.50 9,304,226 14.58 65,246,377 4.10 78,766,913 8.94 16,693,522 2.75 120,473,276 5.32 701,453,000 3.78 140,690,347 6.71 1,067,801,679 3.82 Detailed Report, a Detailed Report of System Projects, and a Summary Report are available. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

204 Expenses, Employment, and Productivity monetary and economic policy area directors of the Reserve Banks, staff and increased expenses for the super- of the Board of Governors, and comvision and regulation function. The mittees of the Governors, budget pro- MCA also had a profound impact on posals are presented to the full Board the Federal Reserve as a provider of for its review at meetings that are services because it required the Sys- open to the public. The memoranda tem to price explicitly the services it distributed for those meetings, conoffers to depository institutions and taining the budget proposals, are also to permit all depository institutions available to the public. The Federal access to Federal Reserve services. Reserve's budget plans for 1985 are Federal Reserve expenses fall into discussed later. three broad categories: expenses of the Board of Governors, expenses of Planning and Control System the Reserve Banks, and the cost of The PACS is an accounting and Federal Reserve currency. For 1974management information system for 84, the Reserve Banks accounted for Federal Reserve Bank activities. The about 84 percent of total expenses, accounting and performance meathe Board for about 7 percent, and sures in the PACS provide the funda- Federal Reserve currency for 9 permental information needed for the cent. Currency costs are segregated pricing of Bank services and are also because they are not readily conuseful tools for instilling discipline trolled by the Federal Reserve. and a healthy sense of competition among the Banks. The General Accounting Office and a national ac- Planning, Budgeting, Monitoring, counting firm have analyzed the use and Control of the PACS for Reserve Bank pricesetting and agree with this approach.3 The Federal Reserve has a very thor- The PACS generates data on exough budget process for both the penses of each Reserve Bank office, Reserve Banks and the Board of Govby activity and by object of expense ernors, supported by a detailed man- (for example, salaries, materials and agement information system. The supplies, equipment, travel, and othbudget process involves a number of er), and on productivity and quality steps. The Federal Reserve's Planning of output of each Bank. The table on and Control System (PACS) facilithe bottom of pages 202-03 presents tates the process by providing historisummary PACS data on 1984 Bank cal data that are finely disaggregated expenses by major program. as to the levels of activity, productivity, and expenses in different functions performed by the Banks. Initial 3. U.S. General Accounting Office, An Examination of Concerns Expressed about the guidelines for the budget are based on Federal Reserve's Pricing of Check Clearing analyses and projections of expected Activities, Report to the Chairman, Senate workloads in each area of Federal Re- Committee on Banking, Housing, and Urban serve responsibility by each Reserve Affairs, by the Comptroller General of the Bank and by the Board of Governors. United States, January 14, 1985, GAO/GGD- 85-9; and Arthur Andersen & Co., Federal Re- After an intensive review process inserve System: Report on Priced Services Acvolving senior officials and boards of tivities (Arthur Andersen, forthcoming, 1985). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Expenses, Employment, and Productivity 205 Accounting Conventions Federal Reserve is also subject to audit by the General Accounting Office. The Federal Reserve System uses In addition, the Board itself is auditthe calendar year as its fiscal year ed each year by a national accounting rather than the federal government's firm. The financial statements for October-to-September fiscal year. The 1984 follow this section. accounting practices followed by the Federal Reserve Banks more closely System Expenses by Program resemble the generally accepted accounting principles (GAAP) used in The paired pie chart shows the distrithe private sector than those used by bution of Federal Reserve expenses the federal government. A primary by major service line in 1977 and deviation from the federal government 1984. The year 1977 is used as the practice is that all acquisitions of ma- base period because it is the first year jor assets are capitalized and depre- for which the PACS data on expenses ciated rather than expensed. The ac- by service line are available. The most counting profession usually requires notable change over the period is that the use of GAAP, particularly by expenses for services to financial inorganizations that must cost and stitutions and the public declined price products. from approximately 70 percent of the In contrast to the Reserve Banks, total in 1977 to about 60 percent in the Board of Governors, through 1984. After the MCA was implement- 1984, fully expensed purchases of ma- ed, the priced-services component of jor capital items. However, the Board Federal Reserve activities declined is now making the transition to the GAAP approach. Federal Reserve System Expenses, Audit Controls by Major Program Extensive audit procedures assure the integrity of the financial controls and 1977 Services to financial information systems used by the Fed- institution^ eral Reserve System. Each Reserve Bank has its own general auditor and an internal audit staff, who are re- Monetary and economic sponsible for continual monitoring of policy financial and operating activities and Services to Treasury report directly to the Bank's board of directors. In addition, each year the Board of Governors sends its teams to examine all the Reserve Banks and to evaluate various functions. These procedures afford an independent review of both financial integrity and 40.0"? managerial efficiency. With the exception of its monetary policy responsibilities, on which it reports directly to the Congress twice each year, the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

206 Expenses, Employment, and Productivity from an estimated one-half of total cent in 1982. In commercial check colexpenses to about two-fifths. At the lection alone, employment declined same time, the shares of expenses de- 833 over the two years. Adjustments voted to monetary and economic pol- to fixed costs took longer, but by icy and to supervision and regulation 1983 they were well under way. Prices increased. were also raised. Beginning in 1983, an imputed cost for Federal Reserve Services to Financial Institutions float was also included as a compoand the Public nent of total costs.4 By 1984, the Before passage of the MCA, about market test of pricing required by the 5,400 banks, many of them larger in- MCA was being met for priced serstitutions, were eligible for Federal vices in the aggregate, as all costs in- Reserve services. More than 17,000 cluding float and the PSAF were fully depository institutions now use Fed- recovered. Total expenses in this proeral Reserve services. The objectives gram, including priced and nonpriced of the pricing provisions of the MCA services, decreased in real terms at an were to improve efficiency in the pay- average annual rate of 0.7 percent bements system through enhanced com- tween 1977 and 1984 (see the chart). petition while assuring that an adequate level of payments services was available nationwide. The MCA also Expenses for Services to required that, over the long run, fees Financial Institutions be established so as to cover all the Millions of dollars direct and indirect costs of providing the services, including the cost of float and an allocation of imputed 600 costs—the taxes that would have been paid and the return on capital that would have been required had the services been furnished by a private busi- Real ness firm. Adjustments for these imputed costs are made with the PSAF, the private sector adjustment factor. 1978 1980 1982 1984 Beginning in 1981 and throughout 1982, the demand for some of the Reserve Banks' services, commercial check processing in particular, declined significantly. The initial impact 4. Float, which develops primarily in the of the decline was that Federal Re- process of collecting commercial checks, is creserve expenses for priced services ated when the Federal Reserve credits a payee were greater than the income gener- institution for its deposits before it debits the account of the payor institution. In effect, float ated by fees. is an interest-free loan from the Federal Re- The Reserve Banks began almost serve. Before 1983, float was not priced but inimmediately to adjust resources to re- stead was reduced through improvements in operations. Starting in 1983, the cost of float duce costs. For example, employment calculated on the basis of the federal funds rate in priced and nonpriced services dehas been included in the prices of Federal Reclined 1.4 percent in 1981 and 9.6 per- serve services or priced implicitly. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Expenses, Employment, and Productivity 207 Expenses for Services to ing at an average annual rate of 6.6 U.S. Treasury and Agencies percent in real terms. As the chart in- Millions of dollars dicates, the bulk of this increase occurred between 1981 and 1983. Approximately 40 percent of direct costs Nominal in this area are for data collection and 100 preparation. In large part the substantial growth in expenses resulted Real from an increase in the number of in- 50 stitutions reporting data on reservable liabilities, from about 5,400 before passage of the MCA in 1980 to more than 24,000 in 1984. The up- 1978 1980 1982 1984 ward trend in expenses for monetary and economic policy began to moder- Services to the Treasury ate in 1982. More than half of the and Other Government Agencies relatively small increase for 1983 was One of the responsibilities the Conattributable to the cost of implementgress gave to the Federal Reserve was ing contemporaneous reserve requireto act as fiscal agent of the United ments, a change made to improve States. In this role the Federal Remonetary control. In 1984, expenses serve provides a number of services to declined slightly. the Treasury and other government agencies; for example, the Federal Reserve issues and redeems their secu- Expenses for Monetary and Economic Policy rities. Through an electronic book- Millions of dollars entry system, the Reserve Banks also maintain records for these securities. Other services are provided, such as redeeming and destroying food 100 stamps for the Department of Agriculture. As the chart indicates, from 1977 to 1984 the year-to-year changes 50 in expenses varied greatly; to some extent these variations resulted from fluctuations in the purchases of Treasury securities by the public and from 1978 1980 1982 1984 procedural changes requested by the Treasury. Over the period as a whole, Supervision and Regulation expenses in real dollars were flat. Em- Supervision and regulation has been ployment fell 206, or 10.3 percent, the fastest-growing area of Federal between 1977 and 1984. Reserve expenses over the past seven Monetary and Economic Policy years, increasing at an average annual Expenses for monetary and economic rate of 7.4 percent in real terms (see policy had the second-fastest rate of the chart). Much of this rise was acincrease among Federal Reserve func- counted for by a heavier workload. tions over the past seven years, grow- For example, the number of inspec- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

208 Expenses, Employment, and Productivity Expenses for Supervision and Regulation the Federal Reserve has developed Millions of dollars several measures of the relative efficiency of the various operations of the Reserve Banks. These data are Nominal also publicly available as part of the PACS reports. Productivity measures for the operating functions of the Reserve Banks, which account for about 100 70 percent of Reserve Bank expenses, have been available since the late seventies and thus permit comparisons 50 over time as well as among Reserve Banks. An aggregate unit cost index, comprising more than 20 activities with measurable outputs, may be the 1978 1980 1982 1984 best overall measure of operating efficiency. This statistic is a weighted index and accordingly is affected to a tions of bank holding companies in- greater degree by developments in the creased at an average annual rate of larger operating units—especially com- 17.4 percent over the period. Similar- mercial check operations, the largest. ly, the number of bank holding com- The accompanying table shows the pany applications per year more than pattern of year-to-year changes in the doubled, as did the number of finan- aggregate physical volume of Reserve cial institutions monitored. The num- Bank operations, as well as aggregate ber of cease-and-desist orders issued unit costs adjusted for inflation. As per year tripled. the table indicates, aggregate volumes This rise in the workload reflects in the services to financial institutions the rise in bank holding company for- were lower in 1981 and 1982, after mations, a more intensive supervisory passage of the MCA and the imposieffort, the accelerating pace of change in the financial sector following elimination of interest rate ceilings on de- Aggregate Volume and Real Aggregate posits, and deregulation in general. Unit Cost of Activities of the The MCA also contributed to the in- Federal Reserve Banks crease in expenses for supervision and regulation by expanding the monitor- Aggregate physical Real aggregate volume unit cost1 ing of reserve accounts. Legislation such as the International Banking Act, Vi eeaarr Index P c e h r a c n e g n e t Index P c e h r a c n e g n e t the Community Reinvestment Act, (1979 from (1979 from and the Financial Institutions Regula- = 100) previous = 100) previous year year tory and Interest Rate Control Act 1979 . 100.00 100.00 also added to the Federal Reserve's 1980 . 108.41 '' 8.4 95.65 -4.3 responsibilities. 1981 . 104.92 -3.2 98.27 2.8 1982 . 98.07 -6.5 109.33 11.3 1983 . 102.02 4.0 107.50 -1.7 Productivity 1984 . 108.82 6.7 101.51 -5.6 1. Nominal aggregate unit costs were deflated with Using the data generated by the PACS, the GNP implicit price deflator (1972 = 100). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Expenses, Employment, and Productivity 209 tion of pricing. Although resources efficiency for 1985. In practice, the were adjusted, unit costs rose some- Federal Reserve continually seeks opwhat in 1981 and markedly in 1982 portunities for cost savings. Efforts (see the chart), largely because of the will therefore be made to keep 1985 difficulty of reducing fixed costs in expenses no more than 4.2 percent the short run. However, over 1983 higher than actual 1984 expenses and, and 1984, as a result of heavier vol- in the absence of unplanned initiaumes as well as of resource adjust- tives or unexpected increases in workment, unit costs showed a significant loads, should prove successful. This improvement, a pattern that is ex- budgeted increase encompasses all pected to continue in 1985. Federal Reserve services, priced and nonpriced, provided by both the Reserve Banks and the Board of Gover- Index of Real Aggregate Unit Cost nors, excluding currency. The accom- Index. 1979 = 100 panying table shows expenses in 1984 by service line, the budget approved for 1985, and the implied percentage increase. Within this overall increase the budgeted growth in expenses varies significantly among functions. For example, expenses for monetary and economic policy are budgeted to in- 1980 1982 1984 crease no more than $1.5 million in 1985. This continues the reductions in the growth of expenses for this func- The Budget for 1985 The Board of Governors approved Expenses of the Federal Reserve System, 1985 operating budgets for the Board 1984 Actual and 1985 Budget1 in late November 1984 and for the Millions of dollars, except as noted Reserve Banks in early December, totaling approximately $1.2 billion. Implied At that time, only estimated, and not Expense category 1984 1985 change (percent) actual, expenses for 1984 were avail- Monetary and economic able. Based on the estimated ex- policy . 130.2 131.7 1.1 penses, the percentage increase ap- Services to the Treasury and other governproved by the Board was 4.2 percent ment agencies 129.4 140.6 8.6 for the System as a whole. Since then, Services to financial institutions 728.2 757.9 4.1 data on actual 1984 expenses have Supervision and become available, and they indicate regulation 158.1 174.4 10.3 that expenses were about 1 percent Total expenses 1,145.7 1,204.4 5.1 below the 1984 estimate. 1. These data are for the expenses of the Reserve The approved 1985 budget was com- Banks and the Board of Governors excluding currency costs. As discussed in text note 1, the data are derived piled on the basis of the resources necfrom two separate accounting systems, and the exessary to provide the level of services penses of the Board were allocated into the four PACS projected for the coming year and service lines to permit comparability over time. The expenses of the Board of Governors account for 7 pertook into account expected gains in cent of the total. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

210 Expenses, Employment, and Productivity tion that started in 1984, after the geted to increase no more than $29.7 cost bulges resulting from the imple- million. Approximately two-thirds of mentation of the MCA and contem- these expenses are for priced services, poraneous reserve requirements had which are budgeted to rise 4.4 perbeen absorbed. As explained earlier, cent. It is expected that, just as in the largest single component of costs 1984, all costs associated with priced in this area is for data collection and services, including the cost of float preparation. and the PSAF, will be recovered. Ex- Expenses for services to the U.S. penses in the nonpriced component of Treasury and other government agen- services to financial institutions and cies are expected to rise $11.2 million. the public are budgeted to increase More than two-thirds of the rise is ac- about 3.4 percent, principally because counted for by a new computerized of the growing volume of currency system of recordkeeping for Treasury and coin handled by the Reserve securities held by individuals. This Banks and the rise in postal costs. book-entry approach is already used The largest percentage increase in for Treasury securities held by institu- the 1985 budget is for supervision and tions, and its extension to individuals regulation. The workload in this area is expected to yield substantial sav- has expanded dramatically as a result ings to the Treasury. It will also im- of the difficulties of many commerprove service to individuals buying cial banks; however, no increase in Treasury securities and eliminate the employment is anticipated for this need for safekeeping of actual paper function. Much of the growth is for instruments. expanded computer capability to per- Expenses for services to financial mit more efficient and complete moniinstitutions and the public are bud- toring of banks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

211 Board of Governors Financial Statements The financial statements of the Board amined by Price Waterhouse, indefor the years 1984 and 1983 were ex- pendent public accountants. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Governors of the Federal Reserve System In our opinion, the accompanying balance sheets and the related statements of revenues and expenses and of changes in financial position present fairly the financial position of the Board of Governors of the Federal Reserve System at December 31,1984 and 1983, and the results of its operations and the changes in its financial position and its fund balances for the years then ended, in conformity with generally accepted accounting principles consistently applied. Our examinations of these statements were made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. Washington, D.C. February 22, 1985 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

212 Financial Statements BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM BALANCE SHEETS As of December 31 ASSETS 1984 1983 OPERATING FUND Cash $ 10,297,732 $ 5,842,333 Receivables (Note 1) 461,264 1,124,235 Stockroom and cafeteria inventories at lower of cost (first-in, first-out) or market 371,434 266,428 Noncurrent assets (Note 1) 1,230,060 167,695 Total operating fund 12,360,490 7,400,691 PROPERTY FUND, at cost (Note 1) Land and improvements 1,301,314 1,301,314 Buildings 61,452,867 61,212,084 Furniture and equipment 12,047,384 9,083,750 Computer equipment 13,111,904 6,845,572 Total property fund 87,913,469 78,442,720 Total assets $100,273,959 $ 85,843,411 LIABILITIES AND FUND BALANCES OPERATING FUND Liabilities Accounts payable $ 6,355,224 $ 3,182,826 Accrued payroll and related taxes 1,912,794 1,586,436 Accrued annual leave 3,664,308 3,358,022 Other liabilities 233,253 304,811 12,165,579 8,432,095 Fund balance (Note 1) Balance, beginning of year (1,031,404) (3,443,136) Revenues over expenses 1,226,315 2,411,732 (1,031,404) Balance, end of year 194,911 Commitments and contingencies (Note 3) Total operating fund 12,360,490 7,400,691 PROPERTY FUND (Note 1) Fund balance Balance, beginning of year 78,442,720 77,839,910 Additions—at cost 9,661,456 732,392 Disposals—at cost (190,707) (129,582) Total property fund 87,913,469 78,442,720 Total liabilities and fund balances $100,273,959 $ 85,843,411 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 213 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM STATEMENTS OF REVENUES AND EXPENSES For the years ended December 31 1984 1983 BOARD OPERATING REVENUES (Note 1) Assessments levied on Federal Reserve Banks for Board operating expenses $ 82,115,700 $ 71,551,000 Other revenues Sale of publications 1,131,472 1,110,591 Miscellaneous 624,264 454,383 Total other revenues 1,755,736 1,564,974 Total operating revenues 83,871,436 73,115,974 FUNDED BOARD OPERATING EXPENSES (Note 1) Salaries 50,825,351 47,069,895 Retirement and insurance contributions (Note 2) 5,969,776 7,662,084 Travel 2,071,769 1,900,557 Contractual services 2,042,945 2,022,552 Printing and binding 2,309,346 1,576,019 Heat, lightandpower 1,310,682 1,289,483 Equipment, office space and other rentals 2,040,887 1,554,318 Telephone and telegraph 1,496,158 1,266,092 Repairs and maintenance 1,519,417 1,169,404 Postage 1,077,300 856,768 Stationery, office and other supplies 1,168,282 715,588 Cafeteria operations, net 549,330 520,812 Professional fees 285,491 296,192 Books and subscriptions 352,301 278,526 Subsidies and contributions (Note 4) 772,167 702,823 Tuition, registration and membership fees 450,292 408,991 Other 234,421 398,395 Property additions (Note 1) 7,862,920 732,392 Total funded operating expenses 82,338,835 70,420,891 BOARD OPERATING REVENUES OVER FUNDED OPERATING EXPENSES 1,532,601 2,695,083 Unfunded accrued annual leave 306,286 283,351 BOARD OPERATING REVENUES OVER TOTAL OPERATING EXPENSES 1,226,315 2,411,732 ISSUANCE AND REDEMPTION OF FEDERAL RESERVE NOTES ON BEHALF OF FEDERAL RESERVE BANKS (Note 1) Expenditures for currency costs Issuance and redemption of Federal Reserve notes 160,807,874 128,215,054 Property additions 1,798,536 0 162,606,410 128,215,054 Less assessments levied on Federal Reserve Banks for currency costs 162,606,410 128,215,054 0 0 REVENUES OVER EXPENSES $ 1,226,315 $ 2,411,732 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 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM STATEMENTS OF CHANGES IN FINANCIAL POSITION For the years ended December 31 1984 1983 SOURCES OF CASH Board operating revenues $ 83,871,436 $ 73,115,974 Assessments levied on Federal Reserve Banks for currency costs 162,606,410 128,215,054 Decrease (increase) in receivables 662,971 (542,223) Increase (decrease) in accounts payable 3,172,398 (170,525) Increase in accrued payroll and related taxes 326,358 120,418 Increase in accrued annual leave liability 306,286 283,351 Total sources 250,945,859 201,022,049 USES OF CASH Funded Board operating expenses 82,338,835 70,420,891 Unfunded accrued annual leave expense 306,286 283,351 Expenditures for currency costs 162,606,410 128,215,054 Increase in inventories 105,006 8,933 Increase in noncurrent assets 1,062,365 145,103 Decrease in other liabilities 71,558 720,189 Total uses 246,490,460 199,793,521 INCREASE IN CASH 4,455,399 1,228,528 CASH BALANCE, beginning of year 5,842,333 4,613,805 CASH BALANCE, end of year $ 10,297,732 $ 5,842,333 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 215 NOTES TO FINANCIAL STATEMENTS Plan. Benefits are similar under both plans. Under the Civil Service Plan, the Board's contributions directly DECEMBER 31, 1984 AND 1983 match employee payroll deductions. Under the Board Plan, the Board's contributions for active employees (1) SIGNIFICANT ACCOUNTING POLICIES are actuarially determined and are funded in the current period. Costs associated with annual cost-of- In preparing its financial statements, the Board of living adjustments (COLA) for retirees are actuarially Governors of the Federal Reserve System (the Board) determined. One-half of the cost of the COLA supplehas applied accounting principles which, in manage- ment is funded by a lump sum payment at the time the ment's opinion, best reflect its financial position and supplement is granted. The remaining one-half of the results of operations. These accounting principles in- cost of each supplement is funded over fifteen years clude certain principles which are generally accepted and is reflected in the normal contributions to the for organizations in the private sector and also certain Board Plan. The lump sum payment for the 1983 principles which are generally accepted for federal amendment to retirees' benefits was $875,000. There government agencies. A summary of significant ac- was no COLA supplement assessed in 1984. counting policies is shown below. Employees of the Board may also participate in the Board Operating Revenues and Expenses—Assess- Federal Reserve System's Thrift Plan. Under the ments made on the Federal Reserve Banks for Board Thrift Plan, members may contribute up to a fixed operating expenses are calculated based upon expected percentage of their salary. Board contributions are cash needs. These assessments, other operating based upon a fixed percentage of each member's basic revenues, and operating expenses are recorded on the contribution. accrual basis of accounting. Board contributions to the retirement plans and the Property—The Board does not charge depreciation Thrift Plan totaled approximately $3,040,000 in 1984 as an operating expense. Property additions are and $5,517,000 in 1983. charged to expense in the Operating Fund in the year As of January 1, 1984 and 1983 (the dates of the of acquisition; recoveries on the disposal of property most recent actuarial valuations), the accumulated are recorded as a reduction of expense in the Operat- plan benefits for the Federal Reserve Board Plan, ing Fund in the year of disposition. When property is including those arising from COLA supplements, were acquired or sold, the property asset accounts and the as follows: fund balance in the Property Fund are increased or decreased at cost. As of January 1 Noncurrent Assets—Advance payments on property acquisitions are recognized as assets in the 1984 1983 Operating Fund. Upon completion, the acquisition is charged to operations and capitalized in the Property Actuarial present value Fund as described above. of accumulated Receivables—The Board coordinates various special plan benefits projects and incurs various costs on behalf of the Vested $56,197,000 $51,237,000 Federal Reserve System. Costs incurred by the Board Nonvested 3,552,000 3,118,000 are reimbursed upon completion of the project or as $59,749,000 $54,355,000 provided under the terms of related agreements. Issuance and Redemption of Federal Reserve Notes on Behalf of Federal Reserve Banks—The Board The assumed rate of return used in determining the records assessments and expenditures for the issuance present value of accumulated plan benefits was 9.0 and redemption of Federal Reserve notes on behalf of percent in 1984 and 9.5 percent in 1983. the Federal Reserve Banks. These assessments and As of January 1, 1984 and 1983, net assets available expenditures are separately reported in the Statements for plan benefits exceeded the actuarial present value of Revenues and Expenses because they are not Board of accumulated plan benefits. operating transactions. (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. Staff members employed by the Board generally be terminated within one year. At Decemprior to January 1, 1984 who did not come directly ber 31, 1984, fixed future rental commitments were from positions in the federal government are covered approximately $1,350,000 for 1985. by the Board Plan. Employees who held previous posi- The Board has been named as a defendant in varitions in the federal government prior to January 1, ous litigation involving challenges to, or appeals from, 1984 and immediately prior to their employment by actions or proposed actions of the Board pursuant to the Board are covered by the Civil Service Plan. Em- statutory requirement or authorization. Such lawsuits ployees hired subsequent to January 1, 1984 who did generally seek injunctive or declaratory relief against not hold federal government positions prior to that the Board rather than monetary awards. It is the opindate participate in the Bank Retirement Plan. Almost ion of Board counsel that lawsuits involving monetary all employees are covered by either the Board Plan or awards do not represent a material liability to the the Civil Service Plan. Board. Employee contributions are the same percentage of The Board is self-insured with regard to (1) a group salary under both the Board Plan and the Civil Service term life and accident insurance plan for Board of- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

216 Financial Statements fleers and (2) losses of its building and equipment operating expenses of the Council. These amounts are from fire or other casualties. Coverage for other cus- included in subsidies and contributions for 1984 and tomarily insured risks, such as workers' compensation 1983. and comprehensive general liability, is carried by the The Board serves as custodian for the Council's Board. cash account. (This cash is not reflected in the accompanying financial statements.) It also processes accounting transactions, including payroll for most of (4) FEDERAL FINANCIAL INSTITUTIONS the Council employees, and performs other adminis- EXAMINATION COUNCIL trative services for which the Board is reimbursed by The Board is one of the five member agencies of the the Council. Federal Financial Institutions Examination Council The Board is not reimbursed for the costs of person- (the Council). During 1984 and 1983, the Board paid nel who serve on the Council and on the various task $114,000 and $88,000, respectively, in assessments for forces and committees of the Council. 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

218 Tables 1. Detailed Statement of Condition of All Federal Reserve Banks Combined, December 31, 1984 Thousands of dollars ASSETS Gold certificate account 11,095,585 Special drawing rights certificate account 4,618,000 Coin 435,521 Loans and securities Loans to depository institutions 3,576,668 Acceptances held under repurchase agreement 0 Federal agency obligations Bought outright 8,389,326 Held under repurchase agreement 387,840 U.S. government securities Bought outright Bills 71,035,355 Notes 65,236,849 Bonds 22,950,964 Total bought outright 159,223,168 Held under repurchase agreement 1,626,895 Total U.S. government securities 160,850,063 Total loans and securities 173,203,897 Cash items in process of collection Transit items 5,497,747 Other cash items 1,340,178 Total cash items in process of collection 6,837,925 Bank premises Land 104,001 Buildings (including vaults) 413,180 Building machinery and equipment 151,361 Construction account 62,938 Total bank premises 627,479 Less depreciation allowance 163,286 464,193 Bank premises, net 568,194 Other assets Furniture and equipment 389,915 Less depreciation 163,366 Total furniture and equipment, net 226,549 Denominated in foreign currencies1 3,596,544 Interest accrued 2,474,623 Premium on securities 420,990 Due from Federal Deposit Insurance Corporation , 3,942,667 Overdrafts 528,520 Prepaid expenses 28,302 Suspense account 432,575 Real estate acquired for banking-house purposes 5,657 Allother 108,020 Total other assets 11,764,446 Total assets 208,523,568 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 219 1.—Continued LIABILITIES Federal Reserve notes Outstanding (issued to Federal Reserve Banks) 193,867,452 Less held by Federal Reserve Banks 25,540,111 Total Federal Reserve notes, net 168,327,340 Deposits Depository institutions 21,818,357 U.S. Treasury—general account 5,316,147 Foreign—official accounts 253,252 Other deposits Collected funds due to other Federal Reserve Banks 0 Officers' and certified checks 55,501 International organizations 236,977 All other2 571,395 Total other deposits 863,873 Deferred availability cash items 5,992,225 Other liabilities Unearned discount 0 Discount on securities 2,578,449 Sundry items payable 39,598 Suspense account 64,026 All other 18,085 Total other liabilities 2,700,158 Total liabilities 205,271,352 CAPITAL ACCOUNTS Capital paid in 1,626,108 Surplus 1,626,108 Other capital accounts3 0 Total liabilities and capital accounts 208,i 1. Of this amount, $871.7 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

220 Tables 2. Statement of Condition of Each Federal Reserve Bank, December 31, 1984 and 1983 Millions of dollars Total Boston Item 1984 1983 1984 1983 ASSETS Gold certificate account 11,096 11,121 599 927 Special drawing rights certificate account 4,618 4,618 241 241 Coin 436 415 23 20 Loans To depository institutions 3,577 918 26 14 Other 0 0 0 0 Acceptances held under repurchase agreements... 418 Federal agency obligations Bought outright 8,389 8,645 422 406 Held under repurchase agreements 388 208 0 0 U.S. government securities Bought outright' 159,223 150,558 8,013 7,062 Held under repurchase agreements 1,627 1,384 0 0 Total loans and securities 173,204 162,131 8,461 7,482 Cash items in process of collection 6,837 11,562 205 405 Bank premises 568 547 95 96 Other assets Denominated in foreign currencies2 3,597 3,687 97 95 All other 8,167 4,494 168 153 Interdistrict Settlement Account 0 0 + 1,431 + 702 Total assets 208,523 198,575 11,320 10,121 LIABILITIES Federal Reserve notes 168,327 157,097 9,960 8,961 Deposits Depository institutions 21,818 21,446 932 614 U.S. Treasury—General account 5,316 3,661 0 0 Foreign—Official accounts 253 191 4 4 Other 865 831 25 19 Total deposits 28,252 26,129 961 637 Deferred-availability cash items 5,992 9,957 177 333 2,700 2,462 132 110 Other liabilities and accrued dividends3 205,271 195,645 11,230 10,041 Total liabilities CAPITAL ACCOUNTS 1,626 1,465 45 40 Capital paid in 1,626 1,465 45 40 Surplus 0 0 0 0 Other capital accounts 208,523 198,575 11,320 10,121 Total liabilities and capital accounts FEDERAL RESERVE NOTE STATEMENT 193,867 178,875 11,539 10,082 25,540 21,778 1,579 1,121 Federal Reserve notes outstanding (issued to Bank) 168,327 157,097 9,960 8,961 LESS: Held by Bank4 Federal Reserve notes, netJ Collateral for Federal Reserve notes' 11,096 11,121 Gold certificate account 4,618 4,618 Special drawing rights certificate account 0 0 Other eligible assets 152,613 141,358 U.S. government and agency securities Digitized Tfootra Fl cRolAlaSteEraRl 168,327 157,097 http://fraseFr.osrt lnooutiessf esede. oenrgd / of table. Federal Reserve Bank of St. Louis

Tables 221 2.—Continued New York Philadelphia Cleveland Richmond 1984 1983 1984 1983 1984 1983 1984 | 1983 3,357 3,058 515 541 617 659 969 913 1,335 1,335 225 225 302 302 408 408 18 24 12 18 35 37 61 53 78 124 91 158 1 29 234 200 0 0 0 0 0 0 0 0 0 418 0 0 0 0 0 0 2,816 2,831 282 288 465 512 699 718 388 208 0 0 0 0 0 0 53,453 49,294 5,349 5,023 8,816 8,920 13,270 12,502 1,627 1,384 0 0 0 0 0 0 58,362 54,259 5,722 5,469 9,282 9,461 14,203 13,420 725 1,362 203 374 193 314 242 1,806 26 25 49 50 28 27 103 105 878 900 176 162 248 269 183 195 1,112 1,329 111 113 174 203 280 270 -2,008 +448 -218 + 146 + 707 -694 + 1,104 -72 63,805 62,740 6,795 7,098 11,586 10,578 17,553 17,098 51,096 49,474 5,687 5,856 10,125 8,831 15,428 13,762 4,392 6,228 726 732 883 1,094 1,413 1,214 5,316 3,661 0 0 0 0 0 0 140 77 7 7 10 11 8 8 480 513 15 13 24 23 63 40 0,328 10,479 748 752 917 1,128 1,484 1,262 688 1,215 111 268 189 275 265 1,730 899 858 89 80 147 142 216 196 63,011 62,026 6,635 6,956 11,378 10,376 17,393 16,950 397 357 80 71 104 101 80 74 397 357 80 71 104 101 80 74 0 0 0 0 0 0 0 0 63,805 62,740 6,795 7,098 11,586 10,578 17,553 17,098 55,639 52,817 8,004 8,163 11,082 9,721 17,501 15,565 4,543 3,343 2,317 2,307 957 890 2,073 1,803 51,096 49,474 5,687 5,856 10,125 8,831 15,428 13,762 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

222 Tables 2. Statement of Condition of Each Federal Reserve Bank, December 31, 1984 and 1983—Continued Millions of dollars Atlanta Chicago Item 1984 1983 1984 1983 ASSETS Gold certificate account 360 371 1,510 1,504 Special drawing rights certificate account 161 161 646 646 Coin 50 42 26 24 Loans To depository institutions 38 10 2,969 95 Other 0 0 0 0 Acceptances held under repurchase agreements Federal agency obligations Bought outright 199 210 1,145 1,191 Held under repurchase agreements 0 0 0 0 U.S. government securities Bought outright' 3,782 3,651 21,738 20,748 Held under repurchase agreements 0 0 0 0 Total loans and securities 4,019 3,871 25,852 22,034 Cash items in process of collection 541 1,210 593 1,054 Bank premises 39 34 21 20 Other assets Denominated in foreign currencies2 299 295 471 502 All other 138 100 4,375 5447 Interdistrict Settlement Account + 2,277 + 35 -5,427 + 91 Total assets 7,884 6,119 28,067 26,419 LIABILITIES Federal Reserve notes 5,217 3,156 23,873 22,425 Deposits Depository institutions 1,738 1,559 2,797 2,341 U.S. Treasury—General account 0 0 0 0 Foreign—Official accounts 12 12 20 21 Other 6 7 113 97 Total deposits 1,756 1,578 2,930 2,459 Deferred-availability cash items 546 1,074 446 822 97 67 362 329 Other liabilities and accrued dividends3 7,616 5,875 27,611 26,035 Total liabilities CAPITAL ACCOUNTS 134 122 228 192 Capital paid in 134 122 228 192 Surplus 0 0 0 0 Other capital accounts 7,884 6,119 28,067 26,419 Total liabilities and capital accounts FEDERAL RESERVE NOTE STATEMENT 7,897 5,746 25,469 24,572 2,681 2,590 1,596 2,147 Federal Reserve notes outstanding (issued to Bank) 5,216 3,156 23,873 22,425 LESS: Held by Bank4 Federal Reserve notes, netJ rencies and foreign currencies warehoused for the 1. Includes securities loaned—fully guaranteed by U.S. Treasury. Assets shown in this line are revalued U.S. government securities pledged with Federal monthly at market exchange rates. Reserve Banks—and excludes (if any) securities sold 3. Includes exchange-translation account reflecting and scheduled to be bought back under matched sale- the monthly revaluation at market exchange rates of purchase transactions. foreign-exchange commitments. Digitized fo2.r IFnRclAudSeEs RU .S. government securities held under 4. Beginning September 1980, Federal Reserve repurchase agreement against receipt of foreign curhttp://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 223 2.—Continued St. Louis Minneapolis Kansas City Dallas San Francisco 1984 1983 1984 1983 1984 1983 1984 1983 1984 1983 357 468 160 143 608 605 726 750 1,318 1,182 170 170 61 61 241 241 310 310 518 518 24 22 16 20 43 46 34 28 94 81 34 93 7 49 52 53 23 70 24 23 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 241 245 113 106 400 444 531 598 1,076 1,096 0 0 0 0 0 0 0 0 0 0 4,568 4,267 2,144 1,843 7,588 7,739 10,086 10,417 20,416 19,092 0 0 0 0 0 0 0 0 0 0 4,843 4,605 2,264 1,998 8,040 8,236 10,640 11,085 21,516 20,211 688 678 421 469 1,520 1,310 814 1,101 692 1,479 17 16 25 25 36 25 19 18 110 106 97 103 126 133 166 170 266 254 590 609 106 125 52 84 151 172 778 933 726 468 + 357 -97 -84 + 329 -228 -915 + 720 -1,247 + 1,369 + 1,274 6,659 6,090 3,041 3,262 10,577 9,890 14,307 13,232 26,929 25,928 5,245 4,873 2,065 2,296 7,775 7,589 10,807 9,944 21,049 19,930 576 475 451 394 1,017 801 2,480 1,985 4,413 4,009 0 0 0 0 0 0 0 0 0 0 4 4 5 5 7 7 11 10 25 25 13 15 5 3 28 20 35 29 58 52 593 494 461 402 1,052 828 2,526 2,024 4,496 4,086 653 579 363 431 1,485 1,214 552 885 517 1,131 76 64 44 31 117 123 164 163 357 299 6,567 6,010 2,933 3,160 10,429 9,754 14,049 13,016 26,419 25,426 46 40 54 51 74 68 129 108 255 241 46 40 54 51 74 68 129 108 255 241 0 0 0 0 0 0 0 0 0 0 6,659 6,090 3,041 3,262 10,577 9,890 14,307 13,232 26,929 25,928 6,475 5,787 2,585 2,800 10,806 9,810 12,640 11,763 24,230 22,049 1,230 914 520 504 3,030 2,221 1,833 1,819 3,181 2,119 5,245 4,873 2,065 2,296 7,776 7,589 10,807 9,944 21,049 19,930 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 1984 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. 6. Effective Oct. 12,1983, Federal Reserve notes are Digitizedc ofollra tFerRalAizSedE iRn the aggregate rather than by Banks. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

224 Tables 3. Federal Reserve Open Market Transactions, 1984 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 1,967 Exchange 0 Redemptions 1,300 Others within 1 year Gross purchases 0 Gross sales 0 Maturity shift 573 Exchange -1,530 Redemptions 0 1 to 5 years Gross purchases 0 Gross sales 0 Maturity shift -487 Exchange 1,530 5 to 10 years Gross purchases 0 Gross sales 300 Maturity shift -86 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 368 3,159 828 0 0 0 600 0 0 0 0 0 2,488 1,012 -4,574 0 0 0 0 0 0 0 -2,488 -1,012 2,861 0 0 0 97 1,000 0 0 -97 713 0 368 2,267 828 1,300 600 54,833 55,656 58,096 47,310 14,245 0 15,629 0 oooo oooo 3,283 0 0 3,283 198 0 347 -2,223 0 808 0 -273 2,223 200 0 -75 0 in 0 0 0 3,159 1,484 0 0 0 0 66,827 72,293 73,634 71,754 4,996 15,313 4,996 8,220 -1,688 -9,407 9,966 11,321 0 0 0 0 0 0 40 38 10 Repurchase agreements Gross purchases 931 0 609 1,247 Gross sales 1,139 0 609 820 Net change in federal agency obligations -248 -38 -10 424 BANKERS ACCEPTANCES Repurchase agreements, net -418 0 0 305 Total net change in System Open Market Account. -2,354 -9,444 9 y 9S6 12,050 •Less than $500,000. all other figures increase such holdings. Details may Digitized foNrO FTRE.A SSalEesR, redemptions, and negative figures re- not add to totals because of rounding. http://frasdeucr.es thlooludiisnfgesd o.of rtgh/e System Open Market Account; Federal Reserve Bank of St. Louis

Tables 225 3.—Continued May June July Aug. Sept. Oct. Nov. Dec. Total 610 801 0 187 3,249 507 4,463 3,410 20,036 2,003 0 897 1,491 71 1,300 0 0 8,557 0 0 0 0 0 0 0 0 0 2,200 801 600 800 0 2,200 0 0 7,700 0 0 0 0 600 0 146 182 1,126 0 0 0 0 0 0 0 0 0 2,739 1,069 428 3,811 872 896 1,348 111 16,354 -1,807 0 -2,606 -2,274 0 -1,497 -3,363 -966 -20,840 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 830 0 1,638 0 0 0 0 0 0 0 0 0 -2,279 -1,069 -345 -3,811 -872 -896 -594 -111 -13,709 1,150 0 2,606 1,443 0 1,497 1,763 966 16,039 0 0 0 0 0 0 335 0 536 0 0 0 0 0 0 0 0 300 -383 0 -83 52 0 0 -1,893 0 -2,371 400 0 0 500 0 0 850 0 2,750 0 0 0 0 0 0 164 0 441 0 0 0 0 0 0 0 0 0 -77 0 0 -52 0 0 -49 0 -275 257 0 0 332 0 0 750 0 2,052 610 801 0 0 3,849 507 5,938 3,591 23,476 2,003 0 897 187 71 1,300 0 0 7,553 2,200 0 600 800 0 2,200 0 0 7,700 79,313 61,017 81,799 79,087 52,893 89,689 51,904 63,674 808,986 79,608 61,331 81,143 78,842 55,776 85,884 55,516 61,537 810,432 8,267 23,298 14,830 4,992 26,040 0 12,063 3,888 139,441 12,199 26,460 14,830 166 30,867 0 12,063 2,261 139,019 -7,228 -2,047 -2,154 2,478 1,835 -6,798 9,549 3,080 8,908 0 0 0 0 0 0 0 0 0 0 0 0 0 0 40 15 1 5 1 14 90 616 1,819 958 381 3,743 0 698 744 2,117 958 12 4,112 0 698 ooo 0 0 256 506 1,205 119 817 -169 -313 -1 364 -370 -14 -90 388 132 122 -426 0 0 0 0 0 0 -418 -7,275 -2,786 -2,155 2,842 1,465 -6,8H 9,459 3,468 6,116 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

226 Tables 4. Federal Reserve Bank Holdings of U.S. Government and Federal Agency Securities, December 31, 1982-84 Millions of dollars Increase or December 31 Description decrease (-) 1984 1983 1982 1984 1983 U.S. government securities—Total 160,850 151,942 139,312 8,908 12,630 1-15 days1 4,255 2,700 4,396 1,555 -1,696 16-90days 37,396 38,248 31,088 -852 7,160 91 days to 1 year 47,795 45,475 40,057 2,320 5,418 1-5 years 37,072 34,021 35,102 3,051 -1,081 5-10 years 14,100 13,485 12,095 615 1,390 Over 10 years 20,233 18,014 16,574 2,219 1,440 Held outright2 Treasury bills 71,035 65,811 54,426 5,224 11,385 Treasury notes 65,237 63,934 62,626 1,303 1,308 Treasury bonds 22,951 20,814 18,556 2,137 2,258 Held under RPs 1,627 1,384 3,704 243 -2,320 Federal agency obligations—Total 8,777 8,853 9,525 -76 -672 1-15 days 575 386 730 189 -344 16-90days 521 597 564 -76 33 91 days to 1 year 1,665 1,937 1,954 -272 -17 1-5 years 4,350 4,1% 4,780 154 -584 5-10 years 1,267 1,333 979 -66 354 Over 10 years 399 403 518 -4 -115 Held outright Banks for Cooperatives 21 21 21 0 0 Federal Farm Credit Banks 2,363 2,420 2,174 -57 246 Federal Home Loan Banks 2,260 2,272 2,494 -12 -222 Federal Home Loan Mortgage Corporation 0 5 5 -5 0 Federal Intermediate Credit Banks 50 50 50 0 0 Federal Land Banks 350 350 613 0 -263 Farmers Home Administration 147 147 147 0 0 Federal National Mortgage Association 2,962 3,144 3,198 -182 -54 Government National Mortgage Association—PCs 67 67 67 0 0 U.S. Postal Service 37 37 37 0 0 Washington Metropolitan Area Transit Authority 117 117 117 0 0 General Services Administration 14 14 14 0 0 Held under RPs 388 208 588 180 -380 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, 1984 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 134,800 54 3,106,700 1,246 203 29,811,563 1,504 33,053,063 New York 176,100 160 10,719,250 3,839 70 92,753,791 4,070 103,649,141 Philadelphia 116,600 48 2,804,875 1,027 73 22,683,406 1,149 25,604,881 Cleveland 116,600 52 2,736,000 1,262 56 25,517,378 1,371 28,369,978 Richmond 117,800 76 4,029,600 1,759 150 33,107,203 1,986 37,254,603 Atlanta 113,400 67 3,654,900 1,930 65 38,525,720 2,063 42,294,020 Chicago 139,400 82 4,447,700 2,659 156 55,972,380 2,898 60,559,480 St. Louis 116,600 41 2,322,880 1,161 91 22,854,298 1,294 25,293,778 Minneapolis 119,900 42 2,215,000 998 3 19,492,660 1,044 21,827,560 Kansas City 116,600 55 3,196,000 1,494 51 29,765,569 1,601 33,078,169 Dallas 114,500 56 3,123,100 1,367 32 28,200,152 1,456 31,437,752 San Francisco 148,200 89 5,083,870 2,121 77 49,210,233 2,288 54,442,303 Digitized for FRASER Total 1,530,500 822 47,439,875 20,863 1,027 447,894,353 22,724 496,864,728 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 227 6. Bank Premises of Federal Reserve Banks and Branches, December 31, 1984 Dollars Costs Federal Reserve Net Other Bank or Buildings Building ma- book real branch Land (including chinery and Total2 value estate3 vaults)! equipment BOSTON . 22,036,681 79,998,721 5,425,128 107,460,530 94,563,035 Annex.. 27,840 89,202 44,538 161,580 136,073 NEW YORK 3,454,482 12,297,183 21,502,271 37,253,936 21,320,316 Annex 477,863 1,136,219 745,855 2,359,936 862,710 Buffalo 887,844 2,747,267 2,265,037 5,900,149 3,401,419 PHILADELPHIA 1,876,601 52,349,570 5,903,704 60,129,874 49,135,072 CLEVELAND 1,074,281 6,179,625 4,669,862 11,923,768 4,639,900 1,224,363 Cincinnati 1,997,249 13,767,977 7,528,477 23,293,703 15,249,278 Pittsburgh .... 1,658,376 5,420,031 3,120,196 10,198,603 7,750,369 RICHMOND 3,912,575 55,995,385 14,314,313 74,222,273 62,302,258 Annex 522,733 3,725,466 3,513,044 7,761,243 4,016,916 Baltimore 3,880,302 33,378,389 0 37,258,691 35,674,844 Charlotte .... 347,071 1,185,567 946,943 2,479,581 1,231,967 1,675,934 ATLANTA . 1,202,255 12,079,196 3,558,580 16,840,032 11,939,186 Birmingham. 2,361,450 2,059,056 1,046,244 5,466,750 3,707,605 608,243 Jacksonville. 164,004 1,706,794 778,381 2,649,179 804,239 951,793 Annex 107,925 76,236 15,843 200,003 152,777 Miami 3,607,531 11,917,166 2,105,071 17,629,768 16,126,399 Nashville ... 592,342 1,474,678 1,287,430 3,354,451 1,583,444 New Orleans 3,087,693 2,782,415 1,476,257 7,346,366 4,962,228 283,753 CHICAGO . 4,511,942 16,435,691 12,126,176 33,073,809 17,360,451 Annex 53,066 302,249 136,878 492,193 429,068 Detroit 797,734 3,087,377 2,004,896 5,890,007 3,603,651 ST. LOUIS 700,378 7,175,421 4,368,080 12,243,879 6,140,334 Little Rock. 1,148,492 2,067,898 1,038,246 4,254,636 2,844,540 Louisville .. 700,075 3,157,524 1,131,238 4,988,836 2,628,398 Memphis .. 1,135,623 4,216,382 2,126,755 7,478,760 5,251,145 MINNEAPOLIS. 1,394,384 26,664,805 7,692,189 35,751,378 25,093,538 Helena 289,619 104,184 61,906 455,709 330,134 KANSAS CITY. 6,782,325 15,917,338 7,747,829 30,447,493 24,656,058 434,135 Denver 2,997,746 3,358,838 2,610,017 8,966,600 6,095,614 Oklahoma City . 646,386 2,380,435 1,672,442 4,699,262 3,235,960 Omaha 1,030,226 1,550,902 817,215 3,398,342 1,780,879 479,076 DALLAS ... 3,729,268 5,183,058 3,737,706 12,650,031 9,321,193 El Paso 262,477 1,169,031 393,301 1,824,809 1,515,096 Houston 2,049,064 2,544,255 898,037 5,491,356 5,019,754 San Antonio 449,813 2,240,339 574,346 3,264,499 2,714,849 SAN FRANCISCO.... 15,513,567 67,881,351 16,367,410 99,762,327 94,934,746 Los Angeles 5,569,229 4,536,078 2,478,371 12,583,678 9,137,248 Portland 207,381 1,680,899 649,432 2,537,711 1,985,136 Salt Lake City 480,222 1,978,438 1,092,951 3,551,611 2,419,677 Seattle 274,772 2,119,057 1,388,582 3,782,410 2,136,155 Total 104,000,886 476,117,689 151,361,177 731,479,752 568,193,659 5,657,296 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 because of 3. Includes acquisitions for banking-house purposes, rounding. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

228 Tables 7. Income and Expenses of Federal Reserve Banks, 1984 Dollars Item Total Boston New York Philadelphia Cleveland CURRENT INCOME Loans 569,454,090 2,992,223 25,320,840 4,041,838 2,863,929 Acceptances 3,172,267 0 3,172,267 0 0 U.S. government securities .. 16,687,547,370 818,709,617 5,611,130,704 556,858,451 939,311,393 Foreign currencies 217,120,423 5,852,322 52,977,868 10,589,082 15,021,379 Priced services 574,657,724 32,534,754 94,789,616 22,250,414 34,310,795 All other 16,868,868 603,030 8,238,052 308,593 459,292 Total 18,068,820,742 860,691,946 5,795,629,347 594,048,378 991,966,788 CURRENT EXPENSES Salaries and other personnel expenses 528,986,9% 32,924,974 112,612,715 26,655,216 30,369,048 Retirement and other benefits 135,503,252 8,388,077 26,404,887 7,151,568 7,674,876 Fees 13,533,932 1,680,330 1,099,441 521,886 695,050 Travel 17,961,143 921,384 2,306,933 762,099 1,419,412 Postage and other shipping costs 88,985,428 3,407,776 12,275,193 4,437,909 6,015,719 Communications 15,265,528 1,117,670 3,481,208 674,009 599,966 Materials and supplies 41,473,019 2,165,530 8,305,759 2,238,968 2,634,368 Building expenses Taxes on real estate 20,075,936 3,290,180 3,317,520 1,484,083 1,029,193 Property depreciation 20,587,884 2,402,725 2,003,770 1,601,756 1,111,014 Utilities 22,991,681 2,489,268 4,185,088 2,248,578 1,440,752 Rent 12,037,417 542,131 7,225,136 42,364 227,926 Other 12,202,719 731,603 2,805,293 1,036,245 522,579 Equipment Purchases 1,851,777 308,753 0 89,421 105,335 Rentals 50,533,451 1,843,190 10,895,390 1,077,822 4,246,128 Depreciation 51,439,122 3,618,109 8,795,575 1,978,419 2,135,690 Repairs and maintenance 29,334,360 1,642,099 5,375,662 1,617,056 1,042,770 Cost of earnings credits 118,713,401 6,127,836 13,246,506 7,570,566 9,195,430 All other 34,016,409 2,395,387 5,310,042 1,619,190 2,475,093 Shared costs, net' 0 (1,007,542) 3,384,632 1,781,324 (522,544) Recoveries (26,260,736) (4,343,603) (2,271,925) (1,600,092) (2,158,475) Expenses capitalized2 (2,717,494) (107,587) (8,826) (46,840) (194,315) Total 1486,515,224 70,538,290 230,749,999 62,941,547 70,065,015 Reimbursements 84,070,770 3,849,213 19,476,211 6,649,876 5,419,238 Net expenses 1,102,444,454 66,689,077 211,273,788 56,291,671 64,645,777 For notes see end of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 229 7.—Continued Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco 8,647,599 3,898,170 420,195,830 5,252,164 4,426,817 12,946,555 72,422,393 6,445,732 0 0 0 0 0 0 0 0 1,382,870,087 397,090,907 2,274,308,368 474,799,584 217,452,114 810,508,947 1,081,772,637 2,122,734,561 11,093,209 17,989,221 28,492,952 5,872,289 7,609,268 9,987,631 16,017,143 35,618,059 47,747,216 61,537,755 75,114,542 28,680,466 32,794,448 40,900,239 40,471,202 63,526,277 597,345 1,303,932 1,537,193 415,144 440,635 186,027 914,431 1,865,194 1,450,955,456 481,819,985 2,799,648,885 515,019,647 262,723,282 874,529,399 1,211,597,806 2,230,189,823 38,258,920 44,315,421 66,982,769 26,817,273 25,022,564 34,918,519 32,584,847 57,524,730 10,270,905 12,057,629 17,976,564 7,187,507 6,054,331 8,939,705 7,844,838 15,552,365 464,065 5,545,097 1,018,621 408,244 450,113 506,690 500,861 643,534 1,407,339 1,633,247 2,426,200 805,973 960,842 1,356,168 1,412,913 2,548,633 8,193,051 9,337,306 9,121,445 5,548,164 4,819,280 6,697,003 6,944,020 12,188,562 924,500 1,702,488 1,513,354 636,714 981,909 1,097,079 893,644 1,642,987 3,733,283 3,862,926 4,837,324 2,679,050 1,684,336 3,042,158 2,698,448 3,590,869 1,718,536 1,092,518 2,567,776 419,559 2,159,889 582,796 762,274 1,651,611 3,581,355 1,211,421 1,020,976 618,954 1,040,619 1,170,441 981,634 3,843,219 1,928,771 1,807,351 2,396,460 1,188,533 892,450 1,206,486 1,251,100 1,956,843 388,241 139,936 2,101,313 312,392 95,750 68,541 703,728 189,960 1,232,344 791,384 1,784,952 554,100 602,879 563,624 516,516 1,061,200 135,379 149,261 363,561 7,689 381,743 70,462 122,308 117,865 2,617,414 6,295,521 8,178,116 1,547,347 2,336,506 1,849,934 4,358,779 5,287,304 4,477,081 3,211,859 6,612,616 2,643,597 2,671,698 3,870,729 3,646,049 7,777,699 2,600,400 2,353,080 4,657,716 1,490,917 1,158,352 2,205,518 1,850,690 3,340,100 10,051,640 12,044,659 28,128,051 5,616,758 6,940,570 6,965,562 4,027,239 8,798,584 2,241,831 2,813,584 5,331,887 1,480,337 1,654,011 1,599,153 2,249,271 4,846,623 1,229,613 (2,262,777) (4,947,210) 1,483,307 1,488,538 460,241 (1,942,238) 854,656 (3,329,197) (1,300,523) (2,220,803) (1,266,804) (807,936) (1,050,929) (1,841,074 (4,069,375) (269,886) (179,794) (715,210) (57,729) (48,278) (720,658) (292,242) (76,128) 91,855,585 106,621,594 159,136,478 60,121,882 60,540,166 75,399,222 69,273,605 129,271,841 5,936,868 5,999,419 10,217,470 5,438,394 2,720,419 4,892,820 4,491,190 8,979,652 85,918,717 100,622,175 148,919,008 54,683,488 57,819,747 70,506,402 64,782,415 120,292,189 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

230 Tables 7. Income and Expenses of Federal Reserve Banks, 1984—Continued Dollars Item Total Boston New York Philadelphia Cleveland PROFIT AND LOSS Current net income 16,966,376,291 794,002,869 5,584,355,558 537,756,707 927,321,012 Additions to current net income Profits on sales of U.S. government securities 48,553,022 2,373,213 16,151,134 1,629,400 2,779,521 All other 1,727,427 7,321 35,685 8,589 7,161 Total additions 50,280,449 2,380,534 16,186,819 1,637,989 2,786,682 Deductions from current net income Losses on foreign currency transactions3.. 454,815,437 12,280,017 110,974,967 22,285,956 31,382,265 All other 8,408,168 298,466 1,563,927 359,990 395,929 Total deductions 463,223,605 12,578,483 112,538,893 22,645,946 31,778,194 Net additions to or deductions (-) from current net income (412,943,156) (10,197,949) (96,352,074) (21,007,957) (28,991,512) Assessments by Board Board expenditures * 82,115,700 2,262,400 20,162,400 4,027,500 5,637,400 Cost of Federal Reserve currency 162,606,410 9,275,070 51,208,986 6,061,479 9,140,757 Net income before payments to U.S. Treasury 16,308,711,024 772,267,450 5,416,632,098 506,659,771 883,551,343 Dividends paid 92,620,450 2,584,234 22,886,593 4,661,077 6,177,578 Payments to U.S. Treasury (interest on Federal Reserve notes) 16,054,094,674 764,647,616 5,354,672,255 493,029,544 874,781,466 Transferred to surplus 161,995,900 5,035,600 39,073,250 8,969,150 2,592,300 Surplus, January 1 1,464,112,300 39,762,950 357,436,550 70,972,850 101,367,350 Surplus, December 31 1,626,108,200 44,798,550 396,509,800 79,942,000 103,959,650 1. Includes distribution of costs for projects per- in foreign currencies to market exchange rates. formed by one Bank for the benefit of one or more 4. For additional details, see the last three pages of other Banks. this section "Board of Governors, Financial State- 2. This item includes expenses for labor and ments'* in this REPORT. materials temporarily capitalized and charged to ac- NOTE. Details may not add to totals because of tivities when the products are consumed. rounding. 3. This item includes $437.1 million of unrealized net losses related to revaluation of assets denominated Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 231 7.—Continued Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco 1,365,036,740 381,197,810 2,650,729,877 460,336,159 204,903,537 804,022,997 1,146,815,392 2,109,897,634 3,945,945 1,166,694 6,671,023 1,388,237 628,054 2,401,263 3,211,095 6,207,443 9,125 8,073 5,568 6,938 6,423 5,531 5,509 1,621,503 3,955,070 1,174,767 6,676,591 1,395,175 634,477 2,406,793 3,216,605 7,828,946 23,195,587 37,749,681 59,580,822 12,280,017 15,918,540 20,921,510 33,656,342 74,589,732 434,807 428,530 720,164 452,135 308,389 491,728 889,429 2,064,674 23,630,394 38,178,212 60,300,986 12,732,152 16,226,929 21,413,238 34,545,771 76,654,406 (19,675,324) (37,003,445) (53,624,395) (11,336,977) (15,592,453) (19,006,445) (31,329,166) (68,825,460) 4,149,300 6,826,100 10,649,600 2,245,400 2,837,200 3,809,800 6,102,700 13,405,900 14,244,645 3,266,601 23,211,089 5,044,375 2,376,981 7,855,190 10,292,337 20,628,900 1,326,967,471 334,101,663 2,563,244,793 441,709,407 184,096,903 773,351,562 1,099,091,188 2,007,037,374 4,554,218 7,686,605 12,142,373 2,524,330 3,193,417 4,262,060 7,132,217 14,815,749 1,316,216,852 313,799,808 2,515,374,820 433,359,978 177,120,936 763,255,503 1,070,312,421 1,977,523,475 6,196,400 12,615,250 35,727,600 5,825,100 3,782,550 5,834,000 21,646,550 14,698,150 74,164,050 121,540,950 191,885,000 40,122,000 50,521,400 67,897,900 107,649,600 240,791,700 80,360,450 134,156,200 227,612,600 45,947,100 54,303,950 73,731,900 129,296,150 255,489,850 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

232 Tables 8. Income and Expenses of Federal Reserve Banks, 1914-84 Dollars Assessments by Period, or Federal Current Operating Net additions Board of Governors or Reserve Bank income expenses 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. 1,908,499,8% 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 233 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 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 2,0li,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

234 Tables 8. Income and Expenses of Federal Reserve Banks, 1914-84—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 costs 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 1984 18,068,820,742 1,102,444,454 -412,943,156 82,115,700 162,606,410 Total, 1914-84 165,754,530,513 13,104,353,183 -2,557,978,042 930,019,208 1,278,072,960 Aggregate for each Bank, 1914-84 Boston 7,819,991,458 879,405,669 -86,256,694 35,217,086 72,954,853 New York 45,978,546,848 2,716,767,933 -597,007,852 242,686,386 278,191,104 Philadelphia 7,517,813,495 693,025,220 -115,317,905 46,086,418 69,619,291 Cleveland 12,117,275,849 909,690,939 -211,505,329 77,911,390 81,637,337 Richmond 12,812,854,971 1,020,098,298 -145,703,307 48,170,776 124,828,097 Atlanta 6,902,593,170 1,075,340,514 -195,986,473 65,562,760 94,563,130 Chicago 25,548,252,195 1,732,348,230 -399,082,850 134,697,672 179,995,862 St. Louis 6,064,380,771 721,977,318 -87,113,971 29,658,172 53,517,288 Minneapolis 3,160,435,003 570,517,900 -80,241,853 26,818,015 24,964,194 Kansas City 7,291,674,595 813,084,072 -114,238,672 39,496,809 65,418,028 Dallas 9,110,437,738 706,602,253 -166,186,838 54,342,973 75,077,878 San Francisco 21,430,274,422 1,265,494,835 -359,336,300 129,370,751 157,305,898 Total 165,754,530,513 13,104,353,183 -2,557,978,042 930,019,208 1,278,072,960 1. The $1,754,780,399 transferred to surplus was $11,131,013 transferred from reserves for contingenreduced by direct charges of $500,000 for charge-off cies (1945), leaving a balance of $1,626,108,200 on on Bank premises (1927), $139,299,557 for contribu- Dec. 31, 1984. tions to capital of the Federal Deposit Insurance NOTE. Details may not add to totals because of Corporation (1934), and $3,657 net upon elimination rounding. of sec. 13b surplus (1958); and was increased by Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 235 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 14,228,816,297 106,663,100 92,620,451 16,054,094,674 161,995,900 1,704,298,484 149,138,300 2,188,893 144,273,704,707 -3,657 1,754,780,399* 74,503,215 7,111,395 280,843 6,609,232,916 135,411 54,893,375 469,716,748 68,006,262 369,116 41,172,468,487 -433,412 433,766,371 95,541,932 5,558,901 722,406 6,397,378,540 290,661 94,272,222 149,306,170 4,842,447 82,930 10,565,115,773 -9,906 117,193,443 84,412,982 6,200,189 172,493 11,297,100,087 -71,517 86,240,258 107,774,551 8,950,561 79,264 5,214,907,685 5,491 139,422,740 237,844,171 25,313,526 151,045 22,595,865,803 11,682 242,941,354 55,466,231 2,755,629 7,464 5,062,844,488 -26,515 51,066,728 46,181,289 5,202,900 55,615 2,348,207,204 64,874 58,181,163 70,441,856 6,939,100 64,213 6,104,128,669 -8,674 77,871,850 94,033,901 560,049 102,083 7,879,902,795 55,337 133,573,628 219,075,438 7,697,341 101,421 19,026,552,261 -17,089 265,357,267 1,704,298,484 149,138,300 2,188,893 144,273,704,707 -3,657 1,754,780,399* Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

236 Tables 9. Revenue and Expenses of Priced Services at Federal Reserve Banks, 1984 and 1983 Millions of dollars Service Wire Total Commercial transfer Item check and net collection settlement 1984 1983 1984 1983 1984 1983 Revenue' 697.0 581.1 529.6 436.7 75.2 67.2 Expenses' 602.3 533.6 450.2 393.6 61.1 57.1 Net revenue 94.7 47.5 79.5 43.1 14.1 10.1 Private sector adjustment2 75.3 59.1 57.4 44.5 10.6 8.2 Net revenue after private sector adjustment.. 19.4 (11.6) 22.1 (1.4) 3.5 1.9 MEMO: Net revenue after private sector adjustment, with allowance for ACH and cash transportation programs J»4 ... 26.3 (1.9) 1. Total System revenue for 1984 and 1983 respec- 1984 and 1983. Commercial ACH, book-entry securitively comprises $574.7 million and $496.2 million of ties, and definitive safekeeping and noncash collection income from fees for services, and $122.3 million and expenses include float costs for 1984. $84.9 million of income related to clearing balances 2. This adjustment is an imputed cost intended to established by depository institutions. Total System reflect the taxes that would have been paid and the expenses include $118.7 million and $71.8 million of return on capital that would have been provided had a earnings credits granted to depository institutions on private firm furnished the services. clearing balances. 3. The Board established an incentive pricing pro- Check collection expense includes float costs for gram for the commercial ACH service that provides Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 237 9.—Continued Service Definitive Book- Commercial safekeeping Cash ACH3 and noncash securities services4 collection 1984 1983 1984 1983 1984 1983 1984 1983 13.8 7.7 23.0 19.1 29.2 21.8 26.2 28.7 19.7 14.5 22.7 20.8 23.2 18.0 25.4 29.7 (5.9) (6.8) 0.3 (1.7) 6.0 3.8 0.7 (1.0) 1.2 0.7 1.8 2.7 3.9 2.5 0.5 0.4 (7.1) (7.5) (1.5) (4.4) 2.1 1.3 0.3 (1.4) (0.1) 0.6 0.2 for fee structures designed to recover an increasing penses plus the private sector adjustment would exshare of expenses over a period of several years. ceed revenue during the program. Revenue for the commercial ACH service was ex- NOTE. Revenue and expenses of priced services ofpected to represent approximately 60 percent and 40 fered by the Federal Reserve Banks are derived from percent of expenses plus the private sector adjustment the income and expense data shown in table 7. Exfor 1984 and 1983 respectively. penses for priced services are based primarily on the 4. The Board adopted a transitional support pro- Federal Reserve Planning and Control System, which gram, which was concluded at the end of 1983, for the provides for the allocation of expenses to the principal cash transportation service, and anticipated that ex- areas of activity of the Banks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

238 Tables 10. Operations in Principal Departments of Federal Reserve Banks, 1981-84 Operation 1984 1983 1982 1981 Millions of pieces (except as noted) Loans (thousands) 33 22 24 36 Currency received and counted 13,422 11,464 10,679 10,277 Currency verified and destroyed 5,329 4,403 4,147 3,510 Coin received and counted 19,201 17,712 16,859 17,023 Checks handled U.S. government checks 598 612 655 683 Postal money orders 135 115 126 126 All other1 16,538 15,900 15,178 15,880 Issues, redemptions, and exchanges of U.S. government securities 168 168 156 188 Transfer of funds2 68 62 58 54 Food stamps redeemed 2,536 2,684 2,565 2,625 Millions of dollars Loans 852,777 214,190 184,997 236,532 Currency received and counted 183,419 141,684 128,803 117,901 Currency verified and destroyed 50,164 36,224 31,258 24,912 Coin received and counted 3,624 2,795 2,714 3,184 Checks handled U.S. government checks 529,895 552,493 628,639 611,403 Postal money orders 9,085 7,854 6,645 6,030 All other 10,409,542 10,694,906 8,722,369 9,454,638 Issues, redemptions, and exchanges of U.S. government securities 50,327,014 51,352,275 26,550,780 12,728,458 Transfer of funds 158,672,244 143,177,719 121,239,371 93,968,246 Food stamps redeemed 9,941 10,861 9,869 9,547 1. The 1982, 1983, and 1984 volumes reflect the spectively that were handled by more than one Reserve number of other checks handled, whether individually Bank. Comparable data are not available for 1981. or in pre-sorted bundles. In 1981, the number of items 2. Includes the volume processed at both sending in pre-sorted bundles was not reported; therefore, and receiving offices of Federal Reserve Banks. The the 1981 volume includes pre-sorted bundles counted number of priced wire transfers in 1984 was 42 million, as one item. The 1984, 1983, and 1982 figures include and in 1983, 38 million. 1.36 million, 1.25 million, and 0.9 million checks re- 11. Federal Reserve Bank Interest Rates, December 31, 1984 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 10 New York Philadelphia . Cleveland Richmond ... Atlanta Chicago St. Louis Minneapolis.. Kansas City .. Dallas San Francisco 8 8 10 1. Rates applied to short-term advances for the pur- tive, for loans outstanding for more than 150 days, a pose of meeting temporary funding requirements and Federal Reserve Bank may charge a flexible rate that to longer-term advances made to smaller institutions takes into account rates on market sources of funds, for the purpose of meeting seasonally recurring needs but in no case will the rate charged be less than the for funds. See sections 201.3(a) and 2O1.3(b)(l) of basic rate plus one percentage point. Where credit Regulation A. provided to a particular depository institution is an- 2. Applicable to advances when exceptional circum- ticipated to be outstanding for an unusually prolonged stances or practices involve only a particular deposi- period and in relatively large amounts, the time period tory institution and to advances when an institution in which each rate under this structure is applied may Digitized ifso ur nFdRerA sSusEtaRin ed liquidity pressures. As an alterna- be shortened. See section 201.3(b)(2) of Regulation A. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 239 12. Reserve Requirements of Depository Institutions1 Percent of deposits Member bank requirements Type of deposit, and before implementation of the deposit interval Monetary Control Act Percent Effective date Net demand2 $0 million-$2 million 12/30/76 $2 million-$10 million 12/30/76 $10 million-$100 million.. H3/4 12/30/76 $100 million-$400 million. 123/4 12/30/76 Over $400 million 1614 12/30/76 Time and savings2** Savings 3/16/67 Time4 $0 million-$5 million, by maturity 30-179days 3 3/16/84 180 days to 4 years 1/8/76 4 years or more 1 10/30/75 Over $5 million, by maturity 30-179days 6 12/12/74 4 1 8 y 0 e a d r a s y o s r t o m 4 o r y e ears 2 1 !/2 10 1 /3 /8 0/ / 7 7 5 6 1. Reserve requirements in effect on Dec. 31, 1984. Monetary Control Act had to be at least 3 percent, the For information regarding previous reserve require- minimum specified by law. ments, see earlier editions of the ANNUAL REPORT and 4. Effective Nov. 2, 1978, a supplementary reserve of the Federal Reserve Bulletin. Under provisions of requirement of 2 percent was imposed on large time the Monetary Control Act, depository institutions in- deposits of $100,000 or more, obligations of affiliates, clude commercial banks, mutual savings banks, sav- and ineligible acceptances. This supplementary reings and loan associations, credit unions, agencies and quirement was eliminated with the maintenance period branches of foreign banks, and Edge act corporations. beginning July 24, 1980. 2. Requirement schedules are graduated, and each Effective with the reserve maintenance period bedeposit interval applies to that part of the deposits of ginning Oct. 25, 1979, a marginal reserve requirement each bank. Demand deposits subject to reserve re- of 8 percent was added to managed liabilities in excess quirements were gross demand deposits minus cash of a base amount. This marginal requirement was initems in process of collection and demand balances creased to 10 percent beginning Apr. 3, 1980, was dedue from domestic banks. creased to 5 percent beginning June 12, 1980, and was The Federal Reserve Act as amended through 1978 eliminated beginning July 24, 1980. Managed liabilispecified different ranges of requirements for reserve ties are defined as large time deposits, Eurodollar city banks and for other banks. Reserve cities were borrowings, repurchase agreements against U.S. designated under a criterion adopted effective Nov. 9, government and federal agency securities, federal 1972, by which a bank having net demand deposits of funds borrowings from nonmember institutions, and more than $400 million was considered to have the certain other obligations. In general, the base for the character of business of a reserve city bank. The marginal reserve requirement was originally the presence of the head office of such a bank constituted greater of (a) $100 million or (b) the average amount designation of that place as a reserve city. Cities in of the managed liabilities held by a member bank, which there were Federal Reserve Banks or branches Edge corporation, or family of U.S. branches and were also reserve cities. Any banks having net demand agencies of a foreign bank for the two reserve comdeposits of $400 million or less were considered to putation periods ending Sept. 26, 1979. For the comhave the character of business of banks outside of putation period beginning Mar. 20, 1980, the base was reserve cities and were permitted to maintain reserves lowered (a) 7 percent or (b) the decrease in an instituat ratios set for banks not in reserve cities. tion's U.S. office gross loans to foreigners and gross Effective Aug. 24, 1978, the Regulation M reserve balances due from foreign offices of other institutions requirements on net balances due from domestic between the base period (Sept. 13-26, 1979) and the banks to their foreign branches and on deposits that week ending Mar. 12, 1980, whichever was greater. foreign branches lend to U.S. residents were reduced For the computation period beginning May 29, 1980, to zero from 4 percent and 1 percent respectively. The the base was increased 7 Vi percent above the base used Regulation D reserve requirement of borrowings from to calculate the marginal reserve in the statement week unrelated banks abroad was also reduced to zero from of May 14-21, 1980. In addition, beginning Mar. 19, 4 percent. 1980, the base was reduced to the extent that foreign Effective with the reserve computation period loans and balances declined. beginning Nov. 16, 1978, domestic deposits of Edge 5. The Garn-St Germain Depository Institutions corporations were subject to the same reserve re- Act of 1982 (Public Law 97-320) provides that $2 quirements as deposits of member banks. million of reservable liabilities (transaction accounts, 3. Negotiable order of withdrawal (NOW) accounts nonpersonal time deposits, and Eurocurrency liabiliand time deposits such as Christmas and vacation club ties) of each depository institution be subject to a zero accounts were subject to the same requirements as sav- percent reserve requirement. The Board is to adjust ings deposits. the amount of reservable liabilities subject to this zero The average reserve requirement on savings and percent reserve requirement each year for the next suc- Digitizedo ftoher rF RtimAeS EdRep osits before implementation of the ceeding calendar year by 80 percent of the percentage http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

240 Tables 12.—Continued Depository institution requirements after implementation of the Ty d p e e p o os f it d e in p t o e s r i v t, a a lJ nd Monetary Control Act6 Percent Effective date Net transaction accounts1'* $0-$28.9 million 3 12/29/83 Over $28.9 million 12 12/29/83 Nonpersonal time deposits9 By original maturity Less than 1 Vi years 10/6/83 VA years or more 10/6/83 Eurocurrency liabilities All types 11/13/80 increase in the total reservable liabilities of all deposi- payment orders of withdrawal, and telephone and pretory institutions, measured on an annual basis as of authorized transfers (in excess of three per month) for June 30. No corresponding adjustment is to be made the purpose of making payments to third persons or in the event of a decrease. Effective Dec. 9, 1982, the others. However, MMDAs and similar accounts ofamount of the exemption was established at $2.1 fered by institutions not subject to the rules of the Demillion. Effective with the reserve maintenance period pository Institutions Deregulation Committee (DIDC) beginning Jan. 12,1984, the amount of the exemption that permit no more than six preauthorized, autowas $2.2 million. In determining the reserve require- matic, or other transfers per month of which no more ments of a depository institution, the exemption shall than three can be checks—are not transaction acapply in the following order: (1) nonpersonal money counts (such accounts are savings deposits subject to market deposit accounts (MMDAs) authorized under time deposit reserve requirements). 12 CFR section 1204.122; (2) net NOW accounts 8. The Monetary Control Act of 1980 requires that (NOW accounts less allowable deductions); (3) net the amount of transaction accounts against which the other transaction accounts; and (4) nonpersonal time 3 percent reserve requirement applies be modified andeposits or Eurocurrency liabilities starting with those nually by 80 percent of the percentage increase in with the highest reserve ratio. With respect to NOW transaction accounts held by all depository institutions accounts and other transaction accounts, the exemp- determined as of June 30 each year. Effective Dec. 31, tion applies only to such accounts that would be sub- 1981, the amount was increased accordingly from $25 ject to a 3 percent reserve requirement. million to $26 million; effective Dec. 30, 1982, to 6. For nonmember banks and thrift institutions that $26.3 million; and effective Dec. 29, 1983, to $28.9 were not members of the Federal Reserve System on or million. after July 1, 1979, a phase-in period ends Sept. 3, 9. In general, nonpersonal time deposits are time 1987. For banks that were members on or after July 1, deposits, including savings deposits, that are not 1979, but withdrew on or before Mar. 31, 1980, the transaction accounts and in which a beneficial interest phase-in period established by Public Law 97-320 is held by a depositor that is not a natural person. Also ends on Oct. 24, 1985. For existing member banks the included are certain transferable time deposits held by phase-in period of about three years was completed on natural persons, and certain obligations issued to de- Feb. 2, 1984. All new institutions will have a two-year pository institution offices located outside the United phase-in beginning with the date that they open for States. For details, see section 204.2 of Regulation D. business, except for those institutions that have total NOTE. Required reserves must be held in the form of reservable liabilities of $50 million or more. deposits with Federal Reserve Banks or vault cash. 7. Transaction accounts include all deposits on Nonmembers may maintain reserve balances with a which the account holder is permitted to make with- Federal Reserve Bank indirectly on a pass-through drawals by negotiable or transferable instruments, basis with certain approved institutions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 241 13. Maximum Interest Rates Payable on Time and Savings Deposits at Federally Insured Institutions1 Percent per annum Savings and loan associations and Commercial banks mutual savings banks (thrift institutions) • Type and maturity of deposit In effect In effect Dec. 31, 1984 Dec. 31, 1984 Effective Effective Percent date Percent date Savings 1/1/84 5Vi 7/1/79 Negotiable order of withdrawal accounts 5VA 12/31/80 12/31/80 Negotiable order of withdrawal accounts of $2,500 or more2 1/5/83 1/5/83 Money market deposit account2. 12/14/82 o 12/14/82 Time accounts 7-31 days of less than $2,5004. 5Vi 1/1/84 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, and the compliance with the average balance requirement may Annual Report of the Federal Deposit Insurance be determined over a period of one month. Depository Corporation. institutions may not guarantee a rate of interest for 2. Effective Dec. 1, 1983, IRA/Keogh (H.R. 10) this account for a period longer than one month or Plan accounts are not subject to minimum deposit re- condition the payment of a rate on a requirement that quirements. the funds remain on deposit for longer than one 3. Effective Dec. 14, 1982, depository institutions month. are authorized to offer a new account with a required 4. Deposits of less than $2,500 issued to governinitial balance of $2,500 and an average maintenance mental units continue to be subject to an interest rate balance of $2,500 not subject to interest rate restric- ceiling of 8 percent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

242 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 O 1936—Feb. 1 25-55 O 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—May 6 65 50 65 1971—Dec. 6 55 50 55 1972—Nov. 24 65 50 65 1974—Jan. 3 50 50 50 1977—Jan. 1 50 50 50 30 1. Regulations T, U, G, and X, adopted by the 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 243 15. Principal Assets and Liabilities, and Number of Insured Commercial Banks, by Class of Bank, June 30, 1984 and 19831 Asset and liability items shown in millions of dollars Insured commercial banks Insured Item Member banks nonmember Total banks Total National State June 30, 19842 Loans and investments, total ... 1,548,718 1,117,595 893,757 223,839 431,123 Loans Gross 1,175,615 881,645 704,499 177,146 293,969 Net 1,158,552 870,315 695,603 174,712 288,237 Investments 373,104 235,950 189,258 46,692 137,153 U.S. government securities . 242,171 148,480 120,670 27,809 93,692 Other 130,932 87,471 68,588 18,883 43,462 Cash assets, total 193,913 149,564 114,044 35,520 44,349 Deposits, total 1,525,923 1,077,397 866,419 210,979 448,526 Interbank 53,147 48,594 32,046 16,548 4,553 Other transaction 438,790 318,159 250,026 68,133 120,631 Other nontransaction. 1,033,986 710,644 584,347 126,297 323,342 Total equity capital 144,312 104,648 81,674 22,973 39,665 Number of banks 14,416 5,847 4,795 1,052 8,569 June 30, 1983 Loans and investments, total ... 1,431,343 1,033,782 804,897 228,885 397,561 Loans Gross 1,042,088 783,238 608,499 174,739 258,850 Net 1,024,513 771,644 599,546 172,098 252,869 Investments 389,255 250,544 196,399 54,146 138,711 U.S. government securities . 227,722 139,599 110,815 28,784 88,123 Other3 161,533 110,946 85,584 25,362 50,588 Cash assets, total 207,854 163,118 121,834 41,284 44,736 Deposits, total 1,436,727 1,016,269 801,605 214,664 420,457 Interbank 72,409 67,569 44,000 23,569 4,840 Other demand 325,851 243,271 184,441 58,830 82,580 Other time and savings. 1,038,467 705,429 573,164 132,265 333,038 Total equity capital 133,550 96,099 74,425 21,674 37,452 Number of banks 14,465 5,724 4,683 1,041 8,741 1. All insured commercial banks in the United 3. Includes trading accounts for banks with assets States. of less than $100 million. 2. Effective Mar. 31, 1984, the report of condition NOTE. Details may not add to totals because of for commercial banks was substantially revised. These rounding. revisions are reflected in the data for June 30, 1984 (top tier of this table). 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 1918-84, and Month-End 1984 Millions of dollars Factors supplying reserve funds Federal Reserve Bank credit outstanding Spe- U.S. government cial Treasecurities draw- sury Period ing cur- Other Gold Held All Federal stock4 rights rency Bought under Loans Float other1 Reserve Total certif- out- Total r o i u gh t- t r c e h p a u s r e - assets3 ic a a c t - e st i a n n g d 5 agree- count ment 239 239 0 1,766 199 294 2,498 2,873 0 1,795 300 300 0 2,215 201 575 3,292 2,707 0 1,707 287 287 0 2,687 119 262 3,355 2,639 0 1,709 234 234 0 1,144 40 146 1,563 3,373 0 1,842 436 436 0 618 78 273 1,405 3,642 0 1,958 134 80 54 723 27 355 1,238 3,957 0 2,009 540 536 4 320 52 390 1,302 4,212 0 2,025 375 367 8 643 63 378 1,459 4,112 0 1,977 315 312 3 637 45 384 1,381 4,205 0 1,991 617 560 57 582 63 393 1,655 4,092 0 2,006 228 197 31 1,056 24 500 1,809 3,854 0 2,012 511 488 23 632 34 405 1,583 3,997 0 2,022 739 686 43 251 21 372 1,373 4,306 0 2,027 817 775 42 638 20 378 1,853 4,173 0 2,035 1,855 1,851 4 235 14 41 2,145 4,226 0 2,204 2,437 2,435 2 98 15 137 2,688 4,036 0 2,303 2,430 2,430 0 7 5 21 2,463 8,238 0 2,511 2,431 2,430 1 5 12 38 2,486 10,125 0 2,476 2,430 2,430 0 3 39 28 2,500 11,258 0 2,532 2,564 2,564 0 10 19 19 2,612 12,760 0 2,637 2,564 2,564 0 4 17 16 2,601 14,512 0 2,798 2,484 2,484 0 7 91 11 2,593 17,644 0 2,963 2,184 2,184 0 3 80 8 2,274 21,995 0 3,087 2,254 2,254 0 3 94 10 2,361 22,737 0 3,247 6,189 6,189 0 6 471 14 6,679 22,726 0 3,648 11,543 11,543 0 5 681 10 12,239 21,938 0 4,094 18,846 18,846 0 80 815 4 19,745 20,619 0 4,131 24,252 24,262 0 249 578 2 15,091 20,065 0 4,339 23,350 23,350 0 163 580 1 24,093 20,529 0 4,562 22,559 22,559 0 85 535 1 23,181 22,754 0 4,562 23,333 23,333 0 223 541 1 24,097 24,244 0 4,589 18,885 18,885 0 78 534 2 19,499 24,427 0 4,598 20,778 20,725 53 67 1,368 3 22,216 22,706 0 4,636 23,801 23,605 196 19 1,184 5 25,009 22,695 0 4,709 24,697 24,034 663 156 967 4 25,825 23,187 0 4,812 25,916 25,318 598 28 935 2 26,880 22,030 0 4,894 24,932 24,888 44 143 1 25,885 21,713 0 4,985 24,785 24,391 394 108 1,585 29 26,507 21,690 0 5,008 24,915 24,610 305 50 1,665 70 26,699 21,949 0 5,066 24,238 23,719 519 55 1,424 66 25,784 22,781 0 5,146 26,347 26,252 95 64 1,296 49 27,755 20,534 0 5,234 26,648 26,607 41 458 1,590 75 28,771 19,456 0 5,311 27,384 26,984 400 33 1,847 74 29,338 17,767 0 5,398 28,881 30,478 159 130 2,300 51 31,362 16,889 0 5,585 30,820 28,722 342 38 2,903 110 33,871 15,978 0 5,567 33,593 33,582 11 63 2,600 162 36,418 15,513 0 5,578 37,044 36,506 538 186 2,606 94 39,930 15,388 0 5,405 Digitized foFr oFr RnAotSesE sRee last two pages of table. 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 reserves7 r c C t e c u i i n u i o n l r c a r n - - y - T h i c s n o r u a g e l s r d s a y h 6 - - T F s r u e e r d a y e - ral R F e e i o s g e r n - rve B O an th k e s r c R F O o e e u a d s th n c e e - r e t r v s a r e l 3 q c a b u R l n i e n a i c e r a g l e e - - r s d - c R F b O a e e i a p l l d s t i i n i h a e t e t d i - r e r a e v a r l s e 3 l R F W e e d se i e t r r h v a e l r C e a n n u c d r- y qu R ir e e - d9 c E es x s - 9 Bankf coin8 4,951 288 51 96 25 118 0 0 1,636 0 1,585 51 5,091 385 31 73 28 208 0 0 1,890 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,«87 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 4,026 0 7,411 6,615 11,160 2,215 867 774 586 291 0 0 ^,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 30,509 796 563 490 441 907 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 20,677 471 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

246 Tables 16. Reserves of Depository Institutions, Federal Reserve Bank Credit, and Related Items—Year-End 1918-84, and Month-End 1984—Continued Millions of dollars Factors supplying reserve funds Federal Reserve Bank credit outstanding Spe- U.S. government cial Treasecurities10 draw- sury Period Other Gold ing cur- Held All Federal stock4 rights rency Bought under Loans Float' other2 Reserve Total certif- out- Total out- r c e h p a u s r e - assets3 ic a a c t - e st i a n n g d 5 right " 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 1,605 418 8,728 172,464 11,121 4,618 15,732 1984 169,627 167,612 2,015 3,577 833 0 12,347 186,384 11,096 4,618 16,415 1984 Jan. . 158,859 158,859 0 418 846 0 9,102 169,225 11,120 4,618 15,782 Feb. . 149,415 149,415 0 1,020 3,193 0 8,343 161,971 11,116 4,618 15,841 Mar.. 159,372 159,372 0 896 787 0 9,113 170,168 11,111 4,618 15,922 Apr.. 171,116 163,598 7,518 907 609 305 9,746 182,683 11,109 4,618 15,987 May. 163,720 160,260 3,460 2,832 588 426 8,187 175,753 11,104 4,618 16,053 June. 161,360 161,360 0 4,760 -655 0 9,586 175,051 11,100 4,618 16,111 July . 159,204 159,204 0 7,238 671 0 9,014 176,127 11,098 4,618 16,145 Aug.. 162,046 156,850 5,196 8,276 326 0 8,290 178,938 11,098 4,618 16,195 Sept. 163,511 163,511 0 6,633 289 0 12,208 182,641 11,097 4,618 16,237 Oct. . 156,699 156,699 0 5,060 658 0 12,475 174,892 11,096 4,618 16,295 Nov.. 166,159 166,159 0 5,073 -16 0 11,175 182,391 11,096 4,618 16,359 Dec. . 169,627 167,612 2,015 3,577 833 0 12,347 186,384 11,096 4,618 16,415 1. Beginning with 1960, figures reflect a minor culation," in the Treasury Bulletin. change in concept; see Federal Reserve Bulletin, vol. 6. 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- 2. 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 7. Beginning November 1979, includes reserves of expired on that date. member banks, Edge Act corporations, and U.S. 3. Before Apr. 16, 1969, this category includes the agencies and branches of foreign banks. Beginning total of Federal Reserve capital paid in, surplus, other Nov. 13,1980, includes reserves of all depository insticapital accounts, and other liabilities and accrued divi- tutions. dends less the sum of bank premises and other assets, 8. Between Dec. 1,1959, and Nov. 23, 1960, part of and was reported as "Other Federal Reserve ac- the amount was allowed as reserves; thereafter all was counts'*; thereafter, "Other Federal Reserve assets" allowed. and "Other Federal Reserve liabilities and capital" are 9. These figures are estimated through 1958. Before shown separately. 1929, they were available only on call dates (in 1920 4. Before Jan. 30, 1934, data include gold held in and 1922, the call dates were Dec. 29). Beginning Sept. Federal Reserve Banks and in circulation. 12, 1968, the amount is based on close-of-business 5. These figures include currency and coin (other figures for the reserve period 2 weeks previous to the than gold) issued directly by the Treasury. The largest report date, components are fractional and dollar coins. For de- 10. Beginning Dec. 1, 1966, these securities include Digitizedt afiolsr sFeeR tAheS rEeRgu lar table, "Currency and Coin in Cir- federal agency obligations held under repurchase http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 247 16.—Continued Factors absorbing reserve funds Deposits, other Member bank than reserves, with reserves7 r C en u c r- y T s r u e r a y - Federal Reserve Banks F O ed th e e ra r l qu R i e re - d R F O e e d s th e e r e r v r a e l in cash Reserve clear- liac t c u io i l r a n - - h in o g ld s6 - T s r u e r a y - F ei o g r n - Other cou ac n - ts 3 a b n in a c g l e - s c b a i a p l n i i t t d i a e l s 3 R F W e e d se i e t r r h v a e l r C e a n n u c d r- y qu R ir e e - d 9 ce E ss x 9 - '12 Banks coin8 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 72,497 317 2,542 251 l,41913 0 0 2,669 27,060 6,781 35,268 -1,360 79,743 185 2,113 418 l,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 -l,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 ,187 0 0 3,292 26,870 9,421 37,615 -1,265 114,645 240 4,196 368 ,256 0 0 4,275 31,152 10,538 42,694 -893 125,600 494 4,075 429 ,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 1,328 171,935 479 3,661 191 851 0 1,013 5,392 20,413 17,821 39,179 -945 183,793 513 5,316 253 867 0 1,126 5,952 20,693 n.a. n.a. n.a. 166,501 492 7,153 252 410 0 ,047 5,625 19,263 n.a. n.a. n.a. 167,206 484 3,226 247 498 0 ,070 5,555 15,260 n.a. n.a. n.a. 168,750 523 3,684 221 562 0 ,133 5,912 21,034 n.a. n.a. n.a. 170,345 547 16,729 345 324 0 ,136 6,391 18,579 n.a. n.a. n.a. 173,803 534 4,855 295 416 0 ,148 5,939 20,538 n.a. n.a. n.a. 175,069 523 4,397 237 432 0 ,148 5,971 19,104 n.a. n.a. n.a. 175,606 497 3,972 215 309 0 ,158 6,035 20,197 n.a. n.a. n.a. 176,827 465 4,029 242 413 0 ,147 6,140 21,586 n.a. n.a. n.a. 175,340 465 8,514 206 383 0 1,139 6,073 22,473 n.a. n.a. n.a. 176,300 482 3,791 270 321 0 ],132 5,997 18,608 n.a. n.a. n.a. 179,510 500 2,216 392 447 0 ,254 6,347 23,798 n.a. n.a. n.a. 183,793 513 5,316 253 867 0 1,126 5,952 20,693 n.a. n.a. n.a. agreements and beginning Sept. 29, 1971, federal and redeposited in full with Federal Reserve Banks in agency issues bought outright. connection with voluntary participation by nonmem- 11. Includes, beginning 1969, securities loaned— ber institutions in the Federal Reserve System's profully guaranteed by U.S. government securities pledged gram of credit restraint. with Federal Reserve Banks—and excludes (if any) As of Dec. 12, 1974, the amount of voluntary nonsecurities sold and scheduled to be bought back under member bank and foreign-agency and branch deposits matched sale-purchase transactions. 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 Fed- Digitizedo fwonr eFd RbAanSkEinRg institutions held with member banks eral Reserve System, Sept. 1, 1976), pp. 507-23. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

248 Tables 17. Changes in Number of Banking Offices in the United States, 1984 P Commercial banks (including stock savings Mutual banks and nondeposit trust companies) savings Type of office All banks Member Nonmember and change banks Total Na- Non- Non- Total tional State Insured insured Insured insured Banks, Dec. 31,1983 15,399 15,025 5,806 4,753 1,053 8,655 5641 277 97 Changes during 1984 New banks 592 590 310 262 48 193 87 2 Ceased banking operation .. -13 -13 -3 -3 _ i -9 SusDensions Placed in receivership Banks converted into branches -418 -418 -152 -128 -24 -204 -62 Other -64 -51 5 4 1 -92 36 -10 -1 Interclass changes Nonmember to national.. 32 32 -32 Nonmember to state member 1 1 -1 State member to national. 3 -3 State member to nonmember -7 -7 7 National to state member. -4 4 National to nonmember -7 -7 7 National to noninsured national -2 _2 2 Savings and loan assns. to insured mutual ... 2 Insured mutual to federal mutual —4 Net change 97 108 177 157 20 -123 54 -10 -1 Dec. 31,1984 15,496 15,133 5,983 4,910 1,073 8,532 618 267 96 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 249 17.—Continued Commercial banks (including stock savings Mutual banks and nondeposit trust companies) savings Type of office All banks Member Nonmember and change banks Total Na- Non- Non- Total tional State Insured insured Insured insured Branches and additional offices, Dec. 31,19832 . 43,128 40,808 26,038 21,222 4,816 14,666 104 2,088 232 Changes during 1984 De novo 1,162 1,125 539 419 34 90 0 4 0 Banks converted 418 418 152 128 24 204 62 Discontinued -1,124 -1,065 -726 -628 -98 -339 0 -57 -2 Sale of branch 3 -42 -13 -29 45 -3 . .. Interclass changes4 Nonmember to national.. Nonmember to state member State member to national. State memeber to nonmember National to state member. National to nonmember.. Noninsured to insured mutual Insured mutual to federal mutual Insured nonmember to insured mutual Other4 . 434 484 737 858 -35 332 -89 -18 1 Net change 890 965 660 764 -104 332 -27 -74 -1 Dec.31,19842 44,018 41,773 26,698 21,986 4,712 14,998 77 2,014 231 Banking facilities Dec. 31,19833 146 146 114 103 11 32 Changes during 1984 Established 2 2 2 2 Discontinued -3 -3 -3 -3 Net change .... -1 -1 -1 -1 Dec.31,19843.. 145 145 113 102 11 32 1. As of Dec. 31, 1984, includes 14 state mem- other government establishments through arrangeber noninsured and 2 noninsured national trust ments made by the Treasury. companies. 4. Interclass changes included in "Other" category. 2. Figures exclude banking facilities. p Preliminary. 3. Data include facilities provided at military and NOTE. Final data will be available in the Annual Statistical Digest, 1984 to be published in late 1985. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

250 Tables 18. Mergers, Consolidations, and Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1984 European American Bank & Trust Company, fect on competition because Applicant would New York, New York, to acquire the assets and have a small share of area deposits. assume the deposit liabilities of two branches The banking factors and convenience and of Bankers Trust Company, New York, New needs considerations are consistent with ap- York proval. SUMMARY REPORT BY THE ATTORNEY GENERAL (11/10/83) The proposed transaction would not be signifi- Central Trust Company, Rochester, New cantly adverse to competition. York, to acquire certain assets and assume cer- BASIS FOR APPROVAL BY THE FEDERAL RESERVE tain liabilities of two branches of Genesee BANK (1/17/84) County Bank, Le Roy, New York European American Bank & Trust Company SUMMARY REPORT BY THE ATTORNEY GENERAL (Applicant), with assets of $6 billion, proposes (1/13/84) to acquire two branches (Branches) of Bankers The proposed transaction would not be signifi- Trust Company. Assets at Branches amount to cantly adverse to competition. $46 million. The relevant market in the proposal is the BASIS FOR APPROVAL BY THE SECRETARY OF THE Metropolitan New York area, where Applicant BOARD OF GOVERNORS (1/26/84) Central Trust Company (Applicant), with asranks twelfth among commercial banking sets of $483 million, proposes to acquire two organizations, with 2 percent of area deposits. branches of Genesee County Bank. Together Since Branches hold less than 1 percent of the Branches have deposits of $17 million. market deposits, the acquisition would have no The relevant market in the proposal is the significant effect on competition. Batavia market, in which Applicant holds the The banking factors are consistent with apsmallest share (3.4 percent) of the deposits held proval. With respect to the convenience and by six banking organizations. Following the acneeds factors, Applicant indicates that followquisition, Applicant's share of that market ing the acquisition customers of Branches will would increase to 7.2 percent. The acquisition have a greater variety of savings and checking would not have a significant effect on competiaccounts, some at lower service fees. tion. The convenience and needs factors, as well as the financial factors, are consistent with Banco de Ponce, Ponce, Puerto Rico, to acapproval. quire the assets and assume the deposit liabilities of a branch of Dollar-Dry Dock Savings Bank of New York, New York, New York SUMMARY REPORT BY THE ATTORNEY GENERAL United Virginia Bank, Richmond, Virginia, to (12/23/83) acquire the assets and assume the liabilities of The proposed transaction would not be signifi- the Waynesboro Branch of Bank of Virginia, cantly adverse to competition. Richmond, Virginia BASIS FOR APPROVAL BY THE FEDERAL RESERVE SUMMARY REPORT BY THE ATTORNEY GENERAL (1/13/84) BANK (1/26/84) Banco de Ponce (Applicant), with assets of The proposed transaction would not be signifi- $1.6 billion, proposes to acquire a branch cantly adverse to competition. (Branch) of Dollar-Dry Dock Savings Bank of BASIS FOR APPROVAL BY THE SECRETARY OF THE New York. Deposits at Branch amount to $68 BOARD OF GOVERNORS (2/7/84) million. United Virginia Bank (Applicant), with assets The relevant market in the proposal is the of $5 billion, proposes to acquire the Waynes- Metropolitan New York area, in which Branch boro Branch (Branch) of Bank of Virginia. is located and in which Applicant maintains Branch has deposits of $4 million. eleven offices with deposits of $170 million. Applicant ranks fourth among nine banks in The acquisition would not have a significant ef- the Augusta County market, with 11.4 percent Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 251 18.—Continued of area deposits. If the proposed acquisition BASIS FOR APPROVAL BY THE FEDERAL RESERVE took place, Applicant would continue to rank BANK (3/22/84) fourth and would increase its share of market First Virginia Bank-Colonial (Applicant), with deposits to 12.2 percent. The proposal would assets of $117 million, proposes to merge The have no significant effect on competition. Women's Bank (Bank), with assets of $20 Applicant plans to offer new or enhanced million. Applicant is a subsidiary of First services at Branch. The proposal would have a Virginia Banks, Inc., Richmond, which is the positive effect on the convenience and needs of fifth largest commercial banking organization customers of Branch. in Virginia, with 8.3 percent of deposits at The financial and managerial resources of banking offices in the state. Applicant ranks Applicant are satisfactory, and the banking seventh in the Richmond market, with 3.3 perfactors are consistent with approval. cent of area deposits. If the proposed merger were consummated, Applicant would not alter its market rank; however, its share of market Central Trust Company, Rochester, New York, deposits would rise to 3.7 percent. The proto acquire certain assets and assume certain posal would have no significant effect on comliabilities of the Oakfield Branch of Liberty petition. National Bank, Buffalo, New York The satisfactory condition of Applicant SUMMARY REPORT BY THE ATTORNEY GENERAL would not be altered by the acquisition. The (2/3/84) convenience and needs factors are consistent The proposed transaction would not be signifi- with approval. cantly adverse to competition. BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (2/14/84) St. Ansgar State Bank, St. Ansgar, Iowa, to Central Trust Company (Applicant), with as- merge with Stacyville Savings Bank, Stacyville, sets of $483 million, proposes to acquire the Iowa Oakfield Branch (Branch) of Liberty National Bank. Branch has deposits of $18 million. SUMMARY REPORT BY THE ATTORNEY GENERAL (2/17/84) The relevant market in the proposal is the The proposed transaction would not be signifi- Batavia market, in which Applicant holds the cantly adverse to competition. smallest share (3.4 percent) of bank deposits held by six banking organizations. Following BASIS FOR APPROVAL BY THE BOARD OF GOVERthe acquisition, Applicant's share of the mar- NORS (4/12/84) ket would increase to 9.3 percent. The acquisi- St. Ansgar State Bank (Applicant), with assets tion would not have a significant effect on of $42 million, proposes to merge Stacyville competition. Savings Bank (Bank), with assets of $11 million. The satisfactory condition of Applicant Applicant and Bank compete in the highly would not be altered by the acquisition. With concentrated Mitchell County banking market. respect to the convenience and needs factors, Applicant is the second largest of six banks in Applicant is more active than Liberty National the market, controlling 26.3 percent of total Bank in offering student loans and would pro- commercial bank deposits. Bank is the fifth vide lower cost trust services than are currently largest bank in the market, with 6.7 percent of offered through Branch. such deposits. Upon consummation of this proposal, Applicant would become the largest commercial bank in the market and would con- First Virginia Bank-Colonial, Richmond, trol 33.0 percent of market deposits. Virginia, to merge with The Women's Bank, Although consummation would result in the Richmond, Virginia elimination of existing competition, the Board SUMMARY REPORT BY THE ATTORNEY GENERAL has considered several factors that mitigate the (3/9/84) competitive effects of the proposal: Mitchell The proposed transaction would not be signifi- County is a sparsely populated area that has excantly adverse to competition. perienced a significant decline in population. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

252 Tables 18. Mergers, Consolidations, and Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1984—Continued The county has a lower population-per-bank SUMMARY REPORT BY THE ATTORNEY GENERAL ratio than either its neighboring counties or the No report received. Requests for reports on the state average, and fewer residents per bank of- competitive factors were dispensed with, as aufice than the state average and all but one of its thorized by the Bank Merger Act, to permit the neighboring counties. Bank, with total deposits Reserve Bank to act immediately to safeguard of only $9.3 million, is also among the smallest depositors of National Bank of Carmel. depository institutions in the state and in its BASIS FOR APPROVAL BY THE FEDERAL RESERVE banking market. Moreover, Bank has experi- BANK (5/11/84) enced a low rate of growth since its establish- County Bank and Trust (Applicant), with asment in 1911. In addition, Bank's share of desets of $403 million, proposes to acquire Naposits in the Mitchell County banking market tional Bank of Carmel (Bank), with assets of has slowly declined from 8.6 percent in 1973, to $66 million. 7.5 percent in 1978, and to 6.7 percent in 1983. In view of the financial condition of Bank, Comparative data regarding Bank's mix of the Comptroller of the Currency has recomproducts and services likewise indicates that mended immediate action by the Federal Re- Bank has not been an active competitive factor serve System to prevent the probable failure of in the market. Bank. Consequently, the Board has determined that, in view of the record and in the particular context of a declining market containing a relatively large number of banks and the proposed merger of a small, relatively non- Commerce Union Bank, Nashville, Tennessee, competitive organization, consummation of to merge with Liberty Bank, Brent wood, this proposal would not have a significant Tennessee adverse effect on existing competition. Thus, SUMMARY REPORT BY THE ATTORNEY GENERAL competitive effects are consistent with ap- (6/8/84) proval. The proposed transaction would not be signifi- The financial and managerial resources of cantly adverse to competition. Applicant and Bank are regarded as generally BASIS FOR APPROVAL BY THE FEDERAL RESERVE satisfactory and their prospects appear favor- BANK (6/19/84) able. Accordingly, considerations relating to Commerce Union Bank (Applicant), with asbanking factors are consistent with approval. sets of $1.6 billion, proposes to merge with The proposed transaction would enhance the Liberty Bank, with assets of $24 million. Apquantity and quality of services offered by plicant is a subsidiary of Commerce Union Bank. Bank would increase its weekly hours of Corporation, Nashville (Commerce Union), operation by 72 percent and would add new or which ranks fourth among banking organizaenhanced services, including the offering of in- tions in the state. dividual retirement accounts as well as the ex- The relevant market in this proposal is the panding of credit programs and financial ser- Nashville market, in which Applicant ranks vices developed especially for local agricultural third among twenty-four banking organizaand commercial operations. Thus, considerations, with 22.3 percent of market deposits. If tions relating to the convenience and needs of the proposed merger took place, Applicant the community to be served are consistent with would continue to rank third in the market and approval and outweigh any adverse effects of would increase its share of market deposits to the transaction. 22.7 percent. Eight savings and loan associations hold market deposits that amount to 21.9 percent of combined deposits of banks and savings and loan associations. The proposal would County Bank and Trust, Santa Cruz, Cali- not have a significantly adverse effect on comfornia, to acquire certain assets and assume petition. Further, the convenience and needs substantially all of the liabilities of National factors and banking factors are consistent with Bank of Carmel, Carmel, California approval. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 253 18.—Continued Bank of Virginia, Richmond, Virginia, to than 1 percent of bank deposits. The proposed merge with The Bank of Montross, Montross, transaction should have a positive effect on Virginia competition. The convenience and needs factors and SUMMARY REPORT BY THE ATTORNEY GENERAL (6/22/84) financial factors are consistent with approval. The proposed transaction would not be significantly adverse to competition. The Potters Bank and Trust Company, East BASIS FOR APPROVAL BY THE FEDERAL RESERVE Liverpool, Ohio, to acquire the assets and BANK (7/2/84) assume the liabilities of three branches of Bank of Virginia (Applicant), with assets of BancOhio National Bank, Columbus, Ohio $3.8 billion, proposes to merge The Bank of Montross (Bank), with assets of $38 million. SUMMARY REPORT BY THE ATTORNEY GENERAL Two of Bank's three offices are in the West- (8/3/84) moreland County market, where Bank ranks The proposed transaction would not be signifisecond among three banks, with 32.3 percent cantly adverse to competition. of area deposits. The remaining office is in the BASIS FOR APPROVAL BY THE FEDERAL RESERVE Richmond County market, where Bank, one of BANK (8/14/84) only two banks operating in this market, holds The Potters Bank and Trust Company (Applithe smaller (14.2 percent) share of deposits. cant), with assets of $42 million, proposes to Because Applicant does not currently operate acquire three branches (Branches) of BancOhio an office in either of the markets served by National Bank. Branches have $20 million in Bank, the instant proposal would have no deposits. significant effect on competition. Branches are in the Salem banking market, Following the merger, Applicant proposes to where they rank seventh among ten commercial provide additional services to Bank's custo- banking organizations, with 6.3 percent of mers, including access to its branches through- market deposits. Because Applicant is not now out the state. The convenience and needs fac- represented in this market, the proposal would tors and financial factors are consistent with have no significant effect on competition. approval. The convenience and needs factors and financial factors are consistent with approval. Central Bank, Miami, Florida, to acquire the assets and assume the deposit liabilities of two Ohio Citizens Bank, Toledo, Ohio, to acquire branches of Pan American Bank, N.A., Miami, the assets and assume the liabilities of three Florida branches of BancOhio National Bank, Columbus, Ohio SUMMARY REPORT BY THE ATTORNEY GENERAL (7/27/84) SUMMARY REPORT BY THE ATTORNEY GENERAL The proposed transaction would not be signifi- (8/24/84) cantly adverse to competition. The proposed transaction would not be significantly adverse to competition. BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (8/9/84) BASIS FOR APPROVAL BY THE FEDERAL RESERVE Central Bank (Applicant), a proposed new BANK (9/6/84) bank, proposes to acquire two branches Ohio Citizens Bank (Applicant), with assets of (Branches) of Pan American Bank, N.A. $672 million, proposes to acquire three Deposits at Branches amount to $29 million. branches (Branches) of BancOhio National Branches are in the Miami-Fort Lauderdale Bank. Branches have deposits of $42 million. banking market, where together 64 banking The relevant market in this proposal is the organizations control deposits of $13.6 billion. Toledo market, in which Applicant ranks third The instant proposal would introduce a new among nineteen banking organizations, with competitor to the market, with the continuing 18.1 percent of commercial bank deposits. If bank ranking fifty-second and holding less the proposed transaction took place, Applicant Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

254 Tables 18. Mergers, Consolidations, and Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1984—Continued would rank second and would hold 19.7 per- in the Oceanside-Vista Metropolitan banking cent of market deposits. The proposal would market, where Applicant would rank sevenhave no significant effect on competition. teenth among banking organizations following The banking factors and convenience and the acquisition of Branch. Union Bank would needs considerations are consistent with ap- continue to be represented in the Oceanproval. side-Vista Metropolitan market. The proposal would have no significant effect on competition. Norstar Bank of Long Island, Hempstead, The financial factors and convenience and New York, to merge with Bank of Long Island, needs factors are consistent with approval. N.A., East Islip, New York SUMMARY REPORT BY THE ATTORNEY GENERAL Citizens Bank and Trust Co., Jeffersonville, (9/14/84) Indiana, to merge with The Clark County State The proposed transaction would not be signifi- Bank, Jeffersonville, Indiana cantly adverse to competition. SUMMARY REPORT BY THE ATTORNEY GENERAL BASIS FOR APPROVAL BY THE FEDERAL RESERVE (6/8/84) BANK (10/12/84) The proposed transaction would not be signifi- Norstar Bank of Long Island (Applicant), with cantly adverse to competition. assets of $866 million, proposes to merge Bank of Long Island, N.A. (Bank), with assets of BASIS FOR APPROVAL BY THE BOARD OF GOVER- $96 million. NORS (10/25/84) Applicant is a subsidiary of Norstar Bancorp Citizens Bank and Trust Co. (Applicant), with Inc., Albany (Norstar), which currently con- assets of $166 million, proposes to merge with trols 0.5 percent of commercial bank deposits The Clark County State Bank (Bank), with asin the Metropolitan New York banking mar- sets of $96 million. ket. If the proposed merger were consum- Offices of Applicant and Bank are in Clark mated, Norstar would control 0.6 percent of County, Indiana, which is directly across the commercial bank deposits in that market. Ohio River from Louisville, Kentucky. Within Clearly, the proposal would have no significant the Louisville Kentucky Ranally Metro area, competitive effects. Applicant is the fifth largest of twenty-five Applicant and its parent are in satisfactory commercial banking organizations, controlling financial condition, and the proposed merger approximately 2.5 percent of the total commerwould not alter that condition. cial bank deposits. Bank ranks as the market's ninth largest commercial banking organization and holds approximately 1.5 percent of the total commercial bank deposits. Upon consum- Capital Bank of Carlsbad, Carlsbad, California, to acquire the assets and assume the mation of the proposed merger, Applicant deposit liabilities of the Carlsbad Branch of would remain the market's fifth largest com- Union Bank, Los Angeles, California mercial banking organization and would control about 4.0 percent of the total commercial SUMMARY REPORT BY THE ATTORNEY GENERAL bank deposits. Eight thrift institutions, also in (8/24/84) this market, control 27.6 percent of the total The proposed transaction would not be signifi- deposits in commercial banks and thrift institucantly adverse to competition. tions. The proposed merger would have no BASIS FOR APPROVAL BY THE FEDERAL RESERVE significant effect on competition. BANK (10/18/84) The financial and managerial resources of Capital Bank of Carlsbad (Applicant), a newly Applicant, Bank, and their respective parents organized bank, proposes to acquire the Carls- are regarded as satisfactory, and their future bad Branch (Branch) of Union Bank. Deposits prospects appear favorable. As a result, considat Branch amount to $4 million. erations relating to banking factors are consis- Applicant is a subsidiary of Crown Bancorp, tent with approval. Although no new banking Coronado, which is not currently represented services would be introduced, the customers of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 255 18.—Continued Applicant and Bank would benefit from a The proposed transaction would not be signifigreater selection of branch locations and from cantly adverse to competition. the introduction of automatic teller machines. BASIS FOR APPROVAL BY THE FEDERAL RESERVE Thus, considerations relating to the con- BANK (11/27/84) venience and needs of the community to be Norstar Bank of Upstate New York (Appliserved are consistent with approval. cant), with assets of $1.3 billion, proposes to merge Taconic Valley Bank (Bank), with assets of $33 million. The relevant market in this proposal is the M&I Marshall & Ilsley Bank, Milwaukee, Wis- Albany banking market, where Applicant consin, to merge with Milwaukee County holds 25.6 percent of the total market deposits Bank, West Allis, Wisconsin held by eighteen commercial banking organizations. If the merger took place, Applicant SUMMARY REPORT BY THE ATTORNEY GENERAL would increase its holdings of market deposits (8/31/84) to 26.6 percent. Thrift institutions provide a The proposed transaction would not be signifisubstantial amount of competition to commercantly adverse to competition. cial banks in this market. There would be no BASIS FOR APPROVAL BY THE BOARD OF GOVER- significant effect on competition. NORS (11/13/84) With respect to the convenience and needs M&I Marshall & Ilsley Bank (Applicant), with factors, Applicant plans to offer a higher lendassets of $1.5 billion, proposes to merge ing limit at the offices now operated by Bank. Milwaukee County Bank (Bank), with assets of The financial condition of Applicant and $137 million. Applicant is a subsidiary of Bank is satisfactory, and the condition of the Marshall & Ilsley Corporation, Milwaukee, resulting bank would be satisfactory. Wisconsin (Corporation), which is the second largest commercial banking organization in Wisconsin, holding 9.1 percent of the state's Union Bank and Trust Company, Ottumwa, Iowa, to acquire the assets and assume the commercial bank deposits. liabilities of The First National Bank of Eldon, Applicant and Bank compete in the Milwau- Eldon, Iowa kee banking market, which is served by 48 commercial banking organizations. Corpora- SUMMARY REPORT BY THE ATTORNEY GENERAL tion's six other commercial banking subsidi- (12/10/84) aries in the market, together with Applicant, The proposed transaction would not be significontrol 15.8 percent of market deposits. Upon cantly adverse to competition. consummation of the proposal, Corporation BASIS FOR APPROVAL BY THE FEDERAL RESERVE would control 17.2 percent of market deposits. BANK (12/10/84) The proposed transaction would not be signifi- Union Bank and Trust Company (Applicant), cantly adverse to competition. with assets of $135 million, proposes to acquire The financial and managerial resources of certain assets and assume substantially all the Applicant, Corporation, and Bank are consid- liabilities of The First National Bank of Eldon ered to be satisfactory and their future pros- (Bank), with assets of $8 million. pects appear favorable. Considerations relating In view of the financial condition of Bank, to the convenience and needs of the community the Comptroller of the Currency has recomto be served are also consistent with approval. mended expeditious action by the Federal Reserve System to prevent the failure of Bank. Thus, it was requested that reports about competitive factors be furnished within ten days. Norstar Bank of Upstate New York, Albany, Applicant ranks first among five banks in New York, to merge with Taconic Valley Bank, the Wapello County banking market, with 46 Berlin, New York percent of market deposits. If the proposed ac- SUMMARY REPORT BY THE ATTORNEY GENERAL quisition were consummated, Applicant's (10/19/84) share of market deposits would rise to 49 per- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

256 Tables 18. Mergers, Consolidations, and Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1984—Continued cent. Three savings and loan associations also are subsidiaries of the same bank holding comoperate in this market. pany. In each case, the Summary Report by the Bank has experienced financial problems Attorney General indicates that the transaction that have reduced its competitiveness. The would not have a significantly adverse effect on financial and managerial resources and pros- competition because the proposed merger is pects of the proposed organization would bene- essentially a corporate reorganization. The fit the operations at the office now occupied by Board of Governors, the Federal Reserve Bank without diminishing Applicant's pros- Bank, or the Secretary of the Board of Goverpects, and Bank's customers would be served nors, whichever approved the application, deby a stronger organization. termined that the competitive effects of the proposed transaction, the financial and Mergers Approved Involving Wholly Owned managerial resources, and the prospects of the Subsidiaries of the Same Bank Holding Com- banks concerned, as well as the convenience pany and needs of the community to be served, were The following transactions involve banks that consistent with approval. Date of Name of bank, type of transaction, Assets approval by and other banks involved' (millions Board or of dollars) Reserve Bank Security Trust Company of Rochester, Rochester, New York 895 1-24-84 Merger The Bank of Auburn, Auburn, New York 99 First Bank and Trust Company of Corning, Corning, New York .. 73 First Bank and Trust Company of Ithaca, Ithaca, New York 99 Genesee Country Bank, Le Roy, New York 85 The State Bank of Seneca Falls, Seneca Falls, New York 40 Glen Bank and Trust Company, Watkins Glen, New York 33 First Trust Union Bank, Wellsville, New York 275 Old Kent Bank and Trust Company, Grand Rapids, Michigan 1,983 1-27-84 Merger Old Kent Bank of Grandville, Grandville, Michigan 7 Old Kent Bank of Wyoming, Wyoming, Michigan 12 Farmers & Merchants Bank, Timberville, Virginia 3-1-84 Merger Farmers & Merchants Bank of Rockingham, Timberville, Virginia 48 First Virginia Bank-Falls Church, Virginia 1,044 5-1-84 Merger First Virginia Bank-Northern Neck, Colonial Beach, Virginia 75 The Merrill Trust Company, Bangor, Maine 435 5-11-84 Merger Federal Trust Company, Waterville, Maine 107 Pacific State Bank, Lincoln City, Oregon 12 5-18-84 Merger Newport State Bank, Newport, Oregon 6 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 257 18.—Continued Date of Name of bank, type of transaction, Assets approval by and other banks involved' (millions Board or of dollars) Reserve Bank State Bank of Albany, Albany, New York 1,149 6-13-84 Merger The Mohawk National Bank, Schenectady, New York 166 M&I American Bank & Trust Company, Racine, Wisconsin. 76 7-9-84 Merger M&I Bank of Mount Pleasant, Racine, Wisconsin 23 Central Fidelity Bank, Richmond, Virginia 1,595 7-20-84 Merger Central Fidelity Bank, N.A., Southwest, Abingdon, Virginia 93 First Virginia Bank-New Bank, Norfolk, Virginia .. (2) 8-31-84 Merger First Virginia Bank of Tidewater, Norfolk, Virginia 243 The Citizens Bank, Oneonta, Alabama 45 10-12-84 Merger First Citizens Bank of Etowah, Glencoe, Alabama.. 21 Princeton Bank, Princeton, New Jersey 395 10-17-84 Merger The Bank of New Jersey, Camden, New Jersey. 713 First Virginia Bank Roanoke-West, Roanoke, Virginia 151 10-29-84 Merger First Virginia Bank of the Southwest, Christiansburg, Virginia ... 71 Maumee Valley National Bank, Defiance, Ohio , 165 11-20-84 Merger The Toledo Trust Company, Toledo, Ohio 1,676 The Fifth Third Bank, Cincinnati, Ohio. 1,610 11-23-84 Merger The First-Mason Bank, Mason, Ohio ... 44 Valley Bank and Trust Company, Salt Lake City, Utah. 564 11-26-84 Merger Heber City Office of Valley Thrift and Loan, Salt Lake City, Utah 4 Central Fidelity Bank, Richmond, Virginia 1,595 12-7-84 Merger Central Fidelity Bank, Christiansburg, Christiansburg, Virginia .. 66 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

258 Tables 18. Mergers, Consolidations, and Acquisitions of Assets or Assumptions of Liabilities Approved by the Board of Governors, 1984—Continued 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 effect on competition. The Board of Gover- The following transactions have no significant nors, the Federal Reserve Bank, or the Secreeffect on competition; they merely facilitate the tary of the Board of Governors, whichever apacquisition of the voting shares of a bank (or proved the application, determined that the banks) by a holding company. In such cases, proposal would, in itself, have no adverse comthe Summary Report by the Attorney General petitive effects, and that the financial and conindicates that the transaction will merely comvenience and needs factors were consistent with bine an existing bank with a nonoperating instiapproval. tution; in consequence, and without regard to Date of Name of bank, type of transaction, Assets approval by and other banks involved! (millions Board or of dollars) Reserve Bank RCB Interim Bank, Osgood, Indiana o 1-12-84 Merger The Ripley County Bank, Osgood, Indiana 51 Citizens Interim Bank of New Haven, New Haven, Missouri 1-13-84 (2) Merger Citizens Bank of New Haven, New Haven, Missouri 29 The Old White Bank, Inc., Greenbrier, West Virginia 1-24-84 (2) Merger Bank of White Sulphur Springs, Greenbrier, West Virginia . 38 First Virginia Bank-Hanover, Ashland, Virginia (2) 1-26-84 Merger Hanover National Bank, Ashland, Virginia 54 Broward Interim Bank, Lauderdale Lakes, Florida (2) 2-9-84 Merger Broward Bank, Lauderdale Lakes, Florida 42 First Virginia Bank-Citizens, Clintwood, Virginia (2) 2-10-84 Merger Virginia Citizens Bank, Clintwood, Virginia 28 FBTC Bank, Connersville, Indiana (2) 2-13-84 Merger Fayette Bank and Trust Company, Connersville, Indiana ... 68 HANCO Bank of Florida, Plantation, Florida (2) 3-28-84 Merger Hanover Bank of Florida, Plantation, Florida 35 The Interim Crogham Colonial Bank, Fremont, Ohio o 4-2-84 Merger The Crogham Colonial Bank, Fremont, Ohio 137 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Tables 259 18.—Continued Date of Name of bank, type of transaction, Assets approval by and other banks involved' (millions Board or of dollars) Reserve Bank First American Interim Bank of Pelham, Pelham, Alabama (2) 4-16-84 Merger First American Bank of Pelham, Pelham, Alabama 10 Sylvania Interim Bank, Sylvania, Ohio (2) 11-13-84 Merger The Sylvania Savings Bank Company, Sylvania, Ohio 259 Petersburg Interim Bank, Petersburg, Virginia (2) 11-15-84 Merger The Community Bank, Petersburg, Virginia 17 P.B.T. Bank, East Liverpool, Ohio (2) 11-16-84 Merger The Potters Bank and Trust Company, East Liverpool, Ohio 46 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

260 The Federal Reserve System Boundaries of Federal Reserve Districts and their Branch Territories 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, 1984 Term expires PAUL A. VOLCKER of New Jersey, Chairman* January 31,1992 PRESTON MARTIN of California, Vice Chairman1 January 31,1996 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 MARTHA R. SEGER of Michigan January 31,1998 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 Federal Reserve System, Equal to the Board Employment Opportunity Programs ANTHONY F. COLE, Special Assistant to the Board OFFICE OF THE SECRETARY ANNETTE FRIBOURG, Special Assistant to the Board WILLIAM W. WILES, Secretary BARBARA R. LOWREY, Associate Secretary NAOMI P. SALUS, Special Assistant to the JAMES MCAFEE, Associate Secretary Board LEGAL DIVISION MICHAEL BRADFIELD, General Counsel OFFICE OF STAFF DIRECTOR J. VIRGIL MATTTNGLY, JR., Associate FOR MONETARY AND General Counsel FINANCIAL POLICY GILBERT T. SCHWARTZ, Associate General STEPHEN H. AXILROD, Staff Director Counsel DONALD L. KOHN, Deputy Staff RICHARD M. ASHTON, Assistant General Director Counsel STANLEY J. SIGEL, Assistant to the Board NANCY P. JACKLIN, Assistant General NORMAND R.V. BERNARD, Special Counsel Assistant to the Board MARYELLEN A. BROWN, Assistant to the General Counsel OFFICE OF STAFF DIRECTOR DIVISION OF RESEARCH FOR MANAGEMENT AND STATISTICS S. DAVID FROST, Staff Director JAMES L. KICHLINE, Director WILLIAM R. JONES, Assistant Staff EDWARD C. ETITN, Deputy Director Director MICHAEL J. PRELL, Deputy Director STEPHEN R. MALPHRUS, Assistant Staff JOSEPH S. ZEISEL, Deputy Director Director JARED J. ENZLER, Associate Director EDWARD T. MULRENIN, Assistant Staff ELEANOR J. STOCKWELL, Associate Director Director PORTIA W. THOMPSON, Equal Employ- DAVID E. LINDSEY, Deputy Associate ment Opportunity Programs Officer 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 Digitizedt hfoe rB FoaRrAd SshEaRll have terminated sooner. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 263 DIVISION OF RESEARCH HERBERT A. BIERN, Assistant Director AND STATISTICS—Continued ANTHONY CORNYN, Assistant Director HELMUT F. WENDEL, Deputy Associate JACK M. EGERTSON, Assistant Director Director ROBERT S. PLOTKIN, Assistant Director MARTHA BETHEA, Assistant Director STEPHEN C. SCHEMERING, Assistant ROBERT M. FISHER, Assistant Director Director SUSAN J. LEPPER, Assistant Director RICHARD SPILLENKOTHEN, Assistant THOMAS D. SIMPSON, Assistant Director Director LAWRENCE SLIFMAN, Assistant Director SIDNEY M. SUSSAN, Assistant Director STEPHEN P. TAYLOR, Assistant Director LAURA M. HOMER, Securities Credit PETER A. TINSLEY, Assistant Director Officer LEVON H. GARABEDIAN, Assistant Director (Administration) DIVISION OF CONSUMER AND COMMUNITY AFFAIRS DIVISION OF INTERNATIONAL GRIFFITH L. GARWOOD, Director FINANCE JERAULD C. KLUCKMAN, Associate EDWIN M. TRUMAN, Director Director ROBERT F. GEMMILL, Staff Adviser GLENN E. LONEY, Assistant Director LARRY J. PROMISEL, Senior Associate DOLORES S. SMITH, Assistant Director Director CHARLES J. SIEGMAN, Senior Associate DIVISION OF PERSONNEL Director DALE W. HENDERSON, Associate Director DAVID L. SHANNON, Director JOHN R. WEIS, Assistant Director PETER HOOPER III, Assistant Director DAVID H. HOWARD, Assistant Director CHARLES W. WOOD, Assistant Director RALPH W. SMITH, JR., Assistant Director DIVISION OF SUPPORT SERVICES DIVISION OF FEDERAL RESERVE ROBERT E. FRAZDER, Director BANK OPERATIONS WALTER W. KREIMANN, Associate Director CLYDE H. FARNSWORTH, JR., Director GEORGE MARK LOPEZ, Assistant Director ELLIOTT C. MCENTEE, Associate Director DAVID L. ROBINSON, Associate Director C. WILLIAM SCHLEICHER, JR., Associate Director WALTER ALTHAUSEN, Assistant Director OFFICE OF THE CONTROLLER CHARLES W. BENNETT, Assistant Director GEORGE E. LIVINGSTON, Controller ANNE M. DEBEER, Assistant Director BRENT L. BOWEN, Assistant Controller JACK DENNIS, JR., Assistant Director EARL G. HAMILTON, Assistant Director WILLIAM E. PASCOE III, Assistant Director2 DIVISION OF DATA PROCESSING CHARLES L. HAMPTON, Director DIVISION OF BANKING BRUCE M. BEARDSLEY, Deputy Director SUPERVISION AND REGULATION GLENN L. CUMMINS, Assistant Director JOHN E. RYAN, Director RICHARD J. MANASSERI, Assistant WILLIAM TAYLOR, Deputy Director Director FREDERICK R. DAHL, Associate Director ELIZABETH B. RIGGS, Assistant Director DON E. KLINE, Associate Director WILLIAM C. SCHNEIDER, JR., Assistant FREDERICK M. STRUBLE, Associate Director Director ROBERT J. ZEMEL, Assistant Director 2. On loan from the Federal Reserve Bank of Rich- Digitizedm foonr dF R(BAalStiEmRor e Branch). http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

264 Directories and Meetings Federal Open Market Committee Members PAUL A. VOLCKER, Chairman, Board of Governors ANTHONY M. SOLOMON, Vice Chairman, elected by Federal Reserve Bank of New York EDWARD G. BOEHNE, elected by Federal Reserve Banks of Boston, Philadelphia, and Richmond ROBERT H. BOYKIN, elected by Federal Reserve Banks of Atlanta, St. Louis, and Dallas E. GERALD CORRIGAN, elected by Federal Reserve Banks of Minneapolis, Kansas City, and San Francisco LYLE E. GRAMLEY, Board of Governors KAREN N. HORN, elected by Federal Reserve Banks of Cleveland and Chicago PRESTON MARTIN, Board of Governors J. CHARLES PARTEE, Board of Governors EMMETT J. RICE, Board of Governors MARTHA R. SEGER, Board of Governors HENRY C. WALLICH, Board of Governors Officers STEPHEN H. AXILROD, JOHN M. DAVIS, Staff Director and Secretary Associate Economist NORMAND R.V. BERNARD, RICHARD G. DAVIS, Assistant Secretary Associate Economist NANCY M. STEELE, DONALD L. KOHN, Deputy Assistant Secretary Associate Economist MICHAEL BRADFIELD, RICHARD W. LANG, General Counsel Associate Economist JAMES H. OLTMAN, DAVID E. LINDSEY, Deputy General Counsel Associate Economist JAMES L. KICHLINE, MICHAEL J. PRELL, Economist Associate Economist EDWIN M. TRUMAN, CHARLES J. SIEGMAN, Economist (International) Associate Economist JOSEPH E. BURNS, GARY H. STERN, Associate Economist Associate Economist JOSEPH S. ZEISEL, 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 1984, 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, 1984 Members District No. 1—ROBERT L. NEWELL, Chairman and Chief Executive Officer, Connecticut National Bank, Hartford, Connecticut 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—GEORGE A. BUTLER, Chairman and President, First Pennsylvania Bank, N.A., Philadelphia, Pennsylvania District No. 4—JOHN G. MCCOY, Vice Chairman and Chief Executive Officer, Bane One Corporation, Columbus, Ohio District No. 5—VINCENT C. BURKE, JR., Director, Riggs National Bank and Riggs National Corporation, Washington, D.C. District No. 6—PHILIP F. SEARLE, Chairman of the Board, Sun Banks, Inc., Orlando, Florida District No. 7—BARRY F. SULLIVAN, Chairman and Chief Executive Officer, First Chicago Corporation and The First National Bank of Chicago, Chicago, Illinois District No. 8—WILLIAM H. BOWEN, Chairman of the Board, President, and Chief Executive Officer, First Commercial Bank, N.A., Little Rock, Arkansas 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, Chairman of the Board, President, and Chief Executive Officer, United Banks of Colorado, Inc., Denver, Colorado District No. 11—NAT S. ROGERS, Chairman of the Board, First City Bancorporation of Texas, Inc., Houston, Texas District No. 12—JOSEPH J. PDSTOLA, Chairman and Chief Executive Officer, First Interstate Bancorp, Los Angeles, California Officers JOHN G. MCCOY, President JOSEPH J. PINOLA, Vice President HERBERT V. PROCHNOW, Secretary WILLIAM J. KORSVTK, Associate Secretary Directors VINCENT C. BURKE, JR. N. BERNE HART LEWIS T. PRESTON Meetings of the Federal Advisory Coun- sentatives of the banking industry, one cil were held on February 2-3, May 3-4, from each Federal Reserve District, is re- September 6-7, and November 1-2, quired by law to meet in Washington at 1984. The Board of Governors met with least four times a year and is authorized the council on February 3, May 4, Sep- by the Federal Reserve Act to consult with tember 7, and November 2, 1984. The and advise the Board on all matters withcouncil, which is composed of 12 repre- in the 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 31,1984 Members RACHEL G. BRATT, Assistant Professor, Department of Urban and Environmental Policy, Tufts University, Medford, Massachusetts GERALD R. CHRISTENSEN, Chairman of the Board and President, First Federal Savings and Loan Association, Salt Lake City, Utah THOMAS L. CLARK, JR., Deputy Superintendent of Banks, New York State Banking Department, New York, New York JEAN A. CROCKETT, Professor of Finance, Wharton Graduate School, University of Pennsylvania, Philadelphia, Pennsylvania MEREDITH FERNSTROM, Senior Vice President, Office of Public Responsibility, American Express Company, New York, New York ALLEN J. FISHBEIN, Director, Neighborhood Revitalization Project, Center for Community Change, Washington, D.C. E.C.A. FORSBERG, SR., President, First Family Financial Services, Atlanta, Georgia STEVEN M. GEARY, Associate General Counsel, Missouri Division of Finance, Jefferson City, Missouri RICHARD F. HALLIBURTON, Deputy Director, Legal Aid of Western Missouri, Kansas City, Missouri CHARLES C. HOLT, Professor of Management, University of Texas at Austin, Austin, Texas HARRY N. JACKSON, Vice President, Credit, Dayton Hudson Corporation, Minneapolis, Minnesota KENNETH V. LARKIN, Director of Development, Earl Warren Legal Institute, Boalt School of Law, University of California at Berkeley, Berkeley, California TIMOTHY D. MARRINAN, Senior Corporate Counsel, First Bank System, Inc., Minneapolis, Minnesota FREDERICK H. MILLER, Professor of Law, University of Oklahoma, Norman, Oklahoma MARGARET M. MURPHY, Associate Professor and Director, Columbia Center, Johns Hopkins University, Columbia, Maryland ROBERT F. MURPHY, President, General Motors Acceptance Corporation, Detroit, Michigan WILLARD P. OGBURN, Deputy Director, National Consumer Law Center, Boston, Massachusetts LAWRENCE S. OKINAGA, Partner, Carlsmith, Carlsmith, Wichman & Case, Honolulu, Hawaii ELVA QUUANO, Vice President and Executive Professional Officer, Republic Bank of San Antonio, San Antonio, Texas JANET J. RATHE, Executive Committee Member, Oregon Consumer League, Portland, Oregon GLENDA G. SLOANE, Director, Housing and Community Development, Center for National Policy Review, Catholic University School of Law, Washington, D.C. HENRY J. SOMMER, Supervising Attorney, Community Legal Services, Inc., Philadelphia, Pennsylvania WINNIE F. TAYLOR, Visiting Professor of Law, Hastings College of Law, San Francisco, California MICHAEL M. VAN BUSKIRK, Assistant Vice President, Corporate Affairs, Bane One Corporation, Columbus, Ohio CLINTON WARNE, President, Consumers League of Ohio, Cleveland, Ohio Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 267 FREDERICK T. WEIMER, General Assistant to the Vice President and General Credit Manager, Sears, Roebuck and Co., Chicago, Illinois MERVIN WINSTON, President, Metropolitan Economic Development Association, Minneapolis, Minnesota Officers WILLARD P. OGBURN, Chairman TIMOTHY D. MARRINAN, Vice Chairman Meetings of the Consumer Advisory and community interests, as well as aca- Council with members of the Board of demies. It was established pursuant to the Governors were held on March 14-15, 1976 amendments to the Equal Credit July 18-19, and October 24-26,1984. The Opportunity Act to advise the Board on council is composed of representatives of matters related to consumer financial the financial industry, and of consumer services. Thrift Institutions Advisory Council December 31, 1984 Members 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 J. MICHAEL CORNWALL, Chairman of the Board and Chief Executive Officer, First Texas Savings Association, Dallas, Texas RICHARD H. DIEHL, Chairman of the Board and Chief Executive Officer, Home Savings of America, Los Angeles, California JOHN R. EPPINGER, President and Chief Executive Officer, MainLine Federal Savings and Loan Association, Villanova, Pennsylvania NORMAN M. JONES, President, Metropolitan Federal Savings and Loan Association, Fargo, North Dakota ROBERT R. MASTERTON, President, The One Maine Savings Bank, Portland, Maine JOHN T. MORGAN, Chairman and Chief Executive Officer, American Savings Bank of New York, New York, New York FRED A. PARKER, President, Heritage Federal Savings and Loan Association, Monroe, North Carolina SARAH R. WALLACE, President, First Federal Savings and Loan Association of Newark, Newark, Ohio Officers THOMAS R. BOMAR, President RICHARD H. DIEHL, Vice President The members of the Thrift Institutions associations, and savings banks, consults Advisory Council met with the Board of with and advises the Board on issues per- Governors on February 23, May 23, Sep- taining to the thrift industry and on varitember 20, and November 15, 1984. The ous other matters within the Board's jurcouncil, which is composed of representa- isdiction. tives from credit unions, savings and loan 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, 1984 » 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. Robert W. Atkins Eisenmenger 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 . William H. Knoell Karen N. Horn E. Mandell William H. de Windt Hendricks Cincinnati Robert E. Boni Charles A. Cerino4 Pittsburgh Milton G. Hulme, Jr. Harold J. Swart4 RICHMOND3 .. William S. Lee Robert P. Black Leroy T. Canoles, Jimmie R. Jr. Monhollon Baltimore Robert L. Tate Robert D. McTeer, Jr.4 Charlotte Henry Ponder Albert D. Tinkelenberg4 Culpeper5 John G. Stoides4 ATLANTA .... John H. Robert P. Weitnauer, Jr. Forrestal Bradley Currey, Jr. Jack Guynn Birmingham Martha A. Mclnnis Fred R. Herr Jacksonville Jerome P. Keuper James D. Hawkins Miami Sue McCourt Cobb Patrick K. Barron Nashville C. Warren Neel Jeffrey J. Wells New Orleans Sharon A. Perlis Henry H. Bourgaux CHICAGO3 Stanton R. Cook Silas Keehn Edward F. Brabec Daniel M. Doyle Detroit Russell G. Mawby Roby L. Sloan4 ST. LOUIS W.L. Hadley Griffin Theodore H. Roberts Mary P. Holt Joseph P. Garbarini Little Rock Sheffield Nelson John F. Breen Louisville Sister Eileen M. Egan James E. Conrad Memphis Patricia W. Shaw Paul I. Black, Jr. MINNEAPOLIS William G. Phillips E. Gerald Corrigan John B. Davis, Jr. Thomas E. Gainor Helena Ernest B. Corrick Robert F. McNellis Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 269 BANK, Chairman2 President Vice President branch, or office Deputy Chairman First Vice President in charge of branch KANSAS CITY. Doris M. Drury Roger Guffey Irvine O. Henry R. Hockaday, Jr. Czerwinski Denver James E. Nielson Wayne W. Martin4 Oklahoma City Patience Latting William G. Evans Omaha Robert G. Lueder Robert D. Hamilton DALLAS Robert D. Rogers Robert H. Boykin John V. James William H. Wallace El Paso . Mary Carmen Joel L. Koonce, Jr. Saucedo Houston Paul N. Howell J.Z. Rowe4 San Antonio. Lawrence L. Crum Thomas H. Robertson SAN FRANCISCO. Caroline L. John J. Balles Ahmanson Richard T. Alan C. Furth Griffith Los Angeles .. Bruce M. Schwaegler Richard C. Dunn4 Portland Paul E. Bragdon Angelo S. Carella Salt Lake City Wendell J. Ashton A. Grant Holman4 Seattle John W. Ellis Gerald R. Kelly4 1. A current list of these officers appears each Oriskany, 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, 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 Committee; and Alan C. Furth was elected as the other member of the Execu- The chairmen of the Federal Reserve tive Committee. Banks are organized into the Conference of Chairmen that meets to consider matters of common interest and to consult with and advise the Board of Governors. Such meetings, attended also by the deputy Conference of Presidents chairmen, were held in Washington on May 31-June 1 and December 5-6, 1984. The presidents of the Federal Reserve The Executive Committee of the Con- Banks are organized into the Conference ference of Chairmen during 1984 com- of Presidents that meets periodically to prised William G. Phillips, Chairman, consider matters of common interest and to William H. Knoell, Vice Chairman, and consult with and advise the Board of Gov- Stanton R. Cook, member. ernors. On September 16, 1983, E. Gerald On December 6, 1984, William H. Corrigan, President of the Federal Reserve Knoell was elected Chairman of the con- Bank of Minneapolis, was elected Chairference and of its Executive Committee to man, and Robert H. Boykin, President of serve for the succeeding year; Robert D. the Federal Reserve Bank of Dallas, was Rogers was elected Vice Chairman of the elected Vice Chairman of the conference conference and a member of the Executive for 1984. Kathleen J. Balkman of the Fed- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

270 Directories and Meetings eral Reserve Bank of Minneapolis was ap- crimination as to race, creed, color, sex, pointed Secretary, and Lyne H. Carter of or national origin. the Federal Reserve Bank of Dallas was Class A directors represent the stockappointed Assistant Secretary. holding member banks in each Federal Reserve District. Class B and Class C Conference of directors represent the public and are First Vice Presidents chosen with due, but not exclusive, consideration to the interests of agriculture, The Conference of First Vice Presidents commerce, industry, services, labor, and of the Federal Reserve Banks was organ- consumers; they may not be officers, diized in 1969 to meet periodically for the rectors, or employees of any bank; in adconsideration of operational and other dition, Class C directors may not be matters. On September 26, 1983, Thomas stockholders of any bank. E. Gainor, First Vice President of the For the election of Class A and Class B Federal Reserve Bank of Minneapolis, directors, the Board of Governors classiwas elected Chairman, and William H. fies the member banks of each Federal Re- Wallace, First Vice President of the Fed- serve District into three groups, according eral Reserve Bank of Dallas, was elected to capitalization. Each group then elects Vice Chairman of the conference for 1984. one Class A and one Class B director. The Kathleen J. Balkman of the Federal Re- Board of Governors designates one Class serve Bank of Minneapolis was appointed C director as chairman of the board of Secretary, and Lyne H. Carter of the Fed- directors and Federal Reserve Agent of eral Reserve Bank of Dallas was appointed each District Bank, and another as deputy Assistant Secretary. chairman. Federal Reserve Branches have either five or seven directors, a majority of Directors whom are appointed by the parent Reserve Bank; the others are appointed by the The following list of directors of Federal Board of Governors. One of the directors Reserve Banks and Branches shows the appointed by the Board is designated anclass of directorship, the principal busi- nually as chairman of the board of that ness affiliation, and the date the term ex- Branch in a manner the Federal Reserve pires for each director. Each Reserve Bank prescribes. Bank has nine members on its board of In the following list, note 1 denotes a directors: three Class A and three Class B chairman of the board; note 2, a deputy directors, who are elected by the stock- chairman; and note 3, a director whose holding member banks, and three Class C service began in 1984. directors, who are appointed by the Board A list of the current directors appears of Governors of the Federal Reserve Sys- each spring in the Federal Reserve tem. Directors are chosen without dis- Bulletin, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 271 Term expires District 1—BOSTON Dec. 31 Class A James Stokes Hatch President and Chief Executive Officer, The Canaan National Bank, Canaan, Connecticut 1984 William W. Treat President, Bank Meridian, N.A., Hampton, New Hampshire 1985 William S. Edgerly3 Chairman and President, State Street Bank and Trust Company, Boston, Massachusetts 1986 Class B George N. Hatsopoulos ... Chairman of the Board and President, Thermo Electron Corporation, Waltham, Massachusetts 1984 Matina S. Horner President, Radcliffe College, Cambridge, Massachusetts 1985 Joseph A. Baute Chairman and Chief Executive Officer, Markem Corporation, Keene, New Hampshire 1986 Class C Robert P. Henderson1 Vice Chairman of the Board, Greylock Management Corporation, Boston, Massachusetts 1984 Thomas I. Atkins2 Attorney, Brooklyn, New York 1985 Michael J. Harrington Harrington Company, Peabody, Massachusetts 1986 District 2—NEW YORK Class A Robert A. Rough President, The National Bank of Sussex County, Branchville, New Jersey 1984 Alfred Brittain III Chairman of the Board, Bankers Trust Company, New York, New York 1985 T. Joseph Semrod3 Chairman of the Board, United Jersey Bank, Hackensack, New Jersey 1986 Class B Edward L. Hennessy, Jr. . .Chairman of the Board, Allied Corporation, Morristown, New Jersey 1984 William S. Cook President and Chief Executive Officer, Union Pacific Corporation, New York, New York 1985 John R. Opel Chairman and Chief Executive Officer, International Business Machines Corporation, Armonk, New York 1986 Class C Gertrude G. Michelson2.. .Senior Vice President, R.H. Macy & Company, Inc., New York, New York 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

272 Directories and Meetings Term expires John Brademas1 President, New York University, New York, Dec, 31 New York 1985 Clifton R. Wharton, Jr. .. .Chancellor, State University of New York System, Albany, New York 1986 BUFFALO BRANCH Appointed by Federal Reserve Bank Edward W. Duffy Chairman of the Executive Committee, Marine Midland Bank, N.A., Buffalo, New York 1984 William Balderston IIP .. .President and Chief Executive Officer, Chase Lincoln First Bank, N.A., Rochester, New York 1985 Donald I. Wickham President, Tri-Way Farms, Inc., Stanley, New York 1985 Herbert Fort3 President, The Bath National Bank, Bath, New York 1986 Appointed by Board of Governors George L. Wessel President, Buffalo AFL/CIO Council, Buffalo, New York 1984 M. JaneDickman1 Partner, Touche Ross & Co., Buffalo, New York 1985 Laval S. Wilson3 Superintendent of Schools, Rochester City School District, Rochester, New York . 1986 District 3—PHILADELPHIA Class A 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 John H. Walther3 Chairman of the Board, New Jersey National Bank, Trenton, New Jersey 1986 Class B 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 Carl E. Singley3 Dean and Professor of Law, Temple University Law School, Philadelphia, Pennsylvania 1986 Class C George E. Bartol III Chairman of the Board, Hunt Manufactur- Digitized for FRASER ing Company, Philadelphia, Pennsylvania.. 1984 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 273 Term expires Nevius M. Curtis2 President and Chief Executive Officer, Dec. 31 Delmarva Power & Light Company, Wilmington, Delaware 1985 Robert M. Landisl Partner, Dechert, Price & Rhoads, Philadelphia, Pennsylvania 1986 District 4—CLEVELAND Class A 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 J. David Barnes Chairman of the Board and Chief Executive Officer, Mellon Bank, Pittsburgh, Pennsylvania 1986 Class B 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 John R. Hall3 Chairman and Chief Executive Officer, Ashland Oil, Inc., Ashland, Kentucky 1986 Class C E. Mandell de Windt2 Chairman of the Board, Eaton Corporation, Cleveland, Ohio 1984 Lewis R. Smoot, Sr.3 President and Chief Executive Officer, The Sherman R. Smoot Company, Columbus, Ohio 1985 William H. Knoell1 President and Chief Executive Officer, Cyclops Corporation, Pittsburgh, Pennsylvania 1986 CINCINNATI BRANCH Appointed by Federal Reserve Bank Sherrill Cleland President, Marietta College, Marietta, Ohio .. 1984 Richard J. Fitton President and Chief Executive Officer, First National Bank of Southwestern Ohio, Hamilton, Ohio 1984 Clement L. Buenger President and Chief Executive Officer, The Fifth Third Bank, Cincinnati, Ohio 1985 Vernon J. Cole3 Executive Vice President and Chief Executive Officer, Harlan National Bank, Harlan, Kentucky 1986 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

274 Directories and Meetings Term expires Appointed by Board of Governors Dec. 31 Don Ross Owner, Dunreath Farm, Lexington, Kentucky 1984 Sister Grace Marie Hiltz .. .President, Sisters of Charity Health Care Systems, Inc., Cincinnati, Ohio 1985 Robert E. Boni13 President and Chief Operating Officer, Armco Inc., Middletown, Ohio 1986 PITTSBURGH BRANCH Appointed by Federal Reserve Bank 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 G.R. Rendle3 President and Chief Executive Officer, Gallatin National Bank, Uniontown, Pennsylvania 1986 Appointed by Board of Governors Milton A. Washington3 .. .President and Chief Executive Officer, Allegheny Housing Rehabilitation Corporation, Pittsburgh, Pennsylvania 1984 Robert S. Kaplan Professor, Graduate School of Industrial Administration, Carnegie-Mellon University, Pittsburgh, Pennsylvania 1985 Milton G. Hulme, Jr.1 President and Chief Executive Officer, Mine Safety Appliances Company, Pittsburgh, Pennsylvania 1986 District 5-RICHMOND Class A 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 Spring National Bank and Savings Institution, Sandy Spring, Maryland 1985 Robert S. Chiles, Sr.3 President and Chief Executive Officer, Greensboro National Bank, Greensboro, North Carolina 1986 Class B Paul G. Miller Director, Commercial Credit Company, Baltimore, Maryland 1984 George Dean Johnson, Jr.3 Partner, Johnson, Smith, Hibbard, Cleveland, Wildman and Dennis, Spartanburg, South Carolina 1985 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 275 Term expires Thomas B. Cookerly3 President, Broadcast Division, Allbritton Dec. 31 Communications, Washington, D.C 1986 Class C William S. Lee ! 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 Leroy T. Canoles, Jr.2*3 .. .President, Kaufman and Canoles, Norfolk, Virginia 1986 BALTIMORE BRANCH Appointed by Federal Reserve Bank Pearl C. Brackett Deputy Manager (retired), Baltimore Regional Chapter of the American Red Cross, Baltimore, Maryland 1984 Howard I. Scaggs Chairman of the Board, American National Building and Loan Association, Baltimore, Maryland 1985 Hugh D. Shires Senior Vice President (retired), First National Bank of Maryland, Cumberland, Maryland 1985 Charles W. Hoff III3 President and Chief Executive Officer, Farmers and Mechanics National Bank, Frederick, Maryland 1986 Appointed by Board of Governors Thomas H. Maddux Independent business advisor, Timonium, Maryland 1984 Edward H. Covell President, The Covell Company, Easton, Maryland 1985 Robert L. Tate1 Chairman, Tate Industries, Baltimore, Maryland 1986 CHARLOTTE BRANCH Appointed by Federal Reserve Bank Hugh M. Chapman Chairman of the Board and Chief Executive Officer, The Citizens and Southern National Bank of South Carolina, Columbia, South Carolina 1984 J. Donald Collier President and Chief Executive Officer, First National Bank in Orangeburg, Orangeburg, South Carolina 1985 John G. Medlin, Jr President and Chief Executive Officer, Wachovia Bank and Trust Company, N.A., Winston-Salem, North Carolina 1985 John A. Hardin3 Chairman of the Board and President, First Federal Savings and Loan Association, Rock Hill, South Carolina 1986 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

276 Directories and Meetings Term expires Appointed by Board of Governors Dec. 31 Henry Ponder1 President, Fisk University, Nashville, Tennessee 1984 G. Alex Bernhardt President, Bernhardt Industries, Lenoir, North Carolina 1985 Wallace J. Jorgenson President, Jefferson-Pilot Broadcasting Co., Charlotte, North Carolina 1986 District 6—ATLANTA Class A Guy W. Botts Senior Partner, Culverhouse, Botts, Mills & Cone, Jacksonville, Florida 1984 Dan B. Andrews President, First National Bank, Dickson, Tennessee 1985 Mary W. Walker3 President, The National Bank of Walton County, Monroe, Georgia 1986 Class B Horatio C. Thompson President, Horatio Thompson Investments, Inc., Baton Rouge, Louisiana 1984 Bernard F. Sliger President, Florida State University, Tallahassee, Florida 1985 Harold B. Blach, Jr President, Blach's Inc., Birmingham, Alabama 1986 Class C Jane C. Cousins President and Chief Executive Officer, Merrill Lynch Realty/Cousins, Miami, Florida 1984 John H. Weitnauer, Jr.1 .. .Chairman and Chief Executive Officer, Richway, Atlanta, Georgia 1985 Bradley Currey, Jr.2-3 President, Rock-Tenn Company, Norcross, Georgia 1986 BIRMINGHAM BRANCH Appointed by Federal Reserve Bank William M. Schroeder Chairman and President, Central State Bank, Calera, Alabama 1984 G. Mack Dove President, AAA Cooper Transportation Co., Dothan, Alabama 1985 Grady Gillam Chairman, The American National Bank, Gadsden, Alabama 1985 Charles L. Peery3 Chairman, The First National Bank of Florence, Florence, Alabama 1986 Appointed by Board of Governors Louis J. Willie Executive Vice President, Booker T. Washington Insurance Co., Birmingham, Alabama 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 277 Term expires Martha A. Mclnnis1 Executive Vice President, EnviroSouth, Inc., Dec. 31 Montgomery, Alabama 1985 Samuel R. Hill, Jr President, University of Alabama in Birmingham, Birmingham, Alabama 1986 JACKSONVILLE BRANCH Appointed by Federal Reserve Bank Lewis A. Doman President, The Citizens and Peoples National Bank, Pensacola, Florida 1984 George C. Boone, Jr President and Chief Executive Officer, Security First Federal Savings and Loan Association, Daytona Beach, Florida 1985 E.F. Keen, Jr Vice Chairman, NCNB Bancorporation, Bradenton, Florida 1985 John D. Uible3 Chairman and Chief Executive Officer, Florida National Banks of Florida, Inc., Jacksonville, Florida 1986 Appointed by Board of Governors Jerome P. Keuper1 President, Florida Institute of Technology, Melbourne, Florida 1984 E. William Nash, Jr President of South Central Operations, The Prudential Insurance Company, Jacksonville, Florida 1985 JoAnn Doke Smith3 Co-owner, Smith Brothers, Micanopy, Florida 1986 MIAMI BRANCH Appointed by Federal Reserve Bank Robert D. Rapaport3 Principal, The Rapaport Companies, 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 Robert L. Kester3 Chairman, Florida Coast Banks, Inc., Pompano Beach, Florida 1986 Appointed by Board of Governors Roy Vandegrift, Jr President, Roy Van, Inc., Pahokee, Florida 1984 Sue McCourt Cobb! Attorney, Greenberg, Traurig, Askew, Hoffman, Lipoff, Rosen, and Quentel, P.A., Miami, Florida 1985 Eugene E. Cohen Chief Financial Officer and Treasurer, Howard Hughes Medical Institute, Coconut Grove, Florida 1986 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

278 Directories and Meetings Term expires NASHVILLE BRANCH Dec. 31 Appointed by Federal Reserve Bank Michael T. Christian President and Chief Executive Officer, Commerce Union Bank of Greeneville, Greeneville, Tennessee 1984 Samuel H. Howard Vice President and Treasurer, Hospital Corporation of America, Nashville, Tennessee 1985 Owen G. Shell, Jr President and Chief Executive Officer, First American National Bank of Nashville, N.A., Nashville, Tennessee 1985 Robert W. Jones3 Chairman and President, First National Bank, McMinnville, Tennessee 1986 Appointed by Board of Governors 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 Patsy R. Williams3 Partner, Rhyne Lumber Company, Newport, Tennessee 1986 NEW ORLEANS BRANCH Appointed by Federal Reserve Bank Jerry W. Brents Lafayette, Louisiana 1984 Philip K. Livingston Vice Chairman, President, and Chief Executive Officer, Citizens National Bank, Hammond, Louisiana 1985 Tom Burkett Scott, Jr President and Chief Executive Officer, Unifirst Bank for Savings, F.A., Jackson, Mississippi 1985 Carl E. Jones, Jr.3 President, Chairman, and Chief Executive Officer, Merchants National Bank of Mobile, Mobile, Alabama 1986 Appointed by Board of Governors Roosevelt Steptoe .Professor of Economics, Southern University, Baton Rouge, Louisiana 1984 Sharon A. Perlisl President, Sharon A. Perlis Law Corporation, Metairie, Louisiana 1985 Leslie B. Lampton President, Ergon, Inc., Jackson, Mississippi 1986 District 7—CHICAGO Class A Charles M. Bliss Chairman of the Board and Chief Executive Officer (retired), Harris Trust and Savings Bank, Chicago, Illinois 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 279 Term expires Patrick E. McNarny President, First National Bank of Logansport, Dec. 31 Logansport, Indiana 1985 Ollie Jay Tomson President, The Citizens National Bank of Charles City, Charles City, Iowa 1986 Class B Dennis W. Hunt President, Hunt Truck Lines, Inc., Rockwell City, Iowa 1984 Mary Garst Manager of Cattle Division, Garst Company, Coon Rapids, Iowa 1985 Leon T. Kendall Chairman and Chief Executive Officer, Mortgage Guaranty Insurance Corp., Milwaukee, Wisconsin 1986 Class C Edward F. Brabec2 President, Federation of Labor and Industrial Union Council, Chicago, Illinois . 1984 Stanton R. Cook! President, Tribune Company, Chicago, Illinois 1985 Robert J. Day3 President and Chief Operating Officer, United States Gypsum Company, Chicago, Illinois 1986 DETROIT BRANCH Appointed by Federal Reserve Bank 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 Ronald D. Story3 President, The Ionia County National Bank of Ionia, Ionia, Michigan 1986 Appointed by Board of Governors Robert E. Brewer Executive Vice President of Finance, K Mart Corporation, Troy, Michigan 1984 Russell G. Mawby! President and Trustee, W.K. Kellogg Foundation, Battle Creek, Michigan 1985 Karl D. Gregory Professor, and Management and Economic Consultant, School of Economics and Management, Oakland University, Rochester, Michigan 1986 District 8—ST. LOUIS Class A George M. Ryrie President, First National Bank & Trust Co., Alton, Illinois 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

280 Directories and Meetings Term expires Donald L. Hunt President, First National Bank, Dec. 31 Marissa, Illinois 1985 Clarence C. Barksdale Chairman and President, Centerre Bank, N.A., St. Louis, Missouri 1986 Class B Jesse M. Shaver Consultant, Allis-Chalmers Corporation, Louisville, Kentucky 1984 Robert J. Sweeney President and Chief Executive Officer, Murphy Oil Corporation, El Dorado, Arkansas 1985 Frank A. Jones, Jr President, Dietz Forge Company, Memphis, Tennessee 1986 Class C W.L. Hadley Griffin1 Chairman of the Board, Brown Group, Inc., St. Louis, Missouri 1984 Robert L. Virgil, Jr Dean, School of Business, Washington University, St. Louis, Missouri 1985 Mary P. Holt2 President, Clothes Horse, Little Rock, Arkansas 1986 LITTLE ROCK BRANCH Appointed by Federal Reserve Bank Wilbur P. Gulley, Jr Chairman of the Board and Chief Executive Officer, Savers Federal Savings and Loan Association, Little Rock, Arkansas 1984 Gordon E. Parker President, First Commercial Corporation, Little Rock, Arkansas 1984 D. Eugene Fortson Chairman and Chief Executive Officer, Worthen Bank and Trust Company, N.A., Little Rock, Arkansas 1985 William H. Kennedy, Jr. . .Chairman of the Board, National Bank of Commerce of Pine Bluff, Pine Bluff, Arkansas 1986 Appointed by Board of Governors Sheffield NelsonJ Chairman of the Board and Chief Executive Officer, Arkla, Inc., Little Rock, Arkansas . 1984 Shirley J. Pine Professor, Department of Communicative Disorders, University of Arkansas at Little Rock, Little Rock, Arkansas 1985 Richard V. Warner Group Vice President, Wood Products Group, Potlatch Corporation, Warren, Arkansas 1986 LOUISVILLE BRANCH Appointed by Federal Reserve Bank John E. Darnell, Jr Chairman of the Board, The Owensboro National Bank, Owensboro, Kentucky 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 281 Term expires R.I. Kerr, Jr President, Chairman of the Board, and Dec, 31 Chief Executive Officer, Great Financial Federal, Louisville, Kentucky 1984 Allan S. Hanks President, Anderson National Bank, Lawrenceburg, Kentucky 1985 Frank B. Hower, Jr Chairman and Chief Executive Officer, Liberty National Bank and Trust Company of Louisville, Louisville, Kentucky 1986 Appointed by Board of Governors Sister Eileen M. Egan1 President, Spalding College, Louisville, Kentucky 1984 Henry F. Frigon President, BATUS, Inc., Louisville, Kentucky 1985 William C. Ballard, Jr Executive Vice President, Finance and Administration, Humana, Inc., Louisville, Kentucky 1986 MEMPHIS BRANCH Appointed by Federal Reserve Bank Edgar H. Bailey Chairman and Chief Executive Officer, Leader Federal Savings and Loan Association, Memphis, Tennessee 1984 William M. Matthews, Jr. .Chairman of the Board and Chief Executive Officer, Union Planters National Bank of Memphis, Memphis, Tennessee 1984 William H. Brandon, Jr. . .President, First National Bank of Phillips County, Helena, Arkansas 1985 Wayne W. Pyeatt President, Memphis Fire Insurance Company, Memphis, Tennessee 1986 Appointed by Board of Governors G. Rives Neblett Attorney, Neblett, Bobo, Chapman & Heaton, Shelby, Mississippi 1984 Patricia W. Shaw1 President and Chief Executive Officer, Universal Life Insurance Company, Memphis, Tennessee 1985 Donald B. Weis President, Tamak Transportation Corporation, West Memphis, Arkansas 1986 District 9-MINNEAPOLIS Class A 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 Burton P. Allen, Jr.3 President, First National Bank, Milaca, Minnestoa 1986 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

282 Directories and Meetings Term expires Class B Dec. 31 William L. Mathers President, Mathers Land Company, Inc., Miles City, Montana 1984 Richard L. Falconer District Manager, Northwestern Bell, Bismarck, North Dakota 1985 Harold F. Zigmund Chairman, Blandin Paper Company, Grand Rapids, Minnestoa 1986 Class C William G. Phillips! Chairman and Chief Executive Officer (retired), International Multifoods, Minneapolis, Minnesota 1984 Sister Generose Gervais .. .Administrator, Saint Mary's Hospital, Rochester, Minnesota 1985 John B. Davis, Jr.2 Interim Executive Director, Children's Theatre Company and School, Minneapolis, Minnesota 1986 HELENA BRANCH Appointed by Federal Reserve Bank Harry W. Newlon President, First National Bank in Bozeman, Bozeman, Montana 1984 Seabrook Pates President and Chief Executive Officer, Midland Implement Co., Inc., Billings, Montana 1984 Roger H. Ulrich President, First State Bank, Malta, Montana 1985 Appointed by Board of Governors Ernest B. Corrick1 Vice President and General Manager, Champion International Corporation, Timberlands-Rocky Mountain Operation, Missoula, Montana 1984 Gene J. Etchart Past President, Hinsdale Livestock Company, Glasgow, Montana 1985 District 10—KANSAS CITY Class A John D. Woods Chairman and Chief Executive Officer, Omaha National Bank, Omaha, Nebraska.. 1984 Howard K. Loomis President, The Peoples Bank, Pratt, Kansas .. 1985 Wayne D. Angell Chairman of the Board, The First State Bank of Pleasanton, Pleasanton, Kansas ... 1986 Class B Duane C. Acker President, Kansas State University, Manhattan, Kansas 1984 Charles C. Gates Chairman and President, Gates Corporation, Denver, Colorado 1985 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 283 Term expires Richard D. Harrison3 Chairman and Chief Executive Officer, Dec. 31 Fleming Companies, Inc., Oklahoma City, Oklahoma 1986 Class C Doris M. Drury! Professor of Economics, University of Denver, Englewood, Colorado 1984 Irvine O. Hockaday, Jr.2'3 .Executive Vice President and Member of the Office of the Chairman, Hallmark Cards, Inc., Kansas City, Missouri 1985 JohnF. Anderson President (retired), Farmland Industries, Inc., Liberty, Missouri 1986 DENVER BRANCH Appointed by Federal Reserve Bank Donald D. Hoffman Chairman and Chief Executive Officer, Central Bank of Denver, Denver, Colorado. 1984 George S. Jenks President and Chief Executive Officer, Sunwest Financial Services, Inc., Albuquerque, New Mexico 1985 Kenneth C. Naramore Chairman of the Board and Chief Executive Officer, Stockmen's Bank & Trust Company, Gillette, Wyoming 1986 Roger L. Reisher3 Co-Chairman, FirstBank Holding Company of Colorado, Lakewood, Colorado 1986 Appointed by Board of Governors James E. Nielson1 President and Chief Executive Officer, JN Incorporated, Cody, Wyoming 1984 Anthony W. Williams3 President, Williams, Turner & Holmes, P.C., Grand Junction, Colorado 1985 Ralph F. Cox Executive Vice President, Atlantic Richfield Company, Denver, Colorado 1986 OKLAHOMA CITY BRANCH Appointed by Federal Reserve Bank William O. Alexander President and Chief Executive Officer, Continental Federal Savings & Loan Association, Oklahoma City, Oklahoma ... 1984 Marcus R. Tower Vice Chairman of the Board and Chairman of the Credit Policy Committee, Bank of Oklahoma, N.A., Tulsa, Oklahoma 1984 William H. Crawford President and Chief Executive Officer, First National Bank and Trust Company, Frederick, Oklahoma 1985 Appointed by Board of Governors John F. Snodgrass3 President and Trustee, Samuel Roberts Noble Foundation, Inc., Ardmore, Oklahoma 1984 Digitized Pfoart iFeRnAceS SE.R L atting! >3 Oklahoma City, Oklahoma 1985 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

284 Directories and Meetings Term expires OMAHA BRANCH Dec. 31 Appointed by Federal Reserve Bank Donald J. Murphy Director, Norwest Bank Omaha, N.A., Omaha, Nebraska 1984 William W. Cook, Jr President, The Beatrice National Bank and Trust Company, Beatrice, Nebraska 1985 Charles H. Thorne3 Chairman of the Board and Chief Executive Officer, First Federal Savings and Loan Association of Lincoln, Lincoln, Nebraska . 1985 Appointed by Board of Governors Robert G. Lueder* Chairman of the Board, Lueder Construction Company, Omaha, Nebraska 1984 Kenneth L. Morrison President, Morrison-Quirk Grain Corporation, Hastings, Nebraska 1985 District 11—DALLAS Class A 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 Miles D. Wilson Chairman of the Board and Chief Executive Officer, First National Bank, Bellville, Texas 1986 Class B J. Wayland Bennett Charles C. Thompson 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 Kent Gilbreath Associate Dean, Hankamer School of Business, Baylor University, Waco, Texas .. 1986 Class C Bobby R. Inman3 President and Chief Executive Officer, MCC, Austin, Texas 1984 Robert D. Rogersl President and Chief Executive Officer, Texas Industries, Inc., Dallas, Texas 1985 John V. James2 Chairman of the Executive Committee, Dresser Industries, Inc., Dallas, Texas 1986 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 285 Term expires EL PASO BRANCH Dec. 31 Appointed by Federal Reserve Bank 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 Vacant 1985 David L. Stone President, Portales National Bank, Portales, New Mexico 1986 Appointed by Board of Governors Mary Carmen Saucedol .. .Associate Superintendent, Central Area Office, El Paso Independent School District, El Paso, Texas 1984 Peyton Yates3 President, Yates Drilling Company, Artesia, New Mexico 1985 John Sibley3 President, Delaware Mountain Enterprises, Carlsbad, New Mexico 1986 HOUSTON BRANCH Appointed by Federal Reserve Bank Ralph E. David Chairman and Chief Executive Officer, The First Freeport National Bank, Freeport, Texas 1984 Thomas B. McDade Vice Chairman, Texas Commerce Bancshares, Inc., Houston, Texas 1984 Will E. Wilson Chairman of the Executive Committee, First City National Bank, Beaumont, Texas. 1985 Marcella D. Perry3 President and Chief Executive Officer, Heights Savings Association, Houston, Texas 1986 Appointed by Board of Governors George V. Smith, Sr President, Smith Pipe Companies, Inc., Houston, Texas 1984 Robert T. Sakowitz Chairman and President, Sakowitz, Inc., Houston, Texas 1985 Paul N. Howelll Chairman and Chief Executive Officer, Howell Corporation, Houston, Texas 1986 SAN ANTONIO BRANCH Appointed by Federal Reserve Bank Joe D. Barbee President and Chief Executive Officer, Barbee-Neuhaus Implement Company, Weslaco, Texas 1984 Charles E. Cheever, Jr. .. .Chairman of the Board, Broadway National Bank, San Antonio, Texas 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

286 Directories and Meetings Term expires George Brannies Chairman of the Board and President, Dec. 31 Mason National Bank, Mason, Texas 1985 C. Ivan Wilson3 Chairman and Chief Executive Officer, First City Bank of Corpus Christi, Corpus Christi, Texas 1986 Appointed by Board of Governors Carlos A. Zuniga Partner, Laredo Freight Services, Inc., Laredo, Texas 1984 Robert F. McDermott Chairman of the Board and President, United Services Automobile Association, San Antonio, Texas 1985 Lawrence L. Cruml Professor of Banking and Finance, University of Texas at Austin, Austin, Texas 1986 District 12-SAN FRANCISCO Class A Vacant 1984 Spencer F. Eccles Chairman, President, and Chief Executive Officer, First Security Corporation, Salt Lake City, Utah 1985 RayburnS. Dezember3 Chairman, Central Pacific Corporation, and Chairman, American National Bank, Bakersfield, California 1986 Class B George H. Weyerhaeuser . .President and Chief Executive Officer, Weyerhaeuser Company, Tacoma, Washington 1984 Togo W. Tanaka Chairman, Gramercy Enterprises, Inc., Los Angeles, California 1985 John C. Hampton3 Chairman and President, Willamina Lumber Company, Portland, Oregon 1986 Class C Alan C. Furth2 Vice Chairman, Santa Fe Southern Pacific Corporation and President, Southern Pacific Company, San Francisco, California 1984 Caroline L. Ahmanson1 .. .Chairman of the Board, Caroline Leonetti, Ltd., Hollywood, California 1985 Fred W. Andrew Chairman, President, and Chief Executive Officer, Superior Farming Company, Bakersfield, California 1986 LOS ANGELES BRANCH Appointed by Federal Reserve Bank Robert R. Dockson Chairman, CalFed, Inc., Los Angeles, California 1984 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directories and Meetings 287 Term expires Bram Goldsmith Chairman and Chief Executive Officer, Dec. 31 City National Bank, Beverly Hills, California 1985 William L. Tooley Managing Partner, Tooley and Company, Los Angeles, California 1985 Harvey J. Mitchell3 President and Chief Executive Officer, Escondido National Bank, Escondido, California 1986 Appointed by Board of Governors Bruce M. Schwaegler1 President, Bullock's-Bullock's Wilshire, Los Angeles, California 1984 Thomas R. Brown, Jr Chairman of the Board, Burr-Brown Corporation, Tucson, Arizona 1985 LolaM. McAlpin-Grant.. .Attorney, Inglewood, California 1986 PORTLAND BRANCH Appointed by Federal Reserve Bank John A. Elorriaga Chairman and Chief Executive Officer, United States National Bank of Oregon, Portland, Oregon 1984 Jack W. Gustavel President and Chief Executive Officer, The First National Bank of North Idaho, Coeur d'Alene, Idaho 1984 Herman C. Bradley, Jr. ... President and Chief Executive Officer, Tri-County Banking Company, Junction City, Oregon 1985 William S. Naito Vice President, Norcrest China Company, Portland, Oregon 1986 Appointed by Board of Governors Carolyn S. Chambers President, Chambers Cable Co., Inc., Eugene, Oregon 1984 G. Johnny Parks Northwest Regional Director, International Longshoremen's & Warehousemen's Union, Portland, Oregon 1985 PaulE. Bragdon1'3 President, Reed College, Portland, Oregon 1986 SALT LAKE CITY BRANCH Appointed by Federal Reserve Bank 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 and Moore Financial Group, Boise, Idaho 1985 Albert C. Gianoli President and Chairman of the Board, First National Bank of Ely, Ely, Nevada ... 1986 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

288 Directories and Meetings Term expires Appointed by Board of Governors Dec. 31 Wendell J. Ashton1 Publisher, Deseret News, Salt Lake City, Utah 1984 David A. Nimkin Executive Director, Salt Lake Neighborhood Housing Services, Inc., Salt Lake City, Utah 1985 Robert N. Pratt3 President, White River Shale Oil Corp., Salt Lake City, Utah 1986 SEATTLE BRANCH Appointed by Federal Reserve Bank 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 of the Board, Puget Sound National Bank, Tacoma, Washington 1985 Lonnie G. Bailey Executive Vice President and Chief Operating Officer, Farmers & Merchants Bank of Rockford, Spokane, Washington 1986 Appointed by Board of Governors John W. Ellis! President and Chief Executive Officer, Puget Sound Power & Light Company, Bellevue, Washington 1984 Byron I. Mallott President and Chief Executive Officer, Sealaska Corporation, Juneau, Alaska 1985 Carol A. Birkholz3 Managing Partner, Laventhol and Horwath, Seattle, Washington 1986 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

289 Index Acceptances, bankers (See Bankers Bankers acceptances acceptances) Authority to purchase and to enter Accounting conventions of Federal into repurchase agreements, 78-80 Reserve, 201, 205 Federal Reserve Banks Adjustable-rate mortgages, 159, 192 Holdings, 199, 218, 220, 222 Administrative Procedure Act, 170 Income, 199, 228-31 Assets and liabilities Open market transactions, 224 Banks, by class, 243 Repurchase agreements, 78-80, 172, Board of Governors, 212 218, 220, 222, 224 Federal Reserve Banks, 218-23 Banking offices, changes in number, 248 Audits (See Examinations, inspections, Banking supervision and regulation by regulation, and audits) Federal Reserve System, 173-87, Automated clearing house service, 204, 206, 207-08, 210 194, 195, 197 Bankruptcy Amendments and Federal Automated teller machines, 154 Judgeship Act of 1984, 172 Automobile credit, 148, 152 Board of Governors (See also Federal Reserve System) Balance of payments, review of 1984, Audit controls, 205 20-25 Budget for 1985, 209 Bank, new definition, legislative Consumer Advisory Council (See recommendation, 161 Consumer Advisory Council) Bank Export Services Act, 182 Delegated authority, 180, 183, 185 Bank holding companies Expenses, employment, and Activities approved, 184 productivity, 1974-84, 201-10 Applications, processing and Financial statements, 211-16 notice of Board decisions, Interpretations, 148, 187 183, 184, 208 Legislation enacted, 172 Capital-adequacy guidelines, 177, 191 Legislative recommendations, 159, Community Reinvestment Act relative 161-64 to, 149, 150, 158 Litigation, 165-71 Control of, changes in, 178, 181, 189 Members and officers, list, 262 Examination, inspection, and Policy actions (See Policy actions) regulation, 162, 173-74, 175, 177, Pricing of Federal Reserve services 178-79, 180, 181-84, 208 and the payment mechanism (See International banking activities and Fees) operations, 69, 174, 181-83, 191 Publications (See Publications) Investments, 162, 181-82, 182-83 Regulations (See Regulations) Legislative recommendations, 161 Regulatory simplification, 188-93 Litigation, 165-69 Salaries, 213 Number and assets, 173-74 Training (See Training) Stock repurchases, 185 Branch banks Bank Holding Company Act, 161, 179, Changes in number, 249 180, 182-83, 184 Federal Reserve Bank Merger Act, 180 Bank premises, 163, 199, 227 Bank mergers and consolidations, Directors, 268-88 180, 183, 184, 250-59 Vice presidents in charge, 268, 269 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

290 Index Branch banks—Continued Consumer and community affairs, Foreign, U.S. banking organizations, 145-60, 173, 191 174, 181-83 Consumer Credit Protection Act, 158 Foreign banks, 67, 69, 174 Consumer Leasing Act, 162 Budgets for Federal Reserve System for Credit (See also Loans) 1985, 201, 204, 209 Automobile, 148, 152 Equal Credit Opportunity (See Equal Call reports (See Condition statements) Credit Opportunity Act) Capital accounts Securities, 68, 70, 186, 190 Banks, by class, 243 Shopping guide, 193 Federal Reserve Banks, 219, 220, 222 Truth in Lending (See Truth in Capital-adequacy guidelines, 177, 191 Lending Act) Cash Discount Act of 1981, 160 Credit cards (See also Debit card Certificates of deposit, 172 transactions), 70, 147, 158-59, Change in Bank Control Act of 1978, 181 160, 191-92 Check clearing and collection Currency and coin services, 196, 204, 210 Delayed disbursement and availability of funds, 70, 71-72, 146-47, 157, 164, 189, 195 Debit card transactions, 67, 68, 147, 191 Fees for Federal Reserve services, 68, Depository institutions 190, 195, 206 Federal Reserve services (See Fees) Float, 68, 69, 190, 197, 206, 210 Interest on deposits (See Interest on Volume of operations, 238 deposits) Civil Aeronautics Board, 152, 153, 154 Reserve requirements, 67, 239 Coin and currency services, 196 Reserves and related items, 244-47 Commercial banks (See also Insured Small, colloquium on future, 192 commercial banks) Depository Institutions Deregulation Banking offices, changes in number, and Monetary Control Act of 1980 248 (See Monetary Control Act of 1980) Condition statements, 175-77 Deposits Supervision and regulation by Banks, by class, 243 Federal Reserve System, 173-87, Federal Reserve Banks, 219, 220, 222, 204, 206, 207-08, 210 245, 248 Transfers of funds (See Transfers of Interest rates (See Interest on funds) deposits) Commodity Futures Trading Reserve requirements (See Reserve Commission, 188 requirements of depository Community Reinvestment Act institutions) Annual report to Congress, 145 Directors, Federal Reserve Banks and Examination under, 149, 157 Branches Issues considered by Consumer Legislative recommendation, 162 Advisory Council related to, List, 270-88 158-59 Discount rates at Federal Reserve Publications, 148, 191 Banks (See Interest rates) Relative to bank holding companies, Dividends, Federal Reserve Banks, 198, 149, 150, 158 230, 233, 235 Comptroller of the Currency, 69, 71, 151, 159, 175, 177, 178, 180-81 Condition statements Commercial banks, 175-77 Earnings of Federal Reserve Banks (See Federal Reserve Banks, 218-23 Income of Federal Reserve Banks) Consumer Advisory Council, 149, Economy in 1984, 5-11 158, 189, 191, 192, 266 Educational activities (See Training) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index 291 Electronic data processing activities, Transfer by Reserve Banks, 197 examination, 175 Federal Deposit Insurance Corporation Electronic Fund Transfer Act (See also Federal Financial Annual report to Congress, 145 Institutions Examination Council), Compliance with, 151, 152, 153-54 69, 71, 151, 152, 153, 180-81 Legislative recommendation, 159 Federal Financial Institutions Examina- Electronic fund transfers (See tion Council, 175, 177, 178, 179 Transfers of funds) Federal Financing Bank, 79 Employment, Federal Reserve System, Federal Home Loan Bank Board, 71, 201, 206, 207, 210 151, 152, 175, 178, 192 Equal Credit Opportunity Act Federal Home Loan Mortgage Annual report to Congress, 145 Corporation, 172 Compliance with, 150, 151, 152, 153 Federal National Mortgage Association, Regulation B (See Regulations) 172 Examinations, inspections, regulation, Federal Open Market Committee and audits Audit of System Open Market Audit controls, 205 Account, 198 Bank holding companies (See Bank Continuing authorizations, review, 99 holding companies) Litigation, 170, 171 Federal Reserve Banks, 198 Meetings, 78, 264 Improvements, 148-49, 175-78 Members and officers, list, 264 International activities, 174 Policy actions, 78-144 Specialized, 175 Federal Reserve Act, 78, 162, 163, Staff training, 149, 150, 179 164, 179, 182, 185, 198 State member banks, 148, 157, 173, Federal Reserve Agents, 269 174, 175, 177, 178-79 Federal Reserve Banks System Open Market Account, 198 Assessments for expenses of Board of Expenses Governors, 213, 230, 232, 234 Board of Governors, 211-16 Bank premises, 163, 199, 218, 220, Federal Reserve Banks, 198, 228-31, 222, 227 232-35 Branches (See Branch banks) Federal Reserve System, 1974-84, and Budget for 1985, 209 budgets approved for 1985, 201-10 Capital accounts, 219, 220, 222 Export trading companies, 181-82, Chairmen and deputy chairmen, 182-83 268, 269 Condition statement, 218-23 Delegated authority, 180, 183, 185 Fair Credit Billing Act, 152 Deposits, 219, 220, 222, 245, 247 Fair Credit Reporting Act, 153 Directors, 162, 270-88 Fair Housing Act, 150 Dividends paid, 198, 228-31, 233, 235 Farm Credit Administration, 152, 153 Examination or audit, 198, 205 Federal Advisory Council, list, 265 Expenses, employment, and Federal agency securities productivity, 1974-84, 201-10 Authority to purchase and to enter Income and expenses, 198, 228-31, into repurchase agreements, 232-35 78-80, 99-100, 122, 135, 143-44 Interest rates, 72-77, 238 Federal Reserve Bank holdings and Loans and securities, 199, 218, 220-23, earnings, 199, 218, 220, 222, 226, 226, 228-31, 244, 246 246 Officers and employees, number and Federal Reserve open market salaries, 226 transactions, 1984, 224 Operations, volume, 238 Repurchase agreements, 78-80, 172, Presidents and vice presidents, 268, 218, 220, 222, 224, 226 269, 270 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

292 Index Federal Reserve Banks—Continued Fees—Continued Pricing of services and the payment Federal Reserve services—Continued mechanism, 194-98, 204, 206, Pricing and the payment 228, 236 mechanism, 194-98, 204, 206, Profit and loss, 230 228, 236 Training, 149, 150, 179 Securities and noncash collection U.S. government securities (See U.S. services, 196-97 government securities) U.S. government securities, transfer, Federal Reserve Bulletin, 150, 184, 192 197, 207 Federal Reserve notes Wire transfers of funds, 68, 195 Condition statement data, 218-23 Financial Institutions Supervisory Act Cost of issuance and redemption, 213 of 1966, 169, 179 Interest paid to U.S. Treasury on, Financial markets and monetary policy, 198, 230, 233, 235 12-19 Litigation, 170, 171 Financial Regulation Simplification Act Federal Reserve Reform Act of 1977, 162 of 1980, 188 Federal Reserve Regulatory Service, 187 Float (See also Check clearing and Federal Reserve System (See also Board collection), 68, 69, 190, 197, 206, of Governors 210 Accounting conventions, 205 Foreign banks, 67, 69, 163, 164, 174, 182 Banking supervision and regulation, Foreign branches of U.S. banking 173-87, 204, 206, 207-08, 210 organizations (See Branch banks) Consumer affairs (See Consumer and Foreign currencies community affairs) Authorization and directive for Currency costs, 196, 204, 210 operations in, and review of Expenses, employment, and documents, 78, 81-83, 99 productivity, 1974-84, 201-10 Federal Reserve income on, 228, 230 Foreign currency operations (See Freedom of Information Act, 170 Foreign currencies) Full Employment and Balanced Growth Map of Federal Reserve Districts, 260 Act of 1978, 3, 26 Membership, 187 Pricing of services and the payment Garn-St Germain Depository Institutions mechanism, 194-98, 204, 206, Act of 1982, 67, 189 228, 236 General Accounting Office, 204, 205 Training (See Training) Glass-Steagall Act, 169 Federal Trade Commission, 147, 148, Gold certificate accounts of Reserve 152, 153, 154, 160 Banks and gold stock, 218, 220, Federal Trade Commission Act 222, 244, 246 Annual report to Congress, 145 Government National Mortgage Responsibilities under, 147, 148, 157 Association, 172 Fees Accounting for, associated with certain Home financing, booklet, 152 international loans, 69, 178, 191 Board policy statement, 72 Income of Federal Reserve Banks, 198, Changes, information on, and study of 228-31, 232-35 impact on consumers, 150-51, 192 Individual retirement accounts, 71, Federal Reserve services to depository 146, 190 institutions Insured commercial banks (See also Automated clearing house service, Commercial banks) 194, 195, 197 Assets and liabilities, 243 Check clearing and collection, 68, Banking offices, changes in number, 190, 195, 206 248 Coin and currency, 196, 204, 210 Number, by class of bank, 243 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index 293 Interest on deposits (See also Interest Loans—Continued rates) Federal Reserve Banks Maximum rates payable on time and Holdings and income, 199, 218, savings deposits, table, 241 220, 222, 226, 228, 230, 244, Time deposits, advertising of rate on, 246 71, 146, 190 Interest rates, 72-77, 238 Interest rates (See also Interest on To depository institutions, 218, deposits) 220, 222, 228, 244, 246 Federal Reserve Banks International, 69, 163-64, 178, 191 Changes, 72-77 Real estate, 152, 158, 159, 172, 192 Table, 238 Volume of operations, 238 International Banking Act of 1978, 163, 208 Margin credit regulations (See International banking activities and Regulations: G, T, U, and X) operations, 69, 174, 178, 181-83, Margin eligibility, change, 190 189, 191 Margin requirements International banking facilities, 182 Legislation enacted, 172 International developments, review, Table, 242 20-25 Member banks (See also Depository International Lending Supervision Act institutions and National banks) of 1983, 69, 176, 178, 191 Assets, liabilities, and capital International loans, 69, 163-64, 178, 191 accounts, 243 International Monetary Fund, 178 Banking offices, changes, 248 Interpretations, 148, 187 Borrowings and loans (See Loans) Interstate Commerce Commission, 153 Branches, 174, 181, 249 Investments Capital-adequacy guidelines, 177, 191 Bank holding companies, 162, 181-82, Control of, changes in, 181 182-83 Examinations and inspections (See Banks, by class, 243 State member banks) Federal Reserve Banks, 218, 220, 222 Membership in Federal Reserve Foreign, by U.S. banking System, 187 organizations, 181-82, 189 Number, 243 State member banks, 185, 243 Reserve requirements, 239 IRAs (See Individual retirement Reserves and related items, 244-47 accounts) State member banks (See State member banks) Labor market developments, 9 Transfers of funds (See Transfers of Leasing, consumer, 162 funds) Legislation enacted (See also specific Mergers and consolidations, 180, 184, act), 172 250-59 Legislative recommendations Monetary and economic policy, Board of Governors, 159, 161-64 expenditures, 201, 206, 207, 209 Other federal financial regulatory Monetary Control Act of 1980, 67, 162, agencies, 159-60 169, 201, 205-06, 207, 208, 209-10 Litigation Monetary policy Bank holding companies, 165-69 Financial markets relative to, 12-19 Board procedures and regulations, Reports to Congress, 26-63 challenges, 169-71 Review of 1984, 3-11 Truth-in-Lending cases, 148 Mortgages, 152, 158, 159, 172, 192 Loans (See also Credit) Mutual savings banks, 248 Banks, by class, 243 Executive officers of member banks National Association of Securities and other insiders, 185 Dealers, 186, 187 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

294 Index National banks (See also Member Private sector adjustment factor, 72, banks) 194, 195, 196, 197, 198, 206, 210 Assets, liabilities, and capital Productivity, Federal Reserve System, accounts, 243 201, 204, 208 Banking offices, changes, 248 Profit and loss, Federal Reserve Banks, Capital-adequacy guidelines, 177, 191 230 Foreign branches, 182 Publications Number, 243 Adjustable-rate mortgages, pamphlet, National Credit Union Administration, 192 151, 175 Board decisions, public notice, 184 National Market System securities, 68 Community Reinvestment Act, Nonbankbank, 161, 184 pamphlets, 148, 191 Nonmember depository institutions Credit card study, 159 Assets and liabilities, 243 Federal margin regulations, staff Banking offices, changes in number, studies, 188 248 Federal Reserve Bulletin, 150, 184, 192 Number, 243 Marginable OTC Stocks, list, 68, Securities regulation, 187 186-87, 190 Payment system and priced services, Options clearing agency, 70, 190 papers, 197 Over-the-counter (OTC) marginable Regulation B, pamphlet, 148 stocks, 68, 186-87, 190 Regulation G, guide, 193 Regulations E and Z, official staff Payment mechanism (See Fees) commentaries, 192 Planning and Control System (PACS), "Securities Credit Transactions 203, 204, 205, 208 Handbook/' 187 Policy actions Shopping guide for credit, 193 Board of Governors Surveys on consumer finances and use Discount rates at Federal Reserve of bank services, 150, 192 Banks, 72-77 Truth in Lending Act, booklets, Regulations, 67-70 152 Statements, 70-72, 189, 190, 191 Federal Open Market Committee Real estate loans (See Mortgages) Authority to effect transactions in Real Estate Settlement Procedures Act, System Open< Market Account 152 Continuing authorizations and Regulation (See Banking supervision and directives, review, 99 regulation by Federal Reserve Domestic operations, 78-81, 84, System) 92,99, 100, 106, 115, 122, Regulations (See also Regulatory 128, 135, 136, 143 Improvement Project) Foreign currency operations, 78, AA, Unfair or Deceptive Acts or 81-83 Practices, 147 Presidents and vice presidents of B, Equal Credit Opportunity, 148, Federal Reserve Banks 153, 159, 189 Conference of Presidents and Confer- D, Reserve Requirements of Deposience of First Vice Presidents, tory Institutions, 67, 182 269, 270 E, Electronic Fund Transfers, 67, 147, List, 268, 269 148, 153-55, 191, 192 Salaries of presidents, 226 F, Securities of Member State Banks, Prices, 10 185 Pricing of Federal Reserve services and G, Securities Credit by Persons Other the payment mechanism, 194-98, than Banks, Brokers, or Dealers, 204, 206, 228, 236 68, 186, 187, 188, 193 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index 295 Regulations—Continued Schools (See Training) J, Collection of Checks and Other Securities (See also specific types) Items and Wire Transfers of Credit, 68, 70, 186, 190 Funds, 68, 146-47, 164, 190, 195 Municipal securities dealers, clearing K, International Banking Operations, agents, and transfer agents, 175 69, 178, 182, 189, 191 Over-the-counter, 68, 186-87, 190 Q, Interest on Deposits, 71, 146, 182, Regulation, 186 190 Services by Federal Reserve, 196-97 T, Credit by Brokers and Dealers, Securities and Exchange Commission, 67-68, 70, 147, 186, 187, 188 70, 153, 172, 176, 186, 188, 190 U, Credit by Banks for the Purpose of Securities Exchange Act of 1934, 185, Purchasing or Carrying Margin 186, 187 Stocks, 68, 186, 187, 188 Small Business Administration, 153 X, Borrowers of Securities Credit, Special drawing rights, 218, 220, 222, 186, 188 244, 246 Y, Bank Holding Companies and Staff studies on need for federal margin Change in Bank Control, 185, 189 regulations, 188 Z, Truth in Lending, 70, 147, 148, State member banks (See also Member 151, 191, 192 banks) Regulatory Flexibility Act, 188 Advertisements for multiple-rate time Regulatory impact studies, 192 deposits, 71, 146, 190 Regulatory Improvement Project, 188 Applications by, 185 Regulatory simplification, 188-93 Assets and liabilities, 173, 243 Repurchase agreements Banking offices, changes in number, Authority to purchase and to enter 248 into, 78-80 Capital-adequacy guidelines, 177, 191 Bankers acceptances, 78-80, 172, Consumer complaints against, 155-57 218, 220, 222, 224 Control of, changes in, 181 Certificates of deposit, 172 Examinations and inspections, 148, Federal agency securities, 78-80, 157, 173, 174, 175, 177, 178-79 172, 218, 220, 222, 224, 226 Fees (See Fees) U.S. government securities, 78-80, Interest on deposits (See Interest on 172, 218, 220, 222, 224, 226, 244, deposits) 246 Loans to executive officers and other Repurchases of stock by bank holding insiders, 185 companies, 185 Membership in Federal Reserve Reserve requirements of depository System, 187 institutions Mergers and consolidations, 180, 184, Changes, 67 250-59 Expenses, 207 Number, 173, 243 Foreign banking institutions, legislative Reserve requirements (See Reserve recommendations, 69, 164 requirements of depository Table, 239 institutions) Reserves against certain foreign assets, Stock market credit, 68, 70, 186, 190 69, 163-64, 178, 191 Stock repurchases by bank holding Reserves and related items, 244-47 companies, 185 Retirement accounts, 71, 146, 190 Supervision (See Banking supervision and regulation by Federal Reserve System) Salaries System Open Market Account Board of Governors, 213 Audit, 198 Federal Reserve Banks, 226 Authority to effect transactions in Savings and loan associations, 147, 184 Continuing authorizations, review, 99 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

296 Index System Open Market Account— Transfers of funds—Continued Continued Wire transfers, 68, 69, 71, 146-47, Authority-—Continued 164, 190, 195 Domestic operations, 78-81, 84, 92, Truth in Lending Act 99, 100, 106, 115, 122, 128, Annual report to Congress, 145 135, 136, 143 Compliance with, 151, 152 Foreign currency operations, 78, Legislative recommendations, 159 81-83 Regulation Z (See Regulations) Telephone credit cards, 70, 147, 191-92 U.S. balance of payments, review, 20-25 Thrift institutions, 161, 162 U.S. Department of Agriculture, 152, Thrift Institutions Advisory Council, 153, 207 list, 267 U.S. Department of the Treasury, 197, Time and savings deposits at federally 198, 199, 207, 210 insured institutions, interest rates, U.S. Department of Transportation, 152 241 U.S. government securities Time deposits, advertising of interest, Authority to buy, to enter into re- 71, 146, 190 purchase agreements, and to lend, Training, 149, 150, 179 78-80, 99-100, 122, 135, 143-44 Transfers of funds (See also Fees) Bank holdings, by class of bank, 243 Check clearing and collection (See Federal Reserve Banks Check clearing and collection) Holdings, 199, 218, 220, 222, 226, Debit card transactions, 67,68,147,191 244,246 Electronic fund transfers, 67, 147, 148, Income, 199, 228-31 153-55, 191, 192, 195 Transfers by, 197, 210 Federal Reserve operations, volume, Open market transactions, 224 238 Repurchase agreements, 78-80, 172, Pricing of Federal Reserve services and 218, 220, 222, 224, 226, 244, 246 the payment mechanism, 194-98, 204, 206, 228, 236 Wire transfers (See Transfers of funds) FRB 1—11,200—0685 C Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis