Federal Reserve Bulletin, 1984-11

VOLUME 70 • NUMBER 11 • NOVEMBER 1984 FEDERAL RESERVE BULLETIN Board of Governors of the Federal Reserve System Washington, D.C. PUBLICATIONS COMMITTEE Joseph R. Coyne, Chairman • Stephen H. Axilrod • Michael Bradfield • S. David Frost Griffith L. Garwood • James L. Kichline • Edwin M. Truman Naomi P. Salus, Coordinator The FEDERAL RESERVE BULLETIN is issued monthly under the direction of the staff publications committee. This committee is responsible for opinions expressed except in official statements and signed articles. It is assisted by the Economic Editing Unit headed by Mendelle T. Berenson, the Graphic Communications Section under the direction of Peter G. Thomas, and Publications Services supervised by Helen L. Hulen. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Table of Contents 791 RECENT DEVELOPMENTS 822 RECORD OF POLICY ACTIONS OF THE IN THE STATE AND FEDERAL OPEN MARKET COMMITTEE LOCAL GOVERNMENT SECTOR At its meeting on August 21, 1984, the The fiscal position of state and local govern- Committee adopted a directive specifying ments has improved appreciably over the no change at this time in the degree of past year and a half. pressure on reserve positions, but calling for a response to any significant deviation in 802 PROFITABILITY OF INSURED the aggregates from expectations against COMMERCIAL BANKS IN 1983 the background of economic and financial developments. The members anticipated The profitability of commercial banks dethat this approach to policy implementation clined in 1983, despite the strong rebound in would be consistent with growth of the economic activity. various aggregates at rates for the quarter close to those specified at the previous 819 STAFF STUDIES meeting. Specifically, Ml was expected to In "Geographic Market Delineation: A Re- grow at an annual rate of around 5 percent view of the Literature," the emphasis is or slightly less for the period from June to placed on the ability to define meaningful September, a little less than expected at the economic banking markets for the purpose previous meeting reflecting the contraction of analyzing bank mergers and acquisitions in Ml in July. The annual rates of growth in the context of current antitrust policy; for M2 and M3 in the third quarter would the study also evaluates the different ap- continue to be IV2 and 9 percent respectiveproaches to geographic market determina- ly. The intermeeting range for the federal tion used by the bank regulatory agencies funds rate was left unchanged at 8 to 12 and the approach recently suggested in the percent. It was also recognized that, within merger guidelines issued by the Department the context of the overall approach, operaof Justice. tions might need to be modified if unusual financial strains appeared to be developing. 820 "A Comparison of Direct Deposit and Check Payment Costs," presents the find- 829 LEGAL DEVELOPMENTS ings of a study of the relative cost of pay- Various bank holding company, bank serment by direct deposit versus payment by vice corporation, and bank merger orders; check. and pending cases. 821 ANNOUNCEMENTS Ai FINANCIAL AND BUSINESS STATISTICS Change in the schedule for the FEDERAL The statistical tables that would have been RESERVE BULLETIN. published in this BULLETIN under the old Admission of four state banks to member- schedule will appear in the BULLETIN for ship in the Federal Reserve System. December; see the note on page Al. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A3 GUIDE TO TABULAR PRESENTATION, A12 FEDERAL RESERVE BOARD STATISTICAL RELEASES, AND SPECIAL PUBLICATIONS TABLES A 15 FEDERAL RESERVE BANKS, BRANCHES, A8 BOARD OF GOVERNORS AND STAFF AND OFFICES A 10 FEDERAL OPEN MARKET COMMITTEE A16 MAP OF FEDERAL RESERVE SYSTEM AND STAFF; ADVISORY COUNCILS Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Recent Developments in the State and Local Government Sector Laura S. Rubin of the Board's Division of Re- annual rate near 6 percent, almost twice the pace search and Statistics prepared this article. Sylvia of the private economy, and even during periods L. Lucas provided research assistance. of recession strong increases continued. (Throughout this article growth rates are mea- The fiscal position of state and local govern- sured from fourth quarter to fourth quarter, ments has improved appreciably during the past except as noted.) However, the pace of growth year and a half. The turnaround from a small slowed noticeably over the decade of the 1970s; deficit in 1982 to a sizable surplus was due and stagnation marked the early 1980s (table 1). largely to increases in tax rates coupled with a During the first postwar decade, much of the strong economic recovery. Despite the improved growth in real outlays was for construction (chart fiscal position, real outlays for the sector as a 1). Real expenditures for structures increased whole were unchanged in 1983 as employment from about 14 percent of total state and local and capital spending remained weak. spending in 1947 to around 25 percent by 1954, The weakness in capital spending by state and and held that share through 1968. During that local governments continued even in the face of a period, outlays for educational facilities and the deteriorating domestic infrastructure that re- highway system rose significantly. This was a quired repair and new construction. However, period of rising birth rates, increasing real per with improved fiscal positions, the generally capita income, and rapidly improving standards strong trend of economic activity, and favorable of living. Enrollment in public schools soared, conditions in capital markets, state and local necessitating the construction of new facilities. governments now appear to be in a good position In addition, the federal interstate highway proto increase capital outlays. Indeed, several cities gram, begun in 1956 and financed in part by and states have planned major bond offerings to federal grants to states, produced a surge in road support construction projects. construction. Municipal bond markets have remained fairly Because capital outlays were so high, the stable during the current economic expansion, combined operating and capital account of state despite the virtual absence of institutional investors and the uneven flow of new issues that 1. Real outlays for construction in the state resulted from legislative changes. Over the past and local sector year and a half, municipal bond yields generally have fallen relative to yields on other long-term obligations, and the level of interest rates is now well below the highs seen earlier in the decade. SECULAR TRENDS For the first two decades after World War II, the state and local government sector was characterized by rapid growth. Between 1948 and 1968, Annual data. •First half, 1984; annual rate. real outlays by the sector expanded at an average SOURCE. U.S. Department of Commerce. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

792 Federal Reserve Bulletin • November 1984 1. Growth in the state and local government sector, selected periods, 1948-84' Percent except as noted Annual average IItteemm 11998833 1199884422 1948-68 1969—79 1980-82 Total nominal expenditures 9.9 10.5 7.9 5.6 10.3 Total real purchases of goods and services 5.9 2.6 -.4 0 3.6 Real construction outlays 9.2 -3.8 -5.1 -6.7 21.4 Nominal revenues 9.6 11.5 7.2 9.6 10.6 Grants 12.6 15.3 .3 2.2 16.1 Own sources 9.2 10.7 9.2 11.3 9.5 MEMO: Surplus (deficit -)3 (billions of dollars) -2.5 .9 3.5 6.6 13.0 Factors in outlays Employment 4.5 3.3 -.4 -.4 1.3 School-age population 1.9< -1.3 -1.5 -1.1 -1.1 1. Annual growth rates measure changes from the fourth quarter of 3. Operating and capital account, one year to the fourth quarter of the next year except as noted. 4. 1960-68. 2. Growth is measured from the fourth quarter of 1983 to the SOURCES. U.S. Departments of Commerce and Labor, second quarter of 1984 at an annual rate. and local governments (as measured by the na- The public reacted to these large surpluses, in tional income and product accounts) was in a period of rapid inflation and rising real tax deficit in every year between 1948 and 1971. burdens, with dismay. In 1978, voters in Califor- Expenditures continued to outpace receipts de- nia approved Proposition 13, a constitutional spite hefty advances in both federal grants and amendment designed to reduce property taxes revenues from these governments' own sources collected by local governments in that state, (tax and nontax receipts). During the 1960s, beginning a series of tax revolts that continued federal grants financed about 20 percent of capi- into the 1980s. Thirty-two states enacted legislatal spending, and long-term municipal bond of- tion to reduce taxes or limit the growth of ferings financed 40 percent; the remainder was government. drawn from tax and nontax receipts, reserve From 1980 to 1982, the fiscal positions of state funds, and short-term borrowing. and local governments weakened, reflecting cuts In the late 1960s, real outlays for construction in federal grants and two recessions. Federal aid were reduced. Building of educational facilities peaked in 1967; the grade-school population began to fall three years later and has since trended 2. Indicators of capital spending down steadily (chart 2). Highway construction Millions also began to wind down in the late 1960s. Despite these reductions, total real outlays for the state and local sector continued to rise in the 1970s, albeit at a slower rate, as welfare programs became a major priority. Moreover, unlike the preceding period, the 1970s saw an increase in the rate of growth of revenue, as receipts from both federal grants and state and local tax and nontax collections picked up. The string of deficits was broken in 1972 when federal aid jumped nearly 30 percent, in part because revenue sharing was put in place. Deficits reappeared briefly during the 1974-75 recession, but in later years, surpluses climbed to $10 billion. The surpluses were concentrated among local governments, while states hovered near fiscal balance during Annual data. the period. *First half, 1984; annual rate. SOURCE. U.S. Department of Commerce. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Recent Developments in the State and Local Government Sector 793 3. Federal aid as a percent of state and local revenue THE 1983 RECOVERY Percent The fiscal positions of state and local governmental units quickly strengthened in 1983. The turnaround reflected both economic and political factors: not only did tax revenues benefit from a strong economic recovery, but also budget balancing (over a one- or two-year period) is mandated in every state except Vermont. Construc- 1950 1960 1970 1980 84 tion spending had been cut back as revenue growth slowed earlier in the decade and funds Annual data. were shifted to current operating needs. More- •First half, 1984. SOURCE. U.S. Department of Commerce. over, many governmental units limited labor costs, which account for more than half of the sector's purchases of goods and services. In to state and local governments fell about 5VI 1983, 41 states either granted no wage increases percent in nominal terms between calendar years to their employees or held pay hikes to 5 percent 1980 and 1982. Federal aid accounted for 18 or less, and 40 states imposed hiring freezes or percent of total revenue accrued by state and actually reduced their workforces. local governments in 1983, compared with 23 Most of the tax hikes came during 1983, when percent only three years earlier (chart 3). Much 38 states raised at least one tax. Sixteen states of the decline came in labor market programs as increased personal income taxes, and many public service jobs provided by the Comprehen- states raised major business taxes. In addition, sive Employment and Training Act were phased general sales taxes, as well as taxes on cigaout; grants for all labor training and services fell rettes, alcoholic beverages, and fuel, were infrom $8V2 billion in 1979 to around $3 billion in creased. With higher tax rates in place and tax 1982, In addition, major, lasting reductions were bases on a cyclical upswing, states' revenue made in entitlement programs administered by jumped $7.5 billion in 1983. As a result, the state and local governments, such as welfare, operating and capital surplus for the state and medicaid, and school lunches. Other cuts in local sector averaged more than $6Vi billion in federal aid were in community development, the four quarters of 1983 and $13.0 billion for the highway construction, and revenue sharing. first two quarters of 1984. Concurrently with cuts in federal aid, state and The improvement in the fiscal positions of local governments weathered two economic re- state and local governments in 1983 was unexcessions. The sector had only a temporary set- pected. When budgets were planned and tax back in the 1980 downturn; growth in receipts proposals set forth during the late winter and slowed in the second quarter of that year, and the spring of 1983, the outlook appeared dismal. surplus dwindled to near zero. The more recent Sizable tax increases were considered a necessirecession, however, had a considerable impact ty, and plans were made to slow outlays. These on state and local fiscal positions. Despite a policies, it was hoped, would result in balanced reduction in the pace of expenditures, a small budgets, or perhaps small surpluses, in the year deficit was recorded for the sector in 1982. It was ahead. The surprise came from the strength of largely a result of a sizable decline in the growth the economic recovery. At the end of 1982, many of tax and nontax receipts combined with the private forecasters had been expecting real drop in federal grants for the year as a whole. growth over the four quarters of 1983 to be 4 The weakness was centered in the states, whose percent or less; in fact, real gross national prodrevenue systems are fairly responsive to aggre- uct moved up about 6LA percent. With retail gate economic activity. In contrast, local govern- sales, as well as personal and corporate income, ment receipts, which are dependent largely on expanding more rapidly than anticipated, rising property taxes, held up well in 1981 and 1982. tax receipts pushed up surpluses. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

794 Federal Reserve Bulletin • November 1984 The unexpected strength of economic activity of other sectors of the economy. During the six during 1983 and the lag between plans and imple- postwar downturns preceding 1980, real purmentation explain the coincidence of large bud- chases by state and local governments grew an get surpluses and weak capital outlays. Indeed, average IVi percent, and they were especially capital spending by municipal units appeared strong during the earliest recessions. After 1980, especially low in light of the attention given in however, the sector appeared less resilient durrecent years to the problems of sustaining the ing periods of weakness: real outlays in the domestic infrastructure. It is widely believed that sector fell 0.2 percent during the brief 1980 many of the nation's highways, bridges, sewers, downturn and were flat in the last recession. and airports need restoration and modernization, Spending behavior during recovery periods but state and local governments had not yet has also changed dramatically. Before 1980, real begun to meet this challenge early in the 1983 purchases of goods and services by state and recovery. However, given improved fiscal posi- local governments continued to grow during retions, capital spending programs are expected to coveries, expanding between 2xh and 8V2 percent be a major priority in the years ahead. Moreover, in the first year of postwar recoveries. But the additional funding for improving highways will year after the trough of the 1980 recession, real be forthcoming as a result of the Surface Trans- purchases actually fell about VA percent, and portation Act, federal legislation that raised gas- they were unchanged over the first year of the oline and diesel fuel taxes by 5 cents per gallon most recent recovery. The failure of spending to beginning in April 1983. Funds raised by this tax grow in the 1980s stemmed primarily from two will be used by state and local governments for factors already discussed: the reduction in outfederal highway repair and public transit. lays associated with the sharp drop in federal Facilities in greatest need of repair and upgrad- grants and the continued decline in spending for ing include urban roads and the interstate high- construction that began in the late 1960s. way system, as well as waste water treatment plants and many municipal water and sewer systems. Also in need of modernization are pub- FINANCING STATE AND LOCAL OUTLAYS lic transit systems, and airports. Funds to rebuild the infrastructure will contin- State and local government outlays are financed ue to be derived from a variety of sources— through tax receipts, federal grants, and a variety borrowing in the tax-exempt market, the revenue of nontax sources—for example, motor vehicle from governments' own sources, and federal registration and license fees, rents and royalties, grants. Only a portion of the recent surpluses is and various fines. When receipts exceed expenlikely to be used for capital outlays in the near ditures, excess funds are often placed in special term. Instead, these funds are expected to re- reserve funds that can be drawn down when plenish reserves drawn down during the reces- revenues are relatively low. sion, to provide rebates to taxpayers, and to When state and municipal government treasurpermit tax reductions; earlier this year tax rates ers are threatened with a deficit in their current were reduced in several states, including Michi- operating accounts, they have a variety of regan, Nebraska, and Pennsylvania. In addition, courses. Initially, a shortfall may be covered by some state and local employees may benefit from drawing down reserve funds while attempts are catch-up in pay, and outlays for services may made to hold the line on spending. Legislatures increase. also may try to raise taxes if they think the imbalance will persist. For temporary cash needs, state and local governments may borrow BUSINESS CYCLES AND STATE AND LOCAL in the short-term tax-exempt securities market ACTIVITY by issuing notes, usually with maturities of a year or less. Notes issued in anticipation of receipts from taxes or other revenue flows have been The strong upward trend in the activity of the dubbed tax anticipation notes (TANs) and revestate and local sector before the 1980s was not nue anticipation notes (RANs). interrupted by the cyclical ups and downs typical Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Recent Developments in the State and Local Government Sector 795 The Municipal Bond Market: External for three years. During that time, governmental Financing of Capital Expenditures units can make alternative investments and earn arbitrage profits on the spread between tax- In order to finance public construction activity, exempt and taxable yields. This lag between state and local governments issue a substantial bond sales and construction outlays influences volume of long-term debt each year, in the form their relationship. In addition, movements in of general obligation and public-purpose revenue construction spending are associated with bonds. General obligation bonds typically must changes in federal grants. For example, a rise in be approved by public referendum and are grants may result in increased outlays for strucbacked by the taxing authority of the governmen- tures without a need for additional bond financtal unit. In recent years, revenue bonds have ing. become increasingly popular. These bonds gen- Legislative changes can also influence the timerally do not require a referendum, and they are ing of municipal bond financing. This influence backed by the flow of revenues generated by the was particularly evident in the first half of 1984. completed structure—for example, user fees, in As explained below, during that time offerings of the case of water, sewer, and electric facilities, private-purpose tax-exempt bonds were unusualand tolls, in the case of highways and bridges. ly low as issuers awaited congressional extension Chart 4 shows construction outlays in nominal of issuing authority and clarification of new terms by state and local governments and bor- restrictions. With that supply of bonds temporarrowing in the market to obtain new capital for ily reduced, offerings of public-purpose bonds, public purposes. While capital formation trended notably for education and transportation needs, up over the 1970s, gross bond volume remained surged, rising considerably more than outlays. relatively stable until 1982. State and local bond issuance was reduced somewhat in 1979 and 1980, reflecting the steady rise in municipal bond Private-Purpose Bonds interest rates that began during the summer of 1979. Municipal bond rates moved down in 1982 The total volume of tax-exempt bonds represents as other credit market conditions eased, and the not only governmental funding needs, but in lower rates were accompanied by a sizable vol- recent years, an increasingly large volume of ume of bond issues. private-purpose revenue bonds, securities issued While both construction outlays and gross by state and local government authorities on offerings of public-purpose bonds generally have behalf of private individuals or businesses. Offitrended up in the postwar period, movements in cials and issuers argue that the tax-exempt status the two from year to year have differed. Pro- of these bonds is legitimate because funding ceeds of bonds sold to finance capital construc- these private investments fosters expanded ecotion do not have to be spent on the project itself nomic development, more jobs, higher incomes, and a broader tax base in the local area. In addition, new facilities and housing are seen to 4. Municipal bonds and construction contribute to a higher standard of living in the community. Nonetheless, the primary direct beneficiaries of these bonds are specific individuals and businesses rather than the general public. Private-purpose municipal bonds derive their tax-exempt status from various provisions in the Internal Revenue Code. The bulk of these bonds is sold to finance housing, industrial development, student loans, and certain private nonprofit organizations. Table 2 illustrates the growing Annual data. •First half 1984; annual rate. importance of private-purpose bonds in the mar- SOURCE. U.S. Department of Commerce and Federal Reserve ket for long-term tax-exempt securities. In 1975, Board staff estimates. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

796 Federal Reserve Bulletin • November 1984 2. Long-term tax-exempt offerings, 1975-83 Billions of dollars except as noted Purpose of offering 1975 1976 1977 1978 1979 1980 1981 1982 1983 Total1 31.3 35.0 46.8 49.0 48.1 54.9 56.7 85.8 93.3 Refunding bonds .9 3.5 9.6 9.3 1.9 1.6 1.2 3.8 14.02 New capital 30.4 31.5 37.2 39.7 46.2 53.3 55.5 82.0 79.3 Public purposes 23.6 22.4 22.6 22.0 18.7 21.1 25.1 33.6 30.0 Private purposes 6.8 9.1 14.6 17.7 27.5 32.2 30.4 48.4 49.3 MEMO: Private-purpose bonds as a percent of new capital 22 29 39 45 60 60 55 59 62 1. Data from Bond Buyer adjusted to include privately placed small- 2. Public Securities Association, issue industrial development bonds. SOURCES. Bond Buyer, U.S. Department of the Treasury, and Federal Reserve Board staff estimates except as noted. these bonds accounted for less than 25 percent of Treasury. Third, the increased supply of these state and local borrowing for new capital; by bonds in the tax-exempt market exerts upward 1983, their share had grown to 62 percent. Steady pressure on interest rates for all tax-exempt advances were apparent for most categories, securities, thereby raising the cost of borrowed with spectacular increases in single-family hous- funds for public purposes by state and local ing bonds and small-issue industrial development governments. bonds (IDBs) (table 3); these two types of bonds are discussed in considerable detail in the accompanying appendix. In 1983, single-family housing Municipal Bond Volume in Recent Years bonds and small-issue IDBs made up half of private-purpose issues. Multifamily housing Tax-exempt offerings for both public and private projects and private nonprofit hospitals also re- purposes have risen substantially during the past ceived substantial amounts of funding. two years, following the peak in municipal bond In recent years, the Congress and the adminis- rates in early 1982. Most of the increase was in tration have become increasingly concerned revenue bonds (chart 5). Issuance continued to about the use of private-purpose bonds. First, rise in 1983, as the lower level of interest rates these issues may represent some abuse of the sparked a large volume of refunding bonds. Anoriginal intent of the tax-exempt feature of mu- other element was the provision in the Tax nicipal bonds—that is, that state and federal Equity and Fiscal Responsibility Act (TEFRA), governments not hamper one another's activi- enacted in 1982, that required all municipal ties. Second, because funds are being raised in bonds issued after January 1, 1983, to be in the tax-exempt, rather than the taxable market, registered form; that is, issuers would no longer the large volume of private-purpose bonds repre- have the option of offering bonds in bearer form. sents a substantial revenue loss to the U.S. Issuers and underwriters were concerned that 3. Tax-exempt offerings for private purposes, 1975-83 Billions of dollars Purpose 1975 1976 1977 1978 1979 1980 1981 1982 1983 Total private-purpose offerings 6.8 9.1 14.6 17.7 27.5 32.2 30.4 48.4 49.3 Housing1 1.5 2.7 4.5 7.1 12.1 14.0 5.6 14.3 17.6 Single-family mortgages * .7 1.0 3.4 7.8 10.5 2.8 9.0 11.0 Private nonprofit hospitals 1.4 1.9 3.3 2.3 2.3 2.6 3.3 6.7 7.72 Student loans * .1 .1 .3 .6 .5 1.1 1.8 2.8 IDBs Pollution control 2.0 2.1 3.0 2.8 2.5 2.5 4.3 6.5 2.8 Small issues 1.3 1.5 2.4 3.6 7.5 9.7 13.3 14.7 13.6 Other3 .6 .8 1.3 1.6 2.5 2.9 2.8 4.4 4.8 1. Includes some IDBs for multifamily housing. disposal, airports, docks, wharves, and sports and convention cen- 2. All private exempt entities. ters. Data before 1983 are staff estimates. 3. Includes IDBs for the following: mass-commuting vehicles, •Negligible. industrial parks, and facilities for local district heating and cooling, SOURCES. Bond Buyer, U.S. Treasury Department, U.S. Departelectric energy and gas, hydroelectric generation, sewage or waste ment of Housing and Urban Development, and Federal Reserve Board staff estimates. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Recent Developments in the State and Local Government Sector 797 5. Total municipal bond offerings The rate of total municipal bond issuance was considerably lighter in the first half of 1984 than Billions of dollars in 1983. During the first six months, volume averaged $69 billion at an annual rate, compared with an average of $83 billion in the preceding two years. During the lapse of legislative authority, issuance of tax-exempt bonds for owneroccupied housing was virtually nil, and the volume of IDBs was unusually light. Many of the IDBs that came to market earlier this year were refunding bonds. In some cases, however, issu- 1978 1980 1982 1984 ers were assured by state officials that their Annual data. offerings would be granted tax-exempt approval •First half, 1984; annual rate. even under strict volume caps. Finally, some SOURCE. Public Securities Association. IDBs were issued either with mandatory "tax calls"—that is, they would be called if the taxregistered bonds would not sell as well as bearer exempt status were denied—or with alternative, bonds and sought to market a large volume of higher rates that would be paid if the bonds bonds before the requirements went into effect. became taxable. The result was an increase in tax-exempt offer- In late June, the Congress finally passed the ings near year-end 1982. When the effective date Deficit Reduction Act of 1984, which extended for registration was postponed to July 1, 1983, a authority to issue tax-exempt single-family mortsecond rush to sell bearer bonds prompted a gage revenue bonds and set out new restrictions surge in volume in the second quarter of 1983. on IDBs. Following passage of the act, offerings Offerings of private-purpose bonds, especially of both types of bonds came rapidly to market. single-family housing bonds, student loan bonds, Because housing bonds were not legally authoand IDBs, also surged during the fourth quarter rized until the President signed the bill into law, of 1983. This increase reflected two provisions they could not actually be delivered, and the embodied in the Tax Reform Act of 1983, which bond indentures contained language to that efwas approved by the House Ways and Means fect. The bill was signed in mid-July, and around Committee in October but was not passed by the $7 billion of these bonds were sold by the end of Congress until June 1984. First, authority to September. issue single-family mortgage revenue bonds was Industrial development bonds also became an due to expire at the end of 1983, and passage of increasingly important element in the volume of the Tax Reform Act would have re-authorized municipal bonds issued during the summer. Bethese bonds for several more years. Uncertainty cause IDBs are much harder to identify, precise over when the Tax Reform Act would pass data on their volume will not be known until encouraged many housing authorities to market special reports, as required by TEFRA, are filed bonds in 1983 while they were still legal under and tabulated. Nonetheless, some analysts estithe existing law. mate that at least $3 billion to $4 billion of IDBs Second, the act contained provisions that lim- were marketed in the third quarter. i ited the volume of IDBs and student loan bonds Partly because of this surge in single-family issued in each state by setting caps on volume; in mortgage revenue bonds and IDBs, the total addition, it would have further limited the uses of volume of municipal bond issues jumped to an funds, arbitrage, and depreciation methods. As estimated monthly average of about $7.0 billion the legislation was written, the effective date was in the third quarter compared with $5.7 billion January 1, 1984. Thus issuers preferred to come per month during the first half of the year. to market at the end of 1983 under the existing Offerings were also bolstered by both privatelaw: they were concerned that IDBs sold in 1984 and public-purpose bonds that came to market might lose their tax-exempt status if and when on accelerated schedules to take advantage of a the new law were enacted. decline in interest rates in July and early August. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

798 Federal Reserve Bulletin • November 1984 Municipal Bond Rates 7. Ratio of yields on tax-exempt bonds to taxable bonds1 Interest rates on general obligation municipal bonds peaked just above WA percent in January 1982 after rising steadily during the preceding two years (chart 6). Interest rates fell throughout 1982, bottoming out at about 9 percent in April 1983. Over the next year rates generally remained in the range of 9Vi to 10 percent. Then in May 1984, rates rose to about IOI/2 percent, reflecting the firming in the Treasury and corporate securities markets as well as anticipation of 1. Quarterly data; ratio of the index of 20-year general obligation the increased supply of private-purpose tax-ex- bonds published by the Bond Buyer to the index of recently offered Aempt bonds that might occur when legislative rated corporate utility bonds published by the Federal Reserve Board. Shaded areas denote recessions. restraints were removed. During the summer months, rates averaged below lO'/t percent. investors in municipal markets. Property and Interest rates on tax-exempt bonds do not casualty companies have experienced unprecenecessarily move in tandem with those on tax- dented underwriting losses since 1979. In addiable securities. Indeed, the ratio of yields on tax- tion, commercial banks have enjoyed less tax exempt bonds to those on taxable bonds has a benefit from investing in municipal bonds than in cyclical pattern that is influenced by the behavior the past. Before 1983, banks could use borrowed of property and casualty insurance companies funds to buy tax-exempt bonds and fully deduct and commercial banks—the major institutional their interest costs. However, TEFRA changed investors in municipal securities (chart 7). In the that by allowing only 85 percent of costs incurred past, these institutions frequently stayed out of to be deducted, thereby reducing the incentive the tax-exempt market during recessions as low- for banks to invest in municipal bonds. The er profits reduced their need to shelter income. Deficit Reduction Act of 1984 reduced this pro- With reduced demand by these institutions, the portion to 80 percent. ratio of tax-exempt to taxable yields had to be In contrast, purchases of municipal securities higher to attract individual investors. As earn- by households, directly or through tax-exempt ings improved, these institutions would increase mutual funds, rose substantially during the retheir purchases of tax-exempt securities. cent expansion (chart 8): mutual funds' holdings Unlike earlier expansionary periods, the 1983— of municipal securities rose by nearly $15 billion 84 recovery saw little activity by institutional at an annual rate in the first half of this year, compared with about $10 billion in the preceding two years. Mutual funds probably have grown 6. Municipal bond yields1 rapidly in part because they have given individ- Percent ual investors access to the tax-exempt market that might have been closed to them because they lacked the resources or expertise to buy individual bond issues directly. Through the mutual funds individual investors can earn taxexempt interest income on a diversified portfolio. Moreover, in recent years tax-exempt mutual funds have been able to offer individuals increased liquidity and various transaction capabilities, such as check-writing and exchange privileges with other mutual funds. Much of the rise during the 1980s has been in mutual funds that 1972 1974 1976 1978 \m 12S2 12M invest in short-term tax-exempt securities, in- 1. Monthly data; the index of 20-year general obligation bonds cluding tax-exempt notes and commercial paper. published by the Bond Buyer. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Recent Developments in the State and Local Government Sector 799 8. Purchases of state and local government obligations unchanged. This weakness came in the face of an by major market participants improving fiscal position throughout the year. Percent of total However, in early 1983, legislative bodies were 3 Households and mutual funds planning tax increases and spending cuts and did not anticipate either the strength of the economic recovery or the rise in surpluses that resulted. Clearly, 1984 has been different: real purchases were up V/i percent at an annual rate over the first two quarters of the year as real construction outlays advanced 21 percent. Moreover, issuance of public-purpose bonds 1978 1980 1982 1984 appears to have risen in the first half of 1984, after a decline in 1983. Plans are being made to Annual data. Government obligations include net offerings of shortand long-term issues. undertake major capital projects. Much of the *First half, 1984; annual rate. funding, especially for highway repair, is expect- SOURCE. Federal Reserve flow of funds accounts. ed to come from federal grants. However, sever- Other Developments al states and cities, including Connecticut and Alabama, and Houston, Texas, have already Despite a variety of institutional and economic announced plans for major bond offerings. The changes, the municipal market has remained proceeds appear to be targeted at roads and relatively stable. The registration requirement bridges, although the Houston program also calls has not resulted in a noticeable change in the for spending on sewer and drainage projects and market. Although legislative changes interrupted park improvements. the flow of bonds, yields appeared to move about Furthermore, growth in the state and local as expected relative to yields on other long-term sector is likely to accompany continued expanobligations, and issuers have been able to suc- sion in economic activity. The lack of growth in cessfully sell bonds that previously had been spending in the early 1980s stemmed primarily withheld from the market, such as single-family from two factors. First, revenue growth was housing bonds. down: federal grants fell significantly in nominal Moreover, tax-exempt markets in the aggre- terms between 1980 and 1982, and then trended gate do not appear to have suffered long-term up only slowly, and receipts from tax and nontax repercussions from the default of the Washington sources slowed somewhat. Second, outlays for Public Power Supply System (WPPSS) during construction had been trending down since the the summer of 1983. On the other hand, several late 1960s, largely in response to the end of the utilities with nuclear power plants under con- postwar baby boom, and by 1983, these real struction have been plagued by serious financial outlays were at about the same level as in 1956. problems owing to cost overruns, construction Neither of these factors is expected to remain delays, and heavy debt burdens. It has been in force. Federal grants, in nominal terms, rose estimated that bonds issued by troubled utilities 16 percent at an annual rate in the first half of this have been trading at large interest-rate premi- year and are expected to continue trending up. In ums—as much as 400 basis points—for some addition, in light of strengthened fiscal positions time. However, municipal utilities that do not and heightened concern about the infrastructure, have nuclear plants under construction and issu- real outlays for construction are likely to expand. ers of other types of municipal bonds seem to This outlook depends on three key factors: the have been unaffected by the developments sur- maintenance of a strong tax base produced by rounding WPPSS. steady economic growth; stable capital markets to permit bond financing; and a steady level of CONCLUSION AND OUTLOOK federal support. During the first year of the current recovery, real outlays by state and local governments were The appendix begins on the following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

800 Federal Reserve Bulletin • November 1984 APPENDIX. PRIVATE-PURPOSE BONDS mortgage revenue bonds, many potential firsttime homebuyers either could not qualify for a Single-Family Mortgage Revenue Bonds loan or simply were not interested in buying a house at relatively high rates. Municipal bonds issued to provide funds for In 1982, the volume of bonds issued for ownerowner-occupied housing were virtually unknown occupied housing swelled. This development reuntil the late 1970s. Then between 1978 and 1980, flected primarily the decline in mortgage rates as interest rates on long-term, fixed-rate mort- throughout the year and the corresponding imgages rose steadily, state and local housing au- provement in the housing market. In addition, a thorities began to raise increasing amounts of provision in the Tax Equity and Fiscal Reponsifunds in the tax-exempt market with the inten- bility Act of 1982 (TEFRA) relaxed the arbitrage tion of distributing the proceeds to homebuyers restriction from 1 percent to V/s percent for all at interest rates substantially below those on bonds issued after September 3 of that year. conventional mortgages. During this time, there Offerings continued to rise in 1983, especially were essentially no federal restrictions on these in the second half of the year, when housing bond issues. market activity advanced and the authority to The volume of single-family mortgage bonds issue bonds for owner-occupied mortgages rose to $101/2 billion in 1980, accounting for neared its expiration date. Efforts under way in almost 20 percent of total municipal bond offer- the Congress in the final months of 1983<- to ings that year. Lawmakers became alarmed extend authority for these bonds beyond the about the volume of these bonds and their possi- sunset date were not successful. However, in ble abuse, and in December the Congress passed June 1984, the Congress enacted new tax reform the Mortgage Subsidy Bond Tax Act of 1980. Its legislation that re-authorized these bonds until purpose was to limit issuance of single-family the end of 1987. mortgage bonds. Provisions confined borrowers Issuance of single-family mortgage revenue to first-time homebuyers and set limits on prices bonds surged during the summer of 1984. It has of homes that could be financed under these been estimated that about $7 billion worth of programs. Each state was subject to a volume these bonds was sold in the third quarter. Nonecap, and rules were set to prevent state and local theless, total volume for the year is expected to governments from accruing arbitrage profits. Fi- be less than the $11 billion offered in 1983. In nally, a sunset provision called a halt to the part, the reduction is expected because issuance issuance of new bonds for owner-occupied hous- of these bonds is permissible during only half the ing after December 31, 1983. year. In addition, housing activity has slowed, In 1981, the year after enactment of this law, and the pool of homebuyers eligible for these bond volume dropped precipitously, reflecting loans has shrunk. Finally, the new legislation the strict arbitrage limits as well as high interest provided federal tax credits as an alternative to rates. The arbitrage restriction allowed a differ- funding mortgages through tax-exempt markets. ential of only 100 basis points between the rate Some housing authorities may prefer to offer on the mortgage revenue bonds and the actual these credits. mortgage interest cost. Often this spread was not enough to cover administrative costs, requiring state and local governments to subsidize these Small-Issue Industrial Development Bonds is bonds. Some preferred to suspend bond offerings. In addition, bond volume was reduced in Industrial development bonds (IDBs) are issued 1981 in the face of extremely high interest rates. by state and local governments on behalf of By October of that year, the rates on 30-year private businesses to finance industrial and comconventional, fixed-rate mortgages had soared to mercial facilities. Interest on these bonds is nearly 18.5 percent. The housing market was at exempt from federal taxes when the proceeds are its lowest level in the postwar period, and even intended to fund certain activities, including inwith the savings on mortgages funded through dustrial parks, some hydroelectric generating Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Recent Developments in the State and Local Government Sector 801 properties, qualified mass-commuting vehicles, As was the case for housing bonds, legislators pollution-control facilities, and residential rental became concerned about the growing volume of property. Presumably, these projects were al- small-issue IDBs. Moreover, like the projects lowed tax exemptions because they were consid- supported by bonds for owner-occupied homes, ered to have substantial external economies, or those funded by small-issue IDBs appeared to social benefits. Moreover, it may have been felt offer minimal external economies, defying the that permitting their construction using tax-ex- intent of the tax exemption. As a result, TEFRA empt funds would provide the incentives needed placed specific restrictions on small-issue IDBs. to get them built. The legislation tightened depreciation allow- One type of IDB that has gained tremendous ances, disallowed the combination of small-issue popularity is the small-issue IDB—an issue of no IDBs with other exempt activities, and listed more than $1 million ($10 million when certain activities not considered exempt. Finally, a suncapital expenditures are included). These funds set provision cut off small-issue IDBs after 1986. have to be used in conjunction with the acquisi- The volume of small-issue IDBs fell only tion, construction, or improvement of a single slightly in 1983, and in 1984 lawmakers set up depreciable property. At first, few limits were further limitations. Provisions contained in the placed on the type of activity that could be Deficit Reduction Act of 1984 set state-by-state supported, and the volume of new small-issue volume caps on total IDB issuance, limited a IDBs grew steadily through the late 1970s and principal user of small-issue IDBs to $40 million early 1980s. It reached nearly $15 billion in 1982 in bonds outstanding, and added to the list of and accounted for almost 18 percent of all tax- prohibited uses. exempt bonds issued to fund new capital in that year compared with 4 percent in 1975. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

802 Profitability of Insured Commercial Banks in 1983 Deborah J. Danker and Mary M. McLaughlin of ties of the assets and liabilities of the banks and the Board's Division of Research and Statistics on the impact of flows into money market deposit prepared this article. accounts (MMDAs) on the structure of their balance sheets. For example, the 13 money cen- The profitability of commercial banks declined ter banks managed to increase their interest again in 1983 as the industry's reported returns margin several basis points, largely by limiting on assets and on equity fell to 0.67 and 11.2 interest expense. As a group, they attracted percent respectively. Moreover, 48 commercial heavy inflows of funds into the newly authorized banks failed, and about 10 percent of the remain- MMDAs at the beginning of the year, which ing banks ended the year with net operating enabled them to cut back significantly on higherlosses despite the strong rebound in economic cost managed liabilities. Smaller banks, with far activity that had begun in late 1982. fewer managed liabilities to run off, did less well. The major factor contributing to reduced prof- In fact, the smallest banks—those with total itability was an increase in loan-loss provisions, consolidated assets of less than $100 million— occasioned in large part by the lingering effects experienced a relatively large decline in net of recession and by interest rates that remained interest margins. While gaining a lot of deregulathigh, even after a drop of about 2 to 3 percentage ed retail-type deposits, these banks also experipoints on average. While not as sharp as that in enced a decline in lower-cost regulated deposits 1982, the 1983 increase in loan-loss provisions that exceeded the drop in managed liabilities. So brought the figure up to almost one-half percent even though the further deregulation of deposits of total net assets. Relatively hard hit were the in 1983 appeared to have little effect on the agricultural banks, whose customers not only interest margin for the industry overall, it apwere affected by high interest costs, but also peared to affect individual banks and groups of were faced with depressed commodity prices and banks substantially. reduced export demand associated with the Approximately offsetting the slight deteriorastrong dollar. Provisions for loan losses at these tion in the industry interest margin was a narrowbanks increased by almost half, to 0.59 percent ing of the gap between noninterest expenses of total net assets. International loans also (excluding loan-loss provisions) and noninterest played a role in credit quality in 1983; provisions income. Increased fee income was an important against loan losses attributable to international factor in this development and suggests a continbusiness were increased more than 60 percent at ued trend toward "unbundling" of banking serbanks with foreign offices. vices, as well as an intensified effort to generate A modest shrinking of net interest margins also income from off-balance-sheet activities after contributed somewhat to the overall decline in regulators moved to tighten capital-asset guideindustry profitability in 1983. The size of the lines. On balance, with higher fee income offsetchange in these margins varied from group to ting the lower interest margin, net operating group, depending on the alignment of the maturi- profits in 1983 declined almost as much as loanloss provisions rose. An improvement in capital gains on security transactions tempered the decline, leaving aftertax profits in 1983 down 4 NOTE: Nancy Bowen and Chinhui Juhn provided data pro- basis points as a percent of total net assets. cessing and research assistance. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

803 INTEREST EXPENSE ceilings on, for example, passbook savings, limited the drop in interest expense. This limiting Influenced by the lower average level of market factor was less important at larger banks, which interest rates in 1983, interest expense at com- had a higher proportion of their liabilities in mercial banks declined 1.66 percentage points, to large, short-term deposits tied to money market 6.36 percent of total consolidated assets, as rates. As the chart shows, the decline in interest shown in table 1. The sharp decline in market expense generally steepened with bank size: rates that had occurred during the second half of money center banks posted the largest decline, 1982 was much larger than the upward drift of other large banks showed the next largest, then rates during 1983, leaving average market rates medium-sized banks, and finally, the small in 1983 below those of the previous year by several percentage points. Rates on certificates of deposit (CDs) at commercial banks fell more Components of interest margin than many other market interest rates as the Percent of average assets premium on bank liabilities lessened with some GROSS INTEREST INCOME easing of market concern about exposure on energy and foreign loans; the margin of rates on bank CDs over rates on Treasury bills of similar maturity narrowed about 100 basis points on average in 1983. The decline in overall interest expense at commercial banks, however, was smaller than that in market rates. The fixed-rate nature of a portion of banks' deposit liabilities, due both to longterm time deposits and to binding interest rate GROSS INTEREST EXPENSE 1. Income and expense as percent of average net assets, all insured commercial banks, 1981-831 Item 1981 1982 1983 Gross interest income 11.81 11.19 9.50 Gross interest expense 8.75 8.02 6.36 Net interest margin 3.07 3.17 3.15 Noninterest income .99 1.05 1.12 Loan-loss provision .26 .39 .47 Other noninterest expense 2.76 2.91 2.95 Income before tax 1.04 .91 .84 Taxes2 .24 .17 .18 Other3 -.04 -.03 .00 Net income .76 .71 .67 Cash dividends declared .30 .31 .33 Net retained earnings .46 .40 .34 NET INTEREST MARGIN MEMO: Net interest margin, taxable equivalent4 3.45 3.55 3.50 1. Average assets are fully consolidated and net of loan-loss reserves; averages are based on amounts outstanding at the beginning and end of each year. 2. Includes all taxes estimated to be due on income, on extraordinary gains, and on security gains. 1971 1973 1975 1977 1979 1981 1983 3. Includes security and extraordinary gains or losses (-) before taxes. Size categories are based on year-end consolidated assets of each 4. For each bank with profits before tax greater than zero, income bank. from state and local obligations was increased by [1/(1 - t) - 1] times Gross interest income is adjusted for taxable equivalence. Net the lesser of profits before tax or interest earned on state and local interest margin is gross interest income adjusted for taxable equivaobligations (t is the marginal federal income tax rate). This adjustment lence minus gross interest expense. approximates the equivalent pretax return on state and local obliga- Data are for domestic operations until 1976, when foreign office tions. operations of U.S. banks were consolidated into the totals. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

804 Federal Reserve Bulletin • November 1984 2. Selected financial liabilities as a percent of total assets, all insured commercial banks, 1981-831 Average during year Domestic offices Fully consolidated offices IItteemm 1981 1982 1983 1981 1982 1983 Deposit liabilities 75.9 74.6 74.7 78.6 77.7 77.7 15.8 15.0 13.5 In domestic offices 75.9 74.6 74.7 62.8 62.7 64.2 Demand deposits 25.1 20.7 19.3 20.8 17.4 16.5 NOW accounts 2.9 4.1 3.8 2.4 3.4 3.2 Large time deposits2 17.2 18.4 15.5 14.2 15.4 13.3 Other deposits3 30.7 31.5 36.2 25.4 26.5 31.1 Other selected financial liabilities 10.9 11.3 11.2 9.8 10.3 10.3 Gross federal funds purchased and repurchase agreements 9.1 9.5 9.1 7.5 8.0 7.8 Other borrowings 1.8 1.8 2.1 2.3 2.3 2.5 MEMO Money market liabilities4 28.5 30.1 27.0 40.2 41.0 37.5 Average assets (billions of dollars) 1,603 1,763 1,939 1,940 2,100 2,259 1. Percentages are based on aggregate data and thus reflect the 3. Including savings and small time deposits, MMDAs, and Super heavier weighting of large banks. Data are based on averages for call NOW accounts. dates in December of the preceding year and in June and December of 4. Large time deposits issued by domestic offices, deposits issued the current year. by foreign offices, subordinated notes and debentures, repurchase 2. Deposits of $100,000 and over. agreements, gross federal funds purchased, and other borrowings. banks. Small banks as a group tend to have more writing privileges but were typically offered at retail-type deposits and their liabilities tend to rates about 100 basis points below those on have longer terms; their money market liabilities MMDAs, stood at $23 billion by midyear and $29 represent just 11 percent of total assets, com- billion by December 1983. pared with 63 percent at money center banks. The increase in MMDA and Super NOW bal- Small banks, therefore, have experienced less ances generated a significant shift in the strucvariability in interest expense in the past than ture of banks' liabilities from 1982 to 1983. As have the larger banks; their expenses rise less shown in table 2, about 4'/2 percent more of the when market rates rise and fall less when market industry's assets were funded with retail-type rates fall. savings and small time deposits, MMDAs, and An additional factor affecting commercial bank Super NOWs (the "other deposits" category). interest expense in 1983 was the change in the Offsetting the increase in this category was a structure of liabilities as banks and their custom- large decline in money market liabilities, equal to ers reacted to the introduction of new types of 3'/2 percent of consolidated assets, and a smaller accounts. The most important of these was the decline, of almost 1 percentage point, in the phenomenally successful MMDA introduced in demand deposit share. The drop in money marmid-December 1982; initially, promotional ef- ket liabilities was concentrated in the large time forts led to interest rates that averaged 10.6 deposit component and reversed the upward percent, about double the 5lA percent rate of- trend of recent years, leaving managed liabilities fered on NOW and savings accounts. In addition at about the 1979 level of 37.6 percent of total to the MMDA, the Depository Institutions assets. The decline in demand deposits as a Deregulation Committee authorized the Super fraction of assets, by contrast, continued the NOW account, effective in January 1983. Estab- trend in that series and in fact was more gradual lished after the Garn-St Germain Depository than in the past few years. Institutions Act of 1982, both accounts were free The rapid growth of balances in the newly of interest rate ceilings provided depositors authorized accounts was also associated with maintained an average minimum balance of shifts in the shares of various types of deposits $2,500. Of the two, the MMDA was the more within the growing retail-type category of "other popular, attracting $213 billion to commercial deposits." Within this category, savings balbanks by June and $226 billion by the end of ances declined, the last of the tax-exempt All 1983. Super NOWs, which had broader check- Savers Certificates matured, and balances in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profitability of Insured Commercial Banks in 1983 805 3. Rates paid for fully consolidated liabilities, trast, the small banks, with fewer managed liabilall insured commercial banks, 1981-831 ities to run off, cut their money market liabilities Percent by just 1.4 percent of assets. Their demand deposit balances continued the strongly down- Item 1981 1982 1983 ward trend of recent years, and on average Interest-bearing deposits 13.38 11.94 9.13 balances in regular NOWs also shrank. In part Large negotiable certificates of deposit 16.42 14.14 8.90 Deposits in foreign offices 17.34 14.87 10.32 reflecting these differences in balance sheet Other deposits 10.02 9.75 8.79 Subordinated notes and debentures 10.01 9.99 10.01 changes among banks of various sizes, the de- Gross federal funds purchased and repurchase agreements 17.52 12.83 9.69 cline in interest expense at the small banks (1.02 Other liabilities for borrowed money 14.42 13.22 12.12 percentage points) was less than half that at the Total 13.86 12.08 9.29 13 money center banks (2.31 percentage points). 1. Calculated as described in the "Technical Note," FEDERAL Interest expense nevertheless remained highest RESERVE BULLETIN, vol. 65 (September 1979), p. 704. at the money center banks because of their stillindividual retirement accounts and Keogh plan high ratio of managed liabilities to total liabilities. deposits rose. Small time deposits diminished in importance through the first half of the year but then rebounded in the second half, in part as a INTEREST INCOME response to the deregulation of most such deposits in October. In 1983, interest income at insured commercial In the aggregate, the change in the structure of banks declined 1.69 percentage points to 9.50 liabilities implied more dependence on retail- percent of assets. Lower average market interest type deregulated deposits and less on money rates were of course the predominant factor in market liabilities and on deposits (including de- the decline—as they were in the case of interest mand deposits) subject to fixed interest rate expense. But the drop in income was tempered ceilings or not eligible for interest. The effects of by the long maturity of many bank assets, securithese changes on the interest expense of a partic- ties in particular. ular bank or group of banks depended largely on Commercial banks as a group expanded their the relative declines in the more costly managed holdings of securities, especially U.S. Treasury liabilities and the less costly regulated deposits obligations, while cutting back on loans as a (see appendix table A.2). At one end of the share of total assets (see table 4). In part, this spectrum, the money center banks as a group change in asset composition was a reaction to the reduced their money market liabilities substan- heavy inflow of MMDA and Super NOW funds tially, by 4.2 percent of total assets, while run- early in the year. As noted above, the new ning counter to the industry trend by actually accounts prompted a restructuring of bank liabilraising the share of demand deposits. By con- ities, but the asset side of the balance sheet was 4. Portfolio items as a percent of total assets, all insured commercial banks, 1981—83' Average during year Domestic offices Fully consolidated offices IItteemm 1981 1982 1983 1981 1982 1983 Interest-earning assets 80.8 82.5 82.6 83.8 85.2 85.2 Loans 54.5 55.3 54.7 55.2 56.1 55.7 Securities 20.0 19.2 19.9 17.0 16.6 17.5 U.S. Treasury 6.4 6.1 7.4 5.3 5.1 6.4 U.S. government agencies 4.0 4.1 4.0 3.3 3.5 3.4 State and local governments 9.1 8.6 7.9 7.6 7.2 6.8 Other bonds and stocks .5 .4 .5 .8 .7 .8 Gross federal funds sold and reverse repurchase agreements 4.8 5.2 5.0 4.0 4.4 4.3 Interest-bearing deposits 1.6 2.7 3.0 7.7 8.1 7.7 MEMO: Average assets (billions of dollars) 1,603 1,763 1,939 1,940 2,100 2,259 1. Percentages are based on aggregate data and thus reflect the dates in December of the preceding year and in June and December of heavier weighting of large banks. Data are based on averages for call the current year. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

806 Federal Reserve Bulletin • November 1984 also affected. The sudden inflow of funds was 5. Rates of return on fully consolidated portfolios, placed largely in securities—a typical adjust- all insured commercial banks, 1981-831 ment, especially for smaller institutions with less Percent scope to vary managed liabilities. Only a small Item 1981 1982 1983 portion of the inflow initially went into loans because the economic recovery had just begun Securities, total 9.27 9.96 9.83 U.S. government 11.38 12.19 11.79 and loan demand remained sluggish. By contrast, State and local government 6.72 7.19 7.04 Other 11.54 11.64 11.14 the Treasury's demand for credit surged, reflect- Loans, gross 16.37 15.20 12.70 ing the huge federal deficit. Ta N xa e b t le o f e l q o u an iv - a lo le ss n t2 p rovision 15.83 14.39 11.76 Small banks as a group continued to hold a Total securities 11.73 12.49 12.06 State and local government 12.15 12.93 12.58 higher proportion of assets in Treasury securities Total securities and gross loans 15.26 14.57 12.55 than did other banks, and they also showed the 1. Calculated as described in the "Technical Note,' FEDERAL largest proportionate increase in these instru- RESERVE BULLETIN, vol. 65 (September 1979), p. 704. ments. Small banks allocated an additional 2 2. See table 1, note 4. percent of total assets to Treasury securities, which raised the share to an average of almost 12 lelled the ranking of declines in interest expense. percent. At the same time, these banks partially Money center banks were the only group to offset the acquisition of federal debt by decreas- increase the share of their assets held in loans; ing their holdings of state and local obligations, high growth rates in loans to foreign governleaving total holdings of securities only some- ments and official institutions and in security and what higher, at 31 percent of total assets. This real estate loans brought the share of loans in share of securities in total assets was high, total assets to 6IV2 percent. Money center banks especially when compared with the 6V2 percent at also increased their holdings of securities. The money center banks, and helped support interest offsetting decline occurred in the share of assets income because the longer maturities of these allocated to interest-bearing deposits. securities guaranteed income through a period of falling interest rates. In fact, more than 80 percent of bank-held securities, but less than 40 NET INTEREST MARGIN percent of loans and 5 percent of other interestbearing assets, had a remaining maturity of more In 1983, the net interest margin at commercial than six months.1 Small banks also held longer- banks edged lower from the favorable levels of term securities and longer-term loans than did the previous year. The deterioration was by no large banks. Taken together, these portfolio means uniform either across banks or over the characteristics limited the drop in interest inyear. In particular, year-over-year comparisons come to 1.14 percentage points for small banks actually showed some widening of the interest as a group. margin in the first half of the year, but a sharp Because their portfolios have a shorter maturi- narrowing in the second half left the margin ty and loan rates tend to vary more with market somewhat lower on average for the year. In rates, the money center banks posted the sharp- addition, some classes of banks (for example, the est fall in interest income, down 2.24 percentage money center banks) managed to go against the points to 9.26 percent of total assets. The drops trend and increase their interest margin for the in interest income at other large banks and at year as a whole. medium-sized banks were 1.73 percent and 1.20 The deterioration in the interest margin in the percent respectively and thus fell between those second half of 1983 appeared especially sharp at money center and at small banks and paral- because in the comparable period in 1982 the interest margin had widened remarkably for many banks. The widening of interest margins in 1. Six months was the remaining maturity if the asset late 1982 had been associated with a steep drop carried a fixed rate and was the earliest possible repricing in market rates that had pulled down the cost of interval if the asset had a floating rate, as reported on Schedule J of the Call Report (June 1983). bank liabilities somewhat more quickly than the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profitability of Insured Commercial Banks in 1983 807 income from assets. Consequently, even though their interest margin—exceeding even the imthe net interest margin at money center banks provement at the money center banks. The small remained unchanged from the first to the second decline in the mortgage group's return on loans half of 1983, a comparison with the year-earlier demonstrated the low sensitivity of real estate period showed an improvement of 15 basis points portfolios to interest rates despite the growing in the first half and a much smaller improvement, importance of adjustable-rate mortgages. Beof just 5 basis points, for the full year.2 For most yond the interest margin, asset quality was an other banks, however, the deterioration in the important differentiating factor: loan-loss provisecond half of 1983 could not be attributed sions were increased 18 basis points at the agrientirely to the unusual reference period. Indeed, cultural banks, but only 3 basis points at banks the net interest margin at banks other than the specializing in mortgages. On balance, net inmoney center banks narrowed from the first to come rose at the mortgage-oriented banks and the second half of 1983 as interest expense fell at agricultural banks. Nonetheless, the forincreased and interest income remained essen- mer remained somewhat less profitable, and the tially unchanged. latter somewhat more profitable, than small and The change in the interest margin from 1982 to medium-sized banks in the aggregate. 1983 was not uniform across bank groups. For example, small banks lost 16 basis points on average at the same time that money center LOAN LOSSES banks gained 5 basis points. These relative movements narrowed the differences among Loan losses became a more significant factor in classes of banks in 1983 (see the chart and commercial bank profitability in 1983. While appendix table A.2): the interest margin moved rising less than they had in 1982, both provisions to 4.79 percent at small banks, 4.37 percent at for loan losses and actual net chargeoffs of loans medium-sized banks, 2.32 percent at money cen- continued to climb from their high 1982 levels. In ter banks, and 3.33 percent at other large banks. the aggregate, loan-loss provisions increased 8 The gap between the higher interest margin at basis points, to 0.47 percent of total net assets, agricultural banks and the somewhat lower mar- and loan chargeoffs (net of recoveries) jumped 11 gin at banks specializing in mortgage lending also basis points, to 0.66 percent of gross loans. Both narrowed.3 The two groups are comparable be- these figures surpassed recent peaks. cause they consist largely of small banks, but Loan losses increased in 1983 as a number of their 1983 results differed markedly. The banks sectors of the economy continued to suffer from with large holdings of agricultural loans saw a the effects of the recent recession. Relatively particularly sharp drop in the return on loans and high interest rates also added to repayment diffia concomitant fall of 22 basis points in their net culties. Low commodity and energy prices adinterest margin. At the same time, mortgage- versely affected the agriculture and energy indusoriented banks showed a relatively small drop in tries; agriculture also came under pressure as the the rate of return on their loans and ended the high and rising exchange rate of the dollar imyear with an increase of 16 basis points in paired the competitive position of U.S. farm exports. And abroad, difficulties in several developing economies continued to hamper the servicing of loans to borrowers in those coun- 2. Net interest margin is calculated as the difference betries. tween interest income, adjusted for taxable equivalence on tax-exempt state and local securities, and interest expense, Loans written off as uncollectible (net of reexpressed as a percent of total net assets. coveries from loans previously charged off) rose 3. The mortgage group consists of commercial banks with at each group of banks, although by varying at least a quarter of their assets allocated to loans secured by amounts among groups (table 6). In particular, real estate; in 1983, this group contained 3,018 banks. The agricultural group consists of commercial banks with at least the medium-sized and the money center banks one quarter of loans at their domestic offices allocated to farm did relatively well, adding just 4 and 6 basis real estate mortgages and loans made to finance agricultural points respectively to net chargeoffs as a percent production; this group contained 4,055 banks in 1983. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

808 Federal Reserve Bulletin • November 1984 6. Loan portfolio losses and recoveries, all insured commercial banks, 1982-83 Millions of dollars, except as noted Net losses YYeeaarr aanndd ssiizzee ooff bbaannkk11 LLoosssseess RReeccoovveerriieess LLooaann--lloossss cchhaarrggeedd Percent of pprroovviissiioonn Amount loans2 1982 All banks 8,109 1,588 6,521 .55 8,291 Less than $100 million 1,578 308 1,270 .67 1,479 $100 million to $1 billion 1,637 315 11,,332222 .60 11,,664422 $1 billion or more Money center banks 2,125 392 1,733 .45 2,212 Others 2,769 574 2,194 .57 22,,995588 1983 All banks 10,456 2,056 8,401 .66 10,614 Less than $100 million 2,001 387 1,615 .84 1,895 $100 million to $1 billion 1,941 393 1,548 .64 11,,992277 $1 billion or more Money center banks 2,490 478 2,012 .51 2,467 Others 4,024 798 3,226 .74 4,326 1. Size categories are based on year-end fully consolidated assets. 2. Average of beginning- and end-of-year loan balances. of loans in 1983. Others did less well; both the banks in the aggregate. The rise of 4 basis points, small banks and the large banks other than to 2.95 percent, represented a marked deceleramoney center banks increased their chargeoffs 17 tion in the upward trend of recent years. Only basis points. Banks specializing in agricultural money center banks showed a significant inlending saw the worst deterioration—a jump of crease—nearly three times the national aver- 26 basis points that left net chargeoffs at almost 1 age—in this ratio; and medium-sized banks actupercent of gross loans. ally experienced a decline of 4 basis points. As a Provisions for future loan losses rose very consequence, the ratio of noninterest expenses much in line with banks' actual losses. The to assets at money center banks moved closer to increases were smallest at the medium-sized and the figures at other banks. The differences in money center banks and largest at the agricultur- changes in noninterest expenses were due mostly al banks. to movements in salary and employee benefit The international business of banks became a expenses. In particular, the money center banks more important factor in loan losses in 1983. For expanded their staff only slightly, by 0.4 percent, example, in 1982 commercial and industrial loans compared with the industry average of 0.7 perto foreign addressees accounted for more than 28 cent. These savings were more than offset by an percent of gross loans at the 13 money center increase in salaries and benefits per employee of banks, but they contributed just 20 percent of the 7.6 percent, which was about 1 percentage point $1.7 billion in net loan chargeoffs at those banks. higher than that at banks in other size classes. But in 1983, chargeoffs of foreign commercial Noninterest income grew twice as much as and industrial loans rose sharply to nearly 30 expenses in 1983 and increased across all sizes of percent of the $2.0 billion in net chargeoffs. In banks. For most banks, the increase was acaddition, loans to foreign governments and offi- counted for by growth in fee income. As banks cial institututions constituted a growing if still have "unbundled" financial services, a process small component of chargeoffs; these loans rose probably hastened by deregulation, they have from 1 to 6V2 percent of total net chargeoffs at increasingly charged explicitly for services. At money center banks between 1982 and 1983. small banks, the rise in fee income came predominantly from deposit service charges. At large banks other than money center banks and at medium-sized banks, the deposit and other ser- OTHER NONINTEREST EXPENSES AND vice charges accounted equally for the rise. At NONINTEREST INCOME money center banks, the growth in deposit service charges was in line with the national average Relative to average assets, noninterest expenses of almost 18 percent, but since such charges increased slightly in 1983 for insured commercial Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profitability of Insured Commercial Banks in 1983 809 7. Profit rates, all insured commercial banks, 1979-83 Percent Type of return and size of bank1 1979 1980 1981 1982 1983 Return on assets2 All banks .80 .79 .76 .71 .67 Less than $100 million 1.15 1.18 1.15 1.08 .96 $100 million to $1 billion .96 .96 .91 .85 .84 $1 billion or more Money center banks .56 .56 .53 .50 .51 Others .72 .66 .68 .63 .55 Return on equity3 All banks 13.9 13.7 13.2 12.2 11.2 Less than $100 million 14.1 14.2 13.6 12.7 11.2 $100 million to $1 billion 13.9 13.7 12.8 12.0 11.9 $1 billion or more Money center banks 14.0 14.4 13.4 12.3 11.9 Others 13.5 12.7 12.9 11.9 10.4 1. Size categories are based on year-end fully consolidated assets. 3. Net income as a percent of the average of beginning- and end-of- 2. Net income as a percent of the average of beginning- and end-of- year equity capital. year fully consolidated assets net of loan-loss reserves. amount to just over 5 percent of noninterest more noticeable drops in these measures ocincome at those 13 banks as a group, the rise had curred at small banks and at large banks other little impact. Instead, improvement in noninter- than money center banks; indeed, the year-toest income came mostly from other service year changes in profit rates for these two groups charges and the undifferentiated "all other non- were the largest in recent years. In contrast, the interest income." On net, the industry's spread profit performances of medium-sized and money between noninterest expenses and income in center banks were similar to those in the previ- 1983 narrowed by 3 basis points from the previ- ous year, with money center banks even showing ous year, approximately offsetting the reduction an increase of 1 basis point in return on assets. in net interest margin over the same period. Despite the reduced profitability of the industry, the ratio of cash dividends on common and preferred stock to assets went up 2 basis points PROFITABILITY, DIVIDENDS, AND CAPITAL in 1983. Money center banks increased their dividends 5 basis points, considerably more than Commercial banks were less profitable in 1983 other banks, while dividends at medium-sized than in any year in the last two decades. The banks rose at about the average rate for all weighted average return on assets declined 4 banks. Other large banks and small banks rebasis points in 1983, and the average return on duced their dividends slightly relative to total equity fell a full percentage point (table 7). Much assets. 8. Sources of increase in total equity capital, all insured commercial banks, 1979-83 Millions of dollars, except as noted Retained income1 Net increase in equity Percent of increase in equity capital capital from retained income Year All banks Large banks All Large banks2 All Large banks (column 1 -r (column 2 banks banks column 3) column 4) (1) (2) (3) (4) (5) (6) 1979 8,350 3,616 9,952 4,291 84 1980 8,859 3,843 10,828 4,567 82 84 1981 8,904 4,108 11,168 5,426 80 76 1982 8,410 4,055 10,865 5,304 77 76 1983 7,651 3,621 10,738 5,625 71 64 1. Net income less cash dividends declared on preferred and 2. Banks with fully consolidated assets of $1 billion or more, common stock. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

810 Federal Reserve Bulletin • November 1984 Insured commercial banks retained about $750 9. Consolidated income and expense as a percent of million less income in 1983 than in the year average net assets, U.S. insured commercial banks with foreign offices, 1982-83 before, the second consecutive year of decline (table 8). Despite the drop in retained earnings, Item 1982 1983 the industry's equity-to-asset ratio rose in 1983 for the first time in seven years as equity sales Gross interest income 11.11 9.07 Gross interest expense 8.58 6.54 boosted bank capital. The aggregate ratio rose to Net interest margin 2.53 2.53 Taxable equivalent1 2.79 2.75 6.0 percent, with equity increases in excess of Noninterest income 1.17 1.24 asset growth at the money center banks as the Loan-loss provision .39 .48 Other noninterest expense 2.56 2.62 primary contributing factor. Over the year, the Income before tax .75 .67 money center banks raised their equity capital Foreign offices2 .24 .25 more than $2 billion, or about 8 percent. Al- Domestic offices2 .51 .43 though stock prices slid through much of the .55 .49 International business2 .18 .18 year, regulators' concern over capital adequacy Domestic business2 .37 .31 and new guidelines for minimum ratios of capital to assets probably contributed to the banks' 1. See table 1, note 4. 2. See table A.3. Reflects amounts attributed to each class of decision to increase equity. business, giving full allocation of income and expense. eign offices). Profits from foreign offices also INSURED U.S. COMMERCIAL BANKS increased on the basis of some widening in the WITH FOREIGN OFFICES interest margin, in contrast to the declining profits and narrowing of 10 basis points in the margin In line with the industry as a whole, commercial at domestic offices. A factor contributing to the banks with foreign offices saw their net operating better performance of the foreign office margin income fall about the amount that loan-loss pro- was the relative absence of fixed-rate charactervisions were increased.4 Loan-loss provisions at istics on their deposit liabilities; foreign offices these banks were raised by 0.09 percent of have few long-term deposits and none subject to average consolidated assets, or almost 30 per- regulatory interest rate ceilings. As table 10 cent. The increase in loan-loss provisions was shows, interest income and expense both fell especially pronounced for loans attributable to sharply at foreign offices, declining more than the international business of banks; the foreign 300 basis points as compared with the declines of share of total provisions rose to 27 percent in 155 basis points in income and 145 basis points in 1983 from 21 percent in 1982. Nevertheless, expense at domestic offices. profits from international business held up well Separating these banks into two groups, the 13 as the interest margin widened on business with money center banks on the one hand did relativeforeign customers, offsetting the deterioration in ly well, showing a slight increase in aftertax loan losses and other noninterest expenses. In profits. The increase in profits attributable to the aggregate, banks with foreign offices reported that all of the 1983 decline in their return on 10. Interest income and expense as a percent of assets was attributable to their domestic business average net assets, U.S. insured commercial (see table 9). banks with foreign offices, 1982-83' The behavior of net income attributable to foreign offices was similar to that of net income Domestic Foreign attributable to international business (which in- IItteemm offices offices cludes all business with foreign-domiciled cus- 1982 1983 1982 1983 tomers, whether conducted in domestic or for- Gross interest income 9.80 8.26 12.59 9.56 Gross interest expense 6.77 5.32 11.40 8.36 Net interest margin 3.03 2.94 1.19 1.21 Taxable equivalent' 3.39 3.24 1.19 1.21 4. This group includes 188 large insured commercial banks 1. Approximated for domestic offices according to the method with foreign offices, or Edge Act or Agreement subsidiaries. described in table 1, note 4. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profitability of Insured Commercial Banks in 1983 811 their international business compensated for the 11. Assets and liabilities, U.S. insured commercial decrease in domestic profits and lifted interna- banks with foreign offices, December 31, 1983 tional profits to just over one half of aftertax Percent of total, except as noted income. Other large banks with foreign offices, Domestic Foreign Item on the other hand, experienced a deterioration offices offices not only in domestic profits but also—albeit Total assets (billions of dollars) 1,012 382 milder—in international profits. As a group, net Cash and due from banks 12 30 Gross federal funds sold and reverse income at these banks declined 12 basis points, repurchase agreements 4 * Securities 12 3 slightly less than the 14 basis points by which Loans 58 51 loan-loss provisions were raised. Increased capi- Other 14 16 Advances to affiliated offices 3 9 tal gains on security transactions and an im- Total liabilities (billions of dollars) 943 381 provement in the balance of noninterest income Deposits 71 81 and expenses offset a substantial narrowing of Non-interest-bearing1 22 4 Interest-bearing 49 77 the interest margin at these other large banks. Savings and small time 30 n.a. Time of $100,000 or more 19 n.a. As it has in the past several years, the level of Selected nondeposit financial liabilities 17 5 total assets held at foreign offices fell—by about Federal funds purchased and $8 billion in 1983. Here, too, the money center repurchase agreements 14 * Other liabilities for borrowed money. 3 5 banks were responsible for the trend, showing a Other 12 14 Advances from affiliated offices 4 9 drop of more than $10 billion. The other large banks posted an increase in foreign office assets 1. Demand deposits in domestic offices, non-interest-bearing deof about $2 billion. One should note, however, posits in foreign offices. * Less than 0.5 percent, that shifts of assets from foreign offices to inter- n.a. Not available. national banking facilities (IBFs) would show up as a drop in foreign office assets and a corre- because IBFs have been included in domestic sponding increase in those at domestic offices offices. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

812 Federal Reserve Bulletin • November 1984 A.l. Report of income, all insured commercial banks, 1979-83 Millions of dollars, except as noted Item 1979 1980 1981 1982 1983 Operating income, total 149,795 190,109 247,932 257,188 239,255 Interest, total 137,364 174,416 228,675 235,121 214,088 Loans 101,942 126,663 163,171 166,589 151,356 Balances with banks 10,561 16,035 23,935 23,857 16,738 Federal funds sold and securities purchased under resale agreement 6,106 8,750 12,236 11,316 9,198 Securities (excluding trading accounts) 18,755 22,968 29,333 33,359 36,797 U.S. Treasury and U.S. government agencies 10,630 13,400 18,037 21,022 24,204 State and local governments 6,928 8,131 9,671 10,612 10,618 Other1 1,197 1,437 1,635 1,725 1,974 Trust department 2,375 2,738 3,179 3,604 4,188 Direct lease financing 1,073 1,371 1,746 1,943 1,961 Service charges on deposits 2,517 3,173 3,905 4,573 5,399 Other charges, fees, etc 3,635 4,352 5,302 6,203 7,267 Other operating income 2,831 4,059 5,116 5,715 6,351 Operating expenses, total 131,950 170,675 227,714 238,016 220,229 Interest, total 87,570 119,758 169,268 168,553 143,210 Deposits 71,693 98,130 138,977 141,097 119,839 Time CDs of $100,000 or more issued by domestic offices 18,105 24,753 39,034 37,359 22,523 Deposits in foreign offices 24,523 34,941 46,696 41,746 29,021 Other deposits 29,065 38,436 53,248 62,029 68,295 Federal funds purchased and securities sold under repurchase agreement 12,218 16,707 23,786 20,618 16,438 Other borrowed money2 3,162 4,380 5,894 6,188 6,253 Capital notes and debentures 497 541 611 650 680 Salaries, wages, and employee benefits 21,465 24,565 27,927 31,218 33,636 Occupancy expense3 6,255 7,325 8,566 9,960 11,100 Loan-loss provision 3,764 4,453 5,059 8,291 10,614 Other operating expenses 12,796 14,573 16,962 19,953 21,661 Income before taxes and securities gains or losses 17,843 19,435 20,149 19,172 19,026 Applicable income taxes 4,736 5,009 4,611 3,639 4,091 Net securities gains or losses (-) after taxes -350 -492 -861 -661 -15 Extraordinary charges (-) or credits after taxes 39 17 54 68 70 Net income 12,797 13,950 14,731 14,940 14,989 Cash dividends declared 4,449 5,091 5,831 6,529 7,338 MEMO Number of banks 14,352 14,421 14,400 14,121 14,074 Average fully consolidated assets (billions of dollars) 1,593 1,768 1,940 2,100 2,259 1. Includes interest income from other bonds, notes and deben- 3. Occupancy expense for bank premises net of any rental income tures, and dividends from stocks. plus furniture and equipment expenses. 2. Includes interest paid on U.S. Treasury tax and loan account balances. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profitability of Insured Commercial Banks in 1983 813 A.2. Portfolio composition, interest rates, and income and expenses, insured commercial banks, 1980-831 A. All banks Item 1980 1981 1982 1983 Balance sheet items as percent of average consolidated assets Interest-earning assets 82.9 83.8 85.1 85.2 Loans 55.4 55.2 56.1 55.7 Commercial and industrial 20.8 21.5 22.8 22.5 Real estate 14.6 14.4 14.2 14.1 Personal 10.6 9.6 9.2 9.2 Securities 17.0 17.0 16.6 17.5 U.S. Treasury 5.3 5.3 5.1 6.4 U.S. government agencies 3.0 3.3 3.5 3.4 State and local governments 7.8 7.6 7.2 6.8 Other bonds and stock .8 .8 .7 .8 Gross federal funds sold and securities purchased under resale agreement 3.7 4.0 4.4 4.3 Interest-bearing deposits 6.8 7.7 8.1 7.7 Deposit liabilities 79.5 78.6 77.7 77.7 In foreign offices 16.0 15.8 15.0 13.5 In domestic offices 63.5 62.8 62.7 64.2 Demand deposits 24.0 20.8 17.4 16.5 NOW accounts 1.0 2.4 3.4 3.2 Large time 12.8 14.2 15.4 13.3 Other deposits 25.7 25.4 26.5 31.2 Other selected financial liabilities 9.2 9.8 10.3 10.3 Gross federal funds purchased and securities sold under repurchase agreement 6.9 7.5 8.0 7.8 Other borrowings 2.3 2.3 2.3 2.5 MEMO: Managed liabilities 38.4 40.2 41.0 37.5 Effective interest rates (percent) Rates earned Securities 7.88 9.27 9.96 9.83 State and local governments 6.03 6.72 7.19 7.04 Loans, gross 13.71 16.37 15.20 12.70 Net of loan-loss provision 13.19 15.83 14.39 11.76 Taxable equivalent Securities 10.23 11.73 12.49 12.06 Securities and gross loans 12.88 15.26 14.57 12.55 Rates paid Time and savings deposits 10.66 13.38 11.94 9.13 Large negotiable CDs 12.56 16.42 14.14 8.90 In foreign offices 14.03 17.34 14.87 10.32 Other deposits 8.10 10.02 9.75 8.79 All interest-bearing liabilities 11.10 13.86 12.08 9.29 Income and expenses as percent of average consolidated assets Gross interest income 9.87 11.81 11.19 9.50 Gross interest expense 6.78 8.75 8.02 6.36 Net interest margin 3.09 3.07 3.17 3.15 Noninterest income .89 .99 1.05 1.12 Loan-loss provision .25 .26 .39 .47 Other noninterest expense 2.63 2.76 2.91 2.95 Profits before tax 1.10 1.04 .91 .84 .28 .24 17 18 Other -.03 -.04 - 03 - 01 Net income .79 .76 .71 .67 Dividends .29 .30 .31 .33 Retained income .50 .46 .40 .34 MEMO: Net interest margin, taxable equivalent 3.46 3.45 3.55 3.50 1. See notes to tables in the text. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

814 Federal Reserve Bulletin • November 1984 A.2. Portfolio composition, interest rates, and income and expenses, insured commercial banks, 1980-83'-Continued B. Banks with less than $100 million in assets Item 1980 1981 1982 1983 Balance sheet items as percent of average consolidated assets Interest-earning assets 89.4 90.8 91.0 90.9 Loans 55.9 53.6 52.5 51.4 Commercial and industrial 11.9 12.3 12.9 12.9 Real estate 20.8 19.6 18.4 18.0 Personal 15.5 14.0 12.9 12.3 Securities 27.8 29.4 29.6 31.0 U.S. Treasury 9.2 9.9 9.8 11.9 U.S. government agencies 6.3 7.4 8.4 8.6 State and local governments 11.8 11.5 10.9 10.0 Other bonds and stock .5 .5 .4 .5 Gross federal funds sold and securities purchased under resale agreement .... 5.5 5.9 6.4 6.0 Interest-bearing deposits .2 1.9 2.6 2.6 Deposit liabilities 88.1 87.5 87.1 87.8 In foreign offices In domestic offices 88.1 87.5 87.1 87.8 Demand deposits 26.7 22.5 19.0 17.0 NOW accounts .8 4.0 6.2 5.7 Large time 9.5 10.0 10.7 9.8 Other deposits 51.1 51.0 51.2 55.3 Other selected financial liabilities 1.4 1.7 2.0 1.5 Gross federal funds purchased and securities sold under repurchase agreement 1.0 1.4 1.7 1.2 Other borrowings .4 .3 .3 .3 MEMO: Managed liabilities 11.1 12.0 12.8 11.4 Effective interest rates (percent) Rates earned Securities 7.89 9.69 10.82 10.58 State and local governments 5.80 6.44 7.24 7.47 Loans, gross 12.43 14.90 15.35 13.70 Net of loan-loss provision 11.90 14.30 14.46 12.58 Taxable equivalent Securities 9.98 11.77 12.97 12.52 Securities and gross loans 11.60 13.79 14.48 13.26 Rates paid Time and savings deposits 8.81 11.21 10.97 9.15 Negotiable CDs 11.66 15.18 13.72 9.20 In foreign offices Other deposits 8.36 10.56 10.52 9.15 All interest-bearing liabilities 8.89 11.31 11.02 9.11 Income and expenses as percent of average consolidated assets Gross interest income 9.67 11.49 11.71 10.57 Gross interest expense 5.36 7.13 7.33 6.31 Net interest margin .... 4.31 4.36 4.38 4.26 Noninterest income .64 .69 .68 .70 Loan-loss provision .26 .28 .41 .51 Other noninterest expense 3.12 3.23 3.30 3.28 Profits before tax 1.57 1.55 1.35 1.17 .36 .35 .26 .23 Other -.03 -.06 -.01 .01 Net income 1.18 1.15 1.08 .96 Dividends .31 .35 .39 .38 Retained income .87 .80 .69 .58 MEMO: Net interest margin, taxable equivalent 4.85 4.92 4.95 4.79 1. See notes to tables in the text. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profitability of Insured Commercial Banks in 1983 815 A.2. Portfolio composition, interest rates, and income and expenses, insured commercial banks, 1980-83'-Continued C. Banks with $100 million to $1 billion in assets Item 1980 1981 1982 1983 Balance sheet items as percent of average consolidated assets Interest-earning assets 87.2 88.0 89.0 89.4 Loans 55.4 54.1 53.4 52.7 Commercial and industrial 15.9 16.3 16.9 16.8 Real estate 20.5 20.0 19.4 18.9 Personal 15.4 14.0 13.2 12.9 Securities 25.2 25.7 25.3 26.5 U.S. Treasury 7.9 8.1 8.0 10.0 U.S. government agencies 4.4 5.0 5.5 5.4 State and local governments 12.3 11.9 11.1 10.3 Other bonds and stock .6 .7 .7 .9 Gross federal funds sold and securities purchased under resale agreement .... 5.4 5.5 5.9 5.6 Interest-bearing deposits 1.3 2.8 4.4 4.6 Deposit liabilities 84.0 83.2 82.9 84.3 In foreign offices .2 .2 .2 .2 In domestic offices 83.8 83.0 82.7 84.2 Demand deposits 28.8 25.0 21.3 19.5 NOW accounts 1.5 3.6 5.2 4.9 Large time 14.4 15.0 15.4 13.0 Other deposits 39.1 39.4 40.8 46.8 Other selected financial liabilities 6.3 7.0 7.3 6.1 Gross federal funds purchased and securities sold under repurchase agreement 5.4 6.1 6.5 5.2 Other borrowings .9 .9 .8 .9 MEMO: Managed liabilities 21.3 22.6 23.2 19.6 Effective interest rates (percent) Rates earned Securities 7.64 9.14 9.96 9.89 State and local governments 5.82 6.49 7.03 7.03 Loans, gross 12.79 15.23 14.68 12.78 Net of loan-loss provision 12.26 14.66 13.83 11.88 Taxable equivalent Securities 10.00 11.44 12.34 12.09 Securities and gross loans 11.91 13.99 13.92 12.55 Rates paid Time and savings deposits 9.05 11.46 10.67 8.82 Negotiable CDs 12.13 16.05 13.96 8.90 In foreign offices 12.99 15.84 14.44 9.23 Other deposits 8.06 9.99 9.69 8.81 All interest-bearing liabilities 9.50 11.97 10.89 8.79 Income and expenses as percent of average consolidated assets Gross interest income 9.47 11.25 11.05 9.85 Gross interest expense 5.62 7.39 7.13 6.00 Net interest margin 3.85 3.86 3.92 3.85 Noninterest income .82 .87 .90 .94 Loan-loss provision .26 .27 .40 .43 Other noninterest expense 3.20 3.34 3.42 3.38 Profits before tax 1.20 1.12 1.00 .98 Taxes .22 .17 .12 14 Other -.03 -.05 -.04 - 01 Net income .96 .91 .85 .84 Dividends .36 .39 .40 .42 Retained income .60 .52 .45 .42 MEMO: Net interest margin, taxable equivalent 4.40 4.40 4.47 4.37 1. See notes to tables in the text. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

816 Federal Reserve Bulletin • November 1984 A.2. Portfolio composition, interest rates, and income and expenses, insured commercial banks, 1980-83 •-Continued D. Thirteen money center banks Item 1980 1981 1982 1983 Balance sheet items as percent of average consolidated assets Interest-earning assets 78.0 79.6 81.4 80.7 Loans 55.4 57.5 61.0 61.6 Commercial and industrial 29.9 31.2 33.6 33.5 Real estate 6.9 7.5 8.1 8.3 Personal 4.3 4.2 4.3 4.3 Securities 7.2 6.8 6.3 6.6 U.S. Treasury 2.2 2.0 1.7 1.9 U.S. government agencies .9 .8 .7 .7 State and local governments 2.8 2.7 2.7 2.7 Other bonds and stock 1.4 1.3 1.2 1.3 Gross federal funds sold and securities purchased under resale agreement .... 1.6 2.1 2.4 2.5 Interest-bearing deposits 13.7 13.2 11.7 10.1 Deposit liabilities 75.3 74.2 72.5 71.2 In foreign offices 40.3 39.3 38.0 35.5 In domestic offices 35.0 34.9 34.5 35.7 Demand deposits 17.5 14.7 11.1 11.3 NOW accounts .5 .7 .9 .8 Large time 11.1 13.5 15.7 13.3 Other deposits 5.9 6.0 6.8 10.3 Other selected financial liabilities 12.4 12.9 13.2 13.8 Gross federal funds purchased and securities sold under repurchase agreement 8.2 8.5 8.6 8.8 Other borrowings 4.2 4.4 4.6 5.0 MEMO: Managed liabilities 63.9 65.9 67.1 62.9 Effective interest rates (percent) Rates earned Securities 8.83 9.90 9.78 9.61 State and local governments 6.95 7.68 7.64 6.49 Loans, gross 14.95 17.63 15.65 12.62 Net of loan-loss provision 14.56 17.20 14.98 11.92 Taxable equivalent Securities 11.25 12.74 12.57 12.09 Securities and gross loans 14.52 17.10 15.35 12.57 Rates paid Time and savings deposits 12.98 16.02 13.67 9.77 Negotiable CDs 13.37 16.98 14.71 9.17 In foreign offices 13.94 17.17 14.88 10.72 Other deposits 8.29 9.40 8.79 8.19 All interest-bearing liabilities 13.07 16.20 13.65 10.22 Income and expenses as percent of average consolidated assets Gross interest income 10.40 12.58 11.50 9.26 Gross interest expense 8.40 10.69 9.40 7.09 Net interest margin 2.00 1.89 2.11 2.17 Noninterest income .96 1.11 1.16 1.25 Loan-loss provision .19 .21 .35 .39 Other noninterest expense 1.83 1.94 2.16 2.27 Profits before tax .94 .86 .76 .76 .36 .31 .24 .26 Other -.01 -.02 -.03 .01 Net income .56 .53 .50 .51 Dividends .22 .21 .22 .27 Retained income .34 .32 .27 .24 MEMO: Net interest margin, taxable equivalent 2.15 2.07 2.27 2.32 1. See notes to tables in the text. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profitability of Insured Commercial Banks in 1983 817 A.2. Portfolio composition, interest rates, and income and expenses, insured commercial banks, 1980-83'-Continued E. Large banks other than money center banks Item 1980 1981 1982 1983 Balance sheet items as percent of average consolidated assets Interest-earning assets 81.1 81.3 83.0 83.8 55.0 54.4 55.1 54.8 Commercial and industrial 20.8 20.7 21.8 21.5 Real estate 14.7 14.6 14.6 14.3 Personal 10.9 9.7 9.3 9.5 Securities 15.0 14.4 13.8 14.7 U.S. Treasury 4.5 4.2 4.1 5.3 U.S. government agencies 2.3 2.2 2.1 2.1 State and local governments 7.7 7.5 7.1 6.7 Other bonds and stock .5 .5 .5 .6 Gross federal funds sold and securities purchased under resale agreement 3.6 3.9 4.3 4.4 Interest-bearing deposits 7.4 8.7 9.8 10.0 Deposit liabilities 75.8 75.0 74.1 74.3 In foreign offices 11.4 11.7 11.0 9.8 In domestic offices 64.4 63.3 63.1 64.5 Demand deposits 26.1 23.1 19.7 18.8 NOW accounts 1.2 2.5 3.2 3.1 Large time 15.7 16.8 17.7 15.2 Other deposits 21.4 20.9 22.5 27.4 Other selected financial liabilities 12.8 13.3 13.9 14.1 Gross federal funds purchased and securities sold under repurchase agreement. 10.4 11.0 11.7 11.6 Other borrowings 2.4 2.3 2.2 2.5 MEMO: Managed liabilities 40.4 42.4 43.0 39.6 Effective interest rates (percent) Rates earned Securities 7.67 8.65 9.11 9.13 State and local governments 6.11 6.86 7.15 6.93 Loans, gross 13.85 16.62 14.98 12.29 Net of loan-loss provision 13.23 16.00 14.10 11.18 Taxable equivalent Securities 10.29 11.56 12.08 11.58 Securities and gross loans 13.08 15.53 14.38 12.14 Rates paid Time and savings deposits 10.64 13.49 11.75 8.77 Negotiable CDs 12.66 16.63 13.99 8.71 In foreign offices 14.37 17.94 14.83 9.23 Other deposits 7.72 9.55 9.33 8.69 All interest-bearing liabilities 11.36 14.11 11.85 8.91 Income and expenses as percent of average consolidated assets Gross interest income 9.71 11.60 10.72 8.99 Gross interest expense 6.76 8.64 7.68 5.98 Net interest margin 2.95 2.96 3.04 3.01 Noninterest income 1.01 1.13 1.22 1.30 Loan-loss provision .30 .29 .42 .55 Other noninterest expense 2.76 2.92 3.07 3.09 Profits before tax .90 .88 .77 .67 .19 .15 .10 .12 Other -.05 -.05 -.04 -.01 Net income .66 .68 .63 .55 Dividends .29 .31 .30 .29 Retained income .37 .37 .33 .26 MEMO: Net interest margin, taxable equivalent 3.31 3.35 3.42 3.33 1. See notes to tables in the text. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

818 Federal Reserve Bulletin • November 1984 A.3. Income attributable to international business of U.S. commercial banks with foreign offices Millions of dollars Item 1982 1983 Pretax income attributable to foreign offices' 3,037 3,200 Plus: Pretax income attributable to international business conducted in domestic offices 953 1,092 Less: adjustment amount2 160 174 Pretax income attributable to international business 3,830 4,118 Less: All income taxes attributable to international business 1,624 1,742 Net income attributable to international business 2,206 2,376 MEMO Provision for possible loan losses attributable to international business 1,029 1,688 Noninterest income Attributable to foreign offices' 2,174 2,392 Attributable to international business 2,844 3,164 Noninterest expense Attributable to foreign offices' 3,634 4,440 Attributable to international business 4,794 5,706 Intracompany items attributable to international business Interest income 7,596 6,688 Interest expense 10,147 9,349 Interest income of domestic offices from foreign-domiciled customers 6,003 6,962 Fully consolidated Pretax income 9,348 8,790 Total applicable taxes 2,103 2,344 Net income3 6,825 6,452 Average total assets 1,249,052 1,305,614 1. Including Edge Act and Agreement subsidiaries. For example, any net income of foreign offices from business with 2. Reflects the amount necessary to reconcile the preceding two U.S.-domiciled customers is included here. amounts with pretax income attributable to international business. 3. After gains and losses from securities transactions and extraordinary items. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

819 Staff Studies The staffs of the Board of Governors of the indicate concurrence by the Board of Governors, Federal Reserve System and of the Federal by the Federal Reserve Banks, or by the mem- Reserve Banks undertake studies that cover a bers of their staffs. wide range of economic and financial subjects. Single copies of the full text of each of the From time to time the results of studies that are studies or papers summarized in the BULLETIN of general interest to the professions and to are available without charge. The list of Federal others are summarized in the FEDERAL RESERVE Reserve Board publications at the back of each BULLETIN. BULLETIN includes a separate section entitled The analyses and conclusions set forth are "Staff Studies" that lists the studies that are those of the authors and do not necessarily currently available. STUDY SUMMARIES GEOGRAPHIC MARKET DELINEATION: A REVIEW OF THE LITERATURE John D. Wolken—Staff, Board of Governors Prepared as a staff study in May 1983. Following the Philadelphia National Bank deci- suggested in the merger guidelines issued by the sion (1963) and the revisions to the Bank Merger Department of Justice. Act of 1966, the bank regulatory agencies were The study finds that despite the extensive required to assess the potential competitive im- treatment of delineation of banking markets in pact of bank mergers and decide in each case the literature, the techniques used by researchers whether the merger would have significantly and regulators in banking have not changed adverse effects on competition in "any line of much in the last decade. All of the current commerce or any section of the country." As a approaches rely in one way or another on eviresult, the delineation of banking markets took dence that indicates that for some bank customon great importance. ers the market is a relatively small geographic This staff study critically reviews the theoreti- area. cal and empirical literature dealing with geo- Yet, during the past few years, the financial graphic market determination. Emphasis is environment has changed markedly. And recent placed on the ability to define meaningful eco- surveys indicate that nonlocal and nonbank firms nomic banking markets for the purpose of ana- are increasingly important to the traditional bank lyzing bank mergers and acquisitions in the con- customer, though still to a limited extent. These text of current antitrust policy. Literature from facts raise questions regarding the relevance of disciplines other than banking is included. Fol- the local geographic banking market and the lowing the review of the academic literature, the approaches now used by the regulatory agencies. study evaluates the different approaches to geo- The study concludes that these questions can graphic market determination used by the bank be resolved only through additional research. regulatory agencies and the approach recently The literature does not reveal any clearly superi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

820 Federal Reserve Bulletin • November 1984 or approach to geographic market definition, in transition, so that the applicability of the although it does illustrate well the tradeoffs be- recent data is uncertain. Based on the review of tween theoretical consistency and applicability. the literature, the study concludes with sugges- The recent empirical evidence on the extent of tions regarding areas in which research would be geographic banking markets is far from defini- profitable. tive. And in any event, financial markets are still A COMPARISON OF DIRECT DEPOSIT AND CHECK PAYMENT COSTS William Dudley—Staff\ Board of Governors Prepared as a staff study in the summer of 1984. This paper presents the findings of a study of the payment and the average cost for each form of relative cost of payment by direct deposit versus payment once enrollment has been completed check. The study, which was requested by the were ascertained. These two cost components Interagency Task Force on Electronic Fund were then combined in a present-value calcula- Transfers, was undertaken to determine whether tion to determine the relative costs of payment expansion of the direct deposit program would by direct deposit and check. be in the public interest. The eight government The study found that the average resource cost agencies that make the majority of all recurring for the federal government and the depository federal government benefit payments participat- institutions was significantly less for direct deed in the study, along with the U.S. Treasury posit than for check payment. For the govern- (including the U.S. Secret Service), the Federal ment alone, the average direct deposit account Reserve System, General Services Administra- generated an operational cost saving over its life tion (for storage and retrieval of checks), and the with a present value of about five dollars. Howdepository institutions. ever, the findings indicated that the direct depos- To aid in the analysis, the resource costs it program had a substantial negative impact on incurred in fiscal year 1981 by the participants in the federal government's budget. When the cost the study were calculated. In addition, the net of forgone check float (which does not represent budgetary cost to the federal government (in- a resource cost to society as a whole) was cluding the cost of forgone check float) was included as a cost to the federal government of determined. This computation relied on a Feder- making a direct deposit payment, the cost of al Reserve study of government check float payment by direct deposit far exceeded the cost completed in January 1984. The cost of enrolling of payment by check. • a new claimant for either direct deposit or check Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

821 Announcements CHANGE IN SCHEDULE lished in the December BULLETIN. The regular FOR THE FEDERAL RESERVE BULLETIN press release date for G.12.3 is not affected. Beginning with this issue the FEDERAL RESERVE BULLETIN will be released the first of the month SYSTEM MEMBERSHIP: instead of during the last week. ADMISSION OF STATE BANKS To facilitate this changeover, this issue of the BULLETIN does not include the tables that regu- The following banks were admitted to memberlarly appear in the "Financial and Business Sta- ship in the Federal Reserve System during the tistics" section. The data for the tables that period September 11 through October 5, 1984: would have been published in the November issue under the old schedule were not available Arizona in time for the November publication date. These Phoenix Guardian Bank data will be published in the December BULLE- California TIN, and the tables will appear regularly in subse- Red Bluff Tehama County Bank quent issues of the BULLETIN. Florida The reprint of the industrial production statis- Miami Central Bank tical release (G.12.3) for September will be pub- Miami Gulf Bank Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

822 Record of Policy Actions of the Federal Open Market Committee MEETING HELD ON AUGUST 21, 1984 where growth had been especially strong earlier. Sales of new domestic automobiles were a little 1. Domestic Policy Directive above the annual rate of about 8'/4 million units recorded for the first half of the year; but they The information reviewed at this meeting sug- dropped back to a rate of about IV2 million units gested that the expansion in economic activity in the first 10 days of August, in part because was continuing at a relatively strong pace, some popular models were in short supply. though moderating from the annual rate of about Housing starts fell in July to a rate appreciably IV2 percent recorded for the second quarter. below the average in the second quarter. Starts Thus far in 1984, average prices, as measured by of single-family units, declining for the third the fixed-weight price index for gross domestic month in a row, were nearly 14 percent below the business product, appeared to have risen more second-quarter average; multifamily starts, slowly than in 1983. though edging down in July, remained above the Industrial production rose 0.9 percent in July, average in the preceding quarter. Newly issued the same as the increase in the preceding month, building permits declined almost 12 percent in which had been revised upward. Production of July, with issuance down by comparable margins durable consumer goods increased sharply, for both single-family and multifamily construcwhile output of nondurable goods rose little on tion. balance. Output of business equipment remained In contrast to the slowing in the consumer and sizable though somewhat below the advanced housing sectors, business fixed investment conpace of other recent months. The rate of capacity tinued to expand quite rapidly, and commitments utilization in manufacturing reached 82.6 percent for future spending remained high. Shipments of in July, its highest level since early 1980. nondefense capital goods rose further in June Labor market reports for July gave mixed and were up nearly 6 percent for the second signals. Nonfarm payroll employment rose quarter as a whole. New orders for such goods 300,000 further, just a little less than the average increased about 5 percent in the quarter and the gain over the first six months of the year. How- backlog of outstanding orders continued to rise. ever, the civilian unemployment rate, which had Incoming information on prices and wages plunged to 7.1 percent in June, returned to its indicated a continuation of recent favorable May level of 7.5 percent, as the survey of house- trends. The producer price index for finished holds showed a sharp drop in employment after goods increased 0.3 percent in July, after three two months of especially large increases. For the months of virtually no change. Data on consumer three-month period ending in July, both mea- prices in July were not yet available, but in June sures of employment reported a sizable increase the consumer price index had risen 0.2 percent of nearly 1 million jobs. for the second consecutive month. Over the first Retail sales fell 0.9 percent in July, after rising seven months of 1984, producer prices increased considerably in both the first and the second at an annual rate of about 3 percent, and over the quarters of the year. Sales declines were report- first half of the year, consumer prices and the ed at nearly all major types of stores but were index of average hourly earnings rose at annual especially pronounced at general merchandise, rates of about 4 percent and VA percent respecapparel, and furniture and appliance stores tively. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

823 In the period following the July FOMC meet- 1983 through July, Ml grew at a rate a bit above ing, the foreign exchange value of the dollar the midpoint of the Committee's range of 4 to 8 against a trade-weighted average of major foreign percent for 1984; M2 increased at a rate a little currencies rose about 2 percent further to a new below the midpoint of its longer-run range of 6 to high in early August; subsequently the dollar's 9 percent. Over the same period, M3 expanded at value fluctuated in a range a little below the a rate somewhat above the upper limit of its peak. Over most of the intermeeting interval range of 6 to 9 percent. exchange markets were quite volatile, apparently Expansion of total domestic nonfinancial debt reflecting changing perceptions among market was estimated to have remained at an annual rate participants about the outlook for interest rates, of around 13 percent in July, keeping growth thus inflation, and economic activity in the United far in 1984 at a pace above the Committee's States. The merchandise trade deficit in June monitoring range of 8 to 11 percent for the year. was somewhat above the May level, and for the A pickup in growth of federal debt offset some second quarter as a whole the deficit was little slowing in expansion of private debt, as mergerchanged from the high first-quarter rate. related borrowing lessened. Total credit at U.S. At its meeting on July 16-17, 1984, the Com- commercial banks expanded at an estimated anmittee had decided that open market operations nual rate of 9'A percent in July, after rising only in the period until this meeting should be directed slightly in June. The acceleration primarily reinitially toward maintaining existing pressures on flected a shift from liquidation to accumulation in reserve positions. That action was expected to holdings of U.S. Treasury securities; growth in be consistent with growth in Ml, M2, and M3 at business and consumer loans showed little annual rates of around 5'/2, IV2, and 9 percent change from the pace in June. respectively during the period from June to Sep- Total reserves decreased in July at an annual tember. The Committee also agreed that some- rate of about 2 percent, after expanding rapidly what greater restraint would be acceptable in the over the two preceding months. The contraction event of more substantial growth of the monetary reflected a marked deceleration in growth of aggregates, while somewhat lesser restraint required reserves, associated with weakness in might be acceptable if growth of the monetary transaction accounts as demand deposits fell aggregates slowed significantly. Any such adjust- following a sharp increase in June, and a reducment would be considered only in the context of tion in excess reserves from the relatively high appraisals of the continuing strength of the busi- June level. In the two complete reserve mainteness expansion, inflationary pressures, financial nance periods since the July FOMC meeting, market conditions, and the rate of credit growth. adjustment plus seasonal borrowing continued to The intermeeting range for the federal funds rate, average in the neighborhood of $1 billion. which provides a mechanism for initiating con- Despite little change in the average level of sultation of the Committee, was set at 8 to 12 borrowing from the discount window, the federal percent. funds rate tended to drift higher over the inter- Ml contracted at an annual rate of 1 Vi percent meeting period; recently funds traded in a range in July, after increasing at an average annual rate of 11 Vi to 1 PA percent, up from about \VA of about 12 percent in May and June. Data for percent at the time of the Committee meeting in early August, however, suggested some rebound July, as banks seemed to be somewhat reluctant in Ml growth. Growth in M2 was at an annual to borrow from the discount window and they rate of about 5 percent in July, a relatively slow bid more aggressively for funds in the market. pace that was due in part to the sluggishness in Some other very short-term rates rose slightly Ml, while expansion in M3 was relatively well over the intermeeting period but most short- and maintained at an annual rate of a little below 9 long-term rates declined, with yields on bonds percent. Despite the decline in Ml and compara- falling about 5/s to 3A percentage point. Stock tively slow growth in M2 in July, these aggre- price indexes advanced 9 to 10 percent over the gates remained well within the Committee's ob- interval on record trading volume, as the market jectives for the year. From the fourth quarter of reacted positively to interpretations of the future Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

824 Federal Reserve Bulletin • November 1984 course of monetary policy in connection with the The members expressed somewhat diverging Federal Reserve's midyear report to the Con- views on the outlook for inflation. Some placed gress, and to incoming data on economic activi- considerable stress on the prospect that price ty, prices, and money supply growth. and wage pressures might increase as the econo- The staff projections presented at this meeting my's productive resources became more fully continued to suggest that expansion in real GNP employed. An inflationary threat was also seen would moderate over the balance of the year and in the possibility of a sizable decline in the in 1985, a pattern of growth often characteristic foreign exchange value of the dollar. Likewise, a of maturing business expansions and rising utili- number of members expressed concern that an zation of productive resources. The unemploy- excessive wage settlement in the automobile ment rate was projected to decline somewhat industry, if it were to occur, would tend to have further over the period and, though current infor- an inflationary impact on other wage negotiamation on cost and price pressures remained tions, with widespread consequences for wagequite favorable, the rate of price increase was cost pressures in the economy. expected to pick up a little from its recent pace. Members who were relatively optimistic about In their discussion of the economic situation the outlook for inflation stressed, among other and outlook, Committee members generally factors, the prospects for continued good gains in agreed that the expansion in economic activity productivity. They commented in particular was continuing at a relatively strong pace, al- about the renascent and apparently strong deterthough they expected the rate of growth to slow mination of businessmen to hold down their appreciably over the next several quarters. They costs and to improve the efficiency of their recognized, however, that the outlook for eco- operations. Moreover, the large investments in nomic activity and for prices and wages re- capital during recent quarters would, it was mained subject to substantial uncertainties. argued, help to enhance productivity over time. These were especially pronounced because of One member also observed that, while a sizable the distortions created by unprecedented deficits decline in the foreign exchange value of the in the federal budget and the balance of pay- dollar would tend to increase upward price presments, the strength of the dollar, and the sensi- sures, such a result might well be more limited or tive state of domestic and international financial delayed longer than usual in light of the relatively markets. sluggish pace of economic activity abroad and A number of members pointed to indications— consequent efforts by foreign competitors to such as in housing, retail sales, and steel produc- retain recently enhanced U.S. market shares tion—that the rate of expansion might be moder- through aggressive pricing. ating appreciably, and some members comment- At its meeting in July, the Committee had ed on the emergence of more cautious attitudes reviewed and reaffirmed the basic policy objecamong businessmen in many parts of the coun- tives that it had established in January for growth try. Members also referred to the cyclical ten- of the monetary and credit aggregates in 1984 and dency for expansions to lose momentum over had set tentative objectives for growth in 1985. time and to the risks inherent in the various For 1984 the policy objectives included growth of imbalances and financial strains that were affect- 4 to 8 percent for Ml and 6 to 9 percent for both ing the economy. Some members, however, con- M2 and M3 for the period from the fourth quarter tinued to view the risks as mainly in the direction of 1983 to the fourth quarter of 1984. The associof more rapid expansion than was generally ated range for growth in total domestic nonfinanexpected, given the economy's current momen- cial debt was also reaffirmed at 8 to 11 percent tum, the strength of business investment, and a for the year 1984. Given developments in the first highly stimulative fiscal policy. With regard to half of the year, the Committee anticipated that the nearer-term outlook, it was noted that a M3 and particularly nonfinancial debt might inprolonged strike in the automobile industry could crease at rates somewhat above the upper limits have a considerable impact, at least temporarily, of their 1984 ranges. The tentative ranges estabin retarding the overall expansion. lished for 1985 included reductions of 1 and Vi Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Record of Policy Actions of the FOMC 825 percentage point from the upper limits of the viewed that current reserve conditions had be- 1984 ranges for Ml and M2 respectively, and no come restrictive enough, as pressures on financhanges in the range for M3 and the associated cial institutions and borrowers had cumulated range for total domestic nonfinancial debt. over a number of months, so that the risk of an In the Committee's discussion of policy imple- unduly rapid spurt of money and credit growth mentation for the weeks immediately ahead, a was relatively low. majority of the members expressed a preference In discussing how operations might be adjustfor continuing to maintain about the current ed during the intermeeting period if monetary degree of restraint on reserve positions. A num- growth should prove to be significantly faster or ber of members, while finding the current ap- slower than targeted for the current quarter, proach to policy implementation acceptable, most members felt that the implementation of nonetheless were prepared to look toward some open market operations should be sensitive to slight easing of reserve conditions, either cur- the potential desirability of somewhat lesser rerently or soon should monetary growth fail to straint over the weeks ahead, as well as to the pick up from recent trends. They believed that possible need for some greater restraint should such an approach would likely be consistent with monetary growth resume at an excessive rate attainment of the third-quarter objectives for against a background of greater economic ebulmonetary growth that had been set at the July lience than seemed to be taking place currently. meeting, given the shortfall in the aggregates As compared with conditions at the time of the since the meeting, and would also be consistent previous meeting, the monetary aggregates had with signs of some weakening in the rate of weakened—with Ml, for example, closer to the economic growth relative to expectations. More- middle of its longer-run range—and there were over, in the view of at least some of these more indications of a moderation in the expanmembers, some lessening in the degree of re- sion of economic activity. It was understood that serve restraint would appropriately tend to offset any intermeeting adjustment in reserve pressures the unusual pressures that had developed in the would not be made automatically in response to federal funds market during June and July. Those the behavior of the monetary aggregates, but pressures were not associated with any change in would be undertaken only in the context of the degree of reserve restraint, but they appeared appraisals of the strength of economic activity to reflect the emergence of more conservative and inflationary pressures, and evaluations of reserve management attitudes on the part of conditions in domestic and international financial banks. Other members commented, however, and banking markets and the rate of credit that any active effort to ease reserve conditions growth. would be undesirable at present, and could well At the conclusion of the discussion, all but one be misinterpreted, unless clearly related to member indicated their acceptance of a directive emerging weakness in monetary growth in the specifying no change at this time in the degree of context of appreciably slower-than-expected ex- pressure on reserve positions, but calling for a pansion in economic activity. response to any significant deviation in the ag- One Committee member indicated a prefer- gregates from expectations against the backence for somewhat tighter reserve conditions so ground of economic and financial developments. as to help assure moderate rates of monetary The members anticipated that this approach to expansion. In this view, the near-term pressure policy implementation would be consistent with on interest rates that might result from such an growth of the various aggregates at rates for the approach to policy implementation could well quarter close to those specified at the previous preclude the need for greater, and more disrup- meeting. Specifically, Ml was expected to grow tive, rate increases later. On the other hand, at an annual rate of around 5 percent or slightly other members commented that further restraint less for the period from June to September, a would be undesirable except in the context of little less than expected at the previous meeting rapid monetary growth against a background of reflecting the contraction in Ml in July. The greater strength in economic activity. It was annual rates of growth for M2 and M3 in the third Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

826 Federal Reserve Bulletin • November 1984 quarter would continue to be IV2 and 9 percent that it had established in January: 4 to 8 percent for Ml respectively. The intermeeting range for the fed- and 6 to 9 percent for both M2 and M3 for the period eral funds rate was left unchanged at 8 to 12 from the fourth quarter of 1983 to the fourth quarter of 1984. The associated range for total domestic nonfipercent. It was also recognized that, within the nancial debt was also reaffirmed at 8 to 11 percent for context of this overall approach, operations the year 1984. It was anticipated that M3 and nonfinanmight need to be modified if unusual financial cial debt might increase at rates somewhat above the strains appeared to be developing. upper limits of their 1984 ranges, given developments in the first half of the year, but the Committee felt that At the conclusion of the meeting the following higher target ranges would provide inappropriate domestic policy directive was issued to the Fedbenchmarks for evaluating longer-term trends in M3 eral Reserve Bank of New York: and credit growth. For 1985 the Committee agreed on tentative ranges of monetary growth, measured from the fourth quarter of 1984 to the fourth quarter of 1985, of 4 to 7 percent for Ml, 6 to 8V2 percent for M2, and 6 The information reviewed at this meeting suggests to 9 percent for M3. The associated range for nonfithat the expansion in economic activity is continuing nancial debt was set at 8 to 11 percent. at a strong pace, but there are indications of a modera- The Committee understood that policy implementation in the rate of growth. In July, industrial produc- tion would require continuing appraisal of the relationtion and nonfarm payroll employment rose further, but ships not only among the various measures of money retail sales fell after rising considerably in earlier and credit but also between those aggregates and months and housing starts declined to a rate apprecia- nominal GNP, including evaluation of conditions in bly below the average in the second quarter. The domestic credit and foreign exchange markets. civilian unemployment rate increased 0.4 percentage In the implementation of policy in the short run, the point to 7.5 percent. Information on outlays and Committee seeks to maintain existing pressures on spending plans continues to suggest strength in busi- reserve positions. This action is expected to be conness fixed investment. Since the beginning of the year, sistent with growth in Ml at an annual rate of around 5 average prices and the index of average hourly earn- percent or slightly less, and in M2 and M3 at annual ings have risen more slowly than in 1983. rates of around 1XA and 9 percent respectively during In July, Ml declined after two months of rapid the period from June to September. Somewhat greater growth, though data for early August suggested some reserve restraint would be acceptable in the event of rebound, while M2 expanded at a relatively slow pace. more substantial growth of the monetary aggregates, M3 growth, however, remained comparatively sizable. while somewhat lesser restraint would be acceptable From the fourth quarter of 1983 through July, Ml grew in the event of significantly slower growth. In either at a rate a bit above the midpoint of the Committee's case, such a change would be considered only in the range for 1984; M2 increased at a rate a little below the context of appraisals of the continuing strength of the midpoint of its longer-run range, while M3 expanded at business expansion, inflationary pressures, financial a rate above the upper limit of its range. Growth in market conditions, and the rate of credit growth. The total domestic nonfinancial debt appears to be continu- Chairman may call for Committee consultation if it ing at a pace above the Committee's monitoring range appears to the Manager for Domestic Operations that for the year, reflecting very large government borrow- pursuit of the monetary objectives and related reserve ing along with strong private credit growth. Most paths during the period before the next meeting is interest rates have fallen considerably since the July likely to be associated with a federal funds rate persismeeting of the Committee, with the largest declines tently outside a range of 8 to 12 percent. generally in intermediate and long-term bond markets. The foreign exchange value of the dollar against a trade-weighted average of major foreign currencies Votes for this action: Messrs. Volcker, Solomon, rose further to a new high in early August and since Boehne, Boykin, Corrigan, Gramley, Mrs. Horn, then has fluctuated in a range just below the peak. The Messrs. Martin, Partee, Rice, and Ms. Seger. Vote merchandise trade deficit in June was somewhat above against this action: Mr. Wallich. the May level, and for the second quarter as a whole the deficit was little changed from the high firstquarter rate. Mr. Wallich dissented from this action because The Federal Open Market Committee seeks to fos- he preferred a directive calling for a somewhat ter monetary and financial conditions that will help to greater degree of reserve restraint and marginally reduce inflation further, promote growth in output on a lower monetary growth in the third quarter. In sustainable basis, and contribute to an improved pathis view such a directive was more likely to help tern of international transactions. In furtherance of these objectives the Committee agreed at the July avert more serious inflation and financial presmeeting to reaffirm the ranges for monetary growth sures later. 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Record of Policy Actions of the FOMC 827 2. Authorization for Domestic Open Messrs. Martin, Partee, Rice, Ms. Seger, and Mr. Market Operations Wallich. Votes against this action: None. At this meeting, the Committee approved a tem- This action was taken on the recommendation porary increase from $4 billion to $6 billion in the of the Manager for Domestic Operations. The limit on changes between Committee meetings in Manager had advised that projected increases in System Account holdings of U.S. government required reserves and currency might require net and federal agency securities specified in para- purchases of securities over the intermeeting graph 1(a) of the authorization for domestic open interval in amounts close to the usual $4 billion market operations. The increase was effective leeway. A likely rise in Treasury balances at for the intermeeting period ending with the close Federal Reserve Banks would add to the need for of business on October 2, 1984. System purchases of securities. Accordingly, the Manager requested the temporary increase in the limit to provide the necessary leeway for han- Votes for this action: Messrs. Volcker, Solomon, Boehne, Boykin, Corrigan, Gramley, Mrs. Horn, dling that contingency. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

829 Legal Developments BANK HOLDING COMPANY, BANK MERGER, AND commercial loans. Its deposits are not insured by the BANK SERVICE CORPORATION ORDERS ISSUED FSLIC. Accordingly, the Board has determined that BY THE BOARD OF GOVERNORS Bank is a "bank" for purposes of the BHC Act. The application has therefore been considered in light of Orders Issued Under Section 3 of Bank Holding the requirements of section 3 of the Act pertaining to Company Act the acquisition of banks. Applicant was formed in 1983 to acquire the shares BankVermont Corporation of Bank upon its conversion to a stock savings bank. Burlington, Vermont Bank, which holds $428 million in total domestic deposits, is the second largest depository institution in Order Approving Registration of a Bank Holding Vermont, controlling 10.6 percent of the total deposits Company in all depository institutions in the state.3 Bank is the largest of nine depository institutions in the relevant BankVermont Corporation, Burlington, Vermont, has banking market, holding 33.6 percent of the total applied for the Board's approval under section 3(a)(1) deposits in all depository institutions in the banking of the Bank Holding Company Act ("Act") (12 U.S.C. market.4 Applicant's prior acquisition of Bank repre- § 1842(a)(1)) to register as a bank holding company as a sented a corporate reorganization and did not increase result of its prior acquisition of the voting shares of the concentration of banking resources in any relevant Bank of Vermont, Burlington, Vermont ("Bank"). area. Neither Applicant nor any of its principals is Applicant acquired Bank upon its conversion from an affiliated with any other banking organization in any FDIC-insured state-chartered mutual savings bank to relevant banking market. Accordingly, the Board has an FDIC-insured stock savings bank.1 concluded that approval of this application would not Notice of this application, affording opportunity for result in any adverse effects upon competition in any interested persons to submit comments, has been relevant area. given in accordance with section 3 of the Act. The time The financial and managerial resources of Applicant for filing comments has expired, and the Board has and Bank are regarded as generally satisfactory, and considered the application and all comments received their prospects appear favorable, in light of certain in light of the factors set forth in section 3(c) of the Act commitments made by Applicant and Bank to improve (12 U.S.C. § 1842(c)). Bank's capital. Although Applicant's prior acquisition The Board has previously determined that a state of Bank did not result in any immediate changes in the guaranty savings bank is a "bank" under section 2(c) services offered by Bank, considerations relating to of the Act if it accepts demand deposits (including convenience and needs of the community to be served NOW accounts), engages in the business of making are consistent with approval of the application. Accommercial loans, and is not covered by the exemp- cordingly, the Board has determined that Applicant's tion created by the Garn-St Germain Depository Insti- proposal to register as a bank holding company is in tutions Deregulation Act of 1982 for FSLIC insured the public interest and that the application should be thrift institutions.2 Bank accepts demand deposits and approved. NOW accounts and engages in the business of making Based on the foregoing and other facts of record, the Board has determined that the application under section 3(a)(1) of the Act should be and hereby is approved. 1. On August 25, 1983, Applicant acquired 99.75 percent of the voting shares of Bank, then called The Burlington Savings Bank. 2. The Frankford Corporation, 70 FEDERAL RESERVE BULLETIN 654 (1984); The One Bancorp, 70 FEDERAL RESERVE BULLETIN 359 3. Banking data are as of March 31, 1984. (1984); Amoskeag Bank Shares, Inc., 69 FEDERAL RESERVE BULLE- 4. Market data are as of June 30, 1983 for all depository institutions TIN 860 (1983); First NH Banks, Inc., 69 FEDERAL RESERVE BULLE- except credit unions. The relevant banking market is defined as the TIN 874 (1983). Burlington, Vermont banking market. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

830 Federal Reserve Bulletin • November 1984 By order of the Board of Governors, effective ket. As Bank is a de novo institution, consummation of September 24, 1984. the proposal will not have any significant adverse effects on either existing or potential competition in Voting for this action: Vice Chairman Martin and Gover- any relevant market. nors Partee, Rice, Gramley, and Seger. Absent and not The financial and managerial resources and future voting: Chairman Volcker and Governor Wallich. prospects of Applicants, their subsidiaries and Bank are considered to be generally satisfactory and consis- JAMES MCAFEE tent with approval.2 Considerations relating to conve- [SEAL] Associate Secretary of the Board nience and needs of the communities to be served are also consistent with approval of this application. On the basis of the foregoing and all the facts of FirstBank Holding Company of Colorado record, the Board has determined that the applications Lakewood, Colorado should be, and hereby are approved. The transaction shall not be consummated before the thirtieth calendar FirstBank Holding Company day following the effective date of this Order, or later Lakewood, Colorado than three months after the effective date of this Order, and FirstBank at Broadway/County Line Road Order Approving Acquisition of Bank shall be opened for business no later than six months after the effective date of this Order, unless such FirstBank Holding Company of Colorado and its sub- period is extended for good cause by the Board or the sidiary, FirstBank Holding Company ("Applicants"), Federal Reserve Bank of Kansas City, acting pursuant both of Lakewood, Colorado, and each a bank holding to delegated authority. company within the meaning of the Bank Holding By order of the Board of Governors, effective Company Act ("Act") (12 U.S.C. § 1841 et seq.), have September 25, 1984. applied for the Board's approval under section 3(a)(3) of the Act (12 U.S.C. § 1842(a)(3)) to acquire all of the Voting for this action: Vice Chairman Martin and Govervoting stock of FirstBank at Broadway/County Line nors Partee, Rice, Gramley, and Seger. Absent and not Road, N.A., Littleton, Colorado, a de novo bank voting: Chairman Volcker and Governor Wallich. ("Bank"). WILLIAM W. WILES Notice of the applications, affording opportunity for [SEAL] Secretary of the Board interested persons to submit comments, has been given in accordance with section 3(b) of the Act. The time for filing comments has expired and the Board has considered the applications and all comments First Colonial Bankshares Corporation received in light of the factors set forth in section 3(c) Chicago, Illinois of the Act (12 U.S.C. § 1842(c)). Applicants' organization is the seventh largest com- Order Approving Acquisition of Bank mercial banking organization in Colorado, controlling 22 subsidiary banks with total deposits of $452.6 First Colonial Bankshares Corporation, Chicago, Illimillion, representing 2.5 percent of total deposits in nois, a bank holding company within the meaning of commercial banks in the state.1 Since the bank to be the Bank Holding Company Act ("Act") (12 U.S.C. acquired is a de novo bank, consummation of this § 1841 et seq.), has applied for the Board's approval proposal would not result in an increase in the concen- under section 3(a)(3) of the Act (12 U.S.C. tration of banking resources in the state. § 1842(a)(3)) to acquire all of the voting shares of Bank is to be located in an unincorporated portion of Arapahoe County, Colorado, and will compete in the banking market approximated by the Denver, Colora- 2. In several recent cases, the Board has noted its concerns do, Ranally Metro Area ("Denver RMA"). Applicants regarding the capital adequacy of bank holding company applicants control 11 subsidiary banks in the market and current- seeking to expand through sizeable acquisitions involving a significant ly rank as the sixth largest banking organization in the level of intangible assets. National City Corporation, 70 FEDERAL Denver RMA, controlling $291.6 million in deposits, RESERVE BULLETIN 743 (1984); and Eagle Bancorporation, 70 FEDER- AL RESERVE BULLETIN 728 (1984). Although intangibles represent a representing 2.7 percent of total deposits in the mar- substantial portion of Applicants' primary capital, the proposed acquisition of Bank, a de novo institution, would not result in any increase in Applicants' intangible assets, or any appreciable decline in Applicants' capital ratios. Virtually all of Applicants' intangible assets originated in 1981, when FirstBank Holding Company of Colorado 1. Banking data are as of December 31, 1983. Applicants also acquired FirstBank Holding Company. Since that time, Applicants' control an industrial bank, with deposits of $1.3 million. ratio of intangibles to primary capital has decreased at a steady rate. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 831 Michigan Avenue National Bank of Chicago, Chicago, and continues to believe that capital adequacy is an Illinois ("Bank").1 especially important factor in the analysis of bank Notice of the application, affording opportunity for holding company proposals.4 interested persons to submit comments, has been In this case, Applicant's existing primary and total given in accordance with section 3(b) of the Act. The capital ratios are above the minimum levels specified time for filing comments has expired, and the Board in both the Board's current and proposed Capital has considered the application and all comments re- Adequacy Guidelines.5 Consummation of the proposal ceived in light of the factors set forth in section 3(c) of would not result in a decline in Applicant's primary or the Act (12 U.S.C. § 1842(c)). total capital ratios or in Applicant's tangible primary Applicant is the 30th largest commercial banking capital ratio. Although a portion of Applicant's priorganization in Illinois, controlling three banks with mary capital consists of intangibles and the absolute total deposits of $304.1 million, representing 0.3 per- amount of intangibles would increase following the cent of the total deposits in commercial banks in the proposed transaction, the ratio of intangibles to tangistate.2 Bank is the 80th largest commercial bank in ble primary capital would not increase. Moreover, Illinois with total deposits of $154.8 million, represent- although intangibles represent a portion of Applicant's ing less than 0.2 percent of the total deposits in pro forma capital structure, Applicant does not place commercial banks in the state. Upon consummation of excessive reliance on intangibles to meet the Board's this proposal, Applicant would become the 14th larg- Capital Adequacy Guidelines, and the Board does not est commercial banking organization in the state, believe that the amount of intangibles will affect Applicontrolling total deposits of approximately $458.9 mil- cant's ability to serve as a source of strength to its lion, representing approximately 0.4 percent of total banking subsidiaries. deposits in the state. In the Board's view, consumma- Finally, the Board notes that the contracts for this tion of this proposal will not result in any significant transaction were completed and the application was adverse effects on the concentration of banking re- accepted for processing before either the Board's sources in Illinois. proposed Capital Adequacy Guidelines or the Nation- Bank operates in the Chicago, Illinois, banking al City Corporation decision were issued. market, where it is the 63rd largest of 389 commercial Based upon the above and other facts of record, the banking organizations in the market, controlling ap- Board concludes that the financial and managerial proximately 0.2 percent of the total deposits in com- resources and future prospects of Applicant, its submercial banks.3 Applicant also competes in the Chica- sidiaries, and Bank are generally satisfactory and go, Illinois, banking market. Following consummation consistent with approval. of this proposal, Applicant would be the 12th largest Considerations relating to the convenience and banking organization in the relevant market, with needs of the communities to be served are also consisapproximately 0.6 percent of the deposits in commer- tent with approval of this application. cial banks in the market. Based on all the facts of On the basis of the record, the application is aprecord, the Board concludes that consummation of the proved for the reasons summarized above. The transproposed transaction would have no significant ad- action shall not be consummated before the thirtieth verse effects on either existing or potential competi- calendar day following the effective date of this Order, tion in any relevant market. or later than three months after the effective date of In evaluating this application, the Board also has this Order, unless such period is extended for good considered the financial and managerial resources of cause by the Board or the Federal Reserve Bank of Applicant and the effect on these resources of the Chicago, acting pursuant to delegated authority. proposed acquisition of Bank. The Board has stated By order of the Board of Governors, effective September 25, 1984. 1. Applicant is currently a one-bank holding company, controlling Voting for this action: Vice Chairman Martin and Gover- First Colonial Bank and Trust Company, Chicago, Illinois. On Febru- nors Partee, Rice, Gramley, and Seger. Absent and not ary 23, 1984, Applicant received prior approval to acquire control of voting: Chairman Volcker and Governor Wallich. the Colonial Group, Inc., Chicago, Illinois, and, indirectly, its two subsidiary banks, Northwest Commerce Bank, Rosemont, Illinois, and All American Bank of Chicago, Chicago, Illinois. Although JAMES MCAFEE Applicant has not yet consummated this proposal, the data upon [SEAL] Associate Secretary of the Board which the Board bases its analysis of the financial and competitive factors in this case reflect consummation of the proposal and financial and competitive factors in this case are analyzed as if this transaction had been consummated. 4. National City Corporation, 70 FEDERAL RESERVE BULLETIN 743 2. Banking data are as of December 31, 1983, and reflect bank (1984). holding company acquisitions approved as of July 31, 1984. 5. Capital Adequacy Guidelines, 12 C.F.R., Part 225, Appendix A. 3. The Chicago, Illinois, banking market is approximated by Cook, Capital Adequacy Guidelines for Bank Holding Companies, 49 Feder- DuPage, and Lake Counties, Illinois. al Register 30322 (July 30, 1984). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

832 Federal Reserve Bulletin • November 1984 First National Bankshares of Sheridan commercial bank in the Sheridan County market, and Sheridan, Wyoming would control 39.5 percent of the total deposits in commercial banks in that market. Upon consumma- Order Approving Acquisition of Bank tion of this proposal, the Herfindahl-Hirschman Index ("HHI") of 4003 would increase by 328 points to First National Bankshares of Sheridan, Sheridan, Wy- 4331.4 The Sheridan County banking market is a highly oming, a bank holding company within the meaning of concentrated market with the three largest commercial the Bank Holding Company Act ("Act"), banks in the market holding 95.3 percent of the depos- 12 U.S.C. § 1841 et seq., has applied for the Board's its. Upon consummation of this proposal, only three approval under section 3(a)(3) of the Act, 12 U.S.C. commercial banks would remain in the market; thus, § 1842(a)(3), to acquire Ranchester State Bank the three largest commercial banks in the market ("Bank"), Ranchester, Wyoming. would hold 100 percent of the market's deposits. Notice of the application, affording an opportunity Even if competition from thrift institutions in the for interested persons to submit comments, has been market were taken into consideration and 50 percent given in accordance with section 3(b) of the Act. The of the deposits held by thrift institutions were included time for filing comments has expired, and the Board in the calculation of market concentration, consummahas considered the application and all comments re- tion of this proposal would increase the HHI in the ceived, including those of the Acting State Examiner Sheridan County market by 214 points to 3058 and of Banks for the State of Wyoming, in light of the FNBS would control 32 percent of the market's total factors set forth in section 3(c) of the Act, 12 U.S.C. deposits.5 It would appear from these facts of record § 1842(c). that consummation of this proposal would have sub- Applicant is the 10th largest banking organization in stantially adverse effects on existing competition in the Wyoming, controlling one subsidiary bank, the First Sheridan County market. National Bank of Sheridan ("FNBS"),1 Sheridan, The anticompetitive effects of this proposal are, Wyoming, with total deposits of $71.3 million, repre- however, mitigated by several factors. Currently, senting 1.9 percent of the total deposits in commercial Bank is not a strong competitor in the market, and its banks in Wyoming.2 Bank is the 81st largest banking effectiveness as a competitor has declined steadily organization in Wyoming, controlling deposits of $9.6 since Bank's principals acquired control of Bank in million, representing 0.2 percent of the total deposits 1979. The percentage of deposits in the market conin commercial banks in the state. Upon consummation trolled by Bank was 5.5 percent in 1980, and had of this transaction, Applicant would become the 9th declined to 4.7 by year-end 1983. The ratio of Bank's largest banking organization in Wyoming, controlling loans to deposits was 62.5 percent in 1980, and had deposits of $80.9 million, representing 2.1 percent of declined to 37.3 by mid-1984. total deposits in commercial banks in the state. Ac- Section 3(c) of the Act provides that the Board may cordingly, consummation of this proposal would not not approve an application under section 3 of the Act have any significant effects upon the concentration of ". . . whose effect in any section of the country may banking resources in Wyoming. be substantially to lessen competition, . . . unless it Applicant and Bank both compete in the Sheridan finds that the anticompetitive effects . . . are clearly County banking market.3 Applicant's subsidiary bank, outweighed in the public interest by the probable effect FNBS, is located in Sheridan, Wyoming, 13 miles of the transaction in meeting the convenience and from Bank, which is the only bank located in Ranches- needs of the community to be served." 12 U.S.C. ter, Wyoming. FNBS is the second largest of four § 1842(c). commercial banks in the relevant banking market, and In assessing such considerations in light of the facts controls 34.9 percent of the total deposits in commer- surrounding this proposal, the Board finds that the cial banks in the market. Bank is the smallest commercial bank in the Sheridan County banking market, and 4. Under the Justice Department Merger Guidelines, a market in controls 4.7 percent of the total deposits in commercial which the post-merger HHI is above 1800 is considered highly banks in that market. Upon consummation of this concentrated. In such a market, the Justice Department is likely to challenge a merger that produces an increase in the HHI of 100 points proposal, FNBS would remain the second largest or more. 5. Three thrift institutions in the market control deposits of $97.3 million, representing 32.3 percent of the total deposits in commercial banks and thrift institutions in the Sheridan County banking market. 1. Applicant has one nonbank subsidiary, First Ag Corporation, The Board has previously determined that thrift institutions have Sheridan, Wyoming, which is an agricultural credit corporation. become, or at least have the potential to become, major competitors of 2. Unless otherwise indicated, all commercial bank deposit data are banks. NCNB Corporation, 70 FEDERAL RESERVE BULLETIN 225 as of December 31, 1983. All thrift deposit data are as of Septem- (1984); Sun Banks, Inc., 69 FEDERAL RESERVE BULLETIN 934 (1983); ber 30, 1983. Merchants Bancorp, Inc., 69 FEDERAL RESERVE BULLETIN 865 3. The Sheridan County banking market is defined as Sheridan (1983); Monmouth Financial Services, Inc., 69 FEDERAL RESERVE County, Wyoming. BULLETIN 867 (1983). 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Legal Developments 833 anticompetitive effects are clearly outweighed in the First Taylor County BanCorporation, Inc. public interest. The financial and managerial resources Bedford, Iowa and future prospects of Applicant and its subsidiary are considered satisfactory and consistent with ap- Order Approving Formation of a Bank Holding proval of this application. Bank's financial and mana- Company gerial resources, absent consummation of the instant proposal, are less than satisfactory, and its future First Taylor County BanCorporation, Inc., Bedford, prospects are uncertain. Iowa, has applied for the Board's approval pursuant to As noted above, Bank is the only bank located in the section 3(a)(1) of the Bank Holding Company Act of City of Ranchester. According to the facts of record, 1956, as amended ("Act")(12 U.S.C. § 1842(a)(1)), to including reports of examination, it appears that become a bank holding company by acquiring all of the Bank's overall financial condition has declined steadi- voting shares of The Bedford National Bank, Bedford, ly since 1979. Accordingly, after reviewing these facts Iowa ("Bank"). and taking into consideration the comments of the Notice of the application, affording interested per- Acting State Examiner of Banks for the State of sons an opportunity to submit comments, has been Wyoming, the Board has determined that consumma- given in accordance with section 3(b) of the Act. The tion of this proposal would strengthen Bank and time for filing comments has expired, and the Board ensure that it continues to serve as a source of banking has considered the application and all comments reservices for the residents of the City of Ranchester and ceived in light of the factors set forth in section 3(c) of Sheridan County, Wyoming. the Act. Although the Board would prefer a less anticompeti- Applicant, a nonoperating corporation with no subtive acquisition as a means for assuring the continua- sidiaries, was organized under the laws of Iowa for the tion of Bank as a vehicle for serving the convenience purpose of becoming a bank holding company by and needs of the public, it appears that such an acquiring Bank, which holds deposits of $19.6 milalternative is not readily available.6 Therefore, the lion.1 Upon acquisition of Bank, Applicant would Board views the improved financial prospects of Bank control the 355th largest of 643 banking organizations that would result from consummation of this proposal, in Iowa, representing less than 0.1 percent of the total and convenience and needs considerations as lending deposits in commercial banks in the state. significant weight toward approval of the application Within the relevant banking market,2 Bank is the and outweighing the anticompetitive effects that would smallest of three commercial banking organizations result from consummation of the proposal. According- and holds approximately 24 percent of the total deposly, it is the Board's judgment that consummation of the its in commercial banks in the market. Neither Appliproposal would be in the public interest and that the cant nor any of its principals is associated with any application should be approved. other banking organization in the relevant market, and On the basis of the record, the application is ap- it appears that consummation of the proposal would proved for the reasons summarized above. The acqui- not result in any adverse effects upon existing or sition shall not be consummated before the thirtieth potential competition or increase the concentration of calendar day following the effective date of this Order, banking resources in any relevant area. or later than three months after the effective date of The financial and managerial resources and future this Order, unless such period is extended for good prospects of Applicant and Bank are regarded as cause by the Board or by the Federal Reserve Bank of consistent with approval, particularly in light of Appli- Kansas City pursuant to delegated authority. cant's commitment to provide additional capital to By order of the Board of Governors, effective Bank. Applicant will incur debt, but it appears that September 28, 1984. Applicant is capable of servicing its debt while maintaining adequate capital at Bank. Accordingly, consid- Voting for this action: Vice Chairman Martin and Gover- erations relating to banking factors are consistent with nors Partee, Rice, Gramley, and Seger. Absent and not approval. Considerations relating to the convenience voting: Chairman Volcker and Governor Wallich. and needs of the community to be served are also consistent with approval of the application. JAMES MCAFEE Based on the foregoing and other facts of record, the [SEAL] Associate Secretary of the Board Board has determined that consummation of the transaction would be in the public interest and that the 6. Six financial organizations or investor groups, including Applicant, expressed an interest in purchasing Bank, but only Applicant offered to purchase Bank. Cf. Van Buren Bancorporation, 69 FEDER- 1. All banking data are as of June 30, 1984. AL RESERVE BULLETIN 811 (1983); National City Corporation, 70 2. The relevant banking market is approximated by Taylor County, FEDERAL RESERVE BULLETIN 743 (1984). Iowa. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

834 Federal Reserve Bulletin • November 1984 application should be approved. On the basis of the Boston banking market,2 and Fleet Connecticut, record, the application is approved for the reasons which will compete in the Hartford banking market,3 summarized above. The transaction shall not be con- are proposed new banks. Applicant currently comsummated before the thirtieth calendar day following petes in neither the Boston nor the Hartford banking the effective date of this Order or later than three market. In light of the de novo nature of these proposmonths after the effective date of this Order, unless als, consummation of the proposed transactions would such period is extended by the Board or by the Federal have no adverse effects on competition or the concen- Reserve Bank of Chicago, acting pursuant to delegated tration of banking resources in any relevant area. authority. The financial and managerial resources and future By order of the Board of Governors, effective prospects of Applicant, Fleet Boston, and Fleet Con- October 1, 1984. necticut are consistent with approval of the applications. As de novo institutions, the two proposed banks Voting for this action: Chairman Volcker and Governors will provide additional full service banking facilities, Martin, Wallich, Partee, Rice, Gramley, and Seger. and thus considerations relating to convenience and needs of the community to be served lend weight JAMES MCAFEE toward approval. [SEAL] Associate Secretary of the Board Section 3(d) of the Act prohibits the Board from approving any application by a bank holding company to acquire any bank located outside of the state in Fleet Financial Group, Inc. which the operations of the bank holding company's Providence, Rhode Island banking subsidiaries are principally conducted, unless such acquisition is "specifically authorized by the Order Approving Acquisition of Banks statute laws of the State in which such bank is located, by language to that effect and not merely by implica- Fleet Financial Group, Inc., Providence, Rhode Is- tion." (12 U.S.C. § 1842(d)). Based upon its review of land, a bank holding company within the meaning of the Massachusetts and Connecticut interstate banking the Bank Holding Company Act of 1956, as amended statutes,4 the Board concludes that Massachusetts and (12 U.S.C. § 1841 et seq.) ("Act"), has applied for Connecticut have by statute expressly authorized, the Board's approval under section 3(a)(3) of the Act within the meaning of section 3(d) of the Act, a Rhode (12 U.S.C. § 1842(a)(3)) to acquire all of the voting Island bank holding company, such as Applicant, to shares of Fleet National Bank of Boston, Boston, acquire a bank or bank holding company in the autho- Massachusetts ("Fleet Boston"), and Fleet National rizing state.5 Bank of Connecticut, Hartford, Connecticut ("Fleet These applications raise a question under the United Connecticut"), both proposed new banks. States Constitution concerning the constitutionality of Notice of the applications, affording opportunity for provisions of the Massachusetts and Connecticut ininterested persons to submit comments, has been terstate banking statutes that bar bank holding compagiven in accordance with section 3(b) of the Act. The nies located outside of New England from acquiring time for filing comments has expired, and the Board banks in Massachusetts or Connecticut.6 The Board has considered the application and all comments re- has addressed the constitutionality of the Connecticut ceived in light of the factors set forth in section 3(c) of and Massachusetts statutes in its Orders concerning the Act (12 U.S.C. § 1842(c)), including the comments three previous interstate acquisitions under these statof Citicorp, New York, New York, challenging the constitutionality of the Massachusetts and Connecticut statutes under which the proposed acquisitions are to be made. 2. The Boston banking market includes all of Suffolk and Essex Applicant, the largest banking organization in Counties, most of Middlesex, Norfolk, and Plymouth Counties, and part of Worcester and Bristol Counties, Massachusetts. It also in- Rhode Island, has one banking subsidiary with total cludes 13 towns in southern New Hampshire. deposits of $3.3 billion, representing 39.7 percent of 3. The Hartford banking market is defined as Hartford County, the total deposits in commercial banks in Rhode Connecticut. 4. Mass. Ann. Laws Ch. 167A, § 2; 1983 Conn. Acts 411, § 2. Island.1 Both Fleet Boston, which will compete in the 5. See Hartford National Corporation, 70 FEDERAL RESERVE BUL- LETIN 353, 354 (1984) (Massachusetts statute); Bank of New England Corporation, 70 FEDERAL RESERVE BULLETIN 374, 375 (1984) (Connecticut statute); and Bank of Boston Corporation (Colonial Bancorp, Inc.), 70 FEDERAL RESERVE BULLETIN 524, 525 (1984). 6. New England bank holding companies include those located in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, 1. Banking data are as of March 31, 1984. and Vermont. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 835 utes.7 In its Bank of New England Corporation Order, Orders Issued Under Section 4 of Bank Holding the Board concluded that, while the issue was not free Company Act from doubt, there was no clear and unequivocal basis for a determination that the Connecticut statute is Amsterdam-Rotterdam Bank, N.V. inconsistent with the Constitution.8 Amsterdam, The Netherlands Subsequent to the Board's approval of the three prior applications under the Connecticut and Massa- Order Approving Application to Engage in chusetts interstate banking laws, protestants in each Investment Advisory Activities case sought judicial review of the Board's Orders on the sole ground that the Connecticut and Massachu- Amsterdam-Rotterdam Bank, N.V., Amsterdam, The setts interstate banking laws are unconstitutional. Fol- Netherlands, a foreign bank subject to certain provilowing review of the issues, the United States Court of sions of the Bank Holding Company Act of 1956 Appeals for the Second Circuit issued an opinion ("Act"), has applied for the Board's approval, pursurejecting the petitioners' constitutional challenges to ant to section 4(c)(8) of the Act (12 U.S.C. the New England statutes and affirming the Board's § 1843(c)(8)) and section 225.21(a) of the Board's Orders.9 The constitutional issues involved in Fleet's Regulation Y (12 C.F.R. § 225.21(a)), to acquire current applications are the same as those involved in through its merchant bank subsidiary, Pierson Heldthe Second Circuit decision. ring & Pierson, N.V. ("Pierson"), 50 percent of the Based on the foregoing and other facts of record, the voting shares of DP Asset Management, Inc., Wil- Board has determined that the applications should be mington, Delaware ("Company"), a de novo joint and hereby are approved. The transactions shall not be venture.1 The remaining 50 percent of Company would consummated before the thirtieth day after the effec- be held by Delfi American Corporation, Wilmington, tive date of the Order, or later than three months after Delaware ("DAC"). the effective date of this Order, and the banks to be Company proposes to engage in investment advisoacquired shall be opened for business not later than six ry and discretionary portfolio management activities months after the effective date of this Order, unless for high net worth individuals, pension funds, trusts such latter periods are extended for good cause by the and other institutional clients. Company would serve Board, or by the Federal Reserve Bank of Boston primarily non-U.S. clients and would advise them with pursuant to delegated authority. regard to investments in the U.S. securities markets. By order of the Board of Governors, effective These activities have been determined by the Board to October 4, 1984. be closely related to banking and permissible for bank holding companies. (12 C.F.R. § 225.25(b)(4)). Voting for this action: Chairman Volcker and Governors Notice of the application, affording interested per- Wallich, Partee, Rice, and Gramley. Abstaining from this sons an opportunity to submit comments, has been action: Governor Martin. Absent and not voting: Governor duly published (49 Federal Register 21115 (1984)). The Seger. time for filing comments has expired, and the Board has considered the application and all comments re- JAMES MCAFEE ceived in light of the public interest factors set forth in [SEAL] Associate Secretary of the Board section 4(c)(8) of the Act. Applicant is the 43rd largest banking organization worldwide and the second largest in The Netherlands, controlling total consolidated assets of approximately U.S. $40.0 billion.2 In the United States, Applicant 7. Hartford National Corporation, supra; Bank of New England maintains a Federal branch in New York City and a Corporation, supra; and Bank of Boston Corporation (Colonial Banrepresentative office in San Francisco. Applicant encorp, Inc.), supra. 8. Bank of New England Corporation, 70 FEDERAL RESERVE gages in a wide range of retail and wholesale banking BULLETIN 376 (1984). It is the Board's policy that it will not hold a activities, as well as securities underwriting and brostate law unconstitutional in the absence of clear and unequivocal kerage activities outside the United States. Pierson, evidence of the inconsistency of the state law with the United States Constitution. See NCNB Corp., 68 FEDERAL RESERVE BULLETIN 54, Applicant's wholly owned subsidiary, is the eighth 56 (1982). The Board repeated these constitutional findings with largest bank in The Netherlands with total assets of respect to the Massachusetts statute in Hartford National Corporation, 70 FEDERAL RESERVE BULLETIN 354 (1984), and with respect to the closely parallel Rhode Island statute in Bank of Boston Corporation (RIHT Financial Corporation), 70 FEDERAL RESERVE BULLETIN 737 (1984). 9. Northeast Bancorp, Inc. v. Board of Governors of the Federal 1. Applicant, a foreign bank operating a branch in New York, is Reserve System, Nos. 84-4047, 84-4051, 84-4053, and 84-4081 subject to certain provisions of the Act by operation of section 8(a) of (2d Cir. Aug. 1, 1984), petition for cert, filed, 52 U.S.L.W. 3189 (U.S. the International Banking Act of 1978 (12 U.S.C. § 3106 (1978)). Sept. 6, 1984) (No. 84-363). 2. All banking data are as of December 31, 1983. 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836 Federal Reserve Bulletin • November 1984 approximately U.S. $2.1 billion. Pierson engages in and thus the concomitant potential for the mingling of merchant banking and securities activities. In the permissible and impermissible securities activities.5 United States, Pierson maintains representative of- In this instance, however, the Board notes that fices in New York City and San Francisco. DAC is a Company would not be engaged in impermissible relatively small, privately-owned holding company for activities, and that Applicant has offered various comvarious subsidiaries principally engaged in the spon- mitments to address the potential adverse effects desorship, distribution and management of a group of scribed above, including the following:6 nine mutual funds with net assets of approximately 1. Applicant has committed to obtain the Board's $231.0 million.3 DAC does not engage in securities prior approval to retain its interest in Company underwriting. should DAC expand its business beyond its current Pierson and DAC would each own 50 percent of mutual fund activities, and to divest its investment Company's shares and each would elect four directors in Company should the Board so require; to Company's eight-member board. DAC's directors 2. Company's name would be distinct from DAC's would be eligible to sit on Company's board; however, and would not link Company with DAC; Applicant has committed that none of DAC's other 3. None of Company's officers or employees would employees, including its officers, would serve concur- serve at the same time as officers or employees of rently as officers or employees of Company. Company DAC or any of its affiliates; would purchase a variety of services from DAC on a 4. Although the offices of DAC and Company would fee basis, including securities research and analysis, be located in the same building, they would have trading services, data processing, trust, and adminis- separate entrances; trative services, and would lease office space from 5. Applicant and its subsidiaries will not distribute DAC. prospectuses or sales literature for DAC's mutual In acting on Applicant's proposal to engage in funds or make any such literature available to the investment advisory activities through the proposed public at any of their offices; joint venture, the Board must consider the standards 6. Officers and employees of Applicant's bank subenumerated in section 4(c)(8) of the Bank Holding sidiaries will be instructed not to express any opin- Company Act. As noted above, the proposed activities ion concerning the advisability of purchasing the are "closely related" to banking within the meaning of securities of any DAC mutual fund; the Act. However, the Board must determine whether 7. The names of Applicant's bank customers will not the performance of the proposed activities by Compa- be furnished to DAC's mutual funds; ny can reasonably be expected to produce benefits to 8. None of DAC's mutual funds will have offices in the public that outweigh possible adverse effects. any building which is likely to be identified in the 12 U.S.C. § 1843(c)(8). public's mind with Applicant or its subsidiaries; Prior decisions of the Board in joint venture cases 9. Applicant and its subsidiaries will not act as indicate a concern on the part of the Board that joint registrar, transfer agent or custodian for any of ventures not lead to a matrix of relationships between DAC's mutual funds; co-venturers that could break down the legally man- 10. No officer, director or employee of DAC or its dated separation of banking and commerce.4 Joint affiliates will serve as an officer, director or employventures by banking organizations and commercial ee of Applicant or its affiliates, excluding Company; firms may also create the possibility of conflicts of 11. Applicant and its subsidiaries will not engage, interest and concentration of resources that the Act directly or indirectly, in the sale or distribution of was designed to prevent, and impair or give the appearance of impairing the ability of the banking organization to function effectively as an independent 5. The proposed joint venture would not result in a violation of the Glass-Steagall Act, since it involves neither an affiliation nor manageand impartial provider of credit. Further, joint venment interlocks between Applicant and DAC. 12 U.S.C. §§ 78, 221a, tures must be carefully analyzed for any possible 377. The joint ownership of a third entity, such as Company, is not adverse effects on competition and on the financial prohibited under that Act. The Board has approved only one previous joint venture application condition of the banking organization involved in the between a banking organization and a securities firm. The Maybaco proposal. The Board believes that these concerns are Company, supra, note 4. In that case, however, the role of the exacerbated where, as here, the joint venture involves securities firm was essentially that of a passive investor with little role in the management or operations of the joint venture. a relationship between a banking organization and a 6. Some of these commitments are required under the Board's securities firm that is more than a passive investor, Published Interpretation regarding investment advisory activities when advice is provided to an investment company by a bank holding company. 12 C.F.R. § 225.125. This application would not result in 3. Data on DAC are as of September 30, 1983. Applicant providing advice to an investment company, however, and 4. See, e.g., The Maybaco Company and Equitable Bancorpora- Applicant has offered these commitments as a means of addressing the tion, 69 FEDERAL RESERVE BULLETIN 375 (1983), and Deutsche Bank possible adverse effects of a joint venture between a bank holding AG, 67 FEDERAL RESERVE BULLETIN 449 (1981). company and a securities firm. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 837 any securities of DAC's mutual funds nor purchase Board has placed particular emphasis on the fact that for their own account any securities of any DAC DAC is not engaged in underwriting and dealing in mutual fund; securities. 12. Applicant and its subsidiaries will not purchase The Board finds that consummation of this proposal in their sole discretion any securities of DAC's may be expected to result in public benefits. In particmutual funds in a fiduciary capacity, will not extend ular, Company is likely to increase the market for credit to any such mutual fund, or accept securities equities of small and medium-sized U.S. companies, of any such mutual fund as collateral for a loan as additional foreign investors begin to invest capital in which is for the purpose of purchasing securities of the United States on the basis of advice obtained from any such fund; Company. Further, the resources provided to Compa- 13. Pierson will not make any investment in DAC or ny by each joint venture partner should permit Companominate any of its directors; and, ny to be a viable and effective provider of investment 14. Applicant and its banking subsidiaries will not advice regarding U.S. securities. take into account the fact that a potential borrower Based on the foregoing facts of record, the Board competes with Company in determining whether to has determined that the balance of the public interest extend credit to that borrower. factors it is required to consider under section 4(c)(8) With regard to competitive issues, DAC and Appli- of the Act is favorable. Accordingly, the application cant do not currently compete with each other in the should be and hereby is approved. In approving this investment advisory area either in the United States or application, the Board has relied on all the commitabroad. Accordingly, consummation of the proposed ments offered by Applicant, including the commitment transaction would not eliminate any existing competi- to secure the Board's prior approval to retain its tion between Applicant and DAC. interest in Company if DAC expands its operations With respect to potential competition, each joint beyond its current mutual fund activities. This deterventurer in this proposal offers a unique service or skill mination is subject to all the conditions set forth in the that the other needs and without which neither partner Board's Regulation Y, including those in sections would be able to engage in Company's activities. 225.4(d) and 225.23(b), and to the Board's authority to Specifically, Pierson has indicated that its existing require such modification or termination of the activiforeign customers desire access to the U.S. equity ties of a bank holding company or any of its subsidiarmarkets for small to mid-sized U.S. companies, an ies as the Board finds necessary to assure compliance area in which Pierson lacks sufficient expertise and with the provisions and purposes of the Act and the Board's regulations and orders issued thereunder, or experience. DAC, on the other hand, would gain to prevent evasion thereof. access to a foreign customer base through the joint venture that it might not otherwise be able to obtain. The proposed activity shall be commenced not later The Board believes that the unique needs of the two than three months after the effective date of this joint venturers in this case make it unlikely that either Order, unless such period is extended for good cause joint venturer would be able to enter the market by the Board or by the Federal Reserve Bank of New independently. Accordingly, the Board concludes that York, acting pursuant to delegated authority. consummation of the proposed transaction would not By order of the Board of Governors, effective have a significant impact on potential competition in October 1, 1984. any relevant market. The relatively small absolute size and market share of DAC, when coupled with the Voting for this action: Chairman Volcker and Governors small domestic presence of Applicant, also demon- Martin, Wallich, Partee, and Seger. Voting against this action: Governor Rice. Absent and not voting: Governor strates that the proposal would be unlikely to result in an undue concentration of resources.7 Gramley. JAMES MCAFEE There is no evidence in the record to indicate that [SEAL] Associate Secretary of the Board consummation of the proposal would result in other adverse effects on the public interest. Moreover, the Board is satisfied that approval of this application does Dissenting Statement of Governor Rice not inherently present the opportunity for unsound banking practices. In reaching this conclusion, the I would deny this application because I believe that approval of this proposal would serve to erode the Glass-Steagall Act's fundamental objective of drawing 7. The Board notes, in addition, that Company's proposed investa dividing line between the banking and securities ment advisory activities are relatively limited in scope. Accordingly, this proposal does not pose the same potential for conflicts of interest industries. Further, approval of this application would or other adverse effects that arose in Deutsche Bank, supra note 4, establish an adverse precedent that would encourage where the joint venturers had applied to engage in a broad range of activities. other banking organizations to join together with secu- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

838 Federal Reserve Bulletin • November 1984 rities firms in similar joint venture relationships in- at any geographic location any service, other than volving additional securities- and non securities-relat- deposit taking, that the Board has determined, by ed activities. regulation, to be permissible for a bank holding com- Moreover, in my opinion, the only public benefit to pany under section 4(c)(8) of the Bank Holding Combe gained by approval of this proposal would be a pany Act.2 Agency proposes to engage in general small inflow of foreign dollars into the U.S. securities insurance agency activities to the extent those activimarkets. I believe that this one public benefit is not ties are generally permissible for bank holding compasufficient to outweigh the potential adverse effects that nies under the Board's Regulation Y, 12 C.F.R. could result from approval of a joint venture that § 225.25(b)(8)(ii). contemplates such a significant level of involvement Section 5(b) of the BSCA, 12 U.S.C. § 1865(b), between a banking organization and a securities firm. requires prior Board approval of any investment by an Accordingly, I dissent from the Board's decision to insured bank (as defined)3 in the capital stock of a approve this application. bank service corporation that performs any service under authority of section 4(f) of the BSCA. Section October 1, 1984 5(b) of the BSCA also requires a Company that becomes a bank service corporation under the BSCA to obtain the Board's approval before providing a Orders Issued Under Section 5 of Bank Service service under authority of section 4(f) of the Act. Corporation Act Section 5(c) of the BSCA, 12 U.S.C. § 1865(c), authorizes the Board, in acting upon applications to Spencer County Bank invest in bank service corporations, to consider the Santa Claus, Indiana financial and managerial resources of the institutions involved, their prospects, and possible adverse ef- Christmas Lake Agency, Inc. fects, such as undue concentration of resources, unfair Dale, Indiana or decreased competition, conflicts of interests, or unsafe or unsound banking practices. The Board finds Order Approving Investment in a Bank Service that considerations relating to these factors are con- Corporation sistent with approval and that there is no evidence of adverse effects. Spencer County Bank, Santa Claus, Indiana Accordingly, on the basis of the record, the applica- ("Bank"), an insured state nonmember bank, has tion is approved for the reasons summarized above. applied for the Board's approval under section 5(b) of This determination is subject to the Board's authority the Bank Service Corporation Act, as amended to require such modification or termination of the ("BSCA") (12 U.S.C. § 1861 et seq.), to acquire all of activities of a bank service corporation as the Board the voting shares of Christmas Lake Agency, Inc., finds necessary to assure compliance with the BSCA Dale, Indiana ("Agency"), a general insurance agency or to prevent evasions thereof. The transactions shall which proposes to become a bank service corporation be consummated within three months after the date of subject to the BSCA.1 this Order, unless such period is extended for good Bank intends to acquire all of the outstanding shares cause by the Board or the Federal Reserve Bank of of Agency from its owners (two of whom are principals St. Louis. of Bank and collectively control 50 percent of Agen- By order of the Board of Governors, effective cy's voting shares) and move the operations of Agency October 2, 1984. into the facilities of Bank, which is located in a community with population not exceeding 5,000. In Voting for this action: Chairman Volcker and Governors connection with this proposal, Agency has applied Martin, Partee, Rice, Gramley, and Seger. Abstaining from this action: Governor Wallich. under section 5(b) of the BSCA to engage as a bank service corporation in general insurance agency activi- JAMES MCAFEE ties in an area approximated by Spencer County, [SEAL] Associate Secretary of the Board Indiana, the service area in which both Bank and Agency currently operate. 2. Under section 4(c)(8) of the Bank Holding Company Act, a bank Section 4(f) of the BSCA, 12 U.S.C. § 1864(f), holding company may engage in activities determined by the Board to provides that a bank service corporation may perform be closely related to banking and a proper incident thereto. 3. Under section 1(b)(5) of the BSCA (12 U.S.C. § 1861(b)(5)), the term "insured bank" has the meaning provided in section 3(h) of the 1. Agency currently engages principally in the sale of casualty and Federal Deposit Insurance Act (12 U.S.C. § 1813(h)) and encompasses credit life insurance, but expects to expand its activities in the future banks insured by the Federal Deposit Insurance Corporation to encompass a full line of general insurance agency business, ("FDIC"). Spencer County Bank is an FDIC-insured, state nonmemincluding fire, casualty, life and health insurance. ber bank. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 839 ORDERS APPROVED UNDER BANK HOLDING COMPANY ACT By Federal Reserve Banks Recent applications have been approved by the Federal Reserve Banks as listed below. Copies of the orders are available upon request to the Reserve Banks. Section 3 Reserve Effective AApppplliiccaanntt BBaannkk((ss)) Bank date Ambanc Financial Services, The American National Bank of Chicago October 2, 1984 Inc., Beaver Dam, Beaver Dam, Wisconsin Beaver Dam, Wisconsin American State Bancorp, American State Bank of Sheri- Chicago September 28, 1984 Sheridan, Indiana dan, Sheridan, Indiana B. B. Financial Corporation, Boca Bank, Atlanta October 3, 1984 Boca Raton, Florida Boca Raton, Florida Broadway Bancshares Inc., Broadway National Bank-West- Dallas September 19, 1984 San Antonio, Texas Plex, Bexar County, Texas Camden National Corporation, Camden National Bank, Boston September 19, 1984 Camden, Maine Camden, Maine Cape Coral Financial Corpora- Community National Bank, Atlanta October 2, 1984 tion, Cape Coral, Florida Cape Coral, Florida Citizens Bancshares, Inc., The Union Commercial Savings Cleveland September 21, 1984 Salineville, Ohio Bank, Palestine, Ohio CNB Financial Corporation, The City National Bank of San Dallas September 28, 1984 San Saba, Texas Saba, San Saba, Texas Commonwealth Trust Bancorp, Peoples Deposit Bank, Cleveland September 21, 1984 Inc. Burlington, Kentucky Covington, Kentucky Community Banks of Florida, Community National Bank, Atlanta September 19, 1984 Inc., Mims, Florida Mims, Florida Cylinder Bancorporation, Cylinder State Bank, Chicago October 4, 1984 Cylinder, Iowa Cylinder, Iowa DeMotte Bancorp, DeMotte State Bank, Chicago October 2, 1984 DeMotte, Indiana DeMotte, Indiana Drummond Bancshares, Inc., State Bank of Drummond, Minneapolis October 2, 1984 Drummond, Wisconsin Drummond, Wisconsin Eagle Financial Corp., Aredale State Bank, Chicago October 2, 1984 Cedar Falls, Iowa Aredale, Iowa FBL Bancshares, Inc., The Farmers Bank of Liberty, St. Louis October 1, 1984 Liberty, Illinois Liberty, Illinios Farmers National Bancshares, The Farmers National Bank of Atlanta September 22, 1984 Inc., Opelika, Opelika, Alabama Opelika, Alabama Financial BancCorp, Inc., Trinidad National Bank, Kansas City September 24, 1984 Trinidad, Colorado Trinidad, Colorado Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

840 Federal Reserve Bulletin • November 1984 Section 3—Continued . ,. ~ . Reserve Effective Applicant B ankw(s) BanR date First Delta Financial Corpora- First State Bank of Dermott, St. Louis September 27, 1984 tion, Dermott, Arkansas Dermott, Arkansas First Kentucky National Corpo- The Third National Bank of St. Louis October 1, 1984 ration, Ashland, Louisville, Kentucky Ashland, Kentucky Georgia Community Bancorp, Bank of Terrell, Atlanta September 28, 1984 Inc., Dawson, Georgia Reynolds, Georgia Commercial State Bank, Donalsonville, Georgia The Citizens State Bank of Reynolds, Reynolds, Georgia Grant County Bancorp, Inc., Grant County Deposit Bank, Cleveland September 21, 1984 Williamstown, Kentucky Williamstown, Kentucky Holdco of Pinellas County, Inc., First Bank of Pinellas County, Atlanta September 21, 1984 St. Petersburg, Florida Treasure Island, Florida Jackson County Bancshares, The Jackson County Bank, Atlanta October 2, 1984 Inc., Scottsboro, Alabama Scottsboro, Alabama Liberty Shares, Inc., The Hinesville Bank, Atlanta September 21, 1984 Hinesville, Georgia Hinesville, Georgia Lismore Financial Services, State Bank of Lismore, Minneapolis September 19, 1984 Inc., Lismore, Minnesota Lismore, Minnesota Menomonie Financial Services, First Bank and Trust, Minneapolis September 28, 1984 Inc., Menomonie, Wisconsin Manomonie, Wisconsin NCNB Corporation, NCNB National Bank, Richmond October 2, 1984 Charlotte, North Carolina Fairfax County, Virginia Northeast Bancorp, Inc., Citizens National Bank of South- New York September 28, 1984 New Haven, Connecticut ington, Plantsville, Connecticut Northern Neck Bankshares Cor- Northern Neck State Bank, Richmond October 2, 1984 poration, Warsaw, Virginia Warsaw, Virginia Panhandle Aviation, Inc., Oakland State Bank, Chicago September 7, 1984 Clarinda, Iowa Oakland, Iowa Prattville Financial Services Bank of Prattville, Atlanta September 21, 1984 Corporation, Prattville, Alabama Prattville, Alabama RBDC Corporation, Republic Bancorp, Co., Chicago October 1, 1984 Chicago, Illinois Chicago, Illinois St. James Bancorp, Inc., Jackson State Bank, Minneapolis October 2, 1984 St. James, Minnesota Jackson, Minnesota Seneca Bancshares, Inc., The Ronceverte National Bank, Richmond October 3, 1984 Fairlea, West Virginia Fairlea, West Virginia Siloam Springs Bancshares, First National Bank, St. Louis September 27, 1984 Inc., Siloam Springs, Arkansas Bentonville, Arkansas Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 841 Section 3—Continued Reserve Effective Applicant Bank(s) Bank date The Sumitomo Bank, Ltd., CPB, Inc., San Francisco September 27, 1984 Osaka, Japan Honolulu, Hawaii Tate Financial Corporation, Citizens Bank, St. Louis October 2, 1984 Coldwater, Mississippi Coldwater, Mississippi Trust Company of Georgia, First Thomson Bancorp, Inc., Atlanta September 20, 1984 Atlanta, Georgia Thomson, Georgia Tyler Bancshares, Inc., Tyler National Bank, Dallas October 4, 1984 Tyler, Texas Tyler, Texas WNB Resources, Inc., First National Bank of Kerrville, Dallas October 2, 1984 Kerrville, Texas Kerrville, Texas Section 4 Nonbanking Reserve Effective Applicant company Bank date Maryland National Corporation, Summit Industrial Bank, Richmond September 21, 1984 Baltimore, Maryland Lakewood, Colorado Security Pacific Corporation, Clifford Drake & Company, Inc. San Francisco September 26, 1984 Los Angeles, California New York, New York Society Corporation, BancSystems Association, Cleveland September 27, 1984 Cleveland, Ohio Westlake, Ohio PENDING CASES INVOLVING THE BOARD OF GOVERNORS This list of pending cases does not include suits against the Federal Reserve Banks in which the Board of Governors is not named a party. Seattle Bancorporation v. Board of Governors, No. Huston v. Board of Governors, No. 84-1361 (8th Cir., 84-7535 (9th Cir., filed Aug. 15, 1984). filed Mar. 20, 1984); and No. 84-1084 (8th Cir. filed Old Stone Corp. v. Board of Governors, No. 84-1498 Jan. 17, 1984). (1st Cir., filed June 20, 1984). De Young v. Owens, No. SC 9782-20-6 (Iowa Dist. Citicorp v. Board of Governors, No. 84-4081 (2d Cir., Ct., filed Mar. 8, 1984). filed May 22, 1984). First Tennessee National Corp. v. Board of Gover- Lamb v. Pioneer First Federal Savings and Loan nors, No. 84-3201 (6th Cir., filed Mar. 6, 1984). Association, No. C84-702 (D. Wash., filed May 8, State of Ohio v. Board of Governors, No. 84-1270 1984). (10th Cir., filed Jan. 30, 1984). Girard Bank v. Board of Governors, No. 84-3262 (3rd Ohio Deposit Guarantee Fund v. Board of Governors, Cir., filed May 2, 1984). No. 84-1257 (10th Cir., filed Jan. 28, 1984). Melcher v. Federal Open Market Committee, No. Colorado Industrial Bankers Association v. Board of 84-1335 (D.D.C., filed, Apr. 30, 1984). Governors, No. 84-1122 (10th Cir., filed Jan. 27, Florida Bankers Association v. Board of Governors, 1984). No. 84-3269 and No. 84-3270 (11th Cir., filed Apr. Financial Institutions Assurance Corp. v. Board of 20, 1984). Governors, No. 84-1101 (4th Cir., filed Jan. 27, Northeast Bancorp, Inc. v. Board of Governors, No. 1984). 84-4047, No. 84-4051, No. 84-4053 (2d Cir., filed First Bancorporation v. Board of Governors, No. Mar. 27, 1984). 84-1011 (10th Cir., filed Jan. 5, 1984). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

842 Federal Reserve Bulletin • November 1984 Dimension Financial Corporation v. Board of Gover- First Bank & Trust Company v. Board of Governors, nors, No. 83-2696 (10th Cir., filed Dec. 30, 1983). No. 81-38 (E.D. Ky., filed Feb. 24, 1981). Oklahoma Bankers Association v. Federal Reserve 9 to 5 Organization for Women Office Workers v. Board, No. 83-2591 (10th Cir., filed Dec. 13, 1983). Board of Governors, No. 83-1171 (1st Cir., filed The Committee for Monetary Reform v. Board of Dec. 30, 1980). Governors, No. 84-5067 (D.C. Cir., filed June 16, Securities Industry Association v. Board of Gover- 1983). nors, No. 80-2614 (D.C. Cir., filed Oct. 24, 1980), Association of Data Processing Service Organizations and No. 80-2730 (D.C. Cir., filed Oct. 24, 1980). v. Board of Governors, No. 82-1910 (D.C. Cir., filed A. G. Becker, Inc. v. Board of Governors, No. Aug. 16, 1982); and No. 82-2108 (D.C. Cir., filed 80-2614 (D.C. Cir., filed Oct. 14, 1980), and No. Aug. 16, 1982). 80-2730 (D.C. Cir., filed Oct. 14, 1980). First Bancorporation v. Board of Governors, No. A. G. Becker, Inc. v. Board of Governors, No. 81-1493 82-1401 (10th Cir., filed Apr. 9, 1982). (D.C. Cir., filed Aug. 25, 1980). Wolfson v. Board of Governors, No. 83-3570 (11th Cir., filed Sept. 28, 1981). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

55 Financial and Business Statistics NOTE. The statistical tables that usually appear regular series of tables for domestic financial, in this section could not be published in this domestic nonfinancial, and international statis- BULLETIN because new data had not become tics will be published in the BULLETIN for Decemavailable since the publication of those tables at ber 1984, which will be issued in the first week of the end of October in the October BULLETIN. The December. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A3 Guide to Tabular Presentation, Statistical Releases, and Special Tables GUIDE TO TABULAR PRESENTATION Symbols and Abbreviations c Corrected 0 Calculated to be zero e Estimated n.a. Not available p Preliminary n.e.c. Not elsewhere classified r Revised (Notation appears on column heading when IPCs Individuals, partnerships, and corporations about half of the figures in that column are changed.) REITs Real estate investment trusts * Amounts insignificant in terms of the last decimal place RPs Repurchase agreements shown in the table (for example, less than 500,000 SMSAs Standard metropolitan statistical areas when the smallest unit given is millions) Cell not applicable General Information Minus signs are used to indicate (1) a decrease, (2) a negative obligations of the Treasury. "State and local government" figure, or (3) an outflow. also includes municipalities, special districts, and other politi- "U.S. government securities" may include guaranteed cal subdivisions. issues of U.S. government agencies (the flow of funds figures In some of the tables details do not add to totals because of also include not fully guaranteed issues) as well as direct rounding. STATISTICAL RELEASES List Published Semiannually, with Latest Bulletin Reference Issue Page Anticipated schedule of release dates for periodic releases June 1984 A83 SPECIAL TABLES Published Irregularly, with Latest Bulletin Reference Assets and liabilities of commercial banks, March 31, 1983 August 1983 A70 Assets and liabilities of commercial banks, June 30, 1983 December 1983 A68 Assets and liabilities of commercial banks, September 30, 1983 March 1984 A68 Assets and liabilities of commercial banks, December 31, 1983 June 1984 A66 Assets and liabilities of U.S. branches and agencies of foreign banks, June 30, 1983 December 1983 A74 Assets and liabilities of U.S. branches and agencies of foreign banks, September 30, 1983 March 1984 A74 Assets and liabilities of U.S. branches and agencies of foreign banks, December 31, 1983 June 1984 All Assets and liabilities of U.S. branches and agencies of foreign banks, March 31, 1984 November 1984 A4 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A4 Special Tables • November 1984 4.30 ASSETS AND LIABILITIES of U.S. Branches and Agencies of Foreign Banks, March 31, 19841 Millions of dollars All states2 New York Other states2 CCaallii-- IItteemm ffoorrnniiaa,, IIlllliinnooiiss,, Total Branches1 Agencies Branches3 Agencies ttoottaall44 bbrraanncchheess Branches Agencies 1 Total assets5 238,100 186,559 51,541 166,580 6,075 41,970 10,833 6,364 6,228 2 Cash and due from depository institutions 46,132 42,091 4,042 39,383 478 3,805 1,890 286 289 3 Currency and coin (U.S. and foreign) 22 19 3 15 1 2 2 1 1 4 Balances with Federal Reserve Banks 812 748 64 649 14 45 23 65 15 5 Balances with other central banks 20 20 0 19 0 0 1 0 0 6 Demand balances with commercial banks in United States 1,284 1,103 181 1,029 64 84 48 20 40 7 All other balances with depository institutions in United States and with banks in foreign countries 43,786 40,017 3,769 37,498 398 3,652 1,810 198 230 8 Time and savings balances with commercial banks in United States 22,571 20,465 2,107 19,058 313 1,829 1,064 175 132 9 Balances with other depository institutions in United States 239 226 13 226 0 13 0 0 0 10 Balances with banks in foreign countries 20,976 19,326 1,650 18,214 86 1,811 765 22 97 11 Foreign branches of U.S. banks 1,185 1,109 75 1,046 20 46 63 0 9 12 Other banks in foreign countries 29,791 18,217 1,574 17,168 66 1,765 683 22 88 13 Cash items in process of collection 209 184 25 173 1 22 7 3 4 14 Total securities, loans, and lease financing receivables .... 142,077 108,844 33,233 95,371 4,302 25,942 8,135 3,463 4,864 15 Total securities, book value 9,208 8,479 729 8,020 72 634 338 27 117 16 U.S. Treasury 5,077 4,886 191 4,632 58 56 210 20 100 17 Obligations of other U.S. government agencies and corporations 539 519 19 516 0 16 0 2 5 18 Obligations of states and political subdivisions in United States 67 57 10 42 0 1 14 1 9 19 Other bonds, notes, debentures, and corporate stock .. 3,526 3,017 509 2,830 14 562 114 3 3 20 Federal funds sold and securities purchased under agreements to resell 7,905 6,847 1.058 6,472 544 465 322 39 63 By holder 21 Commercial banks in United States 6,849 6,055 794 5,690 305 440 312 39 63 22 Others 1,056 792 265 782 240 25 10 0 0 By type 23 One-day maturity or continuing contract 7,664 6,605 1,058 6,230 544 465 322 39 63 24 Securities purchased under agreements to resell.... 343 213 130 212 113 10 0 0 9 25 Other 7,320 6,392 928 6,019 431 456 322 39 54 26 Other securities purchased under agreements to resell 241 241 0 241 0 0 0 0 0 27 Total loans, gross 133,143 100.588 32,555 87,564 4,236 25,353 7,804 3,439 4,747 28 LESS: Unearned income on loans 274 223 51 213 6 45 7 3 0 29 EQUALS: Loans, net 132,869 100,364 32,504 87,351 4,231 25,307 7,797 3,436 4,746 Total loans, gross, by category 30 Real estate loans 5,142 2,150 2,992 1,509 12 2,126 207 285 1,003 31 Loans to financial institutions 51,675 40,353 11,322 36,632 872 10,061 2,836 441 834 32 Commercial banks in United States 28,417 22,062 6,355 19,984 245 6,346 1,430 302 110 33 U.S. branches and agencies of other foreign banks . . 24,574 18,491 6,083 16,789 196 6,144 1,096 284 67 34 Other commercial banks 3,843 3,571 272 3,195 49 203 334 19 43 35 Banks in foreign countries 21,224 16,528 4,696 15,210 573 3,515 1,089 137 701 36 Foreign branches of U.S. banks 674 544 130 511 0 128 15 10 9 37 Other 20,551 15,985 4.566 14,700 573 3,387 1,074 127 691 38 Other financial institutions 2,033 1,762 271 1,437 54 200 317 2 23 39 Loans for purchasing or carrying securities 1,281 1,250 31 1,169 0 111 0 1 0 40 Commercial and industrial loans 59,226 45,074 14,152 37,388 1,852 11,078 4,147 2,530 2,231 41 U.S. addressees (domicile) 35,119 25,933 9,185 19,713 255 8,073 3,568 1,796 1,714 42 Non-U.S. addressees (domicile) 24,107 19,140 4,967 17,675 1,597 3,005 579 734 516 43 Loans to individuals for household, family, and other personal expenditures 212 185 27 139 2 25 9 28 9 44 All other loans 15,607 11,577 4,031 10,728 1,499 1,951 605 154 670 45 Loans to foreign governments and official institutions 14,814 10,889 3,925 10,145 1,481 1,883 559 106 639 46 Other 794 688 106 583 17 68 46 48 31 47 Lease financing receivables 0 0 0 0 0 0 0 0 0 48 All other assets 41,985 28,778 13,207 25,354 749 11,757 536 2,576 11,,001122 49 Customers' liability on acceptances outstanding.... 13,977 10,994 2,983 10,519 134 2,778 296 162 8888 50 U.S. addressees (domicile) 8,375 5,972 2,404 5,656 3 2,395 268 34 20 51 Non-U.S. addressees (domicile) 5,602 5,023 579 4,863 132 384 27 127 69 52 Net due from related banking institutions6 21,867 12,863 9,004 10,333 435 8,050 0 2,319 730 53 Other 6,142 4,921 1,220 4,503 180 929 240 96 194 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

U.S. Branches and Agencies A5 4.30 Continued All states2 New York Other states2 CCaallii-- IItteemm ffoorrnniiaa,, IIlllliinnooiiss,, Total Branches3 Agencies Branches3 Agencies ttoottaall44 bbrraanncchheess Branches Agencies 54 Total liabilities5 238,100 186,559 51,541 166,580 6,075 41,970 10,883 6,364 6,228 55 Total deposits and credit balances 120,622 105,540 15,082 97,243 1,966 12,456 3,159 3,562 2,236 56 Individuals, partnerships, and corporations 37,376 34,525 2,851 29.745 141 1,514 900 3,204 1.872 57 U.S. addressees (domicile) 20,884 20.797 88 16,535 19 409 762 3,132 28 58 Non-U.S. addressees (domicile) 16,492 13,729 2,763 13,210 122 1,105 138 72 1,845 59 U.S. government, states, and political subdivisions in United States 57 57 0 16 0 5 0 35 0 60 All other 83,189 70,958 12,231 67,482 1,825 10,937 2,258 324 364 61 Foreign governments and official institutions .... 4,351 4,090 261 3,988 81 155 14 25 87 62 Commercial banks in United States 33,543 27,035 6,508 25,429 844 5,933 1,041 136 159 63 U.S. branches and agencies of other foreign banks 22,922 18,072 4,849 17,021 328 4,903 572 70 28 64 Other commercial banks in United States 10,621 8,963 1,658 8,409 517 1,030 468 66 131 65 Banks in foreign countries 44,800 39,403 5,397 37,659 882 4,809 1,188 157 105 66 Foreign branches of U.S. banks 6,721 5,505 1.215 5,211 222 983 266 20 19 67 Other banks in foreign countries 38,079 33,898 4.181 32,448 660 3,826 922 137 86 68 Certified and officers' checks, travelers checks, and letters of credit sold for cash 496 430 66 406 17 40 16 5 12 69 Demand deposits 3,250 3,006 245 2,724 61 101 139 107 119 70 Individuals, partnerships, and corporations 1,706 1,595 111 1,374 0 53 118 75 86 71 U.S. addressees (domicile) 995 995 0 791 0 21 114 69 0 72 Non-U.S. addressees (domicile) 711 600 111 583 0 32 4 5 86 73 U.S. government, states, and political subdivisions in United States 11 11 0 10 0 0 0 0 0 74 All other 1,534 1,400 134 1,341 61 47 21 32 33 75 Foreign governments and official institutions .... 305 302 3 275 0 ? 2 25 1 76 Commercial banks in United States 132 110 22 108 18 T 0 1 4 77 U.S. branches and agencies of other foreign banks 26 18 8 18 8 0 0 0 0 78 Other commercial banks in United States 106 92 14 90 10 1 0 1 4 79 Banks in foreign countries 601 558 43 552 26 5 3 1 15 80 Certified and officers' checks, travelers checks, and letters of credit sold for cash 496 430 66 406 17 40 16 5 12 81 Time deposits 116,155 101.643 14,511 93,814 1,724 12,243 2,946 3,381 2,047 82 Individuals, partnerships, and corporations 34,669 32,184 2,484 27,812 24 1,350 709 3.054 1,719 83 U.S. addressees (domicile) 19,293 19.293 0 15,402 0 321 578 2,992 0 84 Non-U.S. addressees (domicile) 15,375 12.891 2,484 12,410 24 1,030 130 62 1,719 85 U.S. government, states, and pblitical subdivisions in United States 46 46 0 6 0 5 0 35 0 86 All other 81,440 69,413 12,027 65,997 1,700 10,887 2.238 291 328 87 Foreign governments and official institutions .... 4,012 3,775 237 3,699 62 153 12 0 85 88 Commercial banks in United States 33,365 26,892 6,472 25.289 814 5,931 1,041 135 155 89 U.S. branches and agencies of other foreign banks 22,883 18,041 4,841 16,990 320 4,903 572 70 28 90 Other commercial banks in United States 10,482 8,851 1,631 8,300 495 1.028 468 65 126 91 Banks in foreign countries 44,064 38,746 5,318 37,008 824 4,804 1,185 156 88 92 Savings deposits 702 635 67 449 0 66 73 74 39 93 Individuals, partnerships, and corporations 701 634 67 449 0 66 73 74 39 94 U.S. addressees (domicile) 435 435 0 270 0 26 70 69 0 95 Non-U.S. addressees (domicile) 266 199 67 178 0 40 3 5 39 % U.S. government, states, and political subdivisions in United States 0 0 0 0 0 0 0 0 0 97 All other 1 1 0 1 0 0 0 0 0 98 Credit balances 516 257 259 255 181 47 0 1 32 99 Individuals, partnerships, and corporations 301 112 189 111 117 44 0 1 28 100 U.S. addressees (domicile) 161 74 88 72 19 42 0 I 28 101 Non-U.S. addressees (domicile) 140 39 101 39 98 2 0 0 1 102 U.S. government, states, and political subdivisions in United States 0 0 0 0 0 0 0 0 0 103 All other 214 144 70 144 64 3 0 0 3 104 Foreign governments and official institutions .... 34 13 21 13 20 1 0 0 0 105 Commercial banks in United States 46 33 13 33 12 1 0 0 0 106 U.S. branches and agencies of other foreign banks 13 13 0 13 0 0 0 0 0 107 Other commercial banks in United States 33 20 13 20 12 1 0 0 0 108 Banks in foreign countries 134 98 36 98 33 0 0 0 3 For notes see end of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A6 Special Tables • November 1984 4.30 Continued All states2 New York Other states2 CCaallii-- IItteemm ffoorrnniiaa,, IIlllliinnooiiss,, Total Branches3 Agencies Branches3 Agencies ttoottaall44 bbrraanncchheess Branches Agencies 109 Federal funds purchased and securities sold under agreements to repurchase 21,196 15,479 5,716 14.226 680 5,026 840 279 146 By holder 110 Commercial banks in United States 17,532 12,271 5,260 11.155 346 4,893 718 279 141 111 Others 3,664 3,208 456 3,071 334 132 121 0 5 By type 112 One-day maturity or continuing contract 20,245 14,660 5,586 13,468 570 5,006 778 279 146 113 Securities sold under agreements to repurchase .. 1,865 1,836 30 1,826 12 9 10 0 9 114 Other 18,380 12,824 5,556 11,642 558 4,996 769 279 137 115 Other securities sold under agreements to repurchase 950 820 130 758 110 20 62 0 0 116 Other liabilities for borrowed money 46,851 27,597 19,254 26,026 2,130 16.768 760 498 670 117 Owed to banks 43.412 24,750 18,662 23,230 2,060 16,216 750 486 670 118 U.S. addressees (domicile) 41,207 22,744 18,463 21,285 1,995 16,182 733 445 569 119 Non-U.S. addressees (domicile) 2,205 2,006 199 1,945 65 35 17 41 101 120 Owed to others 3,439 2,847 592 2,796 70 552 10 12 0 121 U.S. addressees (domicile) 3,063 2,621 442 2,574 6 462 10 12 0 122 Non-U.S. addressees (domicile) 376 227 150 222 64 90 0 0 0 123 All other liabilities 49,430 37,942 11,488 29,085 1.299 7,719 6,125 2,026 3,176 124 Acceptances executed and outstanding 15,679 12,354 3.326 11,863 178 3,075 302 169 91 125 Net due to related banking institutions6 29,800 22,194 7,606 14.086 1,016 4,214 5,723 1,741 3,020 126 Other 3,951 3,394 557 3,136 105 430 100 115 65 MEMO 127 Time deposits of $100,000 or more 86,794 74,423 12,371 67.193 217 11,861 2,561 3,232 1,730 128 Certificates of deposit (CDs) in denominations of $100,000 or more 29,277 27,464 1,812 22,826 1 1,125 1.073 3,121 1,130 129 Other 57,518 46,959 10.559 44,367 216 10,736 1,488 111 599 130 Savings deposits authorized for automatic transfer and NOW accounts 55 31 25 11 0 12 7 9 16 131 Money market time certificates of $10,000 and less than $100,000 with original maturities of 26 weeks 0 0 0 0 0 0 0 0 0 132 Time certificates of deposit in denominations of $100,000 or more with remaining maturity of more than 12 months 8,855 8,835 20 7,737 1 172 204 731 10 133 Acceptances refinanced with a U.S.-chartered bank .. 3,998 2,873 1,125 2,584 100 1$26 61 226 1 134 Statutory or regulatory asset pledge requirement 60,705 60,166 539 52,707 429 115 7,376 16 63 135 Statutory or regulatory asset maintenance requirement 8,776 8,331 444 5,606 0 478 379 1,873 440 136 Commercial letters of credit 7,976 5,323 2,653 4,782 181 2,321 242 252 199 137 Standby letters of credit, total 15,937 13,328 2,608 11,483 87 1,914 944 513 996 138 U.S. addressees (domicile) 13,183 10,868 2,315 9,310 7 1,713 756 475 921 139 Non-U.S. addressees (domicile) 2,754 2,460 293 2,173 81 201 188 37 75 140 Standby letters of credit conveyed to others through participations (included in total standby letters of credit) 1,638 1,501 137 1,312 0 132 55 44 96 141 Holdings of commercial paper included in total gross loans 891 556 335 517 6 317 39 1 13 142 Holdings of acceptances included in total commercial and industrial loans 5,344 3,893 1,451 3,610 71 1,427 76 141 18 143 Immediately available funds with a maturity greater than one day (included in other liabilities for borrowed money) 31.374 17,038 14,336 15,933 1,640 12,654 609 246 293 144 Gross due from related banking institutions6 87,860 69,850 18,010 64,018 1.300 15,528 1,891 3,446 1,676 145 U.S. addressees (domicile) 22,938 15,165 7,772 11,807 101 7,144 198 2,939 748 146 Branches and agencies in the United States 22,400 14,908 7,492 11,554 101 6,865 194 2,938 746 147 In the same state as reporter 1,147 650 497 588 3 447 10 19 79 148 In other states 21,253 14,258 6.995 10,966 98 6,419 184 2,919 668 149 U.S. banking subsidiaries7 537 257 280 253 0 279 3 0 2 150 Non-U.S. addressees (domicile) 64,923 54,685 10.238 52,211 1.199 8,383 1,694 508 928 151 Head office and non-U.S. branches and agencies. 62,634 52,662 9,972 50,208 1,198 8,208 1,684 498 840 152 Non-U.S. banking companies and offices 2,288 2,023 265 2,003 1 176 10 10 89 153 Gross due to related banking institutions6 95,794 79,182 16,612 67,771 1,882 11,692 7,614 2,869 3,966 154 U.S. addressees (domicile) 22,652 16,599 6,053 9,880 304 3,181 3,874 2,357 3,055 155 Branches and agencies in the United States ... . 22,387 16,385 6,002 9,767 304 3,152 3,794 2,345 3,024 156 In the same state as reporter 952 470 482 409 23 444 10 17 49 157 In other states 21,434 15,915 5,519 9,358 281 2.708 3,794 2,328 2,975 158 U.S. banking subsidiaries7 265 214 52 113 0 29 80 12 31 159 Non-U.S. addressees (domicile) 73,142 62,583 10,558 57,891 1,577 8,511 3,740 511 911 160 Head office and non-U.S. branches and agencies. 71,240 60,792 10,448 56,125 1,573 8,426 3,725 511 880 161 Non-U.S. banking companies and offices 1,902 1,792 110 1,766 4 85 15 1 31 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

U.S. Branches and Agencies A7 4.30 Continued All states2 New York Other states2 CCaallii-- IItteemm ffoorrnniiaa,, IIlllliinnooiiss,, Total Branches3 Agencies Branches3 Agencies ttoottaall44 bbrraanncchheess Branches Agencies Average for 30 calendar days (or calendar month} ending with report date 162 Total assets 237,079 184,475 52,604 165,129 6,446 42,637 10,120 6,641 6,107 163 Cash and due from depository institutions 41,565 37,782 3,784 35,273 457 3,500 1,785 295 256 164 Federal funds sold and securities purchased under agreements to resell 6,813 5,727 1,086 5,518 510 522 114 73 76 165 Total loans 128,685 96,538 32,147 84,064 4,080 25,076 7,386 3,442 4,637 166 Loans to banks in foreign countries 21,894 16,935 4,958 15,489 577 3,954 1,042 112 720 167 Total deposits and credit balances 115,709 100,671 15,037 92,461 1,992 12,397 3,016 3,743 2,099 168 Time CDs in denominations of $100,000 or more 28,217 26,467 1,750 21,662 11 1,103 1,027 3,343 1,071 169 Federal funds purchased and securities sold under agreements to repurchase 20,582 15,057 5,525 13,873 609 4,994 610 343 153 170 Other liabilities for borrowed money 44,211 24,789 19,422 23,341 2,232 16,904 705 472 557 171 Number of reports filed8 444 268 176 173 31 115 43 32 50 1. Data are aggregates of categories reported on the quarterly form FFIEC 002, footnote 6). On the former monthly branch and agency report, available through "Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign the G.l I statistical release, gross balances were included in total assets and total Banks." This form was first used for reporting data as of June 30, 1980. From liabilities. Therefore, total asset and total liability figures in this table are not November 1972 through May 1980, U.S. branches and agencies of foreign banks comparable to those in the G.ll tables. had filed a monthly FR 886a report. Aggregate data from that report were 6. "Related banking institutions" includes the foreign head office and other available through the Federal Reserve statistical release G.ll, last issued on U.S. and foreign branches and agencies of the bank, the bank's parent holding July 10, 1980. Data in this table and in the G.ll tables are not strictly comparable company, and majority-owned banking subsidiaries of the bank and of its parent because of differences in reporting panels and in definitions of balance sheet holding company (including subsidiaries owned both directly and indirectly). items. Gross amounts due from and due to related banking institutions are shown as 2. Includes the District of Columbia. memo items. 3. Includes all offices that have the power to accept deposits from U.S. 7. "U.S. banking subsidiaries" refers to U.S. banking subsidiaries majorityresidents, including any such offices that are considered agencies under state law. owned by the foreign bank and by related foreign banks and includes U.S. offices 4. Agencies account for virtually all of the assets and liabilities reported in of U.S.-chartered commercial banks, of Edge Act and Agreement corporations, California. and of New York State (Article XII) investment companies. 5. Total assets and total liabilities include net balances, if any, due from or due 8. In some cases two or more offices of a foreign bank within the same to related banking institutions in the United States and in foreign countries (see metropolitan area file a consolidated report. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A8 Federal Reserve Board of Governors PAUL A. VOLCKER, Chairman HENRY C. WALLICH PRESTON MARTIN, Vice Chairman J. CHARLES PARTEE OFFICE OF BOARD MEMBERS OFFICE OF STAFF DIRECTOR FOR MONETARY AND FINANCIAL POLICY JOSEPH R. COYNE, Assistant to the Board DONALD J. WINN, Assistant to the Board STEPHEN H. AXILROD, Staff Director STEVEN M. ROBERTS, Assistant to the Chairman DONALD L. KOHN, Deputy Staff Director FRANK O'BRIEN, JR., Deputy Assistant to the Board STANLEY J. SIGEL, Assistant to the Board ANTHONY F. COLE, Special Assistant to the Board NORMAND R.V. BERNARD, Special Assistant to the Board ANNETTE P. FRIBOURG, Special Assistant to the Board NAOMI P. SALUS, Special Assistant to the Board DIVISION OF RESEARCH AND STATISTICS LEGAL DIVISION JAMES L. KICHLINE, Director EDWARD C. ETTIN, Deputy Director MICHAEL BRADFIELD, General Counsel MICHAEL J. PRELL, Deputy Director J. VIRGIL MATTINGLY, JR., Associate General Counsel JOSEPH S. ZEISEL, Deputy Director GILBERT T. SCHWARTZ, Associate General Counsel JARED J. ENZLER, Associate Director RICHARD M. ASHTON, Assistant General Counsel ELEANOR J. STOCKWELL, Associate Director NANCY P. JACKLIN, Assistant General Counsel DAVID E. LINDSEY, Deputy Associate Director MARYELLEN A. BROWN, Assistant to the General Counsel HELMUT F. WENDEL, Deputy Associate Director MARTHA BETHEA, Assistant Director ROBERT M. FISHER, Assistant Director OFFICE OF THE SECRETARY SUSAN J. LEPPER, Assistant Director THOMAS D. SIMPSON, Assistant Director WILLIAM W. WILES, Secretary LAWRENCE SLIFMAN, Assistant Director BARBARA R. LOWREY, Associate Secretary STEPHEN P. TAYLOR, Assistant Director JAMES MCAFEE, Associate Secretary PETER A. TINSLEY, Assistant Director LEVON H. GARABEDIAN, Assistant Director (Administration) DIVISION OF CONSUMER AND COMMUNITY AFFAIRS DIVISION OF INTERNATIONAL FINANCE GRIFFITH L. GARWOOD, Director JERAULD C. KLUCKMAN, Associate Director EDWIN M. TRUMAN, Director GLENN E. LONEY, Assistant Director LARRY J. PROMISEL, Senior Associate Director DOLORES S. SMITH, Assistant Director CHARLES J. SIEGMAN, Senior Associate Director DALE W. HENDERSON, Associate Director ROBERT F. GEMMILL, Staff Adviser DIVISION OF BANKING SAMUEL PIZER, Staff Adviser SUPERVISION AND REGULATION PETER HOOPER, III, Assistant Director DAVID H. HOWARD, Assistant Director JOHN E. RYAN, Director RALPH W. SMITH, JR., Assistant Director WILLIAM TAYLOR, Deputy Director FREDERICK R. DAHL, Associate Director DON E. KLINE, Associate Director FREDERICK M. STRUBLE, Associate Director HERBERT A. BIERN, Assistant Director ANTHONY G. CORNYN, Assistant Director JACK M. EGERTSON, Assistant Director ROBERT S. PLOTKIN, Assistant Director STEPHEN C. SCHEMERING, Assistant Director RICHARD SPILLENKOTHEN, Assistant Director SIDNEY M. SUSSAN, Assistant Director LAURA M. HOMER, Securities Credit Officer Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A9 and Official Staff EMMETT J. RICE MARTHA R. SEGER LYLE E. GRAMLEY OFFICE OF OFFICE OF STAFF DIRECTOR FOR STAFF DIRECTOR FOR MANAGEMENT FEDERAL RESERVE BANK ACTIVITIES S. DAVID FROST, Staff Director THEODORE E. ALLISON, Staff Director WILLIAM R. JONES, Assistant Staff Director JOSEPH W. DANIELS, SR., Advisor, Equal Employment EDWARD T. MULRENIN, Assistant Staff Director Opportunity Programs STEPHEN R. MALPHRUS, Assistant Staff Director for Office Automation and Technology PORTIA W. THOMPSON, EEO Programs Officer DIVISION OF FEDERAL RESERVE BANK OPERATIONS DIVISION OF DATA PROCESSING CLYDE H. FARNSWORTH, JR., Director ELLIOTT C. MCENTEE, Associate Director CHARLES L. HAMPTON, Director DAVID L. ROBINSON, Associate Director BRUCE M. BEARDSLEY, Deputy Director C. WILLIAM SCHLEICHER, JR., Associate Director GLENN L. CUMMINS, Assistant Director WALTER ALTHAUSEN, Assistant Director NEAL H. HILLERMAN, Assistant Director CHARLES W. BENNETT, Assistant Director RICHARD J. MANASSERI, Assistant Director ANNE M. DEBEER, Assistant Director ELIZABETH B. RIGGS, Assistant Director JACK DENNIS, JR., Assistant Director WILLIAM C. SCHNEIDER, JR., Assistant Director EARL G. HAMILTON, Assistant Director ROBERT J. ZEMEL, Assistant Director * WILLIAM E. PASCOE, III, Assistant Director DIVISION OF PERSONNEL DAVID L. SHANNON, Director JOHN R. WEIS, Assistant Director CHARLES W. WOOD, Assistant Director OFFICE OF THE CONTROLLER GEORGE E. LIVINGSTON, Controller BRENT L. BOWEN, Assistant Controller DIVISION OF SUPPORT SERVICES ROBERT E. FRAZIER, Director WALTER W. KREIMANN, Associate Director GEORGE M. LOPEZ, Assistant Director *On loan from the Federal Reserve Bank of Richmond (Baltimore Branch). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A10 Federal Reserve Bulletin • November 1984 Federal Open Market Committee FEDERAL OPEN MARKET COMMITTEE PAUL A. VOLCKER, Chairman ANTHONY M. SOLOMON, Vice Chairman EDWARD G. BOEHNE LYLE E. GRAMLEY J. CHARLES PARTEE ROBERT H. BOYKIN KAREN N. HORN EMMETT J. RICE E. GERALD CORRIGAN PRESTON MARTIN MARTHA R. SEGER HENRY C. WALLICH STEPHEN H. AXILROD, Staff Director and Secretary RICHARD G. DAVIS, Associate Economist NORMAND R.V. BERNARD, Assistant Secretary DONALD L. KOHN, Associate Economist NANCY M. STEELE, Deputy Assistant Secretary RICHARD W. LANG, Associate Economist MICHAEL BRADFIELD, General Counsel DAVID E. LINDSEY, Associate Economist JAMES H. OLTMAN, Deputy General Counsel MICHAEL J. PRELL, Associate Economist JAMES L. KICHLINE, Economist CHARLES J. SIEGMAN, Associate Economist EDWIN M. TRUMAN, Economist (International) GARY H. STERN, Associate Economist JOSEPH E. BURNS, Associate Economist JOSEPH S. ZEISEL, Associate Economist JOHN M. DAVIS, Associate Economist PETER D. STERNLIGHT, Manager for Domestic Operations, System Open Market Account SAM Y. CROSS, Manager for Foreign Operations, System Open Market Account FEDERAL ADVISORY COUNCIL JOHN G. MCCOY, President JOSEPH J. PINOLA, Vice President VINCENT C. BURKE, JR., N. BERNE HART, AND LEWIS T. PRESTON, Directors ROBERT L. NEWELL, First District BARRY F. SULLIVAN, Seventh District LEWIS T. PRESTON, Second District WILLIAM H. BOWEN, Eighth District GEORGE A. BUTLER, Third District E. PETER GILLETTE, JR., Ninth District JOHN G. MCCOY, Fourth District N. BERNE HART, Tenth District VINCENT C. BURKE, JR., Fifth District NAT S. ROGERS, Eleventh District PHILIP F. SEARLE, Sixth District JOSEPH J. PINOLA, Twelfth District HERBERT V. PROCHNOW, Secretary WILLIAM J. KORSVIK, Associate Secretary Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

All and Advisory Councils CONSUMER ADVISORY COUNCIL WILLARD P. OGBURN, Boston, Massachusetts, Chairman TIMOTHY D. MARRINAN, Minneapolis, Minnesota, Vice Chairman RACHEL G. BRATT, Medford, Massachusetts FREDERICK H. MILLER, Norman, Oklahoma JAMES G. BOYLE, Austin, Texas MARGARET M. MURPHY, Columbia, Maryland GERALD R. CHRISTENSEN, Salt Lake City, Utah ROBERT F. MURPHY, Detroit, Michigan THOMAS L. CLARK, JR., New York, New York LAWRENCE S. OKINAGA, Honolulu, Hawaii JEAN A. CROCKETT, Philadelphia, Pennsylvania ELVA QUIJANO, San Antonio, Texas MEREDITH FERNSTROM, New York, New York JANET J. RATHE, Portland, Oregon ALLEN J. FISHBEIN, Washington, D.C. GLENDA G. SLOANE, Washington, D.C. E.C.A. FORSBERG, SR., Atlanta, Georgia HENRY J. SOMMER, Philadelphia, Pennsylvania STEVEN M. GEARY, Jefferson City, Missouri WINNIE F. TAYLOR, San Francisco, California RICHARD F. HALLIBURTON, Kansas City, Missouri MICHAEL M. VAN BUSKIRK, Columbus, Ohio LOUISE MCCARREN HERRING, Cincinnati, Ohio CLINTON WARNE, Cleveland, Ohio CHARLES C. HOLT, Austin, Texas FREDERICK T. WEIMER, Chicago, Illinois HARRY N. JACKSON, Minneapolis, Minnesota MERVIN WINSTON, Minneapolis, Minnesota KENNETH V. LARKIN, San Francisco, California THRIFT INSTITUTIONS ADVISORY COUNCIL THOMAS R. BOMAR, Miami, Florida, President RICHARD H. DEIHL, LOS Angeles, California, Vice President JAMES A. ALIBER, Detroit, Michigan NORMAN M. JONES, Fargo, North Dakota GENE R. ARTEMENKO, Chicago, Illinois ROBERT R. MASTERTON, Portland, Maine J. MICHAEL CORNWALL, Dallas, Texas JOHN T. MORGAN, New York, New York JOHN R. EPPINGER, Villanova, Pennsylvania FRED A. PARKER, Monroe, North Carolina SARAH R. WALLACE, Newark, Ohio Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A12 Federal Reserve Board Publications Copies are available from PUBLICATIONS SERVICES, REPORT OF THE JOINT TREASURY-FEDERAL RESERVE STUDY Mail Stop 138, Board of Governors of the Federal Reserve OF THE U.S. GOVERNMENT SECURITIES MARKET. 1969. System, Washington, D.C. 20551. When a charge is indicat- 48 pp. $.25 each; 10 or more to one address, $.20 each. ed, remittance should accompany request and be made JOINT TREASURY-FEDERAL RESERVE STUDY OF THE GOVpayable to the order of the Board of Governors of the Federal ERNMENT SECURITIES MARKET; STAFF STUDIES—PART Reserve System. Remittance from foreign residents should 1, 1970. 86 pp. $.50 each; 10 or more to one address, $.40 be drawn on a U.S. bank. Stamps and coupons are not each. PART 2, 1971. Out of print. PART 3, 1973. 131 pp. accepted. $1.00; 10 or more to one address, $.85 each. REAPPRAISAL OF THE FEDERAL RESERVE DISCOUNT MECHA- NISM. Vol. 1. 1971. 276 pp. Vol. 2. 1971. 173 pp. Vol. 3. THE FEDERAL RESERVE SYSTEM—PURPOSES AND FUNC- 1972. 220 pp. Each volume, $3.00; 10 or more to one TIONS. 1974. 125 pp. address, $2.50 each. ANNUAL REPORT. THE ECONOMETRICS OF PRICE DETERMINATION CONFER- FEDERAL RESERVE BULLETIN. Monthly. $20.00 per year or ENCE, October 30-31, 1970, Washington, D.C. 1972. 397 $2.00 each in the United States, its possessions, Canada, pp. Cloth ed. $5.00 each; 10 or more to one address, and Mexico; 10 or more of same issue to one address, $4.50 each. Paper ed. $4.00 each; 10 or more to one $18.00 per year or $1.75 each. Elsewhere, $24.00 per address, $3.60 each. year or $2.50 each. FEDERAL RESERVE STAFF STUDY: WAYS TO MODERATE BANKING AND MONETARY STATISTICS. 1914-1941. (Reprint FLUCTUATIONS IN HOUSING CONSTRUCTION. 1972. 487 of Part I only) 1976. 682 pp. $5.00. pp. $4.00 each; 10 or more to one address, $3.60 each. BANKING AND MONETARY STATISTICS. 1941-1970. 1976. LENDING FUNCTIONS OF THE FEDERAL RESERVE BANKS. 1,168 pp. $15.00. 1973. 271 pp. $3.50 each; 10 or more to one address, ANNUAL STATISTICAL DIGEST $3.00 each. 1971-75. 1976. 339 pp. $ 5.00 per copy. IMPROVING THE MONETARY AGGREGATES: REPORT OF THE 1972-76. 1977. 377 pp. $10.00 per copy. ADVISORY COMMITTEE ON MONETARY STATISTICS. 1973-77. 1978. 361 pp. $12.00 per copy. 1976. 43 pp. $1.00 each; 10 or more to one address, $.85 1974-78. 1980. 305 pp. $10.00 per copy. each. 1970-79. 1981. 587 pp. $20.00 per copy. IMPROVING THE MONETARY AGGREGATES: STAFF PAPERS. 1980. 1981. 241 pp. $10.00 per copy. 1978. 170 pp. $4.00 each; 10 or more to one address, 1981. 1982. 239 pp. $ 6.50 per copy. $3.75 each. 1982. 1983. 266 pp. $ 7.50 per copy. ANNUAL PERCENTAGE RATE TABLES (Truth in Lending— FEDERAL RESERVE CHART BOOK. Issued four times a year in Regulation Z) Vol. I (Regular Transactions). 1969. 100 February, May, August, and November. Subscription pp. Vol. II (Irregular Transactions). 1969. 116 pp. Each includes one issue of Historical Chart Book. $7.00 per volume $2.25; 10 or more of same volume to one year or $2.00 each in the United States, its possessions, address, $2.00 each. Canada, and Mexico. Elsewhere, $10.00 per year or FEDERAL RESERVE MEASURES OF CAPACITY AND CAPACITY $3.00 each. UTILIZATION. 1978. 40 pp. $1.75 each; 10 or more to one HISTORICAL CHART BOOK. Issued annually in Sept. Subscrip- address, $1.50 each. tion to the Federal Reserve Chart Book includes one THE BANK HOLDING COMPANY MOVEMENT TO 1978: A issue. $1.25 each in the United States, its possessions, COMPENDIUM. 1978. 289 pp. $2.50 each; 10 or more to Canada, and Mexico; 10 or more to one address, $1.00 one address, $2.25 each. each. Elsewhere, $1.50 each. 1977 CONSUMER CREDIT SURVEY. 1978. 119 pp. $2.00 each. SELECTED INTEREST AND EXCHANGE RATES—WEEKLY SE- FLOW OF FUNDS ACCOUNTS. 1949-1978. 1979. 171 pp. $1.75 RIES OF CHARTS. Weekly. $15.00 per year or $.40 each in each; 10 or more to one address, $1.50 each. the United States, its possessions, Canada, and Mexico; INTRODUCTION TO FLOW OF FUNDS. 1980. 68 pp. $1.50 each; 10 or more of same issue to one address, $13.50 per year 10 or more to one address, $1.25 each. or $.35 each. Elsewhere, $20.00 per year or $.50 each. PUBLIC POLICY AND CAPITAL FORMATION. 1981. 326 pp. THE FEDERAL RESERVE ACT, as amended through April 20, $13.50 each. 1983. with an appendix containing provisions of certain NEW MONETARY CONTROL PROCEDURES: FEDERAL REother statutes affecting the Federal Reserve System. 576 SERVE STAFF STUDY. 1981. pp. $7.00. SEASONAL ADJUSTMENT OF THE MONETARY AGGREGATES: REGULATIONS OF THE BOARD OF GOVERNORS OF THE FED- REPORT OF THE COMMITTEE OF EXPERTS ON SEASONAL ERAL RESERVE SYSTEM. ADJUSTMENT TECHNIQUES. 1981. 55 pp. $2.75 each. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A13 FEDERAL RESERVE REGULATORY SERVICE. Looseleaf; updat- STAFF STUDIES.- Summaries Only Printed in the ed at least monthly. (Requests must be prepaid.) Bulletin Consumer and Community Affairs Handbook. $60.00 per Studies and papers on economic and financial subjects that year. are of general interest. Requests to obtain single copies of Monetary Policy and Reserve Requirements Handbook. the full text or to be added to the mailing list for the series $60.00 per year. may be sent to Publications Services. Securities Credit Transactions Handbook. $60.00 per year. Federal Reserve Regulatory Service. 3 vols. (Contains all three Handbooks plus substantial additional material.) $175.00 per year. Rates for subscribers outside the United States are as follows and include additional air mail costs: 114. MULTIBANK HOLDING COMPANIES: RECENT EVI- Federal Reserve Regulatory Service, $225.00 per year. DENCE ON COMPETITION AND PERFORMANCE IN Each Handbook, $75.00 per year. BANKING MARKETS, by Timothy J. Curry and John T. Rose. Jan. 1982. 9 pp. THE U.S. ECONOMY IN AN INTERDEPENDENT WORLD: A MULTICOUNTRY MODEL, May 1984. 590 pp. $14.50 each. 115. COSTS, SCALE ECONOMIES, COMPETITION, AND PROD- WELCOME TO THE FEDERAL RESERVE. UCT MIX IN THE U.S. PAYMENTS MECHANISM, by David B. Humphrey. Apr. 1982. 18 pp. PROCESSING BANK HOLDING COMPANY AND MERGER APPLI- CATIONS. 116. DIVISIA MONETARY AGGREGATES: COMPILATION, CREDIT CARDS IN THE U.S. ECONOMY: THEIR IMPACT ON DATA, AND HISTORICAL BEHAVIOR, by William A. Barnett and Paul A. Spindt. May 1982. 82 pp. Out of COSTS, PRICES, AND RETAIL SALES, July 1983. 114 pp. print. THE MONETARY AUTHORITY OF THE FEDERAL RESERVE, May 1984. (High School Level.) 117. THE COMMUNITY REINVESTMENT ACT AND CREDIT ALLOCATION, by Glenn Canner. June 1982. 8 pp. WRITING IN STYLE AT THE FEDERAL RESERVE. August 1984. 93 pp. $2.50 each. 118. INTEREST RATES AND TERMS ON CONSTRUCTION LOANS AT COMMERCIAL BANKS, by David F. Seiders. July 1982. 14 pp. 119. STRUCTURE-PERFORMANCE STUDIES IN BANKING: CONSUMER EDUCATION PAMPHLETS AN UPDATED SUMMARY AND EVALUATION, by Ste- Short pamphlets suitable for classroom use. Multiple copies phen A. Rhoades. Aug. 1982. 15 pp. available without charge. 120. FOREIGN SUBSIDIARIES OF U.S. BANKING ORGANIZA- TIONS, by James V. Houpt and Michael G. Martinson. Oct. 1982. 18 pp. Out of print. Alice in Debitland 121. REDLINING: RESEARCH AND FEDERAL LEGISLATIVE Consumer Handbook to Credit Protection Laws RESPONSE, by Glenn B. Canner. Oct. 1982. 20 pp. The Equal Credit Opportunity Act and . . . Age 122. BANK CAPITAL TRENDS AND FINANCING, by Samuel The Equal Credit Opportunity Act and . . . Credit Rights in H. Talley. Feb. 1983. 19 pp. Out of print. Housing 123. FINANCIAL TRANSACTIONS WITHIN BANK HOLDING The Equal Credit Opportunity Act and . . . Doctors, Law- COMPANIES, by John T. Rose and Samuel H. Talley. yers, Small Retailers, and Others Who May Provide Inci- May 1983. 11 pp. dental Credit 124. INTERNATIONAL BANKING FACILITIES AND THE EU- The Equal Credit Opportunity Act and . . . Women RODOLLAR MARKET, by Henry S. Terrell and Rodney Fair Credit Billing H. Mills. August 1983. 14 pp. Federal Reserve Glossary 125. SEASONAL ADJUSTMENT OF THE WEEKLY MONETARY Guide to Federal Reserve Regulations AGGREGATES: A MODEL-BASED APPROACH, by David How to File A Consumer Credit Complaint A. Pierce, Michael R. Grupe, and William P. Cleve- If You Borrow To Buy Stock land. August 1983. 23 pp. If You Use A Credit Card 126. DEFINITION AND MEASUREMENT OF EXCHANGE MAR- Instructional Materials of the Federal Reserve System KET INTERVENTION, by Donald B. Adams and Dale Series on the Structure of the Federal Reserve System W. Henderson. August 1983. 5 pp. The Board of Governors of the Federal Reserve System 127. U.S. EXPERIENCE WITH EXCHANGE MARKET INTER- The Federal Open Market Committee VENTION: JANUARY-MARCH 1975, by Margaret L. Federal Reserve Bank Board of Directors Greene. August 1984. 16 pp. Federal Reserve Banks 128. U.S. EXPERIENCE WITH EXCHANGE MARKET INTER- Monetary Control Act of 1980 VENTION: SEPTEMBER 1977-OcTOBER 1981, by Marga- Organization and Advisory Committees ret L. Greene. Truth in Leasing 129. U.S. EXPERIENCE WITH EXCHANGE MARKET INTER- U.S. Currency VENTION: OCTOBER I98O-OCTOBER 1981, by Margaret What Truth in Lending Means to You L. Greene. August 1984. 36 pp. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A14 130. EFFECTS OF EXCHANGE RATE VARIABILITY ON IN- REPRINTS OF BULLETIN ARTICLES TERNATIONAL TRADE AND OTHER ECONOMIC VARIA- Most of the articles reprinted do not exceed 12 pages. BLES: A REVIEW OF THE LITERATURE, by Victoria S. Farrell with Dean A. DeRosa and T. Ashby McCown. January 1984. 21 pp. Survey of Finance Companies. 1980. 5/81. 131. CALCULATIONS OF PROFITABILITY FOR U.S. DOLLAR- Bank Lending in Developing Countries. 9/81. DEUTSCHE MARK INTERVENTION, by Laurence R. The Commercial Paper Market since the Mid-Seventies. 6/82. Jacobson. October 1983. 8 pp. Applying the Theory of Probable Future Competition. 9/82. 132. TIME-SERIES STUDIES OF THE RELATIONSHIP BE- International Banking Facilities. 10/82. TWEEN EXCHANGE RATES AND INTERVENTION: A New Federal Reserve Measures of Capacity and Capacity REVIEW OF THE TECHNIQUES AND LITERATURE, by Utilization. 7/83. Kenneth Rogoff. October 1983. 15 pp. Foreign Experience with Targets for Money Growth. 10/83. 133. RELATIONSHIPS AMONG EXCHANGE RATES, INTER- Intervention in Foreign Exchange Markets: A Summary of VENTION, AND INTEREST RATES: AN EMPIRICAL IN- Ten Staff Studies. 11/83. VESTIGATION, by Bonnie E. Loopesko. November A Financial Perspective on Agriculture. 1/84. 1983. 20 pp. U.S. International Transactions in 1983. 4/84. 134. SMALL EMPIRICAL MODELS OF EXCHANGE MARKET Survey of Consumer Finances, 1983. 9/84. INTERVENTION: A REVIEW OF THE LITERATURE, by Bank Lending to Developing Countries. 10/84. Ralph W. Tryon. October 1983. 14 pp. *135. SMALL EMPIRICAL MODELS OF EXCHANGE MARKET INTERVENTION: APPLICATIONS TO CANADA, GERMA- NY, AND JAPAN, by Deborah J. Danker, Richard A. Haas, Dale W. Henderson, Steven A. Symansky, and Ralph W. Tryon. 136. THE EFFECTS OF FISCAL POLICY ON THE U.S. ECONO- MY, by Darrell Cohen and Peter B. Clark. January 1984. 16 pp. 137. THE IMPLICATIONS FOR BANK MERGER POLICY OF FINANCIAL DEREGULATION, INTERSTATE BANKING, AND FINANCIAL SUPERMARKETS, by Stephen A. Rhoades. February 1984. 8 pp. 138. ANTITRUST LAWS, JUSTICE DEPARTMENT GUIDE- LINES, AND THE LIMITS OF CONCENTRATION IN LO- CAL BANKING MARKETS, by James Burke. June 1984. 14 pp. 139. SOME IMPLICATIONS OF FINANCIAL INNOVATIONS IN THE UNITED STATES, by Thomas D. Simpson and Patrick M. Parkinson. August 1984. 20 pp. 140. GEOGRAPHIC MARKET DELINEATION: A REVIEW OF THE LITERATURE, by John D. Wolken. November 1984. 38 pp. 141. A COMPARISON OF DIRECT DEPOSIT AND CHECK PAY- MENT COSTS, by William Dudley. November 1984. 20 pp. *The availability of this study will be announced in a forthcoming BULLETIN. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A15 Federal Reserve Banks, Branches, and Offices FEDERAL RESERVE BANK, Chairman President Vice President branch, or facility Zip Deputy Chairman First Vice President in charge of branch BOSTON* 02106 Robert P. Henderson Frank E. Morris Thomas I. Atkins Robert W. Eisenmenger NEW YORK* 10045 John Brademas Anthony M. Solomon Gertrude G. Michelson Thomas M. Timlen Buffalo 14240 M. Jane Dickman John T. Keane PHILADELPHIA 19105 Robert M. Landis Edward G. Boehne Nevius M. Curtis Richard L. Smoot CLEVELAND* 44101 William H. Knoetl Karen N. Horn E. Mandell de Windt William H. Hendricks Cincinnati 45201 Robert E. Boni Charles A. Cerino Pittsburgh 15230 Milton G. Hulme, Jr. Harold J. Swart RICHMOND* 23219 William S. Lee Robert P. Black Leroy T. Canoles, Jr. Jimmie R. Monhollon Baltimore 21203 Robert L. Tate Robert D. McTeer, Jr. Charlotte 28230 Henry Ponder Albert D. Tinkelenberg Culpeper Communications John G. Stoides and Records Center 22701 ATLANTA 30301 John H. Weitnauer, Jr. Robert P. Forrestal Bradley Currey, Jr. Jack Guynn Birmingham 35283 Martha A. Mclnnis Fred R. Herr Jacksonville 32231 Jerome P. Keuper James D. Hawkins Miami 33152 Sue McCourt Cobb Patrick K. Barron Nashville 37203 C. Warren Neel Jeffrey J. Wells New Orleans 70161 Sharon A. Perlis Henry H. Bourgaux CHICAGO* 60690 Stanton R. Cook Silas Keehn Edward F. Brabec Daniel M. Doyle Detroit 48231 Russell G. Mawby Roby L. Sloan ST. LOUIS 63166 W.L. Hadley Griffin Theodore H. Roberts Mary P. Holt Joseph P. Garbarini Little Rock 72203 Sheffield Nelson John F. Breen Louisville 40232 Sister Eileen M. Egan James E. Conrad Memphis 38101 Patricia W. Shaw Paul I. Black, Jr. MINNEAPOLIS 55480 William G. Phillips E. Gerald Corrigan John B. Davis, Jr. Thomas E. Gainor Helena 59601 Ernest B. Corrick Robert F. McNellis KANSAS CITY 64198 Doris M. Drury Roger Guffey Irvine O. Hockaday, Henry R. Czerwinski Denver 80217 James E. Nielson Wayne W. Martin Oklahoma City 73125 Patience Latting William G. Evans Omaha 68102 Robert G. Lueder Robert D. Hamilton DALLAS 75222 Robert D. Rogers Robert H. Boykin John V. James William H. Wallace El Paso 79999 Mary Carmen Saucedo Joel L. Koonce, Jr. Houston 77252 Paul N. Howell J.Z. Rowe San Antonio 78295 Lawrence L. Crum Thomas H. Robertson SAN FRANCISCO 94120 Caroline L. Ahmanson John J. Balles Alan C. Furth Richard T. Griffith Los Angeles 90051 Bruce M. Schwaegler Richard C. Dunn Portland 97208 Paul E. Bragdon Angelo S. Carella Salt Lake City 84125 Wendell J. Ashton A. Grant Holman Seattle 98124 John W. Ellis Gerald R. Kelly * Additional offices of these Banks are located at Lewiston, Maine 04240; Windsor Locks, Connecticut 06096; Cranford, New Jersey 07016; Jericho, New York 11753; Utica at Oriskany, New York 13424; Columbus, Ohio 43216; Columbia, South Carolina 29210; Charleston, West Virginia 25311; Des Moines, Iowa 50306; Indianapolis, Indiana 46204; and Milwaukee, Wisconsin 53202. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A16 The Federal Reserve System Boundaries of Federal Reserve Districts and Their Branch Territories Helen J Minneeaappoolliiss^^ -r^ ' r \ / ' Chicag W CISCO Den, • H Kansas • - i ll )klahomOa/ A ^Memphis Neshv'll^r.—«- C r -—^ v k .ff/eVocA Birmmgka^A®lat^ ® Dallas® tipls'o 11 jacks Houston] San Antonio April 1984 HBMI HAWAII 0 LEGEND —— Boundaries of Federal Reserve Districts ® Federal Reserve Bank Cities Boundaries of Federal Reserve Branch • Federal Reserve Branch Cities Territories Federal Reserve Bank Facility Q Board of Governors of the Federal Reserve System Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis